<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1997
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 INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
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.
Kurt J. Berney, Esq. Christine M. Nakata, Esq.
WILSON SONSINI GOODRICH & ROSATI, GUNDERSON DETTMER STOUGH
Professional Corporation VILLENEUVE FRANKLIN & HACHIGIAN, LLP
650 Page Mill Road 155 Constitution Drive
Palo Alto, California 94304 Menlo Park, California 94025
(415) 493-9300 (415) 321-2400
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3,737,500
Common Stock, $0.001 par value. shares $37.9375 $141,791,407 $42,967
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes up to 487,500 shares of Common Stock ($18,494,531 aggregate
offering price) which may be purchased by the Underwriters to cover over-
allotments, if any.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee based on the average high and low trading prices for
the Common Stock as reported by the Nasdaq National Market on July 22,
1997.
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.
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- -------------------------------------------------------------------------------
<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
JULY 28, 1997
3,250,000 Shares
[LOGO OF SPLASH APPEARS HERE]
SPLASH
Common Stock
--------
Of the 3,250,000 shares of Common Stock offered hereby, 1,250,000 shares are
being sold by Splash Technology Holdings, Inc. ("Splash" or the "Company") and
2,000,000 shares are being sold by certain Selling Stockholders. The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company's Common
Stock is listed on the Nasdaq National Market under the symbol "SPLH." On July
24, 1997, the last reported sale price of the Common Stock as reported on the
Nasdaq National Market was $37.75 per share. See "Price Range of Common Stock."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
--------
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>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) STOCKHOLDERS(3)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)............... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) See "Underwriting" for information relating to indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 487,500 additional shares of
Common Stock solely to cover over-allotments, if any. To the extent that
the option is exercised, the Underwriters will offer the 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, total
Proceeds to Company and total Proceeds to Selling Stockholders 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
, 1997.
Alex. Brown & Sons
INCORPORATED
Montgomery Securities
Piper Jaffray Inc.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
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 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.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Commission. Reports, proxy statements and other
information filed by the Company can be inspected and copied (at prescribed
rates) at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as the New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048, and the Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
Quotations relating to the Company's Common Stock appear on the Nasdaq National
Market and such reports, proxy statements and other information concerning the
Company can also be inspected at the offices of the Nasdaq Stock Market, Inc.,
1735 K Street, N.W., Washington, D.C. 20006.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH REGULATION M. SEE "UNDERWRITING."
2
<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>
Additional Information.................................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Price Range of Common Stock............................................... 18
Splash Acquisition........................................................ 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Unaudited Pro Forma Combined Condensed Statements of Operations .......... 32
Business.................................................................. 34
Management................................................................ 49
Certain Transactions...................................................... 55
Principal and Selling Stockholders........................................ 56
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 60
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 62
Index to Consolidated Financial Statements................................ F-1
</TABLE>
3
<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 context
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., as well
as predecessor entities.
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 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.
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 publishing
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 transform color copiers into effective network-based system
solutions for a variety of color printer applications from commercial and short
run printing to desktop publishing and office color printing. 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 color server products to two of the leading providers of
color copiers, Xerox Corporation (including its affiliate in Europe, Rank
Xerox) ("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
4
<PAGE>
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.
On May 28, 1997, Splash acquired Quintar Holdings Corporation ("Quintar"), a
company that designs, manufactures and markets embedded controllers for desktop
color printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. Pursuant to the acquisition
agreement, Splash paid to Quintar shareholders an aggregate of approximately
$11.5 million in cash at closing, assumed Quintar's outstanding stock options
valued at $1.6 million and agreed to pay aggregate contingent earn-out payments
of up to $3.2 million, subject to achieving certain net revenue and operating
income targets. See "Risk Factors--Risks Associated with Quintar Acquisition;
General Risks Associated with Acquisitions," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Unaudited Pro
Forma Combined Condensed Statements of Operations," and "Business--Quintar
Acquisition."
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, Inc. ("SuperMac") from late 1992 to August
1994, and after the merger of SuperMac into Radius Inc. ("Radius") as the CSG
division of Radius from August 1994 until January 1996. In January 1996, the
Company was acquired by an investor group led by certain entities affiliated
with Summit Partners, L.P. and Sigma Partners, L.P. (the "Splash Acquisition").
The Company's executive offices are located at 555 Del Rey Avenue, Sunnyvale,
CA 94086, and its telephone number is (408) 328-6300. See "Splash Acquisition"
and "Certain Transactions."
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company.......... 1,250,000 shares
Common Stock offered by the Selling
Stockholders................................ 2,000,000 shares
Common Stock to be outstanding after the
offering (the "Offering")................... 13,358,561 shares(1)
Use of proceeds.............................. For working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol................ SPLH
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS SPLASH TECHNOLOGY HOLDINGS, INC.
--------------- ----------------------------------
NINE MONTHS
--------------------
YEAR ENDED
SEPTEMBER 30, YEAR ENDED ENDED ENDED
--------------- SEPTEMBER 30, JUNE 30, JUNE 30,
1994 1995 1996(2) 1996(3) 1997
------- ------- ------------- ----------- --------
(PRO FORMA) (PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............. $16,354 $30,472 $ 47,721 $ 31,334 $51,227
Cost of net revenue..... 12,068 20,723 27,808 19,882 24,864
Gross profit............ 4,286 9,749 19,913 11,452 26,363
Operating expenses:
Research and
development........... 1,999 3,295 4,125 3,122 3,972
Sales and marketing.... 562 2,076 2,444 1,494 4,126
General and
administrative........ 377 891 1,563 955 1,945
Amortization and write-
off of technology..... -- -- 22,803 22,729 11,039
Income (loss) from
operations............. 1,348 3,487 (11,022) (16,848) 5,281
Other income............ -- -- -- -- (600)
Interest (income)
expense, net........... -- -- 593 406 (379)
Income (loss) before
provision for income
taxes.................. 1,348 3,487 (11,615) (17,254) 6,260
Provision for (benefit
from) income taxes..... 99 1,395 (4,673) (6,929) 6,447
Net income (loss)....... $ 1,249 $ 2,092 $ (6,942) $(10,325) $ (187)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $10,010 $54,438
Total assets............................................. 40,051 84,479
Total liabilities........................................ 16,099 16,099
Total stockholders' equity............................... 23,952 68,380
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes an
aggregate of approximately 802,000 shares of Common Stock issuable on the
exercise of options outstanding as of June 30, 1997 at a weighted average
exercise price of $15.17 per share; approximately 21,000 shares of Common
Stock issuable on the exercise of options granted after June 30, 1997;
approximately 1,749,000 shares of Common Stock reserved for future grants
under the Company's 1996 Stock Option Plan as of the date of this
Prospectus; and approximately 125,000 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.
(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
eight months ended September 30, 1996. There were no material pro forma
adjustments.
(3) 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 material pro forma adjustments.
(4) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $37.75 per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses. See "Capitalization."
----------------
This Prospectus includes trademarks and trade names of the Company and other
corporations.
----------------
Except as otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option and (ii) gives effect to
the 3.5-for-1 split of the Common Stock that occurred in connection with the
Company's initial public offering in October 1996. See "Underwriting."
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, including without limitation
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such forward-
looking statements. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating the Company's business, prospective
investors should consider carefully the following factors in addition to the
other information set forth in this Prospectus.
Short Period of Independent Operations; No Assurance of Future
Profitability. Prior to the Splash 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.
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
financial, 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
makes 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 eight months of independent operations through
September 30, 1996 and for the first nine months of fiscal 1997, 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 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 lower, and are expected to continue to be lower, in the
first quarter of the Company's fiscal year than in the immediately preceding
fourth quarter. However, in the event that these customers change their
purchasing patterns in the future, this seasonality may change which could
affect the Company's quarterly operating results. 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
Professional Color Imaging ("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
7
<PAGE>
between January 1996 and April 1996 were generally recorded as net revenue
when Xerox sold these products to end users. All other product sales are
recorded as net revenue 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 a
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, 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
average selling price of the Company's products has decreased in the past
primarily as a result of competitive market pressures, the introduction of
lower priced products and, in certain cases, in response to new product
introductions by the Company's customers. The Company expects this trend to
continue. In this regard, the Company lowered pricing for new versions of its
products which were introduced in June 1997. See "Business--Products and
Technology--New Version Offerings." 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 or 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
continues to build corporate infrastructure 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
8
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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 that
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," "--Markets and Customers" and "--
Competition."
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, which resell the
Company's products on an OEM basis to their color copier end users. Sales to
Xerox in fiscal 1994, 1995 and 1996 accounted for approximately 40%, 41% and
43%, respectively, of the Company's net revenue, and sales to Fuji Xerox in
such periods accounted for approximately 60%, 59% and 57%, 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. ("Canon"), 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.
As a result of its reliance on Xerox and Fuji Xerox, the Company currently
has a relatively 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,
Electronics for Imaging, Inc. ("EFI"). The Company is the principal supplier of
color servers to Fuji Xerox. However, Fuji Xerox has increased the number of
color servers sold to end users that were manufactured by companies other than
Splash, including EFI. In addition, the Company is required to permit testing
by Xerox and Fuji Xerox of the beta release of the Company's products and
cannot begin shipping any version to Xerox or Fuji Xerox until such version
meets their respective quality standards. 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, delay or cease
purchases and sales of Splash color servers. The Company does not have
contracts with Xerox and Fuji Xerox with respect to its products and is
currently operating on a purchase order basis with these customers. There can
be no assurance that the Company will continue to receive orders from Xerox or
Fuji Xerox. Any decrease 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.
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Inventory Risks. Xerox and Fuji Xerox may from time to time carry 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
indicated to Splash that, to eliminate this inventory and to permit Xerox to
introduce the PCI Series products, Xerox substantially 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 in reduced sales of
the Company's PCI Series products. Moreover, Xerox had 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 was required to
purchase or already own a NuBus based Apple Power Macintosh. There can be no
assurance that the Company will receive sufficient information from Xerox, Fuji
Xerox or other customers over time or that the Company will in any event be
able to prevent the recurrence of a similar problem in the future. As a result,
Splash's customers, among other things, may be required to discount excess
inventory, may experience difficulty in selling excess inventory, may
experience reduced sales of new products or may become dissatisfied with their
relationship with Splash. Although customers have 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 significant customers. Reduced
sales of Splash products by Xerox or Fuji Xerox or any financial or other
accommodation made to Xerox or Fuji Xerox could have a material adverse effect
on the business, operating results and financial condition of Splash. 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 current
or future versions of PostScript, or any material defects in any versions of
PostScript software (including defects identified in connection with upgrades
of the Company's products), 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 license agreement between the
Company and 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 license agreement between Adobe and the Company is
terminated for any reason 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 Adobe PostScript
software that were originally developed or implemented by Splash. See
"Business--Competition" and "--Intellectual Property."
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Dependence on Apple Computer, Inc. Substantially all of the Company's
current products require the use of an Apple Power Macintosh computer as a
computer platform. Apple has experienced, and continues to experience,
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. In addition,
Apple has experienced significant changes in management. 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. In addition, the Company has experienced
sourcing difficulties related to Apple's delay in the release of new models.
There can be no assurance that the Company will not experience similar
difficulties in the future. Any extended delay between the discontinuation of
an existing model and the release of an enhanced model by Apple could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any efforts of the Company to migrate its products to a
different computer platform would require a 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
color server products. Because of this product concentration, a significant
decline in demand for 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; or
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.
There can be no assurance that any of the Company's 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."
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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. 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."
Risks Associated with Quintar Acquisition; General Risks Associated with
Acquisitions. On May 28, 1997, the Company acquired Quintar. In addition to the
risks generally associated with an acquisition (including those specified in
the following paragraph), there are specific risks associated with the Quintar
acquisition, including those specified below. First, Quintar's technology is
currently under development. There can be no assurance that Quintar's
technology can be successfully developed on a timely basis or at all, or that
products based on this technology will receive widespread market acceptance.
Moreover, there can be no assurance that the Company can successfully integrate
Quintar's technology. Second, Quintar has experienced net losses in the past,
including the last three years. There can be no assurance that Quintar will not
continue to incur net losses, which the Company would be required to fund.
Third, Quintar's target market, the low-end and mid-range market for color
servers, is characterized by intense competition and rapid change. Quintar's
principal competitor is EFI, the Company's most significant competitor. Fourth,
the Company is currently planning to distribute Quintar's low-end color
servers, if successfully developed, through the reseller channel. Neither
Quintar nor the Company has previously sold into the reseller channel or has a
sales and marketing force capable of servicing this channel. There can be no
assurance that the Company will be able to successfully sell products into this
distribution channel or that it will be able to develop the sales and marketing
force required to service this channel. See "Unaudited Pro Forma Combined
Condensed Statements of Operations" and "Business--Quintar Acquisition."
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The Company frequently evaluates potential acquisitions of complementary
businesses, products and technologies. As part of the Company's expansion
plans, the Company may acquire companies that have an installed base of
products not yet offered by the Company, have strategic distribution channels
or customer relationships, or otherwise present opportunities which management
believes may enhance the Company's competitive position. The success of any
acquisition could depend not only upon the ability of the Company to acquire
such businesses, products and technologies on a cost-effective basis, but also
upon the ability of the Company to integrate the acquired operations or
technologies effectively into its organization, to retain and motivate key
personnel of the acquired businesses, and to retain the significant customers
of the acquired businesses. Any acquisition, depending upon its size, could
result in the use of a significant portion of the Company's cash, or if such
acquisition is made utilizing the Company's securities, could result in
significant dilution to the Company's stockholders. Moreover, such transactions
involve the diversion of substantial management resources and evaluation of
such opportunities requires substantial diversion of engineering and
technological resources. In addition, such transactions could result in large
one-time write-offs or the creation of goodwill or other intangible assets that
would result in amortization expenses. For example, in connection with the
Quintar acquisition, Splash recorded an expense related to purchased in-process
research and development of approximately $11.0 million. To date, other than
the Splash Acquisition, the Company's only acquisition transaction has been the
Quintar acquisition. The failure to successfully evaluate, negotiate and effect
acquisition transactions could have a material adverse effect on the Company's
business, operating results and financial condition.
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 currently does not have, but is seeking to identify and recruit, a Vice
President, Sales and Marketing. Moreover, the Company expects to continue to
increase 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
Company's products, on a turnkey basis. MSL also performs in-warranty and out-
of-warranty repair of failed boards for the Company's 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.
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 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.
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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
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 has
experienced difficulties related to Apple's delay in the release of new
systems. There can be no assurance that the Company will not experience
similar difficulties in the future. 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 memory supply shortages. 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 has increased
its inventory of components for which the Company is dependent upon sole or
limited source suppliers. As a result, the Company is subject to an increasing
risk of inventory obsolescence, which could materially and adversely affect
its operating results and financial condition.
The market prices and availability of certain components, particularly
memory, other semiconductor components and 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; Reliance on Third Party Licenses. 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 and there can
be no assurances that the steps taken by the Company will prevent
misappropriation of its technology. 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, or any
patent, trademark or copyright obtained by the Company in the future, will not
be invalidated, circumvented or challenged, that the rights granted
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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. 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. Thus, effective intellectual property
protection may be unavailable or limited in certain foreign countries. 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 others will not
independently 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, 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, and requesting unspecified monetary damages and injunction
relief. The technology which is the subject of the patent claim was acquired in
the Splash Acquisition, and EFI could add Splash as a defendant to this suit at
any time. Although a portion of the purchase price in the Splash 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. The addition of Splash as a defendant in the EFI suit or any other
claims that the Company is infringing on proprietary rights of 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 liabilities 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 "Splash 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, capital expenditures and potential acquisitions. Although
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 flow from operations, existing cash balances and the Company's
bank line of credit, there can be no assurance that the Company will be able to
obtain any additional financing which may be required in the future on
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acceptable terms or at all. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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 57% of
net revenue in fiscal 1994, 1995 and 1996, respectively. In addition, although
substantially all sales to Xerox are accounted for as 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 generally
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. In addition, to the extent
that an increased portion the Company's sales are denominated in foreign
currencies, the Company could be exposed to currency exchange risks. 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" and "Business--Sales and Marketing."
Financial Difficulties of a Certain Stockholder; Potential Sales of Common
Stock. Radius, which will beneficially own approximately 6.5% (or 5.6% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
shares of the Common Stock immediately following the Offering, has faced, and
continues to face, significant financial 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. In addition, under certain circumstances, IBM Credit
Corporation may require Radius to use its best efforts to dispose of its
Splash Common Stock. See "Shares Eligible for Future Sale." If Radius were to
voluntarily or involuntarily enter bankruptcy, Radius might 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 or the requirements of Rule 144 promulgated under the
Securities Act and may have the ability to avoid its obligations under the
lock-up agreement with respect to Common Stock held by it. Sales 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. See "Principal and Selling Stockholders."
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
16
<PAGE>
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; Antitakeover
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 48.8% (or
47.1% if the Underwriters' over-allotment option is exercised in full) 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, the Board of Directors has 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 Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Common
Stock. 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. 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 change in
control of the Company. The Company's Certificate of Incorporation also
eliminates cumulative voting in the election of directors. See "Principal and
Selling Stockholders" and "Description of Capital Stock."
Benefit of Transaction to Existing Stockholders. The Offering will result in
the receipt of a significant amount of proceeds by the Company's existing
stockholders. Two million shares of Common Stock are being sold by certain
Selling Stockholders, including Radius and certain entities affiliated with
Summit Partners, L.P. The Company will not receive any of the proceeds from
the sale of such shares.
Stock Price Volatility. The trading price of the Common Stock has been
subject to significant fluctuation to date, and could be subject to wide
fluctuations in the future in response to quarterly variations in operating
results, announcements of new products by the Company or its competitors,
general conditions in the markets for the Company's products or the color
server industry, changes in earnings estimates by analysts, general economic
or stock market conditions or other events or factors. In addition, the public
stock markets have experienced extreme price and trading volume volatility in
recent months. This volatility has significantly affected the market prices of
securities of many companies, in particular technology companies, for reasons
frequently unrelated to operating performance. The broad market fluctuations
may adversely affect the market price of the Company's Common Stock.
Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock into the public market after this Offering could adversely affect
the prevailing market price of the Common Stock. In addition to the 3,250,000
shares of Common Stock offered hereby, an aggregate of approximately 4,300,000
shares of Common Stock currently outstanding, issuable on exercise of
outstanding options or issuable pursuant to the Company's 1996 Employee Stock
Purchase Plan will be eligible for sale on or prior to the date of this
Prospectus and approximately 6,800,000 additional shares of Common Stock
currently outstanding, issuable on exercise of outstanding options or issuable
pursuant to the Company's 1996 Employee Stock Purchase Plan will become
eligible for sale 90 days after the date of this Prospectus upon expiration of
certain lock-up agreements with the Company or the Underwriters, subject in
certain cases to certain volume and other resale restrictions under Rule 144.
See "Shares Eligible for Future Sale" and "--Financial Difficulties of a
Certain Stockholder; Potential Sales of Common Stock."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company hereby, after deducting underwriting
discounts and commissions and estimated offering expenses, will be
$44.4 million ($53.2 million if the Underwriters' over-allotment option is
exercised in full) (based upon an assumed public offering price of $37.75 per
share). The Company expects that such 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. The Company frequently evaluates potential
acquisitions of complementary businesses, products and technologies. However,
the Company does not have any agreements or understandings, and there are
currently no active negotiations, with respect to such transactions. Pending
such uses, the Company expects to invest the net proceeds in short-term,
interest-bearing securities. See "Risk Factors--Risks Associated with Quintar
Acquisition; General Risks Associated with Acquisitions."
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 prohibit the payment of cash dividends
without the lender's prior written consent.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "SPLH." The following table lists the high and low closing prices since
the Company's Common Stock began trading on the Nasdaq National Market on
October 9, 1996:
<TABLE>
<CAPTION>
FISCAL 1997: HIGH LOW
------------ ------- --------
<S> <C> <C>
Period beginning October 9, 1996 and ending December 31,
1996...................................................... $26 1/2 $10 3/8
Period beginning January 1, 1997 and ending March 31, 1997. $39 $21
Period beginning April 1, 1997 and ending June 30, 1997.... $36 1/8 $21
Period beginning July 1, 1997 and ending July 24, 1997..... $43 7/8 $33 1/8
</TABLE>
On July 24, 1997, the closing price of the Company's Common Stock as reported
by the Nasdaq National Market was $37.75 per share. As of June 30, 1997, the
Company's Common Stock was held by approximately 61 stockholders of record
(including nominees and brokers holding street accounts).
SPLASH ACQUISITION
On January 30, 1996, the Company was acquired by an investor group (the
"Acquisition Group") led by certain entities affiliated with Summit Partners,
L.P. and certain entities affiliated with Sigma Partners, L.P. The Splash
Acquisition was effected through the following series of transactions: (i) the
Acquisition Group formed and capitalized a new corporation, the Company, called
Splash Technology Holdings, Inc., a Delaware corporation; (ii) the Company
formed and capitalized a new wholly-owned subsidiary, Splash Merger Company,
Inc., a Delaware corporation; (iii) Radius created a new corporation, Splash
Technology, Inc., a Delaware corporation, into which Radius placed
substantially all of the assets and liabilities of its Color Server Group in
exchange for all of the capital stock of Splash Technology, Inc.; and (iv)
Splash Merger Company, Inc. was merged with and into Splash Technology, Inc.,
thereby effecting the Splash Acquisition. As a result of these transactions,
the surviving corporation in the merger was Splash Technology, Inc., a wholly-
owned subsidiary of the Company, which in turn was owned principally by the
Acquisition Group. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and "Principal and
Selling Stockholders."
18
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the actual
capitalization of the Company, and (ii) the capitalization of the Company as
adjusted to give effect to the sale by the Company of 1,250,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $37.75 per share (after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company).
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity
Preferred Stock: Authorized: 5,000,000 shares $ -- $ --
Common Stock, par value $0.001 per share: Authorized:
50,000,000 shares; issued and outstanding: 12,108,561 shares
actual and 13,358,561 shares as adjusted(1).................. 13 14
Additional paid-in capital.................................... 33,048 77,475
Accumulated deficit........................................... (9,109) (9,109)
------- -------
Total stockholders' equity.................................. 23,952 68,380
------- -------
Total capitalization...................................... $23,952 $68,380
======= =======
</TABLE>
- --------
(1) Excludes an aggregate of approximately 802,000 shares of Common Stock
issuable on the exercise of options outstanding as of June 30, 1997;
approximately 21,000 shares of Common Stock issuable on the exercise of
options granted after June 30, 1997; approximately 1,749,000 shares of
Common Stock reserved for future grants under the Company's 1996 Stock
Option Plan as of the date of this Prospectus; and approximately 125,000
remaining 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.
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, the five months ended June 30, 1996, the eight months ended September 30,
1996, and the selected consolidated balance sheet data as of September 30, 1995
and 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, 1997 and the selected consolidated balance sheet data as
of June 30, 1997 are derived from unaudited consolidated financial statements
included elsewhere in this Prospectus and 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 nine months ended June 30, 1997 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 Splash 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 Splash 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 Splash Acquisition.
The data set forth on the following page 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.
20
<PAGE>
<TABLE>
<CAPTION>
SPLASH SPLASH
TECHNOLOGY PREDECESSOR TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC. BUSINESS HOLDINGS, INC.
--------------------------- -------------- ----------- -----------------------
FISCAL YEAR
ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- -------------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net revenue............. $16,354 $30,472 $13,008 $ 34,713 $13,008 $ 18,326 $51,227
Cost of net revenue..... 12,068 20,723 8,427 19,381 8,427 11,455 24,864
------- ------- ------- -------- ------- -------- -------
Gross profit............ 4,286 9,749 4,581 15,332 4,581 6,871 26,363
------- ------- ------- -------- ------- -------- -------
Operating expenses:
Research and
development.......... 1,999 3,295 1,498 2,627 1,498 1,624 3,972
Sales and marketing... 562 2,076 688 1,756 688 806 4,126
General and
administrative....... 377 891 287 1,276 287 668 1,945
Amortization and
write-off of
technology........... -- -- -- 22,803 -- 22,729 11,039
------- ------- ------- -------- ------- -------- -------
Total operating
expenses........... 2,938 6,262 2,473 28,462 2,473 25,827 21,082
------- ------- ------- -------- ------- -------- -------
Income (loss) from
operations............. 1,348 3,487 2,108 (13,130) 2,108 (18,956) 5,281
Other income............ -- -- -- -- -- -- (600)
Interest (income)
expense, net........... -- -- 18 575 18 388 (379)
------- ------- ------- -------- ------- -------- -------
Income (loss) before
provision for income
taxes.................. 1,348 3,487 2,090 (13,705) 2,090 (19,344) 6,260
Provision for (benefit
from) income taxes..... 99 1,395 836 (5,509) 836 (7,765) 6,447
------- ------- ------- -------- ------- -------- -------
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $ (8,196) $ 1,254 $(11,579) $ (187)
======= ======= ======= ======== ======= ======== =======
Net income (loss) per
share(1)............... $ (0.93) $ (1.25) $ (0.02)
======== ======== =======
Shares used in computing
per share amounts(1)... 9,583 9,580 11,903
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................... $2,318 $ 8,771 $10,010
Total assets....................... 9,688 31,232 40,051
Long term debt..................... -- 8,600 --
Total liabilities.................. 6,985 20,322 16,099
Total stockholders' equity......... 2,703 10,910 23,952
</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. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
The Company operated as the 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 "Splash
Acquisition" and "Certain Transactions." References below to the results of
operations for the fiscal year ended September 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 eight months ended September 30,
1996, and 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 43%
of net revenue in 1994, 1995 and 1996, respectively. Sales to Fuji Xerox
accounted for approximately 60%, 59% and 57% of net revenue in fiscal 1994,
1995 and 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 were generally recorded as net revenue when Xerox sold
these products to end users. In addition, the Company evaluated the carrying
value of the Power Series product inventory and the related deferred revenue
on a quarterly basis and, as of June 30, 1997, net revenue relating to the
Power Series products was fully recognized. All other product sales are
recorded upon shipment to the OEM customer.
On May 28, 1997, the Company acquired Quintar, which designs, manufactures
and markets embedded controllers for desktop color printers, as well as
proprietary servers for high-speed,
22
<PAGE>
multifunction monochrome and color printers and copiers. For fiscal year 1997,
Splash does not expect Quintar to have a material impact on net revenue or net
income (excluding the related write-off of in-process research and
development). Pursuant to the acquisition agreement, Splash paid to Quintar
shareholders an aggregate of approximately $11.5 million in cash at closing,
assumed Quintar's outstanding stock options valued at $1.6 million and agreed
to pay aggregate contingent earn-out payments of up to $3.2 million, subject to
achieving certain net revenue and operating income targets. Splash wrote off
$11.0 million of the purchase price as in-process research and development in
the third quarter of fiscal 1997 in connection with the Quintar acquisition.
The pro forma effect of the Quintar acquisition, as if the acquisition had
occurred at the beginning of fiscal 1996, is described under "Unaudited Pro
Forma Combined Condensed Statements of Operations." See "Business--Quintar
Acquisition."
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 continues to build
corporate infrastructure and expand 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 eight months of independent operations through September 30,
1996 and the first nine months of fiscal 1997, 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.
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 continue 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.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data as
a percentage of net revenue for the periods indicated.
<TABLE>
<CAPTION>
PREDECESSOR SPLASH TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------------
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
------------- SEPTEMBER 30, -----------------
1994 1995 1996 1996 1997
---- ---- ------------- ----------- ----
(PRO FORMA) (PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................. 100% 100% 100% 100% 100%
Cost of net revenue......... 74 68 58 63 49
--- --- --- --- ---
Gross margin................ 26 32 42 37 51
--- --- --- --- ---
Operating expenses:
Research and development.. 12 11 9 10 8
Sales and marketing....... 3 7 5 5 8
General and
administrative........... 3 3 3 3 4
Amortization and write-off
of technology............ -- -- 48 73 21
--- --- --- --- ---
Total operating expenses.... 18 21 65 91 41
--- --- --- --- ---
Income (loss) from
operations................. 8 11 (23) (54) 10
Other income................ -- -- -- -- (1)
Interest (income) expense,
net........................ -- -- 1 1 (1)
--- --- --- --- ---
Income (loss) before
provision for income taxes. 8 11 (24) (55) 12
Provision for (benefit from)
income taxes............... -- 4 (10) (22) 12
--- --- --- --- ---
Net income (loss)........... 8% 7% (14)% (33)% 0%
=== === === === ===
</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 56% to $47.7
million in fiscal 1996 from fiscal 1995. The Company's net revenue increased
64% to $51.2 million in the nine months ended June 30, 1997 from $31.3 million
in the nine months ended June 30, 1996. These increases were primarily
attributable to higher unit sales of systems and color server kits due to
increasing market acceptance of the Company's PCI Series products and sales of
the new DC Series products (first introduced in September 1996). 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 adversely
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
24
<PAGE>
developed its initial PCI bus-based product line, the PCI Series, and
commenced shipment of such product line in May 1996. The sales of Power Series
products have not represented a material portion of net revenue since May 1996
(other than 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%, 59% and 57% of net revenue in fiscal 1994, 1995 and
1996, respectively. In addition, although substantially all sales to Xerox are
accounted for as 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 generally 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 were 26%, 32% and 42% in fiscal
1994, 1995 and 1996, respectively. Gross margins increased to 51% in the nine
months ended June 30, 1997 from 37% in the nine months ended June 30, 1996.
The increases in gross margin were primarily due to economies of scale derived
from higher sales volumes, and reductions in component costs achieved through
new product designs and favorable component pricing, partially offset by a
sales shift toward certain lower margin pre-configured server models. 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 average selling price of the Company's products has
decreased in the past primarily as a result of competitive market pressures,
the introduction of lower priced products and, in certain cases, in response
to new product introductions by the Company's customers. The Company expects
this trend to continue in the future. In this regard, the Company lowered
pricing for new versions of its products which were introduced in June 1997.
See "Business--Products and Technology--New Version Offerings." 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.
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 24% to $4.1
million fiscal 1996 from fiscal 1995. Research and development increased 29%
to $4.0 million for the nine months ended June 30, 1997 from $3.1 million in
the nine months ended June 30, 1996. As a percentage of net revenue, however,
research and development decreased to 11% in fiscal 1995 from 12% in fiscal
1994, and 9% of net revenue in fiscal 1996 from 11% in fiscal 1995 and
decreased from 10% in the nine months ended June 30, 1996 to 8% in the nine
months ended June 30, 1997. The increases in the absolute dollar amount of
these expenses in fiscal 1995 and 1996 and for the nine months ended June 30,
1997 were primarily attributable to increased staffing and associated support
required to enhance the Company's product line and to introduce the Company's
Power Series, PCI Series and DC Series product lines, respectively. In
addition, the increase in research and development expenses in the third
quarter of fiscal 1997 reflects the addition of Quintar's engineering
resources. Except for charges related to the Splash Acquisition, all research
and development costs to date have been expensed as incurred. In view of
current projects under development and contemplated, research
25
<PAGE>
and development expenses are expected to increase in absolute dollars and as a
percentage of net revenue in future periods. See "Business--Research and
Development," "Unaudited Pro Forma Combined Condensed Statements of
Operations" and "Business--Quintar Acquisition."
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 increased 14% to $2.4 million in
fiscal 1996 from fiscal 1995. Such expenses represented 7%, 3% and 5% of net
revenue for such respective periods. Sales and marketing expenses increased
173% to $4.1 million in the nine months ended June 30, 1997 from $1.5 million
in the nine months ended June 30, 1996, representing 8% and 5% of net revenue
for such respective periods. The increases in the absolute dollar amount of
these expenditures 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 organization), the implementation
of promotional programs designed to improve name and product recognition in
the end user community and the Company's increased participation in industry
trade shows. 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 and SuperMac 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 and increased 80% to $1.6 million in fiscal 1996 from fiscal 1995,
representing 3% of net revenue in all respective periods. General and
administrative expenses increased 90% to $1.9 million in the nine months ended
June 30, 1997 from $1.0 million in the nine months ended June 30, 1996,
representing 4% and 3% of net revenue from such respective periods. The
increase from fiscal 1994 to fiscal 1995 was primarily due to increased salary
and related costs due to increased headcount. The subsequent increases were
primarily related to the Company's efforts to enhance its corporate
infrastructure to replace services provided by Radius prior to the Splash
Acquisition, to support expansion of the Company's operations and, in
addition, in the nine months ended June 30, 1997, to cover costs related to
being a public company. 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, expands its administrative staff and incurs additional costs relating
to being a public company.
Acquisition-Related and Non-Operating Expenses. In fiscal 1996, the Company
recorded certain costs related to the Splash 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.
These in-process research and development projects were related to the
development of the Company's PCI Series product line. Substantially all the
research and development costs incurred from the Splash Acquisition through
May 1996 (the time of the PCI Series product launch) were for the development
of the PCI Series products. Through September 30, 1996, the Company had
incurred interest costs pursuant to the subordinated notes and line of credit
established in connection with the Splash Acquisition, offset in part by
interest earned on short-term investments.
In the nine months ended June 30, 1997, the Company acquired Quintar and
wrote-off approximately $11.0 million of in-process research and development
in connection with such acquisition. These in-process research and development
activities which, related to projects for the development of Quintar's
embedded controllers and low-end color servers, have no alternative future
uses and have not reached technological feasibility. See "Unaudited Pro Forma
Combined Condensed Statements of Operations" and "Business--Quintar
Acquisition."
Other Income. The Splash Acquisition was recorded under the purchase method
of accounting. Concurrent with the Splash Acquisition, the Company issued
subordinated promissory notes with an aggregate face value of $8.0 million.
The valuation of the subordinated debt by an independent third
26
<PAGE>
party resulted in an assigned value of $8.6 million. In October 1996, the
Company utilized $8.0 million of the proceeds of its initial public offering
to repay the subordinated promissory notes payable and recorded $600,000 of
other income to eliminate the face value of the subordinated debt from the
consolidated balance sheet. See "Certain Transactions."
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 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 Splash Acquisition (a taxable event), 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. In
connection with the Quintar acquisition (a non-taxable event for the Company),
the Company recorded $3.3 million of deferred tax assets relating to Quintar's
net operating loss carryforwards. These net operating loss carryforwards are
subject to certain limitations. The Company has not reduced the deferred tax
assets by a valuation allowance as it is more likely than not that all of the
deferred tax assets will be realized through future taxable income. The
Company's effective tax rate (excluding the purchase accounting adjustments
relating to the Quintar acquisition) was 37% for the nine months ended June
30, 1997. See Note 10 of Notes to Consolidated Financial Statements.
27
<PAGE>
QUARTERLY RESULTS
The following tables set forth consolidated statements of operations data for
the eleven quarters in the period ended June 30, 1997, 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. The
following tables set forth consolidated statements of operations data.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........ $4,559 $6,346 $9,438 $10,129 $7,206 $ 10,791 $13,337 $16,387 $15,372 $16,053 $19,802
Cost of net
revenue........... 3,042 4,171 6,524 6,986 4,847 6,871 8,164 7,926 7,511 7,683 9,671
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Gross profit...... 1,517 2,175 2,914 3,143 2,359 3,920 5,173 8,461 7,861 8,370 10,131
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Operating expenses
Research and
development...... 372 825 837 1,261 1,256 884 982 1,003 1,140 1,145 1,687
Sales and
marketing........ 281 504 720 571 568 438 488 950 953 1,478 1,694
General and
administrative... 222 223 222 224 236 188 531 608 740 651 554
Amortization and
write-off of
technology....... -- -- -- -- -- 21,027 1,702 74 -- -- 11,039
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Total operating
expenses....... 875 1,552 1,779 2,056 2,060 22,537 3,703 2,635 2,833 3,274 14,974
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss) from
operations........ 642 623 1,135 1,087 299 (18,617) 1,470 5,826 5,028 5,096 (4,843)
Other income....... -- -- -- -- -- -- -- -- (600) -- --
Interest (income)
expense, net...... -- -- -- -- -- 197 209 187 (83) (150) (145)
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes............. 642 623 1,135 1,087 299 (18,814) 1,261 5,639 5,711 5,246 (4,698)
Provision for
(benefit from)
income taxes...... 257 249 454 435 120 (7,550) 501 2,256 2,170 1,993 2,283
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Net income
(loss)........... $ 385 $ 374 $ 681 $ 652 $ 179 $(11,264) $ 760 $3,383 $ 3,541 $ 3,253 $(6,981)
====== ====== ====== ======= ====== ======== ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of net
revenue........... 67 66 69 69 67 64 61 48 49 48 49
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Gross profit...... 33 34 31 31 33 36 39 52 51 52 51
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Operating expenses
Research and
development...... 8 13 9 12 18 8 7 6 7 7 8
Sales and
marketing........ 6 8 8 6 8 4 4 6 6 9 9
General and
administrative... 5 3 2 2 3 2 4 4 5 4 3
Amortization and
write-off of
technology....... -- -- -- -- -- 195 13 -- -- -- 56
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Total operating
expenses....... 19 24 19 20 29 209 28 16 18 20 76
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss) from
operations........ 14 10 12 11 4 (173) 11 36 33 32 (25)
Other income....... -- -- -- -- -- -- -- -- (4) -- --
Interest (income)
expense, net...... -- -- -- -- -- 2 1 1 -- -- (1)
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Income (loss)
before income
taxes............. 14 10 12 11 4 (175) 10 35 37 32 (24)
Provision for
(benefit from)
income taxes...... 6 4 5 5 2 (71) 4 14 14 12 11
------ ------ ------ ------- ------ -------- ------- ------- ------- ------- -------
Net income
(loss)........... 8% 6% 7% 6% 2% (104)% 6% 21% 23% 20% (35)%
====== ====== ====== ======= ====== ======== ======= ======= ======= ======= =======
</TABLE>
28
<PAGE>
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 sequential 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 systems. The subsequent increases in gross
margins for each of the quarters in fiscal 1996 and the first two quarters of
fiscal 1997 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. Gross margins decreased slightly in
the third quarter of fiscal 1997 due to the reduction in pricing for new
versions of the Company's PCI Series products introduced in June 1997. 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 $814,000 in fiscal 1994, 1995 and 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 the elimination of overhead charges by
Radius following the Splash Acquisition. There can be no assurance that the
Company will continue to receive third party funding of any of its future
development projects. The increase in research and development expenses in the
third quarter of fiscal 1997 reflects the addition of Quintar's engineering
resources and the Company's continued hiring efforts. 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, and increased in
the fourth quarter of fiscal 1996 and the first three quarters of fiscal 1997
due to the 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 organization), the implementation of promotional programs
designed to improve name and product recognition in the end user community and
the Company's increased participation in industry trade shows. 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 increase in general and administrative
expenses for the first and second quarters of fiscal 1997 are primarily due to
the initial additional costs of being a public company, including the
production of the Company's first annual report and the preparation and filing
of the Company's public disclosure documents.
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 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
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. However,
in the event that these customers change their purchasing patterns in the
future, this seasonality may change which could affect the Company's quarterly
operating results. In addition, any increases in inventories
29
<PAGE>
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. See "Risk Factors--Fluctuations in Operating Results;
Seasonal Purchasing Patterns."
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.
LIQUIDITY AND CAPITAL RESOURCES
From fiscal 1994 until the Splash Acquisition in January 1996, the Company
satisfied its liquidity requirements through cash flow generated from
operations. The Company had limited cash balances following the Splash
Acquisition and satisfied its cash needs through a $4.0 million revolving line
of credit and cash flow from operations.
As of June 30, 1997, the Company had $6.6 million of cash and cash
equivalents and had no borrowings under its $5.0 million bank line of credit.
Borrowings under the line of credit bear interest at the prime rate and are
available under the line of credit based on a percentage of eligible accounts
receivable. The line of credit expires on January 1, 1998.
For fiscal 1996, the Company generated $6.7 million in cash from operations,
primarily due to increases in accounts payable, other accrued liabilities,
deferred revenue and income taxes payable and decreases in accounts receivable
partially offset by a decrease in royalties payable. The Company's operating
activities provided $8.6 million in cash in the nine months ended June 30,
1997, primarily due to increases in accounts payable, and other accrued
liabilities, offset in part by an increase in accounts receivable and a
decrease in deferred revenue.
The accounts receivable balance increased to $6.6 million at September 30,
1996 as the Company increased net revenue from fiscal 1995, partially offset by
improved cash collection procedures which were implemented after the Splash
Acquisition. The accounts receivable balance was $11.7 million at June 30, 1997
due primarily to increased quarter-end shipment activity relating to the launch
of the Company's new products in June 1997. Trade accounts payable, other
accrued liabilities and royalties payable increased from $5.6 million at
September 30, 1995 to $5.8 million at September 30, 1996.
Investing activities used $24.0 million in cash in fiscal 1996 and used $11.8
million in cash in the nine months ended June 30, 1997. These amounts resulted
primarily from $23.4 million in cash used in connection with the Splash
Acquisition and $11.2 million in cash used in the Quintar acquisition,
respectively.
30
<PAGE>
Financing activities provided $23.6 million in cash in fiscal 1996,
consisting primarily of financing related to the Splash Acquisition, and
provided $3.6 million in cash in the nine months ended June 30, 1997.
Financing activities in fiscal 1997 included the Company's initial public
offering from which the Company received net proceeds of $26.6 million. From
these net proceeds, the Company redeemed all of its Series A Preferred Stock
for $15.4 million and repaid outstanding promissory notes payable to
stockholders of $8.0 million. The remaining net proceeds from the Company's
initial public offering are being used for working capital and general
corporate purposes. The Company has no material financing commitments other
than the obligations under operating leases. See Note 6 to Notes to
Consolidated Financial Statements.
The Company believes that the proceeds of the Offering received by the
Company, cash flow from operations, existing cash balances and the Company's
bank line of credit will be sufficient to satisfy the Company's cash
requirements for at least the next twelve months. See "Use of Proceeds,"
"Capitalization," and "Certain Transactions."
31
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The Company consummated the Quintar acquisition on May 28, 1997. The
accompanying unaudited pro forma combined condensed statement of operations for
the year ended September 30, 1996 includes the historical consolidated
statement of operations of the Company's predecessor business for the four
months ended January 31, 1996, the historical consolidated statement of
operations of the Company for the eight months ended September 30, 1996 and the
historical consolidated statements of operations of Quintar for the year ended
December 31, 1996, as if the acquisition had occurred on October 1, 1995. The
accompanying unaudited pro forma combined condensed statements of operations
for the nine months ended June 30, 1997 includes the historical consolidated
statements of operations of the Company and of Quintar for the nine months
ended June 30, 1997, as if the acquisition had occurred on October 1, 1995. The
unaudited pro forma combined condensed statements of operations give effect to
the Quintar acquisition using the purchase method of accounting, and are based
upon allocation of the Quintar purchase price, and includes the adjustments
described in the notes set forth below.
The unaudited pro forma combined condensed statements of operations do not
purport to represent what the Company's results of operations would have been
had the Quintar acquisition occurred on the date indicated or for any future
period or date. The pro forma adjustments give effect to available information
and assumptions that the Company believes are reasonable. The unaudited pro
forma combined condensed statements of operations should be read in conjunction
with the Company's historical consolidated financial statements and the
historical consolidated financial statements of Quintar and the notes thereto
included elsewhere herein.
32
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUINTAR
PREDECESSOR SPLASH TECHNOLOGY HOLDINGS
BUSINESS HOLDINGS, INC. CORPORATION(1)
----------- --------------------------- --------------
FOUR MONTHS EIGHT MONTHS PRO FORMA PRO FORMA ADJUSTMENTS
ENDED ENDED YEAR ENDED YEAR ENDED --------------------------
JANUARY 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 AMOUNT COMBINED
----------- ------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $13,008 $ 34,713 $ 47,721 $ 5,383 $ 53,104
Cost of revenue......... (8,427) (19,381) (27,808) (3,895) (31,703)
------- -------- -------- ------- -----------
Gross profit........... 4,581 15,332 19,913 1,488 21,401
Research and
development............ (1,498) (2,627) (4,125) (1,293) (5,418)
Selling, general and
administrative
expenses............... (975) (3,032) (4,007) (1,714) (5,721)
Amortization and write-
off of technology...... -- (22,803) (22,803) -- (22,803)
------- -------- -------- ------- -----------
Income (loss) from
operations............. 2,108 (13,130) (11,022) (1,519) (12,541)
Interest income
(expense), net......... (18) (575) (593) 17 $ (690)(2) (1,266)
------- -------- -------- ------- ---------- -----------
Income (loss) before
provision for income
taxes................. 2,090 (13,705) (11,615) (1,502) (690) (13,807)
Benefit from (provision
for) income taxes...... (836) 5,509 4,673 -- 604 (3) 5,277
------- -------- -------- ------- ---------- -----------
Net income (loss)....... $ 1,254 $ (8,196) $ (6,942) $(1,502) $ (86) $ (8,530)
======= ======== ======== ======= ========== ===========
Net income (loss) per $ (0.89)
share.................. ===========
Shares used in computing 9,583
per share amount....... ===========
</TABLE>
NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SPLASH PRO FORMA
TECHNOLOGY QUINTAR ADJUSTMENTS
HOLDINGS, HOLDINGS --------------------
INC. CORPORATION(1) AMOUNT COMBINED
---------- -------------- ------- --------
<S> <C> <C> <C> <C>
Net revenue.................... $ 51,227 $ 2,595 $ 53,822
Cost of revenue................ (24,864) (1,819) (26,683)
-------- ------- --------
Gross profit.................. 26,363 776 27,139
Research and development....... (3,972) (1,329) (5,301)
Selling, general and
administrative................ (6,071) (895) (6,966)
Write-off of in-process
technology.................... (11,039) -- $11,039(4) --
-------- ------- ------- --------
Income (loss) from operations.. 5,281 (1,448) 11,039 14,872
Interest and other income
(expense), net................ 979 (539) (346)(2) 94
-------- ------- ------- --------
Income (loss) before provision
for income taxes............. 6,260 (1,987) 10,693 14,966
Benefit from (provision for)
income taxes.................. (6,447) -- 869(3) (5,578)
-------- ------- ------- --------
Net income (loss)............. $ (187) $(1,987) $11,562 $ 9,388
======== ======= ======= ========
Net income (loss) per share.... $ (0.02) $ 0.77
======== ========
Shares used in computing per 11,903 12,251
share amounts................. ======== ========
</TABLE>
- -------
(1)The purchase price of Quintar Holdings Corporation is as follows:
<TABLE>
<S> <C>
Cash consideration............................................. $11,519
Value of stock options granted................................. 1,588
Other acquisition costs........................................ 425
-------
$13,532
=======
Net liabilities................................................ $ (807)
Purchased in-process technology................................ 11,039
Deferred tax asset............................................. 3,300
-------
$13,532
=======
</TABLE>
(2) To record effect on interest income as a result of cash used to purchase
Quintar.
(3) To record tax benefit of Quintar Holdings Corporation loss.
(4) The Company recorded the expense related to purchased in-process technology
of approximately $11.0 million upon the consummation of the Quintar
acquisition. This amount has been eliminated from the pro forma statements
of operations due to its non-recurring nature.
33
<PAGE>
BUSINESS
This Business section and other parts of this Prospectus contain forward-
looking statements that involve risks and uncertainties. All forward-looking
statements included in this document are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in "Risk Factors" and
elsewhere in this Prospectus.
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.
On May 28, 1997, Splash consummated its acquisition of Quintar, which
designs, manufactures and markets embedded controllers for desktop color
printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. See "Risk Factors--Risks Associated
with Quintar Acquisition; General Risks Associated with Acquisitions,"
"Unaudited Pro Forma Combined Condensed Statements of Operations" and "--
Quintar Acquisition."
INDUSTRY BACKGROUND
The use of color in communications media is becoming ubiquitous. Just as
photography, television, computer monitors and 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. The images
to be printed are typically designed and composed by an end user's in-house
staff or a design house or advertising agency. The images are passed to a
service bureau for prepress preparation, which involves input by a high-
quality scanner (or, more recently, acceptance in electronic file format from
the designer) and other preparation 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 the proof
is approved by the end user, the commercial printer utilizes the CMYK films to
prepare printing plates and then prints the job on a large, expensive
commercial press. 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.
34
<PAGE>
The following diagram depicts the steps involved in a typical commercial
printing process, showing the repetition of certain of the key steps prior to
the final print run.
[DIAGRAM APPEARS HERE]
The broad use of high quality desktop color displays, desktop publishing
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
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.
The use of color printing has historically been limited because 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.
The complexities inherent in color reproduction and printing have created a
need for advanced, 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 a broader printing market. However, the different
segments of the broader market demand a variety of different capabilities. In
the commercial printer segment, printing companies are seeking means to broaden
their market through high quality solutions that can be offered at lower cost;
in design houses and service bureaus, color professionals require both superior
color quality and tools that enhance productivity in color production workflow;
and in the office market, ease of use is as critical as high quality results,
to make technology accessible to a broad range of end users with limited
special expertise in color. Accordingly, as color servers become more prevalent
and broadly used, there is a demand for solutions that offer more powerful
features and more accurate color capabilities with greater ease of use.
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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
from commercial and short-run printing to desktop publishing and 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.
The diagram below is an example of how Splash color servers and connected
digital color copiers can eliminate certain costly and time consuming steps in
the printing workflow.
[DIAGRAM APPEARS HERE]
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 support popular network protocols. 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.
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The diagram below reflects the connection between a Splash color server and
a color copier and a network containing Windows PCs, Mac OS computers and UNIX
workstations via the use of Novell, AppleTalk and TCP/IP network protocols.
[PICTURE OF COMPUTERS APPEARS HERE]
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.
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Expand Sales and Marketing Organizations. Splash intends to continue 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 architectures of the SM ICS and
Splash products are substantially identical other than localization differences
for user interface and documentation.
Splash's primary product lines are the Splash Professional Color Imaging
("PCI") Series, first introduced in May 1996, and the Splash for DocuColor ("DC
Series"), first introduced in September 1996. These products generally use
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 Power Series products in limited
quantities, primarily board level kits and spare parts. The retail prices to
end users of Splash products vary by geographical region, model and
configuration. For example, depending on the model and configuration, the
retail prices to end users of PCI Series products currently range from $13,000
to $28,000 in the United States and (Yen)1.6 million to (Yen)3.19 million in
Japan. The retail price to end users of the one DC Series product marketed in
the United States is $50,000 and the retail prices to end users of the three DC
Series products marketed in Japan range from (Yen)4.15 million to (Yen)6.8
million. See "Risk Factors--Dependence on Xerox and Fuji Xerox" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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The Company's products vary primarily by available frame buffer 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>
FRAME
PRODUCT COMPUTER HARDWARE DISPLAY BUFFER
------- ----------------- ------- ------
<S> <C> <C> <C>
PCI Series Servers
Splash PCI 1280 Server PowerPC 604/180 MHz 149 color 128 MB RAM
Splash PCI 640 Server PowerPC 604/180 MHz 149 color 64 MB RAM
Splash PCI 320 Server PowerPC 604/180 MHz 149 color 32 MB RAM
Splash PCI-E Server PowerPC 604/132 MHz 149 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
DC Series Servers
Splash DC 256 PowerPC 604/200 MHz 149 color 256 MB RAM
Splash DC 128 PowerPC 604/200 MHz 149 color 128 MB RAM
Splash DC 64 PowerPC 604/200 MHz 149 color 64 MB RAM
Power Series Servers
Splash P105 Pro PowerPC 601/100 MHz NuBus 179 color 128 MB RAM
Splash P85 PowerPC 601/80 MHz NuBus 179 color 72 MB RAM
Splash P70 PowerPC 601/66 MHz NuBus 149 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 include: Apple Power Macintosh 7200,
7300, 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 its customers with performance increases by
taking advantage of improvements in industry standard computers.
The Company's products include a Splash-designed copier interface board
integrated with a standard computer system and Splash software written for the
server and its networked clients. The Splash 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.
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 variety of
off-the-shelf peripherals and third-party software applications.
Technical innovations first introduced to market by Splash include techniques
that enhance color quality, such as accurate printing of RGB monitor blues
(avoiding the common blue to purple shift upon
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printing); techniques that enhance print quality, such as traps and overprints
(as described below); and features that enhance productivity workflow, such as
advanced color calibration capabilities and the ability to interpret and print
multiple RGB formats or mixed RGB and CMYK formats from the same electronic
file.
The following describes these and other key features offered 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 overprinting (overlapping mixing of colors) and
Desktop 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 money by 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 utilizes a unique randomized calibration target and 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 that 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 that 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 some but often 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
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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.
New Version Offerings
In June 1997, the Company released new versions of its PCI Series and DC
Series products which offer the following additional features as well as a
variety of other features.
Spot Color Matching. Spot Color Matching allows the printing of spot colors
(within the color gamut of the copier) without converting them to process
color and without interrupting the user's existing workflow.
Progressives. The Progressives feature enables the printing of any of the
four CMYK plates, in any combination, and in the resulting color of that
combination. Proofing four-color work on a two-color press is one of the many
uses of Progressives.
Further Enhanced Calibration (ColorCal). The ColorCal feature enhances the
ability to store up to 10 custom color profiles. In addition, ColorCal works
with Fuji Xerox DocuColor 40 copiers and Xerox DocuColor 4040 copiers through
the use of desktop scanners.
World Wide Web/Internet/Intranet Printing. The Web Server option allows
users to print or manage a print job from any workstation on an intranet or
the Internet.
SALES AND MARKETING
Splash sells its 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 the Asia Pacific region.
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.
Xerox and Fuji Xerox sell Splash products as well as competing color
servers. The Company does not have contracts with Xerox and Fuji Xerox with
respect to its PCI Series and DC Series products and is currently operating on
a purchase order basis with these customers. There can be no assurance that
the Company will continue to receive orders from Xerox or Fuji Xerox. Any
decrease 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."
As of June 30, 1997, the Company employed 30 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, 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 continue to expand its sales and marketing efforts.
The Company plans to recruit and hire
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additional field personnel in Europe, the United States, the Asia Pacific
region and Latin America, 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 photo labs, graphic arts and professional
color publishing, print-for-pay and office color printing. The Company to date
has focused principally on the prepress and graphic arts markets, where end
users who are discerning about color and print quality require high quality
innovative color server solutions. 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. Below is a diagram
showing the five markets in which Splash products are sold.
[DIAGRAM APPEARS HERE]
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, 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 and Photo Labs. 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, as well as photo labs which provide high-end
photographic services. 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
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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 the Digital Cafe, a wholly-owned subsidiary of Boston
Photo Imaging and 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, Adobe PageMaker, Corel Corp Corel,
Corel Ventura Publisher, MetaTools Live Picture and Macromedia Freehand. 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 and desktop publishing. 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. End users of Splash products in this segment include 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 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 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
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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 experienced and continues to experience 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. The Company has also experienced difficulties related to
Apple's delay in the release of new models. If Apple were to continue to
experience such delays or discontinue production of the Power Macintosh models
with which Splash products operate or were unable to provide or otherwise
ceased 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 increased 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--
Dependence on Component Availability and Cost" and "--Dependence on Apple
Computer, Inc."
The market prices and availability of certain components, particularly memory
and other semiconductor components and 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 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, 1997, the Company had 48 employees
engaged in research and development. Research and development expenses in
fiscal 1994, 1995 and 1996 and the first nine months of fiscal 1997 were $2.0
million, $3.3 million, $4.1 million and $4.0 million, respectively.
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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
products under development, effective manufacturing processes and the success
of promotional efforts.
There can be no assurance that 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 "Risk Factors--Rapid Technological Changes; Dependence
on New Product Introductions."
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 computers
increase, 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. 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
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 that
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
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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, 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 and there
can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. 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, or any
patent, trademark or copyright obtained by the Company in the future, 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. 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. Thus, effective intellectual property protection may
be unavailable or limited in certain foreign countries. 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 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, 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 and requesting
46
<PAGE>
unspecified monetary damages and injunctive relief. The technology which is
the subject of the patent claim was acquired in the Splash Acquisition, and
EFI could add Splash as a defendant to the suit at any time. Although a
portion of the purchase price in the Splash 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. The addition of
Splash as a defendant in this suit or any other third party claims that the
Company is infringing on proprietary rights of 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 liabilities 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; Reliance
on Third Party Licenses" and "--Dependence on Adobe Systems Incorporated."
EMPLOYEES
As of June 30, 1997, the Company employed 100 people, including 48 in
research and development, 7 in operations, 30 in sales and marketing, and 15
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 necessary for the development of its
business. See "Risk Factors--Dependence on Key Personnel."
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
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<PAGE>
to extend the lease for a period of up to five additional years. The Company
also leases three office suites in Paris, France, primarily for sales and
marketing efforts in Europe. The initial lease term on these offices expires
in April 1998, and the lease is automatically renewed every three months after
April 1998 unless one of the parties to the lease gives prior notice of
termination. The Company also leases office space in Torrance, California.
This lease expires in August 1998. The Company believes that its existing
facilities are adequate to meet its needs for the near term and is evaluating
its future facility needs.
QUINTAR ACQUISITION
On May 28, 1997, the Company acquired Quintar. Pursuant to the acquisition
agreement, Splash paid to Quintar shareholders approximately $11.5 million in
cash at closing, assumed Quintar's outstanding stock options valued at $1.6
million and agreed to provide for aggregate contingent earn-out payments of up
to $3.2 million, subject to achieving certain net revenue and operating income
targets. The contingent payments will be payable, if at all, as of
December 31, 1997 and June 30, 1998.
Quintar designs, manufacturers and markets embedded controllers for desktop
color printers, as well as proprietary servers for high-speed, multifunction
monochrome and color printers and copiers. The Quintar acquisition is expected
to enable the Company to better address the market for certain low-end and
mid-range embedded controllers and color servers. In addition, the Quintar
acquisition increased the Company's engineering resources. Quintar is
currently developing products which are expected to be sold through the
reseller channel. The Company may also seek to offer additional products
through this channel in the future. In recent years, Quintar has incurred net
losses. See "Unaudited Pro Forma Combined Condensed Statements of Operations."
In addition to the risks generally associated with an acquisition (including
those specified in the paragraph below), there are specific risks associated
with the Quintar acquisition, including those specified below. First,
Quintar's technology is currently under development. There can be no assurance
that Quintar's technology can be successfully developed on a timely basis or
at all, or that products based on this technology will receive widespread
market acceptance. Moreover, there can be no assurance that the Company can
successfully integrate Quintar's technology. Second, Quintar has experienced
net losses in the past, including the last three years. There can be no
assurance that Quintar will not continue to incur net losses, which the
Company would be required to fund. Third, Quintar's target market, the low-end
and mid-range market for color servers, is characterized by intense
competition and rapid change. Quintar's principal competitor is EFI, the
Company's most significant competitor. Fourth, the Company is currently
planning to distribute Quintar's low-end color servers, if successfully
developed, through the reseller channel. Neither Quintar nor the Company has
previously sold into the reseller channel or has a sales and marketing force
capable of servicing this channel. There can be no assurance that the Company
will be able to successfully sell products into this distribution channel or
that it will be able to develop the sales and marketing force required to
service this channel.
The Company frequently evaluates potential acquisitions of complementary
businesses, products and technologies. Any acquisition would subject the
Company to numerous risks, including risks associated with integration into
the Company of new employees and technology. In addition, such acquisitions
could result in large one-time writeoffs or the creation of goodwill or other
intangible assets that would result in amortization expenses. For example, in
connection with the Quintar acquisition, Splash recorded an expense related to
purchased in-process research and development of approximately $11.0 million.
See "Risk Factors--Risks Associated with Quintar Acquisition; General Risks
Associated with Acquisitions."
48
<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,
1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kevin K. Macgillivray***........ 38 President, Chief Executive Officer and
Director
Joan P. Platt................... 43 Chief Financial Officer and
Vice President, Finance and Administration
Timothy D. Kleffman............. 39 Vice President, Business Development and
Product Planning
Christine A. Beheshti........... 35 Vice President, Software Engineering
Gregory M. Avis(1)***........... 38 Director
Charles W. Berger(1)**.......... 43 Director
Peter Y. Chung(2)*.............. 29 Director
Lawrence G. Finch(2)**.......... 63 Director
Richard A. Falk................. 38 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, Chief Executive Officer and a
director of the Company since January 1996. From April 1995 until the Splash
Acquisition, Mr. Macgillivray was Vice President and General Manager of the
Publishing Division of Radius Inc., a manufacturer of computer video cards and
display products. From May 1993 to April 1995, Mr. Macgillivray held other
managerial positions within Radius Inc. and SuperMac Technology, Inc., which
merged into Radius Inc. 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 L.L.P. Ms. Platt received a B.S. in Business Administration from The
Pennsylvania State University.
Timothy D. Kleffman has served as Vice President, Business Development and
Product Planning since July 1997 and served as Vice President Engineering
Operations from the Splash Acquisition to June 1997. Mr. Kleffman was Director
of Printer Systems within the CSG at Radius and SuperMac from October 1992
until the Splash 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 Splash Acquisition. From March 1993 until the Splash
Acquisition, Ms. Beheshti held various engineering management positions with
Radius and SuperMac. From December 1990 to March 1993, 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.
49
<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., a direct marketing service provider, Digital
Link Corporation, a manufacturer of digital access linear power products for
wide area networks, and Powerwave Technologies, Inc., a designer and
manufacturer of amplifiers for wireless communications.
Charles W. Berger has been a director of the Company since January 1996. Mr.
Berger has been Chairman and Chief Executive Officer of IMGIS, Inc. since July
1997. Mr. Berger has also been Chairman of the Board of Directors of Radius
Inc. since March 1994 and was Chief Executive Officer for Radius Inc. from
March 1993 until July 1997. From April 1992 until he joined Radius Inc., Mr.
Berger was Senior Vice President, Worldwide Sales, Operations and Support for
Claris Corporation, a software subsidiary of Apple Computer, Inc., 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.
Peter Y. Chung has been a director of the Company since its formation in
December 1995. Mr. Chung has served as a Vice President at Summit Partners,
L.P., a venture capital partnership, since December 1996. From August 1994 to
December 1996, Mr. Chung served as a Senior Associate at Summit Partners, L.P.
From August 1989 to July 1992, Mr. Chung was employed by Goldman, Sachs & Co.,
an investment banking firm.
Lawrence G. Finch has been a director of Splash since 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
International Network Services, a networking services company, and Phoenix
Technologies Ltd., a developer of computer firmware and software.
Richard A. Falk has served as Splash's Chief Scientist since the Splash
Acquisition in January 1996. From October 1992 until the Acquisition, Mr. Falk
served in various engineering positions with SuperMac and Radius. From August
1983 to October 1992, 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 term of
the Class I director expires at the Company's annual meeting of stockholders
in 2000, the term of the Class II directors expires at the Company's annual
meeting of stockholders in 1998, and the 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 re-election 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.
50
<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 sets forth a summary of (i) the compensation paid by
Radius Inc., the Company's predecessor business, during the fiscal year ended
September 30, 1995 and (ii) the compensation paid by Radius Inc. for the four
months ended January 31, 1996 and paid by the Company for the eight months
ended September 30, 1996 to the Company's Chief Executive Officer and the
Company's three other most highly compensated executive officers (collectively,
the "Named Executive Officers") for services rendered in all capacities to
Radius Inc. and the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES
NAME AND PRINCIPAL INCENTIVE UNDERLYING ALL OTHER
POSITION YEAR SALARY(1) BONUS OPTIONS(2) COMPENSATION(3)
------------------ ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Kevin K. Macgillivray.... 1996 $163,232 $184,100 48,124 $691
President, Chief 1995 135,711 44,845 -- --
Executive Officer and
Director
Joan P. Platt(4)......... 1996 68,019 32,875 96,659 476
Vice President, Finance 1995 -- -- -- --
and Administration and
Chief Financial Officer
Timothy D. Kleffman...... 1996 131,616 123,240 48,124 696
Vice President, 1995 127,285 36,000 -- --
Business Development and
Product Planning
Christine A. Beheshti.... 1996 131,616 65,500 48,124 671
Vice President, 1995 117,596 33,750 -- --
Software Engineering
</TABLE>
- -------
(1) Includes compensation deferred by the employee under the Company's
qualified 401(k) retirement plan.
(2) Consists of options to purchase shares of the Company's Common Stock under
the Company's 1996 Stock Option Plan.
(3) Consists of vested contributions made by the Company under its qualified
401(k) retirement plan.
(4) The Company hired Ms. Platt on March 29, 1996.
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<PAGE>
OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
The following tables set forth information regarding stock options granted to
and exercised by the Named Executive Officers during fiscal 1996, as well as
options held by such officers as of September 30, 1996, the last day of the
Company's 1996 fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ANNUAL
---------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTION TERM(2)
UNDERLYING GRANTED TO EXERCISE --------------------
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kevin K. Macgillivray... 48,124 5.5% $0.14 2/21/06 $ 4,237 $ 10,738
Joan P. Platt........... 96,659 11.1 0.29 3/29/06 17,629 44,674
Timothy D. Kleffman..... 48,124 5.5 0.14 2/21/06 4,237 10,738
Christine A. Beheshti... 48,124 5.5 0.14 2/21/06 4,237 10,738
</TABLE>
- --------
(1) Each of these options was granted pursuant to the 1996 Plan, as defined
below, and is subject to the terms of such plan.
(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the hypothetical gains or "options spreads" that
would exist for the respective options. These gains are based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the
date the option was granted over the full option term. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Commission
and do not represent the Company's estimate or projection of future
increases in the price of its Common Stock.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
SHARES ------------------------- -------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin K. Macgillivray... 48,124 $41,387 -- -- $ -- $ --
Joan P. Platt........... 96,659 68,628 -- -- -- --
Timothy D. Kleffman..... 48,124 41,387 -- -- -- --
Christine A. Beheshti... 48,124 41,387 -- -- -- --
</TABLE>
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
3,150,000 shares of Common
52
<PAGE>
Stock. As of June 30, 1997, approximately 599,000 shares had been issued under
the 1996 Plan, options for approximately 802,000 shares were outstanding, and
approximately 1,749,000 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 became effective upon the closing of the Company's
initial public offering. A total of 175,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of June 30, 1997,
approximately 50,000 shares of Common Stock had been issued 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 in duration and may include several
purchase periods as determined by the Board. The initial offering period
commenced on the date of the Company's initial public offering and will 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 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 Amended and Restated 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.
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<PAGE>
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.
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<PAGE>
CERTAIN TRANSACTIONS
On January 30, 1996, the Company was acquired by an investor group (the
"Acquisition Group") led by certain entities affiliated with Summit Partners,
L.P. and certain entities affiliated with Sigma Partners, L.P. The Splash
Acquisition was effected through the following series of transactions: (i) the
Acquisition Group formed and capitalized a new corporation, the Company, called
Splash Technology Holdings, Inc., a Delaware corporation; (ii) the Company
formed and capitalized a new wholly-owned subsidiary, Splash Merger Company,
Inc., a Delaware corporation; (iii) Radius created a new corporation, Splash
Technology, Inc., a Delaware corporation, into which Radius placed
substantially all of the assets and liabilities of its Color Server Group in
exchange for all of the capital stock of Splash Technology, Inc.; and (iv)
Splash Merger Company, Inc. was merged with and into Splash Technology, Inc.,
thereby effecting the Splash Acquisition. As a result of these transactions,
the surviving corporation in the merger was Splash Technology, Inc., a wholly-
owned subsidiary of the Company, which in turn was owned principally by the
Acquisition Group. As a result of these transactions, Radius received (i) a
payment of approximately $21.9 million in cash on January 30, 1996
(approximately $2.35 million of which remains in escrow for the benefit for the
Company and its stockholders, as described below), (ii) an aggregate of 4,282
shares of Series B Preferred Stock of the Company, which was converted into a
total of 1,741,129 shares of Common Stock of the Company (representing
approximately 19% of the outstanding Common Stock of the Company prior to the
Company's initial public offering) and (iii) a payment of approximately $1.5
million in cash on June 9, 1996. None of the entities within the Acquisition
Group which are affiliated with Summit Partners, L.P. or Sigma Partners, L.P.
were affiliated with Radius immediately prior to the Splash Acquisition.
Entities affiliated with Sigma Partners, L.P. collectively held more than 5% of
the outstanding capital stock of SuperMac until January 1993 and Lawrence G.
Finch was a director of Radius until October 1995.
The Splash Acquisition was funded by the purchase of approximately $15.5
million of Series A Preferred Stock and Common 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 Summit Partners, L.P. The following table shows the aggregate
amount of Common Stock, Series A Preferred Stock and subordinated promissory
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>
PRINCIPAL
PURCHASE PURCHASE AMOUNT OF
PRICE SHARES OF PRICE FOR SUBORDINATED
SHARES OF 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. . 5,888,749 $67,300 13,933 $13,933,000 $8,000,000 $22,000,300
Entities associated with
Sigma Partners, L.P. .. 586,249 6,700 1,493 1,493,000 -- 1,499,700
Management.............. 533,748 6,100 -- -- -- 6,100
--------- ------- ------ ----------- ---------- -----------
Total................. 7,008,746 $80,100 15,426 $15,426,000 $8,000,000 $23,506,100
========= ======= ====== =========== ========== ===========
</TABLE>
The Splash 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 Splash Acquisition, the
Company had $18.2 million in assets and $19.7 million of liabilities. See
"Splash Acquisition," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Principal and Selling Stockholders."
In October 1996, the Company used approximately $15.4 million and $8.0
million of the net proceeds of the Company's initial public offering to redeem,
in accordance with their terms, all the outstanding shares of the Company's
Series A Preferred Stock and all outstanding subordinated promissory notes.
55
<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 July 10, 1997 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 of the Company's directors, (iii) each of the Named Executive
Officers, (iv) all directors and executive officers as a group and (v) each
Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR OWNERSHIP AFTER
TO OFFERING(1) NUMBER OF OFFERING(1)(2)
----------------- SHARES -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit Partners, L.P.(3)(4)....... 5,888,749 48.6% 875,000 5,013,749 37.5%
499 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Gregory M. Avis(3)(4)............. 5,888,749 48.6 875,000 5,013,749 37.5
Peter Y. Chung(3)(4).............. -- -- -- -- --
Radius Inc.(5).................... 1,741,127 14.4 875,000 866,127 6.5
215 Moffett Park Drive
Sunnyvale, CA 94089
Charles W. Berger(5).............. 1,741,127 14.4 875,000 866,127 6.5
Putnam Investments, Inc.(6)....... 908,566 7.5 -- 908,566 6.8
One Post Office Square
Boston, MA 02109
Lawrence G. Finch................. 44,356 * -- 44,356 *
Kevin K. Macgillivray(7).......... 286,965 2.4 43,000 243,965 1.8
Joan P. Platt(8).................. 119,031 1.0 23,500 95,531 *
Timothy D. Kleffman(9)............ 217,147 1.8 43,000 174,147 1.3
Christine A. Beheshti(10)......... 167,778 1.4 33,500 134,278 1.0
All directors and executive
officers as a group
(8 persons)(3)(5)(11)............ 8,465,153 69.3 1,893,000 6,572,153 48.8
Other Selling Stockholders:
Non-executive employee selling
stockholders(12)................ 167,471 1.4 107,000 60,471 *
</TABLE>
- --------
*Less than 1%
(1) 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
July 10, 1997 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(2) Percentage of ownership is based on 12,108,561 shares of Common Stock
outstanding on July 10, 1997 and 13,358,561 shares of Common Stock
outstanding after completion of the Offering assuming no exercise of the
Underwriters' over-allotment option. If the Underwriters' over-allotment
option is exercised in full, the Company and certain stockholders will
sell an aggregate of 487,500 additional shares of Common Stock.
Specifically, (i) subject to Note (12) below, the Company will sell an
additional 243,750 shares, (ii) Summit Partners, L.P. will sell an
additional 121,875 shares and beneficially own 4,891,874 shares or 35.1%
of the outstanding Common Stock, after completion of the Offering and
(iii) Radius Inc. will sell an additional 121,875 shares and beneficially
own 744,252 shares or 5.3% of the outstanding Common Stock, after
completion of the Offering. See "Description of Capital Stock."
56
<PAGE>
(3) Includes 5,254,812, 224,175 and 409,762 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 a General
Partner of Stamps, Woodsum & Co., III, Stamps, Woodsum & Co., IV and
Summit Investors III, L.P. See Note (4).
(4) Includes shares described in Note (3) 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 1,741,127 shares beneficially owned by Radius Inc. Mr. Berger, a
director of the Company, is Chairman of the Board of Directors of Radius
Inc. Mr. Berger exercises shared investment and voting power with such
shares, but disclaims beneficial ownership of such shares.
(6) According to a Schedule 13G filed with the Securities and Exchange
Commission on January 27, 1997, Putnam Investments, Inc. has shared voting
power with respect to 244,227 of these shares and shared dispositive power
with respect to all 905,566 shares.
(7) Includes 109,646 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
40,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.
(8) Includes 66,453 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.
(9) Includes 88,757 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.
(10) Includes 67,853 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through February 2000. Also includes
20,000 shares issuable upon the exercise of an option which vests over
four years; such option may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.
(11) Includes 330,695 shares that are subject to a right of repurchase in favor
of the Company which expires ratably through March 2000. Also includes
100,000 shares issuable upon the exercise of options which vest over four
years; such options may be exercised immediately as to all shares,
provided that the unvested shares shall be subject to a right of
repurchase in favor of the Company.
(12) Consists of non-executive and non-director Company employees electing to
sell up to 107,000 aggregate shares of outstanding Common Stock in the
Offering. To the extent such employee stockholders elect to sell fewer
than 107,000 aggregate shares, the unused balance will be offered by the
Company.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists 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 Amended and Restated 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, 1997, there were 12,108,561 shares of Common Stock outstanding
held of record by approximately 61 stockholders, as well as options to purchase
an aggregate of approximately 802,000 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
The Company is 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.
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"), after the Offering the holders of approximately 6,600,000 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 in April 1997, 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
58
<PAGE>
on Form S-3, when such form becomes available to the Company, subject to
certain conditions and limitations.
ANTITAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, AMENDED AND RESTATED BYLAWS AND DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws, 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 "Risk Factors--Control by Principal
Stockholders, Officers and Directors; Antitakeover Effects of Certificate of
Incorporation and Delaware Law" and "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 2/3% 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.
LISTING
The Company's Common Stock is listed on the Nasdaq National Market under the
trading symbol "SPLH."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 13,358,561
shares of Common Stock (assuming no exercise of options after June 30, 1997).
Of these shares, in addition to the 3,250,000 shares sold in the Offering, an
aggregate of approximately 4,300,000 shares of Common Stock currently
outstanding, issuable on exercise of outstanding options or issuable pursuant
to the Purchase Plan will be eligible for sale on or prior to the date of this
Prospectus and approximately 6,800,000 additional shares of Common Stock
currently outstanding, issuable on exercise of outstanding options or issuable
pursuant to the Purchase Plan will become eligible for sale 90 days after the
date of this Prospectus upon the expiration of certain lock-up agreements with
the Company and the Underwriters, subject in certain cases to certain volume
and other resale restrictions under Rule 144.
The holders of approximately 6,650,000 shares of, or options to purchase
shares of, the Company's Common Stock (including all of the Company's officers
and each of the Selling Stockholders) have agreed with the Company or the
Representatives that until 90 days after the Effective Date they will not sell,
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase shares of Common Stock, or any securities convertible or
exchangeable for shares of Common Stock, owned directly by such holders or with
respect to which they have power of disposition. The Company has also agreed
not to sell, offer to sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or any rights to acquire
Common Stock for a period of 90 days after the Effective Date without the prior
written consent of Alex. Brown & Sons Incorporated subject to certain limited
exceptions. The lock-up agreements may be released at any time as to all or any
portion of the shares subject to such agreements at the sole discretion of
Alex. Brown & Sons Incorporated.
Pursuant to the Amended and Restated Working Capital Financing and Term Loan
Agreement between Radius and IBM Credit Corporation ("IBM Credit"), Radius has
agreed that, upon the request of IBM Credit, Radius will use its best efforts
to dispose of a specified percentage of its ownership interest in Splash as of
August 30, 1996 (excluding any shares subject to any option issued by Radius in
favor of IBM Credit). As of August 30, 1996, Radius owned 1,741,127 shares of
Common Stock. During the first, second and third year following Splash's
October 1996 initial public offering, the specified percentage of Radius'
interest in Splash required to be disposed of at IBM Credit's request is 50%,
75% (minus the percent sold in the previous year) and 100% (minus the percent
sold in the previous years), respectively, and in each case excluding any
shares subject to any option granted by Radius to IBM Credit. In addition, as
of any date that Radius' outstanding term loans under the foregoing agreement
exceed 90% of the market value of Radius' interest in Splash (excluding any
shares subject to any option granted by Radius to IBM Credit), upon the request
of IBM Credit, Radius must use its best efforts to dispose of the balance of
its ownership interest in Splash. Subject to certain rights of Radius to demand
that the Company register Radius' shares of Common Stock under the Securities
Act, Radius' ability to dispose of such shares may be subject to the volume and
other resale restrictions under Rule 144. See "Risk Factors--Financial
Difficulties of a Certain Stockholder; Potential Sales of Common Stock."
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), Alex. Brown & Sons Incorporated,
Montgomery Securities and Piper Jaffray Inc., have severally agreed to purchase
from the Company and the Selling Stockholders the following respective numbers
of shares of Common Stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Alex. Brown & Sons Incorporated.......................................
Montgomery Securities.................................................
Piper Jaffray Inc.....................................................
---------
Total............................................................. 3,250,000
=========
</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 and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the 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
Offering, the offering price and other selling terms may be changed by the
Underwriters.
The Company and certain Selling Stockholders have granted to the Underwriters
an option, exercisable not later than 30 days after the date of this
Prospectus, to purchase up to 487,500 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 3,250,000
and the Company and such Selling Stockholders 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 3,250,000 shares
are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Selling Stockholders and all of the officers of the Company have agreed
not to offer, sell, contract to sell, or otherwise dispose of any of such
Common Stock for a period of 90 days after the date of this Prospectus without
the prior written consent of the Representatives of the Underwriters. See
"Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
61
<PAGE>
In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the restricted period immediately preceding the
pricing of the Common Stock offered hereby. The Commission has, however,
adopted exemptions from its rules that permit passive market making under
certain conditions. The rules permit an Underwriter to continue to make a
market subject to certain conditions, including that its bid not exceed the
highest bid by a market maker not connected with the Offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to
these exemptions, certain Underwriters, selling group members (if any) or their
respective affiliates intend to engage in passive market making in Common Stock
during the restricted period.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of Common Stock the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing Common Stock in the Offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise.
Finally, the Underwriters may bid for, and purchase, shares of Common Stock in
market making transactions. These activities may stabilize or maintain the
market price of Common Stock above market levels that may otherwise prevail.
The Underwriters are not required to engage in these activities and may end any
of these activities at any time.
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, Menlo Park, 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, 1995 and
1996 and the consolidated statements of operations and cash flows for each of
the two years in the period ended September 30, 1995 and the four months ended
January 31, 1996, the eight months ended September 30, 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
eight months ended September 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.
The consolidated financial statements of Quintar Holdings Corporation at
December 31, 1995 and 1996, and for each of the years then ended, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
62
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPLASH TECHNOLOGY HOLDINGS, INC.
Report of Independent Accountants......................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1995 and 1996; and June
30, 1997 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1994 and 1995; the four months ended January 31, 1996; the eight months
ended September 30, 1996; the four months ended January 31, 1996; the
five months ended June 30, 1996; and the nine months ended June 30,
1997 (unaudited)....................................................... F-4
Consolidated Statements of Stockholders' Equity for the eight months
ended September 30, 1996; and the nine months ended June 30, 1997
(unaudited)............................................................ F-5
Predecessor Business Statement of Parent Company Investment for the
years ended September 30, 1994 and 1995; and the four months ended
January 31, 1996....................................................... F-6
Consolidated Statements of Cash Flows for the years ended September 30,
1994 and 1995; the four months ended January 31, 1996; the eight months
ended September 30, 1996; the four months ended January 31, 1996; the
five months ended June 30, 1996, and the nine months ended June 30,
1997 (unaudited)....................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
QUINTAR HOLDINGS CORPORATION
Report of Independent Auditors............................................ F-18
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-19
Consolidated Statements of Operations for the years ended December 31,
1995 and 1996.......................................................... F-20
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1996............................................. F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheet as of March 31, 1997............... F-28
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1997.......................................... F-29
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1997.......................................... F-30
Notes to Condensed Consolidated Financial Statements.................... F-31
</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 September 30, 1996 and the
related consolidated statements of operations and cash flows for the eight
months ended September 30, 1996 and the five months ended June 30, 1996 and the
related consolidated statement of stockholders equity for the eight months
ended September 20, 1996. We have also audited the balance sheet at September
30, 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 September 30,
1996, and the consolidated results of their operations and their cash flows for
the eight months ended September 30, 1996 and 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, 1995 and the results of its operations
and its cash flows for the years ended September 30, 1994 and 1995, and the
four months ended January 31, 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P
San Jose, California
October 14, 1996, except for Note 5, for
which the date is October 16, 1996 and
for Note 7, for which the date is
October 18, 1996.
F-2
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR SPLASH TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ -- $ 6,179 $ 6,601
Accounts receivable, net of
allowance for doubtful accounts
of $84, $299 and $304 as of
September 30, 1995 and 1996 and
June 30, 1997 (unaudited),
respectively..................... 4,716 6,582 11,713
Inventories....................... 3,965 3,651 3,112
Prepaid expenses and other
current assets................... -- 119 321
Deferred income taxes............. 622 3,962 3,962
------ ------- -------
Total current assets............ 9,303 20,493 25,709
Property and equipment, net........ 385 913 1,270
Deferred income taxes.............. -- 8,315 11,615
Other long term assets............. -- 1,511 1,457
------ ------- -------
Total assets.................... $9,688 $31,232 $40,051
====== ======= =======
LIABILITIES
Current liabilities:
Trade accounts payable............ $2,538 $ 1,239 $ 3,226
Other accrued liabilities......... 1,074 3,348 6,377
Royalties payable................. 1,978 1,260 1,950
Deferred revenue.................. -- 4,150 2,068
Income taxes payable.............. 1,395 1,725 2,078
------ ------- -------
Total current liabilities....... 6,985 11,722 15,699
Subordinated promissory notes
payable to stockholders........... -- 8,600 --
Other long term liabilities........ -- -- 400
------ ------- -------
Total liabilities............... 6,985 20,322 16,099
------ ------- -------
Commitments (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock:
Authorized: 5,000,000 shares
Series A preferred stock, par
value $.001 per share:
Authorized, issued and
outstanding: 15,426 shares as
of September 30, 1996 and no
shares as of June 30, 1997
(unaudited).................... -- 1 --
Series B preferred stock, par
value $.001 per share:
Authorized, issued and
outstanding: 4,282 shares as of
September 30, 1996 and no
shares as of June 30, 1997
(unaudited).................... -- 1 --
Parent company investment.......... 2,703
Common stock, par value $.001:
Authorized: 50,000,000 shares;
issued and outstanding:
7,603,123 shares as of September
30, 1996 and 12,108,561 as of
June 30, 1997 (unaudited)........ -- 8 13
Additional paid-in capital......... -- 19,826 33,048
Retained earnings (accumulated
deficit).......................... -- (8,926) (9,109)
------ ------- -------
Total stockholders' equity...... 2,703 10,910 23,952
------ ------- -------
Total liabilities and
stockholders' equity........... $9,688 $31,232 $40,051
====== ======= =======
</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 FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SPLASH
TECHNOLOGY PREDECESSOR SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDINGS, INC. BUSINESS HOLDINGS, INC.
--------------------------- -------------- ----------- -----------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- -------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $16,354 $30,472 $13,008 $34,713 $13,008 $ 18,326 $51,227
Cost of net revenue..... 12,068 20,723 8,427 19,381 8,427 11,455 24,864
------- ------- ------- ------- ------- -------- -------
Gross profit.......... 4,286 9,749 4,581 15,332 4,581 6,871 26,363
------- ------- ------- ------- ------- -------- -------
Operating expenses:
Research and
development.......... 1,999 3,295 1,498 2,627 1,498 1,624 3,972
Sales and marketing... 562 2,076 688 1,756 688 806 4,126
General and
administrative....... 377 891 287 1,276 287 668 1,945
Amortization and
write-off of
technology........... -- -- -- 22,803 -- 22,729 11,039
------- ------- ------- ------- ------- -------- -------
Total operating
expenses........... 2,938 6,262 2,473 28,462 2,473 25,827 21,082
------- ------- ------- ------- ------- -------- -------
Income (loss) from
operations............. 1,348 3,487 2,108 (13,130) 2,108 (18,956) 5,281
Other income............ -- -- -- -- -- -- (600)
Interest (income)
expense, net........... -- -- 18 575 18 388 (379)
------- ------- ------- ------- ------- -------- -------
Income (loss) before
provision for income
taxes.................. 1,348 3,487 2,090 (13,705) 2,090 (19,344) 6,260
Provision for (benefit
from) income taxes..... 99 1,395 836 (5,509) 836 (7,765) 6,447
------- ------- ------- ------- ------- -------- -------
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $(8,196) $ 1,254 $(11,579) $ (187)
======= ======= ======= ======= ======= ======== =======
Net income (loss) per
share.................. $ (.93) $ (1.25) $ (.02)
======= ======== =======
Shares used in computing
per share amounts...... 9,583 9,580 11,903
======= ======== =======
</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, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED RETAINED
STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------ PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- ------ ---------- ------ ---------- ------------ --------
<S> <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................. -- -- 7,008,746 8 198 -- 206
Exercise of employee
stock options......... -- -- 599,627 -- 101 -- 101
Accretion for dividends
on Series A and B
preferred stock....... -- -- -- -- 730 (730) --
Repurchase of common
stock................. -- -- (5,250) -- (1) -- (1)
Net loss............... -- -- -- -- -- (8,196) (8,196)
------- --- ---------- --- -------- ------- --------
Balances, September 30,
1996................... 19,708 2 7,603,123 8 19,826 (8,926) 10,910
Redemption of preferred
stock:
Series A............... (15,426) (1) -- -- (14,699) (726) (15,426)
Series B............... (4,282) (1) 1,741,127 2 -- -- 1
Reversal of accretion
for dividends on
Series A and B
preferred stock....... -- -- -- -- (730) 730 --
Issuance of common
stock (IPO)........... -- -- 2,700,500 3 26,617 -- 26,620
Exercise of employee
stock options and
employee stock
purchase plan and
warrants.............. -- -- 69,286 -- 447 -- 447
Repurchase of common
stock................. -- -- (5,475) -- (1) -- (1)
Quintar acquisition
compensation.......... -- -- -- -- 1,588 -- 1,588
Net loss............... -- -- -- -- -- (187) (187)
------- --- ---------- --- -------- ------- --------
Balance, June 30, 1997
(unaudited)............ -- $-- 12,108,561 $13 $ 33,048 $(9,109) $ 23,952
======= === ========== === ======== ======= ========
</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 SPLASH TECHNOLOGY
PREDECESSOR BUSINESS HOLDING, INC. BUSINESS HOLDINGS, INC.
----------------------------- ------------- ----------- -----------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED ENDED ENDED
---------------- JANUARY 31, SEPTEMBER 30, JANUARY 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1996 1997
------- ------- ----------- ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ 1,249 $ 2,092 $ 1,254 $ (8,196) $ 1,254 $(11,579) $ (187)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 80 259 102 195 102 57 381
Provision for doubtful
accounts.............. 16 68 17 198 17 199 (143)
Gain on repayment of
promissory notes...... (600)
Purchased and in-
process technology.... -- -- -- 22,729 -- 22,729 11,039
Deferred income taxes.. (622) -- 622 (11,409) 622 (11,014) --
Changes in assets and
liabilities:
Accounts receivable.... (3,947) 490 (4,597) 3,330 (4,597) 5,059 (4,772)
Inventories............ (513) (2,678) 2,231 (1,917) 2,231 (2,211) 740
Prepaids and other
current assets........ -- -- -- (119) -- (119) (158)
Other long term assets. -- -- -- (464) -- (118) 120
Trade accounts payable. (914) 1,766 (2,391) 1,093 (2,391) 2,008 3,444
Other accrued
liabilities........... 317 743 1,986 (464) 1,986 (1,042) 27
Royalties payable...... 796 745 1,434 (2,112) 1,434 (2,302) 690
Deferred revenue....... -- -- 905 1,080 905 2,157 (2,323)
Income taxes payable... 721 674 (559) 1,725 (559) 1,974 353
------- ------- ------- -------- ------- -------- -------
Net cash provided by
(used in) operating
activities............. (2,817) 4,159 1,004 5,669 1,004 5,798 8,611
------- ------- ------- -------- ------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property and
equipment.............. (280) (444) (63) (604) (63) (306) (633)
Acquisition of
businesses (net of cash
acquired).............. -- -- -- (23,421) -- (23,421) (11,196)
------- ------- ------- -------- ------- -------- -------
Net cash used in
investing activities... (280) (444) (63) (24,025) (63) (23,727) (11,829)
------- ------- ------- -------- ------- -------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from initial
public offering........ -- -- -- -- -- -- 26,620
Proceeds from Series A
preferred stock........ -- -- -- 14,700 -- 14,700 --
Redemption of Series A
preferred stock........ -- -- -- -- -- -- (14,700)
Premium paid on Series A
preferred stock........ -- -- -- -- -- -- (726)
Proceeds from common
stock.................. -- -- -- 206 -- 206 --
Proceeds from
subordinated debt...... -- -- -- 8,600 -- 8,600 --
Repayment of
subordinated debt...... -- -- -- -- -- -- (8,000)
Exercise of stock
options/repurchase of
common stock/proceeds
of Employee Stock
Purchase Plan.......... -- -- -- 100 -- 95 446
Net change in Parent
Company Investment..... 3,097 (3,715) (12) -- (12) -- --
------- ------- ------- -------- ------- -------- -------
Net cash provided by
(used in) financing
activities............. 3,097 (3,715) (12) 23,606 (12) 23,601 3,640
------- ------- ------- -------- ------- -------- -------
Net increase in cash.... -- -- 929 5,250 929 5,672 422
Cash and cash
equivalents at
beginning of period.... -- -- -- 929 -- 929 6,179
------- ------- ------- -------- ------- -------- -------
Cash and cash
equivalents at end of
period................. $ -- $ -- $ 929 $ 6,179 $ 929 $ 6,601 $ 6,601
======= ======= ======= ======== ======= ======== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Taxes paid.............. $ -- $ -- $ -- $ 4,175 $ -- $ 1,275 $ 6,010
Interest paid........... $ -- $ -- $ -- $ 704 $ -- $ 198 $ --
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accretion of preferred
stock.................. $ -- $ -- $ -- $ 730 $ -- $ 365 $ (730)
Issuance of Series B
preferred stock........ $ -- $ -- $ -- $ 4,100 $ -- $ -- $ 4,100
Conversion of Series B
preferred stock........ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of options in
connection with
acquisition............ $ -- $ -- $ -- $ -- $ -- $ -- $ 1,588
</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., Splash Foreign Sales Corporation 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 ("OEMs") 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, Australia, Japan, New Zealand, Africa and the
Middle East. 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 led by certain affiliates of Summit
Partners, L.P., and Sigma Partners, L.P. 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, Inc., a wholly-owned
subsidiary of the Company.
The acquisition of Splash Technology, Inc. (the "Splash Acquisition") 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 Splash Acquisition due to the discontinuance of the Apple NuBus
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.
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>
F-8
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the purchase consideration, $2,350,000 remains in escrow pending
resolution of certain events including unasserted claims.
The Predecessor Business' financial statements presented herein include the
results of operations and cash flows for the years ended September 30, 1994 and
1995, and for the four months ended January 31, 1996 and the balance sheet as
of September 30, 1995, 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, eight months
ended September 30, 1996 and the nine months ended June 30, 1997 (unaudited)
and the balance sheet as of June 30, 1996 and 1997.
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.
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., Splash
Foreign Sales Corporation, Splash Technology S.a.r.l. and, at and for the
period ended June 30, 1997, Quintar Holdings Corporation and its wholly owned
subsidiary, Quintar Company. 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 OEM customers accumulated
a substantial quantity of the Power Series product.
During the year ended September 30, 1996, due to the transition of products
and the accumulation of Power Series product, the Company had recognized
revenue from the sales of the Power Series product upon notification from the
OEM that the product had been sold to their end user and accordingly at
September 30, 1996, the Company had deferred revenue of $4.2 million from sales
of Power Series products to one of its OEM customers.
For the nine months ended June 30, 1997 the Company continued to evaluate the
carrying value of the Power Series product inventory and the related deferred
revenue on a quarterly basis and determined that the amount of future returns
of the Power Series product could be reasonably estimated
F-9
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
based on historical experience. Accordingly, the net revenues relating to the
Power Series products were fully recognized and, in accordance with the
Company's policy, an allowance for expected returns of the Power Series
products was recorded in the nine months ended June 30, 1997.
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.
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 money market funds held in
banks and other financial institutions in the United States and France.
Financial Instruments
The Company's financial instruments, including cash and cash equivalents 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.
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,
F-10
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 30, 1996, the accounts
receivable balance is comprised primarily of one customer, which represents 93%
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.
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. The Company
believes the impact will not be significant.
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 Accounting Practice Bulletin
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. The Company believes the
impact will not be significant.
Computation of Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
The Company has determined the number of shares used in calculating earnings
per share for all periods presented prior to the Company's initial public
offering 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 dividend accretion on the shares of preferred stock.
F-11
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Information
The accompanying interim balance sheet as of June 30, 1997, the statements of
operations and cash flows for the nine months ended June 30, 1997 and the
statement of stockholders' equity for the nine months ended June 30, 1997
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 financial position
of the Company as of June 30, 1997 and the results of operations and cash flows
for the period ended June 30, 1997. Results for the period ended June 30, 1997
are not necessarily indicative of results for an entire year.
Reclassifications
Certain items have been reclassified within the balance sheets at September
30, 1995 and 1996 to be consistent with the presentation at June 30, 1997. The
reclassifications have no effect on previously disclosed net income or
stockholders' equity.
3. BALANCE SHEET DETAIL (IN THOUSANDS)
Inventories
<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................ $ 591 $1,580 $2,253
Work in process...................... 166 -- --
Finished goods....................... 3,208 2,071 859
------ ------ ------
$3,965 $3,651 $3,112
====== ====== ======
</TABLE>
Property and Equipment
<TABLE>
<CAPTION>
SPLASH
PREDECESSOR TECHNOLOGY
BUSINESS HOLDINGS, INC.
------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1995 1996 1997
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures.............. $ 201 $ 392 $ 732
Computer equipment.................. 523 415 729
Leasehold improvements.............. -- 81 81
Trade show booth.................... -- 146 146
----- ------ ------
724 1,034 1,688
Less accumulated depreciation and
amortization....................... (339) (121) (418)
----- ------ ------
$ 385 $ 913 $1,270
===== ====== ======
</TABLE>
4. REVOLVING CREDIT FACILITY
In September 1996, the Company entered into an agreement with a bank to
borrow up to a maximum of $5,000,000 under a revolving line of credit subject
to a borrowing base of 80% and 75% of eligible domestic and foreign accounts
receivable, respectively. The line bears interest at prime rate, is
collateralized by accounts receivable, owned property and equipment and
inventory of the Company
F-12
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and matures on January 1, 1998. 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 September 30, 1996 or
June 30, 1997 (unaudited).
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 certain
stockholders concurrent with the issuance of the Series A preferred stock and
the fair value of the notes was established at $8,600,000 by an independent
third party valuation. On October 16, 1996, the Company repaid the subordinated
promissory notes payable to stockholders with proceeds of its initial public
offering (see Note 12).
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>
September 30, 1997...................... $413
September 30, 1998...................... 416
September 30, 1999...................... 417
September 30, 2000...................... 431
September 30, 2001...................... 294
</TABLE>
Rent expense for the eight months ended September 30, 1996, the five months
ended June 30, 1996 and the nine months ended June 30, 1997 (unaudited) was
$226, $84 and $288, respectively.
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
Acquisition. 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 carrying amounts of both Series A and
Series B preferred stock have been increased by amounts representing dividends
not currently declared or paid but which may be payable under each series'
dividend rights. The increases have been effected by a charge against retained
earnings.
On October 9, 1996, the Company initiated trading of its common stock
following an initial public offering and the Series B preferred stock converted
to common stock. On October 18, 1996, the Company redeemed the Series A
preferred stock.
8. COMMON STOCK
On January 31, 1996, the Company sold 7,008,746 shares of common stock for
$80,100. The shares have been valued at $206,000 based on a independent third
party appraisal. 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.
F-13
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the line of credit, the Company issued the bank a warrant
to purchase 8,750 shares of common stock with an exercise price of $0.011 per
share. The warrant became exercisable upon the Company's initial public
offering. The warrant was exercised in April 1997.
Stock Options and Repurchase Agreements
The Company reserved 3,150,000 shares of common stock for issuance under its
stock option plan. 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 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
36 months.
Activity for the Company's stock option plan is summarized as follows:
<TABLE>
<CAPTION>
AVERAGE
PRICE
AVAILABLE OUTSTANDING PER SHARE AMOUNT
--------- ----------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Options authorized....... 3,150,000
Options granted.......... (894,880) 894,880 $0.14-$11.00 $ 776
Options canceled......... 27,128 (27,128) $0.14 (4)
Options repurchased...... 5,250
Options exercised........ (599,627) $0.14-$ 0.29 (101)
--------- -------- ------
Balances, September 30,
1996.................... 2,287,498 268,125 $0.14-$11.00 671
Options granted.......... (545,948) 545,948 $0.80-$37.00 11,490
Options canceled......... 1,531 (1,531) $1.60-$ 2.41 (2)
Options repurchased...... 5,471
Options exercised........ (10,537) $0.14 (1)
--------- -------- ------
Balances, June 30, 1997
(unaudited)............. 1,748,552 802,005 $0.14-$37.00 12,158
========= ======== ======
</TABLE>
The terms of each option are no more than 10 years from the date of grant. At
September 30, 1996, all options and shares outstanding under the Plan were
subject to repurchase. At June 30, 1997 options to purchase 479,000 shares of
Common Stock were subject to the Company's right of 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 product to OEM customers in the United States and
Japan. Net revenue from export sales accounted for 60%, 59%, 61% and 55% of net
revenue for the years ended September 30, 1994 and 1995, the four months ended
January 31, 1996 and the eight months ended September 30, 1996, respectively.
All export sales were made to Japan.
In the years ended September 30, 1994 and 1995, the four months ended January
31, 1996 and the eight months ended September 30, 1996, each of the two
customers accounted for 60% and 40%; 59% and 41%; 62% and 38%; and 55% and 45%
of net revenue, respectively. In addition, although all sales made to the
Company's U.S. based customer 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.
F-14
<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.
--------------------------- -------------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FIVE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED
--------------- JANUARY 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1996 1996
------ ------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal............. $ 522 $ 1,095 $192 $ 4,690 $ 2,551
State............... 199 300 22 1,210 698
------ ------- ---- -------- -------
721 1,395 214 5,900 3,249
------ ------- ---- -------- -------
Deferred:
Federal............. (537) -- 537 (9,794) (9,365)
State............... (85) -- 85 (1,615) (1,649)
------ ------- ---- -------- -------
(622) -- 622 (11,409) (11,014)
------ ------- ---- -------- -------
$ 99 $ 1,395 $836 $ (5,509) $(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.
---------------------------- -------------------------
YEAR ENDED FOUR MONTHS EIGHT MONTHS FIVE MONTHS
SEPTEMBER 30, ENDED ENDED ENDED
------------- JANUARY 31, SEPTEMBER 30, JUNE 30,
1994 1995 1996 1996 1996
------- ------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Tax provision (benefit
from) at federal
statutory rate......... 34.0% 34.0% 34.0% (35.0)% (34.0)%
State taxes, net of
federal tax benefit.... 6.1 6.1 6.1 (6.0) (6.1)
Net operating losses.... (33.3) -- -- -- --
Other................... 0.6 (0.1) (0.1) 1.0 --
------- ------ ---- ----- -----
7.4% 40.0% 40.0% (40.0)% (40.1)%
======= ====== ==== ===== =====
</TABLE>
The components of the deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1995 1996 1996
-------------- --------
<S> <C> <C> <C>
Deferred tax assets:
In-process and purchased technology.............. $ -- $ 8,903 $8,865
Receivable allowances............................ 34 511 80
Inventory valuation allowance.................... 221 422 334
Warranty accruals................................ 128 191 92
State taxes...................................... 102 424 240
Deferred revenue................................. -- 1,704 2,055
All other........................................ 137 122 216
----- -------- ------
Total deferred tax assets...................... 622 12,227 11,882
Long-term portion of in-process and purchased
technology...................................... -- (8,315) (8,249)
----- -------- ------
Current portion of deferred tax asset.......... $ 622 $ 3,962 $3,633
===== ======== ======
</TABLE>
F-15
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At September 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 April 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. All employer
contributions are 100% vested after four years. During the eight months ended
September 30, 1996, the Company recorded approximately $119,000 in
contributions to the Plan.
On July 31, 1996, the Board of Directors adopted a payroll deduction Employee
Stock Purchase Plan (the "Purchase Plan") effective upon the closing of the
Company's initial public offering, and reserved an aggregate of 175,000 shares
of Common Stock for issuance thereunder. As of June 30, 1997, the Company
issued 50,000 shares under the Purchase Plan.
12. SUBSEQUENT EVENTS
On October 3, 1996, the following corporate matters were completed:
. The Company's Amended and Restated Certificate of Incorporation was
amended 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.
. The Company's common stock was split 3.5 shares to one share. The
accompanying financial statements reflect the stock split.
On October 9, 1996, the Company initiated trading of 2,600,000 shares of its
common stock following an initial public offering and the Series B preferred
stock was converted into the Company's common stock (see Note 7). On October
16, 1996, the proceeds from the initial public offering were used to retire the
subordinated debt (see Note 5). On October 18, 1996, the Company redeemed its
Series A preferred stock.
13. QUINTAR ACQUISITION (UNAUDITED)
On May 28, 1997, the Company acquired the shares of Quintar Holdings
Corporation ("Quintar") for an aggregate purchase price of $13,532,000 plus
contingent earn-out payments of up to $3,200,000, subject to achieving certain
net revenue and operating income targets. The purchase price was comprised of a
cash payment of $11,519,000, issuance of Company stock options valued at
$1,588,000 in exchange for Quintar stock options and net acquisition costs of
$425,000.
F-16
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was accounted for using the purchase method of accounting and
the results of Quintar were included in the Company's results from the date of
acquisition. The purchase price was allocated to the tangible and intangible
assets and liabilities acquired based on their estimated fair values at May 28,
1997, as follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................. $ 784
Other assets.................................................... 170
Deferred tax asset.............................................. 3,300
Liabilities..................................................... (1,761)
In-process research and development............................. 11,039
-------
$13,532
=======
</TABLE>
Summary unaudited pro forma information for the combined results of
operations of Quintar and the Company for the year ended September 30, 1996 and
the nine months ended June 30, 1997 is presented below. The pro forma
information assumes the acquisition occurred on October 1, 1995 and presents
the combined results of the companies, excluding the $11,039,000 nonrecurring
write-off of in process research and development activities for which there
were no alternative future uses and technological feasibility had not been
established.
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1997
------------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenue....................................... $ 53,104 $53,822
Operating income (loss)........................... $(12,541) $14,872
Net income (loss)................................. $ (8,530) $ 9,388
Net income (loss) per share....................... $ (0.89) $ 0.77
Shares used in computing per share amounts........ 9,583 12,251
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Quintar Holdings Corporation
We have audited the accompanying consolidated balance sheets of Quintar
Holdings Corporation as of December 31, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 Quintar Holdings Corporation at December 31, 1995 and 1996, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
March 27, 1997, except for Note 8, as to which the
date is May 6, 1997
F-18
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 709,000 $ 976,000
Accounts receivable, net of an allowance for
doubtful accounts of $36,000 in 1995 and $158,000
in 1996........................................... 667,000 604,000
Inventories........................................ 535,000 517,000
Prepaid expenses and other current assets.......... 55,000 56,000
----------- -----------
Total current assets............................. 1,966,000 2,153,000
----------- -----------
Property and equipment:
Machinery and equipment............................ 706,000 535,000
Furniture and fixtures............................. 64,000 64,000
Leasehold improvements............................. 45,000 52,000
----------- -----------
815,000 651,000
Accumulated depreciation and amortization.......... 673,000 537,000
----------- -----------
Property and equipment, net.......................... 142,000 114,000
Other assets, net.................................... 246,000 39,000
----------- -----------
Total assets..................................... $ 2,354,000 $ 2,306,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 537,000 $ 731,000
Deferred revenue................................... 426,000 464,000
Accrued warranty expense........................... 40,000 90,000
Other accrued expenses............................. 432,000 504,000
----------- -----------
Total current liabilities........................ 1,435,000 1,789,000
Deferred revenue, long-term.......................... -- 350,000
Stockholders' Equity:
Series A convertible preferred stock, no par value:
Authorized shares--4,200,000
Issued and outstanding shares--4,160,445 in 1995
and 1996.......................................... 4,641,000 4,641,000
Series C convertible preferred stock, no par value:
Authorized shares--2,166,668
Issued and outstanding shares--833,333 in 1995 and
1,500,001 in 1996 1,250,000 2,250,000
Common stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--972,541 in 1995 and
1996.............................................. 49,000 49,000
Additional paid in capital........................... 85,000 85,000
Stock subscription................................... 250,000 --
Accumulated deficit.................................. (5,356,000) (6,858,000)
----------- -----------
Total stockholders' equity....................... 919,000 167,000
----------- -----------
Total liabilities and stockholders' equity....... $ 2,354,000 $ 2,306,000
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
REVENUES:
Product sales...................................... $ 3,117,000 $ 4,361,000
Engineering and royalty revenues................... 1,389,000 1,022,000
----------- -----------
Total revenues................................... 4,506,000 5,383,000
COST AND EXPENSES:
Cost of revenues
Product........................................... 2,183,000 3,327,000
Engineering....................................... 1,033,000 568,000
Engineering expense................................ 756,000 1,293,000
Selling, general and administrative expenses....... 1,582,000 1,714,000
Interest (income) expense, net..................... 32,000 (17,000)
----------- -----------
Total costs and expenses......................... 5,586,000 6,885,000
----------- -----------
Net loss............................................. $(1,080,000) $(1,502,000)
=========== ===========
Net loss per share................................... $ (1.11) $ (1.54)
=========== ===========
Shares used in computing net loss per share.......... 972,541 972,541
=========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES C
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- -------------------- --------------- PAID IN STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL SUBSCRIPTIONS DEFICIT TOTAL
--------- ---------- --------- ---------- ------- ------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994... 3,200,000 $3,200,000 833,333 $1,250,000 972,541 $49,000 $ -- $ -- $(4,276,000) $ 223,000
Conversion of bridge
loan into equity... 960,445 1,441,000 -- -- -- -- -- -- -- 1,441,000
Stock options and
subscriptions...... -- -- -- -- -- -- 85,000 250,000 -- 335,000
Net loss............ -- -- -- -- -- -- -- -- (1,080,000) (1,080,000)
--------- ---------- --------- ---------- ------- ------- ------- --------- ----------- -----------
Balance at
December 31, 1995... 4,160,445 4,641,000 833,333 1,250,000 972,541 49,000 85,000 250,000 (5,356,000) 919,000
Issuance of
preferred stock.... -- -- 666,668 1,000,000 -- -- -- (250,000) -- 750,000
Net loss............ -- -- -- -- -- -- -- -- (1,502,000) (1,502,000)
--------- ---------- --------- ---------- ------- ------- ------- --------- ----------- -----------
Balance at
December 31, 1996... 4,160,445 $4,641,000 1,500,001 $2,250,000 972,541 $49,000 $85,000 $ -- $(6,858,000) $ 167,000
========= ========== ========= ========== ======= ======= ======= ========= =========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(1,080,000) $(1,502,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 148,000 99,000
Discontinued product line......................... -- 368,000
Change in operating assets and liabilities:
Accounts receivable.............................. (319,000) 63,000
Inventories...................................... (3,000) (132,000)
Prepaid expenses and other assets................ 114,000 38,000
Accounts payable................................. (55,000) 194,000
Deferred revenue................................. (113,000) 388,000
Accrued warranty expense......................... -- 50,000
Other accrued expenses........................... 201,000 22,000
----------- -----------
Net cash used in operating activities............... (1,107,000) (412,000)
INVESTING ACTIVITIES
Purchase of property and equipment.................. (21,000) (71,000)
FINANCING ACTIVITIES
Issuance of preferred stock......................... -- 750,000
Stock options and subscriptions..................... 335,000 --
Repayment of line-of-credit......................... (100,000) --
----------- -----------
Net cash provided by financing activities........... 235,000 750,000
----------- -----------
Increase (decrease) in cash and cash equivalents.... (893,000) 267,000
Cash and cash equivalents at beginning of year...... 1,602,000 709,000
----------- -----------
Cash and cash equivalents at end of year............ $ 709,000 $ 976,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid....................................... $ 5,000 $ 900
Taxes paid.......................................... 800 800
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of notes payable and accrued interest
into common stock.................................. $ 1,441,000
</TABLE>
See accompanying notes.
F-22
<PAGE>
QUINTAR HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Quintar Holdings Corporation (the "Company") is a California corporation,
established in November 1989 to design, manufacture and market computer
presentation graphics and image processing products. The Company generates
revenues primarily in the United States and Japan through product sales,
engineering fees and software licensing agreements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Quintar Company. All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. Significant estimates
made in preparing these financial statements include inventory reserves,
deferred revenue and the allowance for doubtful accounts.
Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
Concentration of Credit Risks
Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
accounts receivable. The Company performs credit evaluations and generally does
not require collateral. Credit losses have traditionally been minimal and such
losses have been within management's expectations.
Three customers accounted for 14%, 12% and 10% of net revenues in 1995 and
23%, 13% and 11% of net revenues in 1996. Export sales in 1995 and 1996 were
$1,239,000 and $2,106,000, respectively. Concentrations of credit risk with
respect to accounts receivable are limited due to the high credit quality of
the Company's customer base and the customers geographic dispersion.
Inventories
Inventories are stated at the lower of cost (average costs method) or market.
At December 31, 1995 and 1996, inventories consisted of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Raw materials and purchased parts......................... $484,000 $307,000
Work-in-process........................................... 36,000 152,000
Finished goods............................................ 15,000 58,000
-------- --------
$535,000 $517,000
======== ========
</TABLE>
F-23
<PAGE>
QUINTAR HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over estimated useful lives of one to five years.
Leasehold improvements are amortized over the shorter of their estimated five-
year life or the related lease term.
Other Assets
Other assets consist primarily of prepaid license fees, which are amortized
using the straight-line method over the estimated one-year to ten-year lives of
the related licenses.
Revenue Recognition
The Company records revenues from product sales upon shipment. Revenues from
engineering and license fees related to the modification of existing products
to meet particular customer requirements are recognized on a percentage of
completion basis. Amounts received from customers in excess of revenues
recognized to date are recorded as deferred revenues.
Research and Development Expenses
Research and Development expenses represent the costs of modifying and
testing products and are expensed as incurred. In accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, the Company has not
capitalized any production costs of computer software, as the technological
feasibility of the related products is established concurrently with the sale
of such products to customers. These costs have been expensed as incurred and
are included in engineering expenses in the accompanying statements of
operations.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding during the year.
2. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax operating loss carryforwards.................. $ 2,025,000 $ 2,352,000
Research and development credit carryforwards..... 386,000 481,000
Accruals not currently deductible................. 100,000 254,000
Inventory reserves................................ 44,000 143,000
Depreciation...................................... 29,000 30,000
----------- -----------
Total deferred tax assets...................... 2,584,000 3,260,000
Valuation reserve................................. (2,584,000) (3,260,000)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
F-24
<PAGE>
QUINTAR HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A valuation allowance has been established to fully reserve deferred tax
assets because the Company cannot yet determine if the asset will be realized.
At December 31, 1996, the Company had net operating loss carryforwards of
$6,070,000 and $2,544,000 available to reduce future federal and state taxable
income, respectively. The federal carryforwards expire in 2004 through 2011,
and the state carryforwards began to expire in 1996. The ultimate realization
of the benefit of these carryforwards is dependent on future profitable
operations. In addition, their utilization may also be limited on an annual
basis if a cumulative change in ownership of more than 50% occurs within any
three-year period.
3. STOCK WARRANTS
In connection with a credit facility which expired in December 1995, the
Company granted the bank a warrant to purchase 20,000 shares of common stock at
a price of $2.00 per share, which exceeded the fair market value at the date of
the grant. The warrant, which expires on December 13, 1998, is exercisable, at
the bank's option, in whole or in part, and is subject to certain anti-dilution
provisions.
In addition, the Company granted the holders of certain subordinated notes
(later converted to Series A preferred stock) warrants to purchase a variable
number of shares of the Company's common stock for an aggregate purchase price
of $62,500. On a monthly basis, from the date of issuance through October 1,
1994, the aggregate purchase price increased by 2% of the notes payable balance
outstanding to $362,500. The warrants are exercisable, at the holders' option,
from time to time, in whole or in part. The exercise price is the lesser of
$1.00 per share or the price of the stock at the date of the exercise, as
determined in conjunction with an initial public offering, a private placement
exceeding $500,000, or the acquisition of the Company by a third party. The
number of shares exercisable is determined by dividing the aggregate purchase
price balance by the exercise price per share at the time of exercise. The
warrants, which expire on October 17, 1998, are subject to certain anti-
dilution provisions.
4. CONVERTIBLE PREFERRED STOCK
During 1994, the Company issued 833,333 shares of Series C preferred stock at
a purchase price of $1.50 per share. In addition, the preferred shareholder
paid $85,000 for an option to acquire additional shares of preferred stock
which expired on May 31, 1995.
In 1996, the Company issued an additional 666,668 shares of Series C
Convertible preferred stock at $1.50 per share. The purchaser made an advance
payment of $250,000 which has been reflected as a stock subscription in the
consolidated balance sheet in 1995. The remaining payment of $750,000 was made
during 1996.
Each share of the Company's Series A and Series C preferred stock is, at the
holder's option, convertible into one share of common stock, subject to
adjustment for dilution. If 75% of previously issued shares of preferred stock
are converted into common stock, conversion of the remaining outstanding shares
of preferred stock is mandatory. Conversion of outstanding preferred stock into
common stock is also mandatory if the Company issues common stock in an
underwritten public offering registered under the Securities Act of 1933 in
which the per share and aggregate public offering price equals or exceeds $5.00
and $5,000,000, respectively.
Holders of preferred stock are entitled to vote on all matters based upon the
number of shares of common stock into which the preferred stock may be
converted. The Company is authorized to seat five directors on its board, three
of whom are elected by holders of the preferred stock and two of whom
F-25
<PAGE>
QUINTAR HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are elected by holders of the common stock. Among other provisions, the
Company is restricted from amending any of the rights, preferences or
privileges of the preferred stock, issuing other preferred equity securities,
or transferring substantially all of the Company's assets to others without
the consent of a majority of the holders of preferred stock.
Upon the declaration of cash dividends on common stock, the Company is
required to declare cash dividends on the preferred stock. The preferred stock
dividend must at least equal the per share amount of the common stock dividend
and must be paid prior to the payment of any common stock dividends. As of
December 31, 1996, the Company had not declared any dividends. The Series A
and Series C preferred stock also carries a liquidation preference equal to
$1.00 and $1.50 per share, respectively, ($6,891,000 in the aggregate) plus an
amount equal to unpaid preferred stock dividends.
5. COMMON STOCK AND STOCK OPTION PLAN
Pursuant to the Company's Restricted Stock Plan, common stock is held solely
by Company officers, employees and former employees and vests ratably over
forty-eight months. Common stock is subject to certain restrictions which
relate principally to the transfer of ownership. Shares may be sold to third
parties, but only after first being offered to the Company at prevailing
market prices as determined in accordance with the Company's stock
subscription agreement.
On April 29, 1993, the board of directors and stockholders of the Company
approved the 1993 Stock Option Plan (the Plan). Under the Plan as amended,
1,510,500 shares of common stock have been reserved for issuance to eligible
employees, directors, consultants and advisors, subject to certain
limitations, as defined in the Plan. Incentive stock options may be granted at
prices not less than 100% of the fair market value at the date of the grant.
All options granted expire ten years after the date of the grant.
Information regarding options outstanding under the Plan is summarized
below:
<TABLE>
<CAPTION>
1995 1996
----------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 349,500 $0.08 349,500 $0.08
Granted.............................. -- -- 1,188,500 0.15
Terminated........................... -- -- (27,500) 0.10
------- ---------
Outstanding at end of year........... 349,500 0.08 1,510,500 0.13
======= =========
Exercisable at end of year........... 259,250 $0.08 749,250 $0.13
======= ===== ========= =====
Weighted-average fair value of
options granted during the year..... $0.08 $0.13
===== =====
</TABLE>
Exercise prices on options outstanding at December 31, 1996 ranged from
$0.05 to $0.15. The weighted average remaining contractual life of the options
is eight and one half years.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
the Plan. Accordingly, no compensation expense has been recognized for the
Plan. The impact on the Company's net loss would have been insignificant had
compensation cost for the Plan been determined consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation.
F-26
<PAGE>
QUINTAR HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. PROFIT SHARING PLAN
The Company's 401(k) savings and profit sharing plan is available to
substantially all of its employees. Company contributions to the plan are made
at the discretion of the Board of Directors. The Company contributed $5,000 to
the plan during both 1995 and 1996.
7. DISCONTINUED PRODUCT LINE
The Company has adopted a plan to cease production of one of its product
lines. The Company will complete its contractual obligations through fiscal
1997, and cease production of the products by December 1997. In connection with
the decision, the Company charged $368,000 to 1996 operations, consisting of
inventory write-downs, warranty costs, and the accelerated amortization of
intangible assets.
8. PROPOSED CHANGE IN OWNERSHIP
The Company has agreed to be acquired by Splash Technology Holdings, Inc. for
$11.5 million plus additional compensation based on future operations. The
proposed transaction is expected to be completed in the second quarter of 1997.
The Company's financial position and results of operations reflect the
operating plans of current management without consideration of strategic
changes which may take place upon consummation of the change in ownership.
F-27
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 799,000
Accounts receivable, net of an allowance for doubtful accounts
of $158,000.................................................. 108,000
Inventories................................................... 373,000
Prepaid expenses and other current assets..................... 154,000
------------
Total current assets........................................ 1,434,000
------------
Property and equipment, net................................... 66,000
Other assets, net............................................. 73,000
------------
Total assets................................................ $ 1,573,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 576,000
Deferred revenue.............................................. 227,000
Accrued warranty expense...................................... 105,000
Other accrued expenses........................................ 647,000
------------
Total current liabilities................................... 1,555,000
------------
Deferred revenue, long term................................... 350,000
------------
Stockholders' Equity:
Series A convertible preferred stock, no par value:
Authorized shares--4,200,000; Issued and outstanding
shares--4,160,445.......................................... 4,641,000
Series C convertible preferred stock, no par value:
Authorized shares--2,166,668; Issued and outstanding
shares--1,500,001.......................................... 2,250,000
Common stock, no par value:
Authorized shares--10,000,000; Issued and outstanding
shares--972,541............................................ 49,000
Additional paid in capital.................................... 85,000
Accumulated deficit........................................... (7,358,000)
------------
Total stockholders' equity.................................. (333,000)
------------
Total liabilities and stockholders' equity.................. $ 1,572,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-28
<PAGE>
QUINTAR HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Product sales........................................ $ 706,000 $ 771,000
Engineering and royalty revenues..................... 314,000 193,000
---------- ----------
Total revenues................................... 1,020,000 964,000
Cost and expenses:
Cost of revenues
Product............................................ 412,000 474,000
Engineering........................................ 176,000 83,000
Engineering expense.................................. 544,000 641,000
Selling, general and administrative expenses......... 304,000 258,000
Interest (income) expense, net....................... (5,000) 8,000
---------- ----------
Total costs and expenses......................... 1,431,000 1,464,000
---------- ----------
Net loss............................................. $ (411,000) $ (500,000)
========== ==========
Net loss per share................................... $ (0.42) $ (0.51)
========== ==========
Shares used in computing net loss per share.......... 973,000 973,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-29
<PAGE>
QUINTAR HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $(411,000) $(500,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 54,000 73,000
Change in operating assets and liabilities:
Accounts receivable................................. (106,000) 496,000
Inventories......................................... 4,000 144,000
Prepaid expenses and other assets................... (50,000) (132,000)
Accounts payable.................................... 287,000 (156,000)
Deferred revenue.................................... (16,000) (243,000)
Accrued warranty expense............................ 41,000 80,000
Other accrued expenses.............................. 50,000 86,000
--------- ---------
Net cash used in operating activities.................. (147,000) (152,000)
INVESTING ACTIVITIES
Purchase of property and equipment..................... (12,000) (25,000)
FINANCING ACTIVITIES
Issuance of preferred stock............................ 249,000 --
--------- ---------
Increase (decrease) in cash and cash equivalents....... 90,000 (177,000)
Cash and cash equivalents at beginning of the period... 709,000 976,000
--------- ---------
Cash and cash equivalents at end of the period......... $ 799,000 $ 799,000
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE>
QUINTAR HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial information has been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all normal, recurring adjustments necessary to present
fairly the Company's consolidated financial position as of March 31, 1997 and
the results of operations and cash flows for the three months ended March 31,
1997 and 1996, which results are not necessarily indicative of results on an
annual basis. Such consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's financial statements for the year ended December 31,
1996.
2. INVENTORIES
Substantially all of the Company's inventories at March 31, 1997 are composed
of raw materials and purchased parts.
F-31
<PAGE>
[Graphical chart inserted here illustrating how Splash fits in the creative
workflow by depicting the input, design, photo retouching, layout and comping
and preproofing phases.]
HOW SPLASH FITS IN THE CREATIVE WORKFLOW
<TABLE>
<S> <C> <C>
Design Layout Comping and Preproofing
Illustrator QuarkXPress Splash Server
Freehand PageMaker . Accurate Press Simulation
Corel Ventura . Spot Color Matching
PC PC . Mixed RGB/CMYK
. Macintosh Platform
. Graphics Workstation
. Unlimited Separations
. Easy, Fast Calibration
Scanning
Input Photo Retouching
Slide Scanner PhotoShop
Live Picture
PC
</TABLE>
[Graphical chart inserted here illustrating how Splash fits in the
corporate workflow by depicting the needs and uses of the creative/marketing,
executive and sales, service provider, engineering and finance functions.]
HOW SPLASH FITS IN THE CORPORATE WORKFLOW
Creative/Marketing Executive and Sales Service Provider
Department Proofing/ Short Run Reprographics Center
Short Run Brochures Presentations Provide volume
Advertisements Overheads Posters printing for all other
Newsletters Cards Financials Memos departments, using all
Invitations PC applications
Mac or PC Mac
Engineering Proofing/ Finance and Operations Proofing and Printing
Short Run Schedules Short Run Billing
Schematics Tech Communications Memos
Manuals Posters Forms
Presentations PC
Unix or PC
Splash
. Identical Color
Across Platform
. Intranet Access
. Handles Problem Files
. Simultaneous Network
Access
. Collated Sets of
Documents
. Color Accuracy
. Monitor Matching
(Blue to Purple)
. Job Accounting
<PAGE>
[Graphical artwork appears here with Splash logo and five colored stripes.]
<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.............................................. $ 42,967
NASD Filing Fee................................................... 14,679
Nasdaq National Market Application Fee............................ 17,500
Printing.......................................................... 100,000
Legal Fees and Expenses........................................... 150,000
Accounting Fees and Expenses...................................... 62,000
Blue Sky Fees and Expenses........................................ 5,000
Custodial Fees.................................................... 2,500
Transfer Agent and Registrar Fees................................. 2,500
Miscellaneous..................................................... 2,854
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he 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 or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to believe his or
her conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him or her in connection with the defense or settlement of such
action or suit if he or she acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he or she shall be indemnified against
expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided
II-1
<PAGE>
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and that the corporation may purchase
and maintain insurance on behalf of a director or officer of the corporation
against any liability asserted against him or her or incurred by him or her in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him or her against such
liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members
of its board of directors or governing body for breach of a director's
fiduciary duty. However, no such provision may eliminate or limit the liability
of a director for breaching his or her duty of loyalty, failing to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying
a dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or recession, for breach
of fiduciary duty. The Company's Restated Certificate of Incorporation contains
such a provision.
The Registrant's Amended and Restated Certificate of Incorporation (Exhibit
3.1 hereto) and Amended and Restated 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
of 1933, as amended (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 31, 1994, the Registrant has issued and sold the following
unregistered securities:
1. On January 30, 1996, the Registrant issued and sold an aggregate of
533,750 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 L.P., Summit Ventures IV, L.P., Summit 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 8,750 shares of Common Stock to Imperial Bank for an aggregate
cash consideration of $.01.
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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1(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(1) Amendment No. 1 to Merger Agreement dated January 30, 1996.
2.3(2) Agreement and Plan of Reorganization dated as of May 1, 1997, by and
among Splash Technology Holdings, Inc., Splash Acquisition
Corporation and Quintar Holdings Corporation.
3.1(1) Amended and Restated Certificate of Incorporation of Registrant.
3.2(1) Amended and Restated Bylaws of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1(1) Form of Indemnification Agreement.
10.2(1) 1996 Stock Option Plan and form of Stock Option Agreement.
10.3(1) 1996 Employee Stock Purchase Plan and form of Subscription Agreement.
10.4(1) Registration Rights Agreement dated January 30, 1996 among the
Registrant and certain stockholders of the Registrant.
10.5(1) Configurable Postscript Interpreter OEM License Agreement dated
September 18, 1992 between the Registrant and Adobe Systems
Incorporated.
10.5a(1) Amendment No. 2 and Appendix No. 2 to Configurable Postscript
Interpreter OEM License Agreement dated September 18, 1992 between
the Registrant and Adobe Systems Incorporated.
10.6(1) Xerox and SMT Hardware Purchase and Software Development/License
Agreement between the Registrant and Xerox Corporation dated November
13, 1993.
10.6a(1) Attachments I and II to Xerox and SMT Hardware Purchase and Software
Development/License Agreement between the Registrant and Xerox
Corporation dated November 13, 1993.
10.7(1) Property Lease covering Registrant's facilities in Sunnyvale,
California.
10.8(1) Security and Loan Agreement dated January 31, 1996, between the
Registrant and Imperial Bank.
10.9 Revolving Loan & Security Agreement between the Registrant and
Comerica Bank-California dated September 3, 1996; Collateral
Assignment, Patent Mortgage and Security Agreement between the
Registrant and Comerica Bank-California dated September 3, 1996; and
Modification to the Loan & Security Agreement dated February 4, 1997.
11.1 Computation Regarding Earnings Per Share.
21.1(1) Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
24.1(1) Power of Attorney (see page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-09591) originally filed with the Securities and Exchange
Commission on August 5, 1996.
(2) Incorporated by reference to the Company's filing on Form 8-K filed with
the Securities and Exchange Commission on May 30, 1997.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
II-3
<PAGE>
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-4
<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 July 28, 1997.
SPLASH TECHNOLOGY HOLDINGS, INC.
By:/s/ Kevin K. Macgillivray
----------------------------------
KEVIN K. MACGILLIVRAY,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Kevin Macgillivray and Joan P. Platt, and
each of them, his or her true and lawful agent, proxy and attorney-in-fact,
with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to (i) act on, sign
and file with the Securities and Exchange Commission any and all amendments
(including post-effective amendments) to this registration statement together
with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign
and file such certificates, instruments, agreements and other documents as may
be necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any
such amendment or any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and (iv) take any and all
actions which may be necessary or appropriate to be done, as fully for all
intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agent, proxy and attorney-in-
fact or any of his substitutes may lawfully do or cause to be done by virtue
thereof.
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 July 28, 1997
- ------------------------------------ Chief Officer (Principal
KEVIN K. MACGILLIVRAY Executive Officer)
/s/ Joan P. Platt Chief Financial Officer and July 28, 1997
- ------------------------------------ Vice President, Finance and
JOAN P. PLATT Administration (Principal
Financial and Accounting
Officer)
/s/ Gregory M. Avis Director July 28, 1997
- ------------------------------------
GREGORY M. AVIS
/s/ Charles W. Berger Director July 28, 1997
- ------------------------------------
CHARLES W. BERGER
/s/ Peter Y. Chung Director July 28, 1997
- ------------------------------------
PETER Y. CHUNG
/s/ Lawrence G. Finch Director July 28, 1997
- ------------------------------------
LAWRENCE G. FINCH
</TABLE>
II-5
<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 September 30, 1996
and for the eight months ended September 30, 1996, and in connection with our
audit of the Predecessor Business as of September 30, 1995, and for each of the
two years in the period ended September 30, 1995 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
October 14, 1996
II-6
<PAGE>
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
VALUATION FOR DOUBTFUL BALANCE AT BALANCE AT
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
Eight months ended
September 30, 1996..... $101 $ 198 $ -- $ 299
<CAPTION>
VALUATION FOR INVENTORY BALANCE AT BALANCE AT
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) $ --
Eight months ended
September 30, 1996..... $ -- $1,028 $ -- $1,028
<CAPTION>
VALUATION FOR WARRANTY BALANCE AT BALANCE AT
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
Eight months ended
September 30, 1996..... $141 $ 353 $ (27) $ 467
</TABLE>
- --------
(1) Predecessor Business.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1(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(1) Amendment No. 1 to Merger Agreement dated January 30, 1996.
2.3(2) Agreement and Plan of Reorganization dated as of March 26, 1997, by
and among Splash Technology Holdings, Inc., Splash Acquisition
Corporation and Quintar Holdings Corporation.
3.1(1) Amended and Restated Certificate of Incorporation of Registrant.
3.2(1) Amended and Restated Bylaws of Registrant.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1(1) Form of Indemnification Agreement.
10.2(1) 1996 Stock Option Plan and form of Stock Option Agreement.
10.3(1) 1996 Employee Stock Purchase Plan and form of Subscription Agreement.
10.4(1) Registration Rights Agreement dated January 30, 1996 among the
Registrant and certain stockholders of the Registrant.
10.5(1) Configurable Postscript Interpreter OEM License Agreement dated
September 18, 1992 between the Registrant and Adobe Systems
Incorporated.
10.5a(1) Amendment No. 2 and Appendix No. 2 to Configurable Postscript
Interpreter OEM License Agreement dated September 18, 1992 between
the Registrant and Adobe Systems Incorporated.
10.6(1) Xerox and SMT Hardware Purchase and Software Development/License
Agreement between the Registrant and Xerox Corporation dated November
13, 1993.
10.6a(1) Attachments I and II to Xerox and SMT Hardware Purchase and Software
Development/License Agreement between the Registrant and Xerox
Corporation dated November 13, 1993.
10.7(1) Property Lease covering Registrant's facilities in Sunnyvale,
California.
10.8(1) Security and Loan Agreement dated January 31, 1996, between the
Registrant and Imperial Bank.
10.9 Revolving Loan & Security Agreement between the Registrant and
Comerica Bank-California dated September 3, 1996; Collateral
Assignment, Patent Mortgage and Security Agreement between the
Registrant and Comerica Bank-California dated September 3, 1996; and
Modification to the Loan & Security Agreement dated February 4, 1997.
11.1 Computation Regarding Earnings Per Share.
21.1(1) Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
24.1(1) Power of Attorney (see page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-09591) originally filed with the Securities and Exchange
Commission on August 5, 1996.
(2) Incorporated by reference to the Company's filing on Form 8-K filed with
the Securities and Exchange Commission on May 30, 1997.
<PAGE>
Exhibit 1.1
3,250,000 Shares
Splash Technology Holdings, Inc.
Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
----------------------
August ___, 1997
Alex. Brown & Sons Incorporated
Montgomery Securities
Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Splash Technology Holdings, Inc., a Delaware corporation (the
"Company"), and certain stockholders of the Company (the "Selling Stockholders")
propose to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representatives (the
"Representatives") an aggregate of 3,250,000 shares of the Company's Common
Stock, $0.001 par value (the "Firm Shares") of which 1,250,000 shares will be
sold by the Company and 2,000,000 shares will be sold by the Selling
Stockholders. The respective amounts of the Firm Shares to be so purchased by
the several Underwriters are set forth opposite their names in Schedule I hereto
and the respective amounts to be sold by the Selling Stockholders are set forth
opposite their names in Schedule II hereto. The Company and the Selling
Stockholders are sometimes referred to herein collectively as the "Sellers."
The Company and certain Selling Stockholders also propose to sell at the
Underwriters' option an aggregate of up to 487,500 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option
<PAGE>
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interest of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-
_________) with respect to the Shares has been carefully prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) the last
preliminary prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Splash Technology, Inc.
(the "U.S. Subsidiary") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The U.S.
Subsidiary, Splash Foreign Sales Corporation and Splash Technology S.a.r.l.
(collectively, the "Subsidiaries") are the only subsidiaries, direct or
indirect, of the Company. The Company and the U.S. Subsidiary are duly qualified
to transact business in all jurisdictions in which the conduct of their business
requires such qualification and the failure to be so qualified would have a
material adverse effect upon the Company. The outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and non-assessable and are owned by the Company or another
Subsidiary free and clear of all liens, encumbrances and equities and claims;
and no
2
<PAGE>
options, warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of capital stock
or ownership interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of capital stock of the Company,
including all shares to be sold by the Selling Stockholders, have been duly
authorized and validly issued and are fully paid and non-assessable; the Shares
have been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive rights
granted by the Company to any stockholders exist with respect to any of the
Shares or the issue and sale thereof. Neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those that have been waived or
satisfied, for or relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms in all material respects to the
corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for use
in the preparation thereof.
(vi) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Such financial statements and
related schedules have been prepared in accordance with generally accepted
accounting principles, consistently applied throughout the periods involved,
except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial,
statistical and pro forma data included in the Registration Statement presents
fairly the information shown therein and such data has been
3
<PAGE>
compiled on a basis consistent with the financial statements presented therein
and the books and records of the Company. The pro forma financial statements and
other pro forma financial information included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(vii) Coopers & Lybrand L.L.P., who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or,
to the knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations or condition (financial or otherwise) of the Company
and the Subsidiaries taken as a whole or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial statements
(or as described in the Registration Statement) hereinabove described, subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or those that do not materially affect the value of such properties
or assets of the Company and its Subsidiaries, taken as a whole, and do not
materially interfere with the use made and proposed to be made of such
properties and assets by the Company and its Subsidiaries, taken as a whole. The
Company and the Subsidiaries occupy their leased properties under valid and
binding leases conforming in all material respects to the description thereof
set forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign income tax returns that have been required to be filed
and have paid all taxes indicated by said returns and all assessments received
by them or any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements of the
Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of
4
<PAGE>
business and changes and transactions described in the Registration Statement,
as it may be amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations that are not disclosed in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is or with
the giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which violation or default is of
material significance in respect of the business or financial condition of the
Company and the Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any Subsidiary is a party, or of the Charter or by-laws of the
Company or, to its knowledge, any order, rule or regulation applicable to the
Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction over the
Company, its Subsidiaries or any of their activities or properties.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses, except where the failure to
have such licenses, certificates and permits would not, singly or in the
aggregate, have a material adverse effect on the business or financial condition
of the Company and the Subsidiaries, taken as a whole.
(xv) The Company and each of the Subsidiaries owns or possess
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights, mask work rights, technology know-how and other intellectual
property rights ("Intellectual Property") necessary to conduct the business now
conducted by the Company and its Subsidiaries, taken as a whole as described in
the Prospectus, and, except as disclosed in the Prospectus, neither the Company
nor any of its Subsidiaries has received any notice of infringement of or
conflict with (or knows of such infringement of or conflict with) asserted
rights of others with respect to the Intellectual Property which, individually
or in the aggregate, could reasonably be expected to result in any material
adverse effect upon the business or financial condition of the Company and the
Subsidiaries, taken as a whole; and, except as disclosed in the Prospectus and
to the knowledge of the Company and each of its Subsidiaries, do not in the
conduct of their business as described in the Prospectus, infringe or conflict
with any
5
<PAGE>
Intellectual Property of any third party, or any discovery, invention, product
or process which is the subject of a patent application filed by any thirty
party, known to the Company or any of the Subsidiaries.
(xvi) Neither the Company, nor to the Company's best knowledge,
any of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on The Nasdaq National Market in
accordance with Regulation M under the Exchange Act.
(xvii) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission thereunder.
(xviii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xix) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xx) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (i) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(xxi) The Company has obtained the agreement of each
executive officer and Selling Stockholder not to sell, grant any option to
sell or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into, or exercisable or
6
<PAGE>
exchangeable for Common Stock or other rights to purchase Common Stock until 90
days after the date of the Prospectus, subject to certain limited exceptions
agreed to by the Underwriters.
(b) Each of the Selling Stockholders severally represents and
warrants as follows:
(i) Such Selling Stockholder now has and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are hereinafter
defined), will have good and marketable title to the Firm Shares and the Option
Shares, if any, to be sold by such Selling Stockholder, free and clear of any
liens, encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Firm Shares and Option Shares; and upon the
delivery of, against payment for, such Firm Shares and Option Shares pursuant to
this Agreement, the Underwriters will acquire good and marketable title thereto,
free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney, and the
Custody Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not require any
consent, approval, authorization, or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Stockholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company and, other than as
permitted by the Act, the Selling Stockholder will not distribute any prospectus
or other offering material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of the representations and warranties of the Company
contained herein no Selling Stockholder who is an executive officer of the
Company has any reason to believe that the representations and warranties of
the Company contained in this Section 1 are not true and correct.
(v) Without having undertaken to determine independently the
accuracy or completeness of the information contained in the Registration
Statement, each Selling Stockholder listed on Schedule III is familiar with
the Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement which has
adversely affected or may adversely affect the business of the Company and its
Subsidiaries, taken as a whole; and the sale of the Firm Shares and the Option
Shares by such Selling Stockholder pursuant hereto is not prompted by any
information concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement or the
7
<PAGE>
documents incorporated by reference therein. The information pertaining to such
Selling Stockholder under the caption "Selling Stockholders" in the Prospectus
is complete and accurate in all material respects.
(v) Each of the Selling Stockholders listed on Schedule III,
severally and not jointly, represents, warrants and agrees that each of them has
reviewed the Registration Statement and Prospectus and during the course of such
review, no facts have come to such Selling Stockholder's attention which leads
such Selling Stockholder to believe that the Registration Statement, at the time
it became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or that the Prospectus, as of the date of the
Prospectus, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2. Purchase, Sale and Delivery of the Firm Shares.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Certificates in negotiable form for the total number of the
Shares to be sold hereunder by the Selling Stockholders have been placed in
custody with The First National Bank of Boston as custodian (the "Custodian")
pursuant to the Custody Agreement executed by each Selling Stockholder for
delivery of all Firm Shares and any Option Shares to be sold hereunder by the
Selling Stockholders. Each of the Selling Stockholders specifically agrees that
the Firm Shares and any Option Shares represented by the certificates held in
custody for the Selling Stockholders under the Custody Agreement are subject to
the interests of the Underwriters hereunder, that the arrangements made by the
Selling Stockholders for such custody are to that extent irrevocable, and that
the obligations of the Selling Stockholders hereunder shall not be terminable by
any act or deed of the Selling Stockholders (or by any other person, firm or
corporation including the Company, the Custodian or the Underwriters) or by
operation of law (including the death of an individual Selling Stockholder or
the dissolution of a corporate Selling Stockholder) or by the occurrence of any
other event or events, except as set forth in the Custody Agreement. If any such
event should occur prior to the delivery of the Underwriters of the Firm Shares
or the Option Shares hereunder, certificates for the Firm Shares or the Option
Shares, as the case may be, shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge receipt of the
proceeds of sale of the Shares held by it against delivery of such Shares.
8
<PAGE>
(c) Payment for the Firm Shares to be sold hereunder is to be made in
same day funds by wire transfer to the order of the Company for the shares to be
sold by it and to the order of The First National Bank of Boston "as Custodian"
for the shares to be sold by the Selling Stockholders, in each case against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the third or fourth
business day after the date of this Agreement in accordance with Rule 15c6(1)
under the Exchange Act or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such time and
date being herein referred to as the "Closing Date." (As used herein, "business
day" means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and are not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will be
delivered in such denominations and in such registrations as the Representatives
requests in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the Representatives
at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and certain of the Selling Stockholders listed on Schedule II hereto
hereby grant an option to the several Underwriters to purchase the Option Shares
at the price per share as set forth in the first paragraph of this Section 2.
The maximum number of Option Shares to be sold by the Company and such Selling
Stockholders is set forth opposite their respective names on Schedule II hereto.
The option granted hereby may be exercised in whole or in part by giving written
notice (i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as Representatives of
the several Underwriters, to the Company, the Attorney-in-fact, and the
Custodian setting forth the number of Option Shares as to which the Option
Shares are to be registered and the time and date at which such certificates are
to be delivered. If the option granted hereby is exercised in part, the
respective number of Option Shares to be sold by the Company and each of the
Selling Stockholders listed Schedule II hereto shall be determined on a pro rata
basis in accordance with the percentages set forth opposite their names on
Schedule II hereto, adjusted by you in such manner to avoid fractional shares.
The time and date at which certificates for Option Shares are to be delivered
shall be determined by the Representatives but shall not be earlier than three
nor later than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three or
more days before the Closing Date, the notice of exercise shall set the Closing
Date as the Option Closing Date. The number of Option Shares to be purchased by
each Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriters bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company and the
Attorney-in-fact. To the extent, if any, that the option is exercised, payment
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for the Option Shares shall be made on the Option Closing Date in same day funds
by wire transfer to the order of the Company for the Option Shares to be sold by
it and to the order of "The First National Bank of Boston, as Custodian" for the
Option Shares to be sold by the Selling Stockholders against delivery of
certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland.
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Stockholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending
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the effectiveness of the Registration Statement or the use of the Prospectus or
of the institution of any proceedings for that purpose. The Company will use its
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, two signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event no later than
15 months after the effective
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date of the Registration Statement, an earning statement (which need not be
audited) in reasonable detail, covering a period of at least 12 consecutive
months beginning after the effective date of the Registration Statement, which
earning statement shall satisfy the requirements of Section 11(a) of the Act and
Rule 158 of the Rules and Regulations and will advise you in writing when such
statement has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries, as
that term is defined in the Rules and Regulations, which are not consolidated in
the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 90 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons Incorporated
except that the Company may, without such consent, issue shares upon exercise of
options issued pursuant to the 1996 Stock Option Plan or the 1996 Employee Stock
Purchase Plan.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each executive officer and each
Selling Stockholder of the Company's outstanding capital stock to furnish to
you, on or prior to the date of this Agreement, a letter or letters, in form
and substance satisfactory to the Underwriters, pursuant to which each such
person shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company,
or any other securities convertible, exchangeable or exercisable for Common
Shares or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 90
days after the date of this Agreement, directly or indirectly, except with the
prior written consent of Alex. Brown & Sons Incorporated ("Lockup
Agreements").
(xi) The Company shall apply the net proceeds of its sale of
the Shares substantially as set forth in the Prospectus and shall file such
reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance with Rule
463 under the Act.
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act").
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(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Stockholder has the right to direct the disposition of) will be made for
a period of 90 days after the date of this Agreement, directly or indirectly, by
such Selling Stockholder otherwise than hereunder or with the prior written
consent of Alex. Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
5. Costs and Expenses.
------------------
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company and the
Selling Stockholders; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees and expenses (including legal fees and disbursements) incident to securing
any required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq
National Market; and the expenses, including the fees and disbursements of
counsel for the Underwriters, incurred in connection with the qualification of
the Shares under State securities or Blue Sky laws. To the extent, if at all,
that any of the Selling Stockholders engage special legal counsel to
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represent them in connection with this offering, the fees and expenses of such
counsel shall be borne by such Selling Stockholder. Any transfer taxes imposed
on the sale of the Share to the several Underwriters will be paid by the Sellers
pro rata. The Company shall not, however, be required to pay for any of the
Underwriters expenses (other than those related to qualification under NASD
regulation and State securities or Blue Sky laws) except that, if this Agreement
shall not be consummated because the conditions in Section 6 hereof are not
satisfied, or because this Agreement is terminated by the Representatives
pursuant to subsections (b)(i), (iv), (vi) or (vii) of Section 11 hereof, or by
reason of any failure, refusal or inability on the part of the Company or the
Selling Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Stockholders contained herein, and to the performance by the
Company and the Selling Stockholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Stockholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, the opinion of Wilson Sonsini
Goodrich & Rosati, P.C., counsel for the Company and the Selling Stockholders
(other than Summit Ventures IV, L.P., Summit Investors III, L.P. and Summit
Subordinated Debt Fund, L.P. (collectively, the "Summit Entities") and Radius
Inc. (the Summit Entities and Radius Inc. are herein collectively referred to as
the "non-Company Selling Stockholders"), dated the Closing Date or the Option
Closing Date,
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as the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the U.S. Subsidiary has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and the U.S. Subsidiary are
duly qualified to transact business in all jurisdictions in which the conduct of
their business requires such qualification, or in which the failure to qualify
would have a materially adverse effect upon the business of the Company and the
U.S. Subsidiary taken as a whole; and the outstanding shares of capital stock of
the U.S. Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable and are owned by the Company; and to the best of such
counsel's knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests in the
U.S. Subsidiary are outstanding.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock, including the shares to be sold by the
Selling Stockholders, have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and upon the Closing of the
Offering and payment for the Shares as contemplated by this Agreement such
Shares will be validly issued, fully paid and non-assessable; none of such
shares will be issued in violation of any preemptive right in the corporate
charter or bylaws of the Company or to such counsel's knowledge any contractual
right of first refusal; and, to such counsel's knowledge, the Shares will not be
subject to any such preemptive rights or right of first refusal.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration
15
<PAGE>
Statement or the right, as a result of the filing of the Registration Statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and schedules and other financial data included therein).
(vi) The statements under the captions "Management--Compensation
Plans," "Certain Transactions," "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Prospectus, and in the Registration Statement
in Part II, Items 14 and 15, in each case insofar as such statements constitute
a summary of documents referred to therein or matters of law, fairly present the
information called for with respect to such documents and matters and fairly
summarize the matters referred to therein.
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement or the Prospectus which are not so filed or described
as required.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of the Subsidiaries
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Charter or by-laws of the Company, or to such
counsel's knowledge any agreement or instrument to which the Company or of the
U.S. Subsidiary is a party or by which the Company or the U.S. Subsidiary may be
bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
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(xii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders (other than the non-Company
Selling Stockholders, as to which no opinion need be expressed).
(xiii) Each Selling Stockholder (other than the non-Company Selling
Stockholders, as to which no opinion need be expressed) has full legal right,
power and authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion), to sell, assign, transfer and deliver the portion of the Shares to be
sold by such Selling Stockholders.
(xiv) The Custody Agreement and the Power of Attorney executed and
delivered by each Selling Stockholder (other than the non-Company Selling
Stockholders, as to which no opinion need be expressed) is valid and binding.
(xv) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code), upon payment
therefor pursuant to their Agreement, have acquired good and marketable title
to the Shares being sold by each Selling Stockholder (other than the non-
Company Selling Stockholders, as to which no opinion need be expressed) on the
Closing Date, and the Option Closing Date, as the case may be, free and clear
of all liens, encumbrances, equities and claims.
In rendering such opinion Wilson Sonsini Goodrich & Rosati, P.C. may rely
as to matters of fact on certificates of the non-Company Selling Stockholders
and certain officers of the Company and of governmental officials as to matters
governed by state laws other than California law, the General Corporation Law of
the State of Delaware corporate law or applicable Federal laws on local counsel
in such jurisdictions, provided that in each case Wilson Sonsini Goodrich &
Rosati, P.C. shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, involving, among other things, review and discussion of the
contents thereof, discussion and inquiries concerning various legal matters and
the review of certain records, documents and proceedings, and participation in
conferences with certain officers and other representatives of the Company,
including its independent accountants, and with the Underwriters and counsel for
the Underwriters at which the contents of the Registration Statement and the
Prospectus were discussed, but without independent check or verification of the
accuracy or completeness of such information, except as specified herein. On the
basis of such consideration, review and discussion, but without independent
check or verification, nothing has come to such counsel's attention which causes
them to believe (i) that, as of its effective date, the Registration Statement
or any further amendment thereto made by the Company prior to the date hereof
(other than the financial statements and related schedules and financial and
statistical data therein, as to which such counsel may express no belief)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) that as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to the date hereof
(other than the financial statements and related schedules and financial and
statistical data therein, as to which we express no belief) contained an untrue
statement of a material fact or
<PAGE>
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or (iii)
that, as of the date hereof, either the Registration Statement or the Prospectus
or any further amendment or supplement thereto made by the Company prior to the
date hereof (other than the financial statements and related schedules and
financial and statistical data therein, as to which we express no belief)
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading.
(c) Hutchins, Wheeler & Dittmar, counsel for the Summit
Entities, and the internal counsel for Radius Inc., shall have furnished to the
Representatives their respective written opinions consistent with Sections
6(a)(xii) through 6(a)(xv) of this Agreement, addressed to the Underwriters and
dated the Closing Date or the Option Closing Date, as the case may be (and
stating that it may be relied upon by counsel to the Underwriters).
(d) Fenwick & West, LLP, patent counsel for the Company, shall
have furnished to the Representatives its written opinion, addressed to the
Underwriters and dated the Closing Date or the Option Closing Date, as the case
may be, in form and substance reasonably satisfactory to the Representatives, to
the effect that such counsel is familiar with the technology used by the Company
in its business and the manner of its use thereof and has read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents and trade
secrets, and:
(i) to such counsel's knowledge and except as set forth in
the Prospectus under the captions "Risk Factors-Dependence on Proprietary
Technology" and "Business--Intellectual Property," there are no legal or
governmental proceedings pending relating to patent rights trade secrets, of the
Company, and to such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or others;
(ii) except as set forth in the Prospectus, to the best of
such counsel's knowledge, the Company is not infringing or otherwise violating
any patents or trade secrets of others.
(e) The Representatives shall have received from Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for the
Underwriters, an opinion dated the Closing Date or the Option Closing Date, as
the case may be, substantially to the effect specified in subparagraphs (iv) and
(v) of Paragraph (b) of this Section 6, and that the Company is a duly organized
and validly existing corporation under the laws of the State of Delaware. In
rendering such opinion Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP may rely as to all matters governed other than by the laws of the States of
California and Delaware or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue
<PAGE>
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, financial data, schedules and statistical information therein). With
respect to such statement, Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the
Closing Date from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
a memorandum or summary, in form and substance satisfactory to the
Representatives, with respect to the qualification for offering and sale by the
Underwriters of the Shares under the State securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to the
Company.
(g) The Representatives shall have received, on each of the
dates hereon, the Closing Date and the Option Closing Date, as the case may be,
a letter dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to you, of Coopers & Lybrand
L.L.P. confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(h) The Representatives shall have received on the Closing Date
or the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
<PAGE>
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business.
(i) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(j) The Lockup Agreements described in Section 1(xxi) shall be in
full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Company.
--------------------------------------------
(a) The obligations of the Sellers to sell and deliver the Shares as
and when specified in this Agreement are subject to the conditions that at the
Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect or proceedings therefor initiated or threatened.
20
<PAGE>
8. Indemnification.
---------------
(a) The Company and the Selling Stockholders, jointly and severally
(as defined in Section 8(g) below) agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to
which such Underwriter or any such controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person upon demand for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
loss, claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any action
or proceeding; provided, however, that neither the Company nor any Selling
Stockholders will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof; provided further that any
Selling Stockholder not listed on Schedule III shall only be liable with
respect to information pertaining to such Selling Stockholder for use in the
Registration Statement, any Preliminary Prospectus or Final Prospectus;
provided further that the indemnity agreement provided in this Section 8(a)
with respect to any Preliminary Prospectus shall not inure to the benefit of
the Underwriters from whom the person asserting any loss, claim, charge,
liability or litigation based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state therein
a material fact regarding the purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected has not been sent or given to such person within the
time required by the Act and the Rules and Regulations thereunder unless such
failure is the result of noncompliance by the Company with Section 4(a)(iv)
hereof; and provided further that under this Agreement, the liability of each
Selling Stockholder shall not exceed the aggregate proceeds (net of discounts)
received by such Selling Stockholder upon the sale of the Shares by such
Selling Stockholder to the Underwriters. No Selling Stockholder shall be
required to provide indemnification hereunder until such Underwriter or such
controlling person seeking indemnification until such Underwriter or such
controlling person seeking indemnification shall have first made a written
demand for payment on the Company with respect to any such loss, claim,
damage, liability or expense and the Company shall have either rejected such
demand or failed to make such requested payment within sixty (60) days after
receipt thereof. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible. This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholders may otherwise have.
21
<PAGE>
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Stockholders, and each person, if
any, who controls the Company or the Selling Stockholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Stockholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing
(and subject to Section 8(a)), the indemnifying party shall pay as incurred (or
within 30 days of presentation) the reasonable fees and expenses of the counsel
retained by the indemnified party to the extent (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel, (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or (iii) the indemnifying
party shall
22
<PAGE>
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company and the Selling Stockholders in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(d) were determined by pro
23
<PAGE>
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) no Selling Stockholder shall be required to
contribute any amount in excess of the aggregate proceeds (net of discounts)
received by such Selling Stockholder upon the sale of the Shares by such Selling
Stockholder to the Underwriters. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
(g) For purposes of Section 8(a), the phrase "jointly and
severally" means that the Company's obligation is joint and several with the
obligation of each of the Selling Stockholders, but that the obligation of a
Selling Stockholder is several and not joint with the obligation of the
Company or any other Selling Stockholder.
9. Default By Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or Selling
Stockholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such
24
<PAGE>
amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company and the Selling Stockholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company or of the Selling Stockholders except to the extent provided
in Section 8 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 9, the Closing Date or Option Closing
date, as the case may be, may be postponed for such period, not exceeding seven
days, as you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. Notices.
-------
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 101 California Street, 46/th/ Floor, San Francisco, California
94111, Attention: Andrew T. Sheehan, with a copy to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
General Counsel; if to the Company or the Selling Stockholders to Splash
Technology Holdings, Inc., 555 Del Rey Avenue, Sunnyvale, California 94086,
Attention: Joan Platt, with a copy to (i) Summit Partners, L.P., 2884 Sand Hill
Road, Suite 121, Menlo Park, California 94025, Attention: Greg Avis and (ii)
Radius Inc., 215 Moffett Park Drive, Sunnyvale, California, 94089, Attention:
Charles Berger.
11. Termination.
-----------
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
25
<PAGE>
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and its Subsidiaries taken
as a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) any downgrading in the rating of the Company's debt securities
by any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading
of the Company's common stock by the Commission on the Nasdaq National Market or
(viii) the taking of any action by any governmental body or agency in respect of
its monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided By Underwriters.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
26
<PAGE>
14. Miscellaneous
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders, the
Company and the several Underwriters in accordance with its terms.
27
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action.
Very truly yours,
SPLASH TECHNOLOGY HOLDINGS, INC.
By:
-----------------------------
Kevin K. Macgillivray,
President and Chief Executive Officer
SELLING STOCKHOLDERS LISTED ON SCHEDULE II
By:
----------------------------
Attorney-in-fact
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above written.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
PIPER JAFFRAY INC.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:
-----------------------------
Alexander T. Daignault
Managing Director
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Alex. Brown & Sons Incorporated...........
Montgomery Securities.....................
Piper Jaffray Inc.........................
Total Underwriters ( )....................
</TABLE>
<PAGE>
SCHEDULE II
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Maximum Maximum Percentage of
Number of Firm Number of Option Total Number of
Name of Seller Shares to be Sold Shares to be Sold Option Shares
-------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
Summit Subordinated Debt 875,000 121,875 25%
Fund, L.P. (all Summit (all Summit entities (all Summit entities
entities included in included in this included in this
this number) number) percentage)
Summit Ventures IV, L.P.
Summit Investors III, L.P.
Radius Inc. 875,000 121,875 25%
Kevin Macgillivray
Joan Platt
Timothy Kleffman
Christine Beheshti
Other Non-Executive
Selling Stockholders
-------------------------------------------------------------------
Total Selling Stockholder 2,000,000 243,750 50%
Shares
Total Company Shares 1,250,000 243,750 50%
-------------------------------------------------------------------
Total Shares 3,250,000 487,500 100%
===================================================================
</TABLE>
<PAGE>
SCHEDULE III
SELLING STOCKHOLDERS PROVIDING CERTAIN REPRESENTATIONS
UNDER SECTION 1(b)(v)
Summit Subordinated Debt Fund, L.P.
Summit Ventures IV, L.P.
Summit Investors III, L.P.
Radius Inc.
Kevin Macgillivray
Joan Platt
Timothy Kleffman
Christine Beheshti
<PAGE>
EXHIBIT 5.1
Splash Technology Holdings, Inc.
555 Del Rey Avenue
Sunnyvale, CA 94086
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by
Splash Technology Holdings, Inc., a Delaware corporation (the "Company"), with
the Securities and Exchange Commission on July 28, 1997, in connection with
the registration under the Securities Act of 1933, as amended, of 3,737,500
shares of the Company's Common Stock, par value $0.001 per share (the
"Shares"), 1,493,750 of which are authorized but heretofore unissued
(including an over-allotment option to purchase 243,750 shares) (collectively,
the "Company Shares") and 2,493,750 shares of which may be sold by selling
stockholders (including an over-allotment option to purchase 243,750 shares)
(the "Selling Stockholder Shares"). The Shares are to be sold to the
underwriters for resale to the public as described in the Registration
Statement and pursuant to the Underwriting Agreement filed as an exhibit
thereto. As legal counsel to the Company, we have examined the proceedings
proposed to be taken in connection with said sale and issuance of the Shares.
Based upon the foregoing, we are of the opinion that (i) the Selling
Stockholder Shares have been duly authorized and validly issued and are fully
paid and non-assessable and (ii) the Company Shares, when issued in the manner
described in the Registration Statement, will be duly authorized, validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 10.9
MODIFICATION TO THE LOAN & SECURITY AGREEMENT
---------------------------------------------
This first Modification to Loan & Security Agreement (this "Modification")
is entered into by and between SPLASH TECHNOLOGY, INC. ("Borrower") and COMERICA
BANK-CALIFORNIA ("Bank") as of this 4th day of February, 1997, at San Jose,
California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated September 3, 1996.
B. Borrower has requested, and Bank has agreed, to modify the Agreement as
set forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
Section 6.16(b) Borrower shall deliver to Bank within thirty (30) days after
the end of each QUARTER, a COMPANY PREPARED balance sheet
------- ------- --------
and profit and loss statement covering Borrower's operations
and deliver to Bank within ninety (90) days after the end of
each of Borrower's fiscal year a(n) CPA AUDITED statement of
-----------
the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and
profit and loss statement and any other report requested by
Bank relating to the Collateral and the financial condition
of Borrower, and a certificate signed by an authorized
employee of Borrower to the effect that all reports,
statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any
kind or nature relating to the foregoing or documents
delivered or caused to be delivered to Bank under this
subparagraph are complete, correct and thoroughly
<PAGE>
present the financial condition of Borrower and that there
exists on the date of delivery to Bank no condition or event
which constitutes a breach or event of default under this
Agreement.
Section 6.16c. In addition to the financial statements requested above, the
Borrower agrees to provide Bank the following schedules:
Accounts Receivable Agings on a Quarterly basis
Accounts Payable Agings on a Quarterly basis
Borrowing Base Certificate on a Quarterly basis
Legal Effect. Except as specifically set forth in this Modification,
------------
all of the terms and conditions of the Agreement remain in full force and
effect.
Integration. This is an integrated Modification and supersedes all
-----------
prior negotiations and agreements regarding the subject matter hereof. All
amendments hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set
forth above.
SPLASH TECHNOLOGY, INC. COMERICA BANK-CALIFORNIA
By: /s/ Joan P. Platt By: /s/ Mary Beth Suhr
----------------- ------------------
Mary Beth Suhr
Title: CFO Vice President
---
<PAGE>
AUTHORIZATION FOR FOREIGN CURRENCY EXCHANGE TRANSACTIONS
(Customer of Affiliate/Correspondent Bank)
Date February 5, 1997
----------------
FOREIGN EXCHANGE DEPARTMENT
TO: COMERICA BANK TO: CUSTOMER'S BANK
Comerica Bank-California
Post Office Box 75000 ------------------------
Detroit, Michigan 48275-3333 NAME OF BANK
1299 Oakmead Parkway
------------------------
STREET ADDRESS
Sunnyvale, CA 94086
------------------------
CITY, STATE, ZIP
I. AUTHORIZATION OF CUSTOMER
The undersigned Splash Technology, Inc.
-------------------------------------------------------------
("Customer") hereby requests and authorizes Comerica Bank, a Michigan banking
corporation of Detroit, Michigan ("Comerica Bank"), from time to time to effect
the purchase from or sale to Customer of the lawful currency of any country, in
a specified quantity and price as agreed between Comerica Bank and Customer, for
delivery on the same date or a future date in exchange for other specified
currency (a "Foreign Exchange Transaction"). All Foreign Exchange Transactions
and all requests for and confirmations of Foreign Exchange Transactions
("Requests" and "Confirmations") shall be made and effected in accordance with
Comerica Bank's established procedures and shall be subject to the terms and
conditions of this Authorization for Foreign Currency Exchange Transactions
("Authorization") and any related documents, instruments and agreements as
Comerica Bank may require from time to time.
The following individuals are authorized to make all Requests for Foreign
Exchange Transactions and to execute and deliver all related documents,
instruments and agreements:
Name: Telephone Number:
Joan Platt (408) 328-6315
- --------------------- -----------------------------------
John Ritchie (408) 328-6352
- --------------------- -----------------------------------
Kevin MacGillivray (408) 328-6346
- --------------------- -----------------------------------
- --------------------- -----------------------------------
- --------------------- -----------------------------------
<PAGE>
The following individuals are authorized to send all Confirmations of the
payment terms and other settlement terms for all Foreign Exchange Transactions:
Name: Telephone Number:
John Ritchie 328-6352
- -------------------- -----------------------------------
Joan Platt 328-6315
- -------------------- -----------------------------------
Kevin MacGillivray 328-6346
- -------------------- -----------------------------------
- -------------------- -----------------------------------
- -------------------- -----------------------------------
Comerica Bank is requested and authorized to effect a Foreign Exchange
Transaction on behalf of the Customer upon receipt of a Request made by any
authorized individual. All Requests shall be made by telephone, telegram,
telex, computer, facsimile transmission or other electronic means and shall be
subject to specified price, quantity and delivery terms acceptable to the
Customer and Comerica Bank. All Confirmations shall be made verbally or in
writing as Comerica Bank may require from time to time, however, the failure of
any party to send or receive a Confirmation shall not affect the validity of any
Foreign Exchange Transaction. Comerica Bank shall not be obligated to identify
any individual sending a Request or a Confirmation beyond the use of the
authorized name. To promote accuracy and avoid errors, Comerica Bank may record
any telephonic communications between the Customer and Comerica Bank.
The Customer has submitted this Authorization through its depository bank
("Customer's Bank") and requests and authorizes Customer's Bank (as Customer's
agent) to establish arrangements with Comerica Bank to effect Foreign Exchange
Transactions on behalf of the Customer in accordance with the terms of this
Authorization. The Customer acknowledges and consents to all the rights, powers
and privileges granted to Comerica Bank by Customer's Bank under Section II of
this Authorization, and agrees that any collateral given as security for the
Customer's obligations in connection with any Foreign Exchange Transactions and
any deposit accounts of the Customer with Customer's Bank (the "Accounts") shall
stand as security for those obligations of the Customer and for any obligations
incurred by Customer's Bank on behalf of the Customer to effect a Foreign
Exchange Transaction (collectively the "Obligations"). In addition to any other
rights which Customer's Bank may have, Customer's Bank shall have setoff rights
with respect to the Accounts for any outstanding Obligations.
CUSTOMER
John Ritchie Joan Platt
- -------------------------------------------------------------------------------
Name
/s/ John Ritchie, Controller /s/ Joan P. Platt, CFO
- ---------------------------------------- -------------------------------
Authorized Signature, Title Authorized Signature, Title
- ---------------------------------------- -------------------------------
<PAGE>
REVOLVING CREDIT LOAN & SECURITY
AGREEMENT
(ACCOUNTS AND INVENTORY)
- --------------------------------------------------------------------
|OBLIGOR # | NOTE # | AGREEMENT DATE |
| | | SEPTEMBER 3, 1996 |
|-------------------------------------------------------------------
|CREDIT LIMIT | INTEREST RATE |OFFICER NO./INITIALS |
|$5,000,000.00 | 8.25% |48703 MARY BETH SUHR |
- --------------------------------------------------------------------
THIS AGREEMENT is entered into on SEPTEMBER 3, 1996 ,
---------------------------------------
between COMERICA BANK-CALIFORNIA
-------------------------------------------------------------------
("Bank") as secured party, whose Headquarter Office is 333 WEST SANTA CLARA
--------------------
STREET, SAN JOSE, CA and SPLASH TECHNOLOGY,
- -------------------- ---------------------
INC. ("Borrower"), a CALIFORNIA CORPORATION
----------------------------------- ----------------------
whose sole place of business (if it has only one), chief executive office (if it
has more than one place of business) or residence (if an individual) is located
at 555 DEL REY AVENUE, SUNNYVALE, CA .
---------------------------------------------------------------------------
The parties agree as follows:
1. DEFINITIONS
-----------
1.1 "Agreement" as used in this Agreement means and includes this
Revolving Credit Loan & Security Agreement (Accounts and Inventory), any
concurrent or subsequent rider to this Revolving Credit Loan & Security
Agreement (Accounts and Inventory) and any extensions, supplements, amendments
or modifications to this Revolving Credit Loan & Security Agreement (Accounts
and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement which
are paid or advanced by Bank; taxes and insurance premiums of every nature and
kind of Borrower paid by Bank; filing, recording, publication and search fees,
appraiser fees, auditor fees and costs, and title insurance premiums paid or
incurred by Bank in connection with Bank's transactions with Borrower, costs
and expenses incurred by Bank in collecting the Receivables (with or without
suit) to correct any default or enforce any provision of this Agreement, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, disposing of, preparing for sale and/or advertising to sell the
Collateral, whether or not a sale is consummated; costs and expenses of suit
incurred by Bank in enforcing or defending this Agreement or any portion
hereof, including, but not limited to, expenses incurred by Bank in attempting
to obtain relief from any stay, restraining order, injunction or similar
process which prohibits Bank from exercising any of its rights or remedies;
and attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or concerning
this Agreement, or any portion hereof or any agreement related hereto, whether
or not suit is brought. Bank Expenses shall include Bank's in-house legal
charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the basis
upon which effective rates of interest are calculated for those loans making
reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes all
of the Borrower's books and records including but not limited to: minute
books; ledgers; records indicating, summarizing or evidencing Borrower's
assets, liabilities, Receivables, business operations or financial condition,
and all information relating thereto, computer programs; computer disk or tape
files; computer printouts; computer runs; and other computer prepared
information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of:
(1) EIGHTY percent (80.00%) of the net amount of
------------------------------- -----
Eligible Accounts after deducting therefrom all payments, adjustments and
credits applicable thereto ("Accounts Receivable Borrowing Base"); and (2) the
amount, if any, of the advances against Inventory agreed to be made pursuant
to any Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment
or modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means, for any applicable
period of determination, the Net income (after deduction for income taxes and
other taxes of such person determined by reference to income or profits of
such person) for such period, plus, to the extent deducted in computation of
such Net income, the amount of depreciation and amortization expense and the
amount of deferred tax liability during such period, all as determined in
accordance with GAAP. The applicable period of determination will be
N/A , beginning with the period from
-----------------------------------
to
______________________________________ _________________________________.
1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets of
Borrower in which Bank receives a security interest or which hereafter come
into the possession, custody or control of Bank; and the proceeds of any of
the foregoing, including, but not limited to, proceeds of insurance covering
the collateral and any and all Receivables, Intangibles, negotiable
collateral, inventory, equipment, money, deposit accounts or other tangible
and intangible property of borrower resulting from the sale or other
disposition of the collateral, and the proceeds thereof. Notwithstanding
anything to the contrary contained herein, collateral shall not include any
waste or other materials which have been or may be designated as toxic or
hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract, instrument,
note, or other separate agreement which, by its terms, provides for a
specified interest rate and term.
1.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, non-affiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that should
be classified as current in accordance with GAAP, including without limitation
any portion of the principal of the indebtedness classified as current, plus
(ii) to the extent not otherwise included, all liabilities of the Borrower to
any of its affiliates whether or not classified as current in accordance with
GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a given
day, adding any new Credit advanced or incurred on such date, and subtracting
any payments or collections which are deemed to be paid and are applied by
Bank in reduction of the Credit on that date under the provisions of this
Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within THIRTY ( 30 )
------ --
days, or less, from the date of invoice, have been validly assigned to Bank
and strictly comply with all of Borrower's warranties and representations to
Bank; but Eligible Accounts shall not include the following: (a) accounts with
respect to which the account debtor is an officer, employee, partner, joint
venturer or agent of Borrower; (b) accounts with respect to which goods are
placed on consignment, guaranteed sale or other terms by reason of which the
payment by the account debtor may be conditional; (c) accounts with respect to
which the account debtor is not a resident of the United States; (d) accounts
with respect to which the account debtor is the United States or any
department, agency or instrumentality of the United States; (e) accounts with
respect to which the account debtor is any State of the United States or any
city, county, town, municipality or division thereof; (f) accounts with
respect to which the account debtor is a subsidiary of, related to, affiliated
or has common shareholders, officers or directors with Borrower; (g) accounts
with respect to which Borrower is or may become liable to the account debtor
for goods sold or services rendered by the account debtor to Borrower; (h)
accounts not paid by an account debtor within ninety (90) days from the date
of the invoice; (i) accounts with respect to which account debtors dispute
liability or make any claim, or have any defense, crossclaim, counterclaim, or
offset; (j) accounts with respect to which any insolvency Proceeding is filed
by or against the account debtor, or if an account debtor becomes insolvent,
fails or goes out of business; and (k) accounts owned by any single account
debtor which exceed twenty percent (20%) of all of the Eligible Accounts; and
(l) accounts with a particular account debtor on which over twenty-five
percent (25%) of the aggregate amount owing is greater than ninety (90) days
from the date of the invoice. (1) 75% advance on pre-approved foreign accounts
receivable from Fuji-Xerox. Concentrations will be allowed with advances up to
$2,500M each for eligible receivables from Xerox and Fuji-Xerox. Allow for any
receivable to be up to 50% past due before the receivable is ineligible.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes, for
any applicable period of determination, the sum, without duplication, of (a)
all interest paid or payable during such period by a person on debt of such
person, plus (b) all payments of principal or other sums paid or payable
during such period by such person with respect to debt of such person having a
final maturity more than one year from the date of creation of such debt, plus
(c) all debt discount and expense amortized or required to be amortized during
such period by such person, plus (d) the maximum amount of all rents and other
payments paid or required to be paid by such person during such period under
any lease or other contract or arrangement providing for use of real or
personal property in respect of which such person is obligated as a lessee,
use or obligor, plus (e) all dividends and other distributions paid or payable
by such person or otherwise accumulating during such period on any capital
stock of such person, plus (f) all loans or other advances made by such person
during such period to any Affiliate of such person. The applicable period of
determination will be N/A beginning with the period from
-----------------------
________________________________to ________________________________.
1.15 "GAAP" as used in this Agreement means as of any applicable
period, generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any of borrower's account debtors,
under any provisions of the Bankruptcy Code, as amended, or any other
bankruptcy or insolvency law, including but not limited to assignments for the
benefit of creditors, formal or informal moratoriums, composition or
extensions with some or all creditors, any proceeding seeking a
reorganization, arrangement or any other relief under the Bankruptcy code, as
amended, or any other bankruptcy or insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal property
(including, without limitation, any and all rights in any legal proceedings,
goodwill, patents, trade names, copyrights, trademarks, blueprints, drawings,
purchase orders, computer programs, computer disks, computer tapes,
literature, reports, catalogs and deposit accounts) other than goods and
Receivables, as well as Borrower's Books relating to any of the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest, including,
but not limited to, goods held by Borrower for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, advertising materials, and
packing and shipping materials, wherever located and any documents of title
representing any of the above, and any equipment, fixtures or other property
used in the storing, moving, preserving, identifying, accounting for and
shipping or preparing for the shipping of inventory, and any and all other
items hereafter acquired by Borrower by way of substitution, replacement,
return, repossession or otherwise, and all additions and accessions thereto,
and the resulting product or mass, and any documents of title respecting any
of the above.
1.19 "Net income" as used in this Agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
2.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
(a) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital assets, and
any taxes on the excluded gains and any tax deductions or credits on account
on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall have
actually been received by Borrower in the form of cash distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to any
agreement authorizing Bank to charge Borrower's account), obligations, lease
payments, guaranties, covenants and duties owing by Borrower to Bank of any
kind and description whether advanced pursuant to or evidenced by this
Agreement; by any note or other instrument; or by any other agreement between
Bank and Borrower and whether or not for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including, without limitation, any debt, liability or
obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including,
without limitation, all interest not paid when due and all Bank Expenses which
Borrower is required to pay or reimburse by this Agreement, by law, or
otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association, trust,
unincorporated association, joint stock company, government, municipality,
political subdivision or agency, or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chattel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
returned to or reclaimed by Borrower and the Borrower's books (except minute
books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness
of the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement means a
subordination agreement in form satisfactory to Bank making all present and
future indebtedness of the Borrower to Summit Subordinated Debt Fund, L.P. and
---------------------------------------
Summit Investors III, L.P. subordinate to the Obligations.
--------------------------
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth as determined in accordance with GAAP consistently applied, increased by
Subordinated Debt, if any, and decreased by the following: patents, licenses,
goodwill, subscription lists, organization expenses, trade receivables
converted to notes, money due from affiliates (including officers, directors,
subsidiaries and commonly held companies).
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of
(a) the net book value of all assets of a person (other than
patents, patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar intangible assets) after all appropriate
deductions in accordance with GAAP (including, without limitation, reserves
for doubtful receivables, obsolescence, depreciation and amortization), over
(b) all Debt of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of
all items of indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or
acquired, whether or not the obligations secured thereby shall have been
assumed; (b) all obligations which are capitalized lease obligations; and (c)
all guaranties, endorsements or other contingent or surety obligations with
respect to the indebtedness of others, whether or not reflected on the balance
sheets of the Borrower, including any obligation to furnish funds, directly or
indirectly through the purchase of goods, supplies, services, or by way of
stock purchase, capital contribution, advance or loan or any obligation to
enter into a contract for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under and
pursuant to the California Uniform Commercial Code (hereinafter referred to as
the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
-------------------------
For value received, Borrower promises to pay to the order of Bank such
amount, as provided for below, together with interest, as provided for below.
3.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
2.1 Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has occurred,
Bank shall lend to Borrower an amount equal to the Borrowing Base; provided,
however, that in no event shall Bank be obligated to make advances to Borrower
under this Section 2.1 whenever the Daily Balance exceeds, at any time, either
the Borrowing Base or the sum of FIVE MILLION AND NO/100
--------------------------------------------
($5,000,000.00), such amount being referred to herein as an "Overadvance".
-------------
2.2 Except as herein below provided, the Credit shall bear interest, an
the Daily Balance owing, at a rate of NO/1000 (0.000) percentage
----------------- -----
points per annum above the Base Rate (the "Rate"). The Credit shall bear
interest, from and after the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the Daily Balance
owing, at a rate three (3) percentage points per annum above the Rate. All
interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (350) day
year for actual days elapsed.
The Base Rate as of the date of this Agreement is EIGHT AND 250/1000
----------------------
(8.250%) per annum. In the event that the Base Rate announced is, from time
------
to time hereafter changed, adjustment in the Rate shall be made and based on
the Base Rate in effect on the date of such change. The Rate, as adjusted,
shall apply to the Credit until the Base Rate is adjusted again. The minimum
interest payable by the Borrower under this Agreement shall in no event be
less then N/A per month. All interest payable by Borrower under the Credit
---------
shall be due and payable on the first day of each calendar month during the
term of this Agreement and Bank may, at its option, elect to treat such
interest and any and all Bank Expenses as advances under the Credit, which
amounts shall thereupon constitute Obligations and shall thereafter accrue
interest at the rate applicable to the Credit under the terms of the
Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall bear
additional interest on the amount thereof at a rate equal to N/A
---------
( N/A %) percentage points per month in excess of the interest rate set forth
------
in Section 2.2, from the date incurred and for each month thereafter, until
repaid in full.
3. TERM
----
3.1 This Agreement shall remain in full force and effect until JANUARY
1, 1998, or until terminated by notice by Borrower. Notice of such
-------
termination by Borrower shall be effectuated by mailing of a registered or
certified letter not less than thirty (30) days prior to the effective date of
such termination, addressed to the Bank at the address set forth herein and
the termination shall be effective as of the date so fixed in such notice.
Notwithstanding the foregoing, should Borrower be in default of one or more of
the provisions of this Agreement, Bank may terminate this Agreement at any
time without notice. Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they mature, or fail,
suspend, or go out of business, the other party shall have the right to
terminate this Agreement at any time without notice. On the date of
termination all Obligations shall become immediately due and payable without
notice or demand; no notice of termination by Borrower shall be effective
until Borrower shall have paid all Obligations to Bank in full.
Notwithstanding termination, until all Obligations have been fully satisfied,
Bank shall retain its security interest in all existing Collateral and
Collateral arising thereafter, and Borrower shall continue to perform all of
its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's obligations to Bank, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank, upon the execution and delivery
of mutual general releases.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Borrower hereby grants to Bank a continuing security interest in
all presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created. Bank's
security interest in the Collateral shall attach to all Collateral without
further act on the part of Bank or Borrower. In the event that any Collateral,
including proceeds, is evidenced by or consists of a letter of credit, advice
of credit, instrument, money, negotiable documents, chattel paper or similar
property (collectively, "Negotiable Collateral"), Borrower shall, immediately
upon receipt thereof, endorse and assign such Negotiable Collateral over to
Bank and deliver actual physical possession of the Negotiable Collateral to
Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon request
from Bank, Borrower shall provide Bank with schedules describing all
Receivables created or acquired by Borrower (including without limitation
agings listing the names and addresses of, and amounts owing by date by
account debtors), and shall execute and deliver written assignments of all
Receivables to Bank all in a form acceptable to Bank, provided, however,
Borrower's failure to execute and deliver such schedules and/or assignments
shall not affect or limit Bank's security interest and other rights in and to
the Receivables. Together with each schedule, Borrower shall furnish Bank with
copies of Borrower's customers' invoices or the equivalent, and original
shipping or delivery receipts for all merchandise sold, and Borrower warrants
the genuineness thereof. Bank or Bank's designee may notify customers or
account debtors of collection costs and expenses to Borrower's account but,
unless and until Bank does so or gives Borrower other written instructions,
Borrower shall collect all Receivables for Bank, receive in trust all payments
thereon as Bank's trustee, and, if so requested to do so from Bank, Borrower
shall immediately deliver said payments to Bank in their original form as
received from the account debtor and all letters of credit, advices of credit,
instruments, documents, chattel paper or any similar property evidencing or
constituting Collateral. Notwithstanding anything to the contrary contained
herein, if sales of inventory are made for cash, Borrower shall immediately
deliver to Bank, in identical form, all such cash, checks, or other forms of
payment which Borrower receives. The receipt of any check or other item of
payment by Bank shall not be considered a payment on account until such check
or other item of payment is honored when presented for payment, in which
event, said check or other item of payment shall be deemed to have been paid
to Bank TWO ( 2 )
---------------------------------- ------------------------------
calendar days after the date Bank actually receives such check or other item
of payment.
4.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
4.3 Bank's security interest in inventory shall attach to all inventory
without further act on the part of Bank or Borrower. Upon Bank's request
Borrower will from time to time at Borrower's expense pledge, assemble and
deliver such inventory to Bank or to a third party as Bank's bailee; or hold
the same in trust for Bank's account or store the same in a warehouse in
Bank's name; or deliver to Bank documents of title representing said
inventory; or evidence of Bank's security interest in some other manner
acceptable to Bank. Until a default by Borrower under this Agreement or any
other Agreement between Borrower and Bank, Borrower may, subject to the
provisions hereof and consistent herewith, sell the inventory, but only in the
ordinary course of Borrower's business. A sale of inventory in Borrower's
ordinary course of business does not include an exchange or a transfer in
partial or total satisfaction of a debt owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter at
the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other documents that Bank may request, in form satisfactory
to Bank, to perfect and maintain perfected Bank's security interest in the
Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement. Borrower hereby irrevocably makes,
constitutes and appoints Bank (and any of Bank's officers, employees or agents
designated by Bank) as Borrower's true and lawful attorney-in-fact with power
to sign the name of Borrower on any financing statements, continuation
financing statements, security agreement, mortgage, assignment, certificate of
title, affidavit, letter of authority, notice of other similar documents which
must be executed and/or filed in order to perfect or continue perfected Bank's
security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Receivables. Bank (through any of
its officers, employees or agents) shall have the right at any time or times
hereafter during Borrower's usual business hours, or during the usual business
hours of any third party having control over the records of Borrower, to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter, relating to, said Collateral and Borrower's financial
condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate
as Borrower's attorney-in-fact, with power to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against
account debtors, on schedules and assignments of Receivables, on verifications
of Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Bank, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower; to
send, whether in writing or by telephone, requests for verification of
Receivables; and to do all things necessary to carry out this Agreement.
Borrower ratifies and approves all acts of the attorney-in-fact. Neither Bank
nor its attorney-in-fact will be liable for any acts or omissions or for any
error of judgement or mistake of fact or law. This power being coupled with an
interest, is irrevocable so long as any Receivables in which Bank has a
security interest remain unpaid and until the Obligations have been fully
satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added to
the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates, subsidiaries
and service providers.
5. CONDITIONS PRECEDENT
--------------------
5.1 Conditions precedent to the making of the loans and the extension
of the financial accommodations hereunder, Borrower shall execute, or cause to
be executed, and deliver to Bank, in form and substance satisfactory to Bank
and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1 ) in form satisfactory to
Bank for filing and recording with the appropriate governmental
authorities;
c. If Borrower is a corporation, then certified extracts from
the minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for herein
and authorizing specific officers to execute and deliver the agreements
provided for herein;
d. If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws of the
state of its incorporation and certificates indicating that Borrower is
qualified to transact business and is in good standing in any other
state in which it conducts business;
e. If Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of Borrower,
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as Bank may
require, in order to reflect, perfect or protect Bank's first priority
security interest in the Collateral and in order to fully consummate all
of the transactions contemplated under this Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
5.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
h. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES REPRESENTATIONS AND COVENANTS
----------------------------------------
6.1 It so requested by Bank, Borrower shall, at such intervals
designated by Bank, during the term hereof execute and deliver a Report of
Accounts Receivable or similar report, in form customarily used by Bank
Borrower's Borrowing Base at all times pertinent hereto shall not be less than
the advances made hereunder. Bank shall have the right to recompute Borrower's
Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is
not paid in full by an account debtor within NINETY (90) days from
-------------- ---
the date of invoice, or an account debtor disputes liability or makes any
claim with respect thereto, or a petition in bankruptcy or other application
for relief under the Bankruptcy Code or any other insolvency law is filed by
or against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business, then
Bank may deem ineligible any and all accounts owing by that account debtor,
and reduce Borrower's Borrowing Base by the amount thereof. Bank shall retain
its security interest in all Receivables and accounts, whether eligible or
ineligible, until all Obligations have been fully paid and satisfied. Returns
and allowances, if any, as between Borrower and its customers, will be on the
same basis and in accordance with the usual customary practices of the
Borrower, as they exist at this time. Any merchandise which is returned by an
account debtor or otherwise recovered shall be set aside, marked with Bank's
name, and Bank shall retain a security interest therein. Borrower shall
promptly notify Bank of all disputes and claims and settle or adjust them on
terms approved by Bank. After default by Borrower hereunder, no discount,
credit or allowance shall be granted to any account debtor by Borrower and no
return of merchandise shall be accepted by Borrower without Bank's consent.
Bank may, after default by Borrower, settle or adjust disputes and claims
directly with account debtors for amounts and upon terms which Bank considers
advisable, and in such cases Bank will credit Borrower's account with only the
net amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral.
Bank has and shall continue to have a first priority perfected security
interest in and to the Collateral. The Collateral shall at all times
remain free and clear of all liens, encumbrances and security interests
(except those in favor of Bank).
b. All accounts are and will, at all times pertinent hereto, be
bona fide existing obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the
ordinary course of business, free of liens, claims, encumbrances and
security interests (except as hold by Bank and except as may be
consented to, in writing, by Bank) and are unconditionally owed to
Borrower without defenses disputes, offsets, counterclaims, rights of
return or cancellation, and Borrower shall have received no notice of
actual or imminent bankruptcy or insolvency of any account debtor at the
time an account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property
giving rise to such account shall have been delivered to the account
debtor or to the agent for the account debtor for immediate shipment to,
and unconditional acceptance by, the account debtor. Borrower shall
deliver to Bank as Bank may from time to time require, delivery
receipts, customer's purchase orders, shipping instruction, bills of
lading and any other evidence of shipping arrangements. Absent such a
request by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section 1.12,
or on such other terms approved in writing by Bank in advance of the creation
of such accounts and which are expressly set forth on the face of all
invoices, copies of which shall be held by Borrower as custodian for Bank, and
no such eligible account will then be past due.
6.5 Borrower shall keep the inventory only at the following locations:
N/A and the owner or mortgagees of the respective locations
------------------
are:
-------------------------------------------------------------------------
------------------------------------------------------------------------------
a. Borrower, immediately upon demand by Bank therefor, shall now
and from time to time hereafter, at such intervals as are requested by
Bank, deliver to Bank, designations of inventory specifying Borrower's
cost of inventory, the wholesale market value thereof and such other
matters and information relating to the inventory as Bank may request;
b. Borrower's inventory, valued at the lower of Borrower's cost
or the wholesale market value thereof, at all times pertinent hereto
shall not be less than N/A
--------------------------------------------------
Dollars ($ N/A ) of which no less than
-----------------------------------
N/A Dollars ($ N/A )
-------------- -----------------------------------
shall be in raw materials and finished goods;
c. All of the inventory is and shall remain free from all
purchase money or other security interests, liens or encumbrances,
except as held by Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any of
Bank's officers, agents and employees for inspection and copying;
6.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
e. All inventory, now and hereafter at all times, shall be new
inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times
hereafter be located or stored with a bailee, warehouseman or other
third party without Bank's prior written consent, and, in such event,
Borrower will concurrently therewith cause any such bailee, warehouseman
or other third party to issue and deliver to Bank, in a form acceptable
to Bank, warehouse receipts in Bank's name evidencing the storage of
inventory or other evidence of Bank's prior rights in the inventory. In
any event, Borrower shall instruct any third party to hold all such
inventory for Bank's account subject to Bank's security interests and
its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and
examine the inventory and to check and test the same as to quality,
quantity, value and condition and Borrower agrees to reimburse Bank for
Bank's reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association, firm,
corporation, entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting
any of Borrower's assets;
c. Permit any Judicial Officer or Assignee to be appointed or to
take possession of any or all of Borrower's assets;
d. Other than sales of inventory in the ordinary course of
Borrower's business, to sell, lease, or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or consolidate
with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of
Borrower's business;
i. Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the United
States of America;
j. Make any change in Borrower's financial structure or in any
of its business objectives, purposes or operations which would adversely
effect the ability of Borrower to repay Borrower's Obligations;
k. incur any debts outside the ordinary course of Borrower's
business except renewals or extensions of existing debts and interest
thereon;
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
m. Make loans, advances or extensions of credit to any Person,
except for sales on open account and otherwise in the ordinary course of
business;
n. Guarantee or otherwise, directly or indirectly, in any way be
or become responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of any other Person, agreement
for the furnishing of funds to any other Person through the furnishing
of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging
(or causing the payment or discharge of) the indebtedness of any other
Person, or otherwise, except for the endorsement of negotiable
instruments by the Borrower in the ordinary course of business for
deposit or collection.
o. (a) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than N/A
-------------
Dollars ($ N/A ) (whether in one transaction or in a series of
------------
transactions) except as to the sale of inventory in the ordinary course
of business; (b) change its name, consolidate with or merge into any
other corporation, permit another corporation to merge into it, acquire
all or substantially all the properties or assets of any other Person,
enter into any reorganization or recapitalization or reclassify its
capital stock, or (c) enter into any sale-leaseback transaction;
p. Subordinate any indebtedness due to it from a person to
indebtedness of other creditors of such person;
q. Purchase or hold beneficially any stock or other securities
of, or make any investment or acquire any interest whatsoever in, any
other Person, except for the common stock of the Subsidiaries owned by
the Borrower on the date of this Agreement and except for certificates
of deposit with maturities of one year or less of United States
commercial banks with capital, surplus and undivided profits in excess
of $100,000,000 and direct obligations of the United States Government
maturing within one year from the date of acquisition thereof; or
7.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
r. Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any
such plan or for the court appointment of a trustee to administer any
such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%) in
dollar volume of its total sales of all goods during the 12 months preceding
the filing by Bank of a financing statement describing the Collateral. At no
time hereafter shall Borrower's sales for resale of goods for personal, family
or household purposes exceed seventy-five percent (75%) in dollar volume of
its total sales.
6.8 Borrower's sole piece of business or chief executive office or
residence is located at the address indicated above and Borrower covenants and
agrees that it will not, during the term of this Agreement, without prior
written notification to Bank, relocate said sole place of business or chief
executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, redeem or retire any such capital stock;
b. Borrower is and shall at all times hereafter be a corporation
duly organized and existing in good standing under the laws of the state
of its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to
enter into this Agreement; and
d. The execution by Borrower of this Agreement shall not
constitute a breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms
and provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.
6.11 Borrower shall promptly notify Bank in writing of its acquisition
by purchase, lease or otherwise of any after acquired property of the type
included in the Collateral, with the exception of purchases of inventory in
the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise,
due or payable by, or imposed, levied or assessed against, Borrower or any of
its property have been paid. and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay
any such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without
notice to Borrower,
(i) make payment of the same or any part thereof; or (ii) set
up such reserves in Borrower's account as Bank deems necessary to
satisfy the liability therefor, or both. Bank may conclusively rely on
the usual statements of the amount owing or other official statements
issued by the appropriate governmental agency. Each amount so paid or
deposited by Bank shall constitute a Bank Expense and an additional
advance to Borrower.
6.13 There are no actions or proceedings pending by or against Borrower
or any guarantor of Borrower before any court or administrative agency and
Borrower has no knowledge of any pending, threatened or imminent litigation,
governmental investigations or claims, complaints, actions or prosecutions
involving Borrower or any guarantor of Borrower, except as heretofore
specifically disclosed in writing to Bank. If any of the foregoing arise
during the term of the Agreement, Borrower shall immediately notify Bank in
writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and
all other hazards and risks ordinarily insured against by other owners
who use such properties in similar businesses for the full insurable
value thereof. Borrower shall also keep and maintain business
interruption insurance and public liability and property damage
insurance relating to Borrower's ownership and use of the Collateral and
its other assets. All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be satisfactory to Bank.
Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All
such policies of insurance (except those of public liability and
property damage) shall contain an endorsement in a form satisfactory to
Bank showing Bank as a loss payee thereof, with a waiver of warranties
(Form 438-BFU), and all proceeds payable thereunder shall be payable to
Bank and, upon receipt by Bank, shall be applied on account of the
Obligations owing to Bank. To secure the payment of the Obligations,
Borrower grants Bank a security interest in and to all such policies of
insurance (except those of public liability and property damage) and the
proceeds thereof, and Borrower shall direct all insurers under such
policies of insurance to pay all proceeds thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's attorney
for the purpose of making, selling and adjusting claims under such
policies of insurance, endorsing the name of Borrower on any check,
draft, instrument or other item of payment for the proceeds of such
policies of insurance and for making all determinations and decisions
with respect to such policies of insurance. Borrower will not cancel any
of such policies without Bank's prior written consent. Each such insurer
shall agree by endorsement upon the policy or policies of
8.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
insurance issued by it to Borrower as required above, or by independent
instruments furnished to Bank, that it will give Bank at least ten (10)
days written notice before any such policy or policies of insurance
shall be altered or cancelled, and that no act or default of Borrower,
or any other person, shall affect the right of Bank to recover under
such policy or policies of insurance required above or to pay any
premium in whole or in part relating thereto. Bank, without waiving or
releasing any Obligations or any Event of Default, may, but shall have
no obligation to do so, obtain and maintain such policies of insurance
and pay such premiums and take any other action with respect to such
policies which Bank deems advisable. All sums so disbursed by Bank, as
well as reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall constitute Bank Expenses and are payable
on demand.
6.15 All financial statements and information relating to Borrower
which have been or may hereafter be delivered by Borrower to Bank are true and
correct and have been prepared in accordance with GAAP consistently applied
and there has been no material adverse change in the financial condition of
Borrower since the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP consistently applied
with ledger and account cards and/or computer tapes and computer disks,
computer printouts and computer records pertaining to the Collateral
which contain information as may from time to time be requested by Bank,
not modify or change its method of accounting or enter into, modify or
terminate any agreement presently existing, or at any time hereafter
entered into with any third party accounting firm and/or service bureau
for the preparation and/or storage of Borrower's accounting records
without the written consent of Bank first obtained and without said
accounting firm and/or service bureau agreeing to provide information
regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, officers or
agents, upon demand, during Borrower's usual business hours, or the
usual business hour of third persons having control thereof, to have
access to and examine all of the Borrower's Books relating to the
Collateral, Borrower's Obligations to Bank, Borrower's financial
condition and the results of Borrower's operations and in connection
therewith, permit Bank or any of its agents, employees or officers to
copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after
the end of each month ,a company prepared
-------------------- ----------------------------------
balance sheet and profit and loss statement covering Borrower's
operations and deliver to Bank within ninety (90) days after the end of
each of Borrower's fiscal years a(n) CPA audited
----------------------------------
statement of the financial condition of the Borrower for each such
fiscal including but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank relating to the
Collateral and the financial condition of Borrower, and a certificate
signed by an authorized employee of Borrower to the effect that all
reports, statements, computer disk or tape files, computer printouts,
computer runs, or other computer prepared information of any kind or
nature relating to the foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete, correct and
thoroughly present the financial condition of borrower and that there
exists on the date of delivery to Bank no condition or event which
constitutes a breach or Event of Default under this Agreement.
c. In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following schedules:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
X Accounts Receivable Agings on a MONTHLY basis; within 15 days of month-end
- ----------------------------- -----------
X Accounts Payable Agings on a MONTHLY basis; within 15 days of month-end
- ----------------------------- -----------
N/A Job Progress Reports on a basis; and
- ----------------------------- -----------
X BORROWING BASE CERTIFICATE on a MONTHLY basis within 15 days of month-end
- ----------------------------- -------------------------- -----------
</TABLE>
6.17 Borrower shall maintain the following financial ratios and
covenants an a consolidated and non-consolidate basis:
a. Working Capital in an amount not less than N/A
---------------------------
------------------------------------------------------------------------------
b. Tangible Effective Net Worth in an amount not less than $13,000,000.00
--------------
TO STEP UP BY 75% OF QUARTERLY PROFITS AND 100% OF NEW EQUITY RAISED.
------------------------------------------------------------------------------
c. a ratio of Current Assets to Current Liabilities of not less than
N/A
------------------------------------------------------------------------------
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than 0.65:1.00
-------------------------------------------------
------------------------------------------------------------------------------
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 1.25:1.00
------------------------------------
------------------------------------------------------------------------------
f. a ratio of Cash Flow to Fixed Charges of not less than N/A
----------------
------------------------------------------------------------------------------
g. Net income after taxes of $0.00 WITH ONE LOSS QUARTER ALLOWED PER
-------------------------------------------
FISCAL YEAR NOT TO EXCEED $500,000.00
------------------------------------------------------------------------------
9.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
h. Borrower shall not without Bank's prior written consent acquire or
expend for or commit itself to acquire or expend for fixed assets by lease,
purchase or otherwise in an aggregate amount that exceeds NO/100
-------------------
N/A Dollars ($ N/A 0.00) in any fiscal year; and
--------- ---------------
i. N/A
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to
supply Bank) with such other information (including tax returns) concerning
its financial affairs (or that of any guarantor) as Bank may request from time
to time hereafter, and shall promptly notify Bank of any material adverse
change in Borrower's financial condition and of any condition or event which
constitutes a breach of or an event which constitutes an Event of Default
under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and
able to pay its debts (including trade debts) an they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for
all sums expended by Bank in connection with any action brought by Bank to
correct any default or enforce any provision of this Agreement, including all
Bank Expenses; Borrower authorizes and approves all advances and payments by
Bank for items described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this
Agreement shall be automatically deemed repeated with each advance and shall
be conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank
and shall notify the Bank immediately in writing of the existence of any other
bank account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but
in no event later than thirty (30) days after Borrower knows or has reason to
know that any reportable event with respect to any deferred compensation plan
has occurred, a statement of the chief financial officer of Borrower setting
forth the details concerning such reportable event and the action which
Borrower proposes to take with respect thereto, together with a copy of the
notice of such reportable event given to the Pension Benefit Guaranty
Corporation, if a copy of such notice is available to Borrower; (b) promptly
after the filing thereof with the United States Secretary of Labor or the
Pension Benefit Guaranty Corporation, copies of each annual report with
respect to each deferred compensation plan; (c) promptly after receipt
thereof, a copy of any notice Borrower may receive from the Pension Benefit
Guaranty Corporation or the Internal Revenue Service with respect to any
deferred compensation plan; provided, however, this subparagraph shall not
apply to notice of general application issued by the Pension Benefit Guaranty
Corporation or the Internal Revenue Service; and (d) when the same is made
available to participants in the deferred compensation plan, all notices and
other forms of information from time to time disseminated to the participants
by the administrator of the deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in
compliance with all federal, state and municipal laws, regulations and
ordinances relating to the handling, treatment and disposal of toxic
substances, wastes and hazardous material and shall maintain all necessary
authorizations and permits.
6.25 Borrower shall maintain insurance on the life of N/A
-----------------
in an amount not to be less than NO/100
---------------------------------------------
Dollars ($ n /a) under one or more
--------------------------------------------
policies issued by insurance companies satisfactory to Bank, which policies
shall be assigned to Bank as security for the Obligations and on which Bank
shall be named as sole beneficiary.
6.26 Borrower shall limit direct and indirect compensation paid to the
following employees: ,
-----------------------------------------------------------
, to an aggregate of N/A
------------------------------ ---------------------------
Dollars ($ N/A ) per .
--------------------------- ----------------------------------
7. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute a default by
Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation
contained in this Agreement, or any other present or future agreement between
Borrower and Bank;
b. If any representation, statement, report or certificate made or delivered
by Borrower, or any of its officers, employees or agents to Bank is not true
and correct;
c. If Borrower fails to pay when due and payable or declared due and payable,
all or any portion of the Borrower's Obligations (whether of principal,
interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment of all or
any portion of Borrower's Obligations or a material impairment of the value
or priority of Bank's security interest in the Collateral;
10.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
e. If all or any of Borrower's assets are attached, seized, subject to a writ
or distress warrant, or are levied upon, or come into the possession of any
Judicial Officer or Assignee and the same are not released, discharged or
bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against Borrower
without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs;
i. If a notice of lien, levy or assessment is filed of record with respect to
any or all of Borrower's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
choate or otherwise, upon any or all of the Borrower's assets and the same is
not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any or all
of Borrower's assets and the same is not satisfied, dismissed or bonded
against within ten (10) days thereafter;
k. Borrower's records are prepared and kept by an outside computer service
bureau at the time this Agreement is entered into or during the term of this
Agreement such an agreement with an outside service bureau is entered into,
and at any time thereafter, without first obtaining the written consent of
Bank, Borrower terminates, modifies, amends or changes its contractual
relationship with said computer service bureau or said computer service
bureau fails to provide Bank with any requested information or financial data
pertaining to Bank's Collateral, Borrower's financial condition or the
results of Borrower's operations;
l. If Borrower permits a default in any material agreement to which Borrower
is a party with third parties so as to result in an acceleration of the
maturity of Borrower's indebtedness to others, whether under any indenture,
agreement or otherwise;
m. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Obligations to Bank;
n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director,
o. If any party subordinating its claims to that of Bank's or any guarantor
of Borrower's Obligations dies or terminates its subordination or guaranty,
becomes insolvent or an Insolvency Proceeding is commenced by or against any
such subordinating party or guarantor,
p. Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of N/A
---------------------
percent (_____%) or more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines constitutes grounds for
the termination of any deferred compensation plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any such plan, shall have occurred
and be continuing thirty (30) days after written notice of such determination
shall have been given to Borrower by Bank, or any such Plan shall be
terminated within the meaning of Title IV of the Employment Retirement income
Security Act ("ERISA"), or a trustee shall be appointed by the appropriate
United States District Court to administer any such plan, or the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate any
plan and in case of any event described in this Section 7.0, the aggregate
amount of the Borrower's liability to the Pension Benefit Guaranty
Corporation under Sections 4062, 4063 or 4064 of ERISA shall exceed five
percent (5%) of Borrower's Tangible Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank
shall refrain from exercising its rights and remedies and Event of Default
shall thereafter not be deemed to have occurred by reason of the occurrence
of any of the events set forth in Sections 7.e, 7.f or 7.j of this Agreement
if, within ten (10) days from the date thereof, the same is released,
discharged, dismissed, bonded against or satisfied; provided, however, if the
event is the institution of insolvency Proceedings against Borrower, Bank
shall not be obligated to make advances to Borrower during such cure period.
8. BANK'S RIGHTS AND REMEDIES
--------------------------
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
a. Declare Borrower's Obligations, whether evidenced by this
Agreement, installment notes, demand notes or otherwise, immediately due
and payable to the Bank;
b. Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, or any other agreement between
Borrower and Bank;
c. Terminate this Agreement as to any future liability or
obligation of Bank but without affecting Bank's rights and security
interests in the Collateral, and the Obligations of Borrower to Bank;
11.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
d. Without notice to or demand upon Borrower or any guarantor,
make such payments and do such ads as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Bank so requires and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes
Bank to enter the premises where the Collateral is located, take and
maintain possession of the Collateral and the premises (at no charge to
Bank), or any part thereof, and to pay, purchase, contest or compromise
any encumbrance, charge or lien which in the opinion of Bank appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith;
e. Without limiting Bank's rights under any security interest,
Bank is hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property
of a similar nature as it pertains to the Collateral, in completing
production of, advertising for sale and selling any Collateral and
Borrower's rights under all licenses and all franchise agreement shall
inure to Bank's benefit, and Bank shall have the right and power to
enter into sublicense agreements with respect to all such rights with
third parties on terms acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sales and sell (in the manner provided
for herein) the inventory;
g. Sell or dispose the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's
premises) as is commercially reasonable in the opinion of Bank. It is
not necessary that the Collateral be present at any such sale;
h. Bank shall give notice of the disposition of the Collateral
as follows:
(1) Bank shall give the Borrower and each holder of a
security interest in the Collateral who has filed with Bank a
written request for notice, a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some
disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower's address appearing in this
Agreement, at least five (5) calendar days before the date fixed
for the sale, or at least five (5) calendar days before the date
on or after which the private sale or other disposition is to be
made, unless the Collateral is perishable or threatens to
decline speedily in value. Notice to persons other than Borrower
claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also
give notice of the time and place by publishing a notice one
time at least five (5) calendar days before the date of the sale
in a newspaper of general circulation in the county in which the
sale is to be held; and
(4) Bank may credit bid and purchase at any public
sale.
i. Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies
as herein provided, whether or not suit is commenced by Bank;
j. Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of
third parties, to Borrower by Bank, or, in Bank's discretion, to any
party who Bank believes, in good faith, is entitled to the excess; and
k. Without constituting a retention of Collateral in
satisfaction of an obligation within the meaning of 9505 of the Uniform
Commercial Code or an action under California Code of Civil Procedure
726, apply any and all amounts maintained by Borrower as deposit
accounts (as that term is defined under 9105 of the Uniform Commercial
Code) or other accounts that Borrower maintains with Bank against the
Obligations.
8.2 Bank's rights and remedies under this Agreement and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided by law or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of
any default on Borrower's part shall be deemed a continuing waiver. No delay
by Bank shall constitute a waiver, election or acquiescence by Bank.
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
------------------------------------------------
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future; or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS.
-------
10.1 Borrower agrees that checks and other instruments received by Bank
in payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the
right to direct the application of any and all payments at any time or times
hereafter received by Bank on account of Borrower's Obligations and Borrower
agrees
12.
<PAGE>
REVOLVING
LOAN & SECURITY AGREEMENT
(ACCOUNTS AND INVENTORY)
that Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry
by Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, documents, instruments chattel
paper, and guarantees at any time held by Bank on which Borrower may in any
way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for
(a) the safekeeping of the inventory; (b) any loss or damage thereto occurring
or arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants, accounting firm and/or service
bureau or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER,
OR CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF
DUTY CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any terms, such waiver, delay or failure to pursue or
enforce shall only be effective with respect to that single act and shall not
be construed to affect any subsequent transactions or Bank's right to later
pursue such rights and remedies.
11. ONE CONTINUING LOAN TRANSACTION
-------------------------------
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are a consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by either
party on the other relating to this Agreement shall be in writing and sent by
regular United States mail, postage prepaid, properly addressed to Borrower or
to Bank at the addresses stated in this Agreement, or to such other addresses as
Borrower or Bank may from time to time specify to the other in writing.
Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE
-------------------------
Bank is hereby authorized to make loans and advances hereunder upon telephonic
or other instructions received from anyone purporting to be an officer,
employee, or representative of Borrower, or at the discretion of Bank if said
loans and advances are necessary to meet any Obligations of Borrower to Bank.
Bank shall have no duty to make inquiry or verify the authority of any such
party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
-----------------------------------
Any documents, schedules, invoices or other papers delivered to Bank, may be
destroyed or otherwise disposed of by Bank six (6) months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW
-------------
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral, shall be determined according to the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or County of Santa
Clara.
16. GENERAL PROVISIONS
------------------
16.1 This Agreement shall be binding and deemed effective when executed
by the Borrower and accepted and executed by Bank at its Headquarter Office.
13.
<PAGE>
16.2 This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties, provided, however,
that Borrower may not assign this Agreement or any rights hereunder without
Bank's prior written consent and any prohibited assignment shall be absolutely
void. No consent to an assignment by Bank shall release Borrower or any
guarantor from their Obligations to Bank. Bank may assign this Agreement and
its rights and duties hereunder. Bank reserves the right to sell, assign,
transfer, negotiate or grant participation in all or any part of, or any
interest in Bank's rights and benefits hereunder. In connection therewith,
Bank may disclose all documents and information which Bank now or hereafter
may have relating to Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth
herein for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire
Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any
rule of construction or otherwise; on the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to
the ordinary meaning of the words used so as to fairly accomplish the purposes
and intentions of all parties hereto. When permitted by the context, the
singular includes the plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as
to currently existing Obligations owing by Borrower to Bank, all prior
agreements, understandings, representations, warranties, and negotiations, if
any, with respect to the subject matter hereof, are merged into this
Agreement.
16.7 The parties intend and agree that their respective rights, duties,
powers liabilities, obligations and discretions shall be performed, carried
out, discharged and exercised reasonably and in good faith.
IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit Loan
& Security Agreement (Accounts and Inventory) to be executed as of the date
first hereinabove written.
ATTEST: BORROWER: SPLASH TECHNOLOGY, INC.
By: /s/ Joan Platt
- ------------------------------- -----------------------------------------
Title: Signature of Joan Platt
Accepted and effective as of Title: VP, FINANCE AND ADMINISTRATION, CFO
-----------------------------------
SEPTEMBER 3, 1996 at the Bank's
- -----------------
Headquarter Office
By:
-----------------------------------------
Signature of
(Bank) Title:
--------------------------------------
By: /s/ Mary Beth Suhr By:
----------------------------- ----------------------------------------
Signature of MARY BETH SUHR Signature of
Title: VICE PRESIDENT Title:
-------------------------- -------------------------------------
By:
---------------------------------------
Signature of
Title:
------------------------------------
14.
<PAGE>
EQUIPMENT
RIDER
Borrower(s): SPLASH TECHNOLOGY, INC.
Borrower has entered into a certain Revolving Credit and Security Agreement
(Accounts and Inventory) or a certain Loan and Security Agreement (Accounts and
Inventory) (either hereinafter referred to as "Agreement", dated SEPTEMBER 3,
--------------
1996 with Bank (Secured Party). This EQUIPMENT RIDER (hereinafter
- ------------------
referred to as this Rider) dated SEPTEMBER 3, 1996 is hereby made a
--------------------------
part of and incorporated into that Agreement.
1. Borrower grants to Bank a security interest in the following
(hereinafter referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles,
office equipment, furniture, furnishings, tools, dies jigs and
attachments, wherever located, (including but not limited to, the
items listed and described on the Schedule of Equipment attached
hereto and marked Exhibit "A" and by this reference made a part hereof
as though fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or
unlike nature, to be acquired hereafter, and all replacements,
substitutes, accessions, additions and improvements to any of the
foregoing; and
(c) all of Borrower's general Intangibles, including without limitation,
computer programs, computer disks, computer
2. Bank's security interest in the Equipment as set forth above shall
secure each, any and all of Borrower's Obligations to Bank, as the term
"Obligations" is defined in the Agreement; and, the payment of Borrower's
indebtedness in the principal amount of FIVE MILLION AND NO/100 Dollars
-----------------------
($ 5,000,000.00 ) and interest evidenced by
-------------------
REVOLVING LOAN AND SECURITY AGREEMENT .
- -------------------------------------------------------
3. Bank may, in its sole discretion, from time to time hereafter, make
loans to Borrower. Loans made by Bank to Borrower pursuant to this Rider shall
be included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such loans
shall bear interest at the rate and be payable in the manner specified in said
promissory note(s) in the event Bank exercises the aforementioned option, and in
the event Bank does not, such loans shall bear interest at the rate and be
payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) it has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens,
security interests, encumbrances and claims, except as held by
Bank;
(c) the Equipment shall be kept only at the following locations:
N/A
----------------------------------------------------------------
.
---------------------------------------------------------------
(d) the owners or mortgagees of the respective locations are:
H. TAYLOR PEERY JOINT VENTURE II, 2560 MISSION COLLEGE BLVD.
---------------------------------------------------------------
#101, SANTA CLARA, CA 95054.
---------------------------
(e) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours to inspect and
examine the Equipment and Borrower agrees to reimburse Bank for
its reasonable costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating
condition and repair, make all necessary replacements thereto so that the value
and operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower, at its expense, shall keep and maintain: the Equipment insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such policies of insurance and evidence of
the payment of all premiums thereof. All such policies of insurance (except
those of public liability and property damage) shall contain an endorsement in a
form satisfactory to Bank showing loss payable to Bank and all proceeds payable
thereunder shall be payable to Bank and upon receipt by Bank shall be applied on
the account of Borrower's Obligations. To secure the payment of Borrower's
Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof and directs all insurers under such policies of insurance
to pay all proceeds thereof directly to Bank. Borrower hereby irrevocably
appoints Bank (and any of Bank's officers, employees or agents designated by
Bank) as Borrower's attorney-in-fact for the purpose of making, settling and
adjusting claims under such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance. Each
such insurer shall agree by endorsement upon the policy or policies of insurance
issued by it to Borrower as required above, or by independent instruments
furnished to Bank that it will give Bank at least ten (10) days written notice
before any such policy or policies of insurance shall be altered or canceled,
and that no act or default of Borrower, or any other person, shall affect the
right of Bank to recover under such policy or policies of insurance required
above or to pay any premium in whole or in part relating thereto. Bank, without
waiving or releasing any obligations or defaults by Borrower hereunder, may at
any time or times hereafter, but shall have no obligations to do so, obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect to such policies which Bank deems advisable. All sums so
disbursed by Bank, including reasonable attorney's fees, court costs, expenses
and other charges relating thereto, shall be a part of Borrower's Obligations
and payable on demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower
may, subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the location or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower
upon request of Bank to do so, agrees to assemble and make the Equipment or any
part thereof available to Bank at a place designated by Bank.
10. Borrower shall upon demand by Bank immediately deliver to Bank and
properly endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
Borrower(s): SPLASH TECHNOLOGY, INC.
/s/ Joan Platt
- ---------------------------------- ---------------------------------------
By: By:
- ---------------------------------- ---------------------------------------
By: By:
Accepted this 3RD DAY OF SEPTEMBER, 1996 at Bank's place of
--------- ------------------------
business in SAN JOSE, CA 95113
----------------------
By: /s/ Mary Beth Suhr
---------------------------------------
CA 132 (12-94) MARY BETH SUHR, VICE PRESIDENT
<PAGE>
ENVIRONMENTAL RIDER
COMERICA BANK-CALIFORNIA
----------------------------------------------
NAME OF OFFICE
333 WEST SANTA CLARA STREET,SAN JOSE, CA 95113
----------------------------------------------
ADDRESS
This ENVIRONMENTAL RIDER (this "Rider") dated this 3RD day of
----------
SEPTEMBER , 1996 is hereby made a part of and
- -------------------------- ----------
incorporated into that certain REVOLVING LOAN AND SECURITY AGREEMENT
------------------------------------------------
(the "Agreement") dated SEPTEMBER 3, 1996 between COMERICA
-------------------- --------------------------
BANK-CALIFORNIA a California corporation
- -----------------------------------------------
("Lender") and SPLASH TECHNOLOGY, INC. ("Borrower").
---------------------------------
1. Borrower hereby represents, warrants and covenants that none of
the collateral or real property occupied and/or owned by Borrower has ever been
used by Borrower or any other previous owner and/or operator in connection with
the disposal of or to refine, generate, manufacture, produce, store, handle,
treat, transfer, release, process or transport any hazardous waste, as defined
in 42 U.S.C. 9601 (14) ("Hazardous Substance"), and Borrower will not at any
time use the collateral or such real property for the disposal of, refining of,
generating, manufacturing, producing, storing, handling, treating, transferring,
releasing, processing, or transporting any such Hazardous Waste and/or Hazardous
Substances.
2. None of the collateral or real property used and/or occupied by
Borrower has been designated, listed or identified in any manner by the United
States Environmental Protection Agency (the "EPA") or under and pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, set forth at 42 U.S.C. 9601 et seq. ("CERCLA") or the Resource
Conservation and Recovery Act of 1986, as amended, set forth at 42 U.S.C. 9601
et seq. ("RCRA") or any other environmental protection statute as a Hazardous
Waste or Hazardous Substance disposal or removal site, superfund or cleanup site
or candidate for removal of closure pursuant to RCRA, CERCLA or any other
environmental protection statute.
3. Borrower has not received a summons, citation, notice,
directive, letter or other communication, written or oral, from the EPA or any
other federal or state governmental agency or instrumentality, authorized
pursuant to an environmental protection statute, concerning any intentional or
unintentional action or omission by Borrower resulting in the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, dumping or otherwise
disposing of Hazardous Waste or Hazardous Substance into the environment
resulting in damage thereto or to the fish, shellfish, wildlife, biota or other
natural resources.
4. Borrower shall not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part, or on the part of
any third party, on property owned and/or occupied by Borrower, any disposal,
releasing, spilling, leaking, pumping, omitting, pouring, emptying or dumping of
a Hazardous Waste or Hazardous Substance into the environment where damage may
result to the environment, fish, shellfish, wildlife, biota or other natural
resources unless such disposal, release, spill, leak, pumping, emission,
pouring, emptying or dumping is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal or state governmental
authority.
5. Borrower shall furnish to Lender:
(a) Promptly and in any event within thirty (30) days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other communications from the EPA or any other governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with the handling, transporting, transferring,
disposal or in the releasing, spilling, leaking, pumping, pouring, emitting,
emptying or dumping of Hazardous Waste or Hazardous Substances into the
environment resulting in damage to the environment, fish. shellfish, wildlife,
biota and any other natural resource;
(b) Promptly and in any event within thirty (30) days after the
receipt thereof, a copy of any notice of or other communication concerning the
filing of a lien upon, against or in connection with Borrower, the collateral or
Borrower's real property by the EPA or any other governmental agency or
instrumentality authorized to file such a lien pursuant to an environmental
protection statute in connection with a fund to pay for damages and/or cleanup
and/or removal costs arising from the intentional or unintentional action or
omission of Borrower resulting from the disposal or in the releasing, spilling,
leaking, pumping, pouring, emitting, emptying or dumping of Hazardous Waste or
Hazardous Substances into the environment;
(c) Promptly and in any event within thirty (30) days after the
receipt thereof, a copy of any notice, directive, letter or other communication
from the EPA or any other governmental agency or instrumentality acting under
the authority of an environmental protection statute indicating that all or any
portion of the Borrower's property or assets have been listed and/or borrowers
deemed by such agency to be the owner and operator of the facility that has
failed to furnish to the EPA or other authorized governmental agency or
instrumentality, all the information required by the RCRA, CERCLA or other
applicable environmental protection statutes;
(d) Promptly and in no event more than thirty (30) days after
the filing thereof with the EPA or other governmental agency or instrumentality
authorized as such pursuant to an environmental protection statute, copies of
any and all information reports filed with such agency or instrumentality in
connection with Borrower's compliance with RCRA, CERCLA or other applicable
environmental protection statutes.
6. Any one or more of the following events which occur with respect
to Borrower shall constitute an event of default:
(a) The breach by Borrower of any covenant or condition,
representation or warranty contained in this Rider;
(b) The failure by Borrower to comply with each, every and all
of the requirements of RCRA, CERCLA or any other applicable environmental
protection statutes on the real property occupied and/or on owned by borrower;
(c) The receipt by Borrower of a notice from the EPA or any
other governmental agency or instrumentality acting under the authority of any
environmental protection statute, indicating that a lien has been filed against
any of the collateral, or any of Borrower's other property by the EPA or any
other governmental agency or instrumentality in connection with a fund as a
result of damage arising from an intentional or unintentional action or omission
by Borrower resulting from the disposal, releasing, spilling, leaking, pumping,
pouring, emitting, emptying or dumping of Hazardous Substances or Hazardous
Waste into the environment; and
(d) Any other event or condition exists which might, in the
opinion of Lender, under applicable environmental protection statutes, have a
material adverse effect on the financial or operational condition of Borrower or
the value of all or any material part of the collateral or other property of
Borrower.
In witness whereof, the Borrower has agreed as of the date first set forth
above.
SPLASH TECHNOLOGY, INC.
- -------------------------------------------------------
(BORROWER/PLEDGOR)
By: /s/ Joan Platt By:
------------------------------- -------------------------------------
Its: CFO Its:
------------------------------- -------------------------------------
By: By:
------------------------------- -------------------------------------
Its: Its:
------------------------------- -------------------------------------
CA 336 (12-94)
<PAGE>
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1 (REV. 1/90)
IMPORTANT - READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM
This Financing Statement is presented for filing and will remain effective, with
certain exceptions, for five years from the date of filing, pursuant to Section
9403 of the California Uniform Commercial Code.
This FINANCING STATEMENT is presented for filing pursuant to the California
Uniform Commercial Code.
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEBTOR (LAST NAME FIRST-IF AN INDIVIDUAL) 1A. SOCIAL SECURITY OR FEDERAL TAX NO.
SPLASH TECHNOLOGY, INC.
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
555 DEL RAY AVENUE SUNNYVALE, CA 94086
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST-IF AN INDIVIDUAL) 2A. SOCIAL SECURITY OR FEDERAL TAX NO.
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY) 3A. FEDERAL TAX NUMBER
4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX
NAME COMERICA BANK-CALIFORNIA NO. OR BANK TRANSIT AND A.B.A. NO.
MAILING ADDRESS 333 WEST SANTA CLARA STREET
CITY SAN JOSE STATE CA ZIP CODE 95113 90-3752
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX
NAME NO. OR BANK TRANSIT AND A.B.A. NO.
MAILING ADDRESS
CITY STATE ZIP CODE
6. This FINANCING STATEMENT covers the following types or items of property (include description of real property on which
locate and owner of record when required by instruction 4).
</TABLE>
***** SEE ATTACHMENT "A" FOR COLLATERAL DESCRIPTION *****
<TABLE>
<CAPTION>
<S> <C> <C>
7. CHECK IF [X] 7A. [X] PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN
APPLICABLE ARE ALSO COVERED ACCORDANCE WITH INSTRUCTION 5 (a) ITEM
[_](1) [_](2) [_](3) [_](4)
8. CHECK IF [X] [_] DEBTOR IS A "TRANSMITTING
APPLICABLE UTILITY" IN ACCORDANCE WITH
UCC SEC. 9105 (1) (n)
9. DATE: 09/03/96 C 10. THIS SPACE FOR USE OF FILING
O OFFICER (DATE, TIME, FILE
D NUMBER AND FILING OFFICER)
E
SIGNATURE(S) OF DEBTOR(S) By: /s/ Joan Platt
1
SPLASH TECHNOLOGY, INC.
2
TYPE OR PRINT NAME(S) OF DEBTOR(S)
3
4
SIGNATURE(S) OF SECURED PARTY(IES)
/s/ Mary Beth Suhr
BY: MARY BETH SUHR, VICE PRESIDENT 5
COMERICA BANK-CALIFORNIA
6
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES)
11. Return copy to: 7
NAME COMERICA BANK-CALIFORNIA 8
ADDRESS P.O. BOX 49032
CITY SAN JOSE, CA 95161-9871 9
STATE
ZIP CODE 0
LC5336(5-94) Filing Officer Copy
Uniform Commercial Code - Form UCC-1 Approved by the Secretary of State Standard Form-Filing Fee $5.00
</TABLE>
<PAGE>
INSTRUCTIONS (REV. 01-83)
1. PLEASE TYPE THIS FORM USING BLACK TYPEWRITER RIBBON.
2. If the space provided for any item is inadequate:
a. Note "Cont'd." in the appropriate space(s).
b. Continue the item(s) preceded by the Item No. on an additional
8-1/2" x 11" sheet.
c. Head each additional sheet with the Debtor's name (last name
first for individuals appearing in Item No. 1 of this form. Be
sure to attach a copy of the additional sheet to each copy of
the form.
3. NUMERICAL IDENTIFICATION:
a. It the Debtor, Secured Party or Assignee is an individual,
include Social Security Number in the appropriate space.
Disclosure of Social Security number is optional for the filing
of this statement. It will be used to assist in correctly
identifying individuals with similar names.
b. If the Debtor, Secured Party or Assignee is other than an
individual or a bank, show Federal Taxpayer Number in the
appropriate space.
c. If the Secured Party or Assignee is a bank, show Transit and ABA
number in the appropriate space. This must be the complete 10
digit number.
4. COLLATERAL DESCRIPTION--Item 6
a. If the financing statement covers crops growing or to be grown,
the statement must also contain a description of the real estate
concerned in accordance with UCC Sec. 9402(1).
b. If the financing statement covers timber to be cut or minerals
or the like (including oil and gas) or accounts resulting from
the sale of such minerals at the wellhead or minehead or if the
financing statement is filed as a fixture filing under UCC Sec.
9313, the financing statement (i) must show that it covers this
type of collateral, (ii) must recite that it is to be recorded
in the real estate records, and (iii) must contain a legal
description of the real estate. If the debtor does not have an
interest of record in the real estate, the financing statement
most show the name of a record owner in Item No. 6.
5. SIGNATURES:
Before mailing, be sure that the financing statement has been properly signed.
A financing statement requires the signature of the debtor only except under
the following circumstances. If any of these circumstances apply, check the
appropriate box in item 7B and enter required information in Item 6.
a. Under the provisions of UCC Sec. 9402(2), a financing statement
is sufficient when it is signed by the secured party alone if it
is filed to perfect a security interest in:
(1) collateral already subject to a security interest in
another jurisdiction when it is brought into this State or when
the debtor's location is changed to this State. Such a financing
statement must state that the collateral was brought into this
State or that the debtor's location was changed to this State.
(2) proceeds under UCC Sec. 9306, if the security interest
in the original collateral was perfected. Such a financing
statement must describe the original collateral and give the
date of filing and the file number of the prior financing
statement.
(3) collateral as to which the filing has lapsed. Such a
financing statement must include a statement to the effect that
the prior financing statement has lapsed and give the date of
filing and the file number of the prior financing statement.
(4) collateral acquired after a change of name, identity or
corporate structure of the debtor. Such a financing statement
must include a statement that the name, identity or corporate
structure of the debtor has been changed and give the date of
filing and the file number of the prior financing statement and
the name of the debtor as shown in the prior financing
statement.
6. FILING FEE--PROPER PLACE TO FILE
Enclose the appropriate filing fee payable to the appropriate Filing Officer.
Financing statements and related papers pertaining to consumer goods should
be filed with the County Recorder in the county of the debtor's residence, or
if the debtor is not a resident of this State, then in the office of the
County Recorder of the county in which the goods are kept. When the
collateral is crops growing or to be grown, timber to be cut, minerals or the
like (including oil and gas), accounts resulting from the sale of such
minerals at the wellhead or minehead, then filing is with the County Recorder
of the county where the property is located. When the financing statement is
filed as a fixture filing, the statement should be filed in the office where
a mortgage on the real estate would be recorded and with the Secretary of
State. In all other cases, including financing statements covering collateral
(including fixtures) of a transmitting utility filings with the Secretary of
State.
7. REMOVE SECURED PARTY AND DEBTOR COPIES
Send the original and first copy with interleaved carbon paper to the Filing
Officer with the correct filing fee. The original will be retained by the
Filing Officer. The copy will be returned with the filing date and time
stamped thereon. Indicate the name and mailing address of the person or firm
to whom the copy is to be returned in Item No. 11.
<PAGE>
Attachment A to UCC-1 Financing Statement between
COMERICA BANK-CALIFORNIA and SPLASH TECHNOLOGY, INC.
dated 09/03/96
The attached Financing Statement covers the following types or items
of property:
ALL ASSETS
All of the following property now owned or later acquired by Debtor,
wherever located: all accounts, general intangibles, chattel paper,
contract rights, deposit accounts, documents, instruments, inventory,
returned or repossessed goods, equipment and fixtures, and all
additions, attachments, accessions, parts, replacements,
substitutions, renewals and records (including without limit computer
software) pertaining to the foregoing property, and all products and
proceeds of any of the foregoing (whether cash or non-cash proceeds),
including without limit insurance and condemnation proceeds.
/s/ JP
------------------
Debtor(s) Initials
<PAGE>
SUBORDINATION AGREEMENT
(All Indebtedness and Liens)
SPLASH TECHNOLOGY, INC. ("Borrower") is indebted to the undersigned
- -------------------------
("Creditor") in the principal sum of SEVEN MILLION, EIGHT HUNDRED AND FORTY
-----------------------------------------
THOUSAND Dollars ($7,840,000.00 ) evidenced by an open
- ---------------- ---------------- -----------
account promissory note other (describe)
___________ ___________ _____________
which indebtedness is unsecured secured by ,
______________ ___________ _________
and Creditor is or may become financially interested in Borrower and desires
to aid Borrower in obtaining or having continued financial accommodations,
whether by way of loan, commitment to loan, discounting of instruments,
extensions of credit or the obtaining of any other financial aid from Comerica
Bank-California ("Bank").
In order to induce the Bank to extend or to continue to extend financial
accommodations to Borrower from time to time, whether by way of a loan
commitment to loan, discounting of instruments, extension of credit or otherwise
and in consideration of any of these financial accommodations, Creditor agrees
as follows:
1. Any and all obligations and liabilities of Borrower to Creditor, including,
without limit, principal and interest, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and whatever the amount and however evidenced (the
"Subordinated Indebtedness"), are subordinated in right of payment to any and
all obligations and liabilities of Borrower to the Bank, including, without
limit, principal and interest payments whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and however evidenced, together with all other sums
due thereon and all costs of collecting the same (including, without limit,
reasonable attorney fees) for which Borrower is liable (the "Senior
Indebtedness").
2. Creditor will not ask for, demand, sue for, take or receive (by way of
voluntary payment, acceleration, set-off or counterclaim, foreclosure or other
realization on security, dividends in bankruptcy or otherwise), or offer to make
any discharge or release of, any of the Subordinated Indebtedness, and Creditor
waives any such rights with respect to the Subordinated Indebtedness nor shall
Creditor exercise any rights of subrogation or other similar rights with respect
to the Senior Indebtedness.
3. Creditor will not exercise any of Creditor's rights in any collateral now or
later securing the Subordinated Indebtedness. All rights of Creditor in any
collateral now or later securing the Subordinated Indebtedness are subordinated
to all rights of the Bank now or later existing in any of the same collateral
securing the Senior Indebtedness.
4. Creditor authorizes and empowers the Bank to demand, enforce payment by
legal proceedings, receive and give acquittances for the Subordinated
Indebtedness and to exercise all rights of Creditor in any security (other than
a deed of trust, mortgage or security interest covering real property) now or
later held for the Subordinated Indebtedness. As collateral for the Senior
Indebtedness, Creditor hereby pledges, assigns and grants to Bank a security
interest in the Subordinated Indebtedness, any collateral or other security
(other than a deed of trust, mortgage or security interest covering real
property or a principal dwelling) for the Subordinated Indebtedness, and all
claims or demands of Creditor in connection therewith, with full right on the
part of the Bank, in its own name or in the name of Creditor, to collect and
enforce these claims or demands, by suit, proof of debt in bankruptcy, or in any
other proceeding involving dissolution, insolvency, liquidation or an adjustment
of the indebtedness of Borrower. The Bank has no obligation to the Creditor to
take any steps with regard to these claims or demands, the Subordinated
Indebtedness, or any collateral or other security for the Subordinated
Indebtedness.
5. Should any payment, distribution or security or proceeds from these be
received by Creditor upon or with respect to the Subordinated Indebtedness prior
to the satisfaction in full of the Senior Indebtedness, Creditor shall
immediately deliver same to the Bank in the form received (except for
endorsement or assignment by Creditor where required by the Bank), for
application on the Senior Indebtedness (whether or not then due and in such
order of maturity as Bank elects) and, until so delivered, the same shall be
held in trust by Creditor as the property of the Bank.
6. Creditor represents and warrants that it has not made or permitted to be
made and shall not make or permit any assignment, transfer, pledge, or
disposition for collateral purposes or otherwise, of all or any part of the
Subordinated Indebtedness or any collateral or other security for the
Subordinated Indebtedness so long as this Agreement remains in effect. Creditor
shall, on the date of this Agreement or promptly upon receipt if not yet
delivered to Creditor, deliver to the Bank, endorsed if required by the Bank,
all notes and other instruments evidencing any Subordinated Indebtedness.
Creditor agrees to execute all financing statements deemed necessary by the Bank
to perfect the Bank's rights and interests under this Agreement. The Bank is to
have all the rights and remedies of a secured creditor under the California
Uniform Commercial Code, as amended from time to time, with respect to such
interests. Creditor further makes, constitutes and appoints Bank its true and
lawful attorney-in-fact with full power of substitution to take any action in
furtherance of this Agreement, including, but not limited to, the signing of
financing statements, endorsing of instruments, and the execution and delivery
of all documents and agreements necessary to obtain or accomplish any protection
for or collection or disposition of any part of any collateral. Such appointment
shall be deemed irrevocable and coupled with an interest.
7. This Agreement constitutes a continuing agreement of subordination, even
though at times Borrower is not indebted to the Bank. The Bank may continue, in
reliance on this Agreement, without notice to Creditor, to lend monies, extend
credit, modify, renew or make other financial accommodations, to or for the
account of Borrower until the fifth (5th) day ("effective date") following
written acknowledgment by an officer of the Bank that the Bank received written
notice of revocation of this Agreement from Creditor. Any such notice of
revocation shall not be effective as to any Senior Indebtedness existing at the
effective date of revocation or any Senior Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any Borrower
loan (whether advances or readvances by the Bank after the effective date of
revocation are optional or obligatory) existing at the effective date of
revocation or any modifications or renewals of any Senior Indebtedness, whether
in whole or in part. Possession by the Bank of any note or other evidence of
indebtedness made, endorsed or guaranteed by Borrower shall be conclusive
evidence (but not the only means of establishing) that Borrower is indebted to
the Bank.
8. Creditor shall indemnify the Bank against all claims, damages, costs, and
expenses, including, without limit, reasonable attorneys' fees, incurred by the
Bank in connection with any suit, claim or action against the Bank arising out
of any modification or termination of a Borrower loan or any refusal by the Bank
to extend additional credit relating to the revocation of this Agreement.
9. Creditor delivers this Agreement based solely on Creditor's independent
investigation of (or decision not to investigate) the financial condition of the
Borrower and is not relying an any information furnished by the Bank. Creditor
assumes full responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Senior Indebtedness or any
other matter which Creditor may deem necessary or appropriate now or later.
Creditor waives any duty on the part of the Bank, and agrees that Creditor
1.
<PAGE>
is not relying upon nor expecting the Bank to disclose to Creditor any fact now
of later known by the Bank, whether relating to the operations or condition of
the Borrower, the existence, liabilities or financial condition of any guarantor
of the Senior Indebtedness, the occurrence of any default with respect to the
Senior Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Creditor's risk or Creditor's rights against the Borrower. Creditor
knowingly accepts the full range of risk encompassed in this Agreement, which
risk includes, without limit, the possibility that the Borrower may incur Senior
Indebtedness to the Bank after the financial condition of the Borrower, or its
ability to pay Borrower's debts as they mature, has deteriorated. Creditor
acknowledges and agrees that the Bank's rights under this Agreement are not
conditioned upon pursuit by the Bank of any remedy the Bank may have against the
Borrower or any other person or any other security. The absence of Borrower's
signature at the end of this Agreement shall in no way impair or affect the
validity of this Agreement.
10. The Bank, in its sole discretion, without notice to Creditor, may release,
exchange, enforce and otherwise deal with any security now or later held by the
Bank for payment of the Senior Indebtedness or release any party now or later
liable for payment of the Senior Indebtedness without affecting in any manner
the Bank's rights under this Agreement. Creditor acknowledges and agrees that
the Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment of the
Senior Indebtedness, and Creditor is not relying upon assets in which the Bank
has or may have a lien or security interest for payment of the Senior
Indebtedness.
11. Notwithstanding any prior revocation, termination, surrender, or discharge
of this Agreement in whole or in part, the effectiveness of this Agreement shall
automatically continue or be reinstated in the event that any payment received
or credit given by the Bank in respect of the Senior Indebtedness is returned,
disgorged, or rescinded under any applicable state or federal law, including,
without limitation, laws pertaining to bankruptcy or insolvency, in which case
this Agreement, shall be enforceable against the-Creditor as if the returned,
disgorged, or rescinded payment or credit had not been received or given by the
Bank, and whether or not the Bank relied upon this payment or credit or changed
its position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, the Creditor agrees upon demand by the Bank to
execute and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of the Creditor to do so
shall not affect in any way the reinstatement or continuation.
12. Creditor waives any right to require the Bank to: (a) proceed against any
person or property; (b) give notice of the terms, time and place of any public
or private sale of personal property security held from the Borrower or any
other person, or otherwise comply with the provisions of Section 9-504 of any
applicable Uniform Commercial Code; or (c) pursue any other remedy in the Bank's
power. Creditor waives notice of acceptance of this Agreement and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Senior
Indebtedness, any and all other notices to which the undersigned might otherwise
be entitled, and diligence in collecting any Senior Indebtedness, and agrees
that the Bank may, once or any number of times, modify the terms of any Senior
Indebtedness, compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Senior Indebtedness, or permit the Borrower to
incur additional Senior Indebtedness, all without notice to Creditor and without
affecting in any manner the unconditional obligations of Creditor under this
Agreement.
13. Creditor acknowledges that the Bank has the right to sell, assign, transfer,
negotiate or grant participations or any interest in, any or all of the Senior
Indebtedness and any related obligations, including without limit this
Agreement. In connection with the above, but without limiting its ability to
make other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has or acquires relating
to Creditor and this Agreement, however obtained. Creditor further agrees that
the Bank may disclose such documents and information to the Borrower. Creditor
agrees that the Bank may provide information relating to this Subordination
Agreement or to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
14. No waiver or modification of any of its rights under this Agreement shall be
effective unless the waiver or modification shall be in writing and signed by an
authorized officer on behalf of the Bank, and each waiver or modification shall
be a waiver or modification only with respect to the specific matter to which
the waiver or modification relates and shall in no way impair the rights of the
Bank or the obligations of Creditor to the Bank in any other respect.
15. This Agreement shall bind and be for the benefit of Creditor and the Bank
and their respective successors and assigns, and shall be construed according to
the laws of the State of California without regard to conflict of laws
principles. If this Agreement is executed by two or more persons, it shall bind
each of them individually as well as jointly.
16. The term "Borrower", as used in this Agreement, includes any person,
corporation, partnership or business entity which succeeds to the interests or
business of the Borrower named above, and the terms "Senior Indebtedness" and
"Subordinated Indebtedness" include indebtedness of any successor Borrower to
the Bank and Creditor.
17. Creditor agrees to reimburse the Bank for any and all costs and expenses
(including, without limit, court costs, legal fees, and reasonable attorney fees
whether inside or outside counsel is used, whether or not suit is instituted
and, if instituted, whether at the trial or appellate level, in a bankruptcy,
probate or administrative proceeding, or otherwise) incurred in enforcing any of
the duties and obligations of Creditor under this Agreement.
18. Creditor waives any defense against the enforceability of this Agreement
based upon or arising by reason of the application by the Borrower of the
proceeds of any Indebtedness for purposes other than the purposes represented by
the Borrower to the Bank or intended or understood by the Bank or Creditor.
Creditor waives all rights to require the Bank to marshall the Collateral or any
other property the Bank may at any time have as security for the Indebtedness
and waives all right to require the Bank to first proceed against any guarantor
or other person before proceeding against the Collateral.
19. The relative priorities of the Bank and Creditor in the Collateral as set
forth in this Agreement control irrespective of the time, method or order of
attachment or perfection of the liens and security interests acquired by the
parties in the Collateral and irrespective of the priorities as would otherwise
be determined by reference to the Uniform Commercial Code or other applicable
laws. Creditor shall not contest the validity, priority or perfection of the
Bank's security interest in the Collateral (regardless of whether the Bank's
security interest in the Collateral is valid or perfected). The priorities of
any liens or security interests of the parties in any property of the Borrower
other than the Collateral are not affected by this Agreement and shall be
determined by reference to applicable law. The Bank's rights under this
Agreement are in addition to, and not in substitution of, its rights under any
other subordination agreement with Creditor.
20. Special Provisions: * None if left blank.
2.
<PAGE>
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT.
IN WITNESS WHEREOF, Creditor has caused this Agreement to be executed as of
SEPTEMBER 3. 1996 (Date)
- ---------------------------
Summit Subordinated Debt Fund, L.P. CREDITOR'S ADDRESS
- -----------------------------------
(CREDITOR)
BY: /s/ GREGORY AVIS 499 HAMILTON AVENUE, SUITE 200
------------------------- -------------------------------
SIGNATURE OF STREET ADDRESS
ITS: GENERAL PARTNER PALO ALTO, CA 94301
------------------------ -------------------------------
TITLE (if applicable) CITY STATE ZIP
BY:
-------------------------
SIGNATURE OF
ITS:
-------------------------
TITLE (if applicable)
BORROWER'S ACKNOWLEDGMENT
SPLASH TECHNOLOGY, INC. ("Borrower"), accepts notice of
____________________________________________
subordination created by this Agreement and agrees that it will take no action
inconsistent with this Agreement and that, except with the prior written
approval of Bank, no payment or distribution shall be made by Borrower on or
with respect to the Subordinated Indebtedness, so long as this Agreement remains
in effect. Borrower agrees that the Bank may, at its option, without notice and
without limiting Bank's other rights, upon any breach by Creditor of, or
purported termination by the Creditor of, this Agreement, declare all Senior
Indebtedness to be immediately due and payable and/or terminate any commitments
of Bank to Borrower.
SPLASH TECHNOLOGY, INC. BORROWER'S ADDRESS
- --------------------------------
(BORROWER)
BY: /s/ JOAN PLATT 555 DEL REY AVENUE
------------------------- ----------------------
SIGNATURE OF STREET ADDRESS
ITS: CFO SUNNYVALE, CA 94086
------------------------ -----------------------
TITLE (if applicable) CITY STATE ZIP
BY:
-------------------------
SIGNATURE OF
ITS: DATED: SEPTEMBER 3, 1996
------------------------- -----------------------
TITLE (if applicable)
BY: --------------------------
SIGNATURE OF
ITS:
-------------------------
TITLE (if applicable)
BY:
--------------------------
SIGNATURE OF
ITS:
-------------------------
TITLE (if applicable)
3.
<PAGE>
SUBORDINATION AGREEMENT
(All Indebtedness and Liens)
SPLASH TECHNOLOGY, INC. ("Borrower") is indebted to the undersigned
- ------------------------
("Creditor") in the principal sum of ONE HUNDRED SIXTY THOUSAND Dollars
--------------------------
($160,000.00) evidenced by ___________ an open account ___________ promissory
note ___________ other (describe) ___________________________________________
which indebtedness is ______________ unsecured ___________ secured by
______________________________________________________________________________,
and Creditor is or may become financially interested in Borrower and desires to
aid Borrower in obtaining or having continued financial accommodations, whether
by way of loan, commitment to loan, discounting of instruments, extensions of
credit or the obtaining of any other financial aid from Comerica Bank-California
("Bank").
In order to induce the Bank to extend or to continue to extend financial
accommodations to Borrower from time to time, whether by way of a loan,
commitment to loan, discounting of instruments, extension of credit or otherwise
and in consideration of any of these financial accommodations, Creditor agrees
as follows:
1. Any and all obligations and liabilities of Borrower to Creditor, including,
without limit, principal and interest, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and whatever the amount and however evidenced (the
"Subordinated Indebtedness"), are subordinated in right of payment to any and
all obligations and liabilities of Borrower to the Bank, including, without
limit, principal and interest payments whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or to become due, now
existing or later arising and however evidenced, together with all other sums
due thereon and all costs of collecting the same (including, without limit,
reasonable attorney fees) for which Borrower is liable (the "Senior
Indebtedness").
2. Creditor will not ask for, demand, sue for, take or receive (by way of
voluntary payment, acceleration, set-off or counterclaim, foreclosure or other
realization on security, dividends in bankruptcy or otherwise), or offer to make
any discharge or release of, any of the Subordinated Indebtedness, and Creditor
waives any such rights with respect to the Subordinated Indebtedness nor shall
Creditor exercise any rights of subrogation or other similar rights with respect
to the Senior Indebtedness.
3. Creditor will not exercise any of Creditor's rights in any collateral now or
later securing the Subordinated Indebtedness. All rights of Creditor in any
collateral now or later securing the Subordinated Indebtedness are subordinated
to all rights of the Bank now or later existing in any of the same collateral
securing the Senior Indebtedness.
4. Creditor authorizes and empowers the Bank to demand, enforce payment by
legal proceedings, receive and give acquittances for the Subordinated
Indebtedness and to exercise all rights of Creditor in any security (other than
a deed of trust, mortgage or security interest covering real property) now or
later held for the Subordinated Indebtedness. As collateral for the Senior
Indebtedness, Creditor hereby pledges, assigns and grants to Bank a security
interest in the Subordinated Indebtedness, any collateral or other security
(other than a deed of trust, mortgage or security interest covering real
property or a principal dwelling) for the Subordinated Indebtedness, and all
claims or demands of Creditor in connection therewith, with full right on the
part of the Bank, in its own name or in the name of Creditor, to collect and
enforce these claims or demands, by suit, proof of debt in bankruptcy, or in any
other proceeding involving dissolution, insolvency, liquidation or an adjustment
of the indebtedness of Borrower. The Bank has no obligation to the Creditor to
take any steps with regard to these claims or demands, the Subordinated
Indebtedness, or any collateral or other security for the Subordinated
Indebtedness.
5. Should any payment, distribution or security or proceeds from these be
received by Creditor upon or with respect to the Subordinated Indebtedness prior
to the satisfaction in full of the Senior Indebtedness, Creditor shall
immediately deliver same to the Bank in the form received (except for
endorsement or assignment by Creditor where required by the Bank), for
application on the Senior Indebtedness (whether or not then due and in such
order of maturity as Bank elects) and, until so delivered, the same shall be
held in trust by Creditor as the property of the Bank.
6. Creditor represents and warrants that it has not made or permitted to be
made and shall not make or permit any assignment, transfer, pledge, or
disposition for collateral purposes or otherwise, of all or any part of the
Subordinated Indebtedness or any collateral or other security for the
Subordinated Indebtedness so long as this Agreement remains in effect. Creditor
shall, on the date of this Agreement or promptly upon receipt if not yet
delivered to Creditor, deliver to the Bank, endorsed if required by the Bank,
all notes and other instruments evidencing any Subordinated Indebtedness.
Creditor agrees to execute all financing statements deemed necessary by the Bank
to perfect the Bank's rights and interests under this Agreement. The Bank is to
have all the rights and remedies of a secured creditor under the California
Uniform Commercial Code, as amended from time to time, with respect to such
interests. Creditor further makes, constitutes and appoints Bank its true and
lawful attorney-in-fact with full power of substitution to take any action in
furtherance of this Agreement, including, but not limited to, the signing of
financing statements, endorsing of instruments, and the execution and delivery
of all documents and agreements necessary to obtain or accomplish any protection
for or collection or disposition of any part of any collateral. Such appointment
shall be deemed irrevocable and coupled with an interest.
7. This Agreement constitutes a continuing agreement of subordination, even
though at times Borrower is not indebted to the Bank. The Bank may continue, in
reliance on this Agreement, without notice to Creditor, to lend monies, extend
credit, modify, renew or make other financial accommodations, to or for the
account of Borrower until the fifth (5th) day ("effective date") following
written acknowledgment by an officer of the Bank that the Bank received written
notice of revocation of this Agreement from Creditor. Any such notice of
revocation shall not be effective as to any Senior Indebtedness existing at the
effective date of revocation or any Senior Indebtedness created after that
pursuant to any commitment or agreement of the Bank or pursuant to any Borrower
loan (whether advances or readvances by the Bank after the effective date of
revocation are optional or obligatory) existing at the effective date of
revocation or any modifications or renewals of any Senior Indebtedness, whether
in whole or in part. Possession by the Bank of any note or other evidence of
indebtedness made, endorsed or guaranteed by Borrower shall be conclusive
evidence (but not the only means of establishing) that Borrower is indebted to
the Bank.
8. Creditor shall indemnify the Bank against all claims, damages, costs, and
expenses, including, without limit, reasonable attorneys' fees, incurred by the
Bank in connection with any suit, claim or action against the Bank arising out
of any modification or termination of a Borrower loan or any refusal by the Bank
to extend additional credit relating to the revocation of this Agreement.
9. Creditor delivers this Agreement based solely on Creditor's independent
investigation of (or decision not to investigate) the financial condition of the
Borrower and is not relying an any information furnished by the Bank. Creditor
assumes full responsibility for obtaining any further information concerning the
Borrower's financial condition, the status of the Senior Indebtedness or any
other matter which Creditor may deem necessary or appropriate now or later.
Creditor waives any duty on the part of the Bank, and agrees that Creditor
1.
<PAGE>
is not relying upon nor expecting the Bank to disclose to Creditor any fact now
of later known by the Bank, whether relating to the operations or condition of
the Borrower, the existence, liabilities or financial condition of any guarantor
of the Senior Indebtedness, the occurrence of any default with respect to the
Senior Indebtedness, or otherwise, notwithstanding any effect such fact may have
upon Creditor's risk or Creditor's rights against the Borrower. Creditor
knowingly accepts the full range of risk encompassed in this Agreement, which
risk includes, without limit, the possibility that the Borrower may incur Senior
Indebtedness to the Bank after the financial condition of the Borrower, or its
ability to pay Borrower's debts as they mature, has deteriorated. Creditor
acknowledges and agrees that the Bank's rights under this Agreement are not
conditioned upon pursuit by the Bank of any remedy the Bank may have against the
Borrower or any other person or any other security. The absence of Borrower's
signature at the end of this Agreement shall in no way impair or affect the
validity of this Agreement.
10. The Bank, in its sole discretion, without notice to Creditor, may release,
exchange, enforce and otherwise deal with any security now or later held by the
Bank for payment of the Senior Indebtedness or release any party now or later
liable for payment of the Senior Indebtedness without affecting in any manner
the Bank's rights under this Agreement. Creditor acknowledges and agrees that
the Bank has no obligation to acquire or perfect any lien on or security
interest in any asset(s), whether realty or personalty, to secure payment of the
Senior Indebtedness, and Creditor is not relying upon assets in which the Bank
has or may have a lien or security interest for payment of the Senior
Indebtedness.
11. Notwithstanding any prior revocation, termination, surrender, or discharge
of this Agreement in whole or in part, the effectiveness of this Agreement shall
automatically continue or be reinstated in the event that any payment received
or credit given by the Bank in respect of the Senior Indebtedness is returned,
disgorged, or rescinded under any applicable state or federal law, including,
without limitation, laws pertaining to bankruptcy or insolvency, in which case
this Agreement, shall be enforceable against the Creditor as if the returned,
disgorged, or rescinded payment or credit had not been received or given by the
Bank, and whether or not the Bank relied upon this payment or credit or changed
its position as a consequence of it. In the event of continuation or
reinstatement of this Agreement, the Creditor agrees upon demand by the Bank to
execute and deliver to the Bank those documents which the Bank determines are
appropriate to further evidence (in the public records or otherwise) this
continuation or reinstatement, although the failure of the Creditor to do so
shall not affect in any way the reinstatement or continuation.
12. Creditor waives any right to require the Bank to: (a) proceed against any
person or property; (b) give notice of the terms, time and place of any public
or private sale of personal property security held from the Borrower or any
other person, or otherwise comply with the provisions of Section 9-504 of any
applicable Uniform Commercial Code; or (c) pursue any other remedy in the Bank's
power. Creditor waives notice of acceptance of this Agreement and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Senior
Indebtedness, any and all other notices to which the undersigned might otherwise
be entitled, and diligence in collecting any Senior Indebtedness, and agrees
that the Bank may, once or any number of times, modify the terms of any Senior
Indebtedness, compromise, extend, increase, accelerate, renew or forbear to
enforce payment of any or all Senior Indebtedness, or permit the Borrower to
incur additional Senior Indebtedness, all without notice to Creditor and without
affecting in any manner the unconditional obligations of Creditor under this
Agreement.
13. Creditor acknowledges that the Bank has the right to sell, assign, transfer,
negotiate or grant participations or any interest in, any of all of the Senior
Indebtedness and any related obligations, including without limit this
Agreement. In connection with the above, but without limiting its ability to
make other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has or acquires relating
to Creditor and this Agreement, however obtained. Creditor further agrees that
the Bank may disclose such documents and information to the Borrower. Creditor
agrees that the Bank may provide information relating to this Subordination
Agreement or to the undersigned to the Bank's parent, affiliates, subsidiaries
and service providers.
14. No waiver or modification of any of its rights under this Agreement shall be
effective unless the waiver or modification shall be in writing and signed by an
authorized officer on behalf of the Bank, and each waiver or modification shall
be a waiver or modification only with respect to the specific matter to which
the waiver or modification relates and shall in no way impair the rights of the
Bank or the obligations of Creditor to the Bank in any other respect.
15. This Agreement shall bind and be for the benefit of Creditor and the Bank
and their respective successors and assigns, and shall be construed according to
the laws of the State of California without regard to conflict of laws
principles. If this Agreement is executed by two or more persons, it shall bind
each of them individually as well as jointly.
16. The term "Borrower", as used in this Agreement, includes any person,
corporation, partnership or business entity which succeeds to the interests or
business of the Borrower named above, and the terms "Senior Indebtedness" and
"Subordinated Indebtedness" include indebtedness of any successor Borrower to
the Bank and Creditor.
17. Creditor agrees to reimburse the Bank for any and all costs and expenses
(including, without limit, court costs, legal fees, and reasonable attorney fees
whether inside or outside counsel is used, whether or not suit is instituted
and, if instituted, whether at the trial or appellate level, in a bankruptcy,
probate or administrative proceeding, or otherwise) incurred in enforcing any of
the duties and obligations of Creditor under this Agreement.
18. Creditor waives any defense against the enforceability of this Agreement
based upon or arising by reason of the application by the Borrower of the
proceeds of any lndebtedness for purposes other than the purposes represented by
the Borrower to the Bank or intended or understood by the Bank or Creditor.
Creditor waives all rights to require the Bank to marshall the Collateral or any
other property the Bank may at any time have as security for the Indebtedness
and waives all right to require the Bank to first proceed against any guarantor
or other person before proceeding against the Collateral.
19. The relative priorities of the Bank and Creditor in the Collateral as set
forth in this Agreement control irrespective of the time, method or order of
attachment or perfection of the liens and security interests acquired by the
parties in the Collateral and irrespective of the priorities as would otherwise
be determined by reference to the Uniform Commercial Code or other applicable
laws. Creditor shall not contest the validity, priority or perfection of the
Bank's security interest in the Collateral (regardless of whether the Bank's
security interest in the Collateral is valid or perfected). The priorities of
any liens or security interests of the parties in any property of the Borrower
other than the Collateral are not affected by this Agreement and shall be
determined by reference to applicable law. The Bank's rights under this
Agreement are in addition to, and not in substitution of, its rights under any
other subordination agreement with Creditor.
20. Special Provisions: * None if left blank.
2.
<PAGE>
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT.
IN WITNESS WHEREOF, Creditor has caused this Agreement to be executed as of
SEPTEMBER 3. 1996 (Date)
- -------------------
Summit Investors III, L.P. CREDITOR'S ADDRESS
- --------------------------------
(CREDITOR)
BY: /s/ GREGORY AVIS 499 Hamilton Ave., Suite 200
----------------------- ----------------------------
SIGNATURE OF STREET ADDRESS
ITS: GENERAL PARTNER Palo Alto, CA 94301
---------------------- ----------------------------
TITLE (if applicable) CITY STATE ZIP
BY:
-----------------------
SIGNATURE OF
ITS:
-----------------------
TITLE (if applicable)
BORROWER'S ACKNOWLEDGMENT
SPLASH TECHNOLOGY, INC. ("Borrower"), accepts notice of
____________________________________________
subordination created by this Agreement and agrees that it will take no action
inconsistent with this Agreement and that, except with the prior written
approval of Bank, no payment or distribution shall be made by Borrower on or
with respect to the Subordinated Indebtedness, so long as this Agreement remains
in effect. Borrower agrees that the Bank may, at its option, without notice and
without limiting Bank's other rights, upon any breach by Creditor of, or
purported termination by the Creditor of, this Agreement, declare all Senior
Indebtedness to be immediately due and payable and/or terminate any commitments
of Bank to Borrower.
SPLASH TECHNOLOGY, INC. BORROWER'S ADDRESS
- --------------------------------
(BORROWER)
BY: /s/ JOAN PLATT 555 DEL REY AVENUE
------------------------- ----------------------
SIGNATURE OF STREET ADDRESS
ITS: CFO SUNNYVALE, CA 94086
------------------------ -----------------------
TITLE (if applicable) CITY STATE ZIP
BY:
-------------------------
SIGNATURE OF
ITS: DATED: SEPTEMBER 3, 1996
------------------------- -----------------------
TITLE (if applicable)
BY: --------------------------
SIGNATURE OF
ITS:
-------------------------
TITLE (if applicable)
BY:
--------------------------
SIGNATURE OF
ITS:
-------------------------
TITLE (if applicable)
3.
<PAGE>
AGREEMENT TO FURNISH INSURANCE
COMERICA BANK-CALIFORNIA
(Herein called "Bank")
Borrower(s): SPLASH TECHNOLOGY, INC.
555 DEL RAY AVENUE, SUNNYVALE, CA 94086
I understand that the Security Agreement or Deed of Trust which I executed in
connection with this transaction requires me to provide a physical damage
insurance policy including a Lenders Loss Payable Endorsement in favor of the
Bank as shown below, within ten (10) days from the date of this agreement.
The following minimum insurance must be provided according to the terms of the
security documents.
[_] AUTOMOBILES, TRUCKS, RECREATIONAL VEHICLES
Comprehensive & Collision
Lender's Loss Payable Endorsement
[_] BOATS
All Risk Hull Insurance
Lender's Loss Payable Endorsement
[_] Breach of Warrant Endorsement
[_] MOBILE HOMES
Fire, Theft & Combined Additional Coverage
Lender's Loss Payable Endorsement
[_] Earthquake
[X] INVENTORY
[X] MACHINERY & EQUIPMENT: MISCELLANEOUS PERSONAL PROPERTY
Fire & Extended Coverage
Lender's Loss Payable Endorsement
[_] Breach of Warranty Endorsement
[_] AIRCRAFT
All Risk Ground & Flight Insurance
Lender's Loss Payable Endorsement
[_] Breach of Warranty Endorsement
[_] REAL PROPERTY
Fire & Extended Coverage
Lender's Loss Payable Endorsement
[_] All Risk Coverage
[_] Special Form Risk Coverage
[_] Earthquake
[_] Other ____________________
[_] OTHER ____________________________________________________________________
I may obtain the required insurance from any company that is acceptable to the
Bank, and will deliver proof of such coverage with an effective date of
SEPTEMBER 3, 1996 or earlier.
- -----------------
I understand and agree that if I fail to deliver proof of insurance to the Bank
at the address below, or upon the lapse or cancellation of such insurance, the
Bank may procure Lender's Single Interest Insurance or other similar coverage on
the property. If the Bank procures insurance to protect its interest in the
property described in the security documents, the cost for the insurance will be
added to my indebtedness as provided in the security documents. Lender's Single
Interest Insurance shall cover only the Bank's interest as a secured party, and
shall become effective at the earlier of the funding date of this transaction or
the date my insurance was cancelled or expired. I UNDERSTAND THAT LENDER'S
SINGLE INTEREST INSURANCE WILL PROVIDE ME WITH ONLY LIMITED PROTECTION AGAINST
PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN, HOWEVER, MY
EQUITY IN THE PROPERTY WILL NOT BE INSURED. FURTHER, THE INSURANCE WILL NOT
PROVIDE MINIMUM PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND DOES NOT
MEET THE REQUIREMENTS OF THE FINANCIAL RESPONSIBILITY LAW.
Bank Address for Insurance Documents:
COMERICA BANK-CALIFORNIA
------------------------------------------
P.O. Box 49032
------------------------------------------
San Jose, CA 95161-9871
------------------------------------------
(408) 244-1700 Ext. 2339
------------------------------------------
I acknowledge having read the provisions of this agreement, and agree to its
terms. I authorize the Bank to provide to any person (including any insurance
agent or company) any information necessary to obtain the insurance coverage
required.
BORROWER(S) DATED: SEPTEMBER 3, 1996
-----------------
SPLASH TECHNOLOGY, INC.
/s/ JOAN PLATT
- -------------------------- ---------------------------
BY: BY:
- -------------------------- ---------------------------
BY: BY:
INSURANCE VERIFICATION
Date Phone (415) 843-3800
----------------------------------------- ------------------------
Agents Name Person Talked to
---------------------------------- -------------
Agents Address
---------------------------------------------------------------
Insurance Company Minet Insurance Services
------------------------------------------------------------
Policy Number(s)
--------------------------------------------------------------
Effective Dates: From To:
----------------------- --------------------------
Deductible: $ Comments:
-------------------------------
CA INSUR (12-94)
<PAGE>
Automatic Loan Payment Authorization
Date SEPTEMBER 3, 1996
---------------------------
Obligor Name (Typed or Printed): SPLASH TECHNOLOGY, INC.
----------------------------------------------
Obligor Number: Lender's Cost Center # 95820
--------------- -------------------------
Address: 555 DEL REY AVENUE, SUNNYVALE, CA 94086
------------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
The undersigned hereby authorizes COMERICA BANK-CALIFORNIA ("Bank") to charge
---------------------------
the account designated below for the payments due on the loan(s) as designated
below and all renewals, extension, modifications and/or substitutions thereof.
This authorization will remain in effect unless the undersigned requests a
modification that is agreed to by the Bank in writing. The undersigned remains
fully responsible for all amounts outstanding to Bank if the designated account
is insufficient for repayment.
[_] Automatic Payment Authorization for all payments on all current and future
--- -------------------------
borrowings, as and when such payments come due (which payments include,
----------
without limitation, principal, interest, fees, costs, and expenses).
[X] Automatic Payment Authorization for all payments on only the specific
--- --------------------
borrowing identified below, as and when such payments come due (which
--------------------------
payments include, without limitation, principal, interest, fees, costs, and
expenses.
Specific Obligation Number
-----------------------------
[_] Automatic Payment Authorization for less than all payments on only the
------------- -----------
specific borrowing identified below, as and when such payments come due.
-----------------------------------
[_] Principal and Interest Payments only
[_] Principal payments only
[_] Interest Payments only
[_] SPECIAL INSTRUCTIONS/IRREGULAR PAYMENT INSTRUCTIONS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Payment Due Date: Your loan payments of principal and interest will be charged
to your account as indicated above unless that day is a Saturday, Sunday, or
holiday in which case such payments will be made on the following business day,
with interest to accrue during this extension as provided under the loan
documents.
Account to be Charged:
[X] Checking COMERICA BANK-CALIFORNIA Account No. _______________________
[_] Savings COMERICA BANK-CALIFORNIA Account No. _______________________
(Charges to account are withdrawals pursuant to account resolution)
SPLASH
TECHNOLOGY,
INC.
By: /s/ JOAN PLATT By:
------------------------- -------------------------------
SIGNATURE OF SIGNATURE OF
Its: CFO Its:
------------------------ -------------------------------
TITLE (if applicable) TITLE (if applicable)
By: By:
------------------------- --------------------------------
SIGNATURE OF SIGNATURE OF
By: By:
------------------------ --------------------------------
TITLE (if applicable) TITLE (if applicable)
By: By:
------------------------- --------------------------------
SIGNATURE OF SIGNATURE OF
By: By:
------------------------- --------------------------------
TITLE (if applicable) TITLE (if applicable)
CA00193 (12-94)
<PAGE>
Borrower's Telephone and Facsimile Authorization
================================================================================
Date: SEPTEMBER 3, 1996
------------------
Obligor Number: ______________ Obligation Number: _____________________________
Assignment Unit: _____________
The undersigned confirms certain borrowing arrangements pursuant to and subject
to the terms of the $5,000,000.00 Note, and all renewals, extensions,
----------------------
modifications, and/or substitutions thereof (the "Note") dated
SEPTEMBER 3, 1996, executed and delivered by the undersigned to
- ------------------
COMERICA BANK-CALIFORNIA ("Bank").
- ------------------------
Until notice to the contrary to the undersigned, Bank has agreed that advances
under the Note may be requested from time to time at the discretion of the
undersigned by telephone or facsimile transmission. Immediately upon receipt
from time to time of such telephone request or facsimile transmission from the
undersigned, Bank is authorized to lend and credit such sums of money as
requested to any of the following accounts or any other account with Bank
designated by the undersigned (together with the Security Code) (such
accounts(s) referred to as "Designated Account(s)")
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bank may rely on receipt of the Security Code as proof that the caller or sender
is authorized to make the request for advance, repayment, or change of
Designated Account(s) on behalf of the undersigned.
The undersigned acknowledges that borrowings under the Note may be repaid from
time to time at the election of the undersigned, but subject to the terms of the
Note and any related agreement with Bank, upon receipt of instructions to do so
sent from the undersigned to Bank by telephone or facsimile transmission
(together with the Security Code). Repayment may be effected (in whole or in
part) by debiting any account designated above (or designated in compliance with
the above paragraph) in accordance with the undersigned's instructions (together
with the Security Code). The undersigned shall remain fully responsible for any
amounts outstanding under the Note if the undersigned's accounts with Bank are
insufficient for the repayment of the Note. All requests for payments are to be
against collected funds.
The undersigned acknowledges that if Bank makes an advance or effects a
repayment based on a request made by telephone or facsimile transmission, it
shall be for the convenience of the undersigned and all risks involved in the
use of this procedure shall be borne by the undersigned, and the undersigned
expressly agrees to indemnify and hold Bank harmless therefor. Without
limitation of the foregoing, the undersigned acknowledges that Bank shall have
no duty to confirm the authority of anyone requesting an advance or repayment by
telephone or facsimile transmission, and further the Bank has advised the
undersigned to protect and safeguard the Security Code to prevent its
unauthorized use. The undersigned assumes any losses or damages whatsoever
which may occur or arise out of its failure to protect and safeguard the
Security Code or out of its unauthorized use.
Borrower(s): SPLASH TECHNOLOGY, INC.
-------------------------------------------------------------------
Address: 555 DEL REY AVENUE, SUNNYVALE, CA 94086
-----------------------------------------------------------------------
STREET ADDRESS CITY STATE ZIP CODE
By: /s/ JOAN PLATT Its: CFO
-------------------------- --------------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- --------------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- --------------------------------------
SIGNATURE OF TITLE (if applicable)
By: Its:
-------------------------- --------------------------------------
SIGNATURE OF TITLE (if applicable)
SECURITY CODE:
-----------------
CA 00196(4-96)
<PAGE>
BORROWER'S AUTHORIZATION
DATE: SEPTEMBER 3, 1996
---------------------------
I (we) hereby authorize and direct COMERICA BANK-CALIFORNIA ("Bank")
-----------------------------
to pay
to $
------------------------------------------------- -------------------------
to $
------------------------------------------------- -------------------------
to $
------------------------------------------------- -------------------------
to $
------------------------------------------------- -------------------------
of the proceeds of my (our) loan from the Bank evidenced by a note in the
original principal amount of $5,000,000.00 ,
--------------------------------------
dated SEPTEMBER 3, 1996.
--------------------
Borrower(s): SPLASH TECHNOLOGY, INC.
--------------------------------------
By: /s/ JOAN PLATT Its: CFO
------------------------------- -------------------------------------
Signature of Title (if applicable)
By: Its:
------------------------------- -------------------------------------
Signature of Title (if applicable)
By: Its:
------------------------------- -------------------------------------
Signature of Title (if applicable)
By: Its:
------------------------------- -------------------------------------
Signature of Title (if applicable)
CA 00194 (12-94)
<PAGE>
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
--------------------------------------
AND SECURITY AGREEMENT
----------------------
This Collateral Assignment, Patent Mortgage and Security Agreement is made as
of September 3, 1996, by and between SPLASH TECHNOLOGY, INC. ("Assignor"), and
COMERICA BANK-CALIFORNIA ("Assignee").
RECITALS
--------
A. Assignee has agreed to lend to Assignor certain funds (the "Loan"), and
Assignor desires to borrow such funds from Assignee. The Loan will be evidenced
by one or more promissory notes of even date herewith (a "Note" or,
collectively, the "Notes") and will be secured in part pursuant to the terms of
a Loan and Security Agreement of even date herewith (the "Loan Agreement").
B. In order to induce Assignee to make the Loan, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of Assignor to Assignee.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
----------------------------------------------------------
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, Assignor's entire right, title
and interest in, to and under the following (all of which shall collectively be
called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protection in each work or authorship and derivative work
thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
---------
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Assignor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on Exhibit B attached hereto
---------
(collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Assignor connected with and symbolized by
such trademarks, including without limitation those set forth on Exhibit C
---------
attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use;
and
1
<PAGE>
(h) All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED
AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S
OBLIGATIONS TO ASSIGNEE UNDER THE NOTE AND SECURITY AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
-------------------------
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants and
------------------------
agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for non-
exclusive licenses granted by Assignor to its customers in the ordinary course
of business and except for liens, encumbrances or security interests described
in Schedule 3 attached hereto;
----------
(b) Performance of this Assignment does not conflict with or result
in a breach of any agreement to which Assignor is party or by which Assignor is
bound;
(c) During the term of this Assignment, Assignor will not transfer or
otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Assignor in the ordinary course of business;
(d) Each of the Patents is valid and enforceable, and no part of the
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Collateral violates the rights of any
third party;
(e) Assignor shall promptly advise Assignee of any material change in
the composition of the Collateral, including but not limited to any subsequent
ownership of the Assignor in or to any Trademark, Patent or Copyright not
specified in this Assignment;
(f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld;
(g) Assignor shall promptly register the most recent version of any
of Assignor's Copyrights, if not so already registered, and shall, from time to
time, execute and file such other instruments, and take such further actions as
Assignee may request from time to time to perfect or continue the perfection of
Assignee's interest in the Collateral to perfect or continue the perfection of
Assignee's interests in the collateral at Assignor's sole expense.
--------------------------
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the obligations evidenced by the Note upon making the
filings referred to in clause (i) below;
(i) Except for, and upon, the filing with the United States Patent
and Trademark office with respect to the Patents and Trademarks and the Register
of Copyrights with respect to the Copyrights necessary to perfect the security
interests and assignment created hereunder, and, except as has been already made
or obtained, no authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by Assignor of the security interest granted hereby or for the
2
<PAGE>
execution, delivery or performance of this Assignment by Assignor or (ii) for
the perfection in the United States or the exercise by Assignee of its rights
and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects.
(k) Assignor shall not enter into any agreement that would materially
impair or conflict with Assignor's obligations hereunder without Assignee's
prior written consent. Assignor shall not permit the inclusion in any contract
to which it becomes a party of any provisions that could or might in any way
impair or prevent the creation of a security interest in Assignor's rights and
interests in any property included within the definition of the Collateral
acquired under such contracts.
(l) Upon any officer of Assignor obtaining knowledge thereof,
Assignor will promptly notify Assignee in writing of any event that materially
adversely affects the value of any of the Collateral, the ability of Assignor or
Assignee to dispose of any of the Collateral or the rights and remedies of
Assignee in relation thereto, including the levy of any legal process against
any of the Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
-----------------
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
five (5) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all costs and expenses incurred in the reasonable exercise of its
rights under this section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
-----------------
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable notice to Assignor, and any of Assignor's and its
subcontractors' plants and facilities that manufacture, install or store
products (or that have done so during the prior six-month period) that are sold
under any of the Collateral, and to inspect the products and quality control
records relating thereto upon reasonable notice to Assignor and as often as may
be reasonably requested; provided, however, nothing herein shall entitle
Assignee access to Assignor's trade secrets and other proprietary information.
6. Further Assurances; Attorney-in-Fact.
------------------------------------
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including, appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, Assignee or otherwise, from time to time in Assignee's
discretion, to take any action and to execute any instrument which Assignee may
deem necessary or advisable to accomplish the purposes of this Collateral
Assignment, including:
(i) To modify, in its sole discretion, this Collateral
Assignment without first obtaining Assignor's approval of or signature to such
modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Assignor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Assignor no longer has or claims any
right, title or interest; and
(ii) To file, in its sole discretion, one or more financing
or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law.
3
<PAGE>
7. Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Loan Agreement or any Note;
or
(b) Assignor breaches any warranty or agreement made by Assignor in
this Assignment.
8. Remedies. Upon the occurrence of an Event of Default, Assignee shall
--------
have the right to exercise all the remedies of a secured party under the
California Uniform Commercial Code, including without limitation the right to
require Assignor to assemble the Collateral and any tangible property in which
Assignee has a security interest and to make it available to Assignee at a place
designated by Assignee. Assignee shall have a nonexclusive, royalty free license
to use the Copyrights, Patents and Trademarks to the extent reasonably necessary
to permit Assignee to exercise its rights and remedies upon the occurrence of an
Event of Default. Assignor will pay any expenses (including attorneys' fees)
incurred by Assignee in connection with the exercise of any of Assignee's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Assignee's rights and remedies with respect to the Collateral
shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
---------
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation attorneys fees and expenses), except for
losses arising from or out of Assignee's gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all of
------------
the obligations secured hereunder, Assignee shall execute and deliver to
Assignor all deeds, assignments and other instruments as may be necessary or
proper to revest in Assignor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Assignee pursuant
thereto.
11. Course of Dealing. No course of dealing, nor any failure to exercise,
-----------------
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. Attorneys Fees. If any action relating to this Assignment is brought by
--------------
either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys fees, costs and disbursements.
13. Amendments. This Assignment may be amended only by a written instrument
----------
signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. California Law and Jurisdiction. This Assignment shall be governed by
-------------------------------
the laws of the State of California, without regard for choice of law
provisions. Assignor and Assignee consent to the nonexclusive jurisdiction of
any state or federal court located in Santa Clara County, California.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the
day and year first above written.
Address of Assignor: ASSIGNOR: SPLASH TECHNOLOGY, INC.
555 Del Ray Avenue
Sunnyvale, CA 94086 By: /s/ JOAN PLATT
------------------------------------
Title: CFO, VP Finance & Administration
--------------------------------
By:
------------------------------------
Title:
---------------------------------
Address of Assignee: ASSIGNEE: COMERICA BANK-CALIFORNIA
333 West Santa Clara Street
San Jose, CA 95113 By: /s/ MARY BETH SUHR
------------------------------------
Mary Beth Suhr, Vice President
5
<PAGE>
EXHIBIT A
---------
List of Copyrights
------------------
<PAGE>
EXHIBIT B
---------
List of Patents
---------------
NONE
<PAGE>
EXHIBIT C
---------
List of Trademarks
------------------
<PAGE>
CORPORATION RESOLUTIONS AND INCUMBENCY CERTIFICATION - AUTHORITY TO PROCURE
LOANS
================================================================================
I certify that I am the duly elected and qualified Secretary of SPLASH
------
TECHNOLOGY, INC., a CALIFORNIA corporation (the"Corporation") and the keeper of
- ----------------
the records of the Corporation; that the following is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Corporation in
accordance with its bylaws and applicable statutes on or as of
______________________:
Copy of Resolutions:
Be it Resolved, That:
1. Any (insert number required to sign) (1) one of the following (insert titles
-------
only) CFO, CEO, CONTROLLER of the Corporation are/is authorized, for, on
--------------------
behalf of, and in the name of the Corporation to:
(a) Negotiate and procure loans, letters of credit and other credit or
financial accommodations from COMERICA BANK-CALIFORNIA (the "Bank") up
------------------------
to an amount not exceeding $ __________ (if left blank, then unlimited);
(b) Discount with the Bank commercial or other business paper belonging to
the Corporation made or drawn by or upon third parties, without limit as
to amount;
(c) Purchase, sell, exchange, assign, endorse for transfer and/or deliver
certificates and/or instruments representing stocks, bonds, evidences of
indebtedness or other securities owned by the Corporation, whether or
not registered in the name of the Corporation;
(d) Give security for any liabilities of the Corporation to the Bank by
grant, security interest, assignment, lien, deed of trust or mortgage
upon any real or personal property, tangible or intangible of the
Corporation; and
(e) Execute and deliver in form and content as may be required by the Bank
any and all notes, evidences of indebtedness, applications for letters
of credit, guaranties, subordination agreements, loan and security
agreements, financing statements, assignments, liens, deeds of trust,
mortgages, trust receipts and other agreements, instruments or documents
to carry out the purposes of these Resolutions, any or all of which may
relate to all or to substantially all of the Corporation's property and
assets.
2. Said Bank be and it is authorized and directed to pay the proceeds of any
such loans or discounts as directed by the persons so authorized to sign,
whether so payable to the order of any of said persons in their individual
capacities or not, and whether such proceeds are deposited to the individual
credit at any of said persons or not;
3. Any and all agreements, instruments and documents previously executed and
acts and things previously done to carry out the purposes of these
Resolutions are ratified, confirmed and approved as the act or acts of the
Corporation.
4. These Resolutions shall continue in force, and the Bank may consider the
holders of said offices and their signatures to be and continue to be as set
forth in a certified copy of these Resolutions delivered to the Bank, until
notice to the contrary in writing is duly served on the Bank (such notice to
have no effect an any action previously taken by the Bank in reliance on
these Resolutions).
5. Any person, corporation or other legal entity dealing with the Bank may rely
upon a certificate signed by an officer of the Bank to effect that these
Resolutions and any agreement, instrument or document executed pursuant to
them are still in full force and effect and binding upon the Corporation.
6. The Bank may consider the holders of the offices of the Corporation and
their signatures, respectively, to be and continue to be as set forth in the
Certificate of the Secretary of the Corporation until notice to the contrary
in writing is duly served on the Bank.
I further certify that the above Resolutions are in full force and effect as of
the date of this Certificate; that these Resolutions and any borrowings or
financial accommodations under those Resolutions have been properly noted in the
corporate books and records, and have not been rescinded, annulled, revoked or
modified; that neither the foregoing Resolutions nor any actions to be taken
pursuant to them are or will be in contravention of any provision of the
articles of incorporation or bylaws of the Corporation or of any agreement,
indenture or other instrument to which the Corporation is a party or by which it
is bound; and that neither the articles of incorporation nor bylaws of the
Corporation nor any agreement, indenture or other instrument to which the
Corporation is a party or by which it is bound require the vote or consent of
shareholders of the Corporation to authorize any act, matter or thing described
in the foregoing Resolutions.
I further certify that the following named persons have been duly elected to the
offices set opposite their respective names, that they continue to hold these
offices at the present time, and that the signatures which appear below are the
genuine, original signatures of each respectively:
<TABLE>
<CAPTION>
(PLEASE SUPPLY GENUINE SIGNATURES OF AUTHORIZED SIGNERS BELOW)
<S> <C> <C>
Name (Type or Print) Title Signature
- ----------------------------- ------------------------ ----------------------
Kevin MacGillivray CEO /s/ KEVIN MACGILLIVRAY
- ----------------------------- ------------------------ ----------------------
Joan Platt CFO /s/ JOAN PLATT
- ----------------------------- ------------------------ ----------------------
John Ritchie Controller /s/ JOHN RITCHIE
- ----------------------------- ------------------------ ----------------------
</TABLE>
In Witness Whereof, I have affixed my name as Secretary and have caused the
corporate seal of said Corporation to be affixed this 11th day of September.
/s/ JEFF SAPER
-------------------------
Secretary
- --------------------------------------------------------------------------------
The Above Statements are Correct. /s/ PETER CHUNG
----------------------------------------------
SIGNATURE OF OFFICER OR DIRECTOR OF, IF NONE,
A SHAREHOLDER OTHER THAN SECRETARY WHEN
SECRETARY IS AUTHORIZED TO SIGN ALONE
Failure to complete the above when the Secretary is authorized to sign alone
shall constitute a certification by the Secretary that the Secretary is the sole
Shareholder, Director and Officer at the Corporation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 11.1
SPLASH TECHNOLOGY HOLDINGS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE (1)
(in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
NINE
EIGHT MONTHS MONTHS
ENDED ENDED
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ----------
<S> <C> <C>
Weighted average common shares outstanding for the
period.............................................. 7,008,750 11,902,528
--------- ----------
Common equivalent shares pursuant to Staff Accounting
Bulletin No. 83 (2).................................
Common equivalent shares deemed outstanding from
options and warrants to acquire common stock
deemed converted using the Modified Treasury Stock
Method............................................ 833,114 --
Common equivalent shares outstanding from
conversion of preferred stock..................... 1,741,127 --
--------- ----------
2,574,241 11,902,528
Dilutive options..................................... -- --
--------- ----------
Shares used in per share calculation................. 9,582,991 11,902,528
========= ==========
Net loss............................................. $ (8,196) $ (187)
Cumulative dividends on preferred stock.............. (730) --
--------- ----------
Adjusted net loss.................................... $ (8,926) $ (187)
========= ==========
Net loss per share................................... $ (0.93) $ (0.02)
========= ==========
</TABLE>
(1) This exhibit presents the primary and fully diluted computations of net
loss per share. There is no significant difference in the per-share amounts
when applying either method.
(2) The number of common equivalent shares which were issued during the twelve
months immediately preceding the Company's initial public offering date
pursuant to the grant of stock options (using the treasury stock method and
proposed offering price) and the issuance of warrants and other common
stock equivalent have been included in the calculation of common equivalent
shares pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
Splash Technology Holdings, Inc. of our report dated October 14, 1996, except
for Note 5 for which the date is October 16, 1996, and Note 7 for which the
date is October 18, 1996 on our audits of the consolidated financial statements
and financial statement schedule of Splash Technology Holdings, Inc. as of
September 30, 1996 and for the eight months ended September 30, 1996 and five
months ended June 30, 1996 and of the Predecessor Business as of September 30,
1995 and for the years ended September 30, 1994 and 1995 and the four months
ended January 31, 1996. We also consent to the reference to our firm under the
caption "Experts."
Coopers & Lybrand L.L.P.
San Jose, California
July 28, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 27, 1997 except for Note 8 as to which the
date is May 6, 1997, with respect to the financial statements of Quintar
Holdings Corporation included in the Registration Statement (Form S-1) and
related Prospectus of Splash Technology Holdings, Inc. for the registration of
3,250,000 shares of its common stock.
Ernst & Young LLP
Orange County, California
July 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1997
<PERIOD-START> OCT-01-1995 OCT-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1997
<CASH> 6,179 6,601
<SECURITIES> 0 0
<RECEIVABLES> 6,881 12,017
<ALLOWANCES> (299) (304)
<INVENTORY> 3,651 3,112
<CURRENT-ASSETS> 13,907 17,355
<PP&E> 1,034 1,688
<DEPRECIATION> (121) (418)
<TOTAL-ASSETS> 31,232 40,051
<CURRENT-LIABILITIES> 11,722 15,699
<BONDS> 8,600 400
0 0
2 0
<COMMON> 8 13
<OTHER-SE> 10,900 23,939
<TOTAL-LIABILITY-AND-EQUITY> 31,232 40,051
<SALES> 47,721 51,227
<TOTAL-REVENUES> 47,721 51,227
<CGS> 27,808 24,864
<TOTAL-COSTS> 8,132 10,043
<OTHER-EXPENSES> 22,803 10,439
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 593 (379)
<INCOME-PRETAX> (11,615) 6,260
<INCOME-TAX> (4,673) 6,447
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,942) (187)
<EPS-PRIMARY> (.72) (.02)
<EPS-DILUTED> (.72) (.02)
</TABLE>
