<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 March 31, 1998
--------------
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
incorporation or organization) Identification No.)
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 March 31, 1998 was 13,858,800 shares.
1
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SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $43,637 $53,094
Marketable securities 10,073 4,500
Accounts receivable, net of allowance
for doubtful accounts of $369 and $363
as of December 31, 1997 and March 31,
1998, respectively 4,399 5,452
Inventories 3,541 3,023
Prepaid expenses and other current assets 527 409
Deferred income taxes 4,094 4,094
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Total current assets 66,271 70,572
Property and equipment, net 1,385 1,509
Deferred income taxes 11,198 11,198
Other assets 3,639 3,370
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Total assets $82,493 $86,649
------- -------
------- -------
LIABILITIES
Current Liabilities:
Trade accounts payable $ 2,283 3,478
Accrued and other liabilities 18,711 18,199
Deferred revenue 1,700 2,998
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Total current liabilities 22,694 24,675
Other long term liabilities 932 958
------- -------
Total liabilities 23,626 25,633
------- -------
STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share:
Authorized: 50,000,000 shares.
Issued and outstanding: 13,855,089 shares
and 13,858,800 shares as of December 31,
1997 and March 31, 1998, respectively 14 14
Additional paid-in capital 85,458 85,468
Accumulated Deficit (26,605) (24,466)
------- -------
Total stockholders' equity 58,867 61,016
------- -------
Total liabilities and
stockholders' equity $ 82,493 $86,649
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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SPLASH TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED))
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
---------- ---------
<S> <C> <C>
Net revenue $16,053 $17,997
Cost of net revenue 7,683 8,264
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Gross profit 8,370 9,733
------- -------
Operating expenses:
Research and development 1,145 3,163
Sales, general and administrative 2,129 3,671
------- -------
Total operating expenses 3,274 6,834
------- -------
Income from operations 5,096 2,899
Interest income, net 150 442
------- -------
Income before income taxes 5,246 3,341
Provision for income taxes 1,993 1,203
------- -------
Net income $ 3,253 $ 2,138
------- -------
------- -------
Basic net income per share $ 0.27 $ 0.15
------- -------
------- -------
Diluted net income per share $ 0.26 $ 0.15
------- -------
------- -------
Shares used in basic net income per
share calculation 12,045 13,857
------- -------
------- -------
Shares used in diluted net income per
share calculation 12,395 14,057
------- -------
------- -------
</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)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,253 $ 2,138
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 75 455
Provision for doubtful accounts - -
Changes in assets and liabilities:
Accounts receivable (501) (1,053)
Inventories 2,035 518
Prepaid expenses and other current assets 49 118
Other assets (1) 14
Trade accounts payable (1,215) 1,195
Accrued and other liabilities 58 (485)
Deferred revenue (192) 1,298
------- -------
Net cash provided by operating activities 3,561 4,198
------- -------
Cash flows from investing activities:
Redemption of marketable securities - 5,573
Purchase of property and equipment (177) (324)
------- -------
Net cash provided by (used in)
investing activities (177) 5,249
------- -------
Cash flows from financing activities:
Proceeds (expenses) from public offerings (464) -
Issuance and repurchase of common stock
under stock plans - 10
------- -------
Net cash provided by (used in)
financing activities (464) 10
------- -------
Net increase in cash 2,920 9,457
Cash and cash equivalents, beginning of period 19,053 43,637
------- -------
Cash and cash equivalents, end of period $21,973 $53,094
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SPLASH TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 unaudited 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 10-Q. 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 December 31, 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 March 31, 1998 and the
results of operations and cash flows for the three months ended March 31,
1998, which results are not necessarily indicative of results on an
annual basis. Effective January 1, 1998, the Company changed its fiscal
year end from September 30 to December 31. The 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, and the form 10-Q
for the period ended December 31, 1997.
2. BALANCE SHEET DETAIL (IN THOUSANDS):
INVENTORIES:
<TABLE>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Raw materials $ 2,403 $ 2,592
Finished goods 1,138 431
------- -------
$ 3,541 $ 3,023
------- -------
------- -------
ACCRUED AND OTHER LIABILITIES:
Royalties payable $ 5,391 $ 5,643
Accrued payables 3,796 1,962
Accrued product-related obligations 4,063 4,137
Accrued compensation and related expenses 682 1,067
Income taxes payable 4,193 4,877
Other liabilities 586 513
------- -------
$18,711 $18,199
------- -------
------- -------
</TABLE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted the provisions of
Statement of Position 97-2 "Software Revenue Recognition." There was no
impact on the Company's financial condition and the Company's revenue
recognition policies remain substantially unchanged.
Effective January 1, 1998, the Company has adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." The adoption of the Statement of Financial
Accounting Standard No. 130 had no impact on the Company. As such, no
separate Statement of Comprehensive Income has been presented.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The pronouncement is effective for
the year ended December 31, 1998. The Company is evaluating this recent
pronouncement and the effects, if any, on the Company's current policies.
5
<PAGE>
4. 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.
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>
Three Months Ended March 31,
1997 1998
-------- --------
<S> <C> <C>
Numerator - Basic and Diluted EPS
Income available to common stockholders $ 3,253 $ 2,138
------- -------
------- -------
Denominator - Basic EPS
Weighted average shares outstanding 12,045 13,857
------- -------
Basic earnings per share $ 0.27 $ 0.15
------- -------
------- -------
Denominator - Diluted EPS
Denominator - Basic EPS 12,045 13,857
Effect of dilutive securities:
Common stock options 350 200
------- -------
12,395 14,057
------- -------
------- -------
Diluted earnings per share $ 0.26 $ 0.15
------- -------
------- -------
</TABLE>
Options to purchase 6,642 and 1,434,536 shares of common stock were
outstanding at March 31, 1997 and 1998, respectively, but were not
included in the calculation of diluted net income per share because the
options' exercise price was greater than the average market price of the
common shares.
6
<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".
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>
Three Months Ended March 31,
1997 1998
------------ ------------
<S> <C> <C>
Net revenue 100% 100%
Cost of net revenue 48 46
--- ---
Gross profit 52 54
--- ---
Operating expenses:
Research and development 7 18
Sales, general and administrative 13 20
--- ---
Total operating expenses 20 38
Income from operations 32 16
--- ---
Interest income 1 3
--- ---
Income before income taxes 33 19
Provision for income taxes 13 7
--- ---
Net income 20% 12%
--- ---
--- ---
</TABLE>
NET REVENUE. The Company's net revenue increased 12% to $18 million in
the three months ended March 31, 1998 from $16.1 million in the three months
ended March 31, 1997. 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. In addition, the Company
sells a substantial portion of its products to two customers, Fuji Xerox
Company Ltd. ("Fuji Xerox") and Xerox Corporation ("Xerox") on an OEM basis
and, historically, fluctuations in net revenue are in part due to the
purchasing patterns of these customers. Because of a recent change in year
end of one of these customers, and consequently, a change in purchasing
patterns, the March 1998 quarter net revenue was lower than the December 1997
quarter net revenue, and the remaining 1998 quarterly sales patterns are
expected to change. There can be no assurance that the Company's two major
customers, Fuji Xerox Company Ltd. or Xerox Corporation will not change its
mix of product in a manner which would adversely impact net revenue.
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.
7
<PAGE>
GROSS MARGIN. Gross margins were 52% and 54% in the three months ended
March 31, 1997 and 1998, 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. 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 and competitors. 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
191% to $3.2 million in the three months ended March 31, 1998 from $1.1
million in the three months ended March 31, 1997. As a percentage of net
revenue, research and development increased to 18% in the three months ended
March 31, 1998 from 7% in the three months ended March 31, 1997. The increase
in research and development expenses reflects the addition of engineering
resources through the acquisitions of Quintar Holdings Corporation
("Quintar") and ColorAge Corporation ("ColorAge") in 1997. In addition, the
increases in these expenses were also attributable to increased staffing and
associated support required to enhance the Company's product line. 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 76% to $3.7 million in the three months ended March 31,
1998 from $2.1 million in the three months ended March 31, 1997. As a
percentage of net revenue, sales, general and administrative expenses
increased to 20% in the three months ended March 31, 1998 from 13% in the
three months ended March 31, 1997. 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 its
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, and
expand its administrative staff. Sales, general, and administrative expenses
are expected to increase in absolute dollars in future periods, although they
may vary as a percentage of net revenue.
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". The
Company's effective tax rate was 38% and 36% for the three months ended March
31, 1997 and 1998, respectively . The efective tax rate differs from the
statutory rate primarily due to the benefits derived from the Splash Foreign
Sales Corporation and research and development credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company has obtained sufficient cash from its public offerings and
operations to satisfy its current liquidity requirements.
As of March 31, 1998, the Company had $57.6 million of cash, cash
equivalents and marketable securities and had no borrowings under its $5
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 Company has
re-negotiated its line of credit which has been increased to $10.0 million
dollars. This line expires April 18, 2000.
For the three months ended March 31, 1997, the Company generated $3.6
million in cash from operating activities, primarily due to a decrease in
inventories partially offset by a decrease in trade accounts payable, and an
increase in accounts receivable. The Company's operating activities provided
$4.2 million in cash in the three months ended March 31, 1998, primarily from
a increase in deferred revenue and trade accounts payable, and a decrease in
inventories, partially offset by increased accounts receivable.
Investing activities were not material in the three months ended March
31, 1997. Investing activities provided $5.2 million primarily from the
redemption of marketable securities in the three months ended March 31, 1998.
Financing activities were not material for the three months ended March
31, 1997, and 1998. 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.
8
<PAGE>
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, 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, for example sales in the March quarter were 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.
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 and competitors. 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 has increased and is expected to continue 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.
9
<PAGE>
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
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
significant 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 Asia, and in particular 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
10
<PAGE>
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. Substantially all of 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.
DEPENDENCE ON APPLE COMPUTER INC. A majority 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.
11
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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 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 ACQUISITIONS. The Company frequently evaluates
potential acquisitions of complementary businesses, products and
technologies. As part of the Company's expansion plans, the Company has
acquired and may continue to 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 were the Quintar and
ColorAge acquisitions, which occurred on May 28, and October 30, 1997,
respectively. Both acquired companies had technology under development. There
can be no assurance that the acquired 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 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
12
<PAGE>
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.
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
13
<PAGE>
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 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.
14
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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
At the Company's Annual Meeting of Stockholders held on February
26, 1998 Charles W. Berger and Lawrence G. Finch were elected to
serve as Class II Directors of the Company with 11,258,968 and
11,411,787 votes for and 203,350 and 50,031 votes withheld,
respectively. Messrs. Berger and Finch will serve for three year
terms expiring upon the Annual Meeting of Stockholders in 2001.
Also at the Company's Annual Meeting of Stockholders the proposal
to ratify and approve an amendment to the Company's 1996 Stock
Option Plan was approved with 6,760,297 votes for, 4,116,485 votes
against, and 7,123 votes abstaining. This amendment provided for an
increase in the number of shares reserved for issuance under the
plan from 3,150,000 to 3,900,000.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
EXHIBITS
10.10 SPLASH-XEROX OEM PURCHASE AGREEMENT DATED APRIL 6, 1998.
10.11 1996 STOCK OPTION PLAN, AS AMENDED FEBRUARY 26, 1998.
27.1 FINANCIAL DATA SCHEDULE
15
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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 May 15, 1998.
SPLASH TECHNOLOGY HOLDINGS, INC
By: /s/ Kevin K. Macgillivray
------------------------------------
Kevin K. Macgillivray
Chairman & Chief Executive Officer
16
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EXHBIT INDEX
Exhibit Number Description of Document
10.10 Splash-Xerox OEM Agreement
10.11 Stock Option Plan
27.1 Financial Data Schedule
17
<PAGE>
SPLASH - XEROX
OEM PURCHASE
AGREEMENT
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
II. PRODUCT DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . 7
III. PURCHASE AND SALE OF SPLASH PRODUCT. . . . . . . . . . . . . . . . . 10
IV. DOCUMENTATION AND SUPPORT . . . . . . . . . . . . . . . . . . . . . . 14
V. QUALITY ASSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
VI. TERM AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 18
VII. MANUFACTURING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
VIII. RIGHTS AND LICENSES . . . . . . . . . . . . . . . . . . . . . . . . 20
IX. SPLASH PRODUCT CHANGES. . . . . . . . . . . . . . . . . . . . . . . . 25
X. AGENCY APPROVAL AND SAFETY . . . . . . . . . . . . . . . . . . . . . . 27
XI. WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
XII. MAINTENANCE SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . 30
XIII. TRAINING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XIV. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XV. CONFIDENTIAL AND PROPRIETARY INFORMATION. . . . . . . . . . . . . . . 31
XVI. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . 33
XVII. EXPORT CONTROL. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XVIII. INDEPENDENT PRODUCT DEVELOPMENT. . . . . . . . . . . . . . . . . . 34
XIX. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XX. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XXI. POINTS OF CONTACT. . . . . . . . . . . . . . . . . . . . . . . . . . 35
XXII. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
XXIII. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
XXIV. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<TABLE>
<S> <C>
XXV. [*]
XXVI. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
XXVII. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
XXVIII. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
XXIX. ETHICAL STANDARDS . . . . . . . . . . . . . . . . . . . . . . . . . 36
XXX. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
XXXI. NONPUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
XXXII. CONTROLLING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . 38
XXXIII. REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . 38
XXXIV. INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
XXXV. RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . 39
ATTACHMENT I-SPLASH PRODUCT . . . . . . . . . . . . . . . . . . . . . . . 54
ATTACHMENT II-SPLASH TRADEMARK GUIDELINES. . . . . . . . . . . . . . . . . 55
ATTACHMENT III-AURORA FEATURES LIST. . . . . . . . . . . . . . . . . . . . 56
ATTACHMENT IV UPCC TABLE AND OPTION PRICING. . . . . . . . . . . . . . . . 85
ATTACHMENT V-PROTOTYPE DELIVERY. . . . . . . . . . . . . . . . . . . . . . 87
ATTACHMENT VI-QCD TABLE. . . . . . . . . . . . . . . . . . . . . . . . . . 88
ATTACHMENT VII-XEROX DELIVERABLES TO SPLASH. . . . . . . . . . . . . . . . 93
ATTACHMENT VIII-SPLASH DELIVERABLES TO XEROX . . . . . . . . . . . . . . . 94
ATTACHMENT IX-AGENCY APPROVAL AND CERTIFICATION LIST . . . . . . . . . . 102
ATTACHMENT X-SPLASH END USER LICENSE AGREEMENT . . . . . . . . . . . . . 110
ATTACHMENT XI-MULTINATIONAL PROCESS CERTIFICATION GUIDELINES
FOR END ITEMS AND ACQUIRED PRODUCTS. . . . . . . . . . . . . . . . . . . 113
ATTACHMENT XII-XEROX QUALITY ASSURANCE . . . . . . . . . . . . . . . . . 114
ATTACHMENT XIII-CONTACT LIST . . . . . . . . . . . . . . . . . . . . . . 115
</TABLE>
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This Agreement is made and entered into between Splash Technology, Inc., a
corporation organized under the laws of the State of Delaware, with its
principal offices at 555 Del Rey Avenue, Sunnyvale, California 94086,
(hereinafter referred to as "Splash") and Xerox Corporation, a corporation
organized under the laws of the State of New York, U.S.A., with an office at 800
Long Ridge Road, Stamford, Connecticut 06904 (hereinafter referred to as
"Xerox") and such Xerox Affiliates (as defined below) as agreed in writing to be
bound by the terms and conditions hereof, and shall be effective as of January
__, 1998 ("Effective Date"), upon the terms and conditions set forth below.
I. DEFINITIONS
1.01 "CONFIDENTIAL INFORMATION" shall mean any information disclosed by one
party to the other, which, if in written, graphic, machine-readable or other
tangible form is marked as "Confidential" or "Proprietary", or which, if
disclosed orally or by demonstration, is identified at the time of initial
disclosure as confidential and reduced to writing and marked "Confidential" or
"Proprietary" by the disclosing party and sent to the non-disclosing party
within [*] of such disclosure for review and acceptance thereof. Without
limiting the foregoing, the Splash Software shall be considered to be Splash's
Confidential Information and the Xerox Software shall be considered to be Xerox'
Confidential Information.
1.02 "DFE" shall mean an electronic device that accepts electronic files
via, including among other means, the network and local connections,
interprets the files to raster format and sends them to a marking engine for
printing. The files are typically Page Description Language such as [*]. In
addition, video information, if available, can be received from the marking
engine to enable scanning from the copier platen.
1.03 "DELIVERABLES" shall mean deliverables of a party to be provided to the
other party hereunder. Xerox deliverables are listed in Attachment VII and
Splash deliverables are listed in Attachment VIII.
1.04 "DERIVATIVE WORKS" shall have the meaning ascribed to it under the
United States Copyright Law, Title 17 U.S.C. Sec. 101 ET. SEQ., as interpreted
under applicable case law.
1.05 "DEVELOPED TECHNOLOGY" shall mean Technology developed by a party within
the scope of this Agreement and after the Effective Date of this Agreement.
1.06 "INTELLECTUAL PROPERTY RIGHTS" shall mean all rights in, to, or arising
out of: (i) any U.S., or foreign patent or any application therefor and any and
all provisionals, reissues, divisions, continuations, renewals, extensions and
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continuations-in-part thereof; (ii) inventions (whether patentable or not in any
country), invention disclosures, improvements, trade secrets, proprietary
information, know-how, technology and technical data; (iii) copyrights,
copyright registrations, mask works, mask work registrations, and applications
therefor in the U.S. or any foreign country, and all other rights corresponding
thereto throughout the world.
1.07 "IOT" shall mean Image Output Terminal or marking device [*], to be
incorporated into the Xerox Product.
1.08 "JOINTLY DEVELOPED TECHNOLOGY" shall mean Technology developed jointly
by the parties after the Effective Date of this Agreement. Except for
copyrightable subject matter, determination of Jointly Developed Technology
shall be made under the rules of inventorship of United States patent law,
whether or not such Technology is patentable. Excluding copyrightable subject
matter, each party shall be free to use the Jointly Developed Technology without
accounting to the other party, except as provided for in this Agreement.
1.09 "LAUNCH DATE" shall mean the date Xerox, Xerox Canada Inc., or Xerox
Limited first generally offers the System, [*], to end user customers by
placement of the System on the Xerox, Xerox Canada Inc., or Xerox Limited
commercial price list or its equivalent.
1.10 "OBJECT CODE" shall mean computer code in executable format including
associated data files required for intended operation.
1.11 "PROTOTYPES" shall mean prototypes of the Splash Product, including
hardware (working models of any equipment suitable for test by Xerox, whether
manufactured with soft or hard tooling) and software. Unless otherwise
specifically agreed by the parties in writing, all such Prototypes shall conform
in all material respects to applicable specifications.
1. 12 "REGULATORY AGENCY" shall mean any regulatory agency or other body,
governmental or private, including but not limited to agencies regulating
product safety and/or electromagnetic emissions, the approval of which is
required by Xerox or the government of any jurisdiction in which Xerox elects to
market the Splash Product. As additionally detailed in 10.02, examples of
non-governmental regulatory agencies, the standards of which Splash shall be
obligated to have the Splash Product meet, shall include Underwriter's
Laboratory ("UL") and the Canadian Standards Association ("CSA"). The complete
list of Agency Approvals is contained in Attachment IX.
1.13 "SPLASH PRODUCT" shall mean the DFE [*] for Xerox' IOT as more fully
described in Attachment I, including the Splash Software, Xerox Software, Third
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Party Software, hardware, associated spares, listed therein and modifications,
enhancements and improvements thereto which are made pursuant to Article IX
herein.
1.14 "SPLASH SOFTWARE" shall mean the Splash software to be incorporated into
the Splash Product, including but not limited to the Splash Software listed in
Attachment I.
1.15 "SPLASH UNDERLYING TECHNOLOGY" shall mean (i) Technology which was owned
by or licensed to Splash by a third party prior to the Effective Date of this
Agreement and (ii) Technology developed solely by Splash after the Effective
Date but outside the scope of this Agreement.
1.16 "SYSTEM" shall mean a [*] copier and printer for [*] applications or
directly related applications, which is the intended combination of the Xerox
Product with the Splash Product and which is offered for sale or lease to
customers of Xerox and Xerox Affiliates.
1.17 "SYSTEMIC DEFECT" shall mean a defect not due to a fault of Xerox, a
Xerox Affiliate, or the IOT, that, during the term of this Agreement or the
warranty period applicable to Splash Products in the field, whichever is longer,
causes the Splash Product to fail to conform in all material respects to the
specifications set forth in Attachment I and which occurs in identical or
substantially similar form or from a substantially similar cause in at least (i)
[*] of the field population of Splash Product or (ii) [*] of the field
installations during a [*] period.
1.18 "TECHNOLOGY" shall mean all technology, including all know-how,
techniques, design rules, trade secrets, inventions (whether or not patented or
patentable), algorithms, routines, software, files, data-bases, works of
authorship, processes, devices and hardware.
1.19 "THIRD PARTY SOFTWARE" shall mean software licensed by a third party to
Splash (including, without limitation, any software licensed by Splash from a
Postscript provider and incorporated into the Splash Product or any Splash
Deliverable.
1.20 "XEROX" shall only mean Xerox Corporation.
1.21 "XEROX AFFILIATES" shall mean Xerox Canada Inc., Xerox Limited, and Fuji
Xerox Co. Ltd., and any entity, which is 50% or more, owned directly or
indirectly by Xerox Corporation or Xerox Limited.
1.22 "XEROX PRODUCT" shall mean the Xerox software and IOT provided by Xerox
that when combined with the Splash Product completes the System.
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1.23 "XEROX SOFTWARE" shall mean the Xerox software to be incorporated into
the Splash Product, including but not limited to [*].
1.24 "XEROX UNDERLYING TECHNOLOGY" shall mean (i) Technology which was owned
by or licensed to Xerox by a third party prior to the Effective Date and
(ii) Technology that is developed solely by Xerox after the Effective Date but
outside the scope of this Agreement.
II. PRODUCT DEVELOPMENT
2.01 PROTOTYPE DEVELOPMENT AND DELIVERY
(a) Splash shall use all reasonable efforts to develop and deliver to
Xerox the Splash Deliverables and the Prototypes in accordance with the schedule
and in the quantities set forth in Attachment V. Splash's obligation under this
Section 2.01(a) is expressly conditioned upon Xerox delivering to Splash all
Xerox Deliverables in accordance with the schedule and in the quantities set
forth in Attachment VII.
(b) In the event that either party determines that it shall be unable
to meet any deadline hereunder for delivery of Deliverables or Prototypes, it
shall promptly notify the other party of such fact. The parties shall, in good
faith, agree on a revised date for delivery. If after such good faith
negotiations the parties are unable to agree on a revised date and more than [*]
have passed from the date of the applicable missed deadline, and the delay is
not due to any fault of the non-late party, the non-late party shall have the
right to terminate this Agreement effective immediately upon notice to the other
party; provided that such notice is given within [*] after the date of the
applicable missed deadline. If this Agreement is terminated in accordance with
this Section 2.01(b), then (i) if the terminating party is Xerox, Splash shall
have no further liability to Xerox; and (ii) [*]. Such payment shall be
Splash's sole remedy under this Section.
(c) All Prototypes and other Splash Deliverables shall be delivered
C.I.F. Xerox' designated facility in the contiguous 48 states or
the District of Columbia. Splash shall notify Xerox, for
acceptance testing purposes, at least [*] in advance of the
proposed delivery of any Splash Deliverable.
(d) [*]
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2.02 DEVELOPMENT WORKSHOPS AND CHANGES
(a) The parties shall, during the development work, meet as mutually
agreed to discuss the development of the Splash Product ("Development
Workshops"). In addition, either party may request a meeting upon not less than
[*] notice to the other party and such other party shall use its commercially
reasonable efforts to accommodate such requests. Such meetings shall be held at
the facility of the non-requesting party unless the parties otherwise agree.
(b) Either party may request changes to the specifications for the
Splash Product and the non-requesting party shall not withhold its agreement to
such changes provided that the modifications do not materially increase either
party's obligations under this Agreement and do not negatively affect the Form,
Fit, Function, Compatibility, schedule, specification or cost (as set forth in
Section 9.01) of the Splash Product, except as set forth in Section 9.01. If
the requested modifications would materially increase any such obligations
including, without limitation, Splash's cost or work effort, Splash and Xerox
shall negotiate in good faith to agree on terms (including, without limitation,
equitable adjustments in schedule and NRE payments set forth in Section 2.04
below) under which such changes shall be incorporated into the specifications
for the Splash Product. Any changes to such specifications shall be made only
upon written agreement of both parties.
2.03 ACCEPTANCE TESTING - Upon delivery of any Splash Deliverable(s) or
Prototype or modifications thereof to Xerox, Xerox shall have a period of thirty
(30) days to test to insure that such Splash Deliverable(s) or Prototype or
modifications thereof conform in all material respects with the specifications
for such Splash Deliverable(s) or Prototypes set forth in Attachment VIII
according to the acceptance test set forth in Attachment VI. In the event that
Xerox determines that such Splash Deliverable or Prototype fails to conform in
all material respects with such specifications, Xerox shall, within the test
period set forth above, notify Splash of such Splash Deliverable's or
Prototype's nonconformance by submitting to Splash a statement of material
nonconformance specifying, in reasonable detail, the manner and means by which
such Splash Deliverable's or Prototype's fails to conform to its specification.
Upon receipt of such statement, Splash shall use all commercially reasonable
efforts to promptly correct such nonconformance and resubmit such Splash
Deliverable or Prototype to Xerox for testing. Xerox shall test the redelivered
Splash Deliverable or Prototype as set forth in this Section 2.03. In the event
any Splash Deliverable or Prototype shall fail to conform in all material
respects to the applicable specifications for same after [*]. In the event
Xerox shall fail to notify Splash of any nonconformance of a Splash Deliverable
or Prototype within [*] after delivery of same, such Splash Deliverable or
Prototype shall be deemed accepted by Xerox. In the event the parties
materially modify the Splash
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Product (including the Splash Software) to incorporate a significant new
feature, or to correct material deficiencies found in the Splash Product, Xerox
may, at its option, require such Splash Product to be resubmitted to the
acceptance testing described in this Section 2.03.
2.04 DEVELOPMENT PAYMENTS
[*]
2.05 INTELLECTUAL PROPERTY
(a) Subject to the provisions of Section 2.05(d) below, Splash shall
own all right, title and interest in and to, including without limitation all
Intellectual Property Rights therein and thereto (i) Splash Underlying
Technology and (ii) Developed Technology created solely by Splash.
(b) Subject to the provisions of Section 8.04 (d), Xerox shall own
all right, title and interest in and to, including without limitation all
Intellectual Property Rights therein and thereto (i) Xerox Underlying Technology
and (ii) Developed Technology created solely by Xerox.
(c) Subject to the provisions of Section 2.05(d) below, Jointly
Developed Technology shall be owned jointly by Splash and Xerox under this
Agreement. Each party shall disclose Jointly Developed Technology to the other
party and cooperate with the other to file patent applications thereon. Xerox
shall prepare and file U.S. patent applications on Jointly Developed Technology
at Xerox' expense, unless otherwise agreed. The parties shall share equally in
the cost of any foreign patent filings on Jointly Developed Technology which the
parties mutually agree to file. In the event the parties fail to agree on the
filing of a patent application on Jointly Developed Technology, either party, at
its sole expense, may file a patent application on such Jointly Developed
Technology. Each party shall have the right at its own expense to exploit
(including the right to license and sublicense) Jointly Developed Technology
without the consent of or the obligation to account to the other party for
profits therefrom. Jointly Developed Technology shall be considered
Confidential Information of both Splash and Xerox.
(d) Notwithstanding subsections (a) and (c) above, Xerox shall own
Derivative Works of Xerox Software created by Splash. Splash hereby irrevocably
transfers, conveys and assigns to Xerox all of Splash's right title and interest
in and to any Derivative Works of Xerox Software created by Splash hereunder,
including without limitation any copyright therein and thereto. Splash agrees
to take such additional steps, at the expense of Xerox, as may be reasonably
necessary to effect the foregoing assignment. Under this Agreement, Xerox shall
not make any Derivative Works of Splash Software.
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(e) Xerox hereby grants to Splash under all of Xerox' Intellectual
Property Rights to the extent required for delivery of the Splash Product solely
for the purpose of developing and supplying the Splash Product to Xerox and
Xerox Affiliates a fully paid up, royalty free, worldwide, nonexclusive, right
and license to make and have made, use, offer for sale and have offered for
sale, import and have imported, reproduce and have reproduced and distribute the
Splash Product directly to Xerox and Xerox Affiliates approved by Xerox
hereunder in Section 3.01 (a).
(f) Splash hereby grants to Xerox under all of Splash's Intellectual
Property Rights, a fully paid-up, royalty free, worldwide, non-exclusive right
and license to use and reproduce Splash Software solely as necessary for and
only in connection with development of the System.
(g) Splash hereby grants to Xerox under all of Splash's Intellectual
Property Rights in and to the PPD files provided by Splash to Xerox hereunder a
fully paid-up, royalty free, worldwide, perpetual, non-exclusive right and
license to use, reproduce, prepare Derivative Works of, and distribute the same
and Derivative Works thereof. Notwithstanding anything to the contrary herein,
Xerox shall own all right, title and interest in and to the Derivative Works of
such PPD files created by Xerox pursuant to this Section 2.05 (g).
2.06 COPYRIGHT NOTICE - To the extent that Splash incorporates Xerox
Software in or with the Splash Product, Splash shall include the following
copyright notice: "Copyright -C- Xerox Corporation, XXXX" in the same place in
the software that Splash includes other third party copyright notices,
including without limitation the "About Box" setting forth the programs for
which the copyright is claimed. Splash also agrees to reproduce any proprietary
notices contained in Xerox Software in any copies thereof made by Splash.
III. PURCHASE AND SALE OF SPLASH PRODUCT
3.01 PURCHASE RIGHTS
(a) During the term of this Agreement, Xerox and Xerox Affiliates
[*] may purchase from Splash, and Splash shall sell to Xerox [*], the Splash
Product for resale or lease to Xerox' customers and Xerox Affiliates and
their customers, directly or indirectly.
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(b) [*]
(c) [*]
(d) [*]
3.02 PRICES
(a) [*]
(b) [*]
(c) [*]
(d) [*]
(e) [*]
(f) [*]
3.03 FORECASTS, LEAD TIMES, AND PURCHASE ORDERS - Xerox, or any Xerox
Affiliates which have been authorized by Xerox, shall place orders for Splash
Products with Splash [*], setting forth their firm and fixed order for the
succeeding [*] period (the "Fixed Order Period"). In addition, Xerox shall
set forth a non-binding estimate of its demand for Splash Products for the
succeeding [*] period following the Fixed Order Period. Such forecast shall
set forth quantities of the Splash Product that reasonably reflect Xerox' own
internal estimates of demand for the Systems taking into account Xerox' then
present inventory of Splash Product. Xerox and Xerox Affiliates approved by
Xerox pursuant to Section 3.01(a) shall place an order for a unit of Splash
Products by delivering to Splash its designated order form for such unit (an
"Order"). [*] Such Order shall set forth the configuration being purchased.
In the event Splash is unable to deliver any Splash Product on the date set
forth in an Order where the Order is received at least [*] in advance of such
date (the "Standard Lead Time"), Splash shall within [*] of the receipt of
such Order notify Xerox of this fact and the date on which it shall deliver
such Splash Product. If Splash fails to notify Xerox of its inability to
deliver any Splash Product on the date set forth in an Order within [*] of
the receipt of an Order that provided the Standard Lead Time, Splash shall
be deemed to have agreed to such delivery date. Xerox shall use commercially
reasonable efforts to issue Orders that provide for the Standard Lead Time.
Splash shall use commercially reasonable efforts to fulfill on a timely basis
Xerox' Orders which do not provide for the Standard Lead Time. Splash shall
confirm of receipt of such Orders within [*] of receipt thereof, and such
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Orders shall be deemed accepted if Splash fails to notify Xerox within [*] of
its rejection of the delivery date set forth therein.
3.04 PAYMENT --
(a) Purchases of the Splash Product made hereunder shall be paid
for by bank transfer or written check within [*] following the receipt of
Splash's invoice by Xerox. Splash shall issue its invoice for Splash
Products to Xerox upon the shipment of Splash Products to Xerox. Any amounts
not paid within such [*] period shall be subject to interest at the rate of
[*] per month or the maximum rate permitted by applicable law, whichever is
less.
(b) All payments by Xerox and Xerox Affiliates to Splash shall be
made free and clear of, and without reduction for, any sales, value added or
withholding taxes imposed by a foreign government. Any such taxes, which are
otherwise imposed on payments to Splash under this Agreement, shall be the sole
responsibility of Xerox. Upon request by Splash, Xerox shall provide Splash
with official receipts issued by the appropriate taxing authorities or such
other evidence as is reasonably available within [*] of the request for same.
In the event Xerox is unable to provide such tax receipts Xerox shall indemnify
Splash from and against any costs or expenses arising out of the need to respond
to any inquiry by taxing authorities attempting to establish that such taxes
have been paid.
3.05 SHIPPING -- [*]
3.06 TITLE AND RISK OF LOSS - Title and risk of loss to Splash Products,
other than title to the Splash Software, shall pass to Xerox or a Xerox
Affiliate upon [*]. In the event that, for any reason, Splash is unable to
successfully deliver any Splash Product for reasons other than the fault of
Xerox or a Xerox Affiliate, [*].
3.07 EARLY DELIVERY - Xerox and Xerox Affiliates reserve the right, at their
option and without liability, to:
(a) Refuse to accept delivery of Splash Product if delivery is made
more than [*] in advance of the agreed delivery date and, if so delivered to
return such Splash Product to Splash at Splash's expense, for subsequent
delivery in conformance with the agreed upon delivery date; or
(b) Retain such Splash Product and hold Splash's invoice until the
date it would otherwise be due if delivery had been made on the agreed upon
delivery date.
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3.08 LATE DELIVERY - Splash and Xerox or a Xerox Affiliate may mutually agree
to change the confirmed delivery dates for Orders, subsequent to their initial
confirmation. For Orders placed in compliance with the Standard Lead Time, if
Splash is [*] late in delivery of Splash Products for reasons not caused by
Xerox or a Xerox Affiliate, Splash shall airship Splash Products and pay any
increase in packaging and shipping costs between air freight and surface
freight. For Orders placed requiring delivery inside the Standard Lead Time, at
Xerox' request, Splash shall airship Splash Products provided Xerox pays any
increase in packaging and shipping costs between air freight and surface
freight. Additionally, and notwithstanding Section 3.02(e) above, if such
delivery is delayed more than [*].
3.09 INSPECTION - Xerox and Xerox Affiliates shall have the right to conduct,
at their expense, within [*] of the receipt of Splash Products (the "Inspection
Period") an inspection of Splash Products to ensure material compliance with
applicable specifications. Xerox or a Xerox Affiliate shall notify Splash of
the result of such inspection and in the event that such Splash Products fail to
materially conform to the specifications set forth in this Agreement and in the
Attachments hereto, Xerox shall have the right to reject such Splash Products.
If rejected, Splash shall, at its option and expense, promptly repair or replace
(with Xerox or the Xerox Affiliate returning the rejected Splash Products at
Splash's expense) such rejected Splash Product. Should Xerox or a Xerox
Affiliate fail to notify Splash of any rejection of a Splash Product within the
Inspection Period, such Splash Product shall be deemed to have been accepted.
Such acceptance shall not, however, be deemed a waiver of the warranty for the
Splash Product under Section 11.01 hereof. In the event either party finds an
excessive amount of "no trouble found" ("NTF") returns, the parties will meet,
and make commercially reasonable efforts to resolve the cause of the NTF's.
3.10 SPARES
(a) [*] Such inventory of Splash Products shall be maintained in a
mutually agreed configuration mix. Such inventory of Splash Products shall be
reserved solely for shipment to Xerox and Xerox Affiliates as emergency spares
("Emergency Spares"). Shipment of Emergency Spares shall be made at the expense
of Xerox or a Xerox Affiliate. Splash shall use commercially reasonable efforts
to ship Emergency Spares within [*] of a request therefor to Splash from Xerox
or a Xerox Affiliate. Xerox shall use commercially reasonable efforts to hold a
Spares inventory, such that Emergency Spare are not ordered on a regular basis.
Except as expressly set forth in this Section 3.10, upon receipt by Splash of an
Order for Spares from Xerox or a Xerox Affiliate, the procedures set forth for
Orders in Section 3.03 shall apply.
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(b) [*], Splash agrees to maintain spares in accordance with the
foregoing Emergency Spares inventory requirements as well as to provide any
Spares and repair services for failed parts at its then current prices for the
same.
3.11 FORMS OF NO EFFECT - All purchases hereunder shall be governed solely by
the terms and conditions of this Agreement, notwithstanding any preprinted terms
and conditions contained on any purchase orders issued by Xerox or Xerox
Affiliates or acknowledgments thereof issued by Splash.
IV. DOCUMENTATION AND SUPPORT
4.01 DOCUMENTATION
(a) Splash shall furnish to Xerox, on an ongoing basis during the
term hereof, free of charge and in a mutually agreeable form, mutually agreed
materials for use by Xerox to prepare brochures and other product literature,
including, but not limited to, [*] and [*] and necessary or appropriate for
the sale of the System ([*]) and mutually agreed engineering drawings and
documentation for use by Xerox to prepare service documentation for the
System ([*]). During the term of this Agreement, Splash agrees to provide to
Xerox updates to such provided material as are reasonably necessary for Xerox
to keep such [*] up to date.
(b) Splash hereby grants to Xerox a perpetual world wide,
royalty-free right and license to reproduce and have reproduced, distribute
directly and indirectly and prepare and have prepared Derivative Works of the
materials provided under Section 4.01(a) above, but solely in connection with
the preparation and distribution of [*] Documentation. Splash shall have the
right to review such Derivative Works in order to verify the accuracy of same
and shall advise Xerox of the results of such review within [*]of the receipt
of such materials from Xerox. Xerox shall own title to such Derivative Works.
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4.02 XEROX FIELD SUPPORT
During the term hereof, or the applicable warranty for Splash Product set forth
in Section 11.01 (c), whichever is longer,
(a) Xerox shall provide telephone hot line support to Xerox field
engineering and Xerox customer support. [*] Splash shall maintain well
trained and adequately staffed customer support resources to provide support
for Xerox service escalation personnel via an 800 number. This 800 number
shall be supported 24 hours a day, 7 days a week. During the hours of 5 A.M.
through 5 P.M. Pacific Standard Time Monday through Friday (U.S. holidays
excepted) this line shall be manned, otherwise support personnel shall be
available via pager or equivalent. In addition, after such hours and on
Saturdays and Sundays, Splash shall use commercially reasonable efforts to
respond to calls to such 800 number within [*] of the placement of the call
by Xerox. Splash shall use commercially reasonable efforts to track all
problems and report their status to Xerox on a regular basis, as reasonably
requested by Xerox.
(b) Any field/customer-identified problems shall be managed through
the Xerox software problem action request (SPAR) process. SPAR(s) are
determined by severity of the product failure. [*]
Splash shall use commercially reasonable efforts to perform the required
maintenance modifications shown in table A below. Splash shall use
commercially reasonable efforts perform to [*] time frames for [*] and [*].
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TABLE A
[*]
Example:
[*]
V. QUALITY ASSURANCE
5.01 QUALITY REQUIREMENTS - All Splash Products produced and delivered to
Xerox hereunder shall conform in all material respects with the specifications
set forth in the QCD Table in Attachment VI hereto, unless otherwise mutually
agreed and specified. Reliability of Splash Products shall meet or exceed the
requirements of such specifications. Quality and reliability failure rates
observed in excess of those specified in Attachment VI QCD Table shall result in
a meeting between the parties to ascertain the cause of such failure rate and
the development and implementation of a plan by Splash on a commercially
reasonable efforts basis, to bring such failure rate within the specified plan.
5.02 PRODUCT QUALITY PLAN - Splash shall develop, implement and provide to
Xerox, at least [*] prior to production hardware build, a mutually agreed upon
quality plan for Splash Products [*]. Such Quality Plan shall define the
controls and operating systems required to ensure that only compliant Splash
Products shall be delivered to Xerox. Existing Splash quality procedures may be
used to satisfy the plan and shall become a part of the basic operating document
for assuring compliance with Xerox' quality requirements.
5.03 [*] - Splash shall use its commercially reasonable efforts ensure that
its software process is repeatable as defined in the then current version of
[*].
5.04 MEAN TIME BETWEEN FAILURE - The Splash Product shall, during the term of
this Agreement, maintain or exceed the mean time between failure ("MTBF") rate
specified in the Attachment VI QCD Table. In the event that at any time during
the term of this Agreement the Splash Product demonstrates an MTBF below the
specified rate through no fault of Xerox, Splash shall, as soon as practicable,
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implement a corrective action program acceptable to Xerox to correct such
variance. If the average MTBF for Splash Products nonetheless remains below the
required level after implementation of such corrective action program, Splash
agrees to implement a superior corrective action program acceptable to Xerox and
to repair all of the failed Splash Products and affected Spares at no cost to
Xerox. Splash shall not be obligated to repair any Splash Products which have
been subjected to accident, negligence, misuse, alteration, modification,
tampering or causes other than ordinary use or that results or arises out of the
Xerox Software or Xerox Product.
5.05 MTBF/MTTR DATA - Splash shall supply data, as the parties shall mutually
agree, on the MTBF and mean time to repair ("MTTR") for the Splash Product as
soon as practical after the Effective Date of this Agreement. Such MTBF data
shall include failure data on all major subassemblies of the Splash Product.
Further, should any revisions or modifications to the Splash Product or
component parts thereof materially adversely affect the MTBF or MTTR of the
Splash Product, Splash shall review these revisions or modifications with Xerox
for concurrence before proceeding with any changes. Once a mutual agreement is
reached Splash shall supply revised MTBF and MTTR data within [*] of making any
such concurred revisions and modifications. Notwithstanding the foregoing,
Splash shall be required to provide such data only to the extent that it is
available through Splash's normal business processes.
5.06 MANUFACTURING SUPPLIER VERIFICATION - Xerox shall have the right to
conduct, at its expense, manufacturing supplier verification activities in
accordance with the Xerox supplier quality assurance procedures set forth in
Attachment XII at Splash's site. Splash shall use its commercially reasonable
efforts to schedule such manufacturing supplier verification activities within
[*] of request for same by Xerox. In the event that such verification
activities lead Xerox to a reasonable concern with respect to some aspect of
Splash's production process, the parties shall meet in a timely fashion to
discuss a mutually agreeable resolution to such concerns.
5.07 SOFTWARE/HARDWARE DEMONSTRATION - Xerox shall have the right to conduct,
at its expense, on-site reviews of the Splash Product at Splash's site. Splash
shall use its commercially reasonable efforts to schedule such reviews within
[*] of request for same by Xerox. Such review shall include a review and audit
of Splash's software and hardware development processes, schedule review, known
problem list, and projected UPCC. Notwithstanding the foregoing, source code
reviews shall be only for Derivative Works of Xerox Software and PPD files.
Information disclosed in such reviews shall be considered "Confidential
Information" pursuant to Article XV.
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5.08 REPLACED PRODUCTS - All Splash Products repaired or replaced by Splash
pursuant to this Article shall be subject to all quality assurance and
inspection requirements in accordance with the provisions of this Article V and
Section 3.09 (Inspection).
VI. TERM AND TERMINATION
6.01 TERM - This Agreement shall commence on the Effective Date and continue
in full force and effect for an initial term ending on the date that is [*].
6.02 TERMINATION FOR CAUSE - Either party may terminate this Agreement
effective immediately upon written notice of termination to the other party in
any of the following events:
(a) If the other party materially breaches this Agreement and such
breach, if curable, is not cured within [*] after written notice of breach by
the terminating party; or
(b) If the other party materially breaches this Agreement and such
breach is by its nature not curable; or
(c) If a petition for relief under applicable bankruptcy regulations
is filed by or against the other party, or the other party makes an assignment
for the benefit of creditors, or a receiver is appointed, or [*]. To the extent
applicable law prevents the non-terminating party from terminating this
Agreement as described above, then the parties shall have only those rights and
remedies permitted by applicable law, including the United States Bankruptcy
Act, including but not limited to 11 U.S.C. Section 365n.
(d) Notwithstanding anything to the contrary in this Section 6.02, in
the event that a Xerox Affiliate materially breaches this Agreement (i) Xerox
agrees to use its commercially reasonable efforts to compel such Xerox Affiliate
to cure such breach and (ii) if such breach is not curable or is not cured
within [*] of written notice to Xerox and the breaching Xerox Affiliate, Splash
may terminate this Agreement as to such breaching Xerox Affiliate.
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6.03 TERMINATION AND EXPIRATION EFFECT - Upon the termination or expiration
of this Agreement:
(a) If such termination or expiration is for reasons other than
breach by Xerox, then Xerox shall have the right to place with Splash, and
Splash shall not unreasonably reject, an Order for such quantities of Splash
Product as Xerox reasonably anticipates it shall require to maintain Splash
Products and Spares, to fulfill existing and future Orders after such
termination or expiration ("End-of-Life Order") to be delivered upon such date
as the parties shall mutually agree; provided, however, that such right shall in
no event continue for longer than [*] from the effective date of such
termination or expiration.
(b) In the event Splash elects not to renew the Agreement pursuant to
Section 6.01 above and Xerox desires to supply Splash Products to its customers
beyond such expiration date, Splash and Xerox agree to negotiate in good faith
and in a timely manner terms and conditions to allow Xerox to supply such Splash
Products. In the absence of agreement as to such terms and conditions, Splash
agrees to grant to Xerox the manufacturing license specified in 7.04.
(c) Each party shall immediately return to the other party all copies
of such other party's Confidential Information. Notwithstanding the foregoing,
if such termination or expiration is for other than Xerox' breach, Xerox may
retain a reasonable number of copies of such information as may be reasonably
necessary to continue supporting its customers that have purchased Systems;
provided, however, that such information may only be used for such purposes.
(d) Any existing, accepted Orders for the Splash Product shall
remain in effect and shall continue to be subject to all applicable terms of
this Agreement.
(e) If this Agreement is terminated by Xerox pursuant to Section 6.02
(a), or (b) Splash shall upon request provide a list of vendors for components
of Splash Products so that Xerox may source such components directly from such
vendors. Further, Splash agrees to provide timely assistance to Xerox in
negotiating supply agreements with such vendors upon Xerox' request and to grant
to Xerox the rights and licenses to the Escrowed Manufacturing Materials set
forth in Section 7.04 hereof.
VII. MANUFACTURING
7.01 MANUFACTURING - Splash shall manufacture or have manufactured the Splash
Product, [*]. Xerox shall manufacture, or have manufactured for it, the Xerox
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Product and be responsible for the incorporation of the Splash Product into
Systems.
7.02 CHANGE IN LOCATION OF MANUFACTURE - With the exception of force majeure
events, Splash shall use commercially reasonable efforts to notify Xerox [*]
prior to changing the location at which the Splash Products are manufactured.
Splash shall use commercially reasonable efforts to not discontinue
manufacturing at the original or substitute location until such time as Splash
can successfully demonstrate that the new location is suitable to produce on a
consistent basis Splash Products that comply with the then-current
specifications therefor. Upon [*] prior written notice, Splash shall permit
Xerox to inspect a new or proposed location at which Splash will produce Splash
Products to permit Xerox to make suggestions regarding the relocation of
manufacturing. [*].
7.03 [*]
7.04 [*]
(a) [*]
(b) [*]
(c) [*]
7.05 [*]
VIII. RIGHTS AND LICENSES
8.01 SOFTWARE
(a) Subject to the terms and conditions of this Agreement, Splash
hereby grants to Xerox and Xerox Affiliates (as approved by Xerox pursuant to
Section 3.01 (a)) under all of Splash's Intellectual Property Rights in and to
the Splash Software and Third Party Software the right to distribute directly
and indirectly the Splash Software and Third Party Software to Xerox customers
and to Xerox Affiliates and their customers; provided, however, that all Splash
Software and Third Party Software distributed by Xerox hereunder shall be
distributed as part of or in connection with the distribution of Systems and not
on a stand alone basis,
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unless the Xerox or Xerox Affiliate customer is acquiring the Splash Product in
order to convert a Xerox Product into a System.
(b) Subject to the terms and conditions of this Agreement, Xerox
hereby grants to Splash under all of Xerox' Intellectual Property Rights in and
to the Xerox Software and any Derivative Works thereof the worldwide,
nonexclusive, right to use, reproduce and have reproduced, prepare Derivative
Works of and distribute directly to Xerox and Xerox Affiliates (approved by
Xerox) the Xerox Software and Derivative Works thereof.
(c) Subject to the terms and conditions of this Agreement, Splash
hereby grants to Xerox and Xerox Affiliates (as approved by Xerox pursuant to
Section 3.01(a)), solely for the purpose of disposing of inventory after the
expiration or termination of this Agreement, under all of Splash's Intellectual
Property Rights in and to the Splash Software and Third Party Software to
distribute directly and indirectly the Splash Software and Third Party Software
to Xerox customers and to Xerox Affiliates and their customers; provided,
however, that all Splash Software and Third Party Software distributed by Xerox
hereunder shall be distributed as part of or in connection with the distribution
of Systems and not on a stand alone basis, unless the Xerox or Xerox Affiliate
customer is acquiring the Splash Product in order to convert a Xerox Product
into a System.
8.02 INCLUSION OF END-USER LICENSE AGREEMENT - Xerox agrees to distribute and
to ensure that its distributors and resellers (including, without limitation
Xerox Affiliates) distribute the Splash Products with Xerox' then current
standard end-user license agreement (the "EULA") as may be modified by Xerox
from time to time. The EULA shall contain all material provisions of Splash's
standard end-user license agreement, a copy of which is set forth in Attachment
X. Xerox shall ensure, and shall ensure that its distributors and resellers
(including, without limitation, Xerox Affiliates) ensure, that each customer
purchasing the Splash Product indicates acceptance of the terms and conditions
of the EULA prior to using the Splash Product. Splash and Xerox agree to use
commercially reasonable efforts to work together to identify and implement a
method for ensuring that each customer indicates acceptance of the EULA, while
still meeting the Xerox goals for installation time and ease of use of the
Splash Product. Xerox agrees to indemnify and hold Splash harmless from and
against any loss, cost, damages or expense (including reasonable attorneys fees)
arising out of any third party claim resulting from Xerox' failure to comply
with the agreed upon method for the customer to indicate acceptance of the EULA;
provided Splash gives prompt written notice to Xerox of any such third party
claims, and Xerox shall control the settlement of such claims.
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8.03 [*]
8.04 SOFTWARE ESCROW -
(a) Within [*] of the first delivery to Xerox by Splash of a
Prototype, and for the term of Splash's maintenance obligation in Article XII
hereof, Splash shall deposit into an escrow account with a mutually agreed
independent escrow agent one complete set of the source code with appropriate
accompanying documentation for the Splash Software, and Object Code or source
code for the Third Party Software, including tools and a description of the
process to build the Splash Software and Object Code or source code for such
Third Party Software as Splash has or may acquire, using commercially reasonable
efforts, the right to place into escrow (collectively, the "Escrowed
Materials"). Splash shall from time to time, at the request of Xerox, update
such escrow account by depositing any updates, upgrades, revisions and
modifications to the Splash Software or Third Party Software; provided, however,
that Splash shall not be obligated to make deposits into the escrow account more
frequently than four times per year. The build process and subsequent software
functionality may be verified by Xerox' option before being placed into escrow.
Such verification process shall not however involve visual access to any source
code. Splash shall, concurrently with placing the Splash Software into escrow,
provide Xerox with a list and detailed description of all Third Party Software
which is not placed in escrow, including the reason for same and the identity of
the party claiming title to such Third Party Software. Xerox shall bear all
fees, expenses and other charges to open and maintain such escrow account. If
Xerox does not pay such charges when due, Splash shall upon [*] written notice
to Xerox allow the escrow account to close with no further obligation to Xerox
under this Section 8.04.
(b) [*]
(c) In the event a dispute shall arise between the parties
concerning the release of the Escrowed Materials, such dispute shall be
settled by expedited arbitration according to the then pertaining rules of
the American Arbitration Association (AAA) as modified herein. Either party
may issue a demand for arbitration concurrently with or subsequent to the
notice to the escrow agent requiring the release of the Escrowed Materials.
The parties shall, within [*] of the receipt of the demand for arbitration,
attempt to agree on the selection of an arbitrator from the list of neutrals
maintained by the AAA as maintained on the AAA website. In the event the
parties are unable to agree on a single arbitrator, either party may request
the appointment of a single arbitrator by the AAA as expeditiously as
possible. The parties agree to abide by the date selected by the selected
arbitrator to conduct the arbitration proceeding which shall
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be concluded in a single session, unless otherwise directed by the selected
arbitrator. The arbitration shall be held at such location as the arbitrator
shall require as expeditiously as the same can be scheduled. The parties shall
not conduct discovery beyond a single deposition each, which deposition shall be
conducted within [*] of the notice of same by a party. There shall be no
document discovery or production between the parties, unless directed by the
selected arbitrator. The arbitrator shall be requested to render a decision as
soon as practicable following the proceeding, and the parties agree that a
summary decision by the arbitrator, pending the final written decision, shall be
deemed conclusive. The costs of the arbitration shall be shared equally by the
parties to the dispute. The arbitration shall be directed to limit his/her
decision to the sole question of the release of the Escrowed Materials pursuant
to and under the provisions of this Agreement. Neither party shall be precluded
from seeking provisional remedies in the state or federal court of the states of
California or New York, including, but not limited to, temporary restraining
orders and preliminary injunctions, to protect its rights and interests, but
such shall not be sought as a means to avoid or stay arbitration.
(d) Effective upon release of the Escrowed Materials, Splash hereby
grants to Xerox a non-exclusive right to use, reproduce and modify the Splash
Software source code and prepare Derivative Works thereof, including Object
Code, solely as necessary to maintain the Splash Product. The Object Code
derived from the source code so modified shall be deemed to be a Derivative Work
of the Splash Software hereunder and subject to the same provisions regarding
ownership use, reproduction and disclosure that are contained in this Agreement
with respect to the Splash Software. Xerox shall not distribute, sell or
sublicense the Splash or Third Party source code or source code of any
Derivative Works thereof. The Splash source code and the Derivative Works
thereof created by Splash shall be the Confidential Information of Splash.
Splash shall own all right, title and interest in and to the Splash source code
and any Derivative Works thereof.
(e) In the event that the license granted in Section 8.04 (b) above
becomes effective and thereafter pursuant to the rights granted therein Xerox
creates Derivative Works of the Splash Software and desires that Splash
incorporates the same into the Splash Product, Xerox shall provide to Splash
written notice of such fact, and copies of such Derivative Works (in a mutually
agreed upon format). Splash shall, within [*] of receiving such notice and such
Derivative Works, implement such Derivative Works into future units of the
Splash Product delivered to Xerox and Xerox Affiliates hereunder.
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8.05 YEAR 2000 WARRANTY - Splash represents and warrants that the Splash
Software and Third Party Software delivered under this Agreement is Year 2000
performance compliant and thus shall be able to accurately process date data
(including, but not limited to, calculating, comparing, and sequencing) from,
into, and between the twentieth and twenty-first centuries, including leap year
calculations. The remedies available to Xerox for breach of this warranty shall
include prompt repair or replacement of any Splash Software and Third Party
Software or part thereof whose non-compliance is discovered and made known to
Splash in writing. Nothing in this warranty shall be construed to limit any
rights or other remedies Xerox may otherwise have under this Agreement with
respect to uncorrected program errors or defects.
8.06 TRADEMARK LICENSE
(a) All trademarks, service marks, trade names, logos or other words
or symbols identifying the Splash Product or the Splash Software or Splash (the
"Splash Marks") are and shall remain the exclusive property of Splash or its
licensors, whether or not specifically recognized or perfected under the laws of
a jurisdiction in which the Splash Products are distributed. Xerox and Xerox
Affiliates shall not acquire any rights in the Marks, except the limited use
rights specified in this Section 8.06. Xerox and Xerox Affiliates shall not,
without Splash's prior written permission, register, directly or indirectly, any
trademark, service mark, trade name, company name or other proprietary or
commercial right which is identical or confusingly similar to the Marks or which
constitute translations thereof. These restrictions shall be limited to this
Agreement.
(b) All trademarks, service marks, trade names, logos or other words
or symbols identifying the Xerox Product or the Xerox Software or Xerox (the
"Xerox Marks") are and shall remain the exclusive property of Xerox or its
licensors, whether or not specifically recognized or perfected under the laws of
a jurisdiction in which the Xerox Products are distributed. Splash shall not
acquire any rights in the Marks. Splash shall not without the prior written
permission of Xerox use the Xerox Mark Marks except to reproduce Splash Products
exclusively for Xerox. These restrictions shall be limited to this Agreement.
(c) Xerox and Xerox Affiliates shall, at their sole option, only have
the limited right to use the Splash Marks for the purpose of advertising and
promoting the System, in which all such use shall inure to the benefit of
Splash. Any such advertisements and promotional materials that reference the
Splash Marks shall (i) clearly identify Splash or its licensors as the owners of
the Splash Marks, (ii) conform to Splash's trademark and logo guidelines (which
shall be attached hereto as Attachment II, no later than [*] prior to the
commencement of beta testing
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of the System, which shall include manner of use and representative approved
uses and prohibited practices) and (iii) otherwise comply with Xerox practices
in marking its own products as may differ according to any local notice or
marking requirement contemplated under the laws of the jurisdiction in which the
Splash Product is distributed. Before publishing or disseminating any new
advertisement or promotional materials bearing a Splash Mark, Xerox or a Xerox
Affiliate shall deliver a sample of the advertisement or promotional materials
to Splash for prior approval, in Splash's sole discretion, and which review
shall be conducted within [*] of the submission of such sample to Splash by
providing notice as specified in this Agreement. If Splash does not respond to
any Xerox request for approval within [*] the Xerox request shall be deemed
approved. If Splash notifies Xerox or a Xerox Affiliate that the use of the
Splash Mark is not approved, Splash shall inform the Xerox entity in writing of
the reasons for the objection and such entity shall not publish or otherwise
disseminate the advertisement or promotional materials until they have been
corrected. When subsequent advertisements or promotional materials are to be
used by Xerox that do not differ substantially in the reasonable judgment of
Xerox from the new advertisements or promotional materials, Xerox is not
required to seek approval of the subsequent advertisements or promotional
materials.
IX. SPLASH PRODUCT CHANGES
9.01 PRODUCT CHANGES - The Splash Product shall incorporate all mutually
agreed improvements or changes. Splash shall, as soon as practicable, inform
Xerox of any proposed improvement or change in writing which materially affects
the Form, Fit, Function, Compatibility, cost, or schedule setting forth the date
of the proposed incorporation of such changes into the Splash Product and
description of how the change affects the:
(a) Form (external appearance of finished products or piece parts; or
external dimensions, dimension tolerances or shape);
(b) Fit (provisions for mounting; changes to mounting holes, or holes
for mounting shipping restraints; changes in the dimension or shape of internal
spaces available for customer use; changes affecting the interchangeability of
parts, electrical or other power and environmental requirements);
(c) Function (Operation in the Splash Product per applicable
specification, Splash Product performance, or the Splash Product's reliability);
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(d) Compatibility (The Splash Product operation or Splash Product's
internal logic or timing which might affect: application of the Splash Product,
part number or configuration dash number of parts which can be replaced in the
field, the interchangeability of spares, service documentation which might
affect a customer's application of the Splash Product, IOT software interface
compatibility, CentreWare software;
(e) cost of the proposed change and its effect on the UPCC; or
(f) schedule or specifications of the Splash Product
Xerox shall respond within [*] to each request for Splash Product changes
received from Splash indicating its acceptance or rejection to proceed with such
change.
9.02 SOFTWARE CHANGES - After the commencement of Xerox beta testing, Splash
shall notify Xerox not less than [*] prior to making any changes or improvements
(including bug fixes) in the Splash Software, regardless of the nature or scope
of such change and improvement. Xerox shall carefully consider the nature and
scope of such change and shall, within [*] of the request for such change by
Splash, notify Splash of its agreement or disagreement to proceed with such
change or improvement. Splash shall only implement agreed upon changes in the
Splash Software.
9.03 IMPLEMENTATION - Splash shall use all reasonable efforts to implement
any changes made by Splash and accepted by Xerox pursuant to Section 9.01 or
9.02 hereof in accordance with the schedule indicated by Splash in the written
notification of change. Such changes shall be incorporated into Splash Products
scheduled to ship after such implementation date. The serial number of the
first Splash Product unit incorporating such changes shall be identified to
Xerox and Splash agrees that all Splash Products with serial numbers greater
than such serial number shall incorporate such changes.
9.04 EFFECT OF REJECTION - In the event Xerox rejects a change to the
Splash Product proposed by Splash [*], which Xerox agrees not to do
unreasonably, Splash shall remain obligated to deliver Splash Products
conforming in all material respects to the applicable specifications set
forth in this Agreement in the Attachments hereto. Any nonconformance in
the Splash products that would have been fixed by changes proposed by Splash
and rejected by Xerox, and would not otherwise degrade the System, will not
be considered breaches of Splash's obligations under Article XI or Section
4.02, or Section 5.04, or Section 5.04, or contribute to the calculation of
Systemic Defects.
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9.05 COST EFFECTS OF CHANGES - Notwithstanding anything herein to the
contrary, in the event that any change in the Form, Fit, Function, specification
or schedule of the Splash Product pursuant to Sections 9.01, 9.02 and/or 10.01
hereof, or which are otherwise mutually agreed upon hereunder, constituting an
upgrade to or enhancement of Splash Product, results in a significant increase
or decrease in the cost of the Splash Product, or in the length of time required
for the manufacture or delivery thereof, equitable adjustment to the price of
the Splash Product or agreed upon shipping date or both shall be made by the
parties pursuant to good faith negotiations.
X. AGENCY APPROVAL AND SAFETY
10.01 COMPLIANCE - The Splash Product shall comply with all applicable
governmental laws, regulations and other public requirements in effect at the
time of shipment hereunder and, in particular, the safety requirements and
governmental or other agency certifications (including Regulatory Agency
certifications) described in the specifications appearing in Attachment IX, and
stated Xerox requirements in effect at the time of order placement; provided,
however, that such Xerox requirements have been included in the agreed upon
specifications for the Splash Product. Splash agrees to use its commercially
reasonable efforts to implement in a timely fashion any additional requirements
requested by Xerox but not contained in the then current agreed upon
specifications for the Splash Product. In the event Splash, despite
commercially reasonable efforts to implement such additional requirements
requested by Xerox, is unable to deliver Splash Products meeting such
requirements, such failure shall not constitute a breach of this Agreement.
Splash shall promptly deliver Splash Products meeting such requirements as soon
as practicable.
10.02 REGULATORY AGENCY APPROVAL - Splash shall obtain, [*], full Regulatory
Agency approvals as required for both the Splash Product and the System,
provided that the Splash obligation set forth in this paragraph is contingent
upon Xerox previously obtaining such regulatory approval for the Xerox IOT.
Splash shall obtain, [*], any required Regulatory Agency re-approvals for any
Splash Products, which are modified in any authorized manner hereunder.
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XI. WARRANTIES
11.01 SPLASH WARRANTIES
(a) Splash warrants that (i) it has either good and marketable title
to all Splash Products and/or has sufficient rights to grant to Xerox and Xerox
Affiliates the rights granted hereunder to distribute Splash Products, and (ii)
all units of Splash Products shall be free and clear of all liens, encumbrances
and security interests.
(b) Splash warrants that, unless otherwise agreed in writing, [*].
(c) Splash warrants that the Splash Products delivered hereunder
shall conform in all material respects to the specifications set forth in this
Agreement in the Attachments hereto as may be modified by the mutual agreement
of the parties from time to time and shall be free from material defects or
failure to meet specifications contained in the Agreement and its Attachments
[*].
11.02 WARRANTY OBLIGATIONS - In the event that a Splash Product fails to
conform to the warranty set forth in Section 11.01 (b) or (c) above, Splash
shall, [*] including freight, use its commercially reasonable efforts to
deliver to Xerox a replacement within [*] of the receipt by Splash of such
nonconforming Splash Product; provided, however, that Xerox provides to
Splash written notification in reasonable detail of such nonconformity by the
time of the receipt of such Splash Product. In the event either party finds
an excessive amount of No Trouble Found ("NTF") returns, the parties will
meet and shall use commercially reasonable efforts to resolve the source of
the NTF's by Splash. The foregoing states Splash's sole liability and Xerox'
exclusive remedy for breach of the warranty set forth in Section 11.01 above.
11.03 REPAIRED AND REPLACED PRODUCTS - All Splash Products repaired or
replaced by Splash under this Article shall be subject to the balance of any
warranty set forth in Section 11.01(c).
11.04 SYSTEMIC DEFECTS - Notwithstanding anything to the contrary in
Sections 11.01 and 11.02 above, (i) Splash shall undertake without charge and
without delay to promptly meet with Xerox to put a mutually agreed plan in place
to promptly remedy any Systemic Defect in all Splash Products in inventory or in
the field, by delivering to Xerox on a rolling inventory basis a replacement
Splash Product or part thereof and (ii) Splash shall use commercially reasonable
efforts to reduce turnaround time for Splash Products returned to Splash and
affected by a
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Systemic Defect to [*]. The foregoing states Splash's sole obligation and the
exclusive remedy of Xerox and Xerox Affiliates with respect to Systemic Defects.
Splash shall not be required to cure any Systemic Defect for any Splash Products
which have been subjected to accident, negligence, misuse, alteration,
modification, tampering or causes other than ordinary use or that results from
or arises out of the Xerox Software or Xerox Product.
11.05 WARRANTY DISCLAIMER - THE EXPRESS WARRANTIES SET FORTH IN THIS ARTICLE
XI CONSTITUTE THE ONLY WARRANTY WITH RESPECT TO THE SPLASH PRODUCTS. SPLASH
MAKES AND XEROX RECEIVES NO OTHER REPRESENTATION OR WARRANTY OF ANY KIND WHETHER
EXPRESS OR IMPLIED (EITHER IN FACT OR BY OPERATION OF LAW) WITH RESPECT TO THE
SPLASH PRODUCTS. SPLASH EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.
11.06 CUSTOMER SATISFACTION SURVEYS - The parties agree that they shall, from
time to time, conduct surveys of end users to determine the satisfaction of
customers with the System. Each party shall, at the expense of the requesting
party, assist the requesting party in any reasonable fashion in conducting such
surveys, and each party agrees to share with the other party information derived
from such survey that relates to the product(s) of the other party.
11.07 XEROX WARRANTIES
(a) Xerox warrants that it has either good and marketable title to
the Xerox Software and all Xerox Deliverables which Xerox provides to Splash for
incorporation into the Splash Product and/or has sufficient rights to convey
such software to Splash for the purposes set forth in this Agreement.
(b) Xerox warrants that the Xerox Software and all Xerox
Deliverables shall conform in all material respects to the applicable
specifications therefor and that the Xerox Software and the Xerox Deliverables
are suitable for their intended use hereunder. In the event of a failure of such
conformance or suitability, the schedule obligations of Splash to develop the
Splash Product under Article II hereof will be adjusted accordingly.
(c) Xerox and Xerox Affiliates shall not make or offer any
representation or warranty to any third party respecting the Splash Product or
any portion thereof that is inconsistent with or in addition to the warranty
provided by Splash to Xerox under Section 11.01 hereof. Xerox and Xerox
Affiliates hereby agree to indemnify and hold harmless Splash from and against
any [*]
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[*] resulting from any representation or
warranty made or offered in violation of this Section 11.07.
XII. MAINTENANCE SERVICE
For a period of the longer of [*], Splash shall offer to Xerox
maintenance service support and consulting to maintain the Splash Products in
accordance with Splash's then current policy for such services and at Splash's
then customary fees.
XIII. TRAINING
Splash shall provide to Xerox, [*] training courses for each year of the
term of this Agreement, [*] to provide instruction on the marketing,
installation and service support of such Splash Product. The course shall be
provided in accordance with a schedule and on topics mutually agreed upon by the
parties. Xerox shall be given one copy of such training materials that it may
copy and distribute for purposes of training other employees or agents of Xerox
and Xerox Affiliates in addition to one copy for each student attending the
class.
XIV. INDEMNIFICATION
14.01 SPLASH INDEMNIFICATION - Splash agrees, at its expense, to defend
promptly Xerox or a Xerox Affiliate from, and pay any judgment for, any suit,
claim or proceeding brought by a third party (hereinafter "Claim") against Xerox
(or a Xerox Affiliate to which Splash Products are sold under this Agreement)
alleging that any Splash Products sold or licensed hereunder either (i) violates
any applicable safety or regulatory standard, or (ii) has caused injury or
damage to the person or tangible property of another arising from defects in
materials, design or construction, unless based upon the negligent or wrongful
intentional conduct of Xerox, a Xerox Affiliate, or any of their agents,
representatives or employees, or (iii) infringes any patent or copyright;
provided that Xerox promptly notifies Splash in writing of any such Claim, gives
all reasonable assistance required by Splash, and permits Splash to direct the
defense. [*] The foregoing obligation of Splash to indemnify Xerox shall not
apply to the extent that a Claim arises out of or results from (A) the
incorporation of the Xerox Software into the Splash Product, (B) the combination
of any Splash Product with the Xerox Product or any third party software or
hardware not provided by Splash, (C) Splash's compliance with or adoption of any
detailed specification,
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design, feature, mark or symbol, component parts or printed materials or other
information or materials required by Xerox for incorporation or use with the
Splash Product or (D) any modification or reworking of the Splash Product made
by or upon the instruction of Xerox or a Xerox Affiliate or performed by or for
Splash on the instruction of Xerox or a Xerox Affiliate, or is provided by
Article XXV hereof.
14.02 XEROX INDEMNIFICATION - Subject to Splash's obligation under
Section 14.01 above, Xerox agrees, at its expense, to defend promptly Splash
from, and pay any judgment for, any Claim against Splash alleging that any
System, Xerox Products or Xerox Software either (i) violates any applicable
safety or regulatory standard, or (ii) has caused injury or damage to the person
or tangible property of another arising from defects in materials, construction
or design or (iii) infringes any patent or copyright; provided that Splash
promptly notifies Xerox in writing of any such Claim, gives all reasonable
assistance required by Xerox, and permits Xerox to direct the defense. Xerox
shall have no liability for settlements or costs incurred without its consent.
The foregoing obligation of Xerox to indemnify Splash shall not apply to the
extent that a Claim arises out of or results from the incorporation of Splash
provided Third Party Software or Splash hardware, or the Splash Software into
the System.
14.03 INJUNCTION - In the event that Xerox or its customer's use or Xerox'
Affiliates or their customers use of any of the Splash Products is enjoined,
Splash shall, at its option and expense, either substitute fully equivalent
products not subject to such injunction, modify the Splash Product so that it no
longer is subject to such injunction, or obtain for Xerox and its customers and
Xerox Affiliates and their customers the right to continue using the enjoined
Splash Products. [*]
14.05 [*]
XV. CONFIDENTIAL AND PROPRIETARY INFORMATION
15.01 OBLIGATION OF CONFIDENTIALITY; NON-USE - The recipient of Confidential
Information (whether Splash, Xerox or a Xerox Affiliate) shall (i) except to
achieve the purposes of this Agreement, not disclose such information or any
part thereof to any third party (ii) restrict circulation of such information
within its own organization on a need-to-know basis and (iii) keep such
information confidential using the same degree of care it uses with respect to
its own Confidential Information and at least a reasonable degree of care. If
either party reproduces any part of such information for use within its own
organization, the recipient shall mark all reproductions by indicating the
disclosing party's proprietary interest. If any such information is
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transferred to Xerox' or Splash's vendors, suppliers or customers, such vendors,
suppliers or customers shall be required to maintain the confidentiality of such
information and such transfer must be authorized in writing in advance by the
disclosing party. Such obligation to keep information confidential shall
survive any termination or expiration of this Agreement. The recipient of
Confidential Information shall not use such information except as required to
exercise its rights and fulfill its obligations hereunder. [*]
15.02 LIMITATIONS - Confidential Information shall not include:
(a) information in the public domain at the time of the disclosure;
(b) information that becomes publicly available through no fault of
the recipient;
(c) information in the recipient's possession, free of any obligation
of confidence, at the time of receipt of the information;
(d) information that becomes available on an unrestricted basis to a
third party with no obligation of confidentiality from the disclosing party;
(e) information was developed by employees or agents of the recipient
independently of and without reference to the information disclosed in
confidence; or
(f) information disclosed to the recipient after the time period of
[*]; or
(g) to the extent the recipient is obligated to produce the
information under court or government action.
15.03 NO IMPLIED LICENSE -
(a) Nothing contained in this Agreement shall be construed as
conferring by implication, estoppel or otherwise upon Xerox or Xerox Affiliates
any licenses or other rights except the licenses and rights expressly granted
herein. Splash retains all copyright and all other intellectual property rights
in and to the Splash Product, Splash Underlying Technology and Splash Software,
except as provided in this Agreement.
(b) Nothing contained in this Agreement shall be construed as
conferring by implication, estoppel or otherwise upon Splash any license's or
other rights except the license and rights expressly granted herein. Xerox
retains all
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copyright and all other intellectual property rights in and to the Xerox
Products, Xerox Underlying Technology and Xerox Software, except as provided in
this Agreement.
XVI. LIMITATION OF LIABILITY
16.01 LIMITATION ON DIRECT DAMAGES
A) EXCEPT FOR SPLASH'S OBLIGATION TO INDEMNIFY XEROX UNDER
ARTICLE XIV AND FOR ANY BREACH BY SPLASH OF ANY LICENSE GRANTED HEREUNDER OR
ARTICLE XV, UNDER NO CIRCUMSTANCES SHALL THE LIABILITY OF SPLASH AND ITS
OFFICERS, DIRECTORS, AND EMPLOYEES, FOR DIRECT DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT EXCEED [*], WHETHER ARISING IN CONTRACT IN TORT
(INCLUDING WITHOUT LIMITATION NEGLIGENCE) OR ANY OTHER THEORY.
(B) EXCEPT FOR XEROX' OBLIGATION TO INDEMNIFY SPLASH UNDER ARTICLE
XIV AND FOR ANY BREACH BY XEROX OF ANY LICENSE GRANTED HEREUNDER OR ARTICLE XV,
UNDER NO CIRCUMSTANCES SHALL THE LIABILITY OF XEROX AND ITS OFFICERS, DIRECTORS,
AND EMPLOYEES, FOR DIRECT DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT EXCEED [*] WHETHER ARISING IN CONTRACT, IN TORT (INCLUDING WITHOUT
LIMITATION NEGLIGENCE) OR ANY OTHER THEORY.
16.02 DISCLAIMER OF OTHER DAMAGES - EXCEPT FOR BREACHES OF ARTICLE XV,
INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS AND THE OBLIGATIONS OF THE PARTIES
UNDER ARTICLE XIV, XEROX, XEROX AFFILIATES, AND SPLASH SPECIFICALLY DISCLAIM AND
WAIVE AS TO EACH OTHER AND THEIR RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES
ANY AND ALL LIABILITY FOR ANY LOSS OF PROFIT, LOSS OF BUSINESS, OR DAMAGES OTHER
THAN DIRECT DAMAGES, INCLUDING BUT NOT LIMITED TO PUNITIVE OR EXEMPLARY DAMAGES,
HOWEVER DENOMINATED, AND INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAMAGES, WHETHER
ARISING IN CONTRACT, IN TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), OR ANY
OTHER THEORY EVEN IF INFORMED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN.
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XVII. EXPORT CONTROL
Splash and Xerox shall comply with all applicable laws and regulations
respecting the export, directly or indirectly, of any technical data acquired
from the other under this Agreement or any products utilizing any such data to
any country the laws or regulations of which at the time of export, require an
export license or other government approval including but not limited to first
obtaining such license or approval.
XVIII. INDEPENDENT PRODUCT DEVELOPMENT
Except as expressly provided in Section 3.01 hereof, this Agreement does
not and shall not be construed to limit the rights of Xerox or Xerox Affiliated
Companies or Splash to develop competing products or software without breach of
Article XV or infringement or misappropriation of the other party's Intellectual
Property Rights.
XIX. FORCE MAJEURE
Neither Splash nor Xerox shall be liable to the other for its failure to
perform any of its obligations hereunder or under any purchase order or
acknowledgment thereof during any period in which such performance is delayed by
unforeseeable circumstances beyond its reasonable control (a "Force Majeure
Event").
XX. NOTICES
Any notice which may be or is required to be given under this Agreement
shall be in writing. All written notices shall be sent by registered or
certified airmail, postage prepaid, return receipt requested. To the extent
this Agreement requires notice to be given to Splash or Xerox, such notices
shall be deemed to have been given when received, addressed in the manner
indicated below or at such other addresses as the parties may from time to time
notify each other of:
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<TABLE>
<CAPTION>
XEROX CORPORATION SPLASH TECHNOLOGY
<S> <C>
Marty LoBiondo Joan Platt
Xerox Corporation Splash Technology, Inc.
800 Phillips Road Bldg.111-05N 555 Del Rey Avenue
Webster, NY 14580 Sunnyvale, CA 94086-9255
716.231.5807 408.328.6315
[email protected] [email protected]
</TABLE>
XXI. POINTS OF CONTACT
Attachment XIII is included in this Agreement only to provide both
parties with names, addresses and telephone numbers for primary points of
contact in the day to day administration of the activities defined in this
Agreement.
XXII. HEADINGS
The headings and titles of the Articles and Sections of this Agreement
are inserted for convenience only and shall not affect the construction or
interpretation of any provision.
XXIII. AMENDMENT
This Agreement and the Attachments hereto may be amended only by a
document in writing duly signed by authorized representatives of both parties.
XXIV. ASSIGNMENT
[*]
XXVI. SEVERABILITY
If any provision of this Agreement is held invalid by any law, rule,
order or regulation of any government, or by the final determination of a court
of last resort, such invalidity shall not affect (a) the other provisions of
this Agreement, (b)
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the application of such provision to any other circumstance other than that with
respect to which this Agreement was found to be unenforceable, or (c) the
validity or enforceability of this Agreement as a whole.
XXVII. WAIVER
Failure or delay of either party to exercise any right or remedy under
this Agreement or to require strict performance by the other party of any
provision of this Agreement shall not be construed to be a waiver of any such
right or remedy or any other right or remedy hereunder. All of the rights of
either party under this Agreement shall be cumulative and may be exercised
separately or concurrently.
XXVIII. SURVIVAL
The provisions of this Agreement set forth in Sections 2.01(b) and (d),
2.04, 2.05(a)-(d), 3.04, 3.10, 3.11, 4.01(b), 4.02, 8.01(b)(to the extent
necessary only for the purpose of Splash's ongoing maintenance obligation),
8.02, 8.05, 8.06 (to the extent necessary to complete distribution of the Splash
Products or to enable Xerox to enforce the rights granted it in Section 7.04),
11.01-11.05, and 11.07, and again Articles VI, XII, XIV-XVII, XIX-XXXV shall
survive the expiration or any termination hereof. In addition, the provisions
of Sections 7.04, 8.01(c), 8.04 shall survive any termination of this Agreement
except a termination based upon the breach of this Agreement by Xerox, and the
provisions of Section 3.02(e) shall survive any termination of this Agreement
except a termination based upon the breach of this Agreement by Splash. In
addition, the provisions of Section 3.01(b) shall survive any termination of
this Agreement by Xerox pursuant to Section 6.02 (a) and (b) by reason of the
breach hereof by Splash.
XXIX. ETHICAL STANDARDS
Splash agrees that, with respect to its role as supplier to Xerox
including any interaction with any employee of Xerox, Splash shall not: (1)
give or offer to give any gift or benefit to any such employee of Xerox, (2)
solicit or accept any information, data, services, equipment, or commitment from
such employee unless same is (i) required under a contract between Xerox and
Splash, or (ii) made pursuant to a written disclosure Agreement between Xerox
and Splash, or (iii) specifically authorized in writing by Xerox's management,
(3) solicit or accept favoritism from said employee, and (4) enter into any
outside business relationship with said employee without full disclosure to, and
prior approval of, the appropriate management of Xerox. As used herein:
"employee" includes members of the
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employee's immediate family and household, plus any other person who is
attempting to benefit from his or her relationship to the employee. "Splash"
includes all employees and agents of Splash. "Gift or benefit" includes money,
goods, services, discounts, favors and the like in any form but excludes
standard business entertainment expenses associated with planned meetings as
well as low value items such as pens, pencils, and calendars.
XXX. ARBITRATION
30.01 The parties shall attempt in good faith to resolve any dispute arising
out of or relating to this Agreement promptly by negotiations between executives
who have authority to settle the controversy. Any party may give the other
party(ies) written notice of any dispute not resolved in the normal course of
business. Within [*] after delivery of said notice, executives of both parties
shall meet at a mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the dispute. If the matter has not been resolved within [*] of the
disputing party's notice, or if the parties fail to meet within [*], either
party may initiate arbitration of the controversy or claim as provided
hereinafter.
30.02 All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence, state rules of evidence, and other applicable law.
30.03 If the parties are unable to resolve the dispute by negotiations as set
forth above, such dispute shall be settled by arbitration, conducted on a
confidential basis, under the then current commercial Arbitration Rules of the
American Arbitration Association ("the Association") strictly in accordance with
the terms of this Agreement and the substantive law of the State of New York.
The arbitration shall be held at a mutually agreeable location in California if
the arbitration proceeding is commenced by Xerox and in New York if the
arbitration proceeding is commenced by Splash, and conducted by one arbitrator
chosen from a list of attorneys who are knowledgeable about the data processing
and business equipment industries. The costs of the arbitration, including the
fees to be paid to the arbitrator, shall be shared equally by the parties to the
dispute. The parties to the dispute shall be limited to taking no more than
three (3) depositions. The scope of document production shall be governed by
the commercial Arbitration Rules of the Association and the decision of the
arbitrator with respect thereto. The judgment upon the award rendered by the
arbitrator may be entered and enforced in any court of competent jurisdiction.
Neither party shall be precluded hereby from seeking provisional remedies in the
courts of any jurisdiction including, but not
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limited to, temporary restraining orders and preliminary injunctions, to protect
its rights and interests, but such shall not be sought as a means to avoid or
stay arbitration. To the extent this Agreement contains a limitation and/or
disclaimer of liability clause, the arbitrator shall apply the terms of such
clause. The parties agree that they have voluntarily agreed to arbitrate their
disputes in accordance with the foregoing.
XXXI. NONPUBLICITY
Without the prior written consent of the other party, which shall not
be unreasonably withheld, a party shall not (a) make any news release, public
announcement, denial or confirmation of this Agreement or its subject matter,
or (b) advertise or publish any facts relating to this Agreement. In the
event a party is required to make disclosure for statutory or regulatory
reasons, the other party shall have the right to review any proposed
disclosure provided that it shall do so [*] of its receipt of the proposed
disclosure.
XXXII. CONTROLLING LAW
This Agreement shall be governed by and construed in all respects in
accordance with the laws and regulation of the State of New York, U.S.A. The
definitions set forth in the Incoterms of the International Chamber of Commerce,
1990 edition, shall be controlling. To the extent there may be any conflict
between the law of the State of New York and the Incoterms, the Incoterms shall
be controlling.
XXXIII. REMEDIES CUMULATIVE
Except as otherwise set forth herein, any rights of cancellation or
termination, or remedies prescribed in this Agreement are cumulative and are not
intended to be exclusive of any other remedy of which the injured party may be
entitled to herein or at law or in equity, including but not limited to the
remedy of specific performance.
XXXIV. INTEGRATION
This Agreement and its Attachments constitute the entire agreement of
the parties as to the subject matter hereof and supersedes any and all prior
oral or written understandings and agreements as to such subject matter,
including any
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preprinted terms and conditions contained in any purchase orders and
acknowledgments issued hereunder.
XXXV. RELATIONSHIP OF THE PARTIES
35.01 It is the intent of the parties that during the term of this Agreement,
Splash shall be an independent contractor, and nothing set forth herein shall be
deemed or construed to render the parties joint ventures, partners or employer
and employee. Neither party is authorized to make any commitment or
representation on the other's behalf, except for the limited purpose of
obtaining acceptance of the EULA for the benefit of Splash from end users,
pursuant to Section 8.02.
35.02 During the term of this Agreement, if the term "partnership", "partner"
or "development partner" or the like is used to describe the parties'
relationship, Xerox and Splash agree to make it clear to third parties that
these terms refer only to the spirit of cooperation between them and neither
describe, nor expressly or through implication create, the legal status of
partners or joint ventures.
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IN WITNESS WHEREOF, authorized representatives of the parties have
affixed their signatures as of the Effective Date.
<TABLE>
<CAPTION>
SPLASH TECHNOLOGY, INC. XEROX CORPORATION.
<S> <C>
By: /s/ Kevin Macgillivray By: /s/ Brian Stern
Typed Name: KEVIN MACGILLIVRAY Typed Name: Brian Stern
Title: PRESIDENT & CEO Title: President ODPG
Date: APRIL 6, 1998 Date: 3/3/98
</TABLE>
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SPLASH TECHNOLOGY HOLDINGS, INC.
1996 STOCK OPTION PLAN
(AMENDED AS OF FEBRUARY 26, 1998)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Splash Technology Holdings, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of
<PAGE>
the Company or between the Company, its Parent, any Subsidiary, or any
successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option
and shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "EMPLOYEE" means any person, including Officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
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(q) "OPTIONED STOCK" means the Common Stock subject to an Option.
(r) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(s) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1996 Stock Option Plan.
(u) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(w) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 3,900,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
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(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the Plan shall be
administered by the Board or a Committee of two or more "non-employee directors"
within the meaning of Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award
granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
-4-
<PAGE>
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
(d) Upon the Company or a successor corporation being subject to
Section 162(m) of the Code or upon the Plan being assumed by a corporation which
is subject to Section 162(m) of the Code, the following limitations shall apply
to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 100,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the cancelled Option will be counted against the limit
set forth in subsection (i) above. For this purpose, if the exercise price of
an Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described
-5-
<PAGE>
in Section 17 of the Plan. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
-6-
<PAGE>
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan. Unless the Administrator provides otherwise, vesting of Options
granted hereunder shall be tolled during any unpaid leave of absence. An Option
may not be exercised for a fraction of a Share.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance of Shares (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly upon
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Shares are issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but
-7-
<PAGE>
not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day from the date of such change of status) or from Consultant
to Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option not exceeding three (3) months after the date of such
termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability (as defined in Section 22(e)(3) of the Code),
Optionee may, but only within twelve (12) months from the date of such
termination (and in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the
extent that Optionee is not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Unless otherwise provided for by the
Administrator in the stock option agreement, Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
-8-
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee in writing or electronically that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration
-9-
<PAGE>
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option, for each Share of Optioned Stock subject to
the Option, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Applicable Laws, the Company
shall obtain shareholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with
Applicable Laws, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
-10-
<PAGE>
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,094
<SECURITIES> 4,500
<RECEIVABLES> 5,452
<ALLOWANCES> 363
<INVENTORY> 3,023
<CURRENT-ASSETS> 70,572
<PP&E> 1,509
<DEPRECIATION> 200
<TOTAL-ASSETS> 86,649
<CURRENT-LIABILITIES> 24,675
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 61,002
<TOTAL-LIABILITY-AND-EQUITY> 86,649
<SALES> 17,997
<TOTAL-REVENUES> 17,997
<CGS> 8,264
<TOTAL-COSTS> 8,264
<OTHER-EXPENSES> 6,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,341
<INCOME-TAX> 1,203
<INCOME-CONTINUING> 2,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,138
<EPS-PRIMARY> .15
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</TABLE>
