<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO _____
COMMISSION FILE NUMBER 000-21171
SPLASH TECHNOLOGY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0418472
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
555 DEL REY AVENUE, SUNNYVALE, CA 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 328-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock. $.001 par
value, as of February 8, 1998 was 13,856,161 shares.
1
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SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1997
------------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $55,831 $43,637
Marketable securities 11,350 10,073
Accounts receivable, net of allowance for doubtful accounts
of $173 and $369 as of September 30, 1997 and December 31,1997,
respectively 7,933 4,399
Inventories 4,917 3,541
Prepaid expenses and other current assets 379 527
Deferred income taxes 3,915 4,094
------------- ------------
Total current assets 84,325 66,271
Property and equipment, net 1,287 1,385
Deferred income taxes 11,198 11,198
Other assets 1,405 3,639
------------- ------------
Total assets $98,215 $82,493
------------- ------------
------------- ------------
LIABILITIES
Current Liabilities:
Trade accounts payable $ 5,918 $ 2,283
Accrued and other liabilities 11,900 18,711
Deferred revenue 1,459 1,700
------------- ------------
Total current liabilities 19,277 22,694
Other long term liabilities 400 932
------------- ------------
Total liabilities 19,677 23,626
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share:
Authorized: 50,000,000 shares.
Issued and outstanding: 13,735,730 shares and 13,855,089 shares as of
September 30, 1997 and December 31, 1997, respectively 14 14
Additional paid-in capital 82,355 85,458
Retained earnings (accumulated deficit) (3,831) (26,605)
------------- ------------
Total stockholders' equity 78,538 58,867
------------- ------------
Total liabilities and stockholders' equity $98,215 $82,493
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1996 1997
------------- ------------
(unaudited)
<S> <C> <C>
Net revenue $ 15,372 $ 22,237
Cost of net revenue 7,511 10,477
------------- ------------
Gross profit 7,861 11,760
------------- ------------
Operating expenses:
Research and development 1,140 2,638
Sales, general and administrative 1,693 3,256
Amortization and write-off of technology -- 26,900
------------- ------------
Total operating expenses 2,833 32,794
------------- ------------
Income (loss) from operations 5,028 (21,034)
Other income 600 --
Interest income 83 590
------------- ------------
Income (loss) before income taxes 5,711 (20,444)
Provision for income taxes 2,170 2,330
------------- ------------
Net income (loss) $ 3,541 $(22,774)
------------- ------------
------------- ------------
Basic net income (loss) per share $ 0.31 $ (1.65)
------------- ------------
------------- ------------
Diluted net income (loss) per share $ 0.29 $ (1.65)
------------- ------------
------------- ------------
Shares used in basic income (loss) per share calculation 11,582 13,821
------------- ------------
------------- ------------
Shares used in diluted income (loss) per share calculation 12,070 13,821
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1997
------------- ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,541 $ (22,774)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 110 204
Provision for doubtful accounts (143) --
Gain on repayment of subordinated debt (600) --
Purchased and in-process technology -- 26,900
Changes in assets and liabilities:
Accounts receivable 4,472 3,754
Inventories (549) 1,826
Prepaid expenses and other current assets (217) (83)
Other assets 391 --
Trade accounts payable 1,307 (4,081)
Accrued and other liabilities 2,090 5,889
Deferred revenue (950) 217
------------- ------------
Net cash provided by operating activities 9,452 11,852
------------- ------------
Cash flows from investing activities:
Redemption of marketable securities -- 1,277
Purchase of property and equipment (266) (67)
Acquisition of businesses (net of cash acquired) -- (25,197)
------------- ------------
Net cash used in investing activities (266) (23,987)
------------- ------------
Cash flows from financing activities:
Proceeds (expenses) from public offerings 27,114 (156)
Redemption of Series A preferred stock (14,700) --
Premium paid on Series A preferred stock (726) --
Repayment of subordinated debt (8,000) (253)
Issuance and repurchase of common stock
under stock plans -- 350
------------- ------------
Net cash provided by (used in) financing activities 3,688 (59)
------------- ------------
Net increase (decrease) in cash 12,874 (12,194)
Cash and cash equivalents, beginning of period 6,179 55,831
------------- ------------
Cash and cash equivalents, end of period $ 19,053 $ 43,637
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REORGANIZATION AND BASIS OF PRESENTATION
Splash Technology Holdings, Inc. (the "Company"), through its
wholly-owned subsidiaries, 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 accompanying audited consolidated financial information has been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial statements and pursuant to the rules of
the Securities and Exchange Commission on Form 10Q. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The September 30, 1997 balance
sheet was derived from audited financial statements but does not include
all disclosures required by generally accepted accounting principles. In
the opinion of management, the accompanying consolidated financial
statements contain all normal, recurring adjustments necessary to
present fairly the Company's consolidated financial position as of
December 31, 1997 and the results of operations and cash flows for the
three months ended December 31, 1997. Such consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997.
2. BALANCE SHEET DETAIL (IN THOUSANDS):
INVENTORIES:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1997
------------- ------------
<S> <C> <C>
Raw materials $ 4,028 $ 2,403
Finished goods 889 1,138
------------- ------------
$ 4,917 $ 3,541
------------- ------------
------------- ------------
ACCRUED AND OTHER LIABILITIES:
Royalties payable $ 2,812 $ 5,391
Accrued payables 2,006 3,796
Accrued product-related obligations 3,706 4,063
Accrued compensation and related expenses 1,050 682
Income taxes payable 1,767 4,193
Other liabilities 559 586
------------- ------------
$11,900 $ 18,711
------------- ------------
------------- ------------
</TABLE>
3. ACQUISITIONS
COLORAGE ACQUISITION
On October 30, 1997, the Company acquired the shares of ColorAge
Inc. ("ColorAge") for an aggregate purchase price of $29.4 million. The
purchase price was comprised of a cash payment of approximately $25.5
million, issuance of common stock with a fair value of approximately
$2.9 million in exchange for all outstanding ColorAge stock, and net
acquisition costs of $1.0 million. The shares of the Company's common
stock, which have been placed in escrow, have been included in the
purchase consideration at consummation because the outcome of the
contingency upon which release of the escrowed shares is dependent can
be determined in the Company's judgment, based upon the applicable facts
and circumstances, beyond reasonable doubt.
5
<PAGE>
The acquisition was accounted for using the purchase method of
accounting and the results of ColorAge were included in the Company's
results from the date of acquisition. The Company wrote-off
approximately $26.9 million of the purchase price as in-process and
purchased technology in the quarter ending December 31, 1997. The
purchase price was allocated to the tangible and intangible assets and
liabilities acquired based on their fair values at October 30, 1997, as
follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 2,095
Other assets 192
Goodwill 1,355
Liabilities (1,947)
In-process research and development and purchased technology 27,735
---------
$ 29,430
---------
---------
</TABLE>
Summary unaudited pro forma information for the combined results of
operations of ColorAge and the Company for the three months ended
December 31, 1996 and 1997, is presented below. The pro forma
information assumes the acquisition occurred at the beginning of each
period and presents the combined results of the companies, excluding the
$26.9 million of purchased technology and the 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>
Three Months Ended December 31,
1996 1997
------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Net revenue $ 16,883 $ 23,025
Operating income $ 5,423 $ 5,963
Net income $ 3,803 $ 4,242
Basic net income per share $ .33 $ .31
Shares used in computing basic net income per share amounts 11,696 13,859
Diluted net income per share $ .31 $ .30
Shares used in computing diluted net income per share amounts 12,184 14,265
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information", and the Accounting Standards
Executive Committee issued Statement of Position 97-2 "Software Revenue
Recognition."
The pronouncements are effective for the Company in calendar 1998.
The Company is evaluating these recent pronouncements and the effects,
if any, on the Company's current policies.
5. COMPUTATION OF NET INCOME (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128")
effective December 31, 1997. SFAS 128 requires the presentation of basic
and diluted earnings per share (EPS). Basic EPS is computed by dividing
income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed
giving effect to all dilutive potential common shares that were
outstanding during the period. Dilutive potential common shares consist
of incremental shares issuable upon exercise of stock options. All prior
period earnings per share amounts have been restated to comply with SFAS
128.
6
<PAGE>
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1997
------------- ------------
<S> <C> <C>
Numerator - Basic and Diluted EPS
Net income (loss) $ 3,541 $(22,774)
Less: preferred stock dividends (4) --
------------- ------------
Income available to common stockholders $ 3,537 $(22,774)
------------- ------------
------------- ------------
Denominator - Basic EPS
Weighted average shares outstanding 11,582 13,821
------------- ------------
------------- ------------
Basic earnings (loss) per share $ 0.31 $ (1.65)
------------- ------------
------------- ------------
Denominator - Diluted EPS
Denominator - Basic EPS 11,582 13,821
Effect of dilutive securities:
Common stock options 337 --
Convertible preferred stock 151 --
------------- ------------
12,070 13,821
------------- ------------
------------- ------------
Diluted earnings (loss) per share $ 0.29 $ (1.65)
------------- ------------
------------- ------------
</TABLE>
As of December 31, 1997, options to purchase approximately 1.7
million shares of common stock were outstanding but not included in the
calculation of diluted EPS as they were anti-dilutive.
7
<PAGE>
ITEM 2 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 FORM 10Q 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 "FACTORS AFFECTING FUTURE RESULTS".
RECENT DEVELOPMENTS
On October 13, 1997, the Company's Board of Directors approved a change
in the Company's fiscal year end from September 30 to December 31, commencing
January 1, 1998.
On October 30, 1997, the Company acquired ColorAge, Inc. ("Colorage") a
privately-held company located in Billerica, Massachusetts. The acquisition
was accounted for under the purchase method of accounting. Splash agreed to
pay ColorAge stockholders an aggregate of $28.4 million in a combination of
approximately $25.5 million cash and the fair value of $2.9 million in common
stock. Splash wrote off approximately $26.9 million of the purchase price as
in-process and purchased technology in the quarter ending December 31, 1997.
RESULTS OF OPERATIONS
The Company has achieved significant growth in net revenue and operating
income each year since fiscal 1994, before purchase accounting adjustments.
The Company's growth is contingent on a number of factors, many of which are
outside of its control. These factors include the overall rate of growth in
the color server market and the impact of economic conditions in Japan
(including the dollar/yen currency exchange rate) on the demand for Splash's
products and its customer's purchasing pattern. Due to these and other
factors (including an increasingly higher base from which to grow), the
Company's historical growth rate will be difficult to sustain or exceed in
the future. 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.
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.
The following table sets forth consolidated statement of operations data
as a percentage of net revenue for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended December 31,
1996 1997
------------- ------------
<S> <C> <C>
Net revenue 100% 100%
Cost of net revenue 49 47
------------- ------------
Gross profit 51 53
------------- ------------
Operating expenses:
Research and development 7 12
Sales, general and administrative 11 15
Amortization and write-off of technology -- 121
------------- ------------
Total operating expenses 18 148
------------- ------------
Income (loss) from operations 33 (95)
------------- ------------
Other income 4 --
Interest income 1 3
------------- ------------
Income (loss) before income taxes 38 (92)
Provision for income taxes 14 10
------------- ------------
Net income (loss) 24% (102)%
------------- ------------
------------- ------------
</TABLE>
NET REVENUE. The Company's net revenue increased 44% to $22.2 million in
the three months ended December 31, 1997 from $15.4 million in the three
months ended December 31, 1996. These increases were primarily attributable
to higher unit sales of the Company's products due to increasing market
acceptance of the Company's PCI and DC Series products and expanded product
offerings. The Company sells a range of products and the revenue for any
period will be determined by the product mix sold in that period. There can
be no assurance that Fuji Xerox Company Ltd. ("Fuji Xerox") or Xerox
Corporation ("Xerox"), Splashes two major customers, will not change the mix
of their product purchases in a manner which would adversely impact net
revenue.
8
<PAGE>
All sales to Fuji Xerox, and a portion of the Company's sales to Xerox,
are international sales. In addition, given Xerox's international customer
base, the Company believes that a portion of Splash products purchased by
Xerox in the U.S. 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, and in the case of Japan
have caused, 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. Such pressure could
in turn result in a reduction in net revenue and profitability.
GROSS MARGIN. Gross margins were 51% and 53% in the three months ended
December 31, 1996 and 1997, respectively. The increase in gross margin was
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. 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 increased
136% to $2.6 million in the three months ended December 31, 1997 from $1.1
million in the three months ended December, 31 1996. As a percentage of net
revenue, research and development increased to 12% in the three months ended
December 31, 1997 from 7% in the three months ended December 31, 1996. The
increases in these expenses were primarily attributable to increased staffing
and associated support required to enhance the Company's product line. In
addition, the increase in research and development expenses in the three
months ended December 31, 1997 reflects the addition of engineering resources
through the acquisition of Quintar Holdings Corporation and ColorAge in 1997.
Except for charges related to acquisitions, all research and development
costs to date have been expensed as incurred. In view of the acquisitions and
current projects under development and contemplated, research and development
expenses are expected to increase in absolute dollars and as a percentage of
net revenue in future periods.
SALES, GENERAL AND ADMINISTRATIVE. Sales, general and administrative
expenses increased 94% to $3.3 million in the three months ended December 31,
1997 from $1.7 million in the three months ended December 31, 1996. As a
percentage of net revenue, sales, general and administrative expenses
increased to 15% in the three months ended December 31, 1997 from 11% in the
three months ended December 31, 1996. The increases in 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. In addition, the increases in these expenditures were due to
increased salary and related costs from increased headcount related to the
Company's efforts to enhance its corporate infrastructure and to support
expansion of the Company's operations. The Company believes that its sales,
general and administrative expenses will increase in absolute dollars in the
foreseeable future as it continues to implement additional management and
operational systems, expand its administrative staff and incur additional
costs relating to being a public company. Sales, general, and marketing
expenses are expected to increase in absolute dollars in future periods,
although they may vary as a percentage of net revenue.
ACQUISITION-RELATED AND NON-OPERATING EXPENSES. In the three months ended
December 31, 1997, the Company recorded certain costs related to the ColorAge
acquisition, including a write-off of $26.9 million of purchased technology
and in-process research and development. These in-process research and
development projects were related to the development of ColorAge's next
generation product line, which has no alternative future uses and have not
reached technological feasibility.
OTHER INCOME. The Splash acquisition in fiscal 1996 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 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.
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". In
connection with the ColorAge acquisition (a non-taxable event for the
Company), the Company recorded $0.5 million of deferred tax liabilities
relating to the acquisition. The Company's effective tax rate (excluding the
purchase accounting adjustments relating to the ColorAge acquisition) was 38%
and 36% for the three months ended December 31, 1996 and 1997, respectively .
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has obtained sufficient cash from its public offerings and
operations to satisfy its current liquidity requirements.
As of December 31, 1997, the Company had $53.7 million of cash, cash
equivalents and marketable securities 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 March 1, 1998.
For the three months ended December 31, 1996, the Company generated $9.5
million in cash from operations, primarily due to increases in accounts
payable, accrued and other liabilities and decreases in accounts receivable,
partially offset by a decrease in deferred revenue. The Company's operating
activities provided $11.9 million in cash in the three months ended December
31, 1997, primarily from a decrease in accounts receivable and inventories,
and increase in accrued and other liabilities, offset by a decrease in
accounts payable.
Investing activities used $24.0 million in cash in the three months ended
December 31, 1997. These amounts resulted primarily from $25.2 million in net
cash used in connection with the ColorAge acquisition in October 1997. In
addition, investing activities provided $1.3 million from the sale of
marketable securities in the three months ended December 31, 1997.
Financing activities provided $3.7 million in cash in the three months
ended December 31, 1996. Financing activities included the Company's public
offering on October 9, 1996, from which the Company received net proceeds of
$27.1 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 public offerings were used for working capital,
acquisitions and general corporate purposes. Financing activities were not
material for the three months ended December 31, 1997. The Company has no
material financing commitments other than its obligations under operating
leases.
The Company believes that cash flows from operations and existing cash
balances will be sufficient to satisfy the Company's cash requirements for at
least the next twelve months.
FACTORS AFFECTING FUTURE RESULTS
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 June
quarter and September quarter. As a result, the Company's sales have
historically been lower, and are lower, in the December quarter than in the
immediately preceding September quarter. However, the Company expects that
these customers will change their purchasing patterns in the future
(particularly in light of the recent change in year end by Fuji Xerox to
December 31, from a fiscal year end of October 20). Consequently, this
seasonality is expected to change in 1998 which would affect the Company's
quarterly operating results with sales in the March quarter expected to be
lower than in the December quarter. In addition, any increases in inventories
by the Company's customers could also result in variations in the timing of
purchases by such customers. For example, in May 1996, as the Company
transitioned from its Power Series line of products to its PCI Series line of
products, Xerox informed Splash that it held in its inventory a substantial
quantity of Power Series products accumulated since January 1996. As a result
of the Company's product transition and Xerox's accumulation of inventory of
these products, sales of Power Series products shipped to Xerox between
January 1996 and April 1996 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.
10
<PAGE>
Results in any period could also be affected by changes in market demand,
competitive market conditions and 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 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.
EMERGING COLOR SERVER MARKET. The market for the Company's color server
products has only recently begun to develop. Because the markets for digital
color copiers and connected color servers are relatively new, and because
current and future competitors are likely to continue to introduce competing
solutions, it is difficult to predict the rate at which these markets will
grow, if at all. If the color server market fails to grow, or grows more
slowly than anticipated, the Company's business, operating results and
financial condition will be adversely affected. The Company intends to
continue to spend resources educating potential customers about color
servers. However, there can be no assurance that such expenditures will
enable the Company's products to achieve any additional degree of market
acceptance. Moreover, the Company has historically focused on certain
segments of the market (the prepress and graphic arts segments) and has had
only limited penetration to date into the broader office segment or other
market segments. There can be no assurance 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.
DEPENDENCE ON XEROX AND FUJI XEROX. The Company's products operate
primarily with certain color laser copiers offered by Xerox and Fuji Xerox,
and the Company currently sells its products primarily to Xerox and Fuji
Xerox, which resell the Company's products on an OEM basis to their color
copier end users. 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 (including components contained therein)
and cannot begin shipping any version to Xerox or Fuji Xerox until such
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version (and components) 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. Although the Company has a contract with Xerox, the
Company does not have a contract with Fuji Xerox with respect to its products
and is currently operating on a purchase order basis with Fuji Xerox. There
can be no assurance as to the level of orders from Xerox under its contract
or that the Company will continue to receive orders from 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.
INTERNATIONAL SALES. All sales to Fuji Xerox, and a portion of the
Company's sales to Xerox, are international sales. In addition, given Xerox's
international customer base, the Company believes that a significant portion
of Splash products purchased by Xerox in the U.S. 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 and, in the case of Japan, have caused 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 of the
Company's sales are denominated in foreign currencies, the Company could be
exposed to currency exchange risks. Other risks inherent in international
sales include unexpected changes in regulatory requirements, tariffs and
other trade barriers and uncertainties relative to regional circumstances.
These risks, and in particular risks related to the economic circumstances in
Japan, could have a material adverse affect on the Company's business,
operating results and financial condition. In addition, the Company's
business, operating results and financial condition would be materially
adversely affected if foreign markets do not continue to develop.
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.
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 1998, 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.
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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.
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.
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.
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
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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.
RISKS ASSOCIATED WITH THE COLORAGE ACQUISITION; GENERAL RISKS ASSOCIATED
WITH ACQUISITIONS. On October 30, 1997, Splash acquired ColorAge, a company
that designs, manufactures and markets DocuPress, a line of color document
print servers targeted principally at the emerging market for high speed
color printing in the office. In addition to the risks generally associated
with an acquisition (including those specified in the following paragraph),
there are specific risks associated with this acquisition, including those
specified below. ColorAge has technology under development. There can be no
assurance that the 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 the acquired technology. The target market for
ColorAge, the low-end and mid-range market for color servers, is
characterized by intense competition and rapid change. The common principal
competitor is EFI, the Company's most significant competitor. Splash plans to
sell DocuPress, the ColorAge product, as a complementary product to its
product line in the Xerox sales channel. There can be no assurance that
Xerox will sell the DocuPress in the same manner in which it currently sells
other Splash products, or that the Xerox sales personnel will choose to sell
the DocuPress product at all.
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 ColorAge
acquisition, Splash recorded an expense related to purchased in-process
research and development of $26.9 million. To date, other than the Splash
acquisition, the Company's only acquisition transactions have been the
Quintar and ColorAge acquisitions. 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 generally outsources
the manufacture of its products to third party subcontract manufacturers
including MSL and Logistix. 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.
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.
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 owns one
patent. There can be no assurance that any patent, 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 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 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
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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.
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 its public offerings, 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 acceptable terms or at all.
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.
YEAR 2000 ISSUES. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced
in order to comply with such "Year 2000" requirements. Although the Company
believes that its products and systems are Year 2000 compliant, the Company
utilizes third party equipment and software that may not be Year 2000
compliant. Failure of such third-party equipment or software to operate
properly with regard to the year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could
have a material adverse effect on the Company's business, operating results
and financial condition. Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000
compliance. These expenditures may result in reduced funds available to
purchase products and services such as those offered by the Company, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULT UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A
EXHIBITS
11.1 COMPUTATION OF EARNINGS PER SHARE
27.1 FINANCIAL DATA SCHEDULE
REPORTS ON FORM 8-K AND 8-K/A
OCTOBER 28, 1997
CHANGE IN FISCAL YEAR FROM SEPTEMBER 30 TO DECEMBER 31.
NOVEMBER 13, 1997
ACQUISITION OF COLORAGE INC. ON OCTOBER 30, 1997.
RESIGNATION OF AN OFFICER
DECEMBER 24, 1997
HISTORICAL FINANCIALS OF COLORAGE INC.
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997 AND 1996
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
JUNE 30, 1997, 1996 AND 1995
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1997, 1996 AND 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
INTRODUCTORY PARAGRAPH TO PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED JUNE 30, 1997
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED SEPTEMBER 30, 1996
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF
OPERATIONS
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1997
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed and thereunto duly authorized, in the City of Sunnyvale,
State of California, on February 17, 1998.
SPLASH TECHNOLOGY HOLDINGS, INC
By: /s/ Joan P. Platt
----------------------------
Joan P. Platt
Vice President, Finance & Administration,
Chief Financial Officer
18
<PAGE>
EXHBIT INDEX
<TABLE>
<S> <C>
Exhibit Number Description of Document
10.5b Amendment No. 4 to the Configurable
Postscript Interpreter OEM License
Agreement and Amendment No. 4 to
Appendix No. 1, Amendment No. 2 to
Appendix No. 2 and Amendment No. 2 to
Appendix No. 3 between the Company and
Adobe Systems Incorporated and
Amendment No. 5 to the Configurable
Postscript Interpreter OEM License
Agreement between the Company and
Adobe Systems Incorporated.
10.6b Amendment to Xerox Hardware Purchase
and Software Development/License
Agreement between the Company and
Xerox Corporation and Amendment to
Attachment III to Xerox Hardware
Purchase and Software
Development/License Agreement between
the Company and Xerox Corporation.
11.1 Computation of Earnings Per Share
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
</TABLE>
19
<PAGE>
EXHIBIT 10.5B
AMENDMENT NO. 4
TO THE
CONFIGURABLE POSTSCRIPT INTERPRETER OEM LICENSE AGREEMENT
AND AMENDMENT NO. 4 TO APPENDIX NO. 1, AMENDMENT NO. 2 TO APPENDIX NO. 2 AND
AMENDMENT NO. 2 TO APPENDIX NO. 3
BETWEEN
SPLASH TECHNOLOGY, INC.
AND ADOBE SYSTEMS INCORPORATED
Effective Date: January 1, 1996
This Amendment No. 4 to the Configurable PostScript Interpreter OEM
License Agreement dated September 18, 1992 and assigned to Radius, Inc. from
SuperMac Technology Incorporated on March 1, 1995 (the "Agreement"), is by
and between Adobe Systems Incorporated ("Adobe") and Splash Technology, Inc.,
formally a part of Radius, Inc. ("OEM") amends the Agreement and Appendices
Nos. 1, 2 and 3 in certain respects as follows:
WHEREAS, it is the mutual goal of OEM and Adobe to work together in
promoting the PostScript language as an industry standard and in defining and
offering services and products to the market which promote and facilitate the
use of Adobe's PostScript interpreter software; and
WHEREAS, Adobe has offered specified volume discounts which may be
applied to mutually agreed upon products and types of distribution, as
described in this Amendment;
WHEREAS, Adobe has changed its royalty structure for Coded Font Programs
for Japanese Typefaces;
NOW THEREFORE, Adobe and OEM hereby agree to modify the Agreement and
Appendix No. 1, Appendix No. 2 and Appendix No. 3 as follows:
A. Adobe and OEM hereby agree to modify the Agreement as follows:
1. EXHIBIT J ("Volume Discount Schedule") of the Agreement is hereby
deleted in its entirety and replaced with the new EXHIBIT J attached hereto.
2. EXHIBIT K ("Licensed Use Royalties for Coded Font Programs") is
hereby deleted in its entirety and replaced with the new EXHIBIT K attached
hereto.
B. Adobe and OEM agree to modify Appendix No. 1 to the Agreement as follows:
1. SECTION B ("Description of Computer System"), SUBSECTION (2)
("Designated Output Device"). Add the following to the list of Designated
Output Devices:
_______________[*]
[*] Confidential Treatment Requested.
<PAGE>
2. SECTION I ("Applicable Royalties"), SUBSECTION (1)(b)(i) and
(1)(b)(ii) are hereby deleted in their entirety and restated as follows:
"(i) ROMAN VERSIONS. For each Roman Version of the Licensed
System, OEM shall pay Adobe a per Licensed Use royalty based on the U.S. List
Price of a Licensed System, with the minimum thirty five (35) required Roman
Coded Font Programs, using the following method of royalty calculation:
[*]
OEM shall bundle the Roman Coded Font Programs in accordance with PARAGRAPH
1(a) ("Roman Coded Font Programs") of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs") with each Licensed System distributed hereunder (a
"Roman Version"). Additionally, for each Roman Version of the Licensed
System which is distributed or used internally by OEM or its Subsidiaries
hereunder, OEM shall include the Roman Additional Coded Font Programs listed
in PARAGRAPH 2(a) ("Roman Additional Coded Font Programs") of ATTACHMENT 1
("Optional Packages") to SCHEDULE 1 of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs"). OEM shall pay Adobe the applicable royalties for
Optional Package 35N called out in PARAGRAPH 2 of SCHEDULE 1 (Licensed Use
Royalties for Roman Coded Font Programs') of EXHIBIT K.
(ii) JAPANESE VERSIONS. For each Japanese Version of the
Licensed System which is distributed or used internally by OEM or its
Subsidiaries hereunder, OEM shall pay Adobe a per Licensed Use royalty based
on the Japanese List Price of the applicable Japanese Version of the Licensed
System, with the Minimum Configuration including the required Coded Font
Programs for Japanese Typefaces, converted to U.S. Dollars and calculated
using the royalty table in SECTION I(1)(b)(i) ("Roman Versions") above."
OEM shall bundle the Roman Coded Font Programs and Coded Font Programs for
Japanese Typefaces in accordance with PARAGRAPH 1(a) ("Roman Coded Font
Programs") of EXHIBIT K and in accordance with PARAGRAPH 1(b) ("Coded Font
Programs for Japanese Typefaces") of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs") with each Japanese Version of the Licensed System
distributed hereunder.
3. SECTION I ("Applicable Royalties"), SUBSECTION (1)(C) is hereby
added as follows:
"(c). DISCOUNTED LIST PRICE FOR LICENSED SYSTEMS WITH EITHER A
XEROX DOCUCOLOR 40 OR FUJI DOCUCOLOR 4040 DESIGNATED OUTPUT DEVICE. The
Discounted List Price for a Licensed System licensed for use with either a
Xerox DocuColor 40 Designated Output Device or a Fuji Xerox DocuColor 4040
Designated Output Device shall be an amount equal to [*] of the published
list price for the Designated Output Device component plus
_______________
[*] Confidential Treatment Requested.
-2-
<PAGE>
[*] of the published List Prices for the CPSI Application and Coded Font
Programs and the component parts of the Licensed System described in SECTION C
above which are not eligible for this discount.
EXAMPLE:
List Price of Splash RIP [*]
List Price of Xerox DocuColor 40 (undiscounted)
Less: [*]
Discounted List Price of Xerox DocuColor 40:
Total List Price of Licensed System:
C. Adobe and OEM agree to modify Appendix No. 2 to the Agreement as follows:
1. SECTION B ("Description of Computer System"), SUBSECTION (2)
("Designated Output Device"). Add the following to the list of Designated
Output Devices:
[*]
2. SECTION I ("Applicable Royalties"), SUBSECTION (1)(d) is hereby
added as follows:
"(d). DISCOUNTED LIST PRICE FOR LICENSED SYSTEMS WITH EITHER A
XEROX DOCUCOLOR 40 OR FUJI XEROX DOCUCOLOR 4040 DESIGNATED OUTPUT DEVICE.
The Discounted List Price for a Licensed System licensed for use with either
a Xerox DocuColor 40 Designated Output Device or a Fuji Xerox DocuColor 4040
Designated Output Device shall be an amount equal to [*] of the published
list price for the Designated Output Device component plus [*] of the
published List Prices for the CPSI Application and Coded Font Programs and
the component parts of the Licensed System described in SECTION C above which
are not eligible for the discount.
EXAMPLE:
List Price of Splash RIP [*]
List Price of Xerox DocuColor 40 (undiscounted)
Less: [*]
Discounted List Price of Xerox DocuColor 40:
Total List Price of Licensed System:
3. SECTION I ("Applicable Royalties"), SUBSECTIONS (2)a is hereby
deleted in its entirety and restated as follows:
"a. ROMAN VERSIONS. For each Roman Version of the Licensed
System which is distributed or used internally (beyond the number of Licensed
Uses provided royalty-free for Internal Use under SECTION I(6) below) by OEM
or its Subsidiaries hereunder, OEM shall pay Adobe a per Licensed Use royalty
based on the U.S. List Price of a Licensed System, with
_______________
[*] Confidential Treatment Requested.
-3-
<PAGE>
the minimum thirty five (35) required Roman Coded Font Programs, using the
following method of royalty calculation:
[*]
The same per Licensed Use royalty shall apply for each Roman
Version of the Licensed System distributed unbundled from a computer system
platform in accordance with PARAGRAPH C above."
OEM shall bundle the Roman Coded Font Programs in accordance with PARAGRAPH
1(a) ("Roman Coded Font Programs") of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs") with each Licensed System distributed hereunder (a
"Roman Version"). Additionally, for each Roman Version of the Licensed
System which is distributed or used internally by OEM or its Subsidiaries
hereunder, OEM shall include the Roman Additional Coded Font Programs listed
in PARAGRAPH 2(a) ("Roman Additional Coded Font Programs") of ATTACHMENT 1
("Optional Packages") to SCHEDULE 1 of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs"). OEM shall pay Adobe the applicable royalties for
Optional Package 35N called out in PARAGRAPH 2 of SCHEDULE 1 (Licensed Use
Royalties for Roman Coded Font Programs') of EXHIBIT K.
D. Adobe and OEM agree to modify Appendix No. 3 to the Agreement as follows:
1. SECTION B ("Description of Computer System"), SUBSECTION (2)
("Designated Output Device"). Add the following to the list of Designated
Output Devices:
[*]
2. SECTION I ("Applicable Royalties"), SUBSECTION (1)(d) is hereby
added as follows:
"(d). DISCOUNTED LIST PRICE FOR LICENSED SYSTEMS WITH EITHER A
XEROX DOCUCOLOR 40 OR FUJI XEROX DOCUCOLOR 4040 DESIGNATED OUTPUT DEVICE.
The Discounted List Price for a Licensed System licensed for use with either
a Xerox DocuColor 40 Designated Output Device or a Fuji Xerox DocuColor 4040
Designated Output Device shall be an amount equal to [*] of the published
list price for the Designated Output Device component plus [*] of the
published List Prices for the CPSI Application and Coded Font Programs and
the component parts of the Licensed System described in SECTION C above which
are not eligible for the discount.
_______________
[*] Confidential Treatment Requested.
-4-
<PAGE>
EXAMPLE:
List Price of Splash RIP [*]
List Price of Xerox DocuColor 40 (undiscounted)
Less: [*]
Discounted List Price of Xerox DocuColor 40:
Total List Price of Licensed System:
3. SECTION I ("Applicable Royalties"), SUBSECTIONS (2)a is hereby
deleted in its entirety and restated as follows:
"a. ROMAN VERSIONS. For each Roman Version of the Licensed
System which is distributed or used internally (beyond the number of Licensed
Uses provided royalty-free for Internal Use under SECTION I(6) below) by OEM
or its Subsidiaries hereunder, OEM shall pay Adobe a per Licensed Use royalty
based on the U.S. List Price of a Licensed System, with the minimum thirty
five (35) required Roman Coded Font Programs, using the following method of
royalty calculation:
[*]
OEM shall bundle the Roman Coded Font Programs in accordance with PARAGRAPH
1(a) ("Roman Coded Font Programs") of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs") with each Licensed System distributed hereunder (a
"Roman Version"). Additionally, for each Roman Version of the Licensed
System which is distributed or used internally by OEM or its Subsidiaries
hereunder, OEM shall include the Roman Additional Coded Font Programs listed
in PARAGRAPH 2(a) ("Roman Additional Coded Font Programs") of ATTACHMENT 1
("Optional Packages") to SCHEDULE 1 of EXHIBIT K ("Licensed Use Royalties for
Coded Font Programs"). OEM shall pay Adobe the applicable royalties for
Optional Package 35N called out in PARAGRAPH 2 of SCHEDULE 1 (Licensed Use
Royalties for Roman Coded Font Programs') of EXHIBIT K.
_______________
[*] Confidential Treatment Requested.
-5-
<PAGE>
E. All other terms and conditions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 4 to the
Agreement, Amendment No. 4 to Appendix No. 1, Amendment No. 2 to Appendix No.
2 and Amendment No. 2 to Appendix No. 3 to be signed by their duly authorized
representatives.
Adobe: OEM:
ADOBE SYSTEMS INCORPORATED SPLASH TECHNOLOGY, INC.
/S/ Frederick A. Schwedner /S/ Tim Kleffman
- ------------------------------------- -------------------------------------
Signature Signature
FREDERICK A. SCHWEDNER Tim Kleffman
- ------------------------------------- -------------------------------------
Name Name
Sr. Vice President & General Manager
Printing and Systems Division Vice President
- ------------------------------------- -------------------------------------
Title Title
Nov 22 1996 11/20/96
- ------------------------------------- -------------------------------------
Date Date
-6-
<PAGE>
EXHIBIT I
Volume Discount Schedule
[*]
_______________
[*] Confidential Treatment Requested.
-7-
<PAGE>
[*]
_______________
[*] Confidential Treatment Requested.
-8-
<PAGE>
EXHIBIT K
Licensed Use Royalties for Coded Font Programs
1. CODED FONT PROGRAM DISTRIBUTION.
OEM may reproduce the Coded Font Programs delivered by Adobe
hereunder solely at the Reproduction Locations and only for distribution with
Licensed Systems.
(a) ROMAN CODED FONT PROGRAMS. OEM agrees that with each
Licensed System distributed for use outside of Japan (a "Roman Version"), OEM
shall bundle the Roman Initial Installation Coded Font Programs and the Roman
Additional Coded Font Programs in Option Package 35N identified in PARAGRAPH
1 of ATTACHMENT 1 attached hereto. OEM may also distribute a Roman Version
bundled with Other Coded Font Programs solely in one of the Optional Packages
specified in ATTACHMENT 1 to SCHEDULE 1 to this EXHIBIT K.
(b) CODED FONT PROGRAMS FOR JAPANESE TYPEFACES. OEM agrees
that with each Licensed System distributed for use in Japan (a "Japanese
Version"), OEM shall bundle the same Roman Coded Font Programs specified in
PARAGRAPH 1(a) of this EXHIBIT K for Roman Versions. Additionally, OEM shall
bundle the first five (5) Coded Font Programs for Japanese Typefaces
identified in PARAGRAPH 1(b) of SCHEDULE 2 to this EXHIBIT K. OEM may also
distribute a Japanese Version bundled with more than five (5) Coded Font
Programs for Japanese Typefaces in any of the combinations of up to the
twelve (12) font configuration specified in SCHEDULE 2.
(c) DISTRIBUTION MEDIA. Such Coded Font Programs for Japanese
Typefaces will be distributed on mutually agreeable distribution media and
will be encrypted and copy-protected against unauthorized duplication in a
manner to be specified by Adobe. In particular, to prevent an End User from
substituting one font configuration for the original font configuration
licensed with the Licensed System, OEM shall employ a different set of code
ROMs (with a different identification code) to distinguish the original font
configuration from the other font configuration. Special character set
encodings are not provided.
(d) DISTRIBUTION OF JAPANESE VERSIONS AND FONT UPGRADES. OEM
is not required to bundle the Coded Font Programs for Japanese Typefaces with
Licensed Systems distributed outside of Japan. However, if OEM decides to
distribute Licensed Systems with Coded Font Programs for Japanese Typefaces
for use outside of Japan, it shall bundle the Coded Font Programs for
Japanese Typefaces in accordance with PARAGRAPHS 1(b) and (c) above. Where
OEM has distributed a Roman Version and wishes to upgrade such Roman Version
to the corresponding Japanese Version, OEM may do so, provided that the Coded
Font Programs for Japanese Typefaces are bundled as an upgrade in accordance
with PARAGRAPHS 1(b) and (c) above. Except for such initial upgrade for a
Roman Version, OEM may not distribute additional Coded Font Programs for
Japanese Typefaces in an unbundled form for the purpose of upgrading an
existing Licensed System from one font configuration to another. If OEM
desires to offer to customers additional Coded Font Programs for Japanese
Typefaces, it may
-9-
<PAGE>
license the additional aftermarket fonts in retail product version directly
from Adobe or Morisawa to provide to OEM's End Users.
(e) FONT UPGRADES FOR ROMAN VERSIONS. OEM may upgrade an
existing Roman Version of a Licensed System by adding one or more of the
Optional Packages specified in ATTACHMENT 1 hereto.
(f) DISTRIBUTION OF CPSI APPLICATION OBJECT WITH FONT UPGRADE.
OEM will not distribute the CPSI Application with a font upgrade, as
described in PARAGRAPH (d) or (e) above, unless expressly permitted in the
applicable CPSI Application Appendix, and under applicable terms set forth
therein.
2. LICENSED USE ROYALTY PAYMENTS FOR CODED FONT PROGRAMS.
(a) ROMAN VERSIONS. For each Licensed Use of the Roman Initial
Installation Font Programs, Roman Additional Coded Font Programs and Other
Coded Font Programs distributed bundled with, or as an upgrade to, a Licensed
System or used internally by OEM or its Subsidiaries (beyond the number of
Licensed Uses provided royalty-free for Internal Use under the applicable
CPSI Application Appendices), OEM shall pay a per Typeface or Optional
Package royalty, as applicable, as set forth in SCHEDULE 1 ("Licensed Use
Royalties for Roman Coded Font Programs") hereto.
(b) JAPANESE VERSIONS. For each Licensed Use of the Coded Font
Programs for Japanese Typefaces distributed bundled with or as an upgrade to
a Licensed System or used internally by OEM or its Subsidiaries, OEM shall
pay a per Typeface royalty as set forth in SCHEDULE 2 ("Licensed Use
Royalties for Coded Font Programs for Japanese Typefaces") hereto.
-10-
<PAGE>
Schedule 1 to Exhibit K
Licensed Use Royalties for Roman Coded Font Programs
1. LICENSED USE ROYALTIES FOR ROMAN INITIAL INSTALLATION CODED FONT
PROGRAMS. The seventeen (17) Roman Initial Installation Coded Font Programs
specified in PARAGRAPH 1 of ATTACHMENT 1 and bundled with a Licensed System
shall be royalty-free.
2. LICENSED USE ROYALTIES FOR OPTIONAL PACKAGES. Except as set forth
in PARAGRAPH 3 ("Optional Package 35N Royalties for Japanese Versions"), OEM
shall pay a per Licensed Use royalty for each Optional Package which is
distributed bundled with, or as an upgrade to, a Licensed System or used
internally by OEM or its Subsidiaries (beyond the number of Licensed Uses
provided royalty-free for Internal Use under applicable CPSI Application
Appendices) based on the following royalty schedule, using the published U.S.
List Price for the Minimum Configuration of the Licensed System. To
calculate royalties due for Option Package 4C, add the applicable royalty due
for the relevant line item in column 4C to the applicable royalty due for the
relevant line item in one or more of the other columns. For example: If the
published U.S. List Price of the Licensed System is greater than [*] and OEM
distributes Optional Package 65 with Optional Package 4C, then the total
royalty due to Adobe for the Other Coded Font Programs is equal to [*]. The
Coded Font Programs included in the Optional Packages are listed in
ATTACHMENT 1 hereto.
[*]
3. OPTIONAL PACKAGE 35N ROYALTIES FOR JAPANESE VERSIONS. No royalty
shall be due from OEM for Optional Package 35N when such Optional Package is
distributed by OEM bundled with a Japanese Version configured in accordance
with PARAGRAPH 1(B) ("List of Coded Font Programs for Japanese Typefaces") of
SCHEDULE 2. This royalty-free distribution only applies to PCI 320
Controllers described as configured above.
_______________
[*] Confidential Treatment Requested.
-11-
<PAGE>
Attachment 1 to Schedule 1 of Exhibit K
CODED FONT PROGRAMS
1. ROMAN INITIAL INSTALLATION CODED FONT PROGRAMS:
Adobe will provide the graphic characters specified in ISO 8859-1:
1987, Latin alphabet No. 1 and symbol characters as applicable, for the
following Roman Initial Installation Coded Font Programs:
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- -------------- ------------------- ----------------------------------------
<S> <C> <C>
Helvetica Regular Linotype-Hell AG and/or its subsidiaries
Helvetica Bold Linotype-Hell AG and/or its subsidiaries
Helvetica Oblique Linotype-Hell AG and/or its subsidiaries
Helvetica Bold Oblique Linotype-Hell AG and/or its subsidiaries
Helvetica Narrow Linotype-Hell AG and/or its subsidiaries
Helvetica Narrow Bold Linotype-Hell AG and/or its subsidiaries
Helvetica Narrow Oblique Linotype-Hell AG and/or its subsidiaries
Helvetica Narrow Bold Oblique Linotype-Hell AG and/or its subsidiaries
Times Roman Linotype-Hell AG and/or its subsidiaries
Times Bold Linotype-Hell AG and/or its subsidiaries
Times Italic Linotype-Hell AG and/or its subsidiaries
Times Bold Italic Linotype-Hell AG and/or its subsidiaries
Symbol Symbol Set (Public Domain)
Courier Regular (Public Domain)
Courier Bold (Public Domain)
Courier Oblique (Public Domain)
Courier Bold Oblique (Public Domain)
</TABLE>
2. ROMAN ADDITIONAL CODED FONT PROGRAMS:
Upon written notification by OEM, Adobe will provide the graphic
characters specified in ISO 8859-1: 1987, Latin alphabet No. 1 and symbol
characters as applicable, for the Roman Additional Coded Font Programs listed
in the Optional Packages as described below. After receipt of written
request from OEM, adobe will provide the Macintosh compatible Bitmap Fonts in
such point sizes as Adobe has available for the Roman Additional Coded Font
Programs listed below. These Bitmap Fonts can only be used in conjunction
with a Licensed System.
(a) OPTIONAL PACKAGE 35N. "Optional Package 35N" shall consist
of the Roman Initial Installation Coded Font Programs listed in PARAGRAPH 1
above plus the Roman Additional Coded Font Programs listed in this PARAGRAPH
2.
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- --------------------- -------------- ----------------------------------
<S> <C> <C>
ITC AvantGarde Gothic Book International Typeface Corporation
ITC AvantGarde Gothic Book Oblique International Typeface Corporation
ITC AvantGarde Gothic Demi International Typeface Corporation
ITC AvantGarde Gothic Demi Oblique International Typeface Corporation
ITC Bookman Light International Typeface Corporation
</TABLE>
-12-
<PAGE>
<TABLE>
<S> <C> <C>
ITC Bookman Light Italic International Typeface Corporation
ITC Bookman Demi International Typeface Corporation
ITC Bookman Demi Italic International Typeface Corporation
NewCentury Schoolbook Roman Public Domain
NewCentury Schoolbook Bold Public Domain
NewCentury Schoolbook Italic Public Domain
NewCentury Schoolbook Bold Italic Public Domain
ITC Zapf Chancery Medium Italic International Typeface Corporation
ITC Zapf Dingbats International Typeface Corporation
Palatino Roman Linotype-Hell AG and/or its subsidiaries
Palatino Bold Linotype-Hell AG and/or its subsidiaries
Palatino Italic Linotype-Hell AG and/or its subsidiaries
Palatino Bold Italic Linotype-Hell AG and/or its subsidiaries
</TABLE>
(b) OPTIONAL PACKAGE 65. "Optional Package 65" shall consist
of Optional Package 35N listed in PARAGRAPH 2(a) above plus the thirty (30)
Other Roman Additional Coded Font Programs listed in this PARAGRAPH 2(b).
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- ----------------- -------------- ----------------------------------
<S> <C> <C>
Adobe Caslon Regular Adobe Systems Incorporated
Adobe Caslon Italic Adobe Systems Incorporated
Adobe Caslon Semibold Adobe Systems Incorporated
Adobe Caslon Semibold Italic Adobe Systems Incorporated
Adobe Garamond Regular Adobe Systems Incorporated
Adobe Garamond Italic Adobe Systems Incorporated
Adobe Garamond Bold Adobe Systems Incorporated
Adobe Garamond Bold Italic Adobe Systems Incorporated
Barmeno Regular H. Berthold AG
Barmeno Medium H. Berthold AG
Barmeno Bold H. Berthold AG
Barmeno Extra Bold H. Berthold AG
Lithos Regular Adobe Systems Incorporated
Lithos Black Adobe Systems Incorporated
Trajan Bold Adobe Systems Incorporated
Adobe Wood Type 2 Ornaments Adobe Systems Incorporated
Blackoak Bold Adobe Systems Incorporated
Carta Map Symbols Adobe Systems Incorporated
Tekton Regular Adobe Systems Incorporated
Tekton Bold Adobe Systems Incorporated
Park Avenue Regular Kingsley/ATF Type Corporation
Poetica Ornaments Regular Adobe Systems Incorporated
Kaufmann Regular Kingsley/ATF Type Corporation
Americana Regular Kingsley/ATF Type Corporation
Americana Extra Bold Kingsley/ATF Type Corporation
Parisian Regular Kingsley/ATF Type Corporation
Formata Regular H. Berthold AG
Formata Medium H. Berthold AG
Formata Italic H. Berthold AG
Formata Medium Italic H. Berthold AG
</TABLE>
-13-
<PAGE>
(c) OPTIONAL PACKAGE 100. "Optional Package 100" shall consist
of Optional Package 65 listed in PARAGRAPH 2(b) above plus the thirty-five
(35) Other Roman Additional Coded Font Programs listed in this PARAGRAPH 2(c).
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- ------------------------------------------ ----------------- ----------------------------------
<S> <C> <C>
ITC Lubalin Graph Book International Typeface Corporation
ITC Lubalin Graph BookOblique International Typeface Corporation
ITC Lubalin Graph BookDemi International Typeface Corporation
ITC Lubalin Graph BookDemi Oblique International Typeface Corporation
ITC Korinna Regular International Typeface Corporation
ITC Korinna Kursiv Regular International Typeface Corporation
ITC Korinna Bold International Typeface Corporation
ITC Korinna Kursiv Bold International Typeface Corporation
ITC Kabel Book International Typeface Corporation
ITC Kabel Medium International Typeface Corporation
ITC Kabel Demi International Typeface Corporation
ITC Kabel Bold International Typeface Corporation
ITC Kabel Ultra International Typeface Corporation
ITC Berkeley Oldstyle-Registered Trademark- Book International Typeface Corporation
ITC Berkeley Oldstyle Book Italic International Typeface Corporation
ITC Berkeley Oldstyle Medium International Typeface Corporation
ITC Berkeley Oldstyle Italic International Typeface Corporation
ITC Berkeley Oldstyle Bold International Typeface Corporation
ITC Berkeley Oldstyle Bold Italic International Typeface Corporation
ITC Berkeley Oldstyle Black International Typeface Corporation
ITC Berkeley Oldstyle Black Italic International Typeface Corporation
ITC Machine-Registered Trademark- Medium International Typeface Corporation
ITC Machine Bold International Typeface Corporation
ITC Flora-Registered Trademark- Medium International Typeface Corporation
ITC Flora Bold International Typeface Corporation
Copperplate Gothic 31AB Public Domain
Copperplate Gothic 31BC Public Domain
Brush Script Public Domain
Hobo Public Domain
Stencil Public Domain
Baker Signet Visual Graphics Corporation
Nuptial Script Linotype-Hell AG and/or its subsidiaries
Mythos-TM- Adobe Systems Incorporated
Birch-TM- Adobe Systems Incorporated
Umbra Ludlow
</TABLE>
(d) OPTIONAL PACKAGE 300. "Optional Package 300" shall consist
of Optional Package 100 listed in PARAGRAPH 2(c) above plus the two hundred
(200) Other Roman Additional Coded Font Programs listed in this PARAGRAPH
2(d).
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- ------------------------------------------ ----------------- ----------------------------------
<S> <C> <C>
Goudy Old Style Public Domain
Goudy Bold Public Domain
Goudy Old Style Italic Public Domain
Goudy Bold Italic Public Domain
Goudy Extra Bold Public Domain
Goudy Heavyface Public Domain
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C>
Goudy Heavyface Italic Public Domain
Sonata Adobe Systems Incorporated
Letter Gothic Public Domain
Letter Gothic Bold Public Domain
Letter Gothic Slanted Public Domain
Letter Gothic Bold Slanted Public Domain
Cooper Black Public Domain
Cooper Black Italic Public Domain
ITC Stone Serif International Typeface Corporation
ITC Stone Serif Semibold International Typeface Corporation
ITC Stone Serif Italic International Typeface Corporation
ITC Stone Serif Semibold Italic International Typeface Corporation
ITC Stone Serif Bold International Typeface Corporation
ITC Stone Serif Bold Italic International Typeface Corporation
ITC Stone Sans Bold International Typeface Corporation
ITC Stone Sans Bold Italic International Typeface Corporation
ITC Stone Sans International Typeface Corporation
ITC Stone Sans Semibold International Typeface Corporation
ITC Stone Sans Italic International Typeface Corporation
ITC Stone Sans Semibold Italic International Typeface Corporation
Kaufmann Bold Kingsley/ATF Type Corporation
Americana Bold Kingsley/ATF Type Corporation
Americana Italic Kingsley/ATF Type Corporation
Century Expanded Linotype-Hell AG and/or its subsidiaries
Century Expanded Italic Linotype-Hell AG and/or its subsidiaries
Caslon Open Face Linotype-Hell AG and/or its subsidiaries
Gothic 13 Linotype-Hell AG and/or its subsidiaries
Tempo Heavy Condensed Ludlow
Tempo Heavy Condensed Italic Ludlow
Adobe Garamond Semibold Adobe Systems Incorporated
Adobe Garamond Semibold Italic Adobe Systems Incorporated
Adobe Garamond Regular, SC Adobe Systems Incorporated
Adobe Garamond Semibold, SC Adobe Systems Incorporated
Franklin Gothic Roman Linotype-Hell AG and/or its subsidiaries
Franklin Gothic Condensed Linotype-Hell AG and/or its subsidiaries
Franklin Gothic Extra Condensed Linotype-Hell AG and/or its subsidiaries
Utopia Regular Adobe Systems Incorporated
Utopia Semibold Adobe Systems Incorporated
Utopia Italic Adobe Systems Incorporated
Utopia Semibold Italic Adobe Systems Incorporated
Utopia Bold Adobe Systems Incorporated
Utopia Bold Italic Adobe Systems Incorporated
Utopia Black Adobe Systems Incorporated
Utopia Regular, SC Adobe Systems Incorporated
Utopia Semibold, SC Adobe Systems Incorporated
Copperplate Gothic 29AB Public Domain
Copperplate Gothic 29BC Public Domain
Copperplate Gothic 30AB Public Domain
Copperplate Gothic 30BC Public Domain
Copperplate Gothic 32AB Public Domain
Copperplate Gothic 32BC Public Domain
Copperplate Gothic 33BC Public Domain
Charlemagne Regular Adobe Systems Incorporated
Charlemagne Bold Adobe Systems Incorporated
Mesquite Adobe Systems Incorporated
Woodtype Ornaments 1 Adobe Systems Incorporated
</TABLE>
-15-
<PAGE>
<TABLE>
<S> <C> <C>
Tekton Oblique Adobe Systems Incorporated
Tekton Bold Oblique Adobe Systems Incorporated
Minion Regular Adobe Systems Incorporated
Minion Semibold Adobe Systems Incorporated
Minion Italic Adobe Systems Incorporated
Minion Semibold Italic Adobe Systems Incorporated
Minion Bold Adobe Systems Incorporated
Minion Bold Italic Adobe Systems Incorporated
Minion Regular, SC Adobe Systems Incorporated
Minion Semibold, SC Adobe Systems Incorporated
Minion Italic, SC Adobe Systems Incorporated
Minion Semibold Italic, SC Adobe Systems Incorporated
Rockwell Monotype Corporation
Rockwell Bold Monotype Corporation
Rockwell Italic Monotype Corporation
Rockwell Bold Italic Monotype Corporation
Rockwell Light Monotype Corporation
Rockwell Light Italic Monotype Corporation
Willow Adobe Systems Incorporated
Madrone Adobe Systems Incorporated
Adobe Caslon Bold Adobe Systems Incorporated
Adobe Caslon Bold Italic Adobe Systems Incorporated
Adobe Caslon Regular, SC Adobe Systems Incorporated
Adobe Caslon Semibold, SC Adobe Systems Incorporated
Poppl-Pontifex Regular H. Berthold AG
Poppl-Pontifex Medium H. Berthold AG
Poppl-Pontifex Italic H. Berthold AG
Poppl-Pontifex Bold H. Berthold AG
Poppl-Pontifex MediumCondensed H. Berthold AG
Bell Gothic Light Public Domain
Bell Gothic Bold Public Domain
Bell Gothic Black Public Domain
MinionCyrillic Regular Adobe Systems Incorporated
MinionCyrillic Semibold Adobe Systems Incorporated
MinionCyrillic Italic Adobe Systems Incorporated
MinionCyrillic SemiboldItalic Adobe Systems Incorporated
MinionCyrillic Bold Adobe Systems Incorporated
MinionCyrillic BoldItalic Adobe Systems Incorporated
ITC Stone Informal International Typeface Corporation
ITC Stone Informal Semibold International Typeface Corporation
ITC Stone Informal Italic International Typeface Corporation
ITC Stone Informal Semibold Italic International Typeface Corporation
ITC Stone Informal Bold International Typeface Corporation
ITC Stone Informal Bold Italic International Typeface Corporation
Trajan Regular Adobe Systems Incorporated
Lithos ExtraLight Adobe Systems Incorporated
Lithos Light Adobe Systems Incorporated
Lithos Bold Adobe Systems Incorporated
Gill Sans Monotype Corporation
Gill Sans Bold Monotype Corporation
Gill Sans Italic Monotype Corporation
Gill Sans Bold Italic Monotype Corporation
Gill Sans Light Monotype Corporation
Gill Sans Light Italic Monotype Corporation
Gill Sans Condensed Monotype Corporation
Gill Sans Bold Condensed Monotype Corporation
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C>
Gill Sans Ultra Bold Condensed Monotype Corporation
Gill Sans Extra Bold Monotype Corporation
Gill Sans Ultra Bold Monotype Corporation
Bembo Monotype Corporation
Bembo Bold Monotype Corporation
Bembo Italic Monotype Corporation
Bembo Bold Italic Monotype Corporation
Bembo Semibold Monotype Corporation
Bembo Semibold Italic Monotype Corporation
Bembo Extra Bold Monotype Corporation
Bembo Extra Bold Italic Monotype Corporation
Rockwell Condensed Monotype Corporation
Rockwell Bold Condensed Monotype Corporation
Rockwell Extra Bold Monotype Corporation
Plantin Monotype Corporation
Plantin Bold Monotype Corporation
Plantin Italic Monotype Corporation
Plantin Bold Italic Monotype Corporation
Perpetua Monotype Corporation
Perpetua Bold Monotype Corporation
Perpetua Italic Monotype Corporation
Perpetua Bold Italic Monotype Corporation
Nofret Light H. Berthold AG
Nofret Light Italic H. Berthold AG
Nofret Regular H. Berthold AG
Nofret Medium H. Berthold AG
Nofret Italic H. Berthold AG
Nofret Medium Italic H. Berthold AG
Nofret Bold H. Berthold AG
Nofret Bold Italic H. Berthold AG
Plantin Light Monotype Corporation
Plantin Light Italic Monotype Corporation
Plantin Semibold Monotype Corporation
Plantin Semibold Italic Monotype Corporation
Plantin Bold Condensed Monotype Corporation
Centaur Regular Monotype Corporation
Centaur Bold Monotype Corporation
Centaur Italic Monotype Corporation
Centaur BoldItalic Monotype Corporation
Joanna Regular Monotype Corporation
Joanna Bold Monotype Corporation
Joanna Italic Monotype Corporation
Joanna Bold Italic Monotype Corporation
Joanna Semibold Monotype Corporation
Joanna Semibold Italic Monotype Corporation
Joanna Extra Bold Monotype Corporation
ITC StoneSans Phonetic IPA International Typeface Corporation
ITC StoneSans Phonetic Alternate International Typeface Corporation
ITC StoneSerif Phonetic IPA International Typeface Corporation
ITC StoneSerif Phonetic Alternate International Typeface Corporation
Poetica Chancery I Adobe Systems Incorporated
Poetica Chancery II Adobe Systems Incorporated
Poetica Chancery III Adobe Systems Incorporated
Poetica Chancery IV Adobe Systems Incorporated
Poetica Roman Small Caps Adobe Systems Incorporated
Delta Jaeger Light H. Berthold AG
</TABLE>
-17-
<PAGE>
<TABLE>
<S> <C> <C>
Delta Jaeger LightItalic H. Berthold AG
Delta Jaeger Book H. Berthold AG
Delta Jaeger Medium H. Berthold AG
Delta Jaeger Italic H. Berthold AG
Delta Jaeger MediumItalic H. Berthold AG
Delta Jaeger Bold H. Berthold AG
Delta Jaeger BoldItalic H. Berthold AG
Delta Jaeger Outline H. Berthold AG
Formata Condensed H. Berthold AG
Formata MediumCondensed H. Berthold AG
Formata CondensedItalic H. Berthold AG
Formata Med CondensedItalic H. Berthold AG
ITC Legacy Sans Book International Typeface Corporation
ITC Legacy Sans Book Italic International Typeface Corporation
ITC Legacy Sans Medium International Typeface Corporation
ITC Legacy Sans Medium Italic International Typeface Corporation
ITC Legacy Sans Bold International Typeface Corporation
ITC Legacy Sans Bold Italic International Typeface Corporation
ITC Legacy Sans Ultra International Typeface Corporation
ITC Legacy Serif Book International Typeface Corporation
ITC Legacy Serif Book Italic International Typeface Corporation
ITC Legacy Serif Medium International Typeface Corporation
ITC Legacy Serif Medium Italic International Typeface Corporation
ITC Legacy Serif Bold International Typeface Corporation
ITC Legacy Serif Bold Italic International Typeface Corporation
ITC Legacy Serif Ultra International Typeface Corporation
</TABLE>
(e) OPTIONAL PACKAGE 4C. "Optional Package 4C" shall consist
of the four (4) Roman Additional Coded Font Programs listed in this PARAGRAPH
2(e). Optional Package 4C may be distributed with Optional Package 35N,
Optional Package 65, Optional Package 100, or Optional Package 300, for use
with a Licensed System.
<TABLE>
<CAPTION>
Identifying
Trademark Typeface Trademark Owner
- ------------------------------------------ ----------------- ----------------------------------------
<S> <C> <C>
Helvetica Condensed Linotype-Hell AG and/or its subsidiaries
Helvetica Condensed Bold Linotype-Hell AG and/or its subsidiaries
Helvetica Condensed Oblique Linotype-Hell AG and/or its subsidiaries
Helvetica Condensed Bold Oblique Linotype-Hell AG and/or its subsidiaries
</TABLE>
-18-
<PAGE>
Schedule 2 to Exhibit K
Licensed Use Royalties for Coded Font Programs for Japanese Typefaces
1. CODED FONT PROGRAMS FOR JAPANESE TYPEFACES:
(a) CODED FONT PROGRAMS FOR JAPANESE TYPEFACES - FONT FORMATS:
Adobe will provide, at OEM's request, the Coded Font Programs for Japanese
Typefaces in the following font formats under the following terms:
(i) ORIGINAL COMPOSITE FONTS ("OCF") FORMAT: Subject to
availability, Adobe will provide the Adobe Standard Japanese Character Set,
which includes JIS, Shift-JIS and EUC encodings of the JIS X 0208-1983 Level
1 and Level 2 characters, plus other characters and encodings as defined in
Adobe's KANJI GLYPH COLLECTION AND GLYPH SETS TECHNICAL NOTE #5031, dated
November 12, 1990, with the exception of generic characters listed therein,
for the Coded Font Programs for Japanese Typefaces listed in PARAGRAPH (1)(b)
("List of Coded Font Programs for Japanese Typefaces") below. Generic
characters listed therein are not typeface specific. Special character set
encodings are not provided. OEM shall only distribute the Coded Font
Programs for Japanese Typefaces bundled with a Japanese Version of the
Licensed System in the configurations listed in PARAGRAPH 1(b) below. Adobe
reserves the right to discontinue distribution and support of the OCF font
format at its sole discretion. In the event that such OCF font format is
discontinued by Adobe, Adobe will provide OEM with identical typefaces in the
CID font format, as described below.
(ii) CHARACTER ID FONTS ("CID") FORMAT: Subject to
availability, Adobe will provide the Adobe Standard Japanese Character Set,
which includes JIS, Shift-JIS, and EUC encodings of the JIS X 0208-1983 and
JIS X 0208-1990 Level 1 and Level 2 characters, plus other characters and
encodings as defined in Adobe's ADOBE-JAPAN1-2 CHARACTER COLLECTION FOR
CID-KEYED FONTS TECHNICAL NOTE #5078 dated October 4, 1994, for the Coded
Font Programs for Japanese Typefaces in CID-keyed font format as listed in
PARAGRAPH 1(b) ("List of Coded Font Programs for Japanese Typefaces") below.
Generic characters listed therein are not typeface specific. Special
character set encodings are not provided. OEM shall only distribute the Coded
Font Programs for Japanese Typefaces bundled with a Japanese Version of the
Licensed System in the configurations listed in PARAGRAPH (1)(b) below.
-19-
<PAGE>
(b) LIST OF CODED FONT PROGRAMS FOR JAPANESE TYPEFACES: OEM
will only distribute Japanese Versions of the Licensed System with the below
listed configurations of Coded Font Programs for Japanese Typefaces:
(i) The first five (5), as listed below, or
(ii) The first five (5), as listed below, plus any
number and combination of additional Typefaces listed below, up to a total of
twelve (12) Typefaces,
<TABLE>
<CAPTION>
CID
Fonts
Identifying Trademark Trademark Owner Notes
- ------------------------ ------------------------- -----
<S> <C> <C>
Ryumin Light KL Morisawa & Company, Ltd. 1
Gothic Medium BBB Morisawa & Company, Ltd. 1
Futo Min A101 Morisawa & Company, Ltd. 1
Futo Go B101 Morisawa & Company, Ltd. 1
Jun 101 Morisawa & Company, Ltd. 2
Midashi Min MA31 Morisawa & Company, Ltd. 1
Midashi Go MB31 Morisawa & Company, Ltd. 1
Shinsei Kaisho CBSK1 Morisawa & Company, Ltd. 2
Ryumin Medium M-KL Morisawa & Company, Ltd. 1
Ryumin Bold B-KL Morisawa & Company, Ltd. 1
Ryumin Ultra U-KL Morisawa & Company, Ltd. 1
Shin Gothic L Morisawa & Company, Ltd. 2
</TABLE>
NOTE #1: Adobe Japan1-2 Character Collection for CID-Keyed Fonts
NOTE #2: Adobe Japan1-1 Character Collection for CID-Keyed Fonts
Adobe will supply OEM with the Macintosh compatible Bitmap Fonts which
it generally makes available to its OEM customers free of charge for
distribution by OEM solely for use with the associated Coded Font Programs
for Japanese Typefaces identified in this SCHEDULE 2. OEM may distribute
these Bitmap Fonts free of charge provided they are for use only in
conjunction with a Licensed System. Adobe will also provide OEM with the
Font Porter-TM- utility for installing Bitmap Fonts on a Macintosh computer.
IEM may distribute the Font Porter free of charge but only in conjunction
with distribution of the Bitmap Fonts. The Font Porter utility shall be
treated as Adobe Information and shall be subject to the same licensing terms
and conditions as the Coded Font Programs, including the prohibition on
reverse engineering.
Such Japanese Coded Font Programs will be distributed to End Users on
mutually agreeable media and will be encrypted and copy-protected against
unauthorized duplication in a manner to be specified by Adobe. A unique
read-only PostScript License ID will be used with each font configuration to
deter the copying and substitution of one font configuration for another.
2. LICENSED USE ROYALTIES FOR CODED FONT PROGRAMS FOR JAPANESE
TYPEFACES. For the Coded Font Programs for Japanese Typefaces described in
PARAGRAPH 1(b) above, which are distributed or used internally by OEM or its
Subsidiaries and bundled as part of a
-20-
<PAGE>
Licensed System or as an upgrade to an existing Licensed System, as permitted
hereunder, and subject to the minimum font configurations described in
PARAGRAPH 1(b) to EXHIBIT K above, OEM shall pay Adobe a per Typeface royalty
for each Licensed Use of the Coded Font Programs for Japanese Typefaces as
described below.
(i) LICENSED SYSTEMS WITH DESIGNATED OUTPUT DEVICES
WHICH HAVE A MAXIMUM RESOLUTION OF [*]. Except for Licensed Systems which
include a PCI controller in its configuration, OEM shall pay Adobe a per
Typeface royalty of [*] for internal use or distribution of the Coded Font
Programs for Japanese Typefaces bundled with Licensed Systems with a black
and white or color Designated Output Device with a maximum resolution of [*].
(ii) LICENSED SYSTEMS WITH DESIGNATED OUTPUT DEVICES
THAT ARE CAPABLE OF [*]. Except for Licensed Systems which include a PCI
controller in its configuration, for Licensed Systems with a black and white
or color Designated Output Device capable of [*], OEM shall pay Adobe the
applicable per Typeface royalty, calculated using the table below, for the
Coded Font Programs for Japanese Typefaces bundled with such Licensed Systems:
[*]
(iii) LICENSED SYSTEMS WITH PCI CONTROLLERS. For all
Licensed Systems that include PCI controllers as part of their configuration,
OEM shall bundle Coded Font Programs for Japanese Typefaces in either the 5
font or 12 font configuration, as set forth in PARAGRAPH 1(b) of this
SCHEDULE 2, and shall pay Adobe a royalty for the Coded Font Programs for
Japanese Typefaces listed in PARAGRAPH 1(B) above and bundled as part of the
Licensed System, using the table below and the following calculation method:
[*]
_______________
[*] Confidential Treatment Requested.
-21-
<PAGE>
[*]
_______________
[*] Confidential Treatment Requested.
-22-
<PAGE>
[*]
_______________
[*] Confidential Treatment Requested.
-23-
<PAGE>
AMENDMENT NO. 5 TO THE
CONFIGURABLE POSTSCRIPT INTERPRETER OEM LICENSE AGREEMENT
BETWEEN
SPLASH TECHNOLOGY, INC.
AND ADOBE SYSTEMS INCORPORATED
Effective Date: September 18, 1997
This Amendment No. 5 the Configurable PostScript Interpreter OEM License
Agreement dated September 18, 1992 and assigned to Radius, Inc. from SuperMac
Technology Incorporated on March 1, 1995 (the "Agreement"), is by and between
Adobe Systems Incorporated ("Adobe") and Splash Technology, Inc., formally a
part of Radius, Inc. ("OEM") amends the Agreement in certain respects as
follows:
I. Extend the term of the agreement identified in Section 5 ("TERM OF
AGREEMENT") for one (1) year from the anniversary date of September 18,
1997.
II. All other terms and conditions of the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 5 to be signed
by their duly authorized representatives.
Adobe: OEM:
ADOBE SYSTEMS INCORPORATED SPLASH TECHNOLOGY, INC.
/S/ Frederick A. Schwedner /S/ Tim Kleffman
- ------------------------------------- -------------------------------------
Signature Signature
FREDERICK A. SCHWEDNER Tim Kleffman
- ------------------------------------- -------------------------------------
Name Name
Sr. Vice President & General Manager
Printing and Systems Division Vice President
- ------------------------------------- -------------------------------------
Title Title
SEP 17 1997 9/12/97
- ------------------------------------- -------------------------------------
Date Date
<PAGE>
EXHIBIT 10.6B
AMENDMENT TO XEROX HARDWARE PURCHASE AND SOFTWARE
DEVELOPMENT/LICENSE AGREEMENT
This amendment is made as of May 1, 1997 (the "Effective Date") by and
between Splash Technology, Inc. successor in interest to SuperMac Technology,
Inc. and Xerox Corporation for the purpose of modifying the Xerox Hardware
Purchase and Software Development/License Agreement between SuperMac
Technology, Inc. and Xerox Corporation dated as of November 11, 1993
("Agreement").
The parties agree as follows:
1. In Section 4.05, "[*]" shall be changed to "[*]."
2. In Section 8.07, the last sentence in the first paragraph shall be
deleted, and sections (a) and (b) shall be deleted.
3. In Section 12.01(d), "[*]" shall be changed to "[*] after initial
installation, in no event to exceed [*] from date of delivery to Buyer."
In all other respects, the terms and conditions of the Agreement shall
remain in full force and effect unmodified.
Splash Technology, Inc. Xerox Corporation
By: /s/ Tim Kleffman By: /s/ M.B. Efron
---------------------------------- ----------------------------------
Name: Tim Kleffman Name: M.B. Efron
-------------------------------- --------------------------------
Title: Vice President Title: Product Operations Mgr.
------------------------------- -------------------------------
[*] Confidential Treatment Requested.
<PAGE>
ATTACHMENT III
PRICING EFFECTIVE FOR NEW ORDERS PLACED AFTER 3/1/97
There are six Splash products:
1. DC Series System Configuration for DocuColor 40
2. PCI 1280 System Configuration
3. PCI 640 System Configuration
4. PCI 1280 Board Kit
5. PCI 650 Board Kit
6. E Series System Configuration for DocuColor 5750
All Splash products, system configurations and boards, include ColorCal
software along with a precision greyscale target. The System Configurations
are defined in the next paragraph. Finally, spares, upgrades, and repair
pricing is also included.
SYSTEM CONFIGURATIONS: The four system configurations are based on Apple
Power Macintosh or compatible systems. The minimum system configuration
specifications are attached to this document. All system configurations will
have the Splash Hardware, Splash Software, and all other bundled software
loaded and preconfigured. The warranty, service, and support for the items
included other than the Splash board and Splash software will only be the
standard terms provided to Customers by Adobe, Apple, Princeton Graphic
Systems, and other applicable vendors. None of the clauses in the contract
with respect to warranty, repair, or support will apply to these other system
components.
ADJUSTMENTS TO PRICES FOR DRAM FLUCTUATIONS
[*]
[*] Confidential Treatment Requested.
Page 1 of 4
<PAGE>
STANDARD CONTRACT PRICE FOR THE PRODUCTS:
The Standard Prices for the Products are as follows:
<TABLE>
<CAPTION>
Full products:
<S> <C> <C>
Splash DC Series 097N00731 [*]
Splash PCI v5.0 1280 System Configuration 097N00748
Splash PCI v5.0 640 System Configuration 097N00749
Splash PCI v5.0 1280 Board Kit 097N00724
Splash PCI v5.0 640 Board Kit 097N00726
Splash E Series System Configuration 097N00790
Splash PCI v.4.0 1280 System Configuration 097N00641
Splash PCI v.4.0 640 System Configuration 097N00642
Splash PCI v.4.0 1280 Board Kit 097N00655
Splash PCI v.4.0 640 Board Kit 097N00648
Upgrades:
PCI 5.0 640 to 1280 Upgrade Kit 097N00727
PCI 4.0 to 5.0 Upgrade Kit 097N00734
PCI E320 to E640 Upgrade Kit 097N00791
Other Products:
PowerPC 601/66 Controller Spare 109K00811
PowerPC 601/80 Controller Spare 109K00821
PowerPC 601/100 Controller Spare 109K00831
DC Series HDD Spare 006N00846
DC Series CPU Spare 109N00263
DC Series Controller Boards 140N04741
DC Series Customer Media Pack 701P94093
DC Series Calibration Scanner 097N00753
64 MB DIMM 144N00046
8 MB DIMM 144N00047
32 MB DIMM 144N00043
DocuColor I/F Cable, 68-pin 152N01562
DocuColor I/F Cable, 80-pin 152N01563
PCI Series HDD Spare 006N00845
PCI Series CPU Spare 109N00261
PCI Series Controller Boards 160K37470
PCI Series Customer Media Pack 701P94286
E Series HDD Spare 006N00853
</TABLE>
[*] Confidential Treatment Requested.
Page 2 of 4
<PAGE>
<TABLE>
<S> <C> <C>
E Series CPU Spare 109N00349 [*]
14" Color Monitor 128N00396
ESD Wrist Strap 115E3970
Splash Cable 152K63320
Splash v2.5 User's Manual Set 709P00094
Color Central Lite Spare 097N00646
Adobe Photoship LE Spare 300K47880
Splash v3.1 Software Spare 300K56270
Keyboard 110N00717
Mouse 018N00137
Gray Scale Target 001E39230
TCP/IP Connect Kit 097N00733
WebServer Option 097N00728
Loop-Back Connector 114K00670
Mouse Pad 019N00343
Monitor Video Adapter 120N00234
Monitor/Mac Power Cord 117N01116
DC Series French Windows Driver Kit 701S94090
PCI Series French Windows Driver Kit 701S94069
Splash French Mac O/S Kit (7.5.5) 701S94070
</TABLE>
Orders for the above items marked with * must be placed with a minimum
quantity of 25 per delivery date.
** Splash PCI Version 4.0 is being upgraded to version 5.0. After launch of
version 5.0, in April/May 1997, all new orders for the PCI platform will be
filled with version 5.0.
[*] Confidential Treatment Requested.
Page 3 of 4
<PAGE>
ADOBE POSTSCRIPT LICENSE FEE
[*]
<TABLE>
<CAPTION>
Product List Price
<S> <C>
DC Series [*]
PCI 1280 System Configuration (versions 4.0/5.0)
PCI 640 System Configuration (versions 4.0/5.0)
PCI 1280 Board Kit (versions 4.0/5.0)
PCI 640 Board Kit (versions 4.0/5.0)
E Series System Configuration
</TABLE>
[*]
If necessary, as requested by Adobe, Xerox will agree to submit to an
Adobe audit of its records pertaining to Splash upgrades sold, in order to
ascertain the accuracy of the reported upgrade sales quantities.
OUT OF WARRANTY REPAIR COSTS:
The following out of warranty standard board repair costs apply during
the time that the boards are in production. This repair charge will not,
however, apply to any boards rendered irreparable due to physical abuse or
damage.
<TABLE>
<S> <C>
Splash-MX Daughter board [*]
Splash-MXPLUS Daughter board
Splash-TX Daughter board
Splash Baseboard
Splash PCI Board
Splash DC Series Board Set
</TABLE>
Accepted and Agreed as a contract attachment amendment:
By: /s/ M.B. Efron By: /s/ Tim Kleffman
--------------------------------- ------------------------------
Title: Product Operations Mgr. Title: Vice President
------------------------------ ---------------------------
Date: 7/29/97 Date: 7/23/97
------------------------------- ----------------------------
Xerox Corporation Splash Technology
(SuperMac Technology)
[*] Confidential Treatment Requested.
Page 4 of 4
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months Three months Three months Three months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1996 1996 1997 1997
Basic EPS Diluted EPS Basic EPS Diluted EPS
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding for the period: 11,582 11,582 13,821 13,821
Common equivalent shares deemed
outstanding from options and warrants to
acquire common stock deemed converted
using Treasury Stock Method -- 337 -- --
Common equivalent shares outstanding
from conversion of preferred stock -- 151 -- --
------------ ------------- ------------ -------------
Shares used in per share calculation 11,582 12,070 13,821 13,821
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net income (loss) $ 3,541 $ 3,541 $(22,774) $(22,774)
Cumulative dividends on preferred stock (4) (4) -- --
------------ ------------- ------------ -------------
Adjusted net income (loss) $ 3,537 $ 3,537 $(22,774) $(22,774)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net income (loss) per share $ 0.31 $ 0.29 $ (1.65) $ (1.65)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
20
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF SPLASH TECHNOLOGY HOLDINGS, INC.
Name of Subsidiary State or Other Jurisdiction of Incorporation
- ------------------ --------------------------------------------
Splash Technology, Inc. Delaware
Splash Foreign Sales Corporation Barbados
Splash Technology S.a.r.l. France
Splash--Quintar Corporation California
Quintar Company Delaware
Splash--ColorAge Inc. Massachusetts
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 43,637
<SECURITIES> 10,073
<RECEIVABLES> 4,399
<ALLOWANCES> 369
<INVENTORY> 3,541
<CURRENT-ASSETS> 66,271
<PP&E> 1,385
<DEPRECIATION> 141
<TOTAL-ASSETS> 82,493
<CURRENT-LIABILITIES> 22,694
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 58,853
<TOTAL-LIABILITY-AND-EQUITY> 82,493
<SALES> 22,237
<TOTAL-REVENUES> 22,237
<CGS> 10,477
<TOTAL-COSTS> 10,477
<OTHER-EXPENSES> 32,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (20,444)
<INCOME-TAX> 2,330
<INCOME-CONTINUING> (22,774)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,774)
<EPS-PRIMARY> (1.65)
<EPS-DILUTED> (1.65)
</TABLE>