0000912057-95-006600.txt : 19950816 0000912057-95-006600.hdr.sgml : 19950816 ACCESSION NUMBER: 0000912057-95-006600 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950701 FILED AS OF DATE: 19950815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADIUS INC CENTRAL INDEX KEY: 0000805574 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 680101300 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-35769 FILM NUMBER: 95564328 BUSINESS ADDRESS: STREET 1: 215 MOFFETT PARK DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089-1374 BUSINESS PHONE: 4085416100 MAIL ADDRESS: STREET 1: RADIUS INC STREET 2: 215 MOFFETT PARK DR CITY: SUNNYVALE STATE: CA ZIP: 94089-1374 10-Q 1 10-Q ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 1, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13(d) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER: 0-18690 RADIUS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 68-0101300 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 215 MOFFETT PARK DRIVE SUNNYVALE, CA 94089 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (408) 541-6100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------------------------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK ON AUGUST 14, 1995 WAS 17,034,381. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- RADIUS INC. INDEX
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets at July 1, 1995 and September 30, 1994 3 Consolidated Statements of Operations for the Three and Nine Months Ended July 1, 1995 and 1994 4 Consolidated Statements of Cash Flows for the Nine Months Ended July 1, 1995 and 1994 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15
-2- PART 1. FINANCIAL INFORMATION RADIUS INC. CONSOLIDATED BALANCE SHEETS (in thousands)
ASSETS ------- JULY 1, SEPTEMBER 30, 1995 1994 (1) -------- --------- (unaudited) Current assets: Cash and cash equivalents $ 16,268 $ 15,997 Accounts receivable, net 80,634 62,145 Inventories 38,361 21,069 Prepaid expenses and other current assets 928 1,473 Income tax receivable 693 9,083 Deferred income taxes 8,400 8,400 -------- -------- Total current assets 145,284 118,167 Property and equipment, net 7,588 7,728 Goodwill 3,134 442 Deposits and other assets 1,755 522 -------- -------- $157,761 $126,859 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 56,319 $ 39,255 Accrued payroll and related expenses 3,727 4,024 Accrued warranty costs 2,878 2,255 Other accrued liabilities 6,958 6,650 Accrued income taxes 1,312 1,237 Accrued restructuring costs 1,671 15,148 Short-term borrowings 21,509 18,095 Obligation under capital leases - current portion 1,452 1,647 -------- -------- Total current liabilities 95,826 88,311 Obligations under capital leases - noncurrent portion 1,751 2,857 Commitments and contingencies Shareholders' equity: Common stock 113,217 87,017 Common stock to be issued 12,022 -- Accumulated deficit (65,108) (51,251) Accumulated translation adjustment 53 (75) -------- -------- Total shareholders' equity 60,184 35,691 -------- -------- $157,761 $126,859 -------- -------- -------- -------- (1) The balance sheet at September 30, 1994 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
See accompanying notes. -3- RADIUS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data; unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 1, JULY 1, ------------------ ------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Net sales $ 87,325 $ 86,673 $ 251,007 $ 257,866 Cost of sales 65,211 59,931 184,882 190,267 --------- --------- --------- --------- Gross profit 22,114 26,742 66,125 67,599 --------- --------- --------- --------- Operating expenses: Research and development 4,990 5,645 13,780 20,738 Selling, general and administrative 18,442 19,232 48,725 59,640 --------- --------- --------- --------- Total operating expenses 23,432 24,877 62,505 80,378 --------- --------- --------- --------- Income (loss) from operations (1,318) 1,865 3,620 (12,779) Interest expense, net (1,531) (223) (4,605) (503) Settlement of litigation -- -- (12,422) -- --------- --------- --------- --------- Income (loss) before income taxes (2,849) 1,642 (13,407) (13,282) Provision (benefit) for income taxes 263 580 450 (4,809) --------- --------- --------- --------- Net income (loss) $ (3,112) $ 1,062 $ (13,857) $ (8,473) --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) per share: Net income (loss) per share $ (0.21) $ 0.08 $ (0.96) $ (0.63) --------- --------- --------- --------- --------- --------- --------- --------- Common and common equivalent shares used 14,791 14,041 14,386 13,522 --------- --------- --------- --------- in computing net income (loss) per share --------- --------- --------- ---------
See accompanying notes. -4- RADIUS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (in thousands, unaudited)
NINE MONTHS ENDED JULY 1, -------------------------- 1995 1994 ---------- ---------- Cash flows from operating activities: Net income (loss) $ (13,857) $ (8,473) Adjustments to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization 2,988 4,480 Elimination of SuperMac loss for three months - 9,914 Common stock to be issued 12,022 - (Increase) decrease in assets: Accounts receivable (18,361) (24,357) Inventories (17,292) 2,379 Prepaid expenses and other current assets 545 (2,261) Income tax receivable 8,390 8,551 Deferred income taxes -- 2,332 Increase (decrease) in liabilities: Accounts payable 17,064 249 Accrued payroll and related expenses (297) (624) Accrued warranty costs 623 (1,906) Other accrued liabilities 308 (867) Accrued income taxes 75 (497) Accrued restructuring costs (13,477) (7,266) ---------- ---------- Net cash (used in) operating activities (21,269) (18,346) Cash flows from investing activities: Capital expenditures (2,848) (3,937) Goodwill (2,692) (685) Deposits and other assets (1,233) (442) Purchase of short-term investments -- 14,267 ---------- ---------- Net cash provided by (used in) investing activities (6,773) 9,203 Cash flows from financing activities: Principal payments of short-term borrowings, net 3,414 293 Principal payments of long-term debt and capital leases (1,301) (733) Issuance of common stock 26,200 2,778 ---------- ---------- Net cash provided by (used in) financing activities 28,313 2,338 ---------- ---------- Net increase (decrease) in cash and cash equivalents 271 (6,805) Cash and cash equivalents, beginning of period 15,997 24,013 ---------- ---------- Cash and cash equivalents, end of period $ 16,268 $ 17,208 ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest paid $ 2,009 $ 544 ---------- ---------- ---------- ---------- Income taxes paid $ -- $ 6 ---------- ---------- ---------- ----------
See accompanying notes. -5- RADIUS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The consolidated financial statements of Radius Inc. ("Radius" or the "Company") as of July 1, 1995 and for the three and nine months ended July 1, 1995 and 1994 are unaudited. In the opinion of management, the consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented. These consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1994. Radius and SuperMac Technology, Inc. ("SuperMac") merged into the combined company ( the "Company") effective August 31, 1994 (the "Merger"), which was accounted for as a pooling of interests. The consolidated financial statements for all periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal year end to that of Radius. Such periods include Radius' results of operations and balance sheet data on a September 30 fiscal year basis and SuperMac's on a December 31 calendar year basis. The Company's fiscal year ends on the Saturday closest to September 30, which includes 52 weeks in fiscal 1995. The Company's 1994 fiscal year ended on the Sunday closest to September 30, which included 52 weeks in fiscal 1994. During the first quarter of fiscal 1995, the Company changed its fiscal year end from the Sunday closest to September 30 to the Friday closest to September 30. During the second quarter of fiscal 1995, the Company changed its fiscal year end to the Saturday closest to September 30 for operational efficiency purposes. This change will be effective for all periods in fiscal year 1995. NOTE 2. INVENTORIES Inventories, stated at the lower of cost or market, consist of (in thousands):
JULY 1, SEPTEMBER 30, 1995 1994 ----------- ------------- (unaudited) Raw materials $ 1,218 $ 4,515 Work in process 13,673 6,852 Finished goods 23,470 9,702 -------- -------- $ 38,361 $ 21,069 -------- -------- -------- --------
NOTE 3. CHANGES IN SHAREHOLDERS' EQUITY In June 1995, the Company sold approximately 2,500,000 shares of its Common Stock in a series of private placements to a small number of investors unaffiliated with the Company. Proceeds from the offering, net of commission and other related expenses were $21.5 million. The net proceeds are being used for working capital. NOTE 4. COMMITMENTS AND CONTINGENCIES The Company settled two securities class action lawsuits during the second quarter of fiscal 1995. The settlements were approved by the federal court in San Jose, California in June 1995. The financial statements for the first quarter of fiscal 1995 included a charge to other income of $12.4 million, reflecting settlement costs not covered by insurance as well as related legal fees, resulting in a reduction in net income from $1.4 million to a net loss of $11.0 million or $0.78 per share for the quarter. The first lawsuit was filed in September 1992 against Radius and certain of its officers and directors relating to events occurring between January 1992 and early September 1992. Under the settlement, Radius' insurance carrier has paid $3.7 -6- million in cash and Radius will issue 128,695 shares of the Company's Common Stock. The aggregate value of the settlement as of the settlement date was $5.5 million. The second lawsuit was filed in July 1994 against SuperMac and certain of its officers and directors relating to events occurring between September 1992 and February 1994. Under the settlement, Radius has paid $250,000 in cash and will issue between 707,609 and 807,609 shares of the Company's Common Stock depending on the value of stock when it is distributed to shareholders. The aggregate value of the settlement as of the settlement date was $10.4 million. The settlements will result in dilution to existing shareholders of the Company ranging from 4.6% to 5.2% depending on the number of shares of Radius stock issued. The Company had 18,127,967 common and common equivalent shares outstanding as of July 1, 1995. NOTE 5. INCOME TAXES For the three and nine month periods ended July 1, 1995 and 1994, the provision (benefit) for income taxes has been computed by applying the estimated annual effective tax rate to income (loss) before income taxes and charge for litigation settlement. NOTE 6. CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective October 1, 1994, the Company adopted FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Statement 115 addresses accounting and reporting for investments in marketable equity securities and in debt securities. Currently the Company does not have any investments that fall under Statement 115. Retroactive restatement is not permitted with Statement 115. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the consolidated interim financial statements and the notes thereto in Part I, Item 1 of this Quarterly Report and with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1994. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain operational data as a percentage of net sales (may not add due to rounding).
THREE MONTHS ENDED NINE MONTHS ENDED JULY 1, JULY 1, 1995 1994 1995 1994 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 74.7 69.1 73.7 73.8 ------ ------ ------ ------ Gross profit 25.3 30.9 26.3 26.2 ------ ------ ------ ------ Operating expenses: Research and development 5.7 6.5 5.5 8.0 Selling, general and administrative 21.1 22.2 19.4 23.1 ------ ------ ------ ------ Total operating expenses 26.8 28.7 24.9 31.2 ------ ------ ------ ------ Income (loss) from operations (1.5) 2.2 1.4 (5.0) Interest expense, net (1.8) (0.3) (1.8) (0.2) Settlement of litigation - - (4.9) - ------ ------ ------ ------ Income (loss) before income taxes (3.3) 1.9 (5.3) (5.2) Provision (benefit) for income taxes 0.3 0.7 0.2 (1.9) ------ ------ ------ ------ Net income (loss) (3.6)% 1.2% (5.5)% (3.3)% ------ ------ ------ ------ ------ ------ ------ ------
NET SALES The Company's net sales increased 0.8% to $87.3 million in the third quarter of fiscal 1995 from $86.7 million for the same quarter in fiscal 1994. Net sales for the first nine months of fiscal 1995 decreased 2.7% to $247.3 million from $253.6 million for the same period in fiscal 1994. Net sales increased in the third quarter of fiscal 1995 compared to the prior year's quarter primarily due to improved sales of digital video products and raster imaging processors (RIPs) and to shipments of the Company's newly introduced MacOS-based system products, although these gains were largely offset by reduced sales of graphics cards and by price reductions. Net sales for the quarter were lower than anticipated as a result of initial production delays and component shortages relating to the Company's MacOS-based system products. The decline in net sales during the nine month period resulted primarily from reduced sales of graphics cards and from product returns and price reductions relating to the consolidation of the Radius and SuperMac product lines following the Merger. While graphic card revenues declined in both the three and nine month periods, graphics card revenue improved over the second quarter of fiscal 1995 due in part to the introduction of a series of new cards for the Apple Power Macintosh 9500 and other Mac OS-based PCI bus computers. Sales for these products were supported by strong channel sell through. In the fourth quarter of fiscal 1995, the Company anticipates significantly lower revenue from its digital video products primarily due to high sales channel inventory levels of Radius Telecast, the Company's professional quality high-end digital video product, resulting from the longer sale cycle, training requirements, and technical issues associated with this new product. The Company currently is implementing sales and marketing programs designed to increase sales of Radius Telecast to end-users. The Company anticipates that the decline in digital video product sales will be offset by improved -8- sales of MacOS-based system products, although there can be no assurance of such improved sales as the Company is still in the early stages of implementing its MacOS-based system business. Ingram Micro, Inc. ("Ingram") accounted for 43.8% and 25.1% of the Company's net sales for the three and nine month periods ended July 1, 1995, respectively. For the corresponding periods of fiscal 1994, Ingram accounted for 11.0% and 12.0% of the Company's net sales. The increase in sales to Ingram reflects a reduction in orders placed by many of the Company's other distributors and resellers following the Company's announcement in June 1995 of a distribution agreement that grants Ingram the exclusive right to distribute Radius branded MacOS-based system products in the United States and Canada. The Company believes that this exclusive distribution arrangement will facilitate effective and focused marketing and distribution of its MacOS-based system products while lowering the Company's sales, marketing and administrative costs. The extent to which this exclusive distribution arrangement with Ingram will affect the size of future orders from the Company's other distributors and resellers is uncertain, but it is not expected to affect end-user sales. The Company's third quarter export sales decreased to 32.9% of net sales from 37.1% of net sales in the same quarter of fiscal 1994. Export sales were 33.0% of net sales for the nine month period of fiscal 1995 compared to 34.1% in the same period in fiscal 1994. GROSS PROFIT The Company's gross profit margin was 25.3% and 26.3% for the three and nine month periods ending July 1, 1995, as compared with 30.9% and 26.2% for the corresponding periods in fiscal 1994. The gross margin for the first nine months of fiscal 1994 excluding restructuring charges was 31.4%. The decline in gross margin for the three month period was primarily due to higher than expected freight and distribution costs and to an additional inventory reserve provision due to increased obsolete and excess inventory. Excluding the restructuring charges, the decline in gross margin for the nine month period was primarily due to lower sales of higher margin graphics cards, costs incurred to process higher than expected product returns resulting from the consolidation of the Radius and SuperMac product lines, the sale of end of life products, and increased pricing pressures. The Company expects its gross margins to decline in the fourth quarter of fiscal 1995 due to three factors: significantly reduced revenue from higher margin digital-video products; the high costs of production for its initial MacOS-based system products reflecting start-up costs and component supply constraints coupled with pricing pressure on such products due to recent price reductions by Apple; and recently reduced prices on the Company's line of graphic cards for MacOS-based PCI bus computers in anticipation of increased competition. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses decreased to $4.9 million or 5.7% of net sales in the third quarter of fiscal 1995 from $5.6 million or 6.5% of net sales in the same quarter of fiscal 1994. Research and development expenses decreased from $20.7 million or 8.0% of net sales for the first nine months of fiscal 1994 to $13.8 million or 5.5% of net sales for the corresponding period in fiscal 1995. The decrease in research and development expenses in the three and nine month periods was primarily due to the reduction of expenses as a result of the Company's restructuring associated with the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation, and facilities. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased to $18.4 million or 21.1% of net sales in the third quarter of fiscal 1995 from $19.2 million or 22.2% of net sales in the same quarter of fiscal 1994. Selling, general and administrative expenses decreased from $59.6 million or 23.1% of net sales for the first nine months of fiscal 1994 to $48.7 million or 19.4% of net sales for the corresponding period in fiscal 1995. The decrease in selling, general and administrative expenses in the three and nine month periods was primarily due to the reduction of expenses as a result of the Company's restructuring associated with the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation, and facilities. The reduction in selling, general and administrative expenses as a percentage of sales was lower in the third quarter than in the first nine months of -9- fiscal 1995 because of the Company's continuing investment in the MacOS-based systems business and by higher than anticipated sales and marketing expenses. RESTRUCTURING, MERGER AND OTHER CHARGES During fiscal 1993 and 1994, three restructuring and other charges were recorded. Radius recorded a $15.5 million restructuring charge during the third quarter of fiscal 1993 in connection with the implementation of a new business model. SuperMac recorded a $16.6 million restructuring charge during December 1993 in connection with a program to realign its inventory and facility and personnel resources. Subsequently, the two companies merged and incurred a restructuring charge of $43.4 million, which was recorded in September 1994. This Merger was initiated to provide substantial savings in operating costs for the combined company, resulting from the reduction in the number of employees, elimination of duplicative facilities and the consolidation of the marketing, research and development, operations and administration for the two companies. A discussion of each of these events follows. RADIUS FISCAL 1993 RESTRUCTURING AND OTHER CHARGES In June 1993, Radius announced a restructuring program designed to reduce costs and improve operating efficiencies. The program included, among other things, the write-down of inventory following Radius' decision to phase out its older generation of products, lease termination expenses, capital equipment write- offs, severance payments and costs associated with the discontinuation of Radius' minicomputer-class server product. The restructuring program costs of $15.5 million resulted in an after-tax charge of approximately $9.5 million during the third quarter of fiscal 1993. The charges (in thousands) are included in: cost of sales ($10,993); research and development ($411); and selling, general and administrative expenses ($4,096). The elements of the total charge as of July 1, 1995 were as follows (in thousands):
Representing ---------------------------------------------- Cash Outlays ------------------------ Asset Provision Write-Downs Completed Future Inventory $ 8,319 $ 8,319 $ - $ - Manufacturing reorganization 3,109 989 2,120 - Domestic facilities closure 1,994 1,505 489 - Germany office closure 860 - 860 - Consulting related to product discontinuation and company reorganization 500 - 500 - Discontinuation of development projects 411 411 - - Executive reorganization 307 - 307 - ------- ------- ------- ------- Total charges $15,500 $11,224 $ 4,276 $ -
The Company completed this restructuring event by the end of calendar 1994. There were no material changes in the restructuring plan or in the estimates of the restructuring costs from the recognition of the charge in June 1993 with the completion of the restructuring program in December 1994. The Company believes the program generally fulfilled the Company's expectations and that the program was successful. Cash expenditures of $4.3 million were made between June 1993 and December 1994, to complete this restructuring event. SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES In December 1993, SuperMac recorded charges of $16.6 million in connection with a program to adjust inventory levels, eliminate excess facilities, terminate certain projects and contract arrangements and reduce the number of employees. The charges (in thousands) are included in: cost of sales ($13,352); research and development ($2,000); and selling, general and administrative expenses ($1,238). The elements of the total charge as of July 1, 1995 were as follows (in thousands): -10-
Representing ---------------------------------------------- Cash Outlays ------------------------ Asset Provision Write-Downs Completed Future Adjust inventory levels $10,577 $ 9,718 $ 859 $ - Excess facilities 1,619 - 1,619 - Terminate projects and arrangements 2,494 1,294 1,036 164 Employee severance 1,900 - 1,803 97 --------- ------- ------- ----- Total charges $16,590 $11,012 $5,317 $ 261
There have been no material changes in the restructuring plan or in the estimates of the restructuring costs. The Company has $392,000 remaining in its restructuring reserve, the majority of the balance is expected to be eliminated by the end of fiscal 1995. The Company expects that cash expenditures that will be incurred to complete this restructuring event will not have a material effect on the Company's liquidity. The consolidated results for the Company in both the twelve months ended September 30, 1994 and the fiscal period ended 1993 include SuperMac's $16.6 million charge. RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4 million in connection with the Merger of Radius and SuperMac. These charges include the discontinuance of duplicative product lines and related assets, elimination of duplicative facilities, property and equipment and other assets and personnel severance costs as well as transaction fees and costs incidental to the Merger. The charges (in thousands) are included in: net sales ($3,095); cost of sales ($25,270); research and development ($4,331); and selling, general and administrative expenses ($10,710). The elements of the total charge as of July 1, 1995 were as follows (in thousands):
Representing ---------------------------------------------- Cash Outlays ------------------------ Asset Provision Write-Downs Completed Future Adjust inventory levels $22,296 $19,200 $ 3,011 $ 85 Excess facilities 2,790 400 2,144 246 Revision of the operations business model 9,061 7,078 1,270 713 Employee severance 6,311 - 6,311 - Merger related costs 2,949 - 2,915 34 ------- ------- -------- Total charges $43,407 $26,678 $15,651 $1,078
The adjustment of inventory levels reflects the discontinuance of duplicative product lines. The provision for excess facility costs represents the write-off of leaseholds and sublease costs of Radius' previous headquarters, the consolidation into one main headquarters and consolidation of sales offices. The revision of the operations business model reflects the reorganization of the combined Company's manufacturing operations to mirror Radius' previously revised model implemented as part of the Radius 1993 restructuring. This reorganization was designed to out source a number of functions that previously were performed internally, reduce product costs through increased efficiencies and lower overhead, and focus the Company on a limited number of products. Employee severance costs are related to employees who have been released due to the revised business model, while related severance payments are expected to be incurred throughout fiscal 1995. The provision for Merger related costs is for the costs associated with the Merger transaction, such as legal, investment banking and accounting fees. The Company has reduced its restructuring reserves by $2.1 million to accurately reflect current requirements. The Company expects to have substantially completed the restructuring by September 1995. Anticipated results of the restructuring on fiscal 1995 operations are estimated to include savings of $16.0 million from reduced headcount, $1.5 million from reduced depreciation expense, and $0.2 million from reduced rent expense. There can be no assurance that these estimated savings will be realized during fiscal 1995. These estimated savings could be affected by future changes in these and other areas. The cash requirements with respect to the Merger related restructuring and other charges are estimated to be approximately $16.7 million, of which $15.7 million had been spent as of July 1, 1995. The Company used a line of credit to help fund these cash requirements, and as of July 1, 1995, the Company had a cash position of $16.3 million. There can be no assurance that the Company will not incur additional charges to reflect costs associated with the Merger. -11- LITIGATION SETTLEMENT The Company settled two securities class action lawsuits during the second quarter of fiscal 1995 and the settlements were approved by the federal district court in San Jose, California in June 1995. The financial statements for the first quarter of fiscal 1995 include a charge to other income of $12.4 million, reflecting settlement costs not covered by insurance as well as related legal fees, resulting in a reduction in net income from $1.4 million to a net loss of $11.0 million or $0.78 per share for the quarter. The first lawsuit was filed in September 1992 against Radius and certain of its officers and directors relating to events occurring between January 1992 and early September 1992. Under the settlement, the Company's insurance carrier paid $3.7 million in cash and the Company will issue 128,695 share of its Common Stock to a class action settlement fund. The aggregate value of the settlement as of the settlement date was $5.5 million. The second lawsuit was filed in July 1994 against SuperMac and certain of its officers and directors relating to events occurring between September 1992 and February 1994. Under the settlement, the Company paid $250,000 in cash and will issue into a class action settlement fund 707,609 shares of its Common Stock. The number of shares to be issued by the Company will increase by up to 100,000 if the price of the Common Stock is below $12 per share during the 60-day period following the initial issuance of shares. The aggregate value of the settlement as of the settlement date was $10.4 million. The settlements will result in dilution to existing shareholders of the Company ranging from 4.6% to 5.2% depending on the number of shares of Radius stock issued. The Company had 18,127,967 common and common equivalent shares outstanding as of July 1, 1995. PROVISION FOR INCOME TAXES The Company recorded a tax provision of $263,000 for the third quarter of fiscal 1995 as compared to a provision for taxes for the third quarter of fiscal 1994 of $580,000. The fiscal 1995 tax provision is primarily comprised of foreign taxes. FASB Statement 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. The Company's valuation allowance reduces the deferred tax asset to the amount realizable. Management believes that it is more likely than not that the net deferred tax assets will be realized in the ordinary course of operations based on reversals of existing taxable temporary differences and income from operating activities. However, there can be no assurance that future income will be sufficient to realize this benefit. The Company will evaluate the realizability of the deferred tax asset on a quarterly basis. FINANCIAL CONDITION The Company's cash and cash equivalents at July 1, 1995 was $16.3 million compared to $16.0 million as of the end of the third quarter of fiscal 1994 and $4.4 million at the end of the second fiscal quarter of fiscal 1995. The increase in cash and cash equivalents reflects the closing of a private placement during the quarter, the proceeds of which allowed the Company to build inventory of MacOS-based systems components and reduce other vendor payables. In the private placement, the Company sold 2,509,319 shares of its Common Stock resulting in net proceeds of approximately $21.5 million. At July 1, 1995, the Company's principal sources of liquidity included approximately $16.3 million of cash and cash equivalents and $30.0 million in inventory and working capital financing all of which was fully utilized under an agreement with IBM Credit Corporation. In addition, the Company has a $5.0 million line of credit with Silicon Valley Bank which was partially utilized as of that date. As of July 1, 1995, the Company was not in compliance with all financial covenants in connection with its agreement with IBM Credit Corporation; however, the Company has since received a waiver of the respective covenants. Additionally, the Company's Japanese subsidiary has a revolving line of credit with a bank in Japan under which $3.6 million has been utilized as of July 1, 1995. Recently, the Company's relatively low cash resources have restricted the Company's ability to purchase inventory which in turn has limited its ability to manufacture and sell products and has resulted in higher freight costs for expedited -12- deliveries. The Company's low cash position is due in part to the Company's investment in components for its MacOS-based systems and the Company is currently in the process of transferring such component purchasing to its turn- key manufacturer for these products. The adverse effect on the Company's results of operations due to its low cash resources can be expected to continue until such time as the Company is able to complete the transfer of component purchasing for its MacOS-based systems to its turn-key manufacturer and return to profitability, or generate additional cash from other sources. Additional funds may be needed to finance the Company's development plans for its MacOS compatibles and other products and for other purposes. There can be no assurance that additional financing will be available when needed or, if available, that the terms of such financing will not adversely affect the Company's results of operations. FACTORS THAT MAY AFFECT FUTURE RESULTS A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, the following: The MacOS-based systems business has entailed, and will continue to entail, significant new challenges for the Company in designing, developing, manufacturing and distributing products and there can be no assurance that the Company will be successful in this new business. For example, the success of the Company's MacOS-based systems business is subject to a number of factors beyond the Company's control such as the cost and availability of components (many of which are sole sourced), Apple's continued support of and commitment to MacOS licensing, and pricing actions taken by Apple on its own computers. In addition, as noted above, the Company's entry into the MacOS-based systems business may require additional cash resources. Historically, substantially all of the Company's products have been designed for and sold to users of Apple computers. As a result of the Company's dependency on Apple computer products, the Company's operations and financial results could be significantly affected should Apple lose market share or otherwise experience slower sales. Moreover, new products anticipated from and introduced by Apple could cause customers to defer or alter buying decisions due to uncertainty in the marketplace, as well as presenting direct competition to the Company. For example, sales of the Company's products could be adversely affected by the uncertainties associated with Apple's revamping of its entire product line from the NuBus to the PCI bus standard. The Company's success is also highly dependent on its ability to develop innovative and cost-competitive new products and to bring them to market in a timely manner. Should the Company fail to introduce new products on a timely basis, the Company's operating results could be adversely affected. The Company's primary means of distribution is through a limited number of third-party distributors and resellers and all sales of Radius branded MacOS- based systems products in the United Sates and Canada are made through Ingram. As a result, the Company's business and financial results are highly dependent on the amount of the Company's product ordered by these distributors and resellers which in turn depends on their overall financial condition as well as on their ability to resell such products and maintain appropriate inventory levels. The Company's operating results could be adversely affected if such distributors and resellers are not successful in these or other areas. Other factors that could cost affect the Company's future operating results include the Company's ability to control costs and various competitive factors such as new product introductions, product enhancements, and aggressive marketing and pricing practices. Due to the foregoing, the dynamic nature of the Company's industry, general economic conditions and other factors, the Company's future operating results and stock price may be subject to significant volatility. In addition, any change in net sales or operating results from levels expected by securities analysts, and the timing of the announcement of such shortfalls, could have an immediate and significant adverse effect on the trading price of the Company's Common Stock in any given period. -13- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In September 1992, Radius and certain of its officers and directors were named as defendants in a securities class action litigation brought in the United States District Court for the Northern District of California that sought unspecified damages, prejudgment and postjudgment interest, attorneys' fees, expert witness fees and costs, and equitable relief. In July 1994, SuperMac, certain of its officers and directors, several venture capital firms and several of the underwriters of SuperMac's May 1992 initial public offering and its February 1993 secondary offering were named as defendants in a class action litigation brought in the same court that sought unspecified damages, prejudgment and postjudgment interest, attorneys' fees, experts' fees and costs, and equitable relief (including the imposition of a constructive trust on the proceeds of defendants' trading activities). These litigations are described in greater detail in Radius' Annual Report on Form 10-K for the fiscal year ended September 30, 1994. In June 1995, the Court approved the settlement of both litigations and entered a Final Judgment and Order of Dismissal. Under the settlement of the litigation brought in 1992 against Radius, the Company's insurance carrier paid $3.7 million in cash and the Company will issue 128,695 share of its Common Stock to a class action settlement fund. In the settlement of the litigation brought in 1994 against SuperMac, the Company paid $250,000 in cash and will issue into a class action settlement fund 707,609 shares of its Common Stock. The number of shares to be issued by the Company will increase by up to 100,000 if the price of the Common Stock is below $12 per share during the 60-day period following the initial issuance of shares. In January 1995, a patent infringement lawsuit was filed in the United States District Court for the Northern District of California by the alleged holder of a patent involving video pixel data transfer claiming that the Company infringes the patent and seeking injunctive relief and damages in an unspecified amount. The complaint does not specify which products of the Company allegedly infringe the patent; subsequent pleading indicates that the plaintiff contends that the Company's VideoVision line of products infringe the patent. The Company has filed an answer denying all the material allegations of the complaint and believes it has meritorious defenses. The Company is entitled to a limited indemnity to the action and intends to defend it vigorously in cooperation with the indemnifying party(ies). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS See attached exhibit index. (b) REPORTS ON FORM 8-K A report on Form 8-K was filed on June 28, 1995 in connection with the announcement of the Company's sale of 2,509,319 shares of Common Stock. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 14, 1995 RADIUS INC. By: /s/ -------------------------------------- Charles W. Berger Chairman, President, Chief Executive Officer By: /s/ -------------------------------------- Robert W. Saltmarsh Chief Financial Officer -15- EXHIBIT INDEX Exhibit Sequentially Number Title Numbered Page ------- ----- ------------- 10.24 Distribution Agreement between Radius Inc. and Ingram Micro, Inc. dated June 5, 1991 as amended on April 1, 1992, May 31, 1995 and July 14, 1995. (Confidential treatment has been requested with respect to certain portions of this exhibit). 11.01 Computation of per share earnings -16- EX-10.24 2 EXHIBIT 10.24 CONFIDENTIAL EXHIBIT 10.24 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. DISTRIBUTION AGREEMENT This Agreement (the "Agreement") is made and entered into as of the 5th day of June, 1991 by and between INGRAM MICRO INC., a California corporation ("Ingram"), and RADIUS INC., a California corporation ("Vendor"). RECITALS Vendor manufactures, produces, and/or supplies microcomputer products and desires to grant to Ingram the right to sell and distribute the products, as hereinafter defined, upon the terms and conditions set forth below. Ingram is engaged in the sale and distribution of microcomputer products and desires to have the right to sell and distribute Vendor's products upon said terms and conditions. In consideration of the mutual covenants and agreements set forth below, the parties hereto agree as follows: 1. RECITALS. The recitals stated above are incorporated herein by reference. 2. GRANT OF DISTRIBUTION RIGHTS. 2.1 Vendor hereby grants to Ingram, and Ingram accepts, the nonexclusive right to distribute in the United States those computer products designed for IBM-PCs and IBM-PC compatibles listed on EXHIBIT A attached hereto and made a part hereof, as that Exhibit A may be amended from time to time by Vendor in its sole discretion and subject to Section 10.3 below. All IBM-PCs and IBM-PC compatible products to be distributed shall be referred to in this Agreement as the "Product" or "Products." Ingram acknowledges that it has no right to distribute products designed by Vendor for use with computers manufactured by Apple Computer, Inc. 2.2 Vendor grants Ingram only the right to distribute the Product to Ingram's resellers and specifically excludes direct distribution to end-users unless Ingram obtains Vendor's prior written consent. Ingram may distribute the Products to Ingram's resellers that engage in telephone or mail order distribution provided that such resellers comply with Vendor's then current policies for such distribution as Vendor may establish them from time to time. Vendor will notify Ingram of resellers that do not comply with Vendor's telephone or mail order distribution guidelines and Ingram will discontinue sales to such resellers as soon as possible but in no event more than thirty (30) days after receipt of notice from Vendor. 2.3 Ingram shall neither export nor sell any Product to customers outside of the United States without the prior written consent of Vendor. 2.4 Vendor agrees to make available and to sell to Ingram such Products as Ingram shall order from Vendor at the prices and subject to the terms set forth in this Agreement. Ingram shall not be required to purchase any minimum amount or quantity of the Product. 2.5 Vendor may appoint other distributors to distribute its products. Ingram shall have the right to obtain and/or retain the rights to distribute any other products from other vendors, including products which may compete with the Products. 1 CONFIDENTIAL 3. TERM. 3.1 The initial term of this Agreement shall be for a period of one (1) year, beginning on the date first above written. Thereafter, this Agreement shall be renewed automatically for successive one (1) year terms without further notice, unless terminated sooner as provided under the provisions of this Agreement. 3.2 Either party may terminate this Agreement at will, with or without cause, by giving ninety (90) days' written notice to the other party prior to the effective date of the termination. 3.3 Upon termination or expiration of this Agreement: (a) all unshipped orders automatically will be cancelled; (b) Vendor, at its option, may repurchase any or all Products owned by Ingram at prices to be agreed upon but in no event greater than the price invoiced to and paid by Ingram; (c) all outstanding invoices to Ingram automatically will become due and payable on the effective date of termination; (d) Ingram shall cease using any Vendor trademark, logo, trade name or designation; and (e) if Ingram gives Vendor written notice that it is terminating this Agreement for cause pursuant to Section 15 below and Vendor fails to correct Vendor's default within the cure period, then Vendor, at Ingram's option, will repurchase any or all Products owned by Ingram at the price invoiced to Ingram, provided that the Products are nondefective, undamaged, contained in factory-sealed cartons and listed on Vendor's current price list at the time when this Agreement is terminated. If Vendor repurchases Product pursuant to this Section 3.3, Vendor will either credit Ingram's account in the amount of the price paid by Vendor in the event Ingram has unpaid invoices, or will pay Ingram in cash. 3.4 NEITHER VENDOR NOR INGRAM SHALL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES, ON ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT. INGRAM WAIVES ANY RIGHT IT MAY HAVE TO ANY OTHER OR ADDITIONAL REMEDY UPON TERMINATION OF THIS AGREEMENT. 4. OBLIGATIONS OF VENDOR. 4.1 Vendor shall use its diligent efforts to ship the Product within five (5) days after receipt of Ingram's order for the Product, unless otherwise directed by Ingram, or unless Ingram has failed to make any payment of invoices as provided in this agreement. 4.2 At no charge to Ingram, Vendor shall support the Product and any efforts to sell the Product by Ingram, and provide (i) sales literature and advertising materials in reasonable quantities, and (ii) reasonable training and support in the sale and use of the Product to Ingram's employees and customers, if requested by Ingram. 4.3 Vendor shall use its diligent efforts to notify Ingram at least thirty (30) days prior to the date any new Product is to be introduced and to make such Product available for distribution by Ingram not later than the date it is first introduced in the marketplace. 4.4 Vendor agrees to maintain sufficient Product inventory to permit it to fill Ingram's orders on a reasonably timely basis. If a shortage of any Product in Vendor's inventory exists in spite of Vendor's good faith efforts, Vendor will allocate its available inventory of such 2 CONFIDENTIAL CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Product on a basis Vendor deems equitable, taking into account Ingram's percentage of all of Vendor's customer orders for such Product [**]. In any event, Vendor shall not be liable for any damages or to any person if Vendor fails to meet the delivery schedule. 4.5 For each Product shipment to Ingram, Vendor shall issue to Ingram an invoice showing Ingram's order number and the Product part number, description, price and any discount. At least monthly, Vendor shall provide Ingram with a current statement of account, listing all invoices outstanding and any payments made and credits given since the date of the previous statement, if any. 5. OBLIGATIONS OF INGRAM. 5.1 Ingram will list the Product in all appropriate catalogs and make the Product available to its customers. 5.2 Ingram will advertise and/or promote the Products as provided in the mutually agreed upon rollout plan attached hereto as EXHIBIT B and will transmit Product information and promotional materials to its customers as reasonably necessary. 5.3 As reasonably necessary, Ingram will make its facilities available for, and will assist Vendor in providing, Product training and support required under Section 4.2 hereof. 5.4 Ingram will provide Product technical assistance to its customers as it is reasonably able to do so, and will refer all other technical matters directly to Vendor. 5.5 By the fifth day of each month, Ingram will provide Vendor with a point of sale report listing each Product sold during the prior month by product model, units, serial number (Ingram's serial number system will be in place no later than 10-1-91) and zip code of the point of sale. 6. PRICE AND TERMS. 6.1 The price and applicable discount, if any, for the Product shall be as set forth in Exhibit A. The price at which Ingram resells Product to its resellers will be determined by Ingram in its sole discretion. Prices are stated exclusive of all local sales and use taxes, duties and other taxes of any nature due on account of the purchases and sales hereunder. Ingram will pay all such taxes when invoiced by Vendor or will supply appropriate tax exemption certificates to Vendor. 6.2 Vendor shall have the right to change the list price of any Product. Vendor shall use its diligent efforts to give thirty (30) days' prior written notice to Ingram of any such price change. In the event that Vendor shall raise the list price of a Product, all orders for such Product placed prior to the effective date of the price increase shall be invoiced at the lower price. [**]. In the event that Vendor shall lower the list price of a Product, purchase orders accepted prior to the effective date of the price decrease, but not yet shipped, will receive the benefit of the price decrease. Price decreases will also apply to, and Vendor will grant a credit 3 CONFIDENTIAL CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. for, all units of the Product (other than replacement parts) that [**]. The dollar amount of this inventory price protection shall be determined by Vendor in its sole discretion. 6.3 Terms of payment for any order shall be net thirty (30) days. In the event that Ingram fails to pay any invoice when due, Vendor may (a) declare all amounts owed by Ingram to be immediately due and payable, and (ii) refuse to ship any further Products until Ingram has paid all invoiced amounts in full. 7. SHIPPING. Vendor shall ship Product only pursuant to Ingram purchase orders received by Vendor. Product shall be shipped FOB Vendor's point of shipment, with title (except for software) and risk of loss or damage to pass to Ingram upon delivery by Vendor to the carrier specified in Ingram's freight routing instructions attached hereto as EXHIBIT C which may be amended by Ingram in its sole dicretion from time to time. 8. COOPERATIVE ADVERTISING. 8.1 Ingram may advertise and promote the Product in a commercially reasonable manner and may use Vendor's trademarks, service marks and trade names in connection therewith; provided that, Ingram shall submit the advertisement or promotion to Vendor for review and approval prior to initial release, which approval shall not be unreasonably withheld or delayed. 9. EVALUATION UNITS. At the request of Ingram and subject to Vendor's approval, Vendor shall loan evaluation units of the Product to Ingram solely for Ingram's internal use in aiding Ingram's sales staff in the promotion of the Product. At anytime such units will be returned to Vendor upon Vendor's request in good condition, reasonable wear and tear excepted. 10. STOCK BALANCING. 10.1 Vendor agrees to accept on a quarterly basis commencing with the end of the first full calendar quarter following the date of this Agreement, a shipment of nondefective and undamaged Products contained in factory-sealed cartons that are listed on Vendor's current price list at the time the Products are returned, and to credit Ingram's account in the amount of the net price paid by Ingram therefor less any discounts or credits previously received, provided that: (a) Ingram exercises its right hereunder within the first [**] of the quarter immediately following the quarter during which such Products were purchased and paid for; (b) Ingram obtains a return material authorization number from Vendor prior to any such return; (c)[**]; (d) [**]; (e) Ingram returns no more than [**] of all such Products purchased by Ingram within the immediately preceding quarter. [**]. 4 CONFIDENTIAL CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 10.2 Vendor reserves the right to correct, improve, modify and enhance the Product, in whole or in part, as Vendor deems necessary or desirable. Vendor will use reasonable efforts to give Ingram at least sixty (60) days prior written notice of any material change in form, fit or function. 10.3 Vendor reserves the unilateral right, without liability, to discontinue any or all Products. Vendor shall use its diligent efforts to provide Ingram [**] notice that it is discontinuing production of the Product or any version thereof. Upon such notice Ingram may sell through any such inventory of affected Product, or may return any such affected Product in its inventory to Vendor for credit provided that (a) Ingram exercises its rights hereunder no later than [**] following the close of the quarter in which the discontinuance occurred, (b) Ingram obtains a return material authorization number from Vendor prior to any such return, (c) all such returned Product is undamaged and contained in factory-sealed cartons, (d) [**], and (e) such inventory was shipped to Ingram no more than [**] of the Product discontinuance. Any credit or refund due Ingram for returned Product shall be equal to the purchase price of the Product, less any discounts or credits previously received. [**]. 11. PRODUCT WARRANTIES AND LIMITATION OF LIABILITY. 11.1 VENDOR MAKES NO WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF THE PRODUCTS OR AS TO SERVICE TO INGRAM OR TO ANY OTHER PERSON, EXCEPT AS SET FORTH IN VENDOR'S LIMITED WARRANTY ACCOMPANYING DELIVERY OF THE PRODUCT. VENDOR RESERVES THE RIGHT TO CHANGE THE WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY OR ELSEWHERE, AT ANY TIME, WITHOUT FURTHER NOTICE AND WITHOUT LIABILITY TO INGRAM OR TO ANY OTHER PERSON. TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE HEREBY EXCLUDED. NEITHER PARTY'S LIABILITY UNDER THIS AGREEMENT SHALL EXCEED THE ACTUAL AMOUNT PAID BY INGRAM UNDER THIS AGREEMENT IN THE TWELVE MONTHS (12) PRECEDING THE FILING OF THE CAUSE OF ACTION RELATING TO THE EVENTS GIVING RISE TO SUCH LIABILITY AND SHALL IN NO EVENT INCLUDE INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES OF ANY KIND, EVEN IF THE PARTY IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES. 11.2 Ingram may return Product found to be defective within the later to occur of sixty (60) days of Ingram's receipt of that Product, or within thirty (30) days of receipt of that Product by any reseller from Ingram, provided that Ingram obtains a return material authorization number. Ingram agrees to batch all defective Product returned by Ingram or its resellers and to ship such defective products to Vendor once every thirty (30) days. Vendor may, at its option, either (a) provide Ingram within thirty (30) days' of Vendor's receipt of such Product with a new replacement Product or (b) credit Ingram for the amount of the Product's purchase price less any discounts or credits previously received. 11.3 In the event Vendor recalls any or all of the Products due to defects or for revisions, Ingram shall provide reasonable assistance in such recall. Vendor agrees to pay all 5 CONFIDENTIAL freight costs related to such recalls but has no obligation to pay handling charges or otherwise reimburse Ingram for its assistance. 12. INDEMNITY. 12.1 Vendor shall defend, indemnify, and hold harmless Ingram from and against all losses, damages, liabilities, costs or expenses (including but not limited to attorneys' fees) incurred by Ingram as a result of any third party claim based on an allegation that any Product supplied hereunder infringes a patent, copyright, trade secret or other proprietary right under the laws of the United States, provided, that Ingram promptly notifies Vendor in writing of any such claim, gives Vendor sole control of the defense and all related settlement negotiations, and cooperates with Vendor in defending or settling any such claim. With the exception of Section 12.2 below, Vendor grants no indemnity with respect to any other claim against Ingram, including but not limited to any claim based on the combination, operation, or use of Products with equipment, data or programming not supplied by Vendor, or based on any alteration or modification of any Product. If an infringement claim is asserted, or if Vendor believes one likely, Vendor may: (a) procure a license from the person claiming or likely to claim infringement; (b) modify the Product, as appropriate, to avoid the claim of infringement, as long as the modification for this purpose does not materially impair the operation thereof; or (c) accept the return of the Products in Ingram's inventory subject to or likely to be subject to the claim and refund to Ingram the price paid for them, reflecting any quantity or other discounts granted to Ingram. THE FOREGOING STATES VENDOR'S EXCLUSIVE OBLIGATION WITH RESPECT TO CLAIMS OF INFRINGEMENT OF PROPRIETARY RIGHTS OF ANY KIND. 12.2 Vendor shall defend, indemnify, and hold harmless Ingram from and against all losses, damages, liabilities, costs or expenses (including but not limited to attorneys' fees) for any injury or damage (including but not limited to any personal or bodily injury or property damage) arising out of resulting from any defect in unaltered and unmodified Products, provided that Ingram promptly notifies Vendor in writing of such claim, gives Vendor sole control of the defense and all related settlement negotiations, and cooperates with Vendor in defending or settling any such claim. 12.3 Ingram agrees to defend, indemnify and hold Vendor harmless from any and all losses, damages, liabilities, costs and expenses (including but not limited to attorneys' fees) incurred by Vendor as a result of any third party claim arising from Ingram's activities (other than the mere marketing of Products) under this agreement, provided that Vendor promptly notifies Ingram in writing of such claim, gives Ingram sole control of the defense and all related settlement negotiations, and cooperates with Ingram in defending or settling any such claim. 13. PRODUCT MARKINGS. Vendor shall clearly mark on the packaging of each unit of Product the Product's name and computer compatibility. Ingram will include on each Product that it distributes all trademarks, copyrights and other notices of proprietary rights included by Vendor on such Products. 14. REPRESENTATIONS AND WARRANTIES. Vendor warrants and represents that: 14.1 The Products or their use do not infringe upon any patents, copyrights, or trademarks under the laws of the United States, and that there are not any suits or proceedings pending or threatened which allege that any Product or the use thereof infringes upon such patents, copyrights, or trademarks; 6 CONFIDENTIAL 14.2 Sales to Ingram of the Products at the listed price and/or discounts do not in any way constitute violations of federal, state, or local laws, ordinances, rules or regulations, including any antitrust laws or trade regulations; 14.3 It has product liability insurance in an amount and scope comparable to that of companies of similar size in its industry. 15. DEFAULTS. 15.1 For purposes of this Agreement, a party shall be in default if (a) it materially breaches a term of this Agreement and such breach continues for a period of twenty (20) days after it has been notified of the breach in writing, or (b) it shall cease conducting business in the normal course, become insolvent, make a general assignment for the benefit of creditors, suffer or permit the appointment of a receiver for its business or assets, or shall avail itself of or become subject to any proceeding under the Federal Bankruptcy Act or any other federal or state statute relating to insolvency or the protection of rights of creditors. 15.2 Upon the occurrence of an event of default as described in Section 15.1, the party not in default may immediately terminate this Agreement by giving written notice to the party in default. 15.3 The rights and remedies provided to the parties in this Section 15 shall not be exclusive and are in addition to any other rights and remedies provided by this Agreement or by law or in equity. 16. INSURANCE. During the term of this Agreement, both parties will maintain insurance in an amount and scope comparable to that of companies of similar size in their respective industries. 17. OTHER PROVISIONS. 17.1 Construction. This Agreement shall be construed and enforced in accordance with the laws of the State of California applicable to agreements entered into between California residents and performed entirely within California. 17.2 Notices. All notices, requests, demands and other communications called for or contemplated hereunder shall be in writing and shall be deemed to have been duly given upon the earlier to occur of two (2) days after mailing by U.S. certified or registered first-class mail or upon delivery by any return receipt express courier, prepaid, and addressed to the parties at the addresses set forth at the end of this Agreement or at such other addresses as the parties may designate by written notice. 17.3 Proprietary Software. Ingram acknowledges that Products often contain not only hardware but software. Such software may be included in ROMs, PALs or semiconductor chips embedded in the hardware or it may be contained separately on disks or other media. Ingram understands that while Vendor sells its hardware subject to the terms of this Agreement, Vendor does not sell its software. Rather, Ingram is permitted to transfer such software as part of its resale of the associated Product. Such software is proprietary to Vendor and is copyrighted or patented. Ingram also agrees not to reverse engineer any Product or any component thereof. 7 CONFIDENTIAL 17.4 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument; however, this Agreement shall be of no force or effect until executed by both parties. 17.5 Confidential Information. The parties acknowledge that they will have access to certain trade secrets and information and materials concerning the other party's present or future business development and business activities that are confidential and proprietary, the value of which would be substantially impaired if such information was disclosed to third parties (the "CONFIDENTIAL INFORMATION"). Such Confidential Information includes but is not limited to the terms of this Agreement, business plans, customer lists, sales data, technical data, product information, and financial information. Each party agrees that it will not use the other party's Confidential Information, except in the performance of this Agreement, or disclose such Confidential Information to third parties during the term of this Agreement or following its termination or expiration. Each party will also take the same measures and precautions to protect the other party's Confidential Information as it takes to protect its own Confidential Information. Upon termination or expiration of this Agreement, each party shall deliver to the other all tangible items representing the other party's Confidential Information. For purposes of the foregoing obligations, Confidential Information does not include information which (i) was already rightfully known to the receiving party prior to the time that it was disclosed hereunder, (ii) is in or has entered into the public domain through no breach of this Agreement or wrongful act of the receiving party, (iii) has been rightfully received from a third party not under an obligation of confidentiality to the disclosing party and without breach of this Agreement, (iv) has been approved for release by written authorization of the disclosing party, or (v) is required to be disclosed pursuant to a final binding order of a governmental agency or court of competent jurisdiction. The parties' obligation not to use or disclose Confidential Information will expire five (5) years after the date that such party originally received the Confidential Information from the other party. 17.6 Implied Waivers. The failure of either party at any time to require performance by the other party of any provision hereof shall not affect in any way the full rights to require such performance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken, construed, or held to be a waiver of the provision itself or a waiver of any breach thereafter or any other provision hereof. 17.7 Captions and Section Headings. Captions and section headings used herein are for convenience only, are not a part of this Agreement, and shall not be used in construing it. 17.8 Covenant of Further Cooperation. Each of the parties agrees to execute and deliver such further documents and to cooperate in such manner as may be necessary to implement and give effect to the agreements contained herein. 17.9 Binding on Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of each party, its successors and assigns. 17.10 Severability. A judicial determination that any provision of this Agreement is invalid in whole or in part shall not affect the enforceability of those provisions found not to be invalid. 17.11 Relationship of Parties. Ingram's relationship with Vendor during the term of this Agreement will be that of an independent contractor. 17.12 Force Majeure. Vendor shall not be responsible for any failure to perform due to unforeseen circumstances or to causes beyond Vendor's control, including but not limited to 8 CONFIDENTIAL acts of God, war, riot, embargoes, acts of civil or military authorities, fire, floods, earthquakes, accidents, strikes, or shortages of transportation, facilities, fuel, energy, labor or materials. In the event of any such delay, Vendor may defer the delivery of orders for Products for a period equal to the time of such delay. 17.13 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, superseding any and all previous proposals, representations or statements, oral or written. Any previous agreements between the parties pertaining to the subject matter of this Agreement are hereby expressly cancelled and terminated. The terms of this Agreement shall supersede the terms of any invoice or purchase order issued by either party. Any modifications of this Agreement must be in writing and signed by authorized representatives of both parties hereto. 17.14 Parties Executing. The parties executing this Agreement warrant that they have the requisite authority to do so. IN WITNESS WHEREOF, the parties hereunto have executed this Agreement. "INGRAM" "VENDOR" Ingram Micro Inc. Radius Inc. 2801 S. Yale Street 1710 Fortune Drive Santa Ana, CA 92704 San Jose, CA 95131 By: /s/ Sanat Dutta By: /s/ Barry James Folsom --------------- ---------------------- Sanat K. Dutta Barry James Folsom Senior Vice President President and Chief Executive Operations Officer 9 ADDENDUM ONE TO THE DISTRIBUTION AGREEMENT BETWEEN RADIUS INC. AND INGRAM MICRO INC. This Addendum to the Distribution Agreement dated June 5, 1991 by and between Radius Inc. ("VENDOR") and Ingram Micro Inc. ("INGRAM") is made as of April 1, 1992. Unless otherwise indicated, all capitalized terms are defined in the Distribution Agreement. 1. DISTRIBUTION RIGHTS. Section 2.1 of the Distribution Agreement is deleted and replaced with the following: 2.1 Vendor hereby grants to Ingram, and Ingram accepts, the nonexclusive right to distribute in the United States those Vendor products (the "PRODUCTS") set forth in EXHIBIT A attached hereto as it may be amended by Vendor from time to time in its sole discretion subject only to Section 10.3 below. Section 2.3 of the Distribution Agreement is deleted and replaced with the following: 2.3 Ingram's appointment is expressly limited to distribution of Products within the United States, and Ingram will not knowingly resell Products to any reseller or other customer that intends to sell or otherwise distribute Products to customers located outside of the United States. 2. REPORTING REQUIREMENTS. Section 5.5 of the Distribution Agreement is deleted and replaced with the following: 5.5 By the eighth (8th) day of each month, Distributor will provide Vendor with: (i) a point of sale report listing each Vendor Product sold during the prior month (excluding sales made to major accounts designated by Vendor ("MAJOR ACCOUNTS")) indicating product model, units, Ingram's costs of goods sold and zip code of the point of sale; and (ii) a separate point of sale report listing each Product sold during the prior month to Major Accounts indicating the units and costs of goods sold to each such Major Account. All point of sale reports will be transmitted to Vendor electronically unless the parties otherwise agree to an alternative manner of delivery and need not contain serial numbers. Ingram will also provide Vendor with standard inventory reports on a weekly basis. 3. DEFECTIVE PRODUCTS. Section 4.2 of the Distribution Agreement is amended as follows: 4.2 At no charge to Ingram, Vendor shall provide (i) sales literature and advertising materials in reasonable quantities, and (ii) reasonable training and support in the sale and use of the Product to Ingram's employees and customers, if requested by Ingram. Section 11.2 of the Distribution Agreement is deleted and replaced with the following: 11.2 Distributor will have the exclusive responsibility to support its resellers. This support will include answering questions from resellers, providing Product updates to such resellers if Distributor so desires, and replacing defective Products that fail within Vendor's limited warranty with new or refurbished Products. If Distributor's resellers are contacting Vendor directly with respect to -1- Products, Vendor will refer such resellers to Distributor. Distributor's obligations with respect to defective Products are set forth below. (i) COMMUNICATIONS WITH RESELLERS. Distributor shall instruct its resellers to return to Distributor all defective Products that fail within Vendor's limited warranty along with a copy of the end user invoice for the defective Product, IF AVAILABLE. Distributor, and/or its resellers, will be responsible for all shipping and insurance charges incurred when transporting such defective Products from a reseller location to Distributor and when transporting new or refurbished replacement Products from Distributor to a reseller location. With regard to Products that fail outside of the Vendor warranty period, Distributor will notify its resellers that they are to refer customers with such Products to the nearest Vendor authorized service center. Vendor will supply Distributor, and Distributor will in turn make available to each of its resellers that purchase Products, a complete listing of Vendor's authorized service centers as it may be updated by Vendor from time-to-time. (ii) DOA PRODUCTS REPLACED BY EXISTING INVENTORY. When a reseller returns to Distributor a dead on arrival Product (a "DOA PRODUCT") (defined below) and the Distributor or the reseller have an identical new unit in inventory, Distributor will either (1) promptly replace the DOA Product with an identical NEW Product from Distributor's inventory of such Products, or (2) extend the reseller a credit for the returned DOA Product if the reseller provides the end user with a new Product from the reseller's inventory of such Products. Provided that Distributor first returns these DOA Products to Vendor in accordance with Section 11.2(iv) below, Vendor will grant Distributor a credit equal to the purchase price (as adjusted for any subsequent price protection or other credits) for such returned units. If Vendor determines that the returned unit does not qualify as a DOA, Vendor will invoice Distributor for shipping, insurance and an appropriate handling charge. A DOA Product, as that term is used in this Section 11.2, means any Product that fails to operate as specified by Vendor within thirty (30) days of its delivery to an end user. (iii) DEFECTIVE PRODUCTS REPLACED WITH AN ADVANCE EXCHANGE. If a Product is returned to Distributor that fails within Vendor's warranty period but outside of the thirty (30) day DOA period (a "WARRANTY PRODUCT"), or a DOA Product is returned to Distributor and neither Distributor nor the reseller have an identical new replacement unit in stock so that the failed unit cannot be replaced out of inventory, Distributor will immediately notify Vendor of the particular reseller that requires a replacement unit. Vendor will then issue Distributor an RMA number for the defective Product and will promptly ship a replacement unit (an identical new product in the case of a DOA failure or a refurbished replacement unit in the case of a warranty failure) to the reseller at no charge in advance of Vendor's receipt of the defective Product. (If Radius receives a request for an RMA number for a defective Product before before 1:00 p.m. PST on a week day, Vendor will use its best efforts to ship the replacement unit that same day and in any event will ship the replacement unit within two (2) business days following Distributor's request for an RMA number (subject to product availability)). If Vendor determines that the returned unit does not qualify as a DOA or Warranty Product, Vendor will invoice Distributor for shipping, insurance and an appropriate handling charge. (iv) MONTHLY BATCHING OF DEFECTIVE PRODUCTS. Distributor will inform Vendor by the fifth (5th) day of each month of the number of defective Products returned to Distributor in the prior month and Vendor will then promptly issue a return material authorization ("RMA") number or numbers for these defective Products. By the eighth (8th) day of each month, Distributor will batch these defective Products and ship them to Vendor along with (1) a copy the Distributor's invoice to the reseller for each such Product, and (2) IF AVAILABLE, a copy of the end user invoice for the defective Product, so that Vendor can confirm that the Product failed within the DOA period or the warranty period. Vendor shall pay all inbound shipping and insurance charges on all properly returned defective Products (i.e. both DOA Products and Warranty Products). (v) RETURN OF DEFECTIVE PRODUCTS. To facilitate and expedite advance exchanges under Section 11.2 (iii) above, Radius will ship replacement units to Distributor's resellers before Radius -2- receives a failed defective unit. On a quarterly basis, the parties agree to review the advance exchange process and determine whether the defective units have been accounted for. In the event defective units are not returned to Radius on a regular basis, the parties will work together in good faith to make appropriate adjustments in the advance exchange process. (vi) MARKING BOXES. Distributor will indicate on each box shipped to Vendor containing defective Products the appropriate RMA number, product number and serial number for each defective Product included in that box. Such numbers may be marked on the box directly, included on a packing label that is securely fastened to the box, or indicated on the box by attaching stickers/labels supplied to Distributor by Vendor for that purpose. (vii) REFURBISHED INVENTORY. If Distributor desires to build an inventory of refurbished replacement units for those Products that have an above average failure rate, Distributor may purchase one or more refurbished replacement units at Vendor's then current charge for the refurbished replacement units and shall pay all related shipping and insurance charges. 3. EFFECT ON THE DISTRIBUTION AGREEMENT; MISCELLANEOUS. Except as expressly modified by this Addendum, the terms and conditions of the Distribution Agreement shall remain in full force and effect, and Ingram and Vendor agree to remain bound by the provisions thereof. This Addendum shall become effective on the date first indicated above only after it has been signed by Vendor and Ingram. This Addendum may be executed in counterparts, both of which together will constitute one agreement. IN WITNESS WHEREOF, the parties have executed this Addendum on the date(s) specified below: RADIUS INC. INGRAM MICRO INC. Signature: /s/ Michael D. Boich Signature: /s/ Sanat Dutta -------------------- ---------------------------------- Name: Michael D. Boich Name: Sanat Dutta ----------------------- ------------------------------------- Title: President & CEO Title: Senior Vice President, Operations ----------------------- ------------------------------------- Date: December 24, 1992 Date: December 15, 1992 ----------------------- ------------------------------------- -3- CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. VIA FACSIMILE May 30, 1995 Mr. Sanat Dutta Executive Vice President Ingram Micro Inc. 1600 E. St. Andrews Place Santa Ana, CA 92799 Dear Sanat: This letter describes the basis for an exclusive distribution agreement between Radius and Ingram for the distribution of Radius' Macintosh compatible systems in the United States and Canada. The first part of this letter builds on our discussions during the meeting on Friday, May 19, 1995 by outlining the key terms of this exclusive relationship. With these terms in place, Ingram and Radius can commence exclusive distribution of Radius systems. The second part of the letter outlines additional issues that we will work together to address over the next 30 days. A. EXCLUSIVE DISTRIBUTION TERMS 1. The content of the Systems Business Marketing Plan dated May 19, 1995 that was prepared by Ingram ("Ingram's Proposal"), a copy which is enclosed, was the basis of our May 19, 1995 meeting. It outlines the initial activities and resources required to implement our exclusive relationship. Based on Ingram's proposal, Radius appoints Ingram as its exclusive distributor for Radius branded Macintosh compatible systems in the United States and Canada. 2. This appointment will remain in effect for two years but may be terminated by either Radius or Ingram upon 120 days prior written notice. 3. Ingram's Proposal commits to an extensive plan for launching systems within Ingram and to Ingram resellers at a cost to Radius of [**]. It also details an additional [**] peripheral products marketing fund to be established by Radius. Ingram and Radius also agree to [**] ongoing sales and marketing activities. These activities will include [**] for reseller customers and may include [**] for resellers. The [**] shall not be greater than [**] annually. 4. Radius and Ingram will develop a one year Sales and Marketing Plan by July 1, 1995 detailing our sales and marketing activities and associated budget requirements. The funding described above will be allocated in accordance with the Sales and Marketing Plan. All of these funds will be allocated and managed in a manner that is consistent with Radius' current MDF process; however, the funds will be based on a [**] described in the Sales and Marketing Plan. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Mr. Sanat Dutta May 30, 1995 Page 2 of 6 5. We have agreed to a dedicated sales and marketing organization, described in Ingram's Proposal, and we will begin to implement that organizational plan immediately. 6. Ingram agreed that it will not distribute any other Mac O/S licensee's Macintosh compatible systems without written approval from Radius, which will not be unreasonably withheld, so long as Ingram is the exclusive distributor for Radius branded Macintosh compatible systems. This limitation will not, however, preclude Ingram from distributing Macintosh compatible systems based on the Common Reference Hardware Platform that may be developed in the future by those vendors that currently distribute systems products through Ingram. 7. Ingram will sell Radius Macintosh compatible systems to other master resellers and commercial distributors under Ingram's normal terms and conditions should those organizations desire to purchase and resell such products. 8. Radius' pricing to Ingram will be based on the assumption that Ingram's pricing and terms to its customers will be consistent with its pricing and terms for other manufacturer's systems products. Radius anticipates setting a price for its systems that is approximately [**]. However, Radius reserves the right to determine pricing as it deems appropriate in light of overall business conditions. 9. Radius may utilize Ingram Labs for certification testing for our systems products and other peripheral and software products. The first [**] in testing costs per year will be at Ingram's expense; any additional testing costs will be paid by Radius. Ingram will develop a Radius [**] for Ingram's and Radius' customers and field organizations. The [**]will be budgeted within the Sales and Marketing Plan. 10. In addition to providing the reporting capabilities described in Ingram's Proposal, Ingram will provide serial number reporting by [**] as part of its EDI record electronic reporting. 11. For a period of [**] months beginning with the first shipment of Radius system products to Ingram, Ingram will pay Radius within [**] of receipt of such systems products. During this [**]month period, the price charged to Ingram for Radius systems may be increased to reflect this [**]payment plan. Following this [**]month period, all payments will be [**] and any change in the price charged to Ingram for Radius systems reflecting the return to [**]payment terms will not result in [**]. 12. Radius will ship to Ingram distribution sites with all shipping costs [**]. [**]will determine the carrier for all [**]freight. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Mr. Sanat Dutta May 30, 1995 Page 3 of 6 13. Ingram will distribute Radius systems products only to resellers that have been authorized by Radius under its Radius systems reseller authorization process. Radius will not unreasonably withhold approval of additional resellers that Ingram may suggest from time to time. 14. Radius' current build plan, product offerings, and pricing are described below but may be changed by Radius in its discretion based on component availability, development schedules, market conditions, and other factors. In [**], Radius will ship to Ingram approximately [**] systems. These systems will cost Ingram approximately [**] each. In [**], Radius will ship Ingram [**] units. These units are [**] units configured two ways: [**]configured priced at an estimated [**] and a [**]configured system priced at an estimated [**]. We discussed those configurations at our prior meetings. We anticipate that [**] units will be [**]configured. From [**], Radius will ship Ingram [**] units configured as indicated above. We estimate that [**]of these units will be [**]configured and the remainder will be [**]configured. The pricing will be the same as noted above. From [**], Radius will ship to Ingram an estimated [**]units. We expect to build and ship [**] units which are [**]systems. [**]of these units will be [**]configured and[**] will be [**]configured units. The pricing for these units is estimated to be [**] and [**] respectively. During this period we also expect to introduce the [**] system (which is a [**] system) and [**] unit. Both of these systems will be [**]configured [**]and are anticipated to include [**] of memory, a [**] hard drive, and a CD. As we discussed, we may [**]that configuration further upon your request. The pricing for these systems is estimated to be [**] and [**] respectively. We expect to build and ship to Ingram [**] systems and [**] systems during this period. Beyond [**] our product offerings have not been determined; although we expect to bring a [**] system to market in [**]referred to as [**]." CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Mr. Sanat Dutta May 30, 1995 Page 4 of 6 15. The systems products developed by Radius described above will meet [**] and will be of comparable quality to systems offered by other Ingram vendors. Radius will attempt to obtain the highest possible ratings for its system products in MACWORLD and MACUSER. Radius will also create market awareness programs, and review such programs with Ingram prior to implementation, that are consistent with the goal of creating demand for the above described volumes of Radius systems products. 16. Ingram agrees to place firm purchase orders for all of the units that Radius will manufacture through December not to exceed the unit numbers described above. Radius and Ingram will prepare purchase orders for the period from [**] together upon the acceptance of this letter by Ingram. Radius will need to receive Ingram's firm purchase orders by [**] for the period from [**]. For all quarters after [**], Ingram agrees to place firm purchase orders at least [**] in advance of each quarter. We anticipate that Radius will build and ship to Ingram an estimated [**] total systems per quarter during calendar 1996. Ingram agrees that it will provide Radius' manufacturing and financing partners with documentation evidencing Ingram's purchase orders if Radius determines that such documentation is needed to assure the continued supply of Radius systems. 17. All Ingram purchase orders will be non-modifiable and non-cancelable with the following two exceptions: (i) Ingram may increase or decrease a purchase order by up to [**] of the units to be shipped under that purchase order provided that Ingram provides Radius with written notice at least [**] prior to the scheduled ship date; and (ii) Ingram may increase or decrease a purchase order by up to [**] of the units to be shipped under that purchase order provided that Ingram provides Radius with written notice at least [**] prior to the scheduled ship date. Ingram agrees that it will make no more than one modification per purchase order. In the event the quantity ordered is increased as a result of a purchase order change, Radius will use commercially reasonable efforts to provide the additional units but will not be liable to Ingram if it cannot do so. 18. Because this is an exclusive agreement, we have entered an extremely unique alliance that creates a new business for both Ingram and Radius. As such, we need to make certain that the marketing programs we have discussed are effectively implemented so that all Radius systems delivered to Ingram are sold through to end-users. Accordingly, we have agreed that there [**] for Radius systems products. Defective units are, of course, exempt from this practice and will be governed by Radius' service and exchange policies. If for any reason our systems are not selling, we will work together to develop a plan to sell them. In such an event, Radius would assess, and implement where appropriate, a variety of strategies for improving sales such as [**]. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Mr. Sanat Dutta May 30, 1995 Page 5 of 6 19. [**] for Radius' Macintosh systems products will be as follows: [**], and Radius will [**] for, all units of Radius systems [**]. Inventory reports must be received within thirty (30) days of the effective date of the price reduction for Ingram to receive a price protection credit. Radius may conduct reasonable auditing procedures to verify the inventory quantities subject to the credit. 20. The general manager of the Ingram/Radius exclusive alliance for Ingram will be Sanat Dutta, Executive Vice President. 21. If Radius determines that its revenues will not reach its target for its third fiscal quarter ending on June 30, 1995 as a result of the announcement of this exclusive relationship[**]. B. ADDITIONAL ISSUES There were several other issues and programs discussed on May 19, 1995 that require further evaluation or will be implemented over time as described in the Sales and Marketing Plan. 1. We discussed the creation of a [**] collaborative approach leveraging Ingram's and Radius' corporate marketing organizations. The budget for these activities has not yet been determined. However, the Sales and Marketing Plan will include both the marketing activities and the budget requirements when defined. 2. We discussed the creation of a "Radius Advantage" program utilizing Ingram's [**]. This resource is critical to Radius, and we will begin to evaluate the program immediately. 3. We discussed the creation of a [**] program administered through Ingram logistics. Ingram will buy these [**]at [**]pricing. 4. We discussed the value of enhancing the Radius brand and how important it is to have Ingram's assistance in that effort. To further that goal, we agreed that it was to everyone's advantage to [**] for our resellers and end-users that will include [**]. C. EFFECT OF LETTER Section A of this letter ("Exclusive Distribution Terms") amends the Ingram/Radius Distribution Agreement dated June 5, 1991 as amended on April 1, 1992 (the "Distribution Agreement") and is binding on the parties. In the event that any of the terms of Section A conflict with the Distribution Agreement, the provisions of Section A will prevail. Otherwise, the terms and conditions of the Distribution Agreement CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Mr. Sanat Dutta May 30, 1995 Page 6 of 6 remain in effect. Please sign below to indicate that you are in agreement with the terms set forth in Section A. While the terms of Section A are binding, we will work together to prepare by July 1, 1995 a new distribution agreement to both further document the terms that we have agreed to and to address any other issues of concern that may arise as we begin our exclusive relationship. On behalf of the entire Radius organization, I want to congratulate Ingram for an incredibly fast response to this proposition and to Radius' questions and concerns. Your management team has approached this opportunity in an extremely professional manner. We look forward to a mutually profitable relationship that will set a new industry standard for product distribution and marketing. Personal regards, RADIUS INC. /s/ J. Daniel Shaver J. Daniel Shaver Vice President Worldwide Sales and Marketing AGREED AND ACCEPTED BY: Ingram Micro Inc. Signature: /S/ SANAT K. DUTTA -------------------- Name: SANAT K. DUTA ------------------------- Title: EXECUTIVE VICE PRESIDENT ------------------------ Date: JUNE 2, 1995 ------------------------- CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO INFORMATION CONTAINED WITHIN THE "[**]." SUCH MARKED PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. July 14, 1995 Mr. Sanat K. Dutta Executive Vice President Ingram Micro Inc. 1600 E. St. Andrew Place P.O. Box 25125 Santa Ana, CA 92799-5125 Dear Sanat: This is to confirm our most recent discussion regarding [**] and [**]. Radius has agreed to allow Ingram Micro to distribute [**] products provided that (i) [**]products are designed to be [**] with a suggested retail price of [**], and (ii) do not directly compete with a product offered by Radius. In consideration for the above, Radius may use the distribution services of [**] for the [**] market provided that [**] is not given any marketing or pricing advantage over Ingram Micro. If this letter correctly states our understanding and agreement, please sign the enclosed copy of this letter and return it to me. Regards, Agreed: /s/ J. Daniel Shaver /s/ Sanat K. Dutta -------------------------------- ---------------------------------------- J. Daniel Shaver Sanat K. Dutta V.P. Worldwide Sales & Marketing Executive Vice President Radius Inc. Ingram Micro Inc. EX-11.01 3 EXHIBIT 11.01 EXHIBIT 11.01 COMPUTATION OF NET INCOME (LOSS) PER SHARE (in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED JULY 1, JULY 1, 1995 1994 1995 1994 ----- ------ ------ ------ Primary: Average common shares outstanding 14,791 13,698 14,386 13,522 Net effect of dilutive stock options - based on the modified treasury stock method using average market price - 344 - - -------- -------- -------- -------- Totals 14,791 14,042 14,386 13,522 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) $ (3,112) $ 1,062 $(13,857) $ (8,473) -------- -------- -------- -------- -------- -------- -------- -------- Per share amount $ (0.21) $ 0.08 $ (0.96) $ (0.63) -------- -------- -------- -------- -------- -------- -------- -------- Fully diluted: Average common shares outstanding 14,791 13,698 14,386 13,522 Net effect of dilutive stock options - based on the modified treasury stock method using quarter end market price which is greater than average market price - 343 - - -------- -------- -------- -------- Totals 14,791 14,041 14,386 13,522 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) $ (3,112) $ 1,062 $(13,857) $ (8,473) -------- -------- -------- -------- -------- -------- -------- -------- Per share amount* $ (0.21) $ 0.08 $ (0.96) $ (0.63) -------- -------- -------- -------- -------- -------- -------- -------- * The primary net income (loss) per share is shown in the statements of operations. Net income (loss) per share under the primary and fully diluted calculations are equivalent.
-17- EX-27 4 EXHIBIT 27
5 1,000 9-MOS SEP-30-1995 APR-02-1995 JUL-01-1995 16,268 0 80,634 0 38,361 145,824 7,588 0 157,761 95,826 0 113,217 0 0 0 157,761 87,325 0 65,211 0 23,432 (1,318) (1,531) (2,849) 263 0 0 0 0 (3,112) (0.21) 0