-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T3G1pZvcWpBucU5uOz0OriMHcXXd4wRXnONItDXXFYuE6KQ+ZPPBLRPgKorsSOwI OiKf1KwVD1vDjxemmzy20A== 0000912057-95-011799.txt : 20030213 0000912057-95-011799.hdr.sgml : 20030213 19951229173600 ACCESSION NUMBER: 0000912057-95-011799 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951229 DATE AS OF CHANGE: 19960221 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-35769 FILM NUMBER: 96500003 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-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 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, INCLUDING ZIP CODE) (408) 541-6100 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) --------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK 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 ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. (X) AS OF DECEMBER 15, 1995 ----------------------- AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING BID PRICE OF SUCH STOCK: $43,739,556 NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 17,401,094 DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 21, 1996 ARE INCORPORATED BY REFERENCE INTO PART III (ITEMS 10, 11, 12, AND 13) HEREOF. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RADIUS INC. 1995 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I Page ---- ITEM 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3 ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 10 ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10 ITEM 4. Submissions of Matters to a Vote of Security Holders. . . . 10 PART II ITEM 5. Market for Registrant's Common Equity and Related Shareholder Matters. . . . . . . . . . . . . . . . . . . 13 ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 13 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . 15 ITEM 8. Financial Statements and Supplementary Data . . . . . . . . 26 ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. . . . . . . . . . . 26 PART III ITEM 10. Directors and Executive Officers of the Registrant. . . . . 27 ITEM 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 27 ITEM 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 27 ITEM 13. Certain Relationships and Related Transactions. . . . . . . 27 PART IV ITEM 14. Exhibits, Financial Statements, Financial Statement Schedule, and Reports on Form 8-K. . . . . . . . . . . . . 28 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 -2- PART I ITEM 1. BUSINESS OVERVIEW Radius Inc. (the "Company" or the "Registrant" or "Radius") designs, develops, manufactures, markets and supports color publishing and digital video computer products for creative professionals. The Company's current product line includes: accelerated color graphics products that facilitate the creation and manipulation of graphical images; video systems and software that can acquire and manipulate video and audio information; high resolution color reference displays that allow users to view two full pages of text, graphics, images and video; and Macintosh operating system ("MacOS") compatible computer systems. The primary target markets for the Company's products are color publishing and multimedia. These markets encompass creative professionals involved in such areas as color prepress, graphic arts, video editing, video and multimedia production and playback, and corporate training. To date substantially all of the Company's products have been designed for and sold to users of Macintosh computer products (the "Macintosh") manufactured by Apple Computer, Inc. ("Apple") as Apple products have been the preferred platform in the Company's target markets. As shown in the accompanying consolidated financial statements, the Company has incurred substantial operating losses and has a deficiency in assets and working capital. Management has implemented, or has developed plans to implement, a number of actions to address this situation including: refocusing its efforts on providing solutions for high end digital video and graphics customers; discontinuing sales of mass market and other low value added products; divesting its color server and monochrome display businesses and exploring opportunities for the divestiture of its MacOS compatible systems products and other product lines; significantly reducing expenses and headcount; subleasing all or a portion of its current facility given its reduced occupancy requirements; and investigating various strategic partnering opportunities. The Company acquired SuperMac Technologies, Inc. ("SuperMac") effective August 31, 1994 (the "Merger"). The Company's executive offices are located at 215 Moffett Park Drive, Sunnyvale, CA 94089, and its telephone number is (408) 541- 6100. PRODUCTS AND APPLICATIONS A summary of some of the Company's principal products and their typical applications is set forth below:
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION - ---------------- ------- ------------------ Accelerated Color ThunderColor 30/1600 Color publishing, prepress, graphics Graphics Products ThunderColor 30/1152 design and professional color imaging (PCI-based) Thunder 30/1600 Thunder 30/1152 PrecisionColor 8/1600 ColorEngine (NuBus-based) Thunder IV GXY1600 Thunder IV GXY1360 Thunder/24 GT PrecisionColor Pro 24X PrecisionColor 8XJ PhotoEngine
-3-
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION - ---------------- ------- ------------------ Digital Video Systems Radius Telecast Professional quality video production, and Software VideoVision Studio multimedia production, video production Radius Edit for corporate training and education, video QuickFlix! editing and special effects software VideoFusion Color Reference PressView 21SR Color publishing, prepress and graphics Displays PressView 17SR design PrecisionView 21 Color Management ProSense Display Calibrator Color publishing and prepress Products Color Composer MacOS Compatible Radius 81/110 Color publishing and digital video Systems Radius System 100 content providers Color Server Splash MX Color publishing, office color printing Products Splash MX Plus and scanning Splash TX
ACCELERATED COLOR GRAPHICS PRODUCTS The Radius graphics product families offer a wide range of user choices to enhance the graphics performance of Apple Macintosh computers based on both the NuBus and PCI bus architectures. The choices range from an entry level accelerated 8-bit color graphics card (256 colors with up to 1 million pixels of color display information) to a variety of accelerated 24-bit color graphics cards (up to 16.7 million colors). All of the Company's graphics card products offer a range of high speed QuickDraw acceleration features and support numerous Radius, Apple and other third-party displays ranging from 13-inches to 21-inches in size. The Company's graphics card products also allow the user to switch resolutions "on-the-fly" without having to reboot the computer. The ThunderColor (PCI) and Thunder IV (NuBus) class graphics cards offer enhanced resolutions, as well as a number of other acceleration capabilities for Adobe Photoshop, a popular application for working with computer images. These graphics cards also feature hardware pan and zoom capability, enabling users to quickly change the size and the amount of the information on their color display. The Company believes these capabilities allow users working with large amounts of detailed information to be more productive because they can quickly accomplish a variety of tasks using these hardware-based acceleration features. The ThunderColor (PCI), Thunder 30 (PCI), and Thunder IV (NuBus) graphics cards include multiple 66 MHz AT&T digital signal processors ("DSPs") that accelerate Adobe Photoshop. Having parallel processing DSPs rather than the base Macintosh's CPU perform the millions of computations required to manipulate Photoshop images means that customers can produce finished results more quickly and are more productive in their creative and production process. These cards include chip technology that enables users to use Photoshop's CMYK color mode faster than the native Macintosh. This is attractive to imaging professionals who use Photoshop to work with and edit images comprised of 'ink' data which is ready for printing. The Company believes this special "CMYK acceleration" technology makes working with ink images on a computer display more interactive. DIGITAL VIDEO SYSTEMS AND SOFTWARE Radius offers a number of products for the non-linear digital video editing and production market. Non-linear digital editing enables video editors to manipulate pictures and sound in a faster, easier and more cost effective manner than traditional analog tape-based systems. Editors can randomly access and digitally "cut and paste" images, videos and sound clips avoiding the tedious process of winding and rewinding of linear tape and the subsequent physical cutting and splicing of film segments. VideoVision Studio, Radius' leading desktop video product, was the first fully QuickTime compatible video editing and production system that supported full- screen (640 x 480 pixels), full-motion video at 60-fields per-second. -4- VideoVision Studio offers JPEG video compression/decompression capabilities, 16- bit stereo audio, and allows users to output their finished product directly and easily to videotape. VideoVision Studio is compatible with QuickTime based software applications for editing, effects, titling, graphics, animation and audio. Radius Telecast offers broadcast quality digital video for short form projects. Radius Telecast features include: high-quality, Betacam SP component, S- video and composite digitizing and play back; QuickTime-compliant video system software; 16-bit analog audio; and a 19" rack-mountable design. Radius Telecast is designed to provide full QuickTime support, a high degree of studio integration and professional video and audio support. Radius also offers a variety of QuickTime compliant digital video software applications that facilitate the creation and editing of digital video content. Radius Edit is a non-linear professional digital video editing solution that features an intuitive user interface, FX templates, built-in titling, multiple key frames, batch digitizing and picture-in-picture capabilities. VideoFusion offers a variety of high-quality special effects for digital video editing including dynamic morphing, warping, pan-zoom-rotating, titling, chroma keying and compositing. QuickFLIX! is an inexpensive entry level application for creating QuickTime movies for business and education presentations. DISPLAYS The Company currently offers a variety of large color reference displays designed for desktop color publishers and graphic artists. The PressView SR series (PressView 21SR and PressView 17SR) is designed to offer the color accuracy, resolution and clarity needed for high quality color prepress, media authoring, photography, medical imaging and scientific image processing. These color reference displays offer consistent and accurate color preproofing at resolutions of up to 1600 by 1200 pixels and support advanced Diamondtron technology. The PrecisionView 21 also offers resolutions of up to 1600 by 1200 pixels but at a lower price point. When used with Radius' ProSense Display Calibrator, the PressView SR series and the PrecisionView 21 support Kodak PrecisionColor, Agfa FotoFlow, Apple ColorSync 2.0 and EFI Color management systems to ensure color accuracy. In the past, the Company has also offered a variety of monochrome displays. As part of its strategy to refocus its business, the Company entered into a definitive agreement on December 21, 1995 to sell its monochrome display business to Display Technologies Electrohome Inc. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Business Divestitures." COLOR MANAGEMENT PRODUCTS Color peripherals tend to vary over time from their original specifications, thus causing significant color variances. Display calibrators control the way peripherals produce color, making the color more consistent and predictable. The Company's Prosense Display Calibrator works with sensing technology and Macintosh software to measure the actual color performance of a display and then adjust information in the Macintosh graphics card so that the colors will be "in balance." This product also communicates with a number of third party color management systems to provide color information about the display so that color can be managed from one peripheral to another. MACOS COMPATIBLE SYSTEMS The Company currently offers two MacOS-compatible systems for the color publishing and multimedia markets: The Radius 81/110 and the Radius System 100. The Radius 81/110 is based on Apple's 110 MHz PowerPC 601 processor and is designed for the NuBus bus architecture. The Radius 81/110 provides the user with a base system that can then be customized to meet the users specific color publishing or multimedia needs. The Radius System 100 is preconfigured with Radius' Thunder IV GXY1600 graphics card, a 2 gigabyte hard drive and preloaded application software. Radius faced a number of challenges in entering the MacOS-compatible systems market including shortages of MacOS compatible systems components, Apple's transition from NuBus to PCI based systems that resulted in severe price erosion for NuBus based systems, manufacturing start-up issues, and the availability of sufficient capital to finance the business. For these and other reasons, the Company is now negotiating to sell its MacOS compatible systems business. -5- COLOR SERVER PRODUCTS The Company's Splash color server products enable customers to turn their Xerox MajestiK Color Copiers into printers and scanners that operate over a network. A Splash card is configured in a Macintosh computer and works in concert with Adobe CPSI (Configurable Postscript Interpreter) software to turn complex images of text, graphics and photographic information into high-resolution (400 dpi), high quality color prints. Splash cards process computer information and then quickly send it to a MajestiK Color Copier so that the copier engine technology can operate as a color printer connected to a network (Macintosh or PC). Both the Splash MX Plus and the Splash TX products also enable customers to use the Majestik scanning technology to capture high-resolution color images and download their images to their computer. On December 23, 1995, the Company entered into a definitive agreement to sell its color server business to Splash Technology, Inc., a company in which Radius will retain a 19.9% equity interest, for approximately $21.9 million. That sale is anticipated to be completed in January 1996. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Business Divestitures." TECHNOLOGY AND PRODUCT DEVELOPMENT The Company's research and development efforts are focused on creating new products and technologies for customers who create, review, approve and utilize high resolution color images and moving video. Current research and development efforts include: (i) performance improvements and cost reductions of current products; (ii) development of 3D graphics subsystems; (iii) development of application software to facilitate the creation and manipulation of video and high resolution still images; (iv) development of integrated software that improves ease of use and functionality of the Company's graphics cards, digital video cards, and color reference displays; and (v) development of next generation technology to enable new methods of displaying and creating information with greater flexibility, speed, and quality. The principles and features underlying the design of the Company's products are: identification and reduction of performance bottlenecks in graphics and video systems; providing consistency of color fidelity across products and applications; utilization of ASIC technology; and innovation within standard operating system environments. IDENTIFICATION AND REDUCTION OF BOTTLENECKS IN GRAPHICS AND VIDEO SYSTEMS The Company analyzes the performance of applications and hardware products within the environment of the host CPU and operating system with the goal of determining which parts of the overall solution are most resource and time intensive so that products can be developed which outperform the existing solutions. The Company has developed considerable knowledge of system software such as Apple's QuickDraw and QuickTime and critical application software such as Adobe Photoshop. The Company believes that its ability to eliminate bottlenecks in a manner that is compatible with existing Apple and third party products is a significant advantage in the marketplace. PROVIDING CONSISTENCY OF COLOR FIDELITY ACROSS PRODUCTS AND APPLICATIONS The Company strives to provide users with the most accurate and repeatable color available. The Company's high-end color reference displays provide tools to calibrate the display with both objective standards and visual perception, and to adjust the color range of the display to fit user needs. UTILIZATION OF ASIC TECHNOLOGY On a selective basis, the Company uses its in-house integrated computer aided engineering capabilities to develop proprietary ASIC chips for use in its own products. The use of ASIC chips allows the Company to increase performance while reducing chip count and board size which thereby reduces cost. ASICs are used heavily throughout the Company's graphics card line. In some cases, however, commercially available devices offer better overall price/performance than proprietary ASICs (given the development cost involved), and the Company's strategy is to make the tradeoff on a product-by-product basis to provide the most cost-effective solution. INNOVATION WITHIN STANDARD OPERATING SYSTEM ENVIRONMENTS In order to maintain compatibility with the broad existing base of installed hardware and software, the Company seeks to innovate in conjunction with existing standards. For example, the Company's graphics cards are compatible with third party graphics software (such as Adobe Photoshop and Quark Pagemaker) as well as NuBus -6- and PCI-based computers. Similarly, the Company's digital video cards are tightly integrated into Apple's standard QuickTime environment. The Company believes that the competitive nature of the computer industry, along with the rapid pace of technological evolution, requires that it continue to introduce innovative products on a timely basis to compete effectively. During fiscal 1995, 1994 and 1993, the Company's expenditures for research and development totaled $19,310,000, $33,956,000, and $33,503,000, respectively. To date, all of the Company's research and development expenditures have been charged to operations as incurred. There can be no assurance that the Company's development efforts will result in commercially successful products, or that the Company's products will not be rendered obsolete by changing technology or new products introduced by others. Additionally, should the Company fail to introduce new products on a timely basis, the Company's operating results could be adversely affected. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Technological Change; Continuing Need to Develop New Products." MARKETING, SALES AND DISTRIBUTION The Company employs a two-tiered distribution model whereby it sells its products primarily through a limited number of distributors and master resellers that in turn distribute the Company's products to variety of resellers including superstores, independent dealers, educational resellers, systems integrators, value added resellers and mail order resellers. The Company's distributors and master resellers purchase products at discounts from suggested retail prices based on purchase volumes. In the United States, the Company sells its products primarily through the following major distributors and master resellers: Ingram Micro, Inc.; Intelligent Electronics; and MicroAge. The Company's business and financial results are highly dependent on the success of these distributors and master resellers. To assist these domestic distributors and master resellers and to provide marketing, training and technical support, the Company maintains field sales facilities in a number of locations throughout the United States. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Distribution." Since fiscal 1993, the Company has utilized the Reseller Alliance Marketing Program ("RAMP") for its domestic sales channel. Under RAMP, distributors and master resellers that meet certain volume sales commitments and reporting capabilities are extended deeper discounts than other distributors and master resellers on the Company's higher margin products such as graphics cards and digital video products. RAMP also includes a market development funding program that gives distributors and master resellers incentives to lower returns, increase sales, improve reporting and achieve a product mix favoring higher margin products. Internationally, sales are made through worldwide distributors, which market, sell and service the Company's products, and through the Company's wholly owned subsidiary located in Tokyo, Japan. In addition to its facilities in Japan, the Company maintains international sales offices in Surrey, England; Hamburg, Germany; and Paris, France. For the fiscal years ended September 30, 1995, 1994 and 1993, the Company's export sales accounted for approximately 40.4%, 34.5%, and 32.0%, respectively, of the Company's net sales. See Note 7 of Notes to Consolidated Financial Statements. The Company's export sales are subject to certain risks common to international operations, such as currency fluctuations and governmental regulations. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition --Certain Factors That May Affect the Company's Future Results of Operations --International Sales." For the fiscal years ended September 30, 1995, 1994 and 1993, Ingram Micro, Inc. accounted for approximately 34.0%, 13.5% and 11.5% of the Company's net sales, respectively. -7- Many of the Company's distributors and master resellers have the right to return products purchased from the Company. While the Company provides for estimated product returns, if in the future the Company were to experience returns from customers significantly in excess of this estimate, such returns could have a material adverse effect on the Company's results of operations. The Company's marketing programs support worldwide sales and distribution of its products. The Company's principal marketing activities include frequent participation in industry trade shows and seminars, advertising in major trade publications worldwide, public relations activities with the trade and business press, publication of technical articles, distribution of sales literature and product specifications and communications with its installed base of end users. The Company's marketing programs are designed to generate sales leads for its distributors and master resellers as well as to enhance the Company's brand name recognition. MANUFACTURING As a result of the Company's outsourcing of manufacturing, substantially all of the Company's assembly, quality control testing, packaging and other manufacturing operations are performed by the Company's suppliers, contract manufacturers, and other subcontractors. The Company has developed a quality assurance program with these third parties. The Company attempts to utilize standard parts and components available from multiple vendors. However, certain components used in the Company's products are available only from sole or limited suppliers, such as certain ASICs from LSI Logic and certain VideoVision parts from Toshiba. The Company's products also incorporate components, such as video random access memory, that are available from multiple sources but have been subject to substantial fluctuations in availability and price. Although the Company has been able to obtain an adequate supply of such components in the past, there can be no assurance that it will be able to obtain an adequate supply in the future. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Dependence on Suppliers." COMPETITION The color publishing and multimedia markets are, and are expected to remain, highly competitive. The Company's principal competitors in the color publishing market include Apple, ATI Technology and Diamond Multimedia Systems. The Company's principal competitors in the multimedia market include Truevision (formerly RasterOps Corporation), Data Translation, Inc., Matrox, Inc., Avid Technology, Inc., VideoLogic, Inc. and Fast Electronics Gmbh. The market for the Company's products is evolving, and it is difficult to predict all future sources of competition. Although Apple is principally a supplier of general purpose computing platforms upon which third parties are encouraged to build more complete solutions, the Company also faces competition from Apple. Apple markets a number of products, including computer systems and color displays, that compete directly or indirectly with the Company. Apple also could introduce additional products, add functionality to their computer systems that is similar to that provided by certain of the Company's products, or alter its systems' architecture in a manner that could adversely affect the Company's ability to compete. For example, Apple's PowerPC based products which have on-board graphic functionality and faster processing speed, could be considered competitors of specific product lines of the Company's. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Dependence on and Competition With Apple." The Company believes that the principal competitive factors for its product line are product performance, breadth of distribution, brand name recognition, price and customer support. There can be no assurance that the Company will be able to compete successfully with respect to these factors In addition, many of the Company's current and prospective competitors have significantly greater technical, manufacturing and marketing resources that the Company. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Competition." -8- PATENTS AND LICENSES The Company has been granted patents in the United States and in foreign countries and also has pending United States and foreign patent applications. The Company also has registered some of its trademarks in the United States and in foreign countries and has several trademark applications pending in the United States and other countries. In addition, the Company attempts to protect its software and other intellectual property under copyright and trade secret laws, through agreements with employees and consultants, and by other security measures. Although the Company believes that the ownership of patents, copyrights, trade secrets and trademarks is an important factor in its business, the Company relies primarily on the innovative skills, technological expertise and marketing abilities of its employees. The Company continues to implement protective measures and intends to defend its intellectual property rights, but there can be no assurance that these measures will be successful. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Dependence on Proprietary Rights." EMPLOYEES As of December 15, 1995, the Company had approximately 237 full time employees. The Company anticipates reducing its work force to under 200 employees as a result of the sale of its color server group. The Company's success will depend, in large measure, on its ability to attract and retain highly qualified technical, marketing, engineering and management personnel, who are in great demand. For a more complete discussion see "Management's Discussion and Analysis of Financial Condition -- Certain Factors That May Affect the Company's Future Results of Operations -- Dependence on Key Personnel." The Company's employees are not represented by any collective bargaining agreements, and the Company has never experienced a work stoppage. The Company believes that its employee relations are good. -9- ITEM 2. PROPERTIES The Company's primary facilities are located in Sunnyvale, California and consist of an 153,000 square foot building. These facilities, which house all of the Company's engineering, marketing, operations, finance and administration, and sales management operations, are substantially larger than the Company currently requires given recent reductions in its workforce. The Company is now attempting to sublease all or a portion of this facility. The lease on the primary facility will expire in March 1998. The Company has subleased to other companies approximately 281,000 square feet of facilities which the Company is currently not using. The Company maintains field sales facilities in a number of locations throughout the United States as well as in Surrey, England; Paris, France; Hamburg, Germany; and Tokyo, Japan. For additional information concerning the Company's lease commitments, see Note 3 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS (a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in the United States District Court in the Northern District of California alleging that the Company infringes a patent allegedly owned by EFI. Although the complaint does not specify which of the Company's products allegedly infringe the patent, subsequent pleading indicates that EFI alleges that the Company's Color Server products allegedly infringe. The Company's Color Server products are material to its business. The Company has filed an answer denying all material allegations, and has filed counterclaims against EFI alleging causes of action for interference with prospective economic benefit, antitrust violations, and unfair business practices. EFI has filed a motion to dismiss or sever the Company's counterclaims. The Company believes it has meritorious defenses to EFI's claims and is defending them vigorously. In addition, the Company believes it may have indemnification rights with respect to EFI's claims. In the opinion of management, based on the facts known at this time, the eventual outcome of this case is unlikely to have a material adverse effect on the results of operations or financial position of the Company. (b) In September 1992, the Company 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 post judgment interest, attorneys' fees, expert witness fees and costs, and equitable relief. In July 1994, SuperMac and 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 post judgment interest, attorneys' fees, experts' fees and costs, and equitable relief (including the imposition of a constructive trust on the proceeds of defendants' trading activities). 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 the Company, the Company's insurance carrier paid $3.7 million in cash and the Company will issue a total of 128,695 shares 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 a total of 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 Company's Common Stock is below $12 per share during the 60-day period following the initial issuance of shares. See Note 3 of Notes to Consolidated Financial Statements. (c) In January 1995, a patent infringement lawsuit was filed in the United States District Court for the Northern District of California by Mark C. Koz. Mr. Koz is the alleged holder of a patent involving video pixel data transfer and claims that Radius infringes that patent. The complaint sought injunctive relief and damages in an unspecified amount. The complaint did not specify which products of the Company allegedly infringed the patent; subsequent pleadings indicated that the plaintiff contended that Radius' VideoVision line of products infringed the patent. The Company licensed the technology for the products in question from Apple and has certain limited contractual -10- indemnification rights from Apple. On November 14, 1995 the parties entered into a Patent License and Settlement Agreement which granted to the Company a license under the patent for a small one time fee. (d) The Company was named as one of approximately 42 defendants in Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara County, case no. CV751685, filed August 14, 1995. Radius was named as one of approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al., Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December 15, 1995. Plaintiffs in each case purport to represent alleged classes of similarly situated persons and/or the general public, and allege that the defendants falsely advertise that the viewing areas of their computer monitors are larger than in fact they are. The Company was served with the Shapiro complaint on August 22, 1995, and has not yet been served with the Maizes complaint. Defendants' petition to the California State Judicial Council to coordinate the Shapiro case with similar cases brought in other California jurisdictions was granted in part and it is anticipated that the coordinated proceedings will be held in Superior Court of California, San Francisco County. Discovery proceedings have not yet begun in either case. In the opinion of management, based on the facts known at this time, the eventual outcome of these cases is unlikely to have a material adverse effect on the results of operations or financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of Shareholders (the "Special Meeting") was held on August 23, 1995. The sole matter voted upon at this Special Meeting was a proposal to increase the number of shares reserved for issuance under the Company's 1990 Employee Stock Purchase Plan from 300,000 to 650,000. The proposal was approved with 13,089,331 affirmative votes, 306,300 negative votes, and 136,127 votes abstaining. ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- Charles W. Berger 41 Chairman of the Board of Directors, Chief Executive Officer and President Weldon D. Bloom 46 Vice President, North American Sales Douglas W. Boake 30 Vice President and General Manager, Pacific, Asia and Latin America. Patrick A. Burns 48 Vice President and General Manager, Video and Graphics Dennis J. Dunnigan 40 Chief Financial Officer Mary E. Godwin 37 Vice President, Operations Keith M. Harris 37 Vice President and General Manager, Europe Kevin K. MacGillivray 36 Vice President and General Manager, Publishing Gregory M. Millar 39 Vice President, Research
-11- MR. BERGER was appointed President, Chief Executive Officer and a director of the Company in March 1993 and Chairman of the Board of Directors in March 1994. From April 1992 until he joined the Company, Mr. Berger was Senior Vice President, Worldwide Sales, Operations and Support for Claris Corporation ("Claris"), a subsidiary of Apple that develops and markets application software. From February 1991 to April 1992, he was President of Sun Microsystems Federal, Inc., a subsidiary of Sun Microsystems, Inc. ("Sun"), a manufacturer of computer work stations. From July 1989 to February 1991, he served as Vice President of Business Development for Sun, and from March 1989 to July 1989, he was Sun's Vice President of Product Marketing. From April 1982 to March 1989, Mr. Berger held numerous management positions involving, sales, marketing, business development and finance for Apple. MR. BLOOM was appointed Vice President of North America Sales when he joined the Company in July 1994. From December 1992 until he joined the Company, Mr. Bloom was Vice President of North American Sales for EO Inc., a manufacturer of pen- based computers. Mr. Bloom also spent eight years at Apple where he held a number of sales management positions including Director of Channel Sales and Development for Apple USA from July 1989 to April 1992 and Western Regional Manager for the Business Market Development Division from April 1992 to December 1992. MR. BOAKE was appointed Vice President and General Manager, Pacific, Asia and Latin America when he joined the Company in September 1993. From January 1993 until he joined the Company, Mr. Boake was President and Representative Director of Claris Japan Inc., a wholly owned Japanese subsidiary of Claris. He was managing director of Claris Pacific from October 1988 to January 1993. MR. BURNS was appointed Vice President and General Manager, Video and Graphics when he joined the Company in June 1995. From April 1994 until he joined the Company, Mr. Burns was Vice President, West Coast Operations for Chyron Corp., a manufacturer of digital electronics graphics equipment. He was Director of International Marketing for VeriFone Inc., a manufacturer of transaction automation systems, from May 1993 to April 1994. MR. DUNNIGAN joined Radius in August 1995 as Chief Financial Officer. Since 1986, Mr. Dunnigan has provided financial consultancy services and served as chief financial officer to a number of publicly-held companies in variety of industries including computers and high technology. MS. GODWIN was appointed Vice President, Operations in August 1995 and prior to assuming that position served as the Company's Director of Operations Engineering beginning when she joined the Company in July 1993 . Prior to joining the Company, Ms. Godwin spent seven years with Apple as a supply base manager, and seven years with Xerox Corporation ("Xerox"), a diversified manufacturer of document copying and processing equipment, as a technical specialist. MR. HARRIS was appointed Vice President and General Manager, European Operations in March 1994. He joined the Company in June 1990 as Director of UK Operations and was appointed Managing Director of Radius UK Limited, a subsidiary of Radius, in May 1991. From 1978 until joining the Company, Mr. Harris worked for Rank Xerox, a subsidiary of Xerox, in a variety of sales management positions concluding manager of the Indirect Operations Group where he was responsible for channel management and a wide variety of business units. MR. MACGILLIVRAY was appointed Vice President and General Manager, Publishing in April 1995. He joined the Company in January 1994 as Director, OEM Programs. Prior to joining the Company, Mr. MacGillivray served as Vice President, General Manager at ICE Graphics from 1983 to 1994. MR. MILLAR was appointed Vice President, Engineering and Chief Technology Officer in October 1995 and prior to assuming that position served as the Company's Vice President, Research from October 1993 to October 1995, and as Vice President, Engineering from July 1991 to October 1993. From January 1989 to July 1991, he held various managerial positions in the Company including General Manager of the Advanced Development Group, General Manager of the Macintosh Business Unit and Director of Software Development. Prior to joining the Company, Mr. Millar was Vice President of Engineering and a founder of Infa Corporation, a pen-based computing company, from June 1987 to December 1988. -12- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market on the Nasdaq National Market under the symbol "RDUS." The following table sets forth, for the periods indicated, the high and low bid prices of the Common Stock as reported on the Nasdaq National Market, giving effect to the one-for-two reverse stock split of its Common Stock, which first affected trading on August 31, 1994. These prices reflect inter-dealer bid prices and do not include retail markups, mark downs or commissions. 1995 Fiscal Year - ---------------- Quarter 1 ended December 31, 1994 10 1/4 to 7 5/8 Quarter 2 ended March 31, 1995 14 1/2 to 9 Quarter 3 ended June 30, 1995 13 3/4 to 9 1/8 Quarter 4 ended September 30, 1995 12 1/2 to 6 15/16 1994 Fiscal Year - ---------------- Quarter 1 ended December 31, 1993 17 1/2 to 7 1/4 Quarter 2 ended March 31, 1994 17 3/4 to 13 3/4 Quarter 3 ended June 30, 1994 15 1/2 to 8 3/4 Quarter 4 ended September 30, 1994 10 1/4 to 8 As of December 15, 1995, there were 598 holders of record of the Company's Common Stock, which does not include those who held in street or nominee name. The Company has never declared or paid any cash dividends on its capital stock. In addition, the Company's revolving line of credit agreements require the prior written consent of the lenders before the Company can pay any cash dividend on its capital stock. The Company anticipates that it will retain earnings for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere herein. The consolidated statements of operations data set forth below with respect to the years ended September 30, 1995, 1994 and 1993 and the consolidated balance sheet data at September 30, 1995 and 1994 are derived from, and are qualified by reference to, the audited consolidated financial statements included elsewhere herein and should be read in conjunction with those financial statements and the notes thereto. The consolidated statements of operations data for the year ended September 30, 1992 and 1991 and the consolidated balance sheet data as of September 30, 1993, 1992 and 1991 are derived from audited consolidated financial statements not included herein. -13-
SEPTEMBER 30, (1) ------------------------------------------------------------- 1995 1994 (2) 1993 (2) 1992 (2) 1991 (2) ---- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Net sales $308,133 $324,805 $337,373 $284,598 $199,033 Cost of sales 302,937 276,948 254,321 181,198 130,918 ---------- --------- --------- --------- --------- Gross profit 5,196 47,857 83,052 103,400 68,115 ---------- --------- --------- --------- --------- Operating expenses: Research and development 19,310 33,956 33,503 21,093 14,576 Selling, general and administrative 90,068 94,731 84,132 61,824 44,054 ---------- --------- --------- --------- --------- Total operating expenses 109,378 128,687 117,635 82,917 58,630 ---------- --------- --------- --------- --------- Income (loss) from operations (104,182) (80,830) (34,583) 20,483 9,485 Interest (expense) income, net (6,068) (1,245) 70 878 731 Litigation settlement (12,422) -- -- -- -- ---------- --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of a change in accounting principle (122,672) (82,075) (34,513) 21,361 10,216 Provision (benefit) for income taxes 9,070 (4,600) (13,774) 8,329 4,012 ---------- --------- --------- --------- --------- Income (loss) before cumulative effect of a change in accounting principle (131,742) (77,475) (20,739) 13,032 6,204 Cumulative effect of a change in method of accounting for income taxes - - 600 - - Net income (loss) $(131,742) $(77,475) $(20,139) $ 13,032 $ 6,204 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- Net Income (loss) per share: Income (loss) before cumulative effect of a change in accounting principle $ (8.75) $ (5.70) $ (1.61) $ 1.04 $ 0.54 Cumulative effect of a change in method of accounting for income taxes - - 0.05 - - ---------- --------- --------- --------- --------- Net income (loss) per share $ (8.75) $ (5.70) $ (1.56) $ 1.04 $ 0.54 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- Common and common equivalent shares used in computing net income (loss) per share 15,049 13,598 12,905 12,485 11,473 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- ---------
-14-
SEPTEMBER 30, (1) ------------------------------------------------------------ 1995 1994 (2) 1993 (2) 1992 (2) 1991 (2) ---- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital (Working capital deficiency) ($59,334) $ 29,856 $ 86,711 $ 84,303 $ 60,748 Total assets 87,878 126,859 172,275 150,658 106,306 Long-term debt---noncurrent portion 1,331 2,857 3,975 1,935 2,707 Shareholder's equity (Net capital deficiency) (57,117) 35,691 98,155 96,631 70,400 - ----------------------------------------
(1) The Company's fiscal year ends on the Saturday closest to September 30 and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years presented. During fiscal 1995, the Company changed its fiscal year end from the Sunday closest to September 30 to the Saturday closest to September 30 for operational efficiency purposes. For clarity of presentation, all fiscal periods in this Form 10-K are reported as ending on a calendar month end. (2) These periods have been restated to reflect the Merger of Radius and SuperMac which has been accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. 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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS--ANNUAL PERIODS The following table sets forth for the years indicated certain operational data as a percentage of net sales (may not add due to rounding).
YEAR ENDED SEPTEMBER 30 ------------------------------- 1995 1994 (1) 1993 (1) ---- -------- -------- Net sales 100.0% 100.0% 100.0% Cost of sales 98.3 85.3 75.4 ---- ---- ---- Gross profit 1.7 14.7 24.6 Operating expenses: Research and development 6.3 10.5 9.9 Selling, general, and administrative 29.2 29.2 24.9 ---- ---- ---- Total operating expenses 35.5 39.6 34.9 Loss from operations (33.8) (24.9) (10.3) Interest expense, net (2.0) (0.4) - Litigation settlement (4.0) - ---- ---- ---- Loss before income taxes (39.8) (25.3) (10.2) Provision (benefit) for income taxes 2.9 (1.4) (4.1) ---- ---- ---- Loss before cumulative effect of a change in accounting principle (42.8) (23.9) (6.1) Cumulative effect of change in method of accounting for income taxes - - 0.2 ---- ---- ---- Net loss (42.8)% (23.9)% (6.0)% ---- ---- ---- ---- ---- ----
(1) These periods have been restated to reflect the Merger of Radius and SuperMac which has been accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. 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 operating results for both the twelve months ended September 30, 1994 and September 30, 1993 include the restructuring and other charges of $16.6 million recorded by SuperMac in December 1993. -15- FISCAL 1995 COMPARED TO FISCAL 1994 NET SALES. The Company's net sales decreased 5.1% to $308.1 million in fiscal 1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were reduced by approximately $11.4 million due to reserves taken by the Company in anticipation of future price reductions on a number its graphics cards, MacOS compatible systems and other products that are designed for Apple's NuBus-based computers which have been largely replaced by Apple's recently introduced PCI Bus-based computers. During the fiscal year, net sales of graphics cards declined substantially due primarily to reduced demand resulting from Apple's incorporation of built-in graphics capabilities in its PowerPC based Macintosh systems. Net sales from displays, accelerator cards and printers also declined during the fiscal year. These declines were largely offset by sales of MacOS compatible systems which were first introduced in the 1995 fiscal year and by a substantial increase in net sales from the Company's color server products. While net sales from the Company's digital video products increased slightly during the fiscal year, the Company anticipates lower revenue from this product line until the introduction of new products now under development. The Company anticipates significantly lower overall net sales in fiscal 1996 as a result of the Company's decision to focus its efforts on providing solutions for high end digital video and graphics customers, discontinue selling mass market displays and other low value added products, and divest of certain businesses such as color servers and MacOS compatible systems. On December 23, 1995, the Company entered into a definitive agreement to sell its color server business to Splash Technology, Inc., a company in which Radius will retain a 19.9% equity interest, for approximately $21.9 million. That sale is anticipated to be completed in January 1996. In addition the Company is now negotiating to sell its MacOS compatible systems business and does not anticipate significant net sales from this business during the 1996 fiscal year. Export sales represented approximately 40.4%, 34.5%, and 32.0% of net sales for fiscal 1995, 1994 and 1993, respectively. See Note 7 of Notes to Consolidated Financial Statements. Export sales are subject to the normal risks associated with doing business in foreign countries such as currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, export controls and other government regulations and, in some countries, a lesser degree of intellectual property protection as compared to that provided under the laws of the United States. GROSS PROFIT. The Company's gross profit margin including restructuring and other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in fiscal 1994. The Company's gross profit margin excluding the restructuring and other charges declined to 16.9% in fiscal 1995, compared to 27.3% in fiscal 1994. Excluding restructuring and other charges, the Company's gross profit margin declined 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 and slower than expected sell through of its Radius Telecast digital video product, significant price erosion on NuBus based MacOS compatible systems combined with high production costs for these systems, the sale of end of life products, and increased pricing pressures. The Company anticipates continued competitive pricing actions resulting in declining prices in its industry. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased to $19.3 million (6.3% of net sales) in fiscal 1995 from $34.0 million (10.5% of net sales) in fiscal 1994. The Company's research and development expenses in fiscal 1994 included restructuring and other charges of $4.3 million. No restructuring and other charges were included in research and development expenses in fiscal 1995. The decrease in research and development expenses during the fiscal year was primarily due to the reduction of expenses as a result of the Company's restructuring following the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation, and facilities. While there can be no assurance that the Company's product development efforts will result in commercially successful products, the Company believes that development of new products and enhancement of existing products -16- are essential to its continued success, and management intends to continue to devote substantial resources to research and new product development. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses including restructuring and other charges decreased to $90.1 million (29.2% of net sales) in fiscal 1995 from $94.7 million (29.2% of net sales) in fiscal 1994. Selling, general and administrative expenses excluding restructuring and other charges decreased to $79.2 million (25.7% of net sales) in fiscal 1995 from $84.0 million (25.9% of net sales) in fiscal 1994. The decrease in selling, general and administrative expenses during the fiscal year was primarily due to the reduction of expenses as a result of the Company's restructuring following the Merger. The merger-related restructuring resulted in reduced costs primarily related to headcount, depreciation and facilities. PROVISION FOR INCOME TAXES. The Company's annual combined federal and state effective income tax rates were approximately (7.4%) (expense) in fiscal 1995 and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the combined statutory rate in effect during the period primarily as a result of the impact of not benefiting the 1995 operating losses and the reversal of existing deferred tax assets. The fiscal 1994 rate differs from the combined statutory rate in effect during the period primarily as a result of non-deductible merger related costs, the one time write-off of purchased research and development which is not tax deductible and the impact of not benefiting a significant portion of the 1994 operating loss. 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 reduced the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against its net deferred tax assets due to uncertainties surrounding their realization. Due to the net losses reported in the prior three years and as a result of the material changes in operations reported in its 1995 fiscal fourth quarter, predictability of earnings in future periods is uncertain. The Company will evaluate the realizability of the deferred tax asset on a quarterly basis. FISCAL 1994 COMPARED TO FISCAL 1993 NET SALES. The Company's net sales decreased 3.7% to $324.8 million in fiscal 1994 from $337.4 million in fiscal 1993. The Company believes that this decline in net sales was in part attributable to the customers postponing purchasing decisions during the fourth quarter while waiting to see which of the Company's product lines would be supported and which would be discontinued following the Merger. Sales were flat for the nine months ended June 30, 1994 prior to the Merger. Net sales of video products and displays increased but this increase was offset by pricing pressure on graphics cards. Demand was lower than anticipated for graphics cards due to the introduction of the Power Macintosh by Apple and the resulting customer uncertainty surrounding the need for graphics acceleration given the built-in video capabilities of this new product. GROSS PROFIT. The Company's gross profit margin including the restructuring and other charges declined to 14.7% in fiscal 1994, compared to 24.6%, in fiscal 1993. The Company's gross profit margin excluding the restructuring charges declined to 27.3% in fiscal 1994, compared to 31.8% in fiscal 1993. See Note 8 of Notes to Consolidated Financial Statements regarding the restructuring and other charges for SuperMac in December 1993 and Merger related restructuring and other charges in September 1994. Excluding the restructuring charges, the decline in gross margins was due to increased pricing pressures and a change in the product mix favoring lower margin displays over higher margin graphics accelerator cards. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased slightly to $34.0 million (10.5% of net sales) in fiscal 1994 from $33.5 million (9.9% of net sales) in fiscal 1993. The relatively flat absolute dollar expenditures in research and development activities were due to recording significant restructuring and other charges related to development project cancellations, equipment disposal, and severance in fiscal 1994 offset by the decrease in expenditures in fiscal 1994 as a result of the cancellation of Radius' efforts to develop a variety of technologies originally intended for a minicomputer-class server product. Additionally, the research and development expenses appeared flat due to the SuperMac 1993 restructuring of $2.0 million for development project cancellations included in both the fiscal 1993 and fiscal 1994 results of operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $94.7 million (29.2% of net sales) in fiscal 1994 from $84.1 million (24.9% of net sales) in fiscal 1993. The increase in -17- absolute dollars was primarily due to increased personnel expense, market development expenses, restructuring and other charges in fiscal 1994 and the Company's investment in its information system. The 1993 restructuring and other charges included the elimination of excess facilities, capital equipment write-offs, severance payments and the termination of certain contractual agreements. Restructuring and other charges for fiscal 1994 included the elimination of duplicative facilities, property and equipment and other assets, severance payments, as well as transaction fees and costs incidental to the Merger. PROVISION FOR INCOME TAXES. The Company's annual combined federal and state effective income tax rates were approximately 6% in fiscal 1994 and 40% in fiscal 1993 before the cumulative effect of the change in method of accounting for income taxes. The fiscal 1994 rate differs from the combined statutory rate in effect during the period primarily as a result of non-deductible merger related costs, the one time write-off of purchased research and development which is not tax deductible and the impact of not benefiting a significant portion of the 1994 operating loss. The 1993 rate differs from the combined statutory rate in effect during the period primarily as a result of the utilization of the research and development tax credit. RESTRUCTURING, MERGER AND OTHER CHARGES During fiscal 1993, 1994 and 1995, four 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 program designed to reduce costs and improve operating efficiencies. 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. In September 1995, Radius recorded $57.9 million restructuring charge in connection with the Company's efforts to refocus and streamline its business. A discussion of each of these events follows. RADIUS JUNE 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 were recorded during the third quarter of fiscal 1993. These charges (in thousands) are included in: cost of sales ($10,993); research and development ($411); and selling, general and administrative expenses ($4,096). 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. 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). There have been no material changes in the restructuring plan or in the estimates of the restructuring costs. The Company has $236,000 remaining in its restructuring reserve related to facility costs, the balance of which is expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial Statements, 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 ($10,711). The elements of the total charge as of September 30, 1995 are as follows (in thousands): -18-
Representing ---------------------------------------------- Cash Outlays ------------------------ Asset Provision Write-Downs Completed Future Adjust inventory levels $22,296 $19,200 $ 3,096 $ - Excess facilities 2,790 400 2,236 154 Revision of the operations business model 9,061 7,078 1,268 715 Employee severance 6,311 - 6,311 - Merger related costs 2,949 - 2,949 - ------- ------- ------- ------ Total charges $43,407 $26,678 $15,860 $ 869
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 the consolidation of sales offices. The revision of the operations business model reflects the reorganization of the combined Company's manufacturing operations to mirror Radius' manufacturing reorganization in 1993. This reorganization was designed to outsource 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 or temporary employees who were released due to the revised business model. Approximately 250 employees were terminated in connection with the Merger. 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 spent $15.9 million of cash for restructuring through September 30, 1995. The Company expects to have substantially completed the restructuring by September 1996. During fiscal 1995, approximately $2.1 million of merger related restructuring reserves were reversed and recorded as an expense reduction due to changes in estimated requirements. RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES In September 1995, Radius recorded charges of $57.9 million in connection with the Company's efforts to refocus its business on the color publishing and multimedia markets. The charges primarily included a writedown of inventory and other assets. Additionally, it included expenses related to the cancellation of open purchase orders, excess facilities and severance. The charges (in thousands) are included in cost of sales ($47,004), and selling, general and administrative expense ($10,861). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
Representing ---------------------------------------------- Cash Outlays ------------------------ Asset Provision Write-Downs Completed Future Adjust inventory levels $ 33,138 $ 32,300 $ - $ 838 Excess facilities 2,004 404 - 1,600 Cancellation fees and asset write-offs 19,061 5,196 - 13,865 Employee severance 3,662 - - 3,662 ------- ------- ------- ------ Total charges $ 57,865 $ 37,900 $ - $19,965
The adjustment of inventory levels reflects the discontinuance of several product lines. The provision for excess facility costs represent the write-off of leasehold improvements and the costs associated with anticipated reductions in facilities. The cancellation fees and asset write-offs reflect the Company's decision to refocus its efforts on providing solutions for the color publishing and multimedia markets. Employee severance costs are related to employees or temporary employees who have been or will be released due to the revised business model. As of December 15, 1995, approximately 157 positions had been eliminated in connection with the new business model. The Company had not spent any cash for this restructuring as of September 30, 1995. As of September 30, 1995, the Company had cash and cash equivalents of $4.8 million. See "Management's Business Recovery Plans" at Note 1 due to the Consolidated Financial Statements. The Company expects to have substantially completed the restructuring by September 1996. -19- BUSINESS DIVESTITURES COLOR SERVER GROUP On December 23, 1995, the Company signed a definitive agreement pursuant to which the Company will sell its Color Server Group ("CSG") to Splash Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc. (the "Parent"), a corporation formed by various investment entities associated with Summit Partners. The Company will receive approximately $21,945,175 in cash (subject to certain post-closing adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock (the " Series B Preferred Stock"). The shares of Series B Preferred Stock will be convertible by the Company at any time into 19.9% of the Parent's common stock outstanding as of the closing of the transaction. The shares of Series B Preferred Stock also will be redeemable by the Parent at any time, and will be subject to mandatory redemption beginning on the sixth anniversary of issuance, in each case at a redemption price of $1,000 per share plus accrued dividends. The transaction is expected to close in January 1996. Under the Inventory and Working Capital Agreement, as recently amended, with IBM Credit Corp., the Company is required to pay all of the net proceeds of the Color Server Group transaction to IBM Credit Corp. in order to reduce the Company's outstanding indebtedness under that agreement. PORTRAIT DISPLAY LABS On December 19, 1995, the Company signed a series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting technology to PDL and canceled PDL's on-going royalty obligation to the Company under an existing license agreement in exchange for a one-time cash payment. PDL also granted the Company a limited license back to the pivoting technology. Under these agreements, PDL also settled its outstanding receivable to the Company by paying the Company $500,000 in cash and issuing to the Company 214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial Statements. DISPLAY TECHNOLOGIES ELECTROHOME INC. On December 21, 1995, the Company signed a Business Purchase Agreement and an Asset Purchase and License Agreement with Display Technologies Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain closing conditions, DTE will purchase Radius' monochrome display monitor business and certain assets related thereto, for approximately $200,000 in cash and cancellation of $2.5 million of the Company's indebtedness to DTE. In addition, DTE and Radius will cancel outstanding contracts relating to DTE's manufacture and sale of monochrome display monitors to Radius. RESULTS OF OPERATIONS--QUARTERLY PERIODS The following table sets forth certain unaudited quarterly financial information for the Company's last eight fiscal quarters (in thousands, except per share data). The information includes all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation thereof. The operating results for any quarter are not necessarily indicative of results for any future period. The Company's fiscal year ends on the Sunday closest to September 30. -20-
FISCAL 1995 FISCAL 1994 (1) --------------------------------------- ------------------------------------- 9/30/95 6/30/95 3/31/95 12/30/95 9/30/94 6/30/94 3/31/94 12/31/93 Net sales $57,126 $87,325 $84,447 79,235 $66,940 $86,673 $83,180 $88,013 Cost of sales 118,055 65,211 62,913 56,758 86,682 59,931 57,279 73,057 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit (loss) (60,929) 22,114 21,534 22,477 (19,742) 26,742 25,901 14,956 -------- -------- -------- -------- -------- -------- -------- -------- Operating expenses: Research and development 5,530 4,990 4,672 4,118 13,119 5,645 6,445 8,648 Selling, general and administrative 41,343 18,442 14,401 15,882 35,190 19,232 19,003 21,405 -------- -------- -------- -------- -------- -------- -------- -------- Total operating expenses 46,873 23,432 19,073 20,000 48,309 24,877 25,448 30,053 -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) from operations (107,802) (1,318) 2,461 2,477 (68,051) 1,865 453 (15,097) Interest (expense) income, net (1,463) (1,531) (2,154) (920) (739) (223) (121) (159) Litigation settlement - - - (12,422) - - - - -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes (109,265) (2,849) 307 (10,865) (68,790) 1,642 332 (15,256) Provision (benefit) for income taxes 8,620 263 31 156 209 580 688 (6,077) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) $(117,885) $(3,112) $ 276 $(11,021) $(68,999) $1,062 $ (356) $(9,179) --------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) per share $ (6.92) $ (0.21) $0.02 $ (0.78) $ (4.99) $ 0.08 $(0.03) $ (0.69) --------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- -------- Common and common equivalent shares used in computing net income (loss) per share 17,039 14,791 14,556 14,215 13,828 14,042 13,496 13,370 --------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- --------
(1) These periods have been restated to reflect the Merger of Radius and SuperMac which has been accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. 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. Therefore, results for the quarter ended September 30, 1993 shown above include a $16.6 million charge recorded by SuperMac in December 1993. Additionally, the results for the quarter ended December 31, 1993 reflect this same $16.6 million charge recorded by SuperMac in December 1993. The Company's operating results are subject to quarterly fluctuations as a result of a number of factors, including: the sales rate and mix of Apple computers; the introduction of new products by Apple, the Company or its competitors; the timing of sales and marketing expenses by the Company; the timing of business cycles in the United States and worldwide; the availability and cost of key components; the Company's ability to develop innovative products; the Company's product and customer mix; and the level of competition. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased approximately $11.2 million during fiscal 1995 to approximately $4.8 million at September 30, 1995, as compared with the fiscal 1994 ending balance of cash and cash equivalents of $16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash equivalents available at September 30, 1995 was restricted under various letters of credit. Capital expenditures were $1.9 million in fiscal 1995 and $3.5 million in fiscal 1994. The decrease in the Company's cash and cash equivalents during fiscal 1995 was primarily attributable to expenditures made in connection with the development and introduction of the Company's MacOS compatible systems. The Company completed a private placement during the third quarter of the 1995 fiscal year, the proceeds of which allowed the Company to build inventory of MacOS-compatible 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 $21.4 million. -21- At September 30, 1995, the Company's principal sources of liquidity included approximately $30.0 million in inventory and working capital financing under an agreement with IBM Credit Corporation (the "ICC Agreement") together with an additional $20.0 million provided by IBM Credit Corp. under the ICC Agreement to finance the manufacturing of the Company's MacOS compatible products, all of which was fully utilized. In addition, the Company has a $5.0 million credit arrangement with Silicon Valley Bank ("SVB") which was partially utilized as of that date. Additionally, the Company's Japanese subsidiary has a revolving line of credit with a bank in Japan under which $3.1 million has been utilized as of September 30, 1995. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under the ICC Agreement; however, IBM Credit Corp. has waived such defaults pursuant to an amendment to the ICC Agreement executed in December 1995 (the "ICC Amendment"). The ICC Amendment, among other things, also provides that until March 31, 1996 IBM Credit Corp. will extend advances to the Company in an amount up to 90% of the Company's collections and fund the Company's payroll in the event that collections are insufficient to permit the advances needed for this purpose. Such advances and payroll funding, however, may be suspended by IBM Credit Corp. (i) immediately following a default of the ICC Amendment, and (ii) following thirty (30) days notice in the event of any default of the ICC Agreement. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under its credit arrangement with SVB. As of December 15, 1995 approximately $1,200,000 was outstanding under this credit arrangement, all of which the Company anticipates paying SVB during the first calendar quarter of 1996. Recently, the Company's limited 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 additional costs for expedited deliveries. The Company also is delinquent in its accounts payables as payments to vendors are not being made in accordance with vendor terms. The adverse effect on the Company's results of operations due to its limited cash resources can be expected to continue until such time as the Company is able to return to profitability, or generate additional cash from other sources. There can be no assurance that the Company will be able to do so. Additional funds will be needed to finance the Company's development plans and for other purposes, and the Company is now investigating possible financing opportunities. 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. CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, the following: CONTINUING OPERATING LOSSES The Company experienced net operating losses in the fiscal years ended September 30, 1993, 1994 and 1995. The Company's ability to achieve and sustain profitable operations will depend upon a number of factors, including the Company's ability to control costs; to develop innovative and cost-competitive new products and to bring those products to market in a timely manner; the rate and mix of Apple computers and related products sold; competitive factors such as new product introductions, product enhancements and aggressive marketing and pricing practices; general economic conditions; and other factors. The Company has faced and expects to continue to face increased competition in graphic cards as a result of Apple's transition of its product line to the PCI Bus. In addition, the Company anticipates significantly lower revenue and gross profit from its digital video products primarily due to lower than anticipated sell trough rates for Radius Telecast. For these and other reasons, there can be no assurance that the Company will be able to achieve profitability in the near term. -22- FLUCTUATIONS IN OPERATING RESULTS The Company has experienced substantial fluctuations in operating results. The Company's customers generally order on an as-needed basis, and the Company has historically operated with relatively small backlogs. Quarterly sales and operating results depend heavily on the volume and timing of bookings received during the quarter, which are difficult to forecast. A substantial portion of the Company's revenues are derived from sales made late in each quarter, which increases the difficulty in forecasting sales accurately. Recently, shortages of available cash have delayed the Company's receipt of products from suppliers and increased shipping and other costs. The Company recognizes sales upon shipment of product, and allowances are recorded for estimated noncollectable amounts, returns, credits and similar costs, including product warranties and price protection. Due to the inherent uncertainty of such estimates, there can be no assurance that the Company's forecasts regarding bookings, collections, rates of return, credits and related matters will be accurate. A significant portion of the operating expenses of the Company are relatively fixed in nature, and planned expenditures are based primarily on sales forecasts which, as indicated above, are uncertain. Any inability on the part of the Company to adjust spending quickly enough to compensate for any failure to meet sales forecasts or to receive anticipated collections, or any unexpected increase in product returns or other costs, could also have an adverse impact on the Company's operating results. DEPENDENCE ON AND COMPETITION WITH APPLE Historically, substantially all of the Company's products have been designed for and sold to users of Apple personal computers, and it is expected that sales of products for such computers will continue to represent substantially all of the net sales of the Company for the foreseeable future. The Company's operating results would be adversely affected if Apple should lose market share, if Macintosh sales were to decline or if other developments were to adversely affect Apple's business. As software applications for the color publishing and multimedia markets become more available on platforms other than Macintosh, it is likely that these other platforms will continue to gain acceptance in these markets. For example, recently introduced versions of the Windows operating environment support high performance graphics and video applications similar to those offered on the Macintosh. There is a risk that this trend will reduce the support given to Macintosh products by third party developers and could substantially reduce demand for Macintosh products and peripherals over the long term. A number of the Company's products compete with products marketed by Apple. As a competitor of the Company, Apple could in the future take steps to hinder the Company's development of compatible products and slow sales of the Company's products. The Company's business is based in part on supplying products that meet the needs of high-end customers that are not fully met by Apple's products. As Apple improves its products or bundles additional hardware or software into its computers, it reduces the market for Radius products that provide those capabilities. For example, the Company believes that the on-board performance capabilities included in Macintosh Power PC products have reduced and continue to reduce overall sales for the Company's graphics cards. In the past, the Company has developed new products as Apple's progress has rendered existing Company products obsolete, but there can be no assurance that the Company will continue to develop successful new products on a timely basis in the future. In order to develop products for the Macintosh on a timely basis, the Company depends upon access to advance information concerning new Macintosh products. A decision by Apple to cease sharing advance product information with the Company would adversely affect the Company's business. 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 additional direct competition for the Company. For example, the Company believes that Apple's transition during 1994 to Power PC products caused delays and uncertainties in the market place and had the effect of reducing demand for the Company's products. In addition, sales of the Company's products have been adversely affected by Apple's revamping of its entire product line from NuBus-based to PCI Bus-based computers. In the past, transitions in Apple's products have been accompanied by shortages in those products and in key components for them, leading to a slowdown in sales of those products and in the development and sale by the Company of compatible products. In addition, it is possible that the introduction of new Apple products with improved performance capabilities may create uncertainties in the market concerning the need for the performance enhancements provided by the Company's products and could reduce demand for such products. -23- COMPETITION The markets for the Company's products are highly competitive, and the Company expects competition to intensify. Many of the Company's current and prospective competitors have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company believes that its ability to compete will depend on a number of factors, including the success and timing of new product developments by the Company and its competitors, product performance, price and quality, breadth of distribution and customer support. There can be no assurance that the Company will be able to compete successfully with respect to these factors. In addition, the introduction of lower priced competitive products could result in price reductions that would adversely affect the Company's results of operations. DEPENDENCE ON SUPPLIERS The Company outsources the manufacturing and assembly of its products to third party suppliers. Although the Company uses a number of manufacturer/assemblers, each of its products is manufactured and assembled by a single supplier. The failure of a supplier to ship the quantities of a product ordered by the Company could cause a material disruption in the Company's sales of that product. In the past, the Company has at times experienced substantial delays in its ability to fill customer orders for displays and other products, due to the inability of certain suppliers to meet their volume and schedule requirements and, recently, due to the Company's shortages in available cash. Due to recent shortages in cash resources and because the Company seeks to manage its use of working capital by, among other things, limiting the backlog of inventory it purchases, the Company is particularly vulnerable to delays in shipments from suppliers. Such delays can cause fluctuations in the Company's short term results and contribute to order cancellations. The Company is also dependent on sole or limited source suppliers for certain key components used in its products, including certain digital to analog converters, digital video chips, and other products. Certain other semiconductor components and molded plastic parts are also purchased from sole or limited source suppliers. The Company purchases these sole or limited source components primarily pursuant to purchase orders placed from time to time in the ordinary course of business and has no guaranteed supply arrangements with sole or limited source suppliers. The Company expects that these suppliers will continue to meet its requirements for the components, but there can be no assurance that they will do so. The introduction of new products presents additional difficulties in obtaining timely shipments from suppliers. Additional time may be needed to identify and qualify suppliers of the new products. Also, the Company has experienced delays in achieving volume production of new products due to the time required for suppliers to build their manufacturing capacity. An extended interruption in the supply of any of the components for the Company's products, regardless of the cause, could have an adverse impact on the Company's results of operations. The Company's products also incorporate components, such as VRAMs, DRAMs and ASICs that are available from multiple sources but have been subject to substantial fluctuations in availability and price. Since a substantial portion of the total material cost of the Company's products is represented by these components, significant fluctuations in their price and availability could affect its results of operations. TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS The personal computer industry in general, and the color publishing and video applications within the industry, are characterized by rapidly changing technology, often resulting in short product life cycles and rapid price declines. The Company believes that its success will be highly dependent on its ability to develop innovative and cost-competitive new products and to bring them to the marketplace 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. Technological innovation is particularly important for the Company, since its business is based on its ability to provide functionality and features not included in Apple's products. As Apple introduces new products with increased functionality and features, the Company's business will be adversely affected unless it develops new products that provide advantages over Apple's latest offerings. Continued reduction in the available cash resources of the Company could result in the interruption or cancellation of research and product development efforts. The Company anticipates that the video editing industry will follow the pattern of the professional publishing industry in which desktop publishing products, including those produced by Radius, replaced more expensive, proprietary products, and the Company also anticipates that this evolution will lead to a significant increase in the purchase and use of video editing products. There is a risk that this evolution will not occur in the video editing industry as expected by the Company, or that it will occur at a slower pace than anticipated. -24- The introduction of new products is inherently subject to risks of delay. Should the Company fail to introduce new products on a timely basis, the operating results of the Company could be adversely affected. The introduction of new products and the phasing out of older products will require the Company to carefully manage its inventory to avoid inventory obsolescence and may require increases in inventory reserves. The long lead times -- as much as three to five months -- associated with the procurement of certain components (principally displays and ASICs) exposes the Company to greater risk in forecasting the demand for new products. There can be no assurance that the Company's forecasts regarding new product demand and its estimates of appropriate inventory levels will be accurate. Moreover, no assurance can be given that the Company will be able to cause all of its new products to be manufactured at acceptable manufacturing yields or that the Company will obtain market acceptance for these products. DISTRIBUTION The Company's primary means of distribution is through a limited number of third-party distributors and master resellers. As a result, the Company's business and financial results are highly dependent on the amount of the Company's products that is ordered by these distributors and resellers. Such orders are in turn dependent upon the continued viability and financial condition of these distributors and resellers as well as on their ability to resell such products and maintain appropriate inventory levels. Due in part to the historical volatility of the personal computer industry, certain of the Company's resellers have from time to time experienced declining profit margins, cash flow shortages and other financial difficulties. The future growth and success of the Company will continue to depend in large part upon its reseller channels. If its resellers were to experience financial difficulties, the Company's results of operations could be adversely affected. INTERNATIONAL SALES The Company's international sales are primarily made through distributors and the Company's subsidiary in Japan. The Company expects that international sales will represent a significant portion of its net sales and that it will be subject to the normal risks of international sales such as currency fluctuations, longer payment cycles, export controls and other governmental regulations and, in some countries, a lesser degree of intellectual property protection as compared to that provided under the laws of the United States. In addition, fluctuations in exchange rates could affect demand for the Company's products. If for any reason exchange or price controls or other restrictions on foreign currencies are imposed, the Company's business and operating results could be materially adversely affected. DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant degree upon the continued contributions of its key management, marketing, product development and operational personnel and the Company's ability to retain and continue to attract highly skilled personnel. Competition for employees in the computer industry is intense, and there can be no assurance that the Company will be able to attract and retain qualified employees. The Company has recently made a number of management changes, including the appointment of a new Chief Financial Officer. If the Company continues to experience financial difficulties, it may become increasingly difficult for it to hire new employees and retain current employees. The Company does not carry any key person life insurance with respect to any of its personnel. DEPENDENCE ON PROPRIETARY RIGHTS The Company relies on a combination of patent, copyright, trademark and trade secret protection, nondisclosure agreements and licensing arrangements to establish and protect its proprietary rights. The Company has a number of patents and patent applications and intends to file additional patent applications as it considers appropriate. There can be no assurance that patents will issue from any of these pending applications or, if patents do issue, that any claims allowed will be sufficiently broad to protect the Company's technology. In addition, there can be no assurance that any patents that may be issued to the Company will not be challenged, invalidated or circumvented, or that any rights granted thereunder would provide proprietary protection to the Company. The Company has a number of trademarks and trademark applications. There can be no assurance that litigation with respect to trademarks will not result from the Company's use of registered or common law marks, or that, if litigation against the Company were successful, any resulting loss of the right to use a trademark would not reduce sales of the Company's products in addition to the possibility of a significant damages award. Although, the Company intends to defend its proprietary rights, policing unauthorized use of proprietary technology or products is difficult, and there can be no assurance that the Company's efforts will be successful. The laws of certain foreign countries may not protect the proprietary rights of the Company to the same extent as do the laws of the United States. -25- The Company has received, and may receive in the future, communications asserting that its products infringe the proprietary rights of third parties, and the Company is engaged and has been engaged in litigation alleging that the Company's products infringe others' patent rights. As a result of such claims or litigation, it may become necessary or desirable in the future for the Company to obtain licenses relating to one or more of its products or relating to current or future technologies, and there can be no assurance that it would be able to do so on commercially reasonable terms. VOLATILITY OF STOCK PRICE; DILUTION The price of the Company's Common Stock has fluctuated widely in the past. Management believes that such fluctuations may have been caused by announcements of new products, quarterly fluctuations in the results of operations and other factors, including changes in conditions of the personal computer industry in general. Stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of securities issued by the Company and other high technology companies, often for reasons unrelated to the operating performance of the specific companies. Due to the factors referred to herein, the dynamic nature of the Company's industry, general economic conditions and other factors, the Company's future operating results and stock prices may be subject to significant volatility in the future. In addition, any change in other operating results could have an immediate and significant effect on the prices of the Company's Common Stock. Such stock price volatility for the Common Stock has in the past provoked securities litigation, and future volatility could provoke litigation in the future that could divert substantial management resources and have an adverse effect on the Company's results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The index to the Company's Financial Statements, Financial Schedules, and the Report of the Independent Auditors appears in Part IV of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. With the exception of the information specifically stated as being incorporated by reference from the Company's definitive Proxy Statement for its 1995 Annual Meeting of Shareholders (the "Proxy Statement") in Part III of this Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as filed as part of this report. The Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the Company's fiscal year end. -26- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information concerning the Company's directors required by Item 10 is incorporated by reference herein to section entitled "Proposal No. 1 - Election of Directors" of the Proxy Statement The information concerning the Company's executive officers required by Item 10 is incorporated by reference to Item 4A in Part 1 hereof entitled "Executive Officers of Registrant." ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the sections entitled "Executive Compensation" and "Proposal No. 1 - Election of Directors--Compensation of Directors" of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated herein by reference to the section entitled "Certain Transactions" of the Proxy Statement. -27- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. The Company's financial statements filed herewith are as follows: Page ---- Report of Ernst & Young LLP, Independent Auditors 35 Consolidated Balance Sheets at September 30, 1995 and 1994 36 Consolidated Statements of Operations for the Years Ended September 30, 1995, 1994 and 1993 37 Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1995, 1994, and 1993 38 Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994, and 1993 39 Notes to Consolidated Financial Statements 40 (a)(2) FINANCIAL STATEMENT SCHEDULES. The Company's financial statement schedule filed herewith is as follows: Page ---- Schedule II: Valuation and Qualifying Accounts 54 All other financial statement schedules are omitted because the information called for is not present in amounts sufficient to require submission of the schedules or because the information required is shown either in the financial statements or the notes thereto. -28- (a) (3) EXHIBITS. Exhibit Number Title ------ ----- 2.01 Agreement and Plan of Reorganization dated May 20, 1994 between Radius Inc. and SuperMac Technology, Inc. (9) 2.02 Modification Agreement dated July 21, 1994 to Agreement and Plan of Reorganization between Radius Inc. and SuperMac Technology, Inc. (9) 2.03 Agreement of Merger dated August 31, 1994 between Radius Acquisition Corp. and SuperMac Technology, Inc. 2.04 Certificate of Ownership and Merger of SuperMac Technologies, Inc. into Radius Inc. dated September 7, 1994 and Certificate of Ownership of SuperMac Technologies, Inc. by Radius Inc. dated September 8, 1994 2.05 Agreement and Plan of Reorganization dated July 19, 1994 between Radius Inc. and VideoFusion, Inc. (12) 2.06 First Amendment to Agreement and Plan of Reorganization between Radius Inc. and Video Fusion, Inc. dated August 25, 1994 2.07 Second Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated September 6, 1994. 2.08 Third Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated May 10, 1995 3.01 A Registrant's Sixth Amended and Restated Articles of Incorporation. (2) * B Certificate of Amendment of Registrant's Sixth Amended and Restated Articles of Incorporation. 3.02 Registrant's Bylaws. (4) 4.01 Form of Specimen Certificate for Registrant's Common Stock. (1) 4.04 * Non-Plan Stock Option Grant to Charles W. Berger. (8) 10.01 * A Registrant's 401(k) Savings and Investment Plan. (6) * B Amendment to the Registrant's 401(k) Savings and Investment Plan. * C Registrant's 401(k) Savings and Investment Plan Loan Policy 10.02 * Registrant's 1995 Stock Option Plan. 10.03 * Form of Stock Option Agreement and Exercise Request as currently in effect under 1995 Stock Option Plan. 10.04 * Registrant's 1990 Employee Stock Purchase Plan and related documents. (3) 10.05 * Registrant's 1994 Directors' Stock Option Plan. -29- Exhibit Number Title ------ ----- 10.07 Form of Indemnity Agreement with Directors. (1) 10.08 A Credit Agreement by and among Radius Inc., the certain financial institutions, and Silicon Valley Bank, dated March 20, 1995. (14) B Credit Agreement by and among Radius Inc., the certain financial institutions, and International Business Machines Credit Corporation, dated February 17, 1995. (14) C Acknowledgment, Waiver and Amendment to Radius Inc. Inventory and Working Capital Financing Agreement by and between Radius Inc. and International Business Machines Credit Corporation dated December 14, 1995. 10.09 A Lease Agreement by and between Registrant and the Equitable Life Assurance Society of the United States dated June 22, 1988, as amended by the Commencement of Term Agreement dated February 13, 1989 and Amendment No. One dated July 20, 1989, and related documents (1710 Fortune Drive, San Jose, California offices). (1) B Second Amendment to Lease dated January 27, 1993 amending Lease Agreement by and between Registrant and Fortune Drive Partners (successor in interest to the Equitable Life Assurance Society of the United States) dated June 22, 1988 (1710 Fortune Drive, San Jose, California offices). (7) 10.10 Lease Agreement by and between Registrant and Board of Administration, as Trustee for the Police and Fire Department Fund, and Board of Administration, as Trustee for the Federated City Employees Retirement Fund dated December 11, 1990, and related documents (Milpitas, California warehouse space). (2) 10.11 Lease Agreement by and between Registrant and South Bay/Copley Associates III Joint Venture dated May 11, 1992; Sublease by and between Core Industries, Inc. and Registrant dated May 12, 1992; and related documents (2040 Fortune Drive, San Jose, California offices). (5) 10.12 A Lease Agreement between SuperMac Technologies, Inc. and Connecticut General Life Insurance Company dated as of November 13, 1993 (215 Moffett Park Drive, Sunnyvale, California offices). (10) B First Amendment to Lease Agreement between SuperMac Technologies, Inc. and Connecticut General Life Insurance Company dated as of May 4, 1993 (215 Moffett Park Drive, Sunnyvale, California offices). 10.13 Lease Agreement between SuperMac Technologies, Inc. and RREEF USA Fund-II, Inc. dated as of June 16, 1993 (Borregas Avenue, Sunnyvale, California warehouse space). 10.14 * Employment Agreement by and between Registrant and Charles W. Berger dated February 26, 1993 as amended on September 17, 1993. (11) 10.17 Full Recourse Promissory Note with Charles W. Berger. (11) -30- Exhibit Number Title ------ ----- 10.18 Full Recourse Promissory Notes with J. Daniel Shaver. 10.19 Full Recourse Promissory Note from Michael A. McConnell. 10.20 * SuperMac Technology, Inc.'s 1988 Stock Option Plan ("Option Plan"). (13) 10.21 * SuperMac Technology, Inc.'s Form of Incentive Stock Option Agreement under the Option Plan. (13) 10.22 * SuperMac Technology, Inc.'s Form of Supplemental Stock Option Agreement under the Option Plan. (13) 10.23 * SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase Agreement under the Option Plan. (13) 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). (15) 11.01 Computation of per share earnings 21.01 List of Registrant's subsidiaries 23.01 Consent of Ernst & Young, LLP, Independent Auditors 27 Financial Data Schedules * Management contracts or compensatory plans required to be filed as an exhibit to Form 10-K. (1) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-1 (File No. 33-35769), which became effective on August 16, 1990. (2) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 24, 1990. (3) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 30, 1991. (4) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525). (5) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 12, 1992. (6) Incorporated by reference to exhibits to the Company's Report on Form 10-K filed on December 28, 1992. (7) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 18, 1993. (8) Incorporated by reference to exhibits to the Company's Registration Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636). (9) Incorporated by reference to exhibits to the Company's Amendment No. 2 (File No. 33-79732) to Form S-4 filed on July 25, 1994. (10) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No. 33-58158) filed on February 11, 1993. (11) Incorporated be reference to exhibits to the Company's Report on Form 10-K filed on January 3, 1994. (12) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 17, 1994. -31- (13) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s Registration Statement on Form S-1, as amended (File No. 33-46800), which became effective on May 15, 1992. (14) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on May 10, 1995. (15) Incorporated by reference to exhibits to the Company's Report on Form 10-Q filed on August 15, 1995. (b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the last quarter of the period covered by this report. (c) EXHIBITS - See (a) (3) above. (d) FINANCIAL STATEMENT SCHEDULES - See (a) (2) above. -32- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RADIUS INC. By: /s/ Charles W. Berger ------------------------------ Charles W. Berger President, Chief Executive Officer and Director POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Charles W. Berger and David G. Pine, jointly and severally, his true and attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in- fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: NAME TITLE DATES PRINCIPAL EXECUTIVE OFFICER: /s/ Charles W. Berger President, Chief Executive 12/28/95 - ------------------------------------ Officer and Chairman of Charles W. Berger the Board of Directors PRINCIPAL FINANCIAL OFFICER: /s/ Dennis J. Dunnigan Chief Financial Officer 12/28/95 - ------------------------------------ Dennis J. Dunnigan CHIEF ACCOUNTING OFFICER: /s/ Cherrie L. Jurado Controller 12/28/95 - ------------------------------------ Cherrie L. Jurado DIRECTORS: /s/ Michael D. Boich Director 12/28/95 - ------------------------------------ Michael D. Boich /s/ Michael A. McConnell Director 12/28/95 - ------------------------------------ Michael A. McConnell -33- /s/ Regis McKenna Director 12/28/95 - ------------------------------------ Regis McKenna /s/ David B. Pratt Director 12/28/95 - ------------------------------------ David B. Pratt -34- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND SHAREHOLDERS RADIUS INC. We have audited the accompanying consolidated balance sheets of Radius Inc. as of September 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity (net capital deficiency) and cash flows for each of the three years in the period ended September 30, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14 (a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respect, the consolidated financial position of Radius Inc. at September 30, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that Radius Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses, and has a deficiency in assets and working capital. In addition the Company has not complied with certain covenants of loan agreements with its lenders. These conditions raise substantial doubt about the Company's ability to continue as a going concern. (Management's plans in regard to these matters are also described in Note 1.) The financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for income taxes. Palo Alto, California December 8, 1995 except for Note 11, as to which the date is December 27, 1995 -35- CONSOLIDATED BALANCE SHEETS
September 30 (in thousands) 1995 1994 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 4,760 $ 15,997 Accounts receivable, net of allowance for doubtful accounts of $8,502 in 1995 and $2,548 in 1994 61,644 62,145 Inventories 15,071 21,069 Prepaid expenses and other current assets 2,336 1,473 Income tax receivable 519 9,083 Deferred income taxes - 8,400 -------- -------- Total current assets 84,330 118,167 Property and equipment, net 3,031 7,728 Deposits and other assets 517 964 -------- -------- $ 87,878 $126,859 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) Current liabilities: Accounts payable $ 73,098 $ 39,255 Accrued payroll and related expenses 5,815 4,024 Accrued warranty costs 3,170 2,255 Other accrued liabilities 11,920 6,650 Accrued income taxes 1,665 1,237 Accrued restructuring and other charges 17,013 15,148 Short-term borrowings 29,489 18,095 Obligations under capital leases - current portion 1,494 1,647 -------- -------- Total current liabilities 143,664 88,311 Obligations under capital leases-noncurrent portion 1,331 2,857 Commitments and contingencies Shareholders' equity: (Net capital deficiency) Convertible preferred stock, no par value, 1,000 shares authorized; none issued and outstanding Common stock, no par value; 50,000 shares authorized; issued and outstanding--17,143 shares in 1995 and 14,046 shares in 1994 113,791 87,017 Common stock to be issued 12,022 - Accumulated deficit (182,993) (51,251) Accumulated translation adjustment 63 (75) -------- -------- Total shareholders' equity (Net capital deficiency) (57,117) 35,691 -------- -------- $87,878 $126,859 -------- -------- -------- --------
See accompanying notes. -36- CONSOLIDATED STATEMENTS OF OPERATIONS For years ended September 30 (in thousands, except per share data)
1995 1994 (1) 1993 (1) ---- -------- -------- Net sales $308,133 $324,805 $337,373 Cost of sales 302,937 276,948 254,321 -------- -------- -------- Gross profit 5,196 47,857 83,052 -------- -------- -------- Operating expenses: Research and development 19,310 33,956 33,503 Selling, general and administrative 90,068 94,731 84,132 -------- -------- -------- Total operating expenses 109,378 128,687 117,635 -------- -------- -------- Loss from operations (104,182) (80,830) (34,583) Interest and other income (loss) (3,045) (376) 705 Interest expense (3,023) (869) (635) Litigation settlement (12,422) -- -- -------- -------- -------- Loss before income taxes (122,672) (82,075) (34,513) Provision (benefit) for income taxes 9,070 (4,600) (13,774) -------- -------- -------- Loss before cumulative effect of a change in accounting principle (131,742) (77,475) (20,739) Cumulative effect of a change in method of accounting for income taxes -- -- 600 -------- -------- -------- Net loss $(131,742) $(77,475) $(20,139) -------- -------- -------- -------- -------- -------- Net loss per share: Loss before cumulative effect of a change in accounting principle $ (8.75) $ (5.70) $ (1.61) Cumulative effect of a change in method of accounting for income taxes -- -- 0.05 ------ ------ ------ Net loss per share $ (8.75) $(5.70) $(1.56) ------ ------ ------ ------ ------ ------ Common and common equivalent shares used in computing net loss per share 15,049 13,598 12,905 ------- ------ ------ ------- ------ ------
See accompanying notes. (1) This period has been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes 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 operating results for both the twelve months ended September 30, 1994 and September 30, 1993 include the restructuring and other charges of $16.6 million recorded by SuperMac in December 1993. -37- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended September 30, 1995, 1994 and 1993 (in thousands, except share data)
Total Retained Shareholders Earnings Accumulated Equity Common (Accumulated Deferred Translation (Net Capital Stock Deficit) Compensation Adjustment Deficiency) ------ ------------ ------------ ----------- -------------- Balance at September 30, 1992 (1) $ 60,203 $ 36,449 $ (58) $ 37 $ 96,631 Issuance of 738 shares of common stock under the SuperMac public offering 15,401 15,401 Issuance of 517 shares of common stock under Stock Option Plans 1,324 -- -- -- 1,324 Issuance of 159 shares of common stock under the Employee Stock Purchase Plans 1,663 -- -- -- 1,663 Tax benefit from stock options exercised 3,358 -- -- -- 3,358 Amortization of deferred compensation -- -- 36 -- 36 Currency translation adjustment -- -- -- (119) (119) Net loss -- (20,139) -- -- (20,139) --------- -------- ------- ----- -------- Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155 Issuance of 350 shares of common stock under Stock Option Plans 1,800 -- -- -- 1,800 Issuance of 170 shares of common stock under Employee Stock Purchase Plans 989 -- -- -- 989 Issuance of 206 shares of common stock pursuant to the acquisition of VideoFusion 1,854 -- -- -- 1,854 Tax benefit from stock options exercised 425 -- -- -- 425 Amortization of deferred compensation -- -- 22 -- 22 Currency translation adjustment -- -- -- 7 7 Net loss -- (77,475) -- -- (77,475) Elimination of SuperMac net loss for the three months ended December 31, 1993 9,914 -- -- 9,914 --------- -------- ------- ----- -------- Balance at September 30, 1994 87,017 (51,251) -- (75) 35,691 Issuance of 214 shares of common stock under Stock Option Plans 1,254 1,254 Issuance of 162 shares of common stock under Employee Stock Purchase Plan 1,298 1,298 Issuance of 212 shares pursuant to the acquisition of VideoFusion 2,857 2,857 Settlement of Litigation-stock to be issued 12,022 12,022 Issuance of 2,509 shares of common stock through private placement 21,365 21,365 Currency translation adjustment 138 138 Net Loss (131,742) (131,742) --------- -------- ------- ----- -------- Balance at September 30, 1995 $125,813 $(182,993) -- $ 63 $(57,117) --------- --------- ------- ----- -------- --------- --------- ------- ----- --------
See accompanying notes. (1) These periods have been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. 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. -38- CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS For years ended September 30 (in thousands)
1995 1994 1993(1) ---- ---- ------- Cash flows from operating activities: Net loss $(131,742) $(77,475) $(20,139) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,689 4,542 8,160 Acquired in-process research and development expenses -- 2,550 -- Elimination of SuperMac net loss for the three months ended December 31, 1993 -- 9,914 -- Non-cash restructuring and other charges 57,865 40,775 28,981 Common stock to be issued 12,022 -- -- (Increase) decrease in assets: Accounts receivable (5,471) (20,171) (7,543) Allowance for doubtful accounts 5,954 426 297 Inventories (27,140) (1,058) (5,633) Prepaid expenses and other current assets (862) 1,739 15 Income tax receivable 8,564 468 (9,551) Deferred income taxes 8,400 11,248 (11,322) Increase (decrease) in liabilities: Accounts payable 33,843 3,470 2,570 Accrued payroll and related expenses (1,871) (1,441) 1,014 Accrued warranty costs 915 (1,584) 438 Other accrued liabilities 5,270 (4,039) 2,171 Accrued restructuring and other charges (13,601) (6,117) -- Accrued income taxes 428 (1,534) 4,585 --------- --------- --------- Total adjustments 89,005 39,188 14,182 --------- --------- --------- Net cash used in operating activities (42,737) (38,287) (5,957) --------- --------- --------- Cash flows from investing activities: Capital expenditures (1,894) (3,460) (7,739) Deposits and other assets (238) 71 -- Purchase of short-term investments -- (2,002) (31,914) Proceeds from sale of short-term investments -- 18,395 35,938 --------- --------- --------- Net cash provided by (used in) investing activities (2,132) 13,004 (3,715) --------- --------- --------- Cash flows from financing activities: Issuance of short-term borrowings, net 11,394 15,275 1,158 Issuance of common stock 23,917 3,214 18,388 Principal payments of long-term debt -- (43) (1,388) Principal payments under capital leases (1,679) (1,179) (1,140) --------- --------- --------- Net cash provided by financing activities 33,632 17,267 17,018 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (11,237) (8,016) 7,346 Cash and cash equivalents, beginning of period 15,997 24,013 16,667 --------- --------- --------- Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013 --------- --------- --------- --------- --------- ---------
See accompanying notes. (1) This period has been restated to reflect the 1994 Merger of Radius and SuperMac which was accounted for as a pooling of interests. See Note 10 of Notes to the Consolidated Financial Statements. The consolidated financial statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes 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. -39- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Radius Inc. ("Radius") and its wholly owned subsidiaries after elimination of significant intercompany transactions and balances. Radius and SuperMac Technologies, 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 fiscal 1993 have not been restated to adjust SuperMac's fiscal year end to that of Radius. This period includes 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. FINANCIAL STATEMENTS ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates include the level of allowance for potentially uncollectible receivables and sales returns; inventory reserves for obsolete, slow-moving, or non-salable inventory; and estimated cost for installation, warranty and other customer support obligations. Actual results could differ from these estimates. MANAGEMENT'S BUSINESS RECOVERY PLANS As shown in the accompanying consolidated financial statements, the Company has incurred recurring operating losses, and has a deficiency in assets and working capital. In addition, as of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under its credit agreements. The Company also is delinquent in its accounts payables as payments to vendors are not being made in accordance with vendor terms. The Company's relatively limited 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 additional costs for expedited deliveries. The adverse effect on the Company's results of operations due to its limited cash resources can be expected to continue until such time as the Company is able to return to profitability, or generate additional cash from other sources. These conditions raise concerns about the Company's ability to continue operations as an ongoing concern. Management has implemented, or has developed plans to implement, a number of actions to address these conditions including: refocusing its efforts on providing solutions for high end digital video and graphics customers; discontinuing sales of mass market and other low value added products; divesting its color server and monochrome display businesses and exploring opportunities for the divestiture of its MacOS compatible systems products and other product lines; significantly reducing expenses and headcount; subleasing all or a portion of its current facility given its reduced occupancy requirements; and investigating various strategic partnering opportunities. Additional funds will be needed to finance the Company's development plans and for other purposes, and the Company is now investigating possible financing opportunities. 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. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to September 30 and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years presented. During fiscal 1995, the Company changed its fiscal year end from the Sunday closest to September 30 to the Saturday closest to September 30 for operational efficiency -40- purposes. For clarity of presentation, all fiscal periods in this Form 10-K are reported as ending on a calendar month end. FOREIGN CURRENCY TRANSLATION The Company translates the assets and liabilities of its foreign subsidiaries into dollars at the rates of exchange in effect at the end of the period and translates revenues and expenses using rates in effect during the period. Gains and losses from these translations are accumulated as a separate component of shareholders' equity. Foreign currency transaction gains or losses, which are included in the results of operations, are not material. INVENTORIES Inventories are stated at the lower of cost or market. The Company reviews the levels of its inventory in light of current and forecasted demand to identify and provide reserve for obsolete, slow-moving, or non-salable inventory. Cost is determined using standard costs that approximate cost on a first-in, first-out basis. Inventories consist of the following (in thousands):
September 30 1995 1994 ---- ---- Raw materials $1,559 $4,515 Work in process 2,258 6,852 Finished goods 11,254 9,702 ------- -------- $15,071 $ 21,069 ------- -------- ------- --------
PROPERTY AND EQUIPMENT Property and equipment is stated at cost and consists of the following (in thousands):
September 30 1995 1994 ---- ---- Computer equipment $17,429 $18,007 Machinery and equipment 12,335 14,184 Furniture and fixtures 6,023 5,562 Leasehold improvements 1,084 1,683 ------- -------- 36,871 39,436 ------- -------- ------- -------- Less accumulated depreciation and amortization (33,840) (31,708) ------- -------- $3,031 $7,728 ------- -------- ------- --------
Depreciation has been provided for using the straight-line method over estimated useful lives of three to five years. Equipment under capital leases and leasehold improvements are being amortized on the straight-line method over six years or the remaining lease term, whichever is shorter. LONG-LIVED ASSETS In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. REVENUE RECOGNITION Revenue is recognized when products are shipped. Sales to certain resellers are subject to agreements allowing certain rights of return and price protection on unsold merchandise held by these resellers. The Company provides for estimated returns at the time of shipment and for price protection following price declines. -41- WARRANTY EXPENSE The Company provides at the time of sale for the estimated cost to repair or replace products under warranty. The warranty period commences on the end user date of purcahse and is normally one year for displays and digital video products and for the life of the product for graphics cards. INCOME TAXES Effective October 1, 1992, the Company adopted FASB Statement 109, "Accounting for Income Taxes." Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the liability method prescribed by Statement 96, which is superseded by Statement 109. Among other changes, Statement 109 changes the recognition and measurement criteria for deferred tax assets included in Statement 96. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. The cumulative effect of the change in method of accounting for income taxes decreased the net loss by $600,000 or $0.05 per share in fiscal 1993 on a combined basis. LOSS PER SHARE Net loss per share is computed using the weighted average number of common shares outstanding. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents; investments with maturities between three and twelve months are considered to be short-term investments. Cash equivalents are carried at cost which approximates market. There were no short-term investments as of September 30, 1995 or 1994. Approximately $1.6 million of the $4.8 million of cash and cash equivalents available at September 30, 1995 was restricted under various letters of credit. OFF BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK The Company sells its products to direct computer resellers in the United States and to distributors in various foreign countries. The Company performs on-going credit evaluations of its customers and generally does not require collateral. The Company maintains reserves for potential credit losses. The Company also hedges substantially all of its trade accounts receivable denominated in foreign currency through the use of foreign currency forward exchange contracts based on firm commitments. Gains and losses associated with currency rate changes on forward contracts are recognized in the consolidated statements of operations and were not material. At September 30, 1995, the Company had forward contracts to sell three different foreign currencies which totaled the equivalent of approximately $11.1 million and mature between October 1995 and November 1995. At September 30, 1995, the fair value of the Company's forward contracts approximated cost. RELATED PARTIES In fiscal 1994, the Company acquired shares of preferred stock of Portrait Display Labs ("PDL") and a warrant to purchase additional shares of PDL preferred stock in exchange for the cancellation of certain rights held by the Company to purchase all of the outstanding equity securities or assets of the predecessor entity to PDL. The warrant permitted the purchase of approximately an additional 10% interest in PDL. The Company also was granted one seat on PDL's Board of Directors. In addition, the Company licensed PDL certain pivot display technology in exchange for the payment of royalties. Product revenues were approximately $5.0 million in fiscal 1994. In fiscal 1995, the Company exercised the warrant for an additional 10% interest in PDL in exchange for cancellation of approximately $945,000 in accounts receivable. There were no product revenues for the fiscal 1995 to this related party. The receivable from PDL at September 30, 1995 was approximately $980,000. -42- Subsequent to September 30, 1995, the Company signed a series of additional agreements with Portrait Display Labs, see Note 11 to the Consolidated Financial Statements. There were no material transactions from this or any other related party during fiscal 1993. NOTE TWO. BORROWINGS LINE OF CREDIT ARRANGEMENT In February 1995, the Company and IBM Credit Corp. ("ICC") entered into a $30.0 million Inventory and Working Capital Financing Agreement (the "ICC Agreement"). The ICC Agreement permits advances for inventory and working capital up to the lesser of $30.0 million or 85% of eligible receivables ("Inventory and Working Capital Advances"). In September 1995, ICC advanced an additional $20.0 million under the ICC Agreement to finance the manufacturing of the Company's MacOS compatible products (the "MacOS Advances"). Advances bear interest at rates ranging from prime rate plus 2.25% to prime rate plus 4% and are secured by all the assets of the Company. The ICC Agreement expires in March 1996. As of September 30, 1995, $50.8 million was outstanding under the ICC Agreement consisting of $30.8 million in Inventory and Working Capital Advances and approximately $20.0 million in MacOS Advances. The outstanding Inventory and Working Capital Advances included $18.7 million in working capital advances supported by eligible receivables, $6.1 million in working capital advances in excess of the borrowing base, and $6.1 million in inventory advances. The $24.7 million in working capital advances are included in Short-term borrowings in the Consolidated Financial Statements. The $6.1 million in inventory advances, together with the approximately $20.0 million in MacOS Advances, are included in Accounts payable in the Consolidated Financial Statements. As of September 30, 1995, the Company was not in compliance with all of its contractual obligations and financial covenants under the ICC Agreement (specifically, revenues to working capital ratio, net profit to revenue, and total liabilities to total net worth); however, IBM Credit has waived such defaults pursuant to an amendment to the ICC Agreement. See Note 11 to the Consolidated Financial Statements. In addition, the Company entered into a Business Loan Agreement on March 20, 1995 with Silicon Valley Bank. The agreement, which expires on March 19, 1996, allows the Company to issue letters of credit as a sub-facility under a $5.0 million foreign accounts receivable revolving line of credit subject to an interest rate of up to the prime rate plus 1.25%. The related debt outstanding as of September 30, 1995 was $1.7 million and outstanding letters of credit were $0.8 million. The Company was not in compliance with all the terms of this credit arrangement. One of the Company's subsidiaries has a revolving line of credit with a bank in Japan. Borrowings were approximately $3.1 million at September 30, 1995. This note bears interest at the lesser of the Euro-yen rate or the bank's prime lending rate (1.5 percent at September 30, 1995, the prime rate). The line of credit is renewed every six months with the next renewal in December 1995. -43- NOTE THREE. COMMITMENTS AND CONTINGENCIES LEASES The Company leases facilities under operating leases and certain computer equipment and office furniture under capital leases. Depreciation expense for assets under capital leases is included in depreciation and amortization expense. The cost and net book value of these capitalized lease assets included in property and equipment are (in thousands):
At September 30, Cost Net Book Value ------- -------------- 1995 $ 7,437 $ 2,642 1994 7,437 4,021
Future minimum lease payments at September 30, 1995, under capital leases and noncancelable operating leases are as follows (in thousands):
Capital Operating Leases Leases ------- --------- 1996 $ 1,686 $1,837 1997 1,155 1,887 1998 280 1,843 1999 -- 1,750 2000 -- 1,759 ------- ------ Total minimum lease payments 3,121 $9,076 Amount representing interest (296) ------- Present value of minimum lease payments 2,825 Amount due within one year (1,494) ------- Amount due after one year $ 1,331 ------- -------
Rent expense charged to operations amounted to approximately $3.5 million, $3.0 million and $3.8 million for the years ended September 30, 1995, 1994 and 1993, respectively. The rent expense amounts for fiscal 1995, 1994 and 1993 exclude a provision for remaining lease obligations on excess facilities. See Note 8 of Notes to the Consolidated Financial Statements. Sublease income for fiscal 1995 and 1994 was approximately $0.6 million and $0.1 million. There was no sublease income for fiscal 1993. CONTINGENCIES DISPLAY SCREEN SIZE The Company was named as one of approximately 42 defendants in Shapiro et al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara County, case no. CV751685, filed August 14, 1995. Radius was named as one of approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al., Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December 15, 1995. Plaintiffs in each case purport to represent alleged classes of similarly situated persons and/or the general public, and allege that the defendants falsely advertise that the viewing areas of their computer monitors are larger than in fact they are. The Company was served with the Shapiro complaint on August 22, 1995, and has not yet been served with the Maizes complaint. Defendants' petition to the California State Judicial Council to coordinate the Shapiro case with similar cases brought in other California jurisdictions was granted in part and it is anticipated that the coordinated proceedings will be held in Superior Court of California, San Francisco County. Discovery proceedings have not yet begun in either case. In the opinion of management, based on the facts known at this -44- time, the eventual outcome of these cases is unlikely to have a material adverse effect on the results of operations or financial position of the Company. ELECTRONICS FOR IMAGING On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in the United States District Court in the Northern District of California alleging that the Company infringes a patent allegedly owned by EFI. Although the complaint does not specify which Radius products allegedly infringe the patent, EFI is a prime competitor of Radius in the Color Server market. Radius' Color Server products are material to its business. The Company has filed an answer denying all material allegations, and has filed counterclaims against EFI alleging causes of action for interference with prospective economic benefit, antitrust violations, and unfair business practices. The Company believes it has meritorious defenses to EFI's claims and is defending them vigorously. In addition, the Company believes it may have indemnification rights with respect to EFI's claims. In the opinion of management, based on the facts known at this time, the eventual outcome of this case is unlikely to have a material adverse effect on the results of operations or financial position of the Company. SECURITIES LITIGATION. In September 1992, the Company 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 and 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). 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 the Company, our insurance carrier paid $3.7 million in cash and the Company will issue 128,695 shares 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 connection with these settlements, the Company recorded a charge of $12.4 million in the Consolidated Financial Statements reflecting settlement costs not covered by insurance as well as related legal fees. The Company has periodically received communications from third parties asserting infringement of patent rights on certain of the Company's products and features. Management does not believe any claims made will have a material adverse effect on the results of operations or financial position of the Company. NOTE FOUR. SHAREHOLDERS' EQUITY COMMON STOCK In June 1995, the Company sold approximately 2.5 million 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 $21.4 million. The net proceeds were used for working capital. STOCK OPTIONS The Company's 1986 Stock Option Plan, as amended, authorizes the issuance of up to 2,975,000 shares of common stock upon the exercise of incentive stock options or nonqualified stock options that may be granted to officers, employees (including directors who are also employees), consultants and independent contractors. Under the plan, options are exercisable for a term of up to ten years after issuance. Options may be granted at prices ranging from 50% to 100% of the fair market value of the stock on the date of grant, as determined by the Board of Directors. Vesting of shares is also determined by the Board of Directors at the date of grant. The 1986 Stock Option Plan will expire in October 1996. -45- On August 31, 1994, pursuant to the Merger, Radius assumed 975,239 outstanding options originally issued under the SuperMac 1988 Stock Option Plan. These options will be administered in accordance with the SuperMac 1988 Stock Option Plan until all options are exercised or expired. Under the plan, options are exercisable for a term of up to ten years after issuance. The following table summarizes the consolidated activity of the 1986 and 1988 Stock Option Plans and the 1992 Non-Employee Directors' Stock Option Plan:
September 30, ----------------------------------------------- 1995 1994 1993 Outstanding at beginning of year 2,042,481 2,208,783 2,157,040 Granted 707,590 892,131 1,219,514 Exercised (213,791) (294,042) (516,597) Canceled (838,745) (764,391) (651,174) ------------ ------------ ------------ Outstanding at September 30 1,697,535 2,042,481 2,208,783 ------------ ------------ ------------ ------------ ------------ ------------ Price range at September 30 $1.36-$28.96 $0.42-$32.18 $0.42-$30.14 ------------ ------------ ------------ ------------ ------------ ------------ Exercisable at September 30 1,325,222 706,474 455,241 ------------ ------------ ------------ ------------ ------------ ------------ Available for grant at September 30 415,586 281,726 331,314 ------------ ------------ ------------ ------------ ------------ ------------
The stock option activity as shown in the table for fiscal 1993 has not been restated to adjust SuperMac's fiscal year end to that of Radius. Fiscal 1993 includes Radius' activity on a September 30 fiscal year basis and SuperMac's activity on a December 31 calendar year basis. The fiscal 1994 period includes the Radius activity for fiscal year ended September 30, 1994 and SuperMac activity for the nine months ended September 30, 1994. The Company has also reserved 100,000 shares of common stock for issuance to non-employee directors pursuant to options granted under the 1994 Directors' Stock Option Plan (the "1994 Plan"). Such options may only be nonqualified stock options, must be exercised within ten years from the date of grant, and must be granted in accordance with a non-discretionary formula. Under this formula, each new director receives an option to purchase 10,000 shares when that director is first appointed to the Board and an option to purchase 2,500 shares on each anniversary of such director's appointment. As of September 30, 1995, 27,500 shares had been granted under this plan at exercise prices ranging from $7.44 to $12.00 per share. Options to purchase 1,250 shares were canceled following the resignation of a director. None of the options granted under the 1994 Plan are exercisable. Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option Plan (the "Prior Plan") was in effect. As of September 30, 1995, the Prior Plan had 33,750 options outstanding at prices ranging from $8.00 to $17.25. Such options are nonqualified stock options, must be exercised within five years from the date of grant, and were granted in accordance with a non-discretionary formula. Options unissued under the Prior Plan become available for grant under the 1994 Plan. As of September 30, 1995, options to purchase 37,500 shares became available upon the resignation of three directors. In addition, 28,750 options to purchase shares, which were never granted under the Prior Plan were transferred to the 1994 Plan. In March 1993, the Company granted a nonqualified stock option to one officer to purchase a total of 250,000 shares of common stock outside the Company's 1986 Stock Option Plan at an exercise price of $7.75 per share. This option is exercisable for a term of ten years and vests over a fifty month period commencing on the date of grant. During fiscal 1994, 150 of these shares were exercised by the officer, and as of September 30, 1995 an additional 149,850 shares were exercisable. In June 1995, the Company repriced approximately 232,000 of then outstanding options to an exercise price of $12.00 per share, the fair market value of the Company's stock on the date of the repricing. EMPLOYEE STOCK PURCHASE PLAN -46- The Company has an employee stock purchase plan under which substantially all employees may purchase common stock through payroll deductions at a price equal to 85% of its fair market value as of certain specified dates. Stock purchases under this plan are limited to 10% of an employee's compensation, and in no event may exceed $21,250 per year. Under this plan a total of 650,000 shares of common stock have been reserved for issuance to employees. At September 30, 1995, 255,859 shares remain available for issuance under the plan. EMPLOYEE STOCK PLANS The Company account for its stock option plans and the Employee Stock Purchase Plan in accordance with provisions of the accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company expects to continue to account for its employee stock plans in accordance with the provision of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial position or results of operations. NOTE FIVE. FEDERAL AND STATE INCOME TAXES The provision (benefit) for income taxes consists of the following:
1995 1994 1993 ------------------------------------------------------------------------- For years ended September 30 (in thousands) Federal: Current $ -- $(12,583) $ (3,974) Deferred 7,170 12,311 (7,505) ------ -------- -------- 7,170 (272) (11,479) Foreign: Current 650 376 297 ------ -------- -------- State: Current 20 (3,641) 844 Deferred 1,230 (1,063) (3,436) ------ -------- -------- 1,250 (4,704) (2,592) ------ -------- -------- $9,070 $ (4,600) $(13,774) ------ -------- -------- ------ -------- --------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: -47-
1995 1994 ---------------------------------------------------------------------------- For years ended September 30 (in thousands) Deferred tax assets: Net operating loss carryovers $ 27,077 $ 5,100 Reserves and accruals not currently tax deductible 22,342 10,055 Restructuring reserves 22,314 -- Credit carryovers 6,280 3,100 Inventory valuation differences 4,188 12,612 Depreciation 4,079 4,202 Capitalized research & development expenditures 3,202 2,193 Other -- 374 -------- -------- Total deferred tax assets 89,482 37,636 -------- -------- Valuation allowance for deferred tax assets (85,086) (26,724) -------- -------- Deferred tax assets $ 4,396 $ 10,912 -------- -------- -------- -------- Deferred tax liabilities: State income tax $ 3,849 $ 2,512 Other 547 -- -------- -------- Total deferred tax liabilities 4,396 2,512 -------- -------- Net deferred tax assets $ -- $ 8,400 -------- -------- -------- --------
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 reduced the deferred tax asset to the amount realizable. The Company has provided a full valuation allowance against its net deferred tax assets due to uncertainties surrounding their realization. Due to the net losses reported in the prior three years and as a result of the material changes in operations reported in its 1995 fiscal fourth quarter, predictability of earnings in future periods is uncertain. The Company will evaluate the realizability of the deferred tax asset on a quarterly basis. The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The sources and tax effects of the differences are as follows:
1995 1994 1993 -------------------------------------------------------------------------------- For years ended September 30 (in thousands) Expected tax at statutory rate $(42,935) $(28,726) $(12,080) Change in valuation allowance 49,820 26,724 -- State income tax, net of federal tax benefit 1,250 (3,105) (1,707) Non-deductible merger costs -- 1,054 -- Non-deductible charge for purchased research and development -- 763 -- Research and development tax credits (497) (458) (734) Other 1,432 (852) 747 -------- -------- -------- $ 9,070 $ (4,600) $(13,774) -------- -------- -------- -------- -------- --------
As of September 30, 1995, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $71,000,000 and $27,900,000, respectively. The state loss carryforwards will expire beginning in 1998, if not utilized, and the federal loss carryforwards will expire beginning in 2010, if not utilized. In addition, the Company had tax credit carryforwards of approximately $6,280,000 which will expire beginning in 2005, if not utilized. Utilization of net operating loss and tax credit carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization. -48- NOTE SIX. STATEMENTS OF CASH FLOWS
1995 1994 1993 - ----------------------------------------------------------------------------- For years ended September 30, (in thousands) Supplemental disclosure of cash flow information (in thousands): Cash paid (received) during the year for: Interest $ 1,620 $ 812 $ 927 ------- ------- ------- ------- ------- ------- Income taxes $(8,370) $(8,295) $ 2,661 ------- ------- ------- ------- ------- ------- Supplemental schedule of noncash investing and financing activities (in thousands): Retirement of fully and partially depreciated assets $ 4,459 $ 6,025 $ 1,544 ------- ------- ------- ------- ------- ------- Tax benefit from stock options exercised $ -- $ 425 $ 3,358 ------- ------- ------- ------- ------- ------- Equipment acquired pursuant to capital leases $ -- $ 2,000 $ 4,138 ------- ------- ------- ------- ------- ------- Common stock issued pursuant to VideoFusion agreement $ 2,857 $ -- $ -- ------- ------- ------- ------- ------- -------
-49- NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS The Company currently operates in one principal industry segment: the design, manufacturing and marketing of color publishing and digital video computer products. The Company's export sales were approximately $124,469,000, $112,050,000 and $108,115,000 in the fiscal years ended September 30, 1995, 1994 and 1993, respectively, and included export sales to Europe of approximately $57,257,000, $60,621,000, and $59,473,000, respectively. The Pacific, Asia, and Latin America region sales were approximately $67,212,000, $51,428,000 and $48,642,000 for fiscal years ended September 30, 1995, 1994 and 1993, respectively. One customer accounted for approximately 34.0%, 13.5% and 11.5% of the Company's net sales during the years ended September 30, 1995, 1994 and 1993, respectively. NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES RADIUS JUNE 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 were recorded during the third quarter of fiscal 1993. These charges (in thousands) are included in: cost of sales ($10,993); research and development ($411); and selling, general and administrative expenses ($4,096). 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. 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). There have been no material changes in the restructuring plan or in the estimates of the restructuring costs. The Company has $236,000 remaining in its restructuring reserve related to facility costs, the balance of which is expected to be eliminated in fiscal 1996. As noted in the Consolidated Financial Statements, 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 ($10,711). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
REPRESENTING ------------------------------------- CASH OUTLAYS ---------------------- Asset Provision Write-Downs Completed Future Adjust inventory levels $22,296 $19,200 $3,096 $ -- Excess facilities 2,790 400 2,236 154 Revision of the operations business model 9,061 7,078 1,268 715 Employee severance 6,311 -- 6,311 -- Merger related costs 2,949 -- 2,949 -- ------- ------- ------- ----- Total charges $43,407 $26,678 $15,860 $ 869
-50- 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 headquarter and the consolidation of sales offices. The revision of the operations business model reflects the reorganization of the combined Company's manufacturing operations to mirror Radius' manufacturing reorganization in 1993. This reorganization was designed to outsource 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 or temporary employees who were released due to the revised business model. Approximately 250 employees were terminated in connection with the Merger. 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 spent $15.9 million of cash for restructuring through September 30, 1995. The Company expects to have substantially completed the restructuring by September 1996. During fiscal 1995, approximately $2.1 million of merger related retructuring reserves were reversed and recorded as an expense reduction due to changes in estimated requirements. RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES In September 1995, Radius recorded charges of $57.9 million in connection with the Company's efforts to refocus its business on the color publishing and multimedia markets. The charges primarily included a writedown of inventory and other assets. Additionally, it included expenses related to the cancellation of open purchase orders, excess facilities and severance. The charges (in thousands) are included in cost of sales ($47,004), and selling, general and administrative expense ($10,861). The elements of the total charge as of September 30, 1995 are as follows (in thousands):
REPRESENTING ------------------------------------- CASH OUTLAYS ---------------------- Asset Provision Write-Downs Completed Future Adjust inventory levels $33,138 $ 32,300 $ -- $ 838 Excess facilities 2,004 404 -- 1,600 Cancellation fees and asset write-offs 19,061 5,196 -- 13,865 Employee severance 3,662 -- -- 3,662 ------- ------- ------- ----- Total charges $57,865 $37,900 $ -- $19,965
The adjustment of inventory levels reflects the discontinuance of several product lines. The provision for excess facility costs represent the write-off of leasehold improvements and the costs associated with anticipated reductions in facilities. The cancellation fees and asset write-offs reflect the Company's decision to refocus its efforts on providing solutions for the color publishing and multimedia markets. Employee severance costs are related to employees or temporary employees who have been or will be released due to the revised business model. As of December 15, 1995, approximately 157 positions had been eliminated in connection with the new business model. The Company had not spent any cash for this restructuring as of September 30, 1995. As of September 30, 1995, the Company had cash and cash equivalents of $4.8 million. See "Management's Business Recovery Plans" at Note 1 due to the Consolidated Financial Statements. The Company expects to have substantially completed the restructuring by September 1996. NOTE NINE. VIDEOFUSION ACQUISITION The Company acquired VideoFusion, Inc. ("VideoFusion") on September 9, 1994. VideoFusion is a developer of advanced digital video special effects software for Apple Macintosh and compatible computers. The Company acquired VideoFusion in exchange for approximately 890,000 shares of the Company's Common Stock, 205,900 shares of which were issued at the closing of the acquisition. The balance of the shares were to be issued in installments over a period of time contingent on the achievement of certain performance milestones and other factors. In addition, the Company was required to pay up to $1.0 million in cash based upon net revenues derived from future sales of products incorporating VideoFusion's technology. The purchase price for VideoFusion, including closing costs and the issuance of shares of Common Stock valued at $500,000 in connection with the achievement of the first milestone was approximately $2.4 million. This amount was allocated to the assets and liabilities of VideoFusion and resulted in identifiable intangibles of approximately $440,000 and an in- process research and development expense of approximately $2.2 million. The intangible asset was to be amortized over -51- two years. The Company recognized the charge of approximately $2.7 million for in-process research and development and other costs associated with the acquisition of VideoFusion during the fourth quarter of fiscal 1994. In May 1995, the Company entered into an agreement with the former holders of VideoFusion stock to settle the contingent stock and earnout payments that were originally contemplated. Pursuant to this agreement, the Company issued approximately 212,000 shares, and paid approximately $200,000, to the former holders of VideoFusion stock. These transactions resulted in additional compensation expense of approximately $3.0 million which was recorded in fiscal 1995. NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC. On August 31, 1994, Radius merged with SuperMac in exchange for 6,632,561 shares of Radius' common stock. SuperMac was a designer, manufacturer, and marketer of products that enhanced the power and graphics performance of personal computers. The Merger was accounted for as a pooling of interests, and, accordingly, the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements have been restated to include the results of SuperMac for all periods presented. Separate results of operations for the periods prior to the Merger are as follows (in thousands):
Merger- Related Radius Supermac Expenses Adjustment Combined ------ -------- -------- ---------- -------- Year ended September 30, 1994 Net revenues $162,922 $164,978 $ (3,095) $ -- $324,805 Net loss (18,293) (15,775) (43,407) -- (77,475) Year ended September 30, 1993 (SuperMac as of December 1993) Net revenues 134,872 202,501 -- -- 337,373 Net loss (17,415) (2,724) -- -- (20,139)
The merger related expenses reflect the recording of the merger related restructuring and other charges. Prior to the Merger, SuperMac's fiscal year end was December 31. SuperMac's separate results for fiscal 1994 have been restated to conform with the twelve months ended September 30. 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. Therefore, the results for both the fiscal year ended September 30, 1994 and the results for the fiscal year ended 1993 include the results for SuperMac's three months ended December 31, 1993. Unaudited revenues, cost and expenses, and net loss of SuperMac for the three months ended December 31, 1993 were, $48,478,000, $64,715,000 and $9,914,000, respectively. The Company incurred substantial costs in connection with the Merger and consolidation of operations. Included in the accompanying consolidated statement of operations for the year ended September 30, 1994 are merger related expenses totaling $43,407,000 consisting primarily of charges for 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 incident to the Merger. See Note 8 of Notes to the Consolidated Financial Statements. NOTE ELEVEN. SUBSEQUENT EVENTS PORTRAIT DISPLAY LABS On December 19, 1995, the Company signed a series of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting technology to PDL and canceled PDL's on-going royalty obligation to the Company under an existing license agreement in exchange for a one- time cash payment. PDL also granted the Company a limited license back to the pivoting technology. Under these agreements, PDL settled its outstanding receivable to the Company by paying the Company $500,000 in cash and issuing to the Company 214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial Statements. -52- DISPLAY TECHNOLOGIES ELECTROHOME INC. On December 21, 1995, the Company signed a Business Purchase Agreement and an Asset Purchase and License Agreement with Display Technologies Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to certain closing conditions, DTE will purchase Radius' monochrome display monitor business and certain assets related thereto, for approximately $200,000 in cash and cancellation of $2.5 million of the Company's indebtedness to DTE. In addition, DTE and Radius will cancel outstanding contracts relating to DTE's manufacture and sale of monochrome display monitors to Radius. COLOR SERVER GROUP On December 23, 1995, the Company signed a definitive agreement pursuant to which the Company will sell its Color Server business to Splash Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc. (the "Parent"), a corporation formed by various investment entities associated with Summit Partners. The Company will receive approximately $21,945,175 in cash (subject to certain post-closing adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock (the " Series B Preferred Stock"). The shares of Series B Preferred Stock will be convertible by the Company at any time into 19.9% of the Parent's common stock outstanding as of the closing of the transaction. The shares of Series B Preferred Stock also will be redeemable by the Parent at any time, and will be subject to mandatory redemption beginning on the sixth anniversary of issuance, in each case at a redemption price of $1,000 per share plus accrued dividends. The transaction is expected to close in January 1996. Under the Inventory and Working Capital Agreement, as recently amended, with IBM Credit Corp., the Company is required to pay all of the net proceeds of the Color Server business transaction to IBM Credit Corp. in order to reduce the Company's outstanding indebtedness under that agreement. IBM CREDIT CORP. On December 14, 1995, the Company and IBM Credit Corp. ("ICC") amended the Inventory and Working Capital Financing Agreement (the "ICC Agreement") entered into by the Company and ICC on February 17, 1995 and subsequently revised in September 1995 to fund the manufacturing of the Company's MacOS compatible systems products. See Note 2 to the Consolidated Financial Statements. Under the amendment, ICC waived the Company's failure to comply with all of its contractual obligations and financial covenants under the ICC Agreement. The ICC Amendment, among other things, also provides that until March 31, 1996 ICC will extend advances to the Company in an amount up to 90% of the Company's collections and fund the Company's payroll in the event that collections are insufficient to permit the advances needed for this purpose. Such advances and payroll funding, however, may be suspended by ICC (i) immediately following a material default of the ICC Amendment, and (ii) following thirty (30) days notice in the event of any default of the ICC Agreement. The ICC Amendment also requires the Company to pay all of the net proceeds of the Color Server Group transaction to ICC to reduce the Company's outstanding indebtedness under the ICC Agreement. 1995 STOCK OPTION PLAN On December 20, 1995, the Company's Board of Directors adopted the 1995 Stock Option Plan to replace the 1986 Stock Option Plan that expires in 1996, and reserved 850,000 shares (plus all unissued and unexercised shares available under the existing 1986 Stock Option Plan) for issuance thereunder. The 1995 Stock Option Plan is subject to shareholder approval. See Note 4 to the Consolidated Financial Statements. -53- SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Charged to Charged Balance beginning costs and to other at end of Description of period expenses accounts Deductions(1) period - ----------- ---------- ---------- -------- ------------ --------- ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year ended September 30, 1993 (2) $1,825 $1,272 $0 $975 $2,122 Year ended September 30, 1994 $2,018 (2) $1,283 $0 $753 $2,548 Year ended September 30, 1995 $2,548 $6,837 $0 $883 $8,502 _____________________________
(1) Uncollectable accounts written off. (2) The Consolidated Financial Statements for fiscal 1993 have not been restated for the change in fiscal year.This period includes Radius' results of operations and balance sheet data on a September 30 fiscal year basisand SuperMac's on a December 31 calendar year basis. -54- EXHIBIT INDEX Exhibit Number Title - ------- ----- 2.06 First Amendment to Agreement and Plan of Reorganization between Radius Inc. and Video Fusion, Inc. dated August 25, 1994 2.07 Second Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated September 6, 1994. 2.08 Third Amendment to Agreement and Plan of Reorganization between Radius Inc. and VideoFusion, Inc. dated May 10, 1995 10.01 * C Registrant's 401(k) Savings and Investment Plan Loan Policy 10.02 * Registrant's 1995 Stock Option Plan. 10.03 * Form of Stock Option Agreement and Exercise Request as currently in effect under 1995 Stock Option Plan. 10.08 C Acknowledgement, Waiver and Amendment to Radius Inc. Inventory and Working Capital Financing Agreement by and between Radius Inc. and International Business Machines Credit Corporation dated December 14, 1995. 11.01 Computation of per share earnings 21.01 List of Registrant's subsidiaries 23.01 Consent of Ernst & Young, LLP, Independent Auditors 27 Financial Data Schedule EX-2.06 2 EXHIBIT 2.06 FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RADIUS INC. AND VIDEOFUSION, INC. This First Amendment to Agreement and Plan of Reorganization ("AMENDMENT") is entered into as of August 25, 1994, by and between Radius Inc., a California corporation ("RADIUS"), and VideoFusion, Inc., a Delaware corporation ("VIDEOFUSION"). RECITALS A. The parties entered into that certain Agreement and Plan of Reorganization dated as of July 19, 1994 (the "AGREEMENT"). B. Pursuant to Section 11.6 of the Agreement, the parties may amend the Agreement at any time before or after approval of the Agreement by the stockholders of VideoFusion. C. The stockholders of VideoFusion have not approved the Agreement as of the date hereof. D. The parties wish to amend the Agreement to the extent provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: 1. SCOPE OF AMENDMENT. Except as specifically provided herein, the parties reaffirm the Agreement. All capitalized terms used in this Amendment have the definition used in the Agreement unless there is a different definition in this Amendment. This Amendment shall amend the Agreement only to the extent provided herein. 2. SECTION 1.1.1. Section 1.1.1 of the Agreement is hereby amended to read as follows: 1.1.1 CONVERSION OF SHARES. Each share of VideoFusion Common Stock, $0.001 par value ("VIDEOFUSION COMMON STOCK"), issued and outstanding immediately prior to the Effective Time, will, by virtue of the Merger and at the Effective Time, and without further action on the part of any holder thereof, be converted into the "Applicable Number" of fully paid and nonassessable shares of Radius Common Stock ("RADIUS COMMON STOCK"), subject to adjustment as provided in Sections 1.1.2 and 1.2 below (the "INITIAL PAYMENT"), and the contingent right to receive the consideration provided for in Sections 1.8 and 1.9 below. The "APPLICABLE NUMBER" will be determined by (a) dividing $5,053,800, adjusted pursuant to Section 1.1.3 below, by $6.75 and (b) dividing 50% of that quotient by the sum of the total number of issued and outstanding shares of VideoFusion Common Stock at the Effective Time. 3. SECTION 1.8.3. Section 1.8.3 of the Agreement is hereby amended to read as follows: 1.8.3 MILESTONE 3. At such time as the VideoFusion Employees integrate Radius' 4EA technology into VideoFusion Andretti in accordance with mutually agreed upon written specifications delivered at or before the Closing ("MILESTONE 3"), Radius will issue and deliver $1,684,600 in shares of Radius Common Stock valued at the Milestone Valuation. However, such $1,684,600 amount shall be reduced by $21,058 for each week, or portion thereof, that the completion of Milestone 3 is delayed beyond the date that is six (6) months after completion of Milestone 2. In no event, however, shall the total value of the shares of Radius Common Stock issued in the Initial Payment (based on a per share value of $6.75) plus the total value of the shares of Radius Common Stock issued upon completion of Milestone 3 (based on a per share value at the Milestone Valuation) plus the dollar amount of the Net Value adjustment made under Section 1.1.3 exceed $4,211,500. 4. SECTION 2.7. The first two sentences of Section 2.7 of the Agreement are hereby amended to read as follows: 2.7 VIDEOFUSION FINANCIAL STATEMENTS. VideoFusion has delivered to Radius in EXHIBIT 2.7 VideoFusion's unaudited balance sheet as of June 30, 1994, VideoFusion's unaudited income statement for the six-month period ended June 30, 1994, VideoFusion's unaudited balance sheet as of December 31, 1993 and VideoFusion's unaudited income statement for the fiscal year ended December 31, 1993 (collectively, the "VideoFusion Financial Statements"). The VIDEOFUSION FINANCIAL STATEMENTS, in all material respects, (a) are in accordance with the books and records of VideoFusion, (b) fairly and accurately represent the financial condition of VideoFusion at the respective dates specified therein and the results of operations for the respective periods specified therein and (c) have been prepared in substantial accordance with generally accepted accounting principles applied on a consistent basis, subject only to the condition that the VideoFusion Financial Statements do not contain all required footnotes. 5. Section 10.2. The following is hereby added at the end of Section 10.2 of the Agreement: Any amounts Radius receives as indemnifiable losses will be treated as an adjustment to the consideration paid to the VideoFusion Holders pursuant to Section 1 hereof. 6. NEW SECTION 11.18. The following is hereby added as new Section 11.18 of the Agreement: 11.18 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RADIUS VIDEOFUSION By: By: ------------------------------ ----------------------------- 2 Charles W. Berger Joel P. Epstein Chairman and Chief Executive Officer Chairman 3 EX-2.07 3 EXHIBIT 2.07 SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RADIUS INC. AND VIDEOFUSION, INC. This Second Amendment to Agreement and Plan of Reorganization ("SECOND AMENDMENT") is entered into as of September 6, 1994, by and between Radius Inc., a California corporation ("RADIUS"), and VideoFusion, Inc., a Delaware corporation ("VIDEOFUSION"). RECITALS A. The parties entered into that certain Agreement and Plan of Reorganization dated as of July 19, 1994 (the "AGREEMENT") and entered into a First Amendment to the Agreement on August 25, 1994 (the "FIRST AMENDMENT"). B. Pursuant to Section 11.6 of the Agreement, the parties may amend the Agreement at any time before or after approval of the Agreement by the stockholders of VideoFusion. C. The stockholders of VideoFusion have not approved the Agreement as of the date hereof. D. The parties wish to amend the Agreement to the extent provided in this Amendment. NOW, THEREFORE, the parties hereto agree as follows: 1. SCOPE OF AMENDMENT. Except as specifically provided herein, the parties reaffirm the Agreement as specifically amended by the First Amendment, and all references to "Agreement" in paragraphs 2 through 6 below shall refer to the Agreement as amended by the First Amendment. All capitalized terms used in this Amendment have the definition used in the Agreement unless there is a different definition in this Amendment. This Second Amendment shall amend the Agreement only to the extent provided herein. 2. SECTION 1.1. Section 1.1 of the Agreement is hereby amended by replacing the date "September 9, 1994" in line 4 thereof with the date "September 23, 1994". 3. SECTION 1.8.1. Section 1.8.1 of the Agreement is hereby amended to read as follows: 1.8.1. MILESTONE 1. At such time as the former employees of VideoFusion who become employees of Radius following the Closing, along with any other Radius employees who work on the development of software and/or products currently owned by VideoFusion (collectively, the "VIDEOFUSION EMPLOYEES") (i) complete development of VideoFusion Editor in accordance with mutually agreed upon written specifications delivered at or before the Closing (the "EDITOR SOFTWARE PRODUCT"), (ii) prepare end- user documentation relating to VideoFusion Editor (the "EDITOR END- USER DOCUMENTATION") and (iii) produce an Editor Software Product and Editor End-User Documentation of a quality sufficient for commercial shipment purposes (the attainment of items (i), (ii) and (iii) collectively referred to as "MILESTONE 1"), Radius will issue and deliver $421,150 in shares of Radius Common Stock valued at the Milestone Valuation. The value of such payment will be reduced by $21,058 for each week, or portion thereof, that the completion of Milestone 1 is delayed beyond November 10, 1994. 4. SECTION 1.8.2. Section 1.8.2 of the Agreement is hereby amended to read as follows: 1.8.2. MILESTONE 2. At such time as the VideoFusion Employees (i) complete development of VideoFusion Andretti in accordance with mutually agreed upon written specifications delivered at or before the Closing (the "ANDRETTI SOFTWARE PRODUCT"), (ii) prepare end-user documentation relating to VideoFusion Andretti (the "ANDRETTI END-USER DOCUMENTATION") and (iii) produce an Andretti Software Product and Andretti End-User Documentation of a quality sufficient for commercial shipment purposes (the attainment of items (i), (ii) and (iii) collectively referred to as "MILESTONE 2"), Radius will issue and deliver $421,150 in shares of Radius Common Stock valued at the Milestone Valuation. The value of such payment will be reduced by $21,058 for each week, or portion thereof, that the completion of Milestone 2 is delayed beyond the date that is three (3) months after completion of Milestone 1. 5. SECTION 1.8.3. Section 1.8.3 of the Agreement is hereby amended to read as follows: 1.8.3 MILESTONE 3. At such time as the VideoFusion Employees integrate Radius' 4EA technology ("4EA") into VideoFusion Andretti and the Editor Software Product in accordance with mutually agreed upon written specifications delivered at or before the Closing ("MILESTONE 3"), Radius will issue and deliver $1,684,600 in shares of Radius Common Stock valued at the Milestone Valuation. However, such $1,684,600 amount shall be reduced by $21,058 for each 2 week, or portion thereof, that the completion of Milestone 3 is delayed beyond the date that is that later of (i) four months following receipt by VideoFusion of the API for the 4EA, or (ii) six (6) months after completion of Milestone 2. In no event, however, shall the total value of the shares of Radius Common Stock issued in the Initial Payment (based on a per share value of $6.75 [$13.50 post the 1-for-2 reverse stock split effected August 31, 1994]) plus the total value of the shares of Radius Common Stock issued upon completion of Milestone 3 (based on a per share value at the Milestone Valuation) plus the dollar amount of the Net Value adjustment made under Section 1.1.3 exceed $4,211,500. 6. SECTION 1.8.4. Section 1.8.4 of the Agreement is hereby amended to read as follows: 1.8.4. ACCEPTANCE AND COMPLETION OF MILESTONE. For purposes of determining whether the software to be developed in connection with a Milestone (the "SOFTWARE") and the end-user documentation associated with the Software (the "END-USER DOCUMENTATION") have been accepted by Radius the following procedure shall be used. Following delivery of the Software to Radius, Radius shall operate the Software for a period not to exceed 15 business days to determine whether (i) the Software and accompanying engineering documentation meets the applicable specification, (ii) whether the End-User Documentation is complete and (iii) whether the Software and the End-User Documentation are of a quality sufficient for commercial shipment purposes. If the Software successfully meets the specifications, the End-User Documentation is complete and the Software and the End-User Documentation are of a quality sufficient for commercial shipment purposes, Radius shall so notify the VideoFusion Employees in writing of its acceptance of the Software and the End-User Documentation as meeting conditions (i), (ii) and (iii) of this Section 1.8.4. Notwithstanding the date that Radius accepts Software and the End-User Documentation as meeting conditions (i), (ii) and (iii) of this Section 1.8.4, the applicable Milestone shall be deemed completed as of the date that the VideoFusion Employees delivered acceptable Software and acceptable End-User Documentation to Radius. If the Software and the End-User Documentation fail to meet one or more of conditions (i), (ii) and (iii) of this Section 1.8.4, Radius shall notify the VideoFusion Employees of such failure(s) in writing so that the VideoFusion Employees can correct, modify, or improve the Software and the End- User Documentation so that conditions (i), (ii) and (iii) of this Section 1.8.4 may be met. This process shall be repeated as may be necessary until Radius accepts the Software and the End-User Documentation as meeting conditions (i), (ii) and (iii) of this Section 1.8.4. All decisions relating to acceptance by Radius of the Software and the End-User Documentation shall be made by the Software Review Committee consisting of Greg Millar, Joseph W. Klingler and the Quality Assurance Manager for the product. Such Committee will review the Software and the End-User Documentation in good faith and all decisions of such Committee will be final and binding on Radius, all VideoFusion Employees, and the VideoFusion Holders. 7. CONFLICTS. In the event that the provisions of this Second Amendment conflict with the provisions of the Agreement or the First Amendment, the provisions of this Second Amendment shall prevail and control. 3 8. COUNTERPARTS. This Second Amendment may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. RADIUS INC. VIDEOFUSION, INC. By: By: ------------------------------- --------------------------- Charles W. Berger Joel P. Epstein Chairman and Chief Executive Officer Chairman 5 EX-2.08 4 EXHIBIT 2.08 THIRD AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION BETWEEN RADIUS INC. AND VIDEOFUSION, INC. This Third Amendment to the Agreement and Plan of Reorganization ("THIRD AMENDMENT") is entered into as of May 10, 1995 by and among Radius Inc., a California corporation ("RADIUS") and each of the shareholders of VideoFusion, Inc. ("VIDEOFUSION") Common Stock that existed immediately prior to the closing of the merger of VideoFusion and Radius that occurred on September 9, 1994 (the "VIDEOFUSION HOLDERS"). RECITALS A. Radius and VideoFusion entered into that certain Agreement and Plan of Reorganization dated as of July 19, 1994 (the "AGREEMENT"), entered into a First Amendment to the Agreement on August 25, 1994, and entered into a Second Amendment to the Agreement on September 6, 1994. All references to the "Agreement" herein shall refer to the Agreement as so amended. B. Radius and the Video Fusion Holders now wish to amend the Agreement to (i) replace the contingent stock and earnout payments originally contemplated with the payments set forth in this Third Amendment, (ii) correct an error in the number of shares of Radius Common Stock originally issued to the VideFusion Holders. NOW, THEREFORE, the parties hereto agree as follows: 1. SCOPE OF AMENDMENT. Except as specifically provided herein, the parties reaffirm the Agreement. All capitalized terms used in this Third Amendment have the definition used in the Agreement unless there is a different definition in this Third Amendment. This Third Amendment shall amend the Agreement only to the extent provided herein. 2. SECTION 1.3. Section 1.3 of the Agreement originally contemplated that shares of Radius Common Stock equal in value to $300,000 would be placed into an escrow account at the time Radius Common Stock was issued following the completion of Milestone 1 and Milestone 2. The parties hereby amend the Agreement to delete Section 1.3 and any requirement that any shares of Radius Common Stock issued to the VideoFusion Holders be placed in escrow. 3. SECTION 1.8. Section 1.8 (including Sections 1.8.1 through 1.8.4 thereunder) of the Agreement is hereby amended in its entirety to read as follows: In addition to the Radius Common Stock issued and delivered pursuant to Section 1.1.1 hereof, on June 1, 1995 Radius will issue and deliver to the VideoFusion Holders, in the same proportion as the conversion pursuant to Section 1.1.1 hereof, 177,078 fully paid and nonassessable shares of Radius Common Stock. Such number of shares of Radius Common Stock was obtained by dividing the "Remaining Consideration" by $13.50. The "REMAINING CONSIDERATION" is $2,390,555.00 which equals the maximum dollar value of the contingent shares of Radius Common Stock that were originally contemplated to be issued to the VideoFusion Holders ($2,526,900.00) minus the sum of (i) 84.23% of the $150,000 penalty for Milestone 1 ($126,345.00) and (ii) $10,000.00 in connection with the settlement payment required to terminate VideoFusion's sales representative agreement with Atlantech. No fractional shares of Radius Common Stock will be issued on June 1, 1995, but in lieu thereof, each VideoFusion Holder will receive an amount of cash equal to $13.50 multiplied by the fraction of a share of Radius Common Stock to which such holder would otherwise be entitled. -1- 4. SECTION 1.9. Section 1.9 of the Agreement is hereby amended in its entirety to read as follows: In addition to the consideration delivered pursuant to Sections 1.1.1 and 1.8 hereunder, Radius shall pay the VideoFusion Holders, in the same proportion as the conversion pursuant to Section 1.1.1 hereof, a cash payment on July 15, 1995 equal to the sum of the "Accrued Royalties" plus $168,460.00 (i.e. 84.23% of $200,000.00). The "ACCRUED ROYALTIES" equal royalties as calculated below on the license or sale of VideoFusion products (whether existing at the time of the Merger or developed thereafter by the VideoFusion Employees as extensions of the VideoFusion technology) between September 9, 1994 and the date of this Third Amendment: Application Software Sold Separately: 8.423% of ASP Application Software Sold Bundled with Hardware: 1.263% of SRP "ASP" means the actual revenues Radius receives from the license or sale of VideoFusion products sold separately less sales commissions, returns, duties, taxes, freight and similar expenses. "SRP" means Radius' suggested retail price for the VideoFusion product that is sold as a bundle with Radius hardware. 5. SHARE CORRECTION. The parties acknowledge that at the time of the Closing, a computational error in calculating the Applicable Number under the Agreement resulted in the VideoFusion Holders receiving a total of 205,996 shares of Radius Common Stock when the correct number was 207,939 shares. Accordingly, on June 1, 1995 Radius will issue and deliver to the VideoFusion Holders, in the same proportion as the conversion pursuant to Section 1.1.1 of the Agreement, 1,943 additional fully paid and nonassessable shares of Radius Common Stock. 6. CONFLICTS AND INTENT. In the event that the provisions of this Third Amendment conflict with the provisions of the Agreement, the provisions of the Third Amendment shall prevail and control. The issuance of Radius Common Stock and the cash payment required by this Third Amendment are intended to and do constitute full and final payment, in satisfaction of Section 1 of the Agreement, for the VideoFusion Common Stock tendered to Radius by the VideoFusion Holders in connection with the Merger. 7. COUNTERPARTS. This Third Amendment may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. RADIUS INC. By: ---------------------------------------- Charles W. Berger Chairman and CEO -2- VIDEOFUSION HOLDERS: - -------------------- THE FIFTH THIRD BANK OF NORTHWESTERN SPECTRA GROUP LIMITED, INC. OHIO. N.A. TRUSTEE FOR ANTHONY M. IANNONE By: By: ---------------------------- ---------------------------- Joel P. Epstein Rebecca Z. Hasselbeck President Assistant Trust Officer - ------------------------------- ------------------------------- MICHAEL S. BEGEMAN BRADLEY C. BEHRENDT - ------------------------------- ------------------------------- JOSEPH W. KLINGER DAVID J. KVACH - ------------------------------- ------------------------------- HAROLD A. MCMASTER NORMAN C. NITSCHKE - ------------------------------- ------------------------------- SCOTT A. PRIGGE JEFFREY A. SCHINDLER - ------------------------------- CLIFTON L. VAUGHAN EX-10.01 5 EXHIBIT 10.01 RADIUS INC. SECTION 401(K) PLAN LOAN POLICY AMENDED AS OF NOVEMBER 14, 1995 Terms used in this Loan Policy shall have the same meanings as in the Radius Inc. Section 401(k) Plan (the "Plan"). 1. LOAN APPLICATION. Any Member may apply for a loan from the Plan. For purposes of this Loan Policy, the term "Member" means any participant or beneficiary who is a party in interest (as determined under ERISA Section 3(14)) with respect to the Plan. A Member must apply for each loan in writing with an application specifying the amount of the loan desired, the requested duration for the loan, the purpose for the loan and the source of security for the loan. The Committee will not approve any loan if a Member is not creditworthy. The principal amount will be funded first from the Member's rollover contribution account, if any, then from the vested interest in matching and additional contributions, if any, and finally, from elective contributions. All loans shall be withdrawn from the investment funds directed by the Member. The Plan will credit the interest earned on the promissory note and any principal payments paid by the Member to those investment funds in which the Member is investing his or her accounts at the time of such deposit, or in such other investment fund as the Committee may designate. 2. LIMITATION ON LOAN AMOUNT/PURPOSE OF LOAN. The Committee will not approve any loan to a Member in an amount which exceeds 50% of his or her nonforfeitable account balance, as reflected by the books and records of the Plan immediately after the loan is made. The maximum aggregate dollar amount of loans outstanding to any Member may not exceed $50,000 minus the excess of the Member's highest outstanding loan balance during the one year period ending on the date of the loan over the current outstanding loan balance on loans from the Plan. A Member may not request a loan for less than $1,000 and all loans must be in multiples of $100. A Member may not receive more than two loans in any Plan Year. A Member is entitled to a loan for any purpose. 3. TERMS OF LOAN. The Committee will document every loan in the form of a promissory note signed by the Member for (i) the face amount of the loan and (ii) a commercially reasonable rate of interest. The Committee will determine the appropriate interest rate by obtaining at least one quote from a financial institution chosen by the Committee that is in the business of lending money. The interest rate quote(s) must take into account the term of the loan, the security on the loan, the creditworthiness of the Member, the intended use of the loan proceeds and must reflect a commercially reasonable rate for the geographical region in which the Member lives. If Members in the Plan live in different geographical regions, the Committee may establish a uniform commercially reasonable interest rate applicable to all regions based on information obtained from at least one region in which Members live. The Committee must reevaluate interest rates for loans made more than one month since the last loan made by the Plan. The interest rate for a loan of 5 years or less will be considered reasonable by Comerica, the Plan's trustee, if it falls within the range of the following guidelines: (a) the prime rate of interest offered by Bank of America plus one point; (b) the prime rate of interest as published in THE WALL STREET JOURNAL plus one point; (c) the interest rate offered by Bank of America for similar personal secured loans; or (d) the interest rate equal to the discount rate plus five points. The range of rates applicable as a guideline for a 15-year loan (available only for the purchase of a principal residence) will be: (a) the rate of interest available from Bank of America for a 15-year conventional fixed rate mortgage; (b) a rate equal to the computed yield of the Federal Home Loan Mortgage Corporation (FREDDIE MAC) on 15-year mortgage commitments for delivery within 30 days for standard conventional fixed rate mortgages; or (c) a rate equal to the computed yield of the Federal National Mortgage Association (FANNIE MAE) on 15-year mortgage commitments for delivery within 30 days for standard conventional fixed rate mortgages. The Committee will determine whether the interest rate is commercially reasonable at the time the loan request is received. 4. PAYMENT. The Committee will fix the term for repayment of any loan; provided however, that in no instance may the term of repayment be greater than 5 years, unless the loan qualifies as a home loan. The Committee may fix the term for repayment of a home loan for a period not to exceed 15 years. A "home loan" is a loan used to acquire a dwelling unit which, within a reasonable time, the participant will use as a principal residence. The loan must provide for at least quarterly payments under a level amortization schedule. All loans to Members shall be repaid through automatic payroll withholding in substantially equal amounts. If a Member with a loan outstanding terminates service with Radius, such Member may continue to make payment on such loan in accordance with a revised repayment schedule as described below. If the Member does not execute the necessary paperwork to provide for such continued repayment within 30 days following such Member's date of termination, the loan shall become immediately due and must be paid in full. All loans will be made in compliance with Regulation Z ("Truth in Lending") and Regulation B ("Equal Credit Opportunity"). A terminated employee who selects to continue making payments on his or her loan rather than repay it in full will be provided with a revised payment schedule. Upon completion of the proper paperwork, the Member will receive his or her revised payment schedule from the Plan's trustee. It is the responsibility of the Member to comply with his or her revised payment schedule. The Plan's trustee and administrator will charge fees associated with the revised payment schedule. These charges will be deducted from the Member's account quarterly. Payments on the revised payment schedule will not be allocated to Member's choices of fund(s) until cleared. -2- 5. SECURITY FOR LOAN. A Member must adequately secure each loan with an irrevocable pledge and assignment of no greater than 50% of the Member's nonforfeitable account balance. This pledge will form part of the promissory note signed by the Member. 6. DEFAULT/RISK OF LOSS. A loan for which a scheduled repayment is delinquent for more than 60 days will be reviewed by the Committee to determine appropriate action. The Committee will treat any loan in default if: (a) any scheduled payment remains unpaid for more than 120 days; (b) the Member makes or furnishes any representation or statement to the Plan with respect to his or her application which proves to have been false or incomplete in any material respect when made or furnished; (c) there is any loss, theft, damage, destruction, sale or encumbrance to or of any of the collateral, or the making of any levy, seizure or attachment of or on the collateral, including a withdrawal of the Member's nonforfeitable account balance from the Plan; (d) the death of the Member; (e) the dissolution, insolvency, business failure, appointment of receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws of, by or against the Member; (f) the Member fails to comply with any term of the promissory note; and (g) the Member's account balance under the Plan and trust become distributable to him. Notwithstanding any provision of this Loan Policy, if a Member with a loan outstanding terminates service with Radius and does not execute the necessary paperwork to provide for continued repayment or pay the outstanding balance of such loan in full within 30 days of such Member's date of termination, the Committee will treat the loan as in default. The Member will have the opportunity to repay the loan and resume current status of the loan by paying any missed payment plus interest or, if distribution is available under the Plan, the Member may request distribution of an amount equal to the unpaid balance due under the promissory note. If the loan remains in default, the Committee has the option of foreclosing on any -3- security it holds or, to the extent a distribution to the Member is permissible under the Plan, offset the Member's nonforfeitable account balance by the outstanding balance of the loan. If there are unpaid amounts remaining, it will be offset when the Member becomes entitled to a distribution. -4- EX-10.02 6 EXHIBIT 10.02 RADIUS INC. 1995 STOCK OPTION PLAN As Adopted December 20, 1995 1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of stock options. Capitalized terms not defined in the text are defined in Section 19. 2. SHARES SUBJECT TO THE PLAN. 2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 14, the total number of Shares reserved and available for grant and issuance pursuant to Awards under the Plan shall be Shares, consisting of 850,000 shares, plus the total number of shares authorized for issuance, but not issued or subject to outstanding options, under the Company's 1986 Stock Option Plan (the "Prior Plan") as of the date of shareholder approval of this Plan. Any shares issuable upon exercise of options granted pursuant to the Prior Plan that expire or become unexercisable for any reason after the date of shareholder approval of this Plan without having been exercised in full, shall no longer be available for distribution under the Prior Plan, but shall be available for distribution under this Plan. Subject to Sections 2.2 and 14, Shares shall again be available for grant and issuance in connection with future Awards under the Plan if such Shares cease to be subject to an Award for any reason other than the exercise of such Award. 2.2 ADJUSTMENT OF SHARES. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under the Plan and (b) the Exercise Prices of and number of Shares subject to outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 below) may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any Parent, Subsidiary or Affiliate of the Company; PROVIDED such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under the Plan. No "Named Executive Officer" (as that term is defined in Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act) shall be eligible to receive more than 1,000,000 shares at any time during the term of this Plan pursuant to the grant of Awards hereunder. 4. ADMINISTRATION. 4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the Committee. Subject to the general purposes, terms and conditions of the Plan, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to: (a) construe and interpret the Plan, any Stock Option Agreement and any other agreement or document executed pursuant to the Plan; (b) prescribe, amend and rescind rules and regulations relating to the Plan; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares subject to Awards; (f) determine whether Awards will be granted in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting and exercisability of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Stock Option Agreement; (j) determine the disposition of Awards in the event of a Participant's divorce or dissolution of marriage; and (k) make all other determinations necessary or advisable for the administration of the Plan. 4.2 COMMITTEE DISCRETION. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under the Plan to Participants who are not Insiders of the Company. 4.3 EXCHANGE ACT REQUIREMENTS. If two or more members of the Board are Outside Directors, the Committee shall be comprised of at least two members of the Board, all of whom are Outside Directors and Disinterested Persons. The Company will take appropriate steps to comply with the disinterested director requirements of Section 16(b) of the Exchange Act, including but not limited to, the appointment by the Board of a Committee consisting of not less than two persons (who are members of the Board), each of whom is a Disinterested Person. It is the intent of the Company that the Plan and Awards hereunder satisfy and be interpreted in a manner, that, in the case of Participants who are or may be Insiders, satisfies the applicable requirements of Rule 16b-3 (or its successor) of the Exchange Act. If any provision of the Plan or of any Award would otherwise conflict with the intent expressed in this Section 4.3, that provision to the extent possible shall be interpreted and deemed amended so as to avoid such conflict. 5. STOCK OPTIONS. The Committee may grant Awards to eligible persons and shall determine whether such Awards shall be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Award, the Exercise Price of the Award, the period during which the Award may be exercised, and all other terms and conditions of the Award, subject to the following: 5.1 FORM OF OPTION GRANT. Each Award granted under the Plan shall be evidenced by a Stock Option Agreement which shall expressly identify the Award as an ISO or NQSO, and be in such form and -2- contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan. 5.2 DATE OF GRANT. The date of grant of an Award shall be the date on which the Committee makes the determination to grant such Award, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Award. 5.3 EXERCISE PERIOD. Awards shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; PROVIDED, HOWEVER, that no Award shall be exercisable after the expiration of ten (10) years from the date the Award is granted; and PROVIDED FURTHER that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") shall be exercisable after the expiration of five (5) years from the date the Award is granted. The Committee also may provide for Awards to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. 5.4 EXERCISE PRICE. The Exercise Price shall be determined by the Committee when the Award is granted and shall be not less than 50% of the Fair Market Value of the Shares on the date of grant; PROVIDED, that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 6 of the Plan. 5.5 METHOD OF EXERCISE. Awards may be exercised only by delivery to the Company of a written exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 TERMINATION. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Award shall always be subject to the following: (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Awards only to the extent that such Awards would have been exercisable upon the Termination Date and for the period of time after the Termination Date that is specified by the Committee, not to exceed five years. In the event that the Committee fails to specify such a time period, such Awards may be exercised no later than thirty (30) days after the Termination Date. However, in no event may such Awards be exercised after the expiration date of the Awards. (b) If the Participant is terminated because of death or Disability (or the Participant dies within the period of time that is specified by the Committee for the exercise of Participant's Awards following such termination or within Thirty (30) days of such termination if the Committee failed to otherwise specify the time period, as described in Section 5.6(a), above), then Participant's Awards may be exercised only to the extent that such Awards would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date in the case of disability or death (or such longer time period not exceeding five years as may be determined by the Committee), but in any event no later than the expiration date of the Awards. -3- 5.7 LIMITATION ON EXERCISE. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Award; PROVIDED that such minimum number will not prevent Participant from exercising the Award for the full number of Shares for which it is then exercisable. 5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Awards for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Awards for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated herein and shall apply to any Awards granted after the effective date of such amendment. 5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify, extend or renew outstanding Awards and authorize the grant of new Awards in substitution therefor; PROVIDED that any such action may not, without the written consent of Participant, impair any of Participant's rights under any Award previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Awards without the consent of Participants affected by a written notice to them; PROVIDED, HOWEVER, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Awards granted on the date the action is taken to reduce the Exercise Price. 5.10 NO DISQUALIFICATION. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation if indebtedness of the Company to the Participant; (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Section 483 and 1274 of the Code; PROVIDED, HOWEVER, that Participants who are not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; PROVIDED, FURTHER, that the portion of the Purchase Price equal to the par value of the Shares, if any, must be paid in cash. (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) provided that a public market for the Company's stock exists: -4- (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (a "NASD DEALER") whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased in order to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and a NASD Dealer whereby Participant irrevocably elects to exercise the Award and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 7. WITHHOLDING TAXES. 7.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 7.2 STOCK WITHHOLDING. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "TAX DATE"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participant is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Award, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Award or election to use stock withholding must be made in the ten (10) day period beginning on the third day following the release of the Company's quarterly or annual summary statement of sales or earnings; and (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares -5- with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 8. PRIVILEGES OF STOCK OWNERSHIP. 8.1 VOTING AND DIVIDENDS. No Participant shall have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares. 8.2 FINANCIAL STATEMENTS. The Company shall provide financial statements to each Participant annually during the period such Participant has Awards outstanding; PROVIDED, HOWEVER, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 9. TRANSFERABILITY. Subject to Section 4.1(j), Awards granted under the Plan, and any interest therein, shall not: (a) be transferable or assignable by the Participant, (b) be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Stock Option Agreement provisions relating thereto or (c) during the lifetime of the Participant, be exercisable by anyone other than the Participant, and any elections with respect to an Award, may be made only by the Participant. 10. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 11. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 12. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 13. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. -6- 14. CORPORATE TRANSACTIONS. 14.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event of (a) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company and the Awards granted under the Plan are assumed or replaced by the successor corporation, which assumption shall be binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, or (d) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code wherein the shareholders of the Company give up all of their equity interest in the Company (EXCEPT for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company), any or all outstanding Awards may be assumed or replaced by the successor corporation (if any), which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation (if any) refuses to assume or substitute Options, as provided above, pursuant to a transaction described in this Subsection 14.1, such Options shall accelerate and become exercisable in full at least ten days prior to and shall expire on the consummation of such event at such times and on such conditions as the Board shall determine. 14.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 14, in the event of the occurrence of any transaction described in Section 14.1, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 14.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company's award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (EXCEPT that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 15. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the "EFFECTIVE DATE"). The Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to the Plan; PROVIDED, HOWEVER, that: (a) no Award may be exercised prior to initial shareholder approval of the Plan; and (b) no Award granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company. For so long as and whenever the Company is subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to shareholder approval. 16. TERM OF PLAN. The Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. -7- 17. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Stock Option Agreement or instrument to be executed pursuant to the Plan; PROVIDED, HOWEVER, that the Board shall not, without the approval of the shareholders of the Company, amend the Plan in any manner that requires such shareholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder; PROVIDED, FURTHER, that no amendment may be made to outstanding Awards without the consent of the Participant. 18. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the shareholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 19. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings: "AFFILIATE" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. "AWARD" means an award of an option to purchase Shares. "STOCK OPTION AGREEMENT" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "BOARD" means the Board of Directors of the Company. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITTEE" means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. "COMPANY" means Radius Inc., a corporation organized under the laws of the State of California, or any successor corporation. "DISABILITY" means a disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. "DISINTERESTED PERSON" means a director who has not, during the period that person is a member of the Committee and for one year prior to service as a member of the Committee, been granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate of the Company, except in accordance with the requirements set forth in Rules as promulgated by the SEC under Section 16(b) of the Exchange Act, as such Rules are amended from time to time and as interpreted by the SEC. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXERCISE PRICE" means the price at which a holder of an Award may purchase the Shares issuable upon exercise of the Award. "FAIR MARKET VALUE" means the value of a share of the Company's Common Stock determined as follows: -8- (a) if such Common Stock is then quoted on the Nasdaq National Market the closing price on the Nasdaq National Market System, or, if no such reported sale takes place on such date, the closing price on the next preceding trading date on which a reported sale occurred; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the closing price or, if no reported sale takes place on such date, the closing price on the next preceding trading day on which a reported sale occurred; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on such date, as reported by THE WALL STREET JOURNAL, for the over- the-counter market; or (d) if none of the foregoing is applicable, by the Board in good faith. "INSIDER" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "OUTSIDE DIRECTOR" means any outside director as defined in Section 162(m) of the Code and the regulations issued thereunder. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "PARTICIPANT" means a person who receives an Award under the Plan. "PLAN" means this Radius Inc. 1995 Stock Option Plan, as amended from time-to-time. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means shares of the Company's Common Stock, no par value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 14, and any successor security. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "TERMINATION" or "TERMINATED" means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee; PROVIDED, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "TERMINATION DATE"). -9- EX-10.03 7 EXHIBIT 10.03 Stock Option Exercise Notice For 1995 Stock Option Radius Inc. Employee Name 215 Moffett Park Drive Date of Exercise Sunnyvale, California 94089 Federal Employer Identification Number 68-0101300 I hereby exercise the number of options as stated below to purchase shares of Common Stock of Radius Inc. by delivering the aggregate purchase price as follows (check as applicable and complete): [ ] in cash in the amount of $____, receipt of which is acknowledged by the Company; [ ] by delivery of ____ fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by optionee for at least six (6) months prior to the date hereof and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value (as Defined in the Plan) of $____ per share; [ ] by the waiver hereby of compensation due or accrued for services rendered in the amount of $____; [X] through a "same day sale" as described in Section 5(b)(iv) of the Grant; or [ ] through a "margin" commitment as described in Section 5(b)(v) of the Grant. Option Grant Date: 12/16/87 Total Number of Shares Exercised Exercise Price per Share Purchase Price of Shares Fair Market Value per Share on Date of Exercise Fair Market Value of Shares Gain upon Exercise (This amount will appear on your W-2) Federal Taxes @ 28.00% California State Taxes @ 6.00% Social Security Taxes @ 0.00% Medicare @ 1.45% Total Taxes TOTAL AMOUNT DUE Net Gain upon exercise I desire to take title to the shares as follows: [X] Individual [ ] Husband & wife as community property [ ] Joint Tenants [ ] Tenants in Common [ ] Other (e.g., partnership, custodian, trust, etc.) The exact spelling of name (s) under which title to the Shares shall be taken is: 0 --------------------- Signed: -------------------- Social Security Number: -------------------- Street Address: -------------------- City, State, Zip -------------------- Radius Inc. hereby acknowledges receipt of a check for: ------------------------ RADIUS INC. By : ----------------------- Stock Administrator Date: ----------------------- EX-10.08 8 EXHIBIT 10.08 ACKNOWLEDGEMENT, WAIVER AND AMENDMENT TO RADIUS INC. INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT Acknowledgement, Waiver and Amendment, dated as of December 14, 1995 (this "Amendment") to the Inventory and Working Capital Financing Agreement by and between Radius Inc., a California corporation ("Customer"), and IBM Credit Corporation, a Delaware corporation ("IBM Credit"). RECITALS: A. Customer and IBM Credit have entered into that certain Inventory and Working Capital Financing Agreement dated as of February 17, 1995 (as amended, supplemented or otherwise modified from time to time, the "Agreement"). B. Customer is in default of its obligations to IBM Credit pursuant to the Agreement. C. Customer has requested that IBM Credit waive such defaults. D. IBM Credit agrees to waive certain of such defaults on the terms and subject to the conditions set forth below. AGREEMENT: NOW THEREFORE, in consideration of the mutual agreements provided for below and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Customer and IBM Credit hereby agree as follows: Section 1. DEFINITIONS. (a) References in the Agreement to "Amendment" shall mean this Acknowledgement, Waiver and Amendment to Radius Inc. Inventory and Working Capital Financing Agreement between Customer and IBM Credit. (b) References in the Agreement to "Special Event of Default" shall mean the occurrence of any of the following: (i) the failure to comply with or observe any material term, covenant or agreement contained in the Amendment, including, without limitation, any terms incorporated into the Agreement by way of the Amendment; (ii) any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer or any of its officers, employees, or agents to IBM Credit was false in any material respect at the time when made and the person making such statement knew or should have known that such statement was false; (iii) Customer shall file a voluntary petition for bankruptcy protection, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for Customer or any of its properties, or have any of Customer's properties seized (other then the application by Silicon Valley Bank of the proceeds of foreign accounts receivable to Customer's obligations) or attached (except that with respect to any property that is attached, such attachment may continue for a period not to exceed 15 days), or take any action to authorize, or for the purpose of effectuating, the foregoing; (iv) Customer shall have filed against it an involuntary bankruptcy petition and either (a) such petition shall not be dismissed within 45 days, (b) during such 45 day period Customer shall not diligently take action to dismiss such petition or (c) an order for relief shall have been issued in connection with such petition; (v) the dissolution or liquidation of Customer, or Customer shall take any action to dissolve or liquidate Customer; (vi) IBM Credit shall cease to have a first priority security interest in any assets of Customer except to the extent IBM Credit shall have agreed to subordinate such priority to Silicon Valley Bank; or (vii) Customer willfully fails to comply with or observe any material term, covenant or agreement contained in Sections 8.1, 8.2 and 8.3 the Agreement; or (viii) Customer willfully fails to notify IBM Credit of the occurrence of a Default that could reasonably be expected to have a Material Adverse Effect. (c) References in the Agreement to "Termination Date" shall mean March 31, 1996 or such other date as IBM Credit and Customer may agree to in writing from time to time. (d) All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. Section 2. ACKNOWLEDGEMENT BY CUSTOMER. (a) Customer acknowledges that from and including October 10, 1995 Customer's Outstanding Advances have exceeded Customer's Borrowing Base and that, as of the close of business on December 12, 1995, Outstanding Advances exceeded the Borrowing Base in the approximate amount of $26,265,485. Customer acknowledges that, as a result thereof, Customer is in default to IBM Credit under the terms of the Agreement in that Customer has failed to repay the Outstanding Advances in an amount equal to the Shortfall Amount. 2 (b) Customer further acknowledges that as of the close of business on December 13, 1995 the principal amount of Outstanding Advances to Customer under the Agreement was equal to $33,651,730.96. Customer agrees that Obligations of Customer to IBM Credit under the Agreement shall be payable to IBM Credit without counterclaim, offset or defense. (c) Customer further acknowledges that for the period ending September 30, 1995 Customer is in default of its financial covenants contained in Attachment A to the Agreement. (d) Customer further acknowledges and agrees that IBM Credit provided Customer with a temporary increase in the Line of Credit and that all amounts advanced by IBM Credit to or on behalf of Customer constitute, and all future amounts advanced by IBM Credit to or on behalf of Customer shall constitute, Advances made pursuant to the Agreement, whether or not the aggregate amount of such Advances outstanding at any one time exceeds the amount of the Line of Credit. Section 3. WAIVER. IBM Credit hereby waives the defaults by Customer with the terms of the Agreement (i) to the extent that on or prior to the date hereof Customer has failed to repay the Outstanding Advances to the extent set forth in Section 2(a) of this Amendment, (ii) to the extent that on or prior to September 30, 1995 Customer failed to comply with the financial covenants set forth in Attachment A of the Agreement and (iii) to the extent that on or prior to the date hereof Customer has failed to comply with any other terms of the Agreement; PROVIDED, that as of the date hereof IBM Credit has knowledge of facts giving rise to any such default or, if IBM Credit does not have knowledge of facts giving rise to such default, then such default could not reasonably be expected to have a Material Adverse Effect. Section 4. AMENDMENT TO AGREEMENT. The Agreement is hereby amended as follows: A. Paragraph 4.1(C) of the Agreement is hereby amended by deleting such subsection in its entirety and substituting, in lieu thereof, the following subsection 4.1(C): "(C) general intangibles, including, patents, trademarks, tradenames and copyrights;" B. Section 7 of the Agreement is hereby amended by inserting immediately after subsection 7.15 the following new subsections 7.16, 7.17, 7.18, 7.19, 7.20, 7.21, 7.22, 7.23, 7.24, 7.25, 7.26, 7.27 and 7.28: "7.16. On Site Collateral Verification. Customer shall from time to time upon the request of IBM Credit allow employees, agents and representatives of IBM Credit access, during normal 3 business hours and as often as IBM Credit may request, to the premises, inventory, books and records of Customer or any of its Subsidiaries to verify the Collateral and Customer's compliance with the terms of this Agreement and to discuss the business, operations, properties and financial and other condition of the Company or any of its Subsidiaries with such officers and employees and agents, including without limitation, its independent certified public accounts, as IBM Credit may from time to time request. Customer acknowledges and agrees that IBM Credit may from time to time discuss with Customer Solutions, IBM North America (CSM), such matters relating to Customer's compliance and ability to comply with the terms of this Agreement as IBM Credit may reasonably determine, including, without limitation, the condition of product being manufactured for Customer by Customer Solutions, IBM North America (CSM) and financed by IBM Credit. Customer shall use reasonable efforts to obtain permission from third party facilities where Collateral is located for IBM Credit to have access to such facilities to inspect and verify such Collateral. 7.17. Lockbox Participation and Special Account Deposits. Without limiting Customer's other Obligations, Customer acknowledges and reaffirms its obligations pursuant to Section 3.4 of this Agreement and acknowledges and reaffirms that such obligations apply to all Accounts of Customer including, without limitation, Accounts payable by account debtors that are not residents of the United States (including Accounts that are payable by Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) and Accounts payable by an account debtor that is a remarketer of computer hardware and software products whose purchases of such products from Customer have been financed by another person who pays proceeds of such financing directly to Customer on behalf of such account debtor. Customer agrees that if Customer receives a remittance directly from an account obligor, then Customer shall deposit the same into the Special Account within one Business Day of such receipt. 7.18. Further Assurances Regarding Patents, Trademarks, Tradenames and Copyrights. Customer shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of patents, trademarks, tradenames and copyrights necessary or advisable for the profitable conduct of its business. With respect to any federal registration of any patent, trademark, tradename or copyright or the filing of any application therefor, Customer promptly shall cooperate with IBM Credit to deliver to IBM Credit a collateral assignment with respect to each such registration and application, in form and substance satisfactory to IBM Credit. IBM Credit shall prepare the form of collateral assignment based upon information provided by 4 Customer and upon execution by Customer IBM Credit shall file such collateral assignment with the appropriate agency. Whenever, Customer, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any patent, trademark, tradename or copyright with the United States Patent and Trademark Office or United States Copyright Office, Customer shall report such filing to IBM Credit within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of IBM Credit, Customer shall execute and deliver any and all agreements, instruments, documents, and papers, which IBM Credit shall prepare based upon information provided by Customer, as IBM Credit may request to evidence and/or perfect IBM Credit's security interest in any patent, trademark, tradename or copyright and the goodwill and general intangibles relating thereto or represented thereby, and Customer hereby constitutes IBM Credit its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Obligations are paid in full and this Agreement is terminated. For the purposes of enabling IBM Credit to exercise its rights and remedies under this Agreement, Customer hereby grants to IBM Credit, to the extent assignable, an irrevocable, non- exclusive license (exercisable without payment of royalty or other compensation to Customer) to use, assign, license or sublicense, following the occurrence of an Event of Default and the exercise by IBM Credit of its rights and remedies with respect thereto, any of the Collateral consisting of patents, trademarks, tradenames or copyrights now owned or hereafter acquired by Customer, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. Upon payment in full of all Obligations and cancellation or termination of the Line of Credit or earlier release of the Collateral, the license granted by Customer pursuant to the immediately preceding sentence shall be terminated. 7.19. Proceeds of the Sale of Assets or Operations or Capital Infusion. Customer agrees that, and shall make such arrangements and execute such agreements, documents, instruments and papers as IBM Credit may request to provide that, upon the consummation of any sale of assets (other than inventory and used or obsolete equipment in the ordinary course of business and the return of inventory located at Charlotte to vendors for credit) or operations of Customer, including, without limitation, the contemplated sale of Customer's Color Server Group division, and the consummation of any equity investment, debt issue or capital infusion from any source, the proceeds of such sale, equity investment, debt 5 issue or capital infusion, net of all reasonable and customary costs and expenses thereof, shall be transferred directly to an account of IBM Credit specified by IBM Credit and applied to Customer's Obligations under this Agreement. Customer acknowledges that nothing herein shall be construed as consent by IBM Credit to any such sale, equity investment, debt issue or capital infusion. 7.20. Monthly Financial Statements. Without limiting Customer's other Obligations, Customer acknowledges and reaffirms its obligations pursuant to Section 7.1(B)(1) of this Agreement to provide certified fiscal month Financial Statements within twenty (20) Business Days following the end of each fiscal month. 7.21. Collateral Reconciliation Reports. Customer shall provide to IBM Credit on each Business Day a Collateral Reconciliation Report as of the close of business on the Business Day immediately preceding the day such report is provided to IBM Credit. Such Collateral Reconciliation Report shall be in form and detail satisfactory to IBM Credit and shall include back-up documentation supporting such reconciliation in form and detail satisfactory to IBM Credit. Such Collateral Reconciliation Report shall reconcile the most recently preceding Collateral Reconciliation Report to such Collateral Reconciliation Report and shall include new sales, collections, credits issued, purchases, returns and any other item affecting the accounts receivable or inventory balance since the prior reconciliation. Such Collateral Reconciliation shall also include a summary of domestic gross receivables and domestic Eligible Receivables, foreign gross receivables and foreign eligible receivables and a summary of gross inventory and eligible inventory by location for purposes of determining the Overadvance Collateral Amount. 7.22. Listings and Reconciliations. Customer shall provide to IBM Credit on or prior to December 22, 1995 a listing, in form and detail satisfactory to IBM Credit in its reasonable discretion, of (i) all accounts maintained by Customer containing cash or cash equivalents (ii) all funds received by Radius, including without limitation all funds deposited into bank accounts of Radius, from November 10, 1995 to and including December 8, 1995. Customer shall provide on or prior to December 22, 1995 copies of all statements received by Customer from August 31, 1995 to November 1, 1995 relating to accounts referred to in clause (i) above and a reconciliation of account balances on August 31, 1995 to account balances on October 31, 1995. Customer shall provide to IBM Credit on or prior to December 22, 1995 a copy of all statements received by Customer for the month of November with a reconciliation of account balances on October 31, 1995 to November 30, 1995. Customer shall provide to IBM Credit on or 6 prior to the twentieth (20th) Business Day following each fiscal month a copy of all statements received by Customer for such month along with a reconcilation of account balances in such account from the preceding statement to account balances in such account as of the date of such statement. Customer shall provide to IBM Credit on or prior to December 22, 1995 an accounts receivable report, in form and detail satisfactory to IBM Credit in its reasonable discretion, of pending credits, disputed accounts, credits issued, collected funds not yet applied and outstanding accounts receivable, in each case as of the November fiscal month end for the following classes of accounts receivable: international accounts receivable, finance company accounts receivable and domestic accounts receivable. Customer shall provide to IBM Credit on or prior to December 22, 1995 an inventory report, in form and detail satisfactory to IBM Credit in its reasonable discretion, of pending credits, credits issued, and inventory on hand as of the November fiscal month end. 7.23. Use of Advances. Unless otherwise consented to by IBM Credit, Customer shall use the proceeds of Advances, which shall be made in accordance with paragraph 7.27 below, to operate its business in a cost effective manner. Customer shall use its best efforts to minimize discretionary uses of cash. 7.24. Price Protection Credits. Customer shall not, without IBM Credit's prior consent, announce any program for price protection credits that could have the effect of reducing accounts receivable in which IBM Credit has a security interest. 7.25. Additional Reporting Requirements. Customer shall deliver to IBM Credit, on the first Business Day of each week, a listing, in form and detail satisfactory to IBM Credit in its reasonable discretion, as of the Saturday immediately preceding such Business Day, of (i) Customer's inventory, (ii) the location of such inventory and (iii) the lower of the cost (net of any applicable credits) and the fair market value of such inventory. Customer shall deliver to IBM Credit, on the last Business Day of each week, a cash flow projection, in form and detail satisfactory to IBM Credit in its reasonable discretion, for the immediately following week and each week remaining in such fiscal quarter based upon Customer's best estimate of minimum levels of activity for such week to support Customer's on going business activities. Customer shall provide to IBM Credit on or prior to December 15, 1995 draft Financial Statements for the fiscal year ending September 30, 1995. Customer shall provide to IBM Credit on or prior to December 15, 1995 projected quarterly Financial Statements for the fiscal year ending September 30, 1996. Customer shall provide to IBM Credit on the first Business Day 7 of each week, a projection, in form and detail satisfactory to IBM Credit in its reasonable discretion, for such week of Customer's Outstanding Advances and Customer's Borrowing Base plus Overadvance Collateral Amount. 7.26. Advances During Overadvance Period. (a) Notwithstanding any other term or provision of this Agreement, IBM Credit and Customer agree that: (i) during the Overadvance Period Customer shall not be in default of this Agreement as a result of the Outstanding Advances exceeding the Borrowing Base, and (ii) all collections from the date of this Amendment, including, without limitation, collections of accounts receivable and the proceeds of the contemplated sale of the Customer's Color Server Group division, shall be remitted directly to the Special Account of Customer maintained at Silicon Valley Bank, or in IBM Credit's discretion, directly to an account of IBM Credit, to be applied by IBM Credit toward Outstanding Advances, fees and interest owing by Customer. During the Overadvance Period, so long as no Special Event of Default shall have occurred, IBM Credit shall from time to time, upon the request of Customer, make Advances to or on behalf of Customer in an aggregate amount up to the amount equal to the percentages of collections set forth below, during the Overadvance Period, of accounts receivable representing sales by Customer of inventory in the ordinary course of business (excluding, without limitation, the proceeds of the contemplated sale of the Customer's Color Server Group division): Percent ------- First $3,000,000 per week 90% Next $500,000 per week 60% Next $500,000 per week 40% Additional collections 10% per week (b) If during any rolling four week period during the Overadvance Period IBM Credit shall have collected pursuant to the foregoing clause (ii) (after taking into account any Advances already made that are attributable to collections) an amount in excess of the percentages of collections during such four week period set forth below, IBM Credit shall from time to time, upon the request of Customer, make an additional Advance to Customer under the Agreement in an amount up to such excess (less the amount of any Advances previously made pursuant to this provision): 8 Percent ------- First $12,000,000 per 10% rolling four week period Next $2,000,000 per 40% rolling four week period Next $2,000,000 per 60% rolling four week period Additional Collections per 90% rolling four week period (c) The amounts set forth above shall be applied at the end of each week on a pro rata basis based upon the number of elapsed weeks during the first four weeks of the Overadvance period. For purposes of illustration:
Applicable Remit to Remit to Collections Customer IBM Credit ----------- -------- ---------- Week 1 $4,000,000 $3,200,000 $800,000 Week 2 $3,400,000 $2,940,000 $460,000 Week 3 $5,000,000 $3,300,000 $1,700,000 Week 4 $2,000,000 $1,800,000 $200,000 Week 5 $6,000,000 $3,400,000 $2,600,000 Weeks 1-4 Total $14,400,000 $11,240,000 $3,160,000 Weeks 2-5 Total $16,400,000 $11,440,000 $4,960,000
In this illustration, after the second week IBM Credit would, upon the request of Customer, make an Advance to Customer of an amount up to $20,000. After the fourth week IBM Credit would, upon the request of Customer, make an Advance to Customer an amount up to an additional $900,000 (e.g., $920,000 minus $20,000 previously advanced after the second week). After the fifth week IBM Credit would, upon the request of Customer, make an Advance to Customer of an amount up to an additional $480,000 (e.g., $1,400,000 minus $920,000 previously advanced). (d) In the event that collections during any payroll period are insufficient to permit Advances pursuant to Section 7.26(a) to be made during such payroll period in an aggregate 9 amount equal to Customer's payroll obligations (including withholding taxes) for such pay period, IBM Credit agrees to make Advances during such payroll period in an aggregate amount not to exceed such payroll obligation (including withholding taxes); PROVIDED that Customer shall pay all applicable taxes in connection therewith and remain current on all payroll tax obligations; PROVIDED, FURTHER, that if any such Advance is made pursuant to this paragraph, notwithstanding any other term or provision of this Agreement to the contrary, all collections subsequent to such Advance shall be applied to repay such Advance and shall be excluded from collections for purposes of making new Advances pursuant to paragraph 7.26(a). 7.27. Sale of Color Server Group. Customer shall have received, and delivered a copy thereof to IBM Credit of, (i) on or prior to December 1, 1995, a firm letter of intent, in form and substance satisfactory to IBM Credit, for the purchase of Customer's Color Server Group division, and (ii) on or prior to December 20, 1995, a contract, in form and substance satisfactory to IBM Credit, for the sale of Customer's Color Server Group division. On or prior to January 15, 1995, or such later date as IBM Credit and Customer may agree, Customer shall have completed the sale of Customer's Color Server Group for cash and remitted payment directly to IBM Credit of the proceeds of such sale. 7.28. Subsidiaries. Customer shall not make any Investment in or loan to, or transfer any assets to any Subsidiary or Affiliate without the prior written consent of IBM Credit; provided that if IBM Credit consents to the contemplated sale of Customer's Color Server Group division then such consent shall be considered consent under this paragraph to the transfer of the Color Server Group division to a Subsidiary of Customer in connection with such sale." C. Subsection 2.6 of the Agreement is hereby amended by deleting such subsection in its entirety and substituting, in lieu thereof, the following subsection 2.6: "2.6. Shortfall. If, on any date other than during the Overadvance Period, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall Amount. "Overadvance Period": the period from December 5, 1995 to and including the date that is the earlier of (1) the date Customer receives written notice from IBM Credit following the occurrence of a Special Event of Default that the Overadvance Period is being terminated, (2) the date thirty (30) days, or such later date specified by IBM Credit, after Customer 10 receives notice from IBM Credit during the continuance of a Default that the Overadvance Period is being terminated, and (3) March 31, 1995. "Overadvance Collateral Amount": at the time of determination, the sum of (1) twenty percent (20%) of the lower of the aggregate invoice price to Customer (net of any applicable credits) and fair market value of Customer's inventory (excluding discontinued and obsolete product) in locations for which IBM Credit has properly filed financing statements, PLUS (2) sixty-five percent (65%) of the result, if such result is a positive number, of (x) the aggregate of Accounts that are not Eligible Accounts to the extent such Accounts are not Eligible Accounts solely because such Accounts are payable by an account debtor that is not a resident of the United States (excluding Accounts that are payable by Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) MINUS (y) the amount of any obligations of Customer to Silicon Valley Bank, PLUS (3) fifty percent (50%) of Accounts that are not Eligible Accounts to the extent such Accounts are not Eligible Accounts solely because such Accounts are payable by an account debtor that is a remarketer of computer hardware and software products whose purchases of such products from Customer have been financed by another person who pays proceeds of such financing directly to Customer on behalf of such account debtor." D. Section 2 of the Agreement is hereby amended by inserting immediately following Subsection 2.8 thereof the following new Subsection 2.9: "2.9. Application of Collections by IBM Credit. Notwithstanding any other terms set forth in this Agreement or any other agreement between Customer and IBM Credit, Customer agrees that IBM Credit may from time to time apply any and all monies, reserves and proceeds received or collected by IBM Credit with respect to the Accounts and other Goods or property of Customer at any time or times hereafter, including, without limitation, any and all funds collected from the Lockbox and the Special Account, to pay or prepay, as the case may be, any amounts owing by Customer to IBM Credit whether or not such amounts are then due and payable, or IBM Credit may, in its sole discretion, disburse any part of or all such monies, reserves and proceeds to Customer. Customer agrees that IBM Credit may, but shall not be obligated to, cause funds collected from the Lockbox to be swept on a daily basis." E. Paragraph 2.3(C) of the Agreement is hereby amended by inserting immediately following the first sentence thereof, the following sentence: "Notwithstanding the immediately preceding sentence, during 11 the Overadvance Period, (i) Advances in an amount equal to the lesser of (x) the Overadvance Amount and (y) the amount the Outstanding Advances exceed the Maximum Advance Amount shall accrue a finance charge on the unpaid principal amount thereof, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "Overadvance Finance Charge" and (b) the highest rate from time to time permitted by applicable law and (ii) Advances in excess of the Overadvance Amount shall accrue a finance charge on the unpaid principal amount thereof, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "Excess Outstandings Finance Charge" and (b) the highest rate from time to time permitted by applicable law; PROVIDED, HOWEVER, that in the event Customer obtains credit insurance on Accounts described in clause 2 of the definition of Overadvance Collateral Amount in form and substance satisfactory to IBM Credit, A/R Advances in an amount equal to sixty-five percent (65%) of the amount of Customer's Accounts subject to the terms and provisions of such credit insurance that are unpaid less than ninety (90) days from the date of invoice and payable by an account debtor that is not a resident of the United States (excluding Accounts that are payable by Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) shall accrue interest at the rate set forth in the immediately preceding sentence." F. Paragraph 2.4(D) of the Agreement is hereby amended by inserting immediately following the second sentence of such paragraph the following new sentence: "In addition, during the Overadvance Period Customer shall be charged a fee equal to the product of the amount of Outstanding Advances in excess of the Borrowing Base to the extent it does not constitute a Shortfall Amount, including any Advances made by IBM Credit resulting in Outstanding Advances in excess of the Borrowing Base, multiplied by thirty (30) basis points." G. Subsection 2.1 of the Agreement is hereby amended by inserting immediately prior to the end of the last sentence of such subsection the following phrase: "or during the Overadvance Period, the Maximum Overadvance Amount." H. Subsection 9.1 of the Agreement is hereby amended by inserting immediately following paragraph (Q) thereof, the following new paragraph (R): "(R) notwithstanding paragraph (B) of this Subsection 9.1, Customer fails to comply with or observe any term, covenant or 12 agreement contained in the Amendment or contained in this Agreement by way of the Amendment." I. The Agreement is hereby amended by inserting immediately following Attachment G thereto as Attachment H the Attachment H attached hereto. J. The Agreement is hereby amended by deleting Attachment A to the Agreement in its entirety and substituting, in lieu thereof, the Attachment A attached hereto. Section 5. ADDITIONAL COVENANTS. A. Customer agrees that prior to the close of business on the date hereof Customer shall execute and deliver to each bank at which it maintains a bank account, including, without limitation, the Bank of America, a letter in substantially the form attached hereto as Exhibit 1 irrevocably directing such bank to transfer all funds received and held by such bank from time to time on account of Customer to the Special Account at Silicon Valley Bank. Customer agrees that prior to the close of business on the date hereof Customer shall deposit to the Special Account at Silicon Valley Bank, all cash and cash equivalents held by Customer or any third party on account of Customer in excess of an aggregate amount of $1,500,000.00 (including $500,000 held by Bank of the West supporting a letter of credit for the account of Customer). All amounts so deposited by Customer shall be deemed collections for which Customer shall be eligible to receive Advances pursuant to paragraph 7.27. B. Customer and IBM Credit agree to use good faith efforts to meet weekly to discuss issues and concerns either party may have relating to the financing relationship. C. Customer agrees that on or prior to December 15, 1995 Customer shall provide to IBM Credit a list in form and detail reasonably satisfactory to IBM Credit describing all of Customer's patents, trademarks, tradenames and copyrights registered with the United States Patent and Trademark Office or United States Copyright Office and shall execute and deliver to IBM Credit for filing with the appropriate offices any and all agreements, instruments, documents, and papers, which shall be prepared by IBM Credit, as IBM Credit may request to evidence and/or perfect IBM Credit's security interest in any such registered patents, trademarks, tradenames or copyrights and the goodwill and general intangibles relating thereto or represented thereby. D. Customer agrees that all reports, listings, schedules and other information provided by Customer to IBM Credit shall be correct and accurate to the best of Customer's knowledge. Section 6. REPRESENTATIONS AND WARRANTIES. Customer makes to IBM Credit the following representations and warranties all of which 13 are material and are made to induce IBM Credit to enter into this Amendment. 6.1 ACCURACY AND COMPLETENESS OF WARRANTIES AND REPRESENTATIONS. The representations and warranties contained in the Agreement are true and correct in all material respects on and as of the date of this Amendment as though made on and as of such date except to the extent that IBM Credit has knowledge of facts to the contrary or, if IBM Credit does not have knowledge of any such contrary facts, the failure of such representations or warranties to be true and correct in all material respects could not reasonably be expected to have a Material Adverse Effect. 6.2 VIOLATION OF OTHER AGREEMENTS. The execution and delivery of this Amendment and the performance and observance of the covenants to be performed and observed under the Agreement as amended by this Amendment do not violate or cause Customer not to be in compliance with the terms of any agreement to which Customer is a party. 6.3 ENFORCEABILITY OF AMENDMENT. This Amendment has been duly authorized, executed and delivered by Customer and is enforceable against Customer in accordance with its terms. Section 7. RATIFICATION OF AGREEMENT. Except as specifically amended hereby, all of the provisions of the Agreement shall remain unamended and in full force and effect. Customer hereby ratifies, confirms and agrees that the Agreement, as amended hereby, represents a valid and enforceable obligation of Customer, and is not subject to any claims, offsets or defenses. Except to the extent specifically waived herein IBM Credit reserves any and all rights and remedies that IBM Credit now has or may have in the future with respect to Customer, including, without limitation, with respect to any defaults of financial covenants existing on or prior to the date hereof. Except to the extent specifically waived herein neither this Amendment, any of IBM Credit's actions or IBM Credit's failure to act shall be deemed to be a waiver of any such rights or remedies. Section 8. GOVERNING LAW. This Amendment shall be governed by and interpreted in accordance with the laws of the State of New York. Section 9. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. SECTION 10. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND CUSTOMER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM 14 CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THE AGREEMENT, THIS AMENDMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION THEREWITH OR HEREWITH. IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officers of the undersigned as of the day and year first above written. RADIUS INC. By: /s/Dennis J. Dunnigan --------------------- Name: Dennis J. Dunnigan ------------------ Title: CFO ------------------ IBM CREDIT CORPORATION By: /s/ [illegible] --------------------- Name: [illegible] ------------------- Title: Manager of Credit ------------------ 15 EX-11.01 9 EXHIBIT 11.01 Exhibit 11.01 --- COMPUTATION OF PER SHARE LOSS (In thousands, except per share data)
1995 1994 1993 ---- ---- ---- Primary: Average shares outstanding 15,049 13,598 12,905 Net effect of dilutive stock options - based on the treasury stock method using average market price - - - --------- -------- -------- Totals 15,049 13,598 12,905 --------- -------- -------- --------- -------- -------- Net loss $(131,742) $(77,475) $(20,139) --------- -------- -------- --------- -------- -------- Per share amount $ (8.75) $ (5.70) $ (1.56) --------- -------- -------- --------- -------- -------- Fully diluted: Average shares outstanding 15,049 13,598 12,905 Net effect of dilutive stock options - based on the treasury stock method using quarter end market price which is greater than average market price - - - --------- -------- -------- Totals 15,049 13,598 12,905 --------- -------- -------- --------- -------- -------- Net loss $(131,742) $(77,475) $(20,139) --------- -------- -------- --------- -------- -------- Per share amount $ (8.75) $ (5.70) $ (1.56) --------- -------- -------- --------- -------- --------
* The primary net loss per share is shown in the statements of operations. Net loss per share under the primary and fully diluted calculations are equivalent. -56- EX-21.01 10 EXHIBIT 21.01 EXHIBIT 21.01 --- LIST OF SUBSIDIARIES SUBSIDIARY ADDRESS FRANCE Radius France S.A. BP422 World Trade Center CNIT-2 Place De La Defense 92053 La Defense, France Radius S.A.R.L. (shell corporation) SuperMac Europe S.A.R.L. Dissolved on 1/11/95 ASIA Radius KK Yanada Bld. 5F 6-7-10 Roppongi Minato-ku, Tokyo Japan Nihon SuperMac K.K. Japan SuperMac Asia Pacific Hong Kong (Dormant) UNITED KINGDOM Radius UK Ltd. 13 Westminster Court Hipley Street Old Woking, Surrey GU22 9LQ United Kingdom SuperMac Technology Europe GERMANY Radius GmbH Grosse Bleichen 35 20354 Hamburg Germany OTHERS Radius FSC Inc. Bay Street Bridgetown Barbados Radius (Australia) Pty. Ltd. Level 5, 18-20 Orion Road Lane Cove, NSW 2066 Australia (Dormant) Radius Canada Canada -57- EX-23.01 11 EXHIBIT 23.01 EXHIBIT 23.01 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-37376, 33-43116, 33-47525, 33-71636, 33-77238, 33-83824 and 33-59571) pertaining to the 1986 Stock Option Plan, the 1988 SuperMac Technology, Inc. Stock Option Plan, the Directors' Stock Option Plan, the 1990 Employee Stock Purchase Plan, and Non-Plan Stock Options of Radius Inc. of our report dated December 8, 1995, except for Note 11, as to which the date is December 27, 1995, with respect to the consolidated financial statements and schedule of Radius Inc. included in the Annual Report (Form 10-K) for the year ended September 30, 1995. /s/ Ernst & Young LLP Palo Alto, California December 28, 1995 EX-27 12 FINANCIAL DATA SCHEDULE
5 12-MOS SEP-30-1995 SEP-30-1995 4,760 0 70,176 8,502 15,071 2,336 36,871 33,840 87,878 143,664 1,331 125,876 0 0 (182,993) 87,878 308,133 308,133 302,937 302,937 121,800 0 6,068 (122,672) 9,070 0 0 0 0 (131,742) (8.75) (8.75)
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