-----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, WTTWlXKkOXpN29WNyZr+GHK/cEXTG+4SfMOTP7sR9EBsBW9XkVTMD79ziJQZyAZM 2beleTcRYfWBQiGivij7wQ== 0000912057-00-014686.txt : 20000331 0000912057-00-014686.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014686 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADISYS CORP CENTRAL INDEX KEY: 0000873044 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 930945232 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26844 FILM NUMBER: 584860 BUSINESS ADDRESS: STREET 1: 5445 NE DAWSON CREEK DR CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036461800 10-K 1 EXHIBIT 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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 December 31, 1999 Commission file number 0-26844 ------------------------ RADISYS CORPORATION (Exact name of registrant as specified in its charter) OREGON 93-0945232 (State or other jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number)
5445 N.E. DAWSON CREEK DRIVE HILLSBORO, OR 97124 (Address of principal executive offices, including zip code) (503) 615-1100 (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 the 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 Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. / / Aggregate market value of the voting stock held by non-affiliates of the Registrant at March 24, 2000: $778,614,968. For purposes of the calculation executive officers, directors and holders of 10% or more of the outstanding Common Stock are considered affiliates. Number of shares of Common Stock outstanding as of March 24, 2000: 16,849,989. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K INTO WHICH INCORPORATED - --------------------------------------------- --------------------------------------------- Proxy Statement for 2000 Annual Meeting of Shareholders Part III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RADISYS CORPORATION FORM 10-K TABLE OF CONTENTS PART I Item 1 Business.................................................... 3 Item 2 Properties.................................................. 8 Item 3 Legal Proceedings........................................... 8 Item 4 Submission of Matters to a Vote of Security Holders......... 8 Item 4(a) Executive Officers of the Registrant........................ 9 PART II Item 5 Market for the Registrant's Common Equity and Related 11 Shareholder Matters....................................... Item 6 Selected Financial Data..................................... 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 12 Item 8 Financial Statements and Supplementary Data................. 17 Item 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.................................. 34 PART III Item 10 Directors and Executive Officers of the Registrant.......... 34 Item 11 Executive Compensation...................................... 34 Item 12 Security Ownership of Certain Beneficial Owners and 34 Management................................................ Item 13 Certain Relationships and Related Transactions.............. 34 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on 35 Form 8-K.................................................. Signatures.......................................................................... 37
2 PART I ITEM 1. BUSINESS RadiSys Corporation ("RadiSys" or the "Company"), incorporated in 1987, is a leader in computer based building blocks used by original equipment manufacturers ("OEMs") for products in the telecommunications and networked equipment markets (including industrial automation, medical devices, and transaction terminals). Unlike general purpose computers, embedded computer solutions are incorporated into systems and equipment to provide a single or a limited number of critical system control functions and are generally integrated into larger automated systems. RadiSys' embedded computers are based upon the Intel x86, Intel IXP Architecture, and/or the Texas Instruments C6x DSP architectures and are capable of running PC-compatible operating systems and application software. EMBEDDED COMPUTER MARKET Embedded computer systems are a key segment of the broad electronics market and form the backbone and control system for many types of today's electronic systems requiring advanced capabilities for human interface, data analysis and system communications and control. Embedded computers differ from general-purpose computers, such as personal computers (PCs), in several key respects. First, embedded computers or building blocks, both board level and chassis systems, are closely integrated into larger systems, perform a single or limited number of complex applications and adhere to specific requirements regarding size, reliability and ability to withstand the demands of extreme environmental conditions. Additionally, embedded computers are design-intensive solutions that require substantial engineering know-how and a comprehensive understanding of the specific end product into which they are to be incorporated. Embedded computer solutions are incorporated into a broad range of products, including voice message systems, local area network routers, cellular base stations, semiconductor manufacturing equipment, electronics assembly equipment, blood analyzers, patient monitors, ultrasound machines, gaming equipment, point of sale terminals and banking automation machines. Unlike PC products, which have experienced and will likely continue to experience short product cycles, a typical embedded computer solution has a relatively long product life, with most designs lasting through the life cycles of the products into which they are integrated, often three years or more. Life cycles can differ significantly among industries and applications. In recent years, the increasing complexity of electronic subsystems and components, faster time-to-market requirements, together with a widespread trend in many industries to rationalize internal manufacturing resources, has led to a significant growth in the outsourcing of the design and manufacture of electronics subsystems and components by major OEMs. As a result, the Company believes there is a significant opportunity for independent manufacturers to provide OEMs with cost-effective, reliable and high value-added embedded computer system solutions. STRATEGY The Company's objective is to be the leader in embedded computer solutions utilizing key technology building blocks for major OEM's in the telecommunications and networked equipment industry. The key elements of the Company's highly differentiated strategy are: FOCUS ON PROVIDING A WIDE BREADTH OF BEST-IN-CLASS TECHNOLOGY BUILDING BLOCKS. There are four key sets of building blocks in a generic telecommunications system. The first building block is the Central Processing Unit (CPU), which has been the heritage of RadiSys since incorporation in 1987. The second building block is DSP (Digital Signal Processing). RadiSys acquired a DSP company in 1997, Sonitech, which exclusively focuses on providing hardware, software, and algorithms to support Texas Instruments' C6X DSP architecture. The third building block is WAN (Wide Area Network) connectivity. RadiSys purchased 3 a division of International Business Machines Corporation ("IBM") in March of 1999 that enabled the company to garner technology and expertise in T1/E1, X.25, SS7, ATM, and Frame Relay. The fourth building block is systems packaging and platform integration. Up until the Company's acquisition of Texas Micro, Inc. in August of 1999, RadiSys was considered a custom Intel CPU board-level provider solution. Texas Micro, Inc. brought subsystem integration capabilities, strong telecommunications customer base and expertise in PCI bus architecture. In December of 1999, RadiSys augmented the fourth building block by acquiring another division of IBM called the Open Computing Platform (OCP) division. With the acquisition of OCP, RadiSys now delivers highly integrated customized systems with the OEM's logo and when requested, drop ships directly to the OEM's customer. RadiSys believes that having all four building blocks and the ability to integrate and test them is a key differentiation between the Company and the competition in garnering additional design wins and sales, and also gaining increased opportunities with current and new customers. LEVERAGE INTEL ARCHITECTURE EXPERTISE. RadiSys combines the technical expertise of hundreds of man-years of Intel architecture experience with a close working relationship with Intel to design and manufacture innovative Intel-based building blocks that can be sold individually or bundled into a variety of levels of integrated solutions for its OEM customers. The Company intends to continue to capitalize on the growing acceptance of the Intel X86 architecture and the Intel IXA architecture as the preferred solution of OEMs, especially in the telecommunications market. Additionally, the Company and Intel's Embedded Architecture Division are working together to develop and market chip-level, board-level, and system-level products for the embedded computer market in order to facilitate the implementation of IA and IXA designs into a broadening array of new OEM products. PROVIDE BROAD SET OF TECHNICAL SOLUTIONS TO MEET CUSTOMER-SPECIFIC NEEDS. The Company provides a high degree of design, product, and manufacturing flexibility to address the needs of its customers for customized solutions in a wide range of applications. The Company provides building blocks with a variety of physical form factors and levels of integration, from fully integrated systems, to application ready platforms, to CPU boards, to chip-level products. The Company also offers a broad range of custom solutions and maintains a large and expanding library of designs, containing specifications, logic designs, firmware, device driver software, test and integration specifications, DSP algorithms, WAN (Wide Area Network) connectivity, and manufacturing rules. The Company believes that its extensive design expertise and large library of solutions is critical to its ability to find the solution that best fits its customers' technical and business needs. PRODUCTS RadiSys designs and manufactures a broad array of computer-based technology building blocks based on the Intel architecture--from standard products to products designed to address the specific requirements of its OEM customers. These "perfect fit" solutions typically combine the level of integration, degree of customization and specified form factors and standards required to meet the customer's needs. STANDARD PRODUCTS AND ARCHITECTURES. RadiSys provides a highly differentiated set of horizontal and vertical technology building blocks. RadiSys can deliver Intel CPU platforms, system platforms, wide-area networking (WAN) and digital signal processing (DSP) technologies on two key architectures, PCI and CompactPCI. The Company provides state-of-the-art Pentium, PII, PIII, IXP and StrongArm Solutions. The Company provides both enterprise and carrier class CompactPCI and PCI system enclosures and backplanes. In addition, the Company has expertise in field-proven frame relay, SS7, ATM, E1/T1, X.25, IP and other protocols and interfaces. The Company provides advanced Texas Instrument (TI) C6x voice processing solutions hardware and algorithms. TESTING AND INTEGRATION. The level of integration required by some OEMs in the telecom industry has provided an opportunity for RadiSys to deliver its broad range of solutions. RadiSys has the ability to test and integrate all of its building blocks with other third party cards and software to provide a fully 4 integrated system to the specifications of the OEM. This allows OEMs to source all of these functions to RadiSys so they may focus on the key differentiation they deliver to their marketplace. Fully integrated computer subsystems and systems generally range in price from $1,000 to $15,000. CUSTOMIZATION. The degree of customization of the Company's products ranges from modifications of standard products to custom solutions comprised solely of newly developed modules. The Company uses its extensive design experience and large design library to create products with varying degrees of customization. The Company believes that the degree of customization will tend to increase in the future and provide a time-to-market advantage for our customers. SALES AND MARKETING RadiSys views the design process as an opportunity to build long-term OEM customer relationships. The Company typically experiences long life cycles for products designed for its OEM customers. RadiSys' objective of providing embedded computer solutions utilizing key technology building blocks focuses the Company's direct sales force on solving the OEM customer's needs. A typical sales team consists of an account manager along with supporting engineering expertise interacting with the OEM customer's technical staff to solve specific requirements of application; form, fit and function; environment and mechanics. The Company's value proposition to the customer is a faster time-to-market. The Company markets its products primarily in North America, Western Europe, Israel and Japan. In 1999, the Company had no customer whose sales were more than 10% of total revenues; the top 25 customers accounted for approximately 65% of 1999 sales. In North America, products are sold principally through a direct sales force. The Company has U.S. sales offices in Oregon, Texas, California, North Carolina, Nevada and Delaware. The direct sales force is supported by approximately 60 factory-based application engineers, product marketing personnel and sales support personnel. In addition, the Company's management plays a key role in the Company's marketing and selling efforts. In Europe, the Company sells its products through wholly owned subsidiaries in the United Kingdom, RadiSys UK Ltd., and RadiSys International, Inc. and through distributors in Europe. RadiSys has international regional sales offices in The Netherlands, United Kingdom, Germany, Israel and France. In Japan, the Company sells its products through a wholly-owned Japanese subsidiary, RadiSys K.K., that markets the Company's products directly and through several distributors in Japan. In 1999, 1998 and 1997, international sales represented approximately 37%, 29% and 30%, respectively, of revenues. Much of the Company's international sales are denominated in U.S. dollars. The Company has established distributor relationships with Arrow/Schweber Electronics, Pioneer-Standard Electronics, Inc., and Wyle Electronics in North America and several distributors in Europe to market the Company's chip-level, board-level and system-level products. RESEARCH, DEVELOPMENT AND ENGINEERING The Company believes its research, development and engineering expertise represents an important competitive advantage. The Company's research, development and engineering staff at December 31, 1999 consisted of approximately 235 engineers and technicians. Most of the Company's research, development and engineering efforts are focused on joint projects with its OEM customers resulting in the development of custom board-level and system-level products. For these projects, the Company's engineering staff works closely with the customer and the customers often pay the Company non-recurring engineering fees as certain milestones are attained. From time to time, the Company also engages in joint research and development of other products with certain of its customers and other parties. The Company's research and development staffs are located in Hillsboro, Oregon; Houston, Texas; Boca Raton, Florida; Newton, Massachusetts and Birmingham, United Kingdom. 5 In the initial phases of the relationship, considerable attention is given to the establishment of communications links, such as electronic mail, to enable the customer's and the Company's sales and engineering staffs to interact on a real-time or rapid response basis. The Company believes that close and frequent communication during the design process allows RadiSys to operate as a "virtual division" within the customer's internal organization. RadiSys' in-depth understanding of embedded computer technology and applications assists the customer in resolving its overall product design issues while regular customer feedback enables RadiSys to increase and continually refresh its understanding of its customer's specific design requirements. The Company typically retains the rights to any technology developed as a part of the design process. In some cases, the Company agrees to share technology rights, including manufacturing rights, with the customer, but generally retains nonexclusive rights to use the technology. The embedded computer market is subject to rapid technological development, product innovation and competitive pressures. Consequently, the Company has invested and will continue to invest resources in the research and development of (i) technology building blocks such as embedded modules, platforms, chips and low-level firmware, (ii) application-specific embedded computers for specific customers and (iii) design processes and tools. In 1999, 1998 and 1997, the Company invested $30.5 million, $22.2 million and $19.4 million, respectively, on research and development. MANUFACTURING The Company currently manufactures the majority of the board-level and system-level products it sells. Also, due to the addition of ARTIC and OCP from IBM in 1999, the Company also employs several outside subcontractors to produce board-level and system-level products including system integration services. The Company builds its products in highly automated ISO9001 certified manufacturing plants in Hillsboro, Oregon and Houston, Texas. These plants encompass surface-mount technology ("SMT") board assembly, test, mechanical assembly and system assembly and test. ISO9001 certification is the international designation, developed by the International Organization of Standardization, a pan-governmental agency, for demonstrating that the Company's systems support the design and production of products of consistently high quality. The Company's Hillsboro, Oregon plant has three automated lines for SMT board assembly, which are based on equipment purchased primarily from Universal Instruments. The Company's Houston, Texas plant has two automated lines for SMT board assembly, which are based on Fuji equipment. The Company estimates that, as currently configured, the plants have sufficient capacity on multiple-shift operation to handle planned demand well into 2000. Each line is modular and thus readily expandable by adding additional inline equipment. The Company plans to transfer products between the two facilities in 2000 to optimize build and configuration capability across the Company's products. The Company also has relationships with outside subcontractors to perform additional production capabilities. Because the products into which embedded computers are integrated typically have long life cycles, dynamic stress testing of embedded computer products must be particularly exacting to ensure the reliability of such products. The Company believes its test processes represent a significant competitive advantage in this area. The Company uses a variety of commercial and proprietary test processes including highly accelerated life testing, highly accelerated stress screening, bed-of-nails, in-circuit and functional test equipment. The highly accelerated stress screening process detects early lifetime failures by subjecting products to a series of cycles of rapid temperature change, and random mechanical vibration while the products are running a self-test program and are being monitored. The Company has equipment to perform temperature, humidity, and vibration analysis of products. The Company relies on external suppliers for bare printed-circuit board fabrication, machine-inserted through-hole circuit boards, semiconductor components, mechanical assemblies, and semiconductor foundry services. Although many of the raw materials and much of the equipment used in the Company's 6 manufacturing operation are available from a number of alternate sources, certain of these components are obtained from a single supplier or a limited number of suppliers. The Company is dependent on third parties for a continuing supply of the components it uses in the manufacture of its products. For example, the Company is dependent solely on Intel for the supply of microprocessors and other components and depends on Toshiba America Inc., Epson Electronic America, Lucent Technologies and Maxim Integrated Products, Inc. as sole source suppliers for other components. For some of these components the Company would encounter difficulty in locating alternative sources of supply. The Company relies on a third party foundry to produce its core logic chip product offerings. There is no assurance that the third party will be willing or able to supply the Company with sufficient core logic chips to meet its needs in the future or, if the party were not to meet the Company's needs, that the Company could obtain satisfactory core logic chips from alternative sources in sufficient quantities and at acceptable prices. COMPETITION The embedded computer industry is highly competitive and fragmented, and the Company's competitors differ depending on product type, geographic market and application type. The Company believes that, from a customer's perspective, the main competitive factors in the embedded computer industry are time-to-market, product cost, product quality, breadth of solution, and long-term stability of both the product and the supplier. Because many OEM customers view their embedded computer requirements from a "make versus buy" perspective, RadiSys often competes against its OEM customers' ability to design and manufacture satisfactory embedded computer products in-house. However, the start of the sales cycle begins after the OEM has made a conscious decision to outsource their building block needs. Establishing a relationship with a set of key accounts and growing the number of RadiSys design wins from existing customers, are the pieces of RadiSys' future strategy. Off-the-shelf product manufacturers comprise a second set of competitors, although this product segment is highly fragmented by physical and electrical form factors. Electronics contract manufacturers form a third set of potential competitors, although most have no specific product or application design expertise and simply manufacture to a third party's design. Finally, RadiSys competes against companies that provide individual pieces of embedded system solutions, such as central processing units, digital signal processors, and wide area networks. The competitors are different depending on what building blocks are present in the competitive sales cycle. RadiSys maintains a competitive advantage in being able to provide all four sets of building blocks in both PCI and Compact PCI architectures. BACKLOG As of December 31, 1999, the Company's backlog was approximately $59.7 million, as compared to $41.8 million as of December 31, 1998. The Company includes in its backlog all purchase orders scheduled for delivery within twelve months, although a majority of the backlog is typically scheduled for delivery within 90 days. 7 INTELLECTUAL PROPERTY Seventeen U.S. patents have been issued to the Company. The Company has pending one additional U.S. patent application and one foreign application covering technology incorporated into its products; however, the Company relies principally on trade secrets for protection of its intellectual property. The Company believes, however, that its financial performance will depend much more on the pace of its product development and its relationships with its customers than upon such protection. The Company has from time to time been made aware of others in the industry who assert exclusive rights to certain technologies, usually in the form of an offer to license certain rights for a fee or royalties. The Company's policy is to evaluate such claims on a case-by-case basis. The Company may seek to enter into licensing agreements with companies having or asserting rights to technologies if the Company concludes that such licensing arrangements are necessary or desirable. EMPLOYEES As of December 31, 1999, the Company had 1,041 employees, of which 886 were regular employees and 155 were agency temporary employees or contractors. The Company is not subject to any collective bargaining agreement, has never been subject to a work stoppage, and believes that its relations with employees are good. ITEM 2. PROPERTIES In the U.S. the Company leases the following facilities, (all numbers approximate): 137,000 square feet of office and manufacturing space in three buildings in Hillsboro, Oregon; 19,000 square feet of office space in Beaverton, Oregon; 13,000 square feet of office space in Newton, Massachusetts; 144,000 square feet of office and manufacturing space in Houston, Texas; and 24,000 square feet of office space in Delray Beach, Florida. The Company owns two parcels of land adjacent to its Hillsboro facility, which are being held for future expansion. The Company also leases four small sales offices in the U.S. located in Ann Arbor, Michigan; Dallas, Texas; Newark, California; and Raleigh, North Carolina. Internationally, the Company leases office space in the following cities; Almere and Eindhoven, The Netherlands; Birmingham and Swindon, United Kingdom; Cedex and Versailles, France; Neu-Isenburg, Munich and Stemwede, Germany; Rehovot, Israel; and Tokyo, Japan. Total lease costs of all these facilities are approximately $4.5 million per year, plus certain building operating expenses. ITEM 3. LEGAL PROCEEDINGS The Company has no material litigation currently pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 8 ITEM 4(A) EXECUTIVE OFFICERS OF THE REGISTRANT As of March 27, 2000, the names, ages and positions held by executive officers of the Company were as follows:
NAME AGE POSITION WITH THE COMPANY - ---- -------- ------------------------- Dr. Glenford J. Myers....... 53 Chairman of the Board, President and Chief Executive Officer Stuart F. Cohen............. 40 Vice President of Marketing and Sales Ronald A. Dilbeck........... 46 Vice President and General Manager, Computer Platform Division Douglas D. Goodyear......... 45 Vice President of Sales Arif Kareem................. 47 Vice President and General Manager, Telecommunications Division Stephen Loughlin............ 49 Vice President of Finance and Administration and Chief Financial Officer John Sonneborn.............. 42 Vice President of Manufacturing & Chief Quality Officer Diane M. Williams........... 46 Vice President of Human Resources
Dr. Glenford J. Myers co-founded the Company in March 1987 and has served as the Company's Chairman of the Board, President and Chief Executive Officer since that time. From 1981 to 1987, he held various management positions with Intel, including Manager of Microprocessor Product Line Architecture and Manager of the Microprocessor Strategic Business Segment. While at Intel, Dr. Myers had primary management responsibility for the feasibility and design of Intel's 386 and 80960 microprocessor chips, both of which became industry standards in their respective application areas. From 1968 to 1981, Dr. Myers held various engineering and management positions with IBM. Dr. Myers holds a Ph.D. from the Polytechnic Institute of New York, an M.S. from Syracuse University and a B.S.E.E. from Clarkson College. Stuart F. Cohen joined the Company in January 1999 as its Vice President of Marketing. From 1997 to 1998, Mr. Cohen was Vice President, Worldwide Marketing for InFocus Systems, Inc., a company that develops and manufactures data/video projectors. From 1981 to 1997, Mr. Cohen held various sales and marketing management positions for IBM, an information technology company, the most recent being Director of Worldwide Marketing, Networking Division. Mr. Cohen holds a B.S. in Business Administration from the Arizona State University. Ronald A. Dilbeck joined the Company in May 1996 as its Vice President and General Manager, Automation and Control Division. In October 1998, Mr. Dilbeck was given joint responsibility of the merged Automation Equipment Division. From 1994 to 1996, Mr. Dilbeck was President and Chief Executive Officer of nCUBE, Inc., a company that builds interactive multimedia servers. From 1983 to 1994, he held various engineering management positions with Sequent Computer Systems, a manufacturer and provider of information technology solutions, the most recent being Director of Integration Services. Mr. Dilbeck holds an M.S.E.E. from Washington State University and a B.S.E.E. and a B.S. in Mathematics from Oregon State University. Douglas D. Goodyear joined the Company in October 1998 as its Senior Vice President of Sales. From 1995 to 1998, Mr. Goodyear was Vice President, Worldwide Sales of Actel Corporation, a semiconductor development company. From 1990 to 1995, Mr. Goodyear served as Vice President of North American Sales for the Microelectronics Group of Sharp Electronics. Additionally, he has held various sales and sales management positions with Hitachi, Advanced Micro Devices, and Signetics Corp., a Philips company. Mr. Goodyear holds a B.S. in both Computer Science and Industrial Management from the University of Nebraska. Arif Kareem joined the Company in July 1997 as Vice President, Telecom Business Unit, and was appointed Vice President and General Manager, Telecommunications Division in October 1997. From 9 1980 to 1997 Mr. Kareem held various engineering and marketing management roles at Tektronix, Inc., an electronics manufacturing company, before serving as General Manager of Tektronix's Telecom Product Line, and subsequently General Manager of the Communications Test Business Unit. His most recent role at Tektronix was as Director of Strategic Marketing for the Measurement Division. Mr. Kareem holds a B.S.E.E. and an M.S.E.E. from Lehigh Universtiy, and an M.B.A. from the University of Oregon. Stephen Loughlin joined the Company in April 1999 as Vice President of Finance and Administration and Chief Financial Officer. He spent the previous nine years at Sequent Computer Systems, a manufacturer and provider of information technology solutions, as Vice President and Controller. Prior to that, he was with Wang Laboratories, Inc. as Director of Finance for logistics/manufacturing and system manufacturing/distribution. Mr. Loughlin earned a B.S. in accounting from Boston College. John Sonneborn joined the Company in August 1996 as its Vice President of Manufacturing. From 1981 to 1996, Mr. Sonneborn held various operations and engineering positions at Tektronix, Inc., lastly as the Director of Quality for the Measurement Business Division. Mr. Sonneborn holds a B.S. in Applied and Engineering Physics from Cornell University. Diane M. Williams joined the company in August 1998 as its Vice President of Human Resources. From 1990 to 1998 Ms. Williams held various roles at Sequent Computer Systems, Inc., most recently Vice President of Human Resources. Ms. Williams also spent time at Compaq Computer Corporation where she was Manager of Enterprise Sales Development. Prior to Compaq and Sequent, Ms. Williams held various human resources management positions at Amdahl Computer Corporation and First City Bancorporation of Texas. She holds a B.A. Degree from State University of New York at Stony Brook and an M.Ed. from the University of Houston. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock has been traded on the Nasdaq National Market since the Company's initial public offering in 1995 under the symbol "RSYS". The following table sets forth, for the periods indicated, the highest and lowest closing sale prices for the Common Stock, as reported by the Nasdaq National Market. The table gives effect to a three-for-two split of the shares of common stock of the Company effective November 29, 1999 to shareholders of record at the close of business on November 8, 1999.
HIGH LOW -------- -------- 1999 First Quarter............................................. $20.71 $14.89 Second Quarter............................................ $25.92 $13.92 Third Quarter............................................. $30.67 $24.42 Fourth Quarter............................................ $54.13 $26.00 1998 First Quarter............................................. $25.75 $14.42 Second Quarter............................................ $19.83 $11.83 Third Quarter............................................. $15.00 $ 7.58 Fourth Quarter............................................ $21.09 $ 8.00
On March 24, 2000, the last reported sale price of the Common Stock on the Nasdaq National Market was $60.25. The Company has never paid any cash dividends on its Common Stock and does not expect to declare cash dividends on the Common Stock in the foreseeable future. The Company's current policy is to retain all of its earnings to finance future growth. As of March 24, 2000, there were approximately 613 holders of record of the Company's Common Stock. The Company believes that the number of beneficial owners is substantially greater than the number of record holders because a large portion of the Company's outstanding Common Stock is held of record in broker "street names" for the benefit of individual investors. 11 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Consolidated Statement of Operations Data: Revenues................................ $251,090 $186,548 $191,814 $161,431 $147,945 Gross profit............................ 92,297 62,684 70,549 58,105 59,430 Income from operations.................. 16,604 8,569 21,165 6,399 7,816 Net income (loss)....................... 18,997 7,818 14,272 (141) 7,231 Net income (loss) per share (diluted) *..................................... 1.11 0.48 0.88 (0.01) 0.64 Weighted average shares outstanding (diluted) *........................... 17,110 16,129 16,212 15,712 11,311 Consolidated Balance Sheet Data: Working capital......................... $ 68,863 $ 83,083 $ 78,744 $ 69,524 $ 65,503 Total assets............................ 187,563 131,727 130,200 116,677 96,578 Long term obligations, excluding current portion............................... -- 88 399 648 884 Total shareholders' equity.............. 134,255 106,827 99,422 84,060 73,921
Note: The selected financial data for the four years ended December 31, 1998 has been restated to reflect the merger with Texas Micro, which was accounted for as a pooling of interests. * Reflects the three-for-two stock split on November 29, 1999. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) ACQUISITIONS AND MERGERS On December 28, 1999, the Company purchased certain assets of International Business Machines Corporation's ("IBM") Open Computing Platform (OCP) operation that focuses on providing highly-customized embedded system solutions to OEM's primarily in the telecommunications market. The purchase price, including direct acquisition costs and contingent consideration, was $14.1 million. Pursuant to the terms of the agreement, the Company may be required to make additional future payments in March of 2001, 2002, and 2003 based upon a formula tied to the future OCP revenues. These potential additional future payments will be accounted for as additional purchase price. The total consideration for the Acquisition will not exceed $30.0 million. The acquisition was accounted for using the purchase method. The results of operations for this acquisition have been included in the financial statements since the date of acquisition. On August 13, 1999, the Company completed its merger with Texas Micro, a formerly publicly-traded embedded computer company headquartered in Houston, Texas, by issuing approximately 2.8 million shares of the Company's stock for all the outstanding common stock of Texas Micro. The merger was accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16, and accordingly, the financial statements have been restated for all periods prior to the merger to reflect the combined results of operations, financial position and cash flows. In connection with the merger, the Company recorded a charge to operating expenses of approximately $6.0 million for merger-related costs in the third quarter of 1999. On March 1, 1999, the Company purchased certain assets of IBM dedicated to the design, manufacture and sale of IBM's ARTIC communications coprocessor adapter hardware and software for wide area network and other telephony applications. The purchase price, including direct acquisition costs, was 12 $27.5 million. The acquisition was accounted for using the purchase method. The results of operations for this acquisition have been included in the financial statements since the date of acquisition. On February 18, 1997, the Company purchased substantially all the assets of Sonitech International, Inc., a provider of digital signal processing hardware and software solutions for embedded applications. The purchase price included the issuance of 84 shares of common stock and $1.0 million in cash consideration. The acquisition was accounted for using the purchase method. The results of operations for this acquisition have been included in the financial statements since the date of acquisition. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of revenues for the years ended December 31, 1999, 1998 and 1997.
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Revenues.................................................... 100.0% 100.0% 100.0% Cost of sales............................................... 63.2 66.4 63.2 ------ ------ ------ Gross margin................................................ 36.8 33.6 36.8 Research and development.................................... 12.1 11.9 10.1 Selling, general and administrative......................... 14.7 16.9 15.6 Goodwill and intangibles amortization....................... 1.0 .2 .1 Combination costs........................................... 2.4 -- -- ------ ------ ------ Income from operations...................................... 6.6 4.6 11.0 Interest income, net........................................ .5 1.0 .8 Other income................................................ .7 .3 -- ------ ------ ------ Income before income tax provision.......................... 7.8 5.9 11.8 Income tax provision........................................ .3 1.7 4.4 ------ ------ ------ Net income.................................................. 7.5% 4.2% 7.4% ====== ====== ======
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 REVENUES. Revenues increased 34.6% to $251.1 million for 1999 from $186.5 million for 1998. The increase in revenues in 1999 was due to growth within existing product lines and movement into higher growth markets, primarily telecommunications. In addition, the acquisition of ARTIC in March of 1999 resulted in increased revenues and the merger with Texas Micro in August of 1999 enhanced the Company's ability to grow. Revenues decreased 2.7% to $186.5 million for 1998 from $191.8 million for 1997. The decrease in revenues in 1998 was primarily caused by customers reducing orders precipitated by the effects of negative global economic conditions in the electronics market. GROSS MARGIN. Gross margin increased to 36.8% for 1999 from 33.6% for 1998 primarily as a result of the product mix consisting of a larger portion of higher margin product relative to lower margin product shipped, which includes products added as a result of the ARTIC acquisition on March 1, 1999. Additionally, fixed manufacturing costs were lower relative to higher revenue levels during 1998. The Company's strategic business model is to price its products for new design wins at roughly 30-35% gross margins, because the Company believes this gross margin level represents the best elasticity point to maximize design wins and thus long term growth and profitability. As such, the Company expects gross margins to decline gradually over time as new design wins ramp into production. Typically, products ramp into production 6 to 12 months after the design win. 13 Gross margin decreased to 33.6% for 1998 from 36.8% for 1997 because of an unfavorable mix of product compared to the prior year. In addition, manufacturing costs stayed flat despite a drop in production. The Company's gross margins are heavily influenced by its OEM sales relationships. OEM sales are characterized by longer product life cycles and generally lower gross margins that can vary throughout the product life cycle. Gross margins are typically lower in the early stages of production for OEM sales and have the potential to improve over time. The Company establishes gross margin targets based on the nature of the sales it is pursuing and the desire to establish new OEM relationships by pricing aggressively to achieve key sales. However, many of the factors affecting gross margins, such as variances in unit volumes and timing of orders and component cost, are difficult or impossible to predict and can cause the Company to be subject to unplanned margin variances. Gross margins on OEM sales are also particularly sensitive to changes in customer mix because of both margin variances among individual products and the relative importance of a single large sale on overall operating results. To mitigate the effect of short-term margin variances, the Company may employ "step pricing" techniques in which unit prices decline over the life of the product to reflect anticipated production efficiencies and/or component cost reductions, or various "cost sharing" or "cost plus" pricing techniques that serve to reduce the margin risk to the Company. RESEARCH AND DEVELOPMENT. Research and development expenses increased 37.3% to $30.5 million for 1999 from $22.2 million for 1998, primarily as a result of increased investment in new product development and costs of enhancements to existing products. The Company continues to invest in new design wins for OEM customers and the dollar increases reflect increases in the number of employees working in research and development including additions resulting from acquisitions. Research and development expenses as a percentage of total revenue remained relatively flat from 1998 to 1999. Research and development expenses increased 14.7% to $22.2 million for 1998 from $19.4 million for 1997 as a result of investment in new products. Research and development expenses increased as a percentage of total revenue by 1.8% primarily as the result of lower revenue levels in 1998. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses, exclusive of goodwill amortization, increased 16.7% to $36.8 million for 1999 from $31.5 million for 1998. Selling, general and administrative expenses decreased in 1999 as a percentage of revenues to 14.7%. The dollar increase of $5.3 million is due to the selling effort to maintain high design win activity. The 2.2% decrease as a percentage of total revenue is due to increased efficiencies in managing expenses combined with higher revenue levels, compared to 1998. Selling, general and administrative expense increased 5.3% to $31.5 million for 1998 from $29.9 million for 1997 primarily as a result of continued focus on design win success despite a decrease in revenues. GOODWILL AND INTANGIBLE AMORTIZATION. Amortization expense relates to goodwill and intangibles recorded in connection with the Sonitech acquisition (Q1 97 - $3.0 million) and the ARTIC acquisition (Q1 99 - $20.6 million). Amortization periods range from five to fifteen years. Amortization expense increased by $2.1 million over 1998 primarily as a result of the ARTIC acquisition. Goodwill recorded for the OCP acquisition in late December 1999, totals $13.0 million and will be amortized over five years beginning January 2000. COMBINATION COSTS. Combination costs for the year ended December 31, 1999 resulted from the Texas Micro merger on August 13, 1999. The Company recorded a charge to operating expenses of approximately $6.0 million for merger-related costs during the third quarter of 1999. Merger and related costs include professional and filing fees of $3.3 million, human resource related expenses of $1.5 million, contract termination costs of $.8 million and other miscellaneous expenses totaling $.4 million. 14 INTEREST INCOME, NET. Interest income, net decreased 37.8% to $1.2 million for 1999 from $1.9 million in 1998 due to lower cash and cash equivalents levels primarily a result of the funding of the ARTIC Business Unit acquisition on March 1, 1999 and capital expenditures. Interest income, net increased 28.8% to $1.9 million for 1998 from $1.5 million for 1997, due to a higher cash equivalent balance held in 1998. OTHER INCOME, NET. Other income increased by $1.4 million from 1998 due to the recovery of amounts owed from a prior divestiture with General Automation. The Company received the final consideration owed in connection with the prior (1996) sale of Texas Micro's Sequoia Enterprise Systems business unit to General Automation. Final consideration consisted of $1.5 million in cash, $750 in notes, and 1,133 shares of General Automation common stock. The receipt of this consideration resulted in a gain to the Company of $2.2 million in the third quarter of 1999 and is reflected in other income. INCOME TAX PROVISION. The income tax provision for 1999, 1998 and 1997 reflect effective income tax rates of 3.5%, 28.6% and 37.0%. The decrease in the effective income tax rates for 1999 is attributed to the Texas Micro net operating loss carryforwards recognized in the year. The Company has accounted for certain changes in the federal income tax laws that were effective on June 25, 1999. The tax law change eliminated some restrictions on the utilization of certain Texas Micro net operating loss carryforwards. Some of the Texas Micro net operating loss carryforwards are now available to offset RadiSys taxable income. The adjustment relating to this tax law change resulted in a decrease to the tax provision for the quarter ended June 30, 1999 and an increase to net income after tax of $5.2 million. The decrease in the effective tax rate for 1998 compared to 1997 is directly attributable to lower net income. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, the Company had $15.7 million in cash and equivalents. As of December 31, 1999, the Company had working capital of approximately $68.9 million. The Company has a $20.0 million line of credit with a bank which expires September, 2000. As of December 31, 1999, $13.9 million was outstanding under this arrangement at an interest rate of 8.5%. Amounts outstanding under the line of credit accrue interest at an annual rate equal to the lower of the LIBOR plus 1.25% to 2.0% or lender's prime rate (8.5% at December 31, 1999). There was no balance outstanding as of December 31, 1998. Net cash provided by operating activities was $2.1 million, $20.6 million and $5.5 million for 1999, 1998 and 1997, respectively. The decrease in net cash provided by operating activities in 1999 was largely attributable to an increase in accounts receivable over prior years. Cash and cash equivalents decreased $28.1 million during the year ended December 31, 1999 primarily as a result of the cash paid and assets purchased for the ARTIC and OCP acquisitions ($41.6 million), increases in accounts receivable ($25.0 million), inventories ($6.6 million), deferred income taxes ($8.1 million), capital expenditures ($8.5 million) and capitalized software production costs and other assets ($3.6 million), and gain on sale of assets ($2.2 million). These cash uses were offset by cash and cash equivalent increases from short term borrowings ($13.9 million), net income ($19.0 million), depreciation and amortization ($9.6 million), accounts payable ($7.3 million), accrued income taxes ($2.5 million), accrued wages and bonuses ($2.4 million), and other accrued liabilities ($2.0 million). Capital expenditures were $8.5 million, $4.7 million and $4.3 million in 1999, 1998 and 1997, respectively. These capital expenditures were primarily for the purchase of leasehold improvements, manufacturing equipment, plant modernization, and the purchase and implementation of SAP financial applications. Capital expenditures for 2000 are expected to range from $8.0 million to $10.0 million, resulting in part from the Company's plan to continue increasing its manufacturing capacities and investments in information systems. 15 The Company believes its existing cash and cash equivalents and cash from operations will be sufficient to fund its operations for at least the next 12 months. Because the Company's capital requirements cannot be predicted with certainty, there is no assurance that the Company will not require additional financing prior to the expiration of 12 months. YEAR 2000 ISSUES The Company recognizes the importance to its operations of Year 2000 issues and has worked to maintain the availability and integrity of its financial systems and the reliability of its operational systems. Within the last three years the Company has evaluated and upgraded or replaced the software packages underlying the Company's financial systems, major manufacturing systems, internal and external communication systems, and desktop systems, as appropriate, to address Year 2000 readiness issues. The Company has also performed an in-depth analysis of all of its products. In addition, the Company has been in contact with all major external third party providers to assess their Year 2000 readiness; this includes third parties who provide financial, payroll, communications, component, and integration services to the Company. The Company has completed its assessment of any Year 2000 difficulties to date. Any difficulties as a result of Year 2000 have been corrected through modifications of software and are considered to be insignificant in nature. The Company has not experienced any significant Year 2000 issues arising from its third party vendors to date and does not anticipate any such problems arising in the future. In the event that problems do arise, the Company continues to maintain a Year 2000 contingency plan. The total cost associated with required modifications to become Year 2000 compliant has not been and is not expected to be material to the Company's results of operations, liquidity and financial condition. The Company estimates that it has incurred, and will incur, a total of approximately $0.5 million for its Year 2000 readiness programs. These costs are a portion of ongoing Company resources and are not separately identifiable. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and in high-quality corporate issuers. The Company attempts to protect and preserve its invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates and the Company may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. FOREIGN CURRENCY RISK. The Company pays the expenses of its international operations in local currencies. The Company's international operations are subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the Company's future results could be materially adversely impacted by changes in these or other factors. The Company is also exposed to foreign exchange rate fluctuations as they relate to operating expenses as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall expected profitability. The effect of foreign exchange rate fluctuations on the Company in 1999 was not material. 16 FORWARD-LOOKING STATEMENTS Statements and information in this Annual Report on Form 10-K and the statements the Company's management may make, from time to time, regarding future industry trends, the Company's expected revenues, earnings and anticipated gross margins, the Company's future development and introduction of products, and the Company's future liquidity, development, and business activities, constitute forward looking statements that involve a number of risks and uncertainties. The following are among the factors that could cause actual results to differ materially: business conditions and growth in the telecommunications and electronics industry and general economy, both domestic and international; dependence on a limited number of OEM customers; dependence on the relationship with Intel; lower than expected customer orders or variations in customer order patterns due to changes in demand for customers' products and customer and channel inventory levels; competitive factors, including pricing pressures, technological developments and products offered by competitors; availability of components and qualified personnel; technological difficulties and resource constraints encountered in developing new products; the timely flow of competitive new products and market acceptance of those products; difficulties in successfully combining the operations of the Company and Texas Micro. Inc., dependence on a limited number of suppliers; and risks associated with foreign currency rate fluctuations and other international operational risks. The forward-looking statements should be considered in light of these factors. The forward looking statements contained in this Annual Report on Form 10-K regarding industry trends, product development and introductions, and liquidity and future business activities should be considered in light of these factors. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998 ----------------------------------------- ----------------------------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues........................... $52,698 $61,351 $64,096 $72,945 $50,370 $43,390 $44,934 $47,854 Gross profit....................... 18,839 22,911 23,372 27,175 17,263 13,704 15,013 16,704 Income (loss) from operations...... 3,373 5,225 (144) 8,150 4,294 534 1,254 2,487 Net income......................... 2,917 9,342 945 5,793 3,238 717 1,443 2,420 Net income per share (basic)*...... 0.18 0.58 0.06 0.35 0.20 0.05 0.09 0.15 Net income per share (diluted)*.... 0.18 0.55 0.06 0.32 0.20 0.04 0.09 0.15
Note: The selected financial data for the six quarters ended June 30, 1999 has been restated to reflect the merger with Texas Micro, which was accounted for as a pooling of interests. * Reflects the three-for-two stock split on November 29, 1999. 17 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of RadiSys Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity, and of cash flows present fairly, in all material respects, the financial position of RadiSys Corporation and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Portland, Oregon January 26, 2000 18 RADISYS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 -------- ---------- ---------- (RESTATED) (RESTATED) Revenues.................................................... $251,090 $186,548 $191,814 Cost of sales............................................... 158,793 123,864 121,265 -------- -------- -------- Gross profit................................................ 92,297 62,684 70,549 Research and development.................................... 30,464 22,190 19,354 Selling, general and administrative......................... 36,798 31,526 29,949 Goodwill and intangibles amortization....................... 2,460 399 81 Combination costs........................................... 5,971 -- -- -------- -------- -------- Income from operations...................................... 16,604 8,569 21,165 Interest income, net........................................ 1,200 1,930 1,498 Other income................................................ 1,873 458 -- -------- -------- -------- Income before income tax provision.......................... 19,677 10,957 22,663 Income tax provision........................................ 680 3,139 8,391 -------- -------- -------- Net income.................................................. $ 18,997 $ 7,818 $ 14,272 ======== ======== ======== Net income per share (basic)................................ $ 1.18 $ 0.49 $ 0.91 ======== ======== ======== Net income per share (diluted).............................. $ 1.11 $ 0.48 $ 0.88 ======== ======== ========
The accompanying notes are an integral part of this statement. 19 RADISYS CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, --------------------- 1999 1998 -------- ---------- (RESTATED) ASSETS Current assets: Cash and cash equivalents............................... $ 15,708 $ 43,792 Accounts receivable, net................................ 58,619 33,661 Inventories, net........................................ 41,374 27,382 Other current assets.................................... 1,747 2,255 Deferred income taxes................................... 4,723 805 -------- -------- Total current assets................................ 122,171 107,895 Property and equipment, net............................... 21,211 17,011 Goodwill and intangible assets, net....................... 34,177 3,188 Other assets.............................................. 10,004 3,633 -------- -------- Total assets........................................ $187,563 $131,727 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable........................................ $ 19,878 $ 12,553 Short term borrowings................................... 13,931 -- Income taxes payable.................................... 3,527 1,052 Accrued wages and bonuses............................... 6,706 4,272 Accrued sales discounts................................. 1,258 748 Other accrued liabilities............................... 7,935 5,910 Current portion of capital lease obligation............. 73 277 -------- -------- Total current liabilities........................... 53,308 24,812 Non-current portion of capital lease obligation........... -- 88 -------- -------- Total liabilities................................... 53,308 24,900 -------- -------- Commitments and contingencies (Notes 6 and 12) Shareholders' equity: Common stock, no par value, 50,000 shares authorized, 16,489 and 15,839 shares issued and outstanding....... 141,030 132,368 Accumulated deficit..................................... (4,880) (23,877) Accumulated other comprehensive loss: Unrealized loss on securities available for sale...... (349) (568) Cumulative translation adjustment..................... (1,546) (1,096) -------- -------- Total shareholders' equity.......................... 134,255 106,827 -------- -------- Total liabilities and shareholders' equity.......... $187,563 $131,727 ======== ========
The accompanying notes are an integral part of this statement. 20 RADISYS CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK CUMULATIVE UNREALIZED ------------------- TRANSLATION GAIN/LOSS ON ACCUMULATED SHARES AMOUNT WARRANTS ADJUSTMENT SECURITIES DEFICIT TOTAL -------- -------- --------- ------------ ------------ ------------ -------- Balances, December 31, 1996 (restated).................. 15,492 $129,037 $ 1,200 $ (210) $ -- $(45,967) $ 84,060 Exercise of warrants.......... 250 1,200 (1,200) -- -- -- -- Shares issued pursuant to benefit plans............... 270 1,755 -- -- -- -- 1,755 Shares repurchased............ (330) (2,456) -- -- -- -- (2,456) Tax effect of options exercised................... -- 513 -- -- -- -- 513 Stock issued for acquisition................. 126 2,409 -- -- -- -- 2,409 Translation adjustment........ -- -- -- (1,131) -- -- (1,131) Net income for the year....... -- -- -- -- -- 14,272 14,272 ------ -------- ------- ------- ----- -------- -------- Balances, December 31, 1997 (restated).................. 15,808 132,458 -- (1,341) -- (31,695) 99,422 Comprehensive income, year ended 1997.................. Shares issued pursuant to benefit plans............... 264 2,210 -- -- -- -- 2,210 Shares repurchased............ (233) (2,457) -- -- -- -- (2,457) Tax effect of options exercised................... -- 157 -- -- -- -- 157 Translation adjustment........ -- -- -- 245 -- -- 245 Unrealized loss on securities.................. -- -- -- -- (568) -- (568) Net income for the year....... -- -- -- -- -- 7,818 7,818 ------ -------- ------- ------- ----- -------- -------- Balances, December 31, 1998 (restated).................. 15,839 132,368 -- (1,096) (568) (23,877) 106,827 Comprehensive income, year ended 1998.................. Shares issued pursuant to benefit plans............... 651 5,911 -- -- -- -- 5,911 Shares repurchased............ (1) (4) -- -- -- -- (4) Tax effect of options exercised................... -- 2,755 -- -- -- -- 2,755 Translation adjustment........ -- -- -- (450) -- -- (450) Unrealized gain on securities.................. -- -- -- -- 219 -- 219 Net income for the year....... -- -- -- -- -- 18,997 18,997 ------ -------- ------- ------- ----- -------- -------- Balances, December 31, 1999... 16,489 $141,030 $ -- $(1,546) $(349) $ (4,880) $134,255 ====== ======== ======= ======= ===== ======== ======== Comprehensive income, year ended 1999.................. TOTAL COMPREHENSIVE INCOME -------------- Balances, December 31, 1996 (restated).................. $ -- Exercise of warrants.......... Shares issued pursuant to benefit plans............... Shares repurchased............ Tax effect of options exercised................... Stock issued for acquisition................. Translation adjustment........ (1,131) Net income for the year....... 14,272 ------- Balances, December 31, 1997 (restated).................. Comprehensive income, year ended 1997.................. $13,141 ======= Shares issued pursuant to benefit plans............... Shares repurchased............ Tax effect of options exercised................... Translation adjustment........ 245 Unrealized loss on securities.................. (568) Net income for the year....... 7,818 ------- Balances, December 31, 1998 (restated).................. Comprehensive income, year ended 1998.................. $ 7,495 ======= Shares issued pursuant to benefit plans............... Shares repurchased............ Tax effect of options exercised................... Translation adjustment........ (450) Unrealized gain on securities.................. 219 Net income for the year....... 18,997 ------- Balances, December 31, 1999... Comprehensive income, year ended 1999.................. $18,766 =======
The accompanying notes are an integral part of this statement. 21 RADISYS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 -------- ---------- ---------- (RESTATED) (RESTATED) Cash flows from operating activities: Net income................................................ $ 18,997 $ 7,818 $ 14,272 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 9,635 4,257 4,347 Gain on sale of assets.................................. (2,157) -- -- Deferred income taxes................................... (8,111) (441) 1,543 Net changes in current assets and current liabilities: Decrease (increase) in accounts receivable............ (24,958) 6,721 (7,683) Decrease (increase) in inventories.................... (6,605) 6,063 (6,343) Decrease (increase) in other current assets........... 508 1,830 265 Increase (decrease) in accounts payable............... 7,325 (3,246) 229 Increase (decrease) in income taxes payable........... 2,475 (1,558) (1,438) Increase (decrease) in accrued wages and bonuses...... 2,434 (1,841) 569 Increase (decrease) in accrued sales discounts........ 510 3,061 (149) Increase (decrease) in other accrued liabilities...... 2,025 (2,046) (154) -------- -------- -------- Net cash provided by operating activities............... 2,078 20,618 5,458 -------- -------- -------- Cash flows from investing activities: Business acquisitions..................................... (41,609) -- (1,060) Capital expenditures...................................... (8,541) (4,696) (4,297) Capitalized software production costs and other assets.... (3,582) (3,556) (1,539) Collection of amounts owed from divestiture............... 1,500 1,240 -- -------- -------- -------- Net cash used for investing activities.................. (52,232) (7,012) (6,896) -------- -------- -------- Cash flows from financing activities: Short term borrowings..................................... 13,931 -- (2,532) Issuance of common stock, net............................. 8,662 (90) (188) Payments on capital lease obligation...................... (292) (248) (249) Unrealized gain (loss) on securities available for sale... 219 (568) -- -------- -------- -------- Net cash provided by (used for) financing activities.... 22,520 (906) (2,969) -------- -------- -------- Effect of exchange rate changes on cash..................... (450) 245 (1,131) -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ (28,084) 12,945 (5,538) Cash and cash equivalents, beginning of year................ 43,792 30,847 36,385 -------- -------- -------- Cash and cash equivalents, end of year...................... $ 15,708 $ 43,792 $ 30,847 ======== ======== ========
The accompanying notes are an integral part of this statement. 22 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION RadiSys Corporation (the Company) was incorporated in March 1987 under the laws of the State of Oregon for the purpose of developing, producing and marketing computer system (hardware and software) products for embedded computer applications in manufacturing automation, medical, transportation, telecommunications and test equipment marketplaces. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. See Note 11 regarding the merger with Texas Micro Inc., and the restatement of the Company's financial statements. MANAGEMENT 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates and judgements made by management of the Company include matters such as collectibility of accounts receivable, realizability of inventories, rate of product returns from customers and recoverability of capitalized software and deferred tax assets. RECLASSIFICATIONS Certain reclassifications have been made to amounts in prior years to conform to current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity. CASH AND CASH EQUIVALENTS Cash and cash equivalents include short-term investments with original maturities of less than three months. REVENUE RECOGNITION The Company generally recognizes revenue from product sales upon shipment. For sales through distributors, the Company estimates potential returns based upon contractual limitations and historical return rates and defers revenue recognition accordingly. The Company may grant certain sales discounts to distributors. Such sales discounts are reflected as a reduction in the associated revenue for distributor sales. ACCOUNTS RECEIVABLE Trade accounts receivable are net of an allowance for doubtful accounts of $933 and $1,481 at December 31, 1999 and 1998, respectively. The Company's customers are concentrated in the technology industry. Therefore, the Company's operations and collection of its accounts receivable are directly associated with the results of the technology industry. 23 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market. The Company uses the first-in, first-out (FIFO) method to determine cost. The Company periodically evaluates its inventory in terms of obsolete or slow-moving items. Inventories are net of a reserve for obsolete and slow-moving items of $5,925 and $4,759 at December 31, 1999, and 1998, respectively. LONG-LIVED ASSETS The Company accounts for long-lived assets in accordance with 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," which requires the Company to review the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the carrying amounts of long-lived assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the Company over the remaining amortization period, the carrying amounts of the long-lived assets are reduced by the estimated shortfall of cash flows. INTANGIBLE ASSETS The Company reviews certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the total amount of an asset may not be recoverable. An impairment loss is recognized when estimated discounted future cash flows expected to result from use of the asset and its eventual disposition are less than its carrying amount. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and depreciated for financial reporting purposes using the straight-line basis over estimated useful lives of three to five years. Equipment under capital leases is amortized using the straight-line basis over the shorter of the lease term or the economic life of the underlying asset. Ordinary maintenance and repair expenditures are charged to expense when incurred. Equipment recorded under capital leases at December 31, 1999 totaled $1,268 with accumulated amortization of $1,163. RESEARCH AND DEVELOPMENT Expenditures for research and development are expensed as incurred. COMPUTER SOFTWARE PRODUCTION COSTS Software production costs incurred subsequent to establishment of technological feasibility, but before release to customers, are capitalized. Upon general release of the product, cost capitalization is terminated and the accumulated costs are amortized based on the greater of the proportion of current revenues to total revenue estimates for the related product, or straight-line amortization over the remaining estimated economic life of the product not to exceed two years. Unamortized software production costs of $4,800 and $3,733 are included in Other assets at December 31, 1999 and 1998, respectively. Amortization of software production costs in 1999, 1998 and 1997 aggregated $2,193, $1,020 and $722, respectively. 24 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company's general practice is to reinvest the earnings of its foreign subsidiaries in those operations, unless it would be advantageous to the Company to repatriate the foreign subsidiaries' retained earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to "more likely than not" be realized in future tax returns. Tax law and rate changes are reflected in income in the period such changes are enacted. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The Company estimates the fair value of its monetary assets and liabilities based upon comparative market values of instruments of a similar nature and degree of risk. The Company estimates that the carrying amount of all of its monetary assets and liabilities approximate fair value as of December 31, 1999 and 1998. COMPREHENSIVE INCOME The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 130, "Reporting Comprehensive Income" as of January 1, 1998. The cumulative translation adjustment and unrealized loss on securities available for sale represent the Company's Other Comprehensive Income items. The cumulative translation adjustment consists of unrealized gains/losses recorded in accordance with SFAS No. 52, "Foreign Currency Translation". The Company has no intention of liquidating the assets of the foreign subsidiaries in the foreseeable future. STOCK-BASED COMPENSATION The Company measures compensation expense for its stock-based employee compensation plans using the intrinsic value method and provides pro forma disclosures of net income and net earnings per common share as if the fair value method had been applied in measuring compensation expense. Equity instruments are not issued to non-employees. FOREIGN CURRENCY TRANSLATION Assets and liabilities of international operations are translated into U.S. dollars at current exchange rates. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the period. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in income. CASH FLOWS The Company made cash payments for income taxes of $3,196, $3,711 and $7,815 for the years ended December 31, 1999, 1998 and 1997, respectively. 25 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW STANDARD In 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of FAS 133 will not have a significant effect on the Company's results of operations or its financial position. FAS 137 delayed adoption of FAS 133 to fiscal years commencing after June 30, 2000. 2. INVENTORIES
DECEMBER 31, ------------------- 1999 1998 -------- -------- Raw materials............................................. $30,986 $17,520 Work-in-progress.......................................... 2,465 3,728 Finished goods............................................ 7,923 6,134 ------- ------- $41,374 $27,382 ======= =======
3. PROPERTY AND EQUIPMENT
DECEMBER 31, ------------------- 1999 1998 -------- -------- Land...................................................... $ 1,391 $ 1,391 Manufacturing equipment................................... 17,950 14,591 Office equipment.......................................... 19,746 12,917 Leasehold improvements.................................... 4,835 5,835 ------- ------- 43,922 34,734 Less: accumulated depreciation............................ 22,711 17,723 ------- ------- $21,211 $17,011 ======= =======
4. GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets increased by $31.0 million, from $3.2 million at December 31, 1998 to $34.2 million at December 31, 1999. This increase is due to goodwill and intangibles recorded from the ARTIC and OCP acquisitions (see Note 11) of $31.5 million (net of amortization), offset by $.5 million of increases in other intangibles and amortization from the Sonitech acquisition and other intangibles. Amortization periods range from five to fifteen years. 26 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 5. SHORT TERM BORROWINGS In September 1999, the Company renewed its unsecured line of credit and increased the borrowing amount from $10 million to $20 million, with an interest rate based upon the lower of the LIBOR plus 1.25% to 2.0% or the bank's prime rate. The line of credit expires in September 2000. As of December 31, 1999, $13,931 was outstanding under this arrangement at an interest rate of 8.5%. There was no balance outstanding as of December 31, 1998. 6. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company leases its facilities and certain office equipment and automobiles under non-cancelable operating leases which require minimum lease payments as follows at December 31, 1999:
YEAR ENDING DECEMBER 31, - ------------ 2000............................................... $ 4,437 2001............................................... 4,232 2002............................................... 3,918 2003............................................... 3,478 2004............................................... 3,548 Thereafter......................................... 14,264 ------- $33,877 =======
Rent expense related to these operating leases aggregated $4,545, $3,677 and $2,404 in 1999, 1998 and 1997, respectively. 7. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Currently payable: Federal.......................................... $ 6,460 $1,679 $5,834 State............................................ 1,722 423 927 Foreign.......................................... 609 596 87 ------- ------ ------ 8,791 2,698 6,848 ------- ------ ------ Deferred: Federal.......................................... (2,553) 386 1,351 State............................................ (365) 55 192 ------- ------ ------ (2,918) 441 1,543 ------- ------ ------ Decrease in valuation allowance.................... (5,193) -- -- ------- ------ ------ Total provision.................................. $ 680 $3,139 $8,391 ======= ====== ======
27 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 7. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to pretax income as a result of the following differences:
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Statutory federal tax rate...................... 35.0% 35.0% 35.0% Increase (decrease) in rates resulting from: State taxes................................... 4.0 4.0 3.3 Goodwill benefit from acquisition............. (2.2) (5.1) (2.2) Deferred tax asset valuation allowance........ (30.9) (6.0) 1.6 Other......................................... (2.4) 0.7 (0.7) ------- ------- ------- Effective tax rate.............................. 3.5% 28.6% 37.0% ======= ======= =======
Deferred tax assets (liabilities) are comprised of the following components:
DECEMBER 31, ------------------- 1999 1998 -------- -------- Capitalized software.................................... $ (1,664) $ (1,451) Depreciation............................................ (711) (352) -------- -------- Gross deferred tax liability............................ (2,375) (1,803) Deferred revenue........................................ 98 219 Accrued warranty........................................ 636 198 Inventory differences................................... 3,208 1,681 Distributor price adjustments........................... 284 66 Merger costs............................................ 273 -- Allowance for doubtful accounts......................... 487 250 NOL carryforwards....................................... 16,049 15,761 Other................................................... 824 194 -------- -------- 19,484 16,566 Less: valuation allowance............................... (10,568) (15,761) -------- -------- Net deferred tax asset.................................. $ 8,916 $ 805 ======== ========
The Company's net deferred tax asset of $8,916 includes $4,723 classified as current, with the remaining balance of $4,193 classified non-current. The non-current portion is included in Other assets on the Consolidated Balance Sheet and is a result of certain Texas Micro net operating loss carryforwards. The Company's entire 1998 net deferred tax asset balance of $805 is current. The Company accounted for certain changes in the federal income tax laws that took effect on June 25, 1999. The tax law change made certain Texas Micro net operating loss carryforwards available to offset RadiSys taxable income. This portion of the pooling restatement increased net income of the Company by $5.2 million for the year ended December 31, 1999. 28 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 8. SHAREHOLDERS' EQUITY STOCK SPLIT During the fourth quarter of 1999, the Company's Board of Directors approved a three-for-two common stock split. Shareholders of record on November 8, 1999 (the record date) received three additional shares for every two shares held on that date. The shares were distributed on November 29, 1999. All share numbers in these consolidated financial statements and notes thereto for all periods presented have been adjusted to reflect the three-for-two common stock split. EPS RECONCILIATION
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Weighted average shares (basic).................. 16,158 15,854 15,667 Effect of dilutive stock options................. 952 275 545 ------- ------- ------- Weighted average shares (diluted)................ 17,110 16,129 16,212 ======= ======= =======
Options to purchase 269, 1,247, and 321 shares of common stock were outstanding in 1999, 1998, and 1997, respectively, but were excluded in the computation of diluted EPS as the options' exercise price was greater than the average market price of the Company's common stock. STOCK OPTION PLAN During 1988 and 1995, the Company's shareholders approved stock option plans. The 1988 plan expired in 1998 and no further shares authorized under that plan are available for grant. In August, 1999 the Company completed its merger with Texas Micro and, as a result, options outstanding to existing employees under Texas Micro's option plans were converted into options to purchase RadiSys shares, at the effective merger conversion rate of approximately 4.96 shares of Texas Micro common stock to one share of RadiSys common stock. First time options granted to new employees generally become exercisable one-third annually, with no options exercisable in the first year following the grant date. Options granted to existing employees generally have vesting periods between two and four years. The difference between the fair market value of the Company's common stock and the option exercise price at the date of grant, if material, is recorded as compensation expense ratably over the vesting period of the related options. Compensation expense related to the stock option plan for the years ended December 31, 1999, 29 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) 8. SHAREHOLDERS' EQUITY (CONTINUED) 1998 and 1997 was insignificant. Options available for grant totaled 1,143 shares as of December 31, 1999. The table below summarizes the Company's stock option activity:
1999 1998 1997 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE -------- -------- -------- -------- -------- -------- Beginning balance....................... 2,245 $12.68 1,760 $16.84 1,380 $16.22 Granted............................... 1,450 23.01 1,721 15.25 1,054 25.62 Canceled.............................. (366) 14.96 (1,111) 24.08 (567) 33.98 Exercised............................. (514) 9.44 (125) 5.28 (107) 4.51 ----- ------ ------ ------ ----- ------ Ending balance.......................... 2,815 $18.29 2,245 $12.68 1,760 $16.84 ===== ====== ====== ====== ===== ======
The following table summarizes the information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE AS OF CONTRACTUAL EXERCISE AS OF EXERCISE RANGE OF EXERCISE PRICES 12/31/1999 LIFE PRICE 12/31/1999 PRICE - ------------------------ ----------- ----------- -------- ----------- -------- $1.32--$10.00.......................... 384 5.08 $ 8.33 238 $ 8.06 $10.08--$12.46......................... 543 4.22 $12.38 138 $12.28 $12.62--$18.92......................... 545 5.26 $16.25 172 $15.02 $19.00--$22.67......................... 510 5.50 $19.81 27 $21.54 $22.75--$26.33......................... 612 4.84 $25.76 156 $25.60 $26.42--$45.92......................... 221 5.41 $31.00 4 $34.07 ----- ---- ------ --- ------ $1.32--$45.92.......................... 2,815 5.00 $18.29 735 $14.85 ===== ===
EMPLOYEE STOCK PURCHASE PLAN In December 1995, the Company established an Employee Stock Purchase Plan (ESPP). Under the plan, the Company is authorized to sell up to 750 shares of common stock in a series of eighteen month offerings. Substantially all employees are eligible to receive rights under the plan. The purchase price is the lesser of 85% of the fair market value of the common stock on date of grant or on the purchase date. During 1999 and 1998, the Company issued 95 and 114 shares under the plan, respectively. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("FAS 123") The Company has elected to account for its stock based compensation under Accounting Principles Board Opinion No. 25; however, as required by FAS 123 the Company has computed for pro forma disclosure purposes the value of options granted during 1999, 1998 and 1997 using the Black-Scholes option pricing model. The weighted average assumptions used for stock option grants for 1999, 1998 and 30 8. SHAREHOLDERS' EQUITY (CONTINUED) 1997 were a risk free interest rate of 5.33%, 5.11%, and 5.4%, respectively, an expected dividend yield of 0%, an expected life of 4 years, and an expected volatility of 72%, 65%, and 50%, respectively. The weighted average assumptions used for ESPP rights for 1999, 1998 and 1997 were a risk free interest rate of 5.17%, 5.0% and 5.3%, respectively, an expected dividend yield of 0%, an expected life of 1.5 years, and an expected volatility of 65%, 62% and 50%, respectively. The weighted-average fair value of ESPP rights granted in 1999, 1998 and 1997 were $2,060, $1,377, and $656, respectively. Options are assumed to be exercised upon vesting for purposes of this valuation. Adjustments are made for options forfeited prior to vesting. For the years ended December 31, 1999, 1998 and 1997, the total value of the options granted was computed to be $19,151, $12,761 and $13,299, respectively, which would be amortized on a straight line basis over the vesting period of the options. If the Company had accounted for these plans in accordance with FAS 123, the Company's net income and pro forma net income per share would have been reported as follows:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1999 1998 1997 --------------------------------- --------------------------------- --------------------------------- EARNINGS PER SHARE EARNINGS PER SHARE EARNINGS PER SHARE --------------------------------- --------------------------------- --------------------------------- NET INCOME BASIC DILUTED NET INCOME BASIC DILUTED NET INCOME BASIC DILUTED ----------- -------- -------- ----------- -------- -------- ----------- -------- -------- As Reported............. $18,997 $1.18 $1.11 $ 7,818 $ .49 $ .48 $14,272 $ .91 $ .88 Pro Forma............... $ 9,934 $ .61 $ .58 $ 2,886 $ .18 $ .18 $10,954 $ .70 $ .68
The effects of applying FAS 123 for providing pro forma disclosure for 1999, 1998 and 1997 are not likely to be representative of the effects on reported net income and earnings per share for future years since options vest over several years and additional awards are made each year. 9. SEGMENT INFORMATION The following is disclosure required for SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is organized primarily on the basis of embedded single board computers and other related support operations. The operations not included in embedded single board computers are immaterial for presentation. The following reflects revenues and long-lived asset information by geographic area:
REVENUES LONG-LIVED ASSETS YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------------- COUNTRY 1999 1998 1997 1999 1998 - ------- -------- -------- -------- -------- -------- United States............... $158,091 $132,029 $134,403 $20,537 $16,374 Europe...................... 87,264 48,703 49,287 591 538 Asia Pacific--Japan......... 3,696 3,281 6,105 83 99 Other foreign............... 2,039 2,535 2,019 -- -- -------- -------- -------- ------- ------- Total..................... $251,090 $186,548 $191,814 $21,211 $17,011 ======== ======== ======== ======= =======
No single customer accounted for more than 10% of sales in 1999, 1998, or 1997. 10. GAIN ON SALE OF ASSETS On September 30, 1999, the Company received the final consideration owed in connection with the prior (1996) sale (by Texas Micro) of Texas Micro's Sequoia Enterprise Systems business unit to General Automation, Inc. Final consideration consisted of $1.5 million in cash, $750 in notes, and 1,133 shares of 31 10. GAIN ON SALE OF ASSETS (CONTINUED) General Automation common stock. The receipt of this consideration resulted in a gain of $2.2 million and is reflected in Other income in the Consolidated Statement of Operations. 11. ACQUISITIONS AND MERGERS ARTIC BUSINESS UNIT ACQUISITION On March 1, 1999, the Company purchased certain assets of International Business Machines Corporation ("IBM") dedicated to the design, manufacture and sale of IBM's ARTIC communications coprocessor adapter hardware and software for wide area network and other telephony applications ("ARTIC"). The purchase price aggregated $27.0 million in cash consideration. The acquisition of ARTIC was accounted for using the purchase method. The results of operations for ARTIC have been included in the financial statements since the date of acquisition. The aggregate purchase price of $27.5 million included $.6 million of direct costs of acquisition and was allocated to fixed assets ($.4 million), inventories ($6.5 million), patents ($5.0 million) and the remainder to goodwill. OCP BUSINESS UNIT ACQUISITION On December 28, 1999, the Company purchased certain assets of IBM's Open Computing Platform (OCP) operation. OCP develops and sells integrated computer-based solutions based on Intel architecture, primarily to OEM's of telecommunications equipment. The purchase price consisted of an aggregate of $13.9 million in cash consideration. Pursuant to the terms of the agreement, the Company may be required to make additional future payments in March of 2001, 2002, and 2003 based upon a formula tied to the future OCP revenues. These potential additional future payments will be accounted for as additional purchase price. The total consideration for the Acquisition will not exceed $30.0 million. The acquisition of OCP was accounted for using the purchase method. The results of operations of OCP have been included in the financial statements since the date of acquisition. The aggregate purchase price of $14.1 million included $.1 million direct costs of acquisition and $.1 million of contingent consideration and was allocated to fixed assets ($.2 million), inventories ($.9 million) and the remainder to goodwill. UNAUDITED PRO FORMA DISCLOSURES OF ACQUISITIONS The following unaudited pro forma information presents the results of operations of the Company as if the acquisitions described above had occurred as of the beginning of 1999 and 1998, after giving effect to adjustments for amortization of patents and goodwill, estimated reduction of interest income and the estimated impact on the income tax provision. The unaudited pro forma financial statements are not necessarily indicative of what actual results would have been had the ARTIC and OCP acquisitions occurred at the beginning of the respective periods. The unaudited pro forma information should be read in conjunction with the Current Report of the Company on Form 8-K dated March 1, 1999 and December 28, 1999 for ARTIC and OCP, respectively, and the Current Reports of the Company on Form 8-K/A filed April 22, 1999 and March 10, 2000, respectively.
1999 1998 -------- -------- (UNAUDITED) Revenues................................................ $309,143 $289,575 Net income.............................................. $ 24,528 $ 17,759 Net income per share (basic)............................ $ 1.52 $ 1.12 Net income per share (diluted).......................... $ 1.43 $ 1.10
32 11. ACQUISITIONS AND MERGERS (CONTINUED) MERGER WITH TEXAS MICRO AND RELATED CHARGES On August 13, 1999, the Company completed a merger with Texas Micro Inc. ("Texas Micro"), a formerly publicly-traded embedded computer company headquartered in Houston, Texas. As a result, the outstanding Texas Micro common stock was converted into approximately 2.8 million shares of RadiSys common stock, based on an exchange ratio of approximately 4.96 shares of Texas Micro common stock for each share of RadiSys common stock. The merger was accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16, and accordingly, financial statements presented for all periods have been restated to reflect combined operations and financial position. All intercompany transactions have been eliminated. The following reconciles revenue and net income (loss) previously reported to the restated information presented in the consolidated financial statements:
YEARS ENDED SIX MONTHS DECEMBER 31, ENDED ------------------- JUNE 30, 1999 1998 1997 -------------- -------- -------- Revenue: Previously reported....................................... $ 70,395 $108,198 $125,442 Texas Micro............................................... 43,654 78,350 66,372 -------- -------- -------- Restated................................................ $114,049 $186,548 $191,814 ======== ======== ======== Net income (loss): Previously reported....................................... $ 4,448 $ 5,432 $ 15,425 Texas Micro............................................... 7,811 2,386 (1,153) -------- -------- -------- Restated................................................ $ 12,259 $ 7,818 $ 14,272 ======== ======== ========
In connection with the merger, the Company recorded a charge to operating expenses of approximately $6.0 million for merger-related costs during the third quarter of 1999. Merger and related costs are comprised of the following:
COMBINATION COSTS RECORDED YEAR ENDING BALANCE ACCRUED DECEMBER 31, 1999 DECEMBER 31, 1999 -------------------- ------------------ Professional and filing fees............................... $3,251 $ 200 Severance, retention, relocation & benefits alignment...... 1,538 875 Contract termination costs................................. 799 164 Marketing, information systems conversion, and other miscellaneous costs...................................... 383 45 ------ ------ Total...................................................... $5,971 $1,284 ====== ======
Accrued combination costs totaling $1.3 million at December 31, 1999 are included in Other accrued liabilities in the Consolidated Balance Sheet. 12. LEGAL PROCEEDINGS In the normal course of business the Company becomes involved in litigation. The Company has no material litigation currently pending. 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Certain information required by Part III is omitted from this Report in that the Registrant will file its definitive proxy statement for the Annual Meeting of Shareholders to be held on May 16, 2000, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement"), not later than 120 days after the end of the fiscal year covered by this Report, and certain information included in the Proxy Statement is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to directors of the Company is included under "Election of Directors" in the Company's Proxy Statement and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4(a) of Part I of this Report. Information with respect to Section 16(a) of the Securities and Exchange Act is included under "Section 16(a) Beneficial Ownership Reporting Compliance" of the Exchange Act" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is included under "Executive Compensation" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is included under "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information with respect to certain relationships and related transactions is included under "Certain Relationships and Related Transactions" in the Company's Proxy Statement and is incorporated herein by reference. 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS Index to Financial Statements
PAGE -------- Independent Accountants' Report........................... 18 Consolidated Statement of Operations for the years ended December 31, 1999, 1998 and 1997........................ 19 Consolidated Balance Sheet at December 31, 1999 and 1998.................................................... 20 Consolidated Statement of Changes in Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997........................ 21 Consolidated Statement of Cash Flows for the years ended December 31, 1999, 1998 and 1997........................ 22 Notes to Consolidated Financial Statements................ 23 Schedule of Valuation and Qualifying Accounts............. 38
PAGE IN (A)(2) FINANCIAL STATEMENT SCHEDULE FORM 10-K - --------------------- ---------------------------- -------------- Schedule II--Valuation and Qualifying Accounts 38 Report of Independent Accountants on Financial Statement Schedule 39
(A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION - --------------------- ----------- +2.1 Asset Purchase Agreement between RadiSys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.2 List of omitted schedules to Asset Purchase Agreement between RadiSys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.3 Asset Purchase Agreement between RadiSys Corporation and International Business Machines Corporation, dated as of March 1, 1999. Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated March 1, 1999. 2.4 Agreement of Reorganization and Merger dated as of May 24, 1999, between the Company, Texas Micro Inc. and Tabor Merger Corp. Incorporated by reference to Appendix A to the Company's Joint Proxy Statement/Prospectus dated July 7, 1999, which is part of the Company's Registration Statement on Form S-4 (No. 333-82401). 2.5 Asset Purchase Agreement between the Company and International Business Machines Corporation, dated as of December 17, 1999. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 28, 1999. 3.1 Second Restated Articles of Incorporation and Amendments thereto. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-95892) (the Form "S-1"), and by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997. 3.2 Restated Bylaws and amendments thereto. Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2. *10.1 1988 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.1 to the Form S-1. *10.2 1995 Stock Incentive Plan, as amended.
35
EXHIBIT NO. DESCRIPTION - --------------------- ----------- *10.3 1996 Employee Stock Purchase Plan, as amended. *10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to the Form S-1. *10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by reference to Exhibit 10.4 to the Form S-1. 10.6 Lease between Registrant and Commercial Real Estate Company, L.L.C. dated December 15, 1995. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.7 Master Equipment Lease No. 10551, dated as of March 2, 1995, between U.S. Bancorp Leasing & Financial, as Lessor, and the Registrant, as Lessee, including Schedules 10551.001, 10551.002 and 10551.003, dated March 2, 1995, March 29, 1995 and May 23, 1995, respectively. Incorporated by reference to Exhibit 10.8 to the Form S-1. 10.8 Office Lease Agreement by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated December 11, 1992, as amended. Incorporated by reference to Exhibit 10.31 to Sequoia Systems Inc.'s Annual Report on Form 10-K for the year ended June 30, 1995 (File no. 0-18238). 10.9 Fourth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro, Inc. dated July 31, 1995. 10.10 Fifth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated October 17, 1995. 10.11 Sixth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated April 28, 1997. 10.12 Seventh amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated November 12, 1997. 10.13 Eighth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated December 23, 1997. Incorporated by reference to Exhibit 10.3 to Texas Micro Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997 (File no. 0-18238). 10.14 Ninth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated February 24, 1998. Incorporated by reference to Exhibit 10.1 to Texas Micro Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1998 (File no. 01-18238). *10.15 Form of Indemnity Agreement. Incorporated by reference to Exhibit 10.9 to the Form S-1. 10.16 Revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 12, 1996. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.16(a) Renewal of and increase in September 12, 1996 revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 30, 1999. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999. 10.17 Dawson Creek II lease, dated March 21, 1997, incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997. 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP 24.1 Powers of Attorney 27.1 Financial Data Schedule 27.2 Financial Data Schedule, 1998 restated.
- ------------------------ + Confidential treatment of portions of this document has been granted. * This Exhibit constitutes a management contract or compensatory plan or arrangement (B) REPORTS ON FORM 8-K No Current Reports on Form 8-K were filed during the quarter ended December 31, 1999. (C) SEE (A)(3) ABOVE. (D) SEE (A)(2) ABOVE. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 28, 2000 RADISYS CORPORATION By: /s/ DR. GLENFORD J. MYERS ----------------------------------------- Dr. Glenford J. Myers CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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 indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- /s/ DR. GLENFORD J. MYERS Chairman of the Board, President and Chief ------------------------------------------- Executive Officer (Principal Executive Dr. Glenford J. Myers Officer) /s/ STEPHEN LOUGHLIN Vice President of Finance and Administration ------------------------------------------- and Chief Financial Officer (Principal Stephen Loughlin Financial and Accounting Officer) Directors: /s/ JAMES F. DALTON* ------------------------------------------- Director James F. Dalton /s/ RICHARD J. FAUBERT* ------------------------------------------- Director Richard J. Faubert /s/ C. SCOTT GIBSON* ------------------------------------------- Director C. Scott Gibson /s/ DR. WILLIAM W. LATTIN* ------------------------------------------- Director Dr. William W. Lattin /s/ JEAN-CLAUDE PETERSCHMITT* ------------------------------------------- Director Jean-Claude Peterschmitt /s/ JEAN-PIERRE D. PATKAY* ------------------------------------------- Director Jean-Pierre D. Patkay
*By /s/ DR. GLENFORD J. MYERS -------------------------------------- Dr. Glenford J. Myers, as attorney-in-fact
37 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COSTS AND END OF PERIOD EXPENSES DEDUCTIONS PERIOD ------------ ---------- ---------- ---------- ALLOWANCE FOR DOUBTFUL ACCOUNTS-- Year ended: December 31, 1999............................. $1,481 $ 1,773 $ (2,321) $ 933 December 31, 1998............................. 1,485 3,065 (3,069) 1,481 December 31, 1997............................. 1,733 2,077 (2,325) 1,485 WARRANTY RESERVE-- Year ended: December 31, 1999............................. $1,202 $ 2,423 $ (2,034) $1,591 December 31, 1998............................. 732 3,163 (2,693) 1,202 December 31, 1997............................. 1,766 1,913 (2,947) 732 OBSOLESCENCE RESERVE-- Year ended: December 31, 1999............................. $4,759 $14,314 $(13,148) $5,925 December 31, 1998............................. 3,583 14,511 (13,335) 4,759 December 31, 1997............................. 3,098 12,019 (11,534) 3,583
38 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of RadiSys Corporation Our audits of the consolidated financial statements referred to in our report dated January 26, 2000 appearing in the 1999 Annual Report to Shareholders of RadiSys Corporation and subsidiaries (which report and consolidated financial statements are incorporated in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Portland, Oregon January 26, 2000 39 (A)(3) EXHIBITS
EXHIBIT NO. DESCRIPTION - --------------------- ----------- +2.1 Asset Purchase Agreement between RadiSys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.2 List of omitted schedules to Asset Purchase Agreement between RadiSys Corporation and Intel Corporation, dated as of April 29, 1996. Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated April 29, 1996. 2.3 Asset Purchase Agreement between RadiSys Corporation and International Business Machines Corporation, dated as of March 1, 1999. Incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated March 1, 1999. 2.4 Agreement of Reorganization and Merger dated as of May 24, 1999, between the Company, Texas Micro Inc. and Tabor Merger Corp. Incorporated by reference to Appendix A to the Company's Joint Proxy Statement/Prospectus dated July 7, 1999, which is part of the Company's Registration Statement on Form S-4 (No. 333-82401). 2.5 Asset Purchase Agreement between the Company and International Business Machines Corporation, dated as of December 17, 1999. Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 28, 1999. 3.1 Second Restated Articles of Incorporation and Amendments thereto. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-95892) (the Form "S-1"), and by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997. 3.2 Restated Bylaws and amendments thereto. Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1 See Article IV of Exhibit 3.1 and Article VI of Exhibit 3.2. *10.1 1988 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.1 to the Form S-1. *10.2 1995 Stock Incentive Plan, as amended. *10.3 1996 Employee Stock Purchase Plan, as amended. *10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.3 to the Form S-1. *10.5 Form of Non-Statutory Stock Option Agreement. Incorporated by reference to Exhibit 10.4 to the Form S-1. 10.6 Lease between Registrant and Commercial Real Estate Company, L.L.C. dated December 15, 1995. Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.7 Master Equipment Lease No. 10551, dated as of March 2, 1995, between U.S. Bancorp Leasing & Financial, as Lessor, and the Registrant, as Lessee, including Schedules 10551.001, 10551.002 and 10551.003, dated March 2, 1995, March 29, 1995 and May 23, 1995, respectively. Incorporated by reference to Exhibit 10.8 to the Form S-1. 10.8 Office Lease Agreement by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated December 11, 1992, as amended. Incorporated by reference to Exhibit 10.31 to Sequoia Systems Inc.'s Annual Report on Form 10-K for the year ended June 30, 1995 (File no. 0-18238). 10.9 Fourth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro, Inc. dated July 31, 1995. 10.10 Fifth amendment to lease by and between Chevron U.S.A. Inc and Texax Micro Inc. dated October 17, 1995. 10.11 Sixth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated April 28, 1997.
40
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 10.12 Seventh amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated November 12, 1997. 10.13 Eighth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated December 23, 1997. Incorporated by reference to Exhibit 10.3 to Texas Micro Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended December 28, 1997 (File no. 0-18238). 10.14 Ninth amendment to lease by and between Chevron U.S.A. Inc. and Texas Micro Inc. dated February 24, 1998. Incorporated by reference to Exhibit 10.1 to Texas Micro Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 29, 1998 (File no. 01-18238). *10.15 Form of Indemnity Agreement. Incorporated by reference to Exhibit 10.9 to the Form S-1. 10.16 Revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 12, 1996. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. 10.16(a) Renewal of and increase in September 12, 1996 revolving line of credit agreement between the Company and United States National Bank of Oregon dated September 30, 1999. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999. 10.17 Dawson Creek II lease, dated March 21, 1997, incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997. 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP 24.1 Powers of Attorney 27.1 Financial Data Schedule 27.2 Financial Data Schedule, 1998 restated.
- ------------------------ + Confidential treatment of portions of this document has been granted. * This Exhibit constitutes a management contract or compensatory plan or arrangement 41 EX-10.2 2 EXHIBIT 10.2 RADISYS CORPORATION 1995 STOCK INCENTIVE PLAN (As Amended Through February 25, 2000) 1. PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is to enable RadiSys Corporation (the "Company") to attract and retain the services of (1) selected employees, officers and directors of the Company or of any subsidiary of the Company and (2) selected nonemployee agents, consultants, advisors, persons involved in the sale or distribution of the Company's products and independent contractors of the Company or any subsidiary. 2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and in paragraph 13, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 4,125,000* shares. The shares issued under the Plan may be authorized and unissued shares or reacquired shares. If an option, stock appreciation right or performance unit granted under the Plan expires, terminates or is canceled, the unissued shares subject to such option, stock appreciation right or performance unit shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan are forfeited to the Company or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. EFFECTIVE DATE AND DURATION OF PLAN. (a) EFFECTIVE DATE. The Plan shall become effective as of August 7, 1995. No option, stock appreciation right or performance unit granted under the Plan to an officer who is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (an "Officer") or a director, and no incentive stock option, shall become exercisable, however, until the Plan is approved by the affirmative vote of the holders of a majority of the shares of Common Stock represented at a shareholders meeting at which a quorum is present and any such awards under the Plan prior to such approval shall be conditioned on and subject to such approval. Subject to this limitation, options, stock appreciation rights and performance units may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) DURATION. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to - ------------------ * Adjusted to reflect a 3-for-2 stock split of the shares of Common Stock, without par value, of the Company, effected in the form of a 50% share dividend in accordance with ORS 60.154, declared by the Board of Directors on October 19, 1999, and paid on November 29, 1999 to shareholders of record at the close of business on November 8, 1999. options, performance units and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. ADMINISTRATION. (a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) COMMITTEE. The Board of Directors may delegate to a committee of the Board of Directors or specified officers of the Company, or both (the "Committee") any or all authority for administration of the Plan. If authority is delegated to a Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee except (i) as otherwise provided by the Board of Directors, (ii) that only the Board of Directors may amend or terminate the Plan as provided in paragraphs 3 and 15 and (iii) that a Committee including officers of the Company shall not be permitted to grant options to persons who are officers of the Company. If awards are to be made under the Plan to Officers or directors, authority for selection of Officers and directors for participation and decisions concerning the timing, pricing and amount of a grant or award, if not determined under a formula meeting the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, shall be delegated to a committee consisting of two or more disinterested directors. 5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in paragraphs 6(a) and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in paragraphs 6(a) and 6(c); (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares subject to restrictions as provided in paragraph 8; (v) grant stock appreciation rights as provided in paragraph 9; (vi) grant cash bonus rights as provided in paragraph 10; (vii) grant performance units as provided in paragraph 11 and (viii) grant foreign qualified awards as provided in paragraph 12. Any such awards may be made to employees, including employees who are officers or 2 directors, and to other individuals described in paragraph 1 who the Board of Directors believes have made or will make an important contribution to the Company or any subsidiary of the Company; provided, however, that only employees of the Company shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. No employee may be granted options or stock appreciation rights under the Plan for more than an aggregate of 450,000 shares of Common Stock in connection with the hiring of the employee or 100,000 shares of Common Stock in any calendar year otherwise. 6. OPTION GRANTS. (a) GENERAL RULES RELATING TO OPTIONS. (i) TERMS OF GRANT. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options. (ii) EXERCISE OF OPTIONS. Except as provided in paragraph 6(a)(iv) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company or any subsidiary of the Company and shall have been so employed or provided such service continuously since the date such option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in paragraphs 6(a)(iv) and 13, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if the optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. Unless otherwise determined by the Board of Directors, if an Officer exercises 3 an option within six months of the grant of the option, the shares acquired upon exercise of the option may not be sold until six months after the date of grant of the option. (iii) NONTRANSFERABILITY. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors with respect to an option granted to a person who is neither an Officer nor a director of the Company, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and shall be exercisable during the optionee's lifetime only by the optionee. (iv) TERMINATION OF EMPLOYMENT OR SERVICE. (A) GENERAL RULE. Unless otherwise determined by the Board of Directors, in the event the employment or service of the optionee with the Company or a subsidiary terminates for any reason other than because of physical disability or death as provided in subparagraphs 6(a)(iv)(B) and (C), the option may be exercised at any time prior to the expiration date of the option or the expiration of 30 days after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. (B) TERMINATION BECAUSE OF TOTAL DISABILITY. Unless otherwise determined by the Board of Directors, in the event of the termination of employment or service because of total disability, the option may be exercised at any time prior to the expiration date of the option or the expiration of 12 months after the date of such termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of such termination. The term "total disability" means a medically determinable mental or physical impairment which is expected to result in death or which has lasted or is expected to last for a continuous period of 12 months or more and which causes the optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties as an employee, director, officer or consultant of the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Company. (C) TERMINATION BECAUSE OF DEATH. Unless otherwise determined by the Board of Directors, in the event of the death of an optionee while employed by or providing service to the Company or a subsidiary, the option may be exercised at any time prior to the expiration date of the option or 4 the expiration of 12 months after the date of death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of death and only by the person or persons to whom such optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (D) AMENDMENT OF EXERCISE PERIOD APPLICABLE TO TERMINATION. The Board of Directors, at the time of grant or, with respect to an option that is not an Incentive Stock Option, at any time thereafter, may extend the 30-day and 12-month exercise periods any length of time not longer than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (E) FAILURE TO EXERCISE OPTION. To the extent that the option of any deceased optionee or of any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to such option shall cease and terminate. (v) PURCHASE OF SHARES. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon receipt by the Company of notice in writing from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of such shares in cash (including, with the consent of the Board of Directors, cash that may be the proceeds of a loan from the Company (provided that, with respect to an Incentive Stock Option, such loan is approved at the time of option grant)) or, with the consent of the Board of Directors (which, in the case of an Incentive Stock Option, shall be given only at the time of option grant), in whole or in part, in Common Stock of the Company valued at fair market value*, restricted stock, performance units or other contingent awards denominated in either stock or cash, - ------------------ * The Board of Directors has consented to the use of Common Stock in payment of the purchase price, at a fair market value equal to the closing price of the Common Stock as reported in THE WALL STREET JOURNAL on the last trading day preceding the date the option is exercised. 5 promissory notes and other forms of consideration. The fair market value of Common Stock provided in payment of the purchase price shall be determined by the Board of Directors. If the Common Stock of the Company is not publicly traded on the date the option is exercised, the Board of Directors may consider any valuation methods it deems appropriate and may, but is not required to, obtain one or more independent appraisals of the Company. If the Common Stock of the Company is publicly traded on the date the option is exercised, the fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock as reported in THE WALL STREET JOURNAL on the last trading day preceding the date the option is exercised, or such other reported value of the Common Stock as shall be specified by the Board of Directors. No shares shall be issued until full payment for the shares has been made. With the consent of the Board of Directors (which, in the case of an Incentive Stock Option, shall be given only at the time of option grant), an optionee may request the Company to apply automatically the shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional portions of the option. Each optionee who has exercised an option shall immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. With the consent of the Board of Directors (which in the case of an Incentive Stock Option, shall be given only at the time of option grant), an optionee may satisfy this obligation, in whole or in part, by having the Company withhold from the shares to be issued upon the exercise that number of shares that would satisfy the withholding amount due or by delivering to the Company Common Stock to satisfy the withholding amount. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option. (b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be subject to the following additional terms and conditions: (i) LIMITATION ON AMOUNT OF GRANTS. No employee may be granted Incentive Stock Options under the Plan if the aggregate fair market value, on the date of grant, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year under the Plan and under all incentive stock option plans (within the meaning of Section 422 of the Code) of the Company or any parent or subsidiary of the Company exceeds $100,000. 6 (ii) LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary of the Company only if the option price is at least 110 percent of the fair market value, as described in paragraph 6(b)(iv), of the Common Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (iii) DURATION OF OPTIONS. Subject to paragraphs 6(a)(ii) and 6(b)(ii), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. (iv) OPTION PRICE. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in paragraph 6(b)(ii), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be determined by the Board of Directors. If the Common Stock of the Company is not publicly traded on the date the option is granted, the Board of Directors may consider any valuation methods it deems appropriate and may, but is not required to, obtain one or more independent appraisals of the Company. If the Common Stock of the Company is publicly traded on the date the option is exercised, the fair market value shall be deemed to be the closing price of the Common Stock as reported in THE WALL STREET JOURNAL on the day preceding the date the option is granted, or, if there has been no sale on that date, on the last preceding date on which a sale occurred or such other value of the Common Stock as shall be specified by the Board of Directors. (v) LIMITATION ON TIME OF GRANT. No Incentive Stock Option shall be granted on or after the tenth anniversary of the effective date of the Plan. (vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Board of Directors may at any time without the consent of the optionee convert an Incentive Stock Option to a Non-Statutory Stock Option. (c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options shall be subject to the following terms and conditions in addition to those set forth in paragraph 6(a) above: (i) OPTION PRICE. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant and may be any amount determined by the Board of Directors. 7 (ii) DURATION OF OPTIONS. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. STOCK BONUSES. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions, and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture, at which time all accumulated amounts shall be paid to the recipient. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares awarded as a stock bonus to an Officer may not be sold until six months after the date of the award. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary or fees for services, subject to applicable law. With the consent of the Board of Directors, a recipient may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8. RESTRICTED STOCK. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued pursuant to this paragraph 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares prior to the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares issued under this paragraph 8 to an 8 Officer may not be sold until six months after the shares are issued. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 9. STOCK APPRECIATION RIGHTS. (a) GRANT. Stock appreciation rights may be granted under the Plan by the Board of Directors, subject to such rules, terms, and conditions as the Board of Directors prescribes. (b) EXERCISE. (i) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock of the Company over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the excess of the fair market value of one share of Common Stock of the Company over the option price per share under the option to which the stock appreciation right relates), multiplied by the number of shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. No stock appreciation right shall be exercisable at a time that the amount determined under this subparagraph is negative. Payment by the Company upon exercise of a stock appreciation right may be made in Common Stock valued at fair market value, in cash, or partly in Common Stock and partly in cash, all as determined by the Board of Directors. (ii) A stock appreciation right shall be exercisable only at the time or times established by the Board of Directors. If a stock appreciation right is granted in connection with an option, the following rules shall apply: (1) the stock appreciation right shall be exercisable only to the extent and on the same conditions that the related option could be exercised; (2) the stock appreciation rights shall be exercisable only when the fair market value of the stock exceeds the option price of the related option; (3) the stock appreciation right shall be for no more than 100 percent of the excess of the fair market value of the stock at the time of exercise over the option price; (4) upon exercise of the stock appreciation right, the option or portion thereof to which the stock appreciation right relates terminates; and (5) upon exercise of the option, the related stock appreciation right or portion thereof terminates. Unless otherwise determined by 9 the Board of Directors, no stock appreciation right granted to an Officer or director may be exercised during the first six months following the date it is granted. (iii) The Board of Directors may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted prior to adoption or amendment of such rules and regulations as well as stock appreciation rights granted thereafter. (iv) For purposes of this paragraph 9, the fair market value of the Common Stock shall be determined as of the date the stock appreciation right is exercised, under the methods set forth in paragraph 6(b)(iv). (v) No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Board of Directors shall determine, the number of shares may be rounded downward to the next whole share. (vi) Each stock appreciation right granted in connection with an Incentive Stock Option, and unless otherwise determined by the Board of Directors with respect to a stock appreciation right granted to a person who is neither an Officer nor a director of the Company, each other stock appreciation right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death, and each stock appreciation right by its terms shall be exercisable during the holder's lifetime only by the holder. (vii) Each participant who has exercised a stock appreciation right shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant including salary, subject to applicable law. With the consent of the Board of Directors a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued upon the exercise that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. (viii) Upon the exercise of a stock appreciation right for shares, the number of shares reserved for issuance under the Plan shall be reduced by the number 10 of shares issued. Cash payments of stock appreciation rights shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. 10. CASH BONUS RIGHTS. (a) GRANT. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted, (ii) stock appreciation rights granted or previously granted, (iii) stock bonuses awarded or previously awarded and (iv) shares sold or previously sold under the Plan. Cash bonus rights will be subject to rules, terms and conditions as the Board of Directors may prescribe. Unless otherwise determined by the Board of Directors with respect to a cash bonus right granted to a person who is neither an Officer nor a director of the Company, each cash bonus right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. The payment of a cash bonus shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. (b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised (or terminates in connection with the exercise of a stock appreciation right related to the option) in whole or in part if, in the sole discretion of the Board of Directors, the bonus right will result in a tax deduction that the Company has sufficient taxable income to use. If an optionee purchases shares upon exercise of an option and does not exercise a related stock appreciation right, the amount of the bonus, if any, shall be determined by multiplying the excess of the total fair market value of the shares to be acquired upon the exercise over the total option price for the shares by the applicable bonus percentage. If the optionee exercises a related stock appreciation right in connection with the termination of an option, the amount of the bonus, if any, shall be determined by multiplying the total fair market value of the shares and cash received pursuant to the exercise of the stock appreciation right by the applicable bonus percentage. The bonus percentage applicable to a bonus right, including a previously granted bonus right, may be changed from time to time at the sole discretion of the Board of Directors but shall in no event exceed 75 percent. (c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A cash bonus right granted in connection with a stock bonus will entitle the recipient to a cash bonus payable when the stock bonus is awarded or restrictions, if any, to which the stock is subject lapse. If bonus stock awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock bonus shall terminate and may not be exercised. The amount and timing of payment of a cash bonus shall be determined by the Board of Directors. (d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A cash bonus right granted in connection with the purchase of stock pursuant to paragraph 8 will entitle 11 the recipient to a cash bonus when the shares are purchased or restrictions, if any, to which the stock is subject lapse. Any cash bonus right granted in connection with shares purchased pursuant to paragraph 8 shall terminate and may not be exercised in the event the shares are repurchased by the Company or forfeited by the holder pursuant to applicable restrictions. The amount of any cash bonus to be awarded and timing of payment of a cash bonus shall be determined by the Board of Directors. (e) TAXES. The Company shall withhold from any cash bonus paid pursuant to paragraph 10 the amount necessary to satisfy any applicable federal, state and local withholding requirements. 11. PERFORMANCE UNITS. The Board of Directors may grant performance units consisting of monetary units which may be earned in whole or in part if the Company achieves certain goals established by the Board of Directors over a designated period of time, but not in any event more than 10 years. The goals established by the Board of Directors may include earnings per share, return on shareholders' equity, return on invested capital, and such other goals as may be established by the Board of Directors. In the event that the minimum performance goal established by the Board of Directors is not achieved at the conclusion of a period, no payment shall be made to the participants. In the event the maximum corporate goal is achieved, 100 percent of the monetary value of the performance units shall be paid to or vested in the participants. Partial achievement of the maximum goal may result in a payment or vesting corresponding to the degree of achievement as determined by the Board of Directors. Payment of an award earned may be in cash or in Common Stock or in a combination of both, and may be made when earned, or vested and deferred, as the Board of Directors determines. Deferred awards shall earn interest on the terms and at a rate determined by the Board of Directors. Unless otherwise determined by the Board of Directors with respect to a performance unit granted to a person who is neither an Officer nor a director of the Company, each performance unit granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. Each participant who has been awarded a performance unit shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant, including salary or fees for services, subject to applicable law. With the consent of the Board of Directors a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. The payment of a performance unit in cash shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. The number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award. 12 12. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted to such officers and employees of the Company and its subsidiaries and such other persons described in paragraph 1 residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 13. CHANGES IN CAPITAL STRUCTURE. (a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. (b) MERGERS, REORGANIZATIONS, ETC. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party or a sale of all or substantially all of the Company's assets (each, a "Transaction"), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options under the Plan: (i) Outstanding options shall remain in effect in accordance with their terms. (ii) Outstanding options shall be converted into options to purchase stock in the corporation that is the surviving or acquiring corporation in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be issued to holders of shares of the Company. Unless otherwise determined by the Board 13 of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. (iii) The Board of Directors shall provide a 30-day period prior to the consummation of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of such 30-day period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during such 30-day period. (c) DISSOLUTION OF THE COMPANY. In the event of the dissolution of the Company, options shall be treated in accordance with paragraph 13(b)(iii). (d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of Directors may also grant options, stock appreciation rights, performance units, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, cash bonuses, restricted stock and performance units granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 14. AMENDMENT OF PLAN. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason, except that without the approval of the shareholders of the Company, the Board of Directors may not increase the number of shares authorized to be issued under paragraph 2 of the Plan (except for adjustments permitted under paragraph 13(a) of the Plan). Except as provided in paragraphs 6(a)(iv), 9, 10 and 13, however, no change in an award already granted shall be made without the written consent of the holder of such award. 15. APPROVALS. The obligations of the Company under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 16. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or any subsidiary or interfere in any way with the right of the Company or any 14 subsidiary by whom such employee is employed to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal, or modification of any compensation, contract, or arrangement with or by the Company. 17. RIGHTS AS A SHAREHOLDER. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for such shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 18. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. (a) INITIAL BOARD GRANTS. Each person who becomes a Non-Employee Director after the Plan is adopted shall be automatically granted an option to purchase 15,000 shares of Common Stock when he or she becomes a Non-Employee Director, so long as such person has not previously served as a director of the Company. A "Non-Employee Director" is a director who is not an employee of the Company or any of its subsidiaries, but does not include such a director whose employer prohibits such director from receiving any grant of an option to purchase shares of Common Stock of the Company. (b) ADDITIONAL GRANTS. Each Non-Employee Director shall be automatically granted an option to purchase additional shares of Common Stock in each calendar year subsequent to the year in which such Non-Employee Director was granted an option pursuant to paragraph 18(a), such option to be granted as of the date of the Company's annual meeting of shareholders held in such calendar year, provided that the Non-Employee Director continues to serve in such capacity as of such date. The number of shares subject to each additional grant shall be 5,000 shares for each Non-Employee Director. (c) EXERCISE PRICE. The exercise price of all options granted pursuant to this paragraph 18 shall be equal to 100 percent of the fair market value of the Common Stock determined pursuant to paragraph 6(b)(iv). (d) TERM OF OPTION. The term of each option granted pursuant to this paragraph 18 shall be 10 years from the date of grant. (e) EXERCISABILITY. Until an option expires or is terminated and except as provided in paragraphs 18(g) and 13, an option granted under this paragraph 18 shall be exercisable in full on the date one year following the grant of the option. (f) TERMINATION AS A DIRECTOR. If an optionee ceases to be a director of the Company for any reason, including death, the option may be exercised at any time prior to the 15 expiration date of the option or the expiration of 30 days (or 12 months in the event of death) after the last day the optionee served as a director, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option as of the last day the optionee served as a director. (g) NONTRANSFERABILITY. Each option by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. (h) EXERCISE OF OPTIONS. Options may be exercised upon payment of cash or shares of Common Stock of the Company in accordance with paragraph 6(a)(v). Adopted: August 7, 1995. Amended: May 20, 1997 (to increase shares in paragraph 2 to 1,500,000). Amended: May 18, 1999 (to increase shares in paragraph 2 to 2,250,000 and to increase individual limits in paragraph 5 to 450,000 and 100,000 shares). Amended: August 12, 1999 (to increase shares in paragraph 2 to 2,750,000). Amended: February 25, 2000 (amendments to paragraphs 6(a)(iii), 6(a)(v) and 14). 16 EX-10.3 3 EXHIBIT 10.3 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) I. PURPOSE OF PLAN As a means by which Employees may share in the Company's growth and success, RadiSys Corporation (the "Company") believes that ownership of shares of its Common Stock by its Employees is desirable. To this end, and as an incentive to better performance and improved profits, the Company has established the RadiSys Corporation 1996 Employee Stock Purchase Plan (the "Plan"). The Company intends that the Plan will constitute an "employee stock purchase plan" within the meaning of Section 423 of the Code. II. DEFINITIONS Terms that are capitalized within this document shall have the meanings as set forth in Exhibit A, unless otherwise specified within the text. III. EMPLOYEE PARTICIPATION PARTICIPATION Subject to the provisions of this Section III, an Employee may elect to participate in the Plan effective as of any Enrollment Date by completing and filing a Payroll Deduction Authorization Form as provided in Section IV. As of each Enrollment Date, the Company hereby grants a right to purchase Shares under the terms of the Plan to each eligible Employee who has elected to participate in the Offering commencing on that Enrollment Date. REQUIREMENTS FOR PARTICIPATION A person shall become eligible to participate in the Plan on the first Enrollment Date on which that person meets the following requirements: Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 1 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) a) The person is an Employee, and b) The person's customary period of Employment is more than twenty (20) hours per week. Any eligible Employee may enroll in the Plan as of the Enrollment Date of any Offering by filing timely written notice of such participation, subject to the following provisions: (i) In order to enroll in the Plan initially, an eligible Employee must complete, sign and submit to the Company the following forms: (A) PAYROLL DEDUCTION AUTHORIZATION FORM Must be received by the Company at least fifteen (15) days prior to the Enrollment Date of an Offering to be effective for that Offering. (B) ESPP NEW ACCOUNT FORM This form must accompany the Payroll Deduction Authorization Form submitted for enrollment in the Plan. An ESPP New Account Form must be received by the Company at least fifteen (15) days prior to the Enrollment Date of an Offering to be effective for that Offering. (ii) A Participant in an ongoing Offering may elect as of any Enrollment Date to enroll in the new Offering commencing on that Enrollment Date by filing a Payroll Deduction Authorization Form making such election prior to 4:00 p.m. Pacific Time on the Enrollment Date. An election by a current Participant to enroll in a new Offering shall constitute a withdrawal, effective as of such Enrollment Date, from the ongoing Offering and simultaneous reenrollment in the new Offering. A reenrollment shall not affect the purchase of Shares under the ongoing Offering occurring on the Purchase Date immediately preceding the Enrollment Date. A Participant may make an ongoing election to reenroll on any Enrollment Date as of which the fair market value of the Shares for purposes of Section VI is less than it was as of the Enrollment Date for the Offering in which the Participant is currently participating. Unless otherwise specified by the Participant, any such ongoing reenrollment election shall be Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 2 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) subject to revocation; provided, however, that to be effective to prevent reenrollment on any Enrollment Date, such revocation must be received by the Company prior to 4:00 p.m. Pacific Time on the Enrollment Date. (iii) Absent withdrawal from the Plan pursuant to Section VII, a Participant will automatically be re-enrolled in the Offering commencing on the Enrollment Date immediately following the expiration of the Offering of which that person is then a Participant. A Participant shall become ineligible to participate in the Plan and shall cease to be a Participant when the Participant ceases to meet the eligibility requirements as defined above. LIMITATIONS ON PARTICIPATION No Employee may obtain a right to purchase Shares under the Plan if, immediately after the right is granted, the Employee owns or is deemed to own Shares possessing five percent (5%) or more of the combined voting power or value of all classes of stock of the Company or any parent or subsidiary of the Company. For purposes of determining share ownership, the rules of Section 424(d) of the Code shall apply and Shares that the Employee may purchase under any options or rights to purchase, whether or not Vested, shall be treated as Shares owned by the Employee. No Employee may obtain a right to purchase Shares under the Plan that permits the Employee's rights to purchase Shares under the Plan and any other employee stock purchase plan within the meaning of Section 423 of the Code of the Company or any parent or subsidiary of the Company to accrue at a rate which exceeds $25,000 in fair market value of Shares (determined as of the Enrollment Date) for each calendar year of the Offering. This section shall be interpreted to permit an Employee to purchase the maximum number of Shares permitted under Section 423(b)(8) of the Code and regulations and interpretations adopted thereunder. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 3 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) The maximum number of Shares that an Employee may purchase in an Offering shall not exceed 10,000 shares, no more than one-third of which may be purchased on any Purchase Date with respect to that Offering. VOLUNTARY PARTICIPATION Participation in the Plan shall be strictly voluntary. IV. PAYROLL DEDUCTIONS PAYROLL DEDUCTION AUTHORIZATION An Employee may contribute to the Plan only by means of payroll deductions. A Payroll Deduction Authorization Form must be filed with the Company's stock administrator at least fifteen (15) days prior to the Enrollment Date as of which the payroll deductions are to take effect. AMOUNT OF DEDUCTIONS A Participant may specify that the person desires to make contributions to the Plan at a rate not less than 1% and not more than 10% of the Compensation paid to the Participant during each pay period in the Offering, or other such minimum or maximum percentages as the Plan Administrator shall establish from time to time. Such specification shall apply during any period of continuous participation in the Plan, unless otherwise modified or terminated as provided in this Section IV or as otherwise provided in the Plan. If a payroll deduction cannot be made in whole or in part because the Participant's pay for the period in question is insufficient to fund the deduction after having first withheld all other amounts deductible from that person's pay, the amount that was not withheld cannot be made up by the Participant nor will it be withheld from subsequent pay checks. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 4 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) COMMENCEMENT OF DEDUCTIONS Payroll deductions for a Participant shall commence on the Enrollment Date of the Offering for which that person's Payroll Deduction Authorization Form is effective and shall continue indefinitely, unless modified or terminated as provided in this Section IV or as otherwise provided in the Plan. ACCOUNTS All payroll deductions made for a Participant shall be credited to his or her Account under the Plan. Following each Purchase Date, the Plan Administrator shall promptly deliver a report to each Participant setting forth the aggregate payroll deductions credited to such Participant's Account during the preceding six months and the number of Shares purchased and delivered to the Custodian for deposit into the Participant's Custodial Account. MODIFICATION OF AUTHORIZED DEDUCTIONS A Participant may, prior to the commencement of each Offering in which that person will be a Participant, and not more than three times during each Offering, increase or decrease the amount of that person's payroll deduction effective for all applicable payroll periods, by completing an amended Payroll Deduction Authorization Form and filing it with the Company's stock administrator in accordance with this Section IV. A Participant may at any time discontinue the Participant's payroll deductions, without withdrawing from the Plan, by completing an amended Payroll Deduction Authorization Form and filing it with the Company's stock administrator. Previous payroll deductions will then be retained in the Participant's Account for application to purchase Shares on the next Purchase Date, after which the Participant's participation in the Offering and in the Plan will terminate unless the participant has timely filed another Payroll Deduction Authorization Form to resume payroll deductions. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 5 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) For purposes of the above, an amended Payroll Deduction Authorization form shall be effective for a specific pay period when filed 15 days prior to the last day of such payroll period. V. CUSTODY OF SHARES DELIVERY AND CUSTODY OF SHARES Shares purchased pursuant to the Plan shall be delivered to and held by the Custodian. CUSTODIAL ACCOUNT As soon as practicable after each Purchase Date, the Company shall deliver to the Custodian the full Shares purchased for each Participant's Account. The Shares will be held in a Custodial Account specifically established for this purpose. An Employee must open a Custodial Account with the Custodian in order to be eligible to purchase Shares under the Plan. In order to open a Custodial Account, the Participant must complete an ESPP New Account Form and file it with the stock administrator no later than fifteen (15) days prior to the Enrollment Date of the Offering as of which the enrollment is to take effect; provided, however, that an ESPP New Account Form that effects a change in the status of the Custodial Account may be filed at any time during participation in the Plan. TRANSFER OF SHARES Upon receipt of appropriate instructions from a Participant on forms provided for that purpose, the Custodian will transfer into the Participant's own name all or part of the Shares held in the Participant's Custodial Account and deliver such Shares to the Participant. STATEMENTS Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 6 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) The Custodian will deliver to each Participant a semi-annual statement showing the activity of the Participant's Custodial Account and the balance as to both Shares and cash. Participants will be furnished such other reports and statements, and at such intervals, as the Custodian and Plan Administrator shall determine from time to time. VI. PURCHASE OF SHARES PURCHASE OF SHARES Subject to the limitations of Section VII, on each Purchase Date in an Offering, the Company shall apply the amount credited to each Participant's Account to the purchase of as many full Shares that may be purchased with such amount at the price set forth in this Section VI, and shall promptly deliver such Shares to the Custodian for deposit into the Participant's Custodial Account. Payment for Shares purchased under the Plan will be made only through payroll withholding deductions in accordance with Section IV. PRICE The price of Shares to be purchased on any Purchase Date shall be the lower of: (a) Eighty-five percent (85%) of the fair market value of the Shares on the Enrollment Date of the Offering; or (b) Eighty-five percent (85%) of the fair market value of the Shares on the Purchase Date. FAIR MARKET VALUE Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 7 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) The fair market value of the Shares on any date shall be equal to the closing trade price of such shares on the Valuation Date, as reported on the NASDAQ National Market System or such other quotation system that supersedes it. UNUSED CONTRIBUTIONS Any amount credited to a Participant's Account and remaining therein immediately after a Purchase Date because it was less than the amount required to purchase a full Share shall be carried forward in such Participant's Account for application on the next succeeding Purchase Date. VII. TERMINATION AND WITHDRAWAL TERMINATION OF EMPLOYMENT Upon termination of a Participant's Employment for any reason other than death, the payroll deductions credited to such Participant's Account shall be returned to the Participant. A Participant shall have no right to accrue Shares upon termination of the person's Employment. TERMINATION UPON DEATH Upon termination of the Participant's Employment because of that person's death, the payroll deductions credited to that person's Account shall be used to purchase Shares as provided in Section VI on the next Purchase Date. Any Shares purchased and any remaining balance shall be transferred to the deceased Participant's Beneficiary, or if none, to that person's estate. DESIGNATION OF BENEFICIARY Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 8 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) Each Participant may designate, revoke, and redesignate Beneficiaries. All changes to designation of Beneficiary shall be in writing and will be effective upon delivery to the Plan Administrator. WITHDRAWAL A Participant may withdraw the entire amount credited to that individual's Account under the Plan and thereby terminate participation in the current Offering at any time by giving written notice to the Company, but in no case may a Participant withdraw accounts within the 15 days immediately preceding a Purchase Date for the Offering. Any amount withdrawn shall be paid to the Participant promptly after receipt of proper notice of withdrawal and no further payroll deductions shall be made from the person's Compensation unless a Payroll Deduction Authorization Form directing further deductions is or has been submitted. STATUS OF CUSTODIAL ACCOUNT Upon termination of a Participant's Employment for any reason other than death, the Participant may, (a) Elect to retain with the Custodian the Shares held in the Participant's Custodial Account. The Participant will bear the cost of any annual fees resulting from maintaining such an account. (b) Request issuance of the Shares held in the Participant's Custodial Account by submitting to the Custodian the appropriate forms provided for that purpose. Upon termination of a Participant's Employment as a result of death, any Shares held by the Custodian for the Participant's Account shall be transferred to the person(s) entitled thereto under the laws of the state of domicile of the Participant upon a proper showing of authority. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 9 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) VIII. SHARES PURCHASED UNDER THE PLAN SOURCE AND LIMITATION OF SHARES The Company has reserved for sale under the Plan 750,000* shares of common stock, subject to adjustment upon changes in capitalization of the Company as provided in Section X. Shares sold under the Plan may be newly issued Shares or Shares reacquired in private transactions or open market purchases, but all Shares sold under the Plan regardless of source shall be counted against the 750,000* Share limitation. If there is an insufficient number of Shares to permit the full exercise of all existing rights to purchase Shares, or if the legal obligations of the Company prohibit the issuance of all Shares purchasable upon the full exercise of such rights, the Plan Administrator shall make a pro rata allocation of the Shares remaining available in as nearly a uniform and equitable manner as possible, based pro rata on the aggregate amounts then credited to each Participant's Account. In such event, payroll deductions to be made shall be reduced accordingly and the Plan Administrator shall give written notice of such reduction to each Participant affected thereby. Any amount remaining in a Participant's Account immediately after all available Shares have been purchased will be promptly remitted to such Participant. Determination by the Plan Administrator in this regard shall be final, binding and conclusive on all persons. No deductions shall be permitted under the Plan at any time when no Shares are available. - ---------------------------- * Adjusted to reflect a 3-for-2 split of the share of Common Stock, without par value, of the Company, effected in the form of a 50% share dividend in accordance with ORS 60.154, declared by the Board of Directors on October 19, 1999, and paid on November 29, 1999 to shareholders of record at the close of business on November 8, 1999. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 10 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) DELIVERY OF SHARES As promptly as practicable after each Purchase Date, the Company shall deliver to the Custodian the full Shares purchased for each Participant's Account. INTEREST IN SHARES The rights to purchase Shares granted pursuant to this Plan will in all respects be subject to the terms and conditions of the Plan, as interpreted by the Plan Administrator from time to time. The Participant shall have no interest in Shares purchasable under the Plan until payment for the Shares has been completed at the close of business on the relevant Purchase Date. The Plan provides only an unfunded, unsecured promise by the Company to pay money or property in the future. Except with respect to the Shares purchased on a Purchase Date, an Employee choosing to participate in the Plan shall have no greater rights than an unsecured creditor of the Company. After the purchase of Shares, the Participant shall be entitled to all rights of a stockholder of the Company. IX. ADMINISTRATION PLAN ADMINISTRATOR At the discretion of the Board of Directors, the Plan shall be administered by the Board of Directors or by a Committee appointed by the Board of Directors. Each member of the Committee shall be either a director, an officer or an Employee of the Company. Each member shall serve for a term commencing on a date specified by the Board of Directors and continuing until that person dies, resigns or is removed by the Board of Directors. POWERS The Plan Administrator shall be vested with full authority to make, administer and interpret the rules and regulations as it deems necessary to administer the Plan. Any determination, decision or act of the Plan Administrator with respect to any action in Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 11 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) connection with the construction, interpretation, administration or application of the Plan shall be final, binding and conclusive upon all Participants and any and all other persons claiming under or through any Participant. The provisions of the Plan shall be construed in a manner consistent with the requirements of Section 423 of the Code. X. CHANGES IN CAPITALIZATION, MERGER, ETC. RIGHTS OF THE COMPANY The grant of a right to purchase Shares pursuant to this Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or other changes in its capital or business structure or to merge, consolidate or dissolve, liquidate or transfer all or any part of its divisions, subsidiaries, business or assets. RECAPITALIZATION Subject to any required action by stockholders, the number of Shares covered by the Plan as provided in Section VIII and the price per Share shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from a subdivision or consolidation of Shares or the payment of a stock dividend or any other increase or decrease in the number of such Shares effected without receipt or payment of consideration by the Company. CONSOLIDATION OR MERGER In the event of the consolidation or merger of the Company with or into any other business entity, or sale by the Company of substantially all of its assets, the successor may at its discretion continue the Plan by adopting the same by resolution of its Board of Directors or agreement of its partners or proprietors. If, within 90 days after the effective date of a consolidation, merger, or sale of assets, the successor corporation, partnership or proprietorship does not adopt the Plan, the Plan shall be terminated in accordance with Section XIII. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 12 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) XI. TERMINATION OF EMPLOYMENT VACATION, LEAVE OR LAYOFF A person's Employment shall not terminate on account of an authorized leave of absence, sick leave or vacation, or on account of a military leave described in this Section XI, or a direct transfer between Employers, provided such leave does not exceed 90 days or, if longer, so long as the person's right to reemployment is guaranteed by statute or by contract. Failure to return to work upon expiration of any leave of absence, sick leave or vacation shall be considered a resignation effective as of the expiration of such leave of absence, sick leave or vacation. MILITARY LEAVE Any Employee who leaves the Employer directly to perform services in the Armed Forces of the United States or in the United States Public Health Service under conditions entitling the Employee to reemployment rights provided by the laws of the United States, shall be on military leave. An Employee's military leave shall expire if the Employee voluntarily resigns from the Employer during the leave or if that person fails to make an application for reemployment within a period specified by such law for preservation of employment rights. In such event, the individual's Employment shall terminate by resignation on the day the military leave expires. XII. STOCKHOLDER APPROVAL AND RULINGS The Plan is expressly made subject to (a) the approval of the Plan within twelve (12) months after the Plan is adopted by the stockholders of the Company and (b) at the Company's election, to the receipt by the Company from the Internal Revenue Service of a ruling in scope and content satisfactory to counsel to the Company, affirming qualification of the Plan within the meaning of Section 423 of the Code. If the Plan is not so approved by the stockholders within 12 months after the date the Plan is adopted Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 13 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) and if, at the election of the Company a ruling from the Internal Revenue Service is sought but not received on or before one year after this Plan's adoption by the Board of Directors, this Plan shall not come into effect. In that case, the Account of each Participant shall forthwith be paid to the Participant. XIII. MISCELLANEOUS PROVISIONS AMENDMENT AND TERMINATION OF THE PLAN The Board of Directors of the Company may at any time amend the Plan. Except as otherwise provided herein, no amendment may adversely affect or change any right to purchase Shares without prior approval of the stockholders of the Company if the amendment would: (i) Permit the sale of more Shares than are authorized under Section VIII; (ii) Permit the sale of Shares to employees of entities which are not Employers; (iii) Materially increase the benefits accruing to Participants under the Plan; or (iv) Materially modify the requirements as to eligibility for participation in the Plan. The Plan is intended to be a permanent program, but the Company reserves the right to declare the Plan terminated at any time. Upon such termination, amounts credited to the Accounts of the Participants with respect to whom the Plan has been terminated shall be returned to such Participants. NON-TRANSFERABILITY Neither payroll deductions credited to a Participant's Account nor any rights with regard to the purchase of Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant except as provided in Section VII, and any attempted assignment, transfer, pledge, or other disposition shall be null and void. The Company may treat any such act as an election to withdraw Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 14 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) funds in accordance with Section VII. A Participant's rights to purchase Shares under the Plan are exercisable during the Participant's lifetime only by the Participant. USE OF FUNDS All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purposes and the Company shall not be obligated to segregate the payroll deductions. EXPENSES All expenses of administering the Plan shall be borne by the Company. The Company will not pay expenses, commissions or taxes incurred in connection with sales of Shares by the Custodian at the request of a Participant. Expenses to be paid by a Participant will be deducted from the proceeds of sale prior to remittance. TAX WITHHOLDING Each Participant who has purchased Shares under the Plan shall immediately upon notification of the amount due, if any, pay to the Employer in cash amounts necessary to satisfy any applicable federal, state and local tax withholding determined by the Employer to be required. If the Employer determines that additional withholding is required beyond any amounts deposited at the time of purchase, the Participant shall pay such amount to the Employer on demand. If the Participant fails to pay the amount demanded, the Employer may withhold that amount from other amounts payable by the Employer to the Participant, including salary, subject to applicable law. NO INTEREST Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 15 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) No Participant shall be entitled, at any time, to any payment or credit for interest with respect to or on the payroll deductions contemplated herein, or on any other assets held hereunder for the Participant's Account. REGISTRATION AND QUALIFICATION OF SHARES The offering of Shares hereunder shall be subject to the effecting by the Company of any registration or qualification of the Shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to, or in connection with, the offering or the issue or purchase of the Shares covered thereby. The Company shall make every reasonable effort to effect such registration or qualification or to obtain such consent or approval. RESPONSIBILITY AND INDEMNITY Neither the Company, its Board of Directors, the Custodian, nor any member, officer, agent or employee of any of them, shall be liable to any Participant under the Plan for any mistake of judgment or for any omission or wrongful act unless resulting from gross negligence, willful misconduct or intentional misfeasance. The Company will indemnify and save harmless its Board of Directors, the Custodian and any such member, officer, agent or employee against any claim, loss, liability or expense arising out of the Plan, except such as may result from the gross negligence, willful misconduct or intentional misfeasance of such entity or person. PLAN NOT A CONTRACT OF EMPLOYMENT The Plan is strictly a voluntary undertaking on the part of the Employer and shall not constitute a contract between the Employer and any Employee, or consideration for or an inducement or a condition of employment of an Employee. Except as otherwise required by law, or any applicable collective bargaining agreement, nothing contained in the Plan shall give any Employee the right to be retained in the service of the Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 16 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) Employer or to interfere with or restrict the right of the Employer, which is hereby expressly reserved, to discharge or retire any Employee at any time, with or without cause and with or without notice. Except as otherwise required by law, inclusion under the Plan will not give any Employee any right or claim to any benefit hereunder except to the extent such right has specifically become fixed under the terms of the Plan. The doctrine of substantial performance shall have no application to any Employee, Participant, or Beneficiary. Each condition and provision, including numerical items, has been carefully considered and constitutes the minimum limit on performance which will give rise to the applicable right. SERVICE OF PROCESS The Secretary of the Company is hereby designated agent for service or legal process on the Plan. NOTICE All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received by the Plan Administrator. Any notice required by the Plan to be received by the Company prior to an Enrollment Date, payroll period or other specified date, and received by the Plan Administrator subsequent to such date shall be effective on the next occurring Enrollment Date, payroll period or other specified date to which such notice applies. GOVERNING LAW The Plan shall be interpreted, administered and enforced in accordance with the Code, and the rights of Participants, former Participants, Beneficiaries and all other persons shall be determined in accordance with it. To the extent state law is applicable, the laws of the State of Oregon shall apply. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 17 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) REFERENCES Unless the context clearly indicates to the contrary, reference to a Plan provision, statute, regulation or document shall be construed as referring to any subsequently enacted, adopted or executed counterpart. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 18 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) EXHIBIT A DEFINITIONS ACCOUNT shall mean each separate account maintained for a Participant under the Plan collectively or singly as the context requires. Each Account shall be credited with a Participant's contributions, and shall be charged for the purchase of Shares. A Participant shall be fully vested in the cash contributions to that person's Account at all times. The Plan Administrator may create special types of Accounts for administrative reasons, even though the Accounts are not expressly authorized by the Plan. BENEFICIARY shall mean a person or entity entitled under Section VII of the Plan to receive Shares purchased by, and any remaining balance in, a Participant's Account on the Participant's death. BOARD OF shall mean the Board of Directors of the Company. DIRECTORS CODE shall mean the Internal Revenue Code of 1986, as amended, or the corresponding provisions of any future tax code. COMMITTEE shall mean the Committee appointed by the Board of Directors in accordance with Section IX of the Plan. COMPENSATION shall mean the total cash compensation (except as otherwise set forth below), before tax withholding, paid to an Employee in the period in question for services rendered to the Employer by the Employee. Compensation shall include the earnings waived by an Employee pursuant to a salary reduction arrangement under any cash or deferred or cafeteria plan that is maintained by the Employer and that is intended to be qualified under Section 401(k) or 125 of the Code. An Employee's Compensation shall not include severance pay, hiring or relocation bonuses, or pay in lieu of vacations or sick leave. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 19 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) COMMON STOCK shall mean the common stock of the Company. COMPANY shall mean RadiSys Corporation, an Oregon Corporation. CUSTODIAN shall mean the investment or financial firm appointed by the Plan Administrator to hold all Shares pursuant to the Plan. CUSTODIAL shall mean the account maintained by the Custodian for a Participant ACCOUNT under the Plan. DISABILITY shall refer to a mental or physical impairment which is expected to result in death or which has lasted or is expected to last for a continuous period of twelve (12) months or more and which causes the Employee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties as an Employee of the Company. Disability shall be deemed to have occurred on the first day after the Company and two independent physicians have furnished their opinion of Disability to the Plan Administrator. EMPLOYEE shall mean an individual who renders services to the Employer pursuant to a regular-status employment relationship with such Employer. A person rendering services to an Employer purportedly as an independent consultant or contractor shall not be an Employee for purposes of the Plan. EMPLOYER shall mean, collectively, the Company and its Subsidiaries or any successor entity that continues the Plan. All Employees of entities which constitute the Employer shall be treated as employed by a single company for all purposes of the Plan. EMPLOYMENT shall mean the period during which an individual is an Employee. Employment shall commence on the day the individual first performs services for the Employer as an Employee and shall terminate on the day such services cease, except as determined under Section XI. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 20 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) ENROLLMENT shall mean the first day of each Offering. DATE ESPP NEW shall mean the form provided by the Company on which a ACCOUNT FORM Participant shall elect to open an Account with the Custodian and authorize delivery to the Custodian of all Shares issued for the Participant's Account. OFFERING shall mean any one of the separate overlapping eighteen (18) month periods commencing on February 15 and August 15 of each calendar year under the Plan other than calendar year 1999; in calendar year 1999, the first Offering shall be a period commencing on June 12, 1999 and ending on August 15, 2000, and the second Offering shall be the eighteen (18) month period commencing on August 15, 1999. The first Offering will commence on February 15, 1996. PARTICIPANT shall mean any Employee who is participating in any Offering under the Plan pursuant to Section III. PAYROLL shall mean the form provided by the Company on which a DEDUCTION Participant shall elect to participate in the Plan and the AUTHORIZATION Offering under the Plan and designate the percentage of that FORM individual's Compensation to be contributed to that individual's Account through payroll deductions. PLAN shall mean this document. PLAN shall mean the Board of Directors or the Committee, whichever ADMINISTRATOR shall be administering the Plan from time to time in the discretion of the Board of Directors, as described in Section IX. PURCHASE DATE shall mean the last day of the sixth, twelfth and eighteenth one-month periods of the Offering, except for the Offering beginning on June 12, 1999, in which Offering the Purchase Dates shall be August 14, 1999, February 14, 2000 and August 14, 2000. For all other Offerings, since the Enrollment Dates occur on February 15 and August 15 of each year beginning with February 15, 1996, Purchase Dates shall occur on Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 21 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through February 25, 2000) February 14 and August 14 of each year beginning with August 14, 1996. RETIREMENT shall mean a Participant's termination of Employment on or after attaining the age of 65 or after the Plan Administrator has determined that the individual has suffered a Disability. SHARE shall mean one share of Common Stock. SUBSIDIARIES shall mean any corporation in which at least eighty percent (80%) or more of the total combined voting power of all classes of stock are owned directly or indirectly by RadiSys Corporation. VALUATION shall mean the date upon which the fair market value of Shares DATE is to be determined for purposes of setting the price of Shares under Section VI (that is, the Enrollment Date or the applicable Purchase Date). If the Enrollment Date or the Purchase Date is not a date on which the fair market value may be determined in accordance with Section VI, the Valuation Date shall be the first day prior to the Enrollment Date or the Purchase Date, as applicable, for which such fair market value may be determined. VESTED shall mean non-forfeitable. Initial Adoption: December 5, 1995 Last amended: February 25, 2000 (Articles VII, XI and XIII) 22 EX-10.9 4 EXHIBIT 10.9 FOURTH AMENDMENT TO LEASE THIS FOURTH AMENDMENT TO LEASE (this "Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), made effective the 31st day of July, 1995. WITNESSETH: WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, as amended effective February 24, 1993, and October 28, 1993, and July 10, 1995, for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. All defined terms in the Lease shall have the same meaning in this Amendment. 3. Article 1, Section 1.01 of the Lease is amended to include within the Premises approximately 283 square feet of Net Rentable Area located in the Northwest Quadrant of the first floor of the Building (the "Northwest Quadrant Space") as shown on Exhibit 1 attached hereto. The Premises shall also be increased to include 1,754 square feet of Net Rentable Area located in the Basement of the Building (the "Additional Basement Space") as shown on Exhibit 2 hereto. 4. The Base Rent is $8.50 per square foot of Net Rentable Area per annum for the Northwest Quadrant Space and $4.50 per square foot of Net Rentable Area per annum for the Additional Basement Space. 5. Tenant will take the Northwest Quadrant Space and Additional Basement Space "AS IS". Made as of the date first written above. LANDLORD TENANT CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By GARY SCHUMAN By MICHAEL STEWART --------------------------------- ----------------------------- Its Lease Manager Its President and CEO -------------------------------- ---------------------------- 2 EXHIBIT 1 [Map of First Floor of Facility] EXHIBIT 2 [Map of Basement of Facility] EX-10.10 5 EXHIBIT 10.10 FIFTH AMENDMENT TO LEASE THIS FIFTH AMENDMENT TO LEASE (this "Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), made effective the 17th day of October, 1995. WITNESSETH: WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, as amended effective February 24, 1993, and October 28, 1993, and July 10, 1995, and July 17, 1995 for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. All defined terms in the Lease shall have the same meaning in this Amendment. 3. Tenant's preferential right to lease the two South Quadrants on the second level of the Building, as provided for in the Third Amendment to the Lease, dated July 10, 1995, is hereby extinguished and shall no longer exist. Made as of the date first written above. LANDLORD TENANT CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By GARY SCHUMAN By MICHAEL STEWART ------------------------------- -------------------------------- Its Lease Manager Its President ------------------------------ ------------------------------- EX-10.11 6 EXHIBIT 10.11 SIXTH AMENDMENT TO LEASE THIS SIXTH AMENDMENT TO LEASE (this "Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO INC., a Delaware corporation, successor in interest to TEXAS MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), made effective the 28th day of April, 1997. WITNESSETH: WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, as amended effective February 24, 1993, and October 28, 1993, and July 10, 1995, and July 31, 1995, and October 17, 1995 for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. All defined terms in the Lease shall have the same meaning in this Amendment. 3. Tenant's preferential right to lease the Northeast Quadrant on the first floor of the Building, as provided for in Section 26.03 of the Lease, is hereby extinguished and shall no longer exist. Made as of the date first written above. LANDLORD TENANT CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By GARY SCHUMAN By MICHAEL STEWART ----------------------------- -------------------------------- Its Lease Manager Its President and CEO ---------------------------- ------------------------------- EX-10.12 7 EXHIBIT 10.12 SEVENTH AMENDMENT TO LEASE THIS SEVENTH AMENDMENT TO LEASE (this "Seventh Amendment") is made by and between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO INC., a Delaware corporation ("Tenant"), effective the 12th day of November, 1997. WITNESSETH: WHEREAS, Landlord and Tenant did enter into that certain lease (the "Lease") dated December 11, 1992, and as amended effective February 24, 1993, and October 28, 1993, and July 10, 1995, and July 31, 1995, and October 17, 1995 and April 28, 1997 for certain leased space situated in the Building known as 5959 Corporate Drive, Houston, Texas; and WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth herein; NOW THEREFORE, Landlord and Tenant in consideration of the premises and the mutual benefits to be derived therefrom, do hereby covenant, stipulate and agree, each with the other, to the following terms, covenants, conditions and obligations as an amendment to the Lease: 1. All terms, covenants, obligations and conditions in this Amendment which conflict with a like provision in the Lease shall be controlling over and supersede any like provision in the Lease. 2. All terms, covenants, obligations and conditions in the Lease not superseded and/or amended by any provision in this Amendment shall remain in full force and effect. All defined terms in the Lease shall have the same definition in this Amendment. 3. Effective November 12, 1997, Article 1, Section 1.01 of the Lease is amended to include within the Premises approximately 8,349 square feet of Net Rentable Area located in the Basement of the Building (the "Additional Basement Space") as shown on Exhibit A attached hereto and incorporated herein. 4. The Base Rent is $4.00 per square foot of Net Rentable Area per annum through November 30, 1998 for the Additional Basement Space. Effective December 1, 1998 the Base Rent will increase to $4.50 per square foot of Net Rentable Area per annum. 5. Tenant will take the Additional Basement Space on an "AS IS" basis, agreeing that it is to be used for storage purposes only, and that no air-conditioning is to be provided to such Additional Basement Space. Landlord reserves the right to substitute for the Additional Basement Space an equally sized area of space in the Building (+/- 20%), effective thirty (30) days from Landlord's written notice thereof to Tenant. Any reasonable costs associated with the movement of furniture, equipment or other material then in storage due to such relocation shall be borne by Landlord, but in no event will Landlord bear responsibility for said relocation costs in excess of $2,000.00. 6. Effective December 1, 1998, Tenant may cancel this Seventh Amendment, upon advance written notice delivered to Landlord no later than September 30, 1998. Made as of the date first written above. LANDLORD TENANT CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC. By GARY SCHUMAN By MICHAEL STEWART ----------------------------- -------------------------------- Its Lease Manager Its CEO ---------------------------- ------------------------------- 2 EXHIBIT A [Map of Lower Level of Facility] 3 EX-21.1 8 EXHIBIT 21.1 EXHIBIT 21.1 RADISYS CORPORATION LIST OF SUBSIDIARIES
JURISDICTION OF SUBSIDIARY INCORPORATION - ------------------------------------------------------------ --------------- RadiSys B.V. Netherlands RadiSys GmbH Germany RadiSys International, Inc. Oregon RadiSys International Sales Corporation Barbados RadiSys Ireland Limited Ireland RadiSys Technology (Ireland) Limited Ireland RadiSys Israel Ltd. Israel RadiSys KK Japan RadiSys SARL France RadiSys UK Limited United Kingdom Texas Microsystems United Kingdom Limited (inactive) United Kingdom RadiSys CPD, Inc. (formerly known as Texas Micro, Inc.) Delaware RadiSys Communication Platforms, Inc. (formerly known as Texas Microsystems, Inc.) Delaware Sequoia Holdings, Inc. Delaware Sequoia Systems Japan Co., Ltd. (inactive) Japan
EX-23.1 9 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-80577, No. 33-00514, No. 333-46473, No. 333-80087, No. 333-80089 and No. 333-85093) of RadiSys Corporation and subsidiaries of our report dated January 26, 2000 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 26, 2000 relating to the financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Portland, Oregon March 27, 2000 EX-24.1 10 EXHIBIT 24.1 POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 2000. JAMES F. DALTON ------------------------------------- (Signature) JAMES F. DALTON ------------------------------------- (Type or Print Name) POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 29, 2000. RICHARD J. FAUBERT ------------------------------------- (Signature) RICHARD J. FAUBERT ------------------------------------- (Type or Print Name) POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 28, 2000. C. SCOTT GIBSON ------------------------------------- (Signature) C. SCOTT GIBSON ------------------------------------- (Type or Print Name) POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 26, 2000. DR. WILLIAM W. LATTIN ------------------------------------- (Signature) DR. WILLIAM W. LATTIN ------------------------------------- (Type or Print Name) POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 27, 2000. JEAN-CLAUDE PETERSCHMITT ------------------------------------- (Signature) JEAN-CLAUDE PETERSCHMITT ------------------------------------- (Type or Print Name) POWER OF ATTORNEY (RadiSys Form 10-K) The undersigned constitutes and appoints GLENFORD J. MYERS and STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K for the year ended December 31, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: March 24, 2000. JEAN-PIERRE D. PATKAY ------------------------------------- (Signature) JEAN-PIERRE D. PATKAY ------------------------------------- (Type or Print Name) EX-27.1 11 EXHIBIT 27.1
5 12-MOS DEC-31-1999 JAN-1-1999 DEC-31-1999 15,708 0 58,619 933 41,374 122,171 21,211 22,711 187,563 53,308 0 0 0 141,030 (6,775) 187,563 251,090 251,090 158,793 75,693 1,873 0 1,200 19,997 680 18,997 0 0 0 18,997 1.18 1.11 The Company announced a three-for-two stock split in the fourth quarter of 1999. Shareholders on record on November 8, 1999 received three additional shares for every two shares held on that date. The shares were distributed on November 29, 1999.
EX-27.2 12 EXHIBIT 27.2
5 1,000 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 43,792 0 33,661 1,481 27,382 107,895 17,011 17,723 131,727 24,812 0 0 0 132,368 25,541 131,727 186,548 186,548 123,864 54,115 458 0 1,930 10,957 3,139 7,818 0 0 0 7,818 0.49 0.48 The Company announced a three-for-two stock split in the fourth quarter of 1999. Shareholders of record on November 8, 1999 received three additional shares for every two shares held on that date. The shares were distributed on November 29, 1999. Note: the 1998 Financial Data Schedule has been restated to reflect the merger with Texas Micro, Inc. on August 13, 1999. The merger was accounted for as a pooling-of-interests under Accounting Principles Board Opinion No. 16.
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