-----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, DbB5GMaBgcaWgCNgHaUVP3VigTMIeZbU95QQmRkfVtdG3qoCn2itPt3IqWH5mZz5 lIsZxmkJZjq8ORt5WgC52g== /in/edgar/work/20000814/0000912057-00-037345/0000912057-00-037345.txt : 20000921 0000912057-00-037345.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037345 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADISYS CORP CENTRAL INDEX KEY: 0000873044 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 930945232 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26844 FILM NUMBER: 699434 BUSINESS ADDRESS: STREET 1: 5445 NE DAWSON CREEK DR CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036461800 10-Q 1 a10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-26844 ------------------------ RADISYS CORPORATION (Exact name of registrant as specified in its charter) OREGON 93-0945232 (State or other jurisdiction (I.R.S. Employer of organization or incorporation) Identification Number)
5445 NE DAWSON CREEK DRIVE HILLSBORO, OR 97124 (Address of principal executive offices, including zip code) (503) 615-1100 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 10, 2000 WAS 17,073,746. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RADISYS CORPORATION PART I. FINANCIAL INFORMATION
PAGE NO. -------- Item 1. Consolidated Financial Statements 3 Consolidated Balance Sheet--June 30, 2000 and December 31, 1999...................................................... 4 Consolidated Statement of Operations--Three months ended June 30, 2000 and 1999, and six months ended June 30, 2000 and 1999.................................................. 5 Consolidated Statement of Changes In Shareholders' Equity--December 31, 1999 through June 30, 2000........... 6 Consolidated Statement of Cash Flows--Six months ended June 30, 2000 and 1999......................................... 7 Notes to Consolidated Financial Statements.................. Item 2. Management's Discussion and Analysis of Financial Condition 12 and Results of Operations................................. Item 3. Quantitative and Qualitative Disclosures about Market 16 Risk...................................................... PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders......... 17 Item 6. Exhibits and Reports on Form 8-K............................ 18 Signatures............................................................... 19
2 RADISYS CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Current assets Cash and cash equivalents............................... $ 42,391 $ 15,708 Accounts receivable, net................................ 68,858 58,619 Inventories, net........................................ 46,234 41,374 Other current assets.................................... 2,122 1,747 Deferred income taxes................................... 3,814 4,723 -------- -------- Total current assets.................................. 163,419 122,171 Property and equipment, net............................. 21,360 21,211 Goodwill and intangible assets, net..................... 32,485 34,177 Other assets............................................ 11,434 10,004 -------- -------- Total assets.......................................... $228,698 $187,563 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable........................................ $ 32,979 $ 19,878 Short term borrowings................................... 13,931 13,931 Income taxes payable.................................... 4,429 3,527 Accrued wages and bonuses............................... 8,771 6,706 Other accrued liabilities............................... 8,688 9,266 -------- -------- Total liabilities..................................... 68,798 53,308 -------- -------- Shareholders' equity Common stock, 100,000 shares authorized, 17,018 and 16,489 shares issued and outstanding....... 152,431 141,030 Accumulated other comprehensive income (loss): Cumulative translation adjustment..................... (1,538) (1,546) Unrealized gain (loss) on securities available for sale................................................ 410 (349) Accumulated earnings (deficit).......................... 8,597 (4,880) -------- -------- Total shareholders' equity............................ 159,900 134,255 -------- -------- Total liabilities and shareholders' equity............ $228,698 $187,563 ======== ========
The accompanying notes are an integral part of this statement. 3 RADISYS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- --------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- ---------- -------- ---------- (RESTATED) (RESTATED) Revenues........................................... $86,170 $61,351 $167,463 $114,049 Cost of goods sold................................. 55,635 38,440 108,070 72,299 ------- ------- -------- -------- Gross profit....................................... 30,535 22,911 59,393 41,750 Research and development........................... 9,306 7,873 18,286 14,535 Selling, general and administrative................ 9,707 9,101 19,249 17,606 Goodwill and intangibles amortization.............. 1,727 712 3,451 1,011 ------- ------- -------- -------- Income from operations............................. 9,795 5,225 18,407 8,598 Interest income, net............................... 260 269 203 707 Other income (expense)............................. (232) (38) 606 -- ------- ------- -------- -------- Income before income tax provision................. 9,823 5,456 19,216 9,305 Income tax provision (benefit)..................... 2,977 (3,886) 5,739 (2,954) ------- ------- -------- -------- Net income......................................... $ 6,846 $ 9,342 $ 13,477 $ 12,259 ======= ======= ======== ======== Net income per share (basic)....................... $ 0.40 $ 0.58 $ 0.80 $ 0.77 ======= ======= ======== ======== Net income per share (diluted)..................... $ 0.38 $ 0.55 $ 0.74 $ 0.73 ======= ======= ======== ========
The accompanying notes are an integral part of this statement. 4 RADISYS CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS) (UNAUDITED)
COMMON STOCK CUMULATIVE UNREALIZED ACCUMULATED TOTAL OTHER ------------------- TRANSLATION GAIN/(LOSS) EARNINGS COMPREHENSIVE SHARES AMOUNT ADJUSTMENT ON SECURITIES (DEFICIT) TOTAL INCOME -------- -------- ----------- ------------- ------------ -------- -------------- Balances, December 31, 1999........ 16,489 $141,030 $(1,546) $(349) $(4,880) $134,255 Shares issued pursuant to benefit plans............................ 529 7,862 7,862 Tax effect of Options exercised.... 3,539 3,539 Translation adjustment............. 8 8 8 Unrealized gain on securities...... 759 759 759 Net income for the period.......... 13,477 13,477 13,477 ------ -------- ------- ----- ------- -------- ------- Balances, June 30, 2000............ 17,018 $152,431 $(1,538) $ 410 $ 8,597 $159,900 ====== ======== ======= ===== ======= ======== Total other comprehensive income, six months ended June 30, 2000... $14,244 =======
The accompanying notes are an integral part of this statement. 5 RADISYS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED ----------------------------- JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- (RESTATED) Cash flows from operating activities: Net Income................................................ $ 13,477 $ 12,259 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization........................... 8,496 4,257 Gain on sale of assets.................................. (856) -- Deferred income taxes................................... 909 (6,135) Net changes in current assets and current liabilities:.......................................... -- Decrease (increase) in accounts receivable............ (10,239) (9,204) Decrease (increase) in other receivables.............. -- 110 Decrease (increase) in inventories.................... (4,860) (459) Decrease (increase) in other current assets........... (375) (1,025) Increase (decrease) in accounts payable............... 13,101 6,169 Increase (decrease) in income taxes payable........... 902 1,158 Increase (decrease) in accrued wages and bonuses...... 2,065 1,156 Increase (decrease) in other accrued liabilities...... (505) 499 -------- -------- Net cash provided by operating activities............... 22,115 8,785 -------- -------- Cash flows from investing activities: Business acquisitions..................................... (1,761) (27,505) Capital expenditures...................................... (3,712) (2,844) Sale of assets............................................ 350 -- Capitalized software production costs and other assets.... (1,645) (1,755) -------- -------- Net cash used for investing activities.................. (6,768) (32,104) -------- -------- Cash flows from financing activities: Issuance of common stock, net............................. 11,401 2,377 Payments on capital lease obligation...................... (73) (151) -------- -------- Net cash provided by financing activities............... 11,328 2,226 -------- -------- Effect of exchange rate changes on cash..................... 8 (350) -------- -------- Net increase (decrease) in cash and cash equivalents........ 26,683 (21,443) Cash and cash equivalents, beginning of period.............. 15,708 43,792 -------- -------- Cash and cash equivalents, end of period.................... $ 42,391 $ 22,349 ======== ========
The accompanying notes are an integral part of this statement. 6 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) JUNE 30, 2000 1. 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, which are located in Western Europe, Israel, and Japan. The accompanying consolidated financial statements are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in the opinion of management include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of results for the interim periods. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. The results of operations for interim periods are not necessarily indicative of the results for the entire year. 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 and recoverability of capitalized software and deferred tax assets. NEW PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Management believes that the impact of SAB 101 will have no material effect on the financial position or results of operations of the Company. RECLASSIFICATIONS Reclassifications have been made to certain amounts in prior years. These changes had no impact on previously reported results of operations or shareholders' equity. CASH FLOWS Non cash investing and financing activities include the effect of the change in market value of the Company's available for sale investment in General Automation common stock. The impact was a 7 decrease of $1.7 million, net of tax, to unrealized gain on securities available for sale and long-term assets for the three month period ended June 30, 2000 and an increase of $.8 million, net of tax, for the six month period ended June 30, 2000. 2. ACCOUNTS RECEIVABLE Trade accounts receivable are net of an allowance for doubtful accounts of $941 and $933 at June 30, 2000 and December 31, 1999, respectively. The Company's customers are concentrated in the technology industry. 3. INVENTORIES Inventories consist of the following:
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Raw materials.......................................... $36,246 $30,986 Work in process........................................ 3,935 2,465 Finished goods......................................... 6,053 7,923 ------- ------- $46,234 $41,374 ======= =======
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Land................................................... $ 1,391 $ 1,391 Manufacturing equipment................................ 18,882 17,950 Office equipment....................................... 22,190 19,746 Leasehold improvements................................. 4,924 4,835 ------- ------- 47,387 43,922 Less: accumulated depreciation......................... 26,027 22,711 ------- ------- $21,360 $21,211 ======= =======
5. GOODWILL AND INTANGIBLE ASSETS Goodwill and intangible assets decreased by $1.7 million, net from $34.2 million at December 31, 1999 to $32.5 million at June 30, 2000. Goodwill and intangibles increased by $1.7 million resulting from increased purchase price recorded for the OCP acquisition based upon a formula tied to certain OCP revenues pursuant to the acquisition agreement. This increase was offset by $3.4 million in amortization of goodwill and other intangible assets. Amortization periods range from five to fifteen years. 6. EARNINGS PER SHARE Net income per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options and warrants) outstanding during the periods, computed using the treasury stock method for stock options and warrants. 8 Weighted average shares consist of the following:
THREE MONTHS SIX MONTHS ENDED ENDED ------------------- ------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 -------- -------- -------- -------- Weighted average shares (basic)............................ 16,905 16,132 16,788 16,017 Effect of dilutive stock options........................... 1,288 726 1,411 702 ------ ------ ------ ------ Weighted average shares (diluted).......................... 18,193 16,858 18,199 16,719 ====== ====== ====== ======
7. SEGMENT INFORMATION The Company has adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision maker is considered to be the President and Chief Executive Officer ("CEO"). The Company's CEO evaluates both consolidated and disaggregated financial information in deciding how to allocate resources and assess performance. The CEO receives certain disaggregated information for three operating divisions within the Company. The Company has aggregated divisional results of operations into a single reportable segment as allowed under SFAS 131 because divisional results of operations reflect similar long-term economic characteristics, including average gross margins. Additionally, the divisional operations are similar with respect to the nature of products sold, types of customers, production processes employed and distribution methods used. Accordingly, the Company describes its reportable segment as designing and manufacturing embedded computing solutions. All of the Company's revenues result from sales within this segment. Information about the Company's geographic operations and sales is as follows:
FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED ------------------- ------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, REVENUE 2000 1999 2000 1999 - ------- -------- -------- -------- -------- COUNTRY United States......................... $49,459 $42,393 $ 95,760 $ 79,537 Europe................................ 34,299 18,396 67,001 32,559 Asia Pacific--Japan................... 2,412 562 4,230 1,226 Other foreign......................... -- -- 472 727 ------- ------- -------- -------- $86,170 $61,351 $167,463 $114,049 ======= ======= ======== ========
JUNE 30, DECEMBER 31, LONG LIVED ASSETS 2000 1999 - ----------------- -------- ------------ COUNTRY United States.......................................... $20,308 $20,724 Europe................................................. 988 404 Asia Pacific--Japan.................................... 64 83 ------- ------- $21,360 $21,211 ======= =======
9 One customer accounted for $10.8 million, or 12.5%, of total revenue for the three months ended June 30, 2000 and $22.8 million, or 13.6%, of total revenue for the six months ended June 30, 2000. No other customers accounted for more than 10% of total revenue for the three months or the six months ended June 30, 2000. 8. MERGER WITH TEXAS MICRO AND RELATED CHARGES In connection with the merger of Texas Micro Inc. on August 13, 1999, the Company recorded a charge to operating expenses of approximately $6.0 million for merger-related costs during 1999. Merger and related costs are comprised of the following:
COMBINATION COSTS BALANCE RECORDED YEAR ENDED ACCRUED AS OF DECEMBER 31, 1999 JUNE 30, 2000 ------------------- ------------- Professional & filing fees.................... $3,251 $ 9 Severance, retention, relocation & benefits alignment................................... 1,538 161 Contract termination costs.................... 799 117 Marketing, information systems conversion, and other miscellaneous costs................... 383 24 ------ ---- Total......................................... $5,971 $311 ====== ====
Accrued combination costs totaling $311 at June 30, 2000 are included in Other accrued liabilities in the Consolidated Balance Sheet. 9. GAIN ON SALE OF ASSETS During the first quarter of 2000 the Company sold a total of 367 shares of General Automation common stock resulting in a recorded net gain of $856. This gain is reflected in Other income in the Consolidated Statement of Operations. There were no sales of assets during the second quarter of 2000. 10. 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. 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 recorded as of December 31, 1999 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. 10 Pursuant to the terms of this agreement, the Company may be required to make additional future payments in March of 2001, 2002, and 2003 based upon a formula tied to future OCP revenues. Accordingly, during the three months ended June 30, 2000 the Company recorded an additional $.7 million in purchase price resulting from OCP revenues during the quarter. During the six months ended June 30, 2000, the Company recorded a total of $1.7 million in additional purchase price resulting from OCP revenues. The additional purchase price has been recorded as goodwill. The total consideration for the acquisition is limited to $30.0 million. 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, after giving effect to adjustments of amortization of patents and goodwill, estimated reduction of interest income and the estimated impact on the income tax provision. The unaudited pro forma information is not necessarily indicative of what actual results would have been had the ARTIC and OCP acquisitions occurred at the beginning of the respective period. 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.
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1999 JUNE 30, 1999 -------------- -------------- (UNAUDITED) (UNAUDITED) Revenues........................................... $71,830 $147,237 Net Income......................................... 10,332 16,561 Net income per share (basic)....................... .64 1.03 Net income per share (diluted)..................... .61 0.99
11. SUBSEQUENT EVENTS During August 2000, the Company issued $100 million aggregate principal amount of convertible subordinated notes at a stated interest rate of 5.5% per annum due August 2007. The notes are convertible into the Company's common stock at the option of the holders at a conversion rate of 67.8038 per share. The Company may use a portion of the net proceeds to acquire or invest in complementary businesses, products or technologies when the opportunity arises. The Company has no understandings, commitments or agreements with respect to any acquisition. The Company expects to use the net proceeds from this offering to fund expansion and repay debt and for general corporate purposes, including capital expenditures and working capital. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) OVERVIEW Total revenue was $86.2 million for the three months ended June 30, 2000 compared to $61.4 million for the three months ended June 30, 1999 and $167.5 million for the six months ended June 30, 2000 compared to $114.0 million for the six months ended June 30, 1999. Net income was $6.8 million for the three months ended June 30, 2000 compared to $9.3 million for the three months ended June 30, 1999, and $13.5 million for the six months ended June 30, 2000 compared to $12.3 million for the six months ended June 30, 1999. During 1999, the Company merged with one company (Texas Micro in August 1999) and acquired assets in two other transactions (ARTIC in March 1999 and OCP in late December 1999) in order to expand the expertise the Company believes it needs to compete effectively in the communications market. These acquisitions have resulted in increased sales volume as well as increased operating and manufacturing capacity through both internal and external sources. Additionally, the merger with Texas Micro has resulted in certain operating efficiencies. Therefore, total operating expenses have increased in dollar volume but efficiencies combined with increased sales volume have resulted in a decrease of operating expenses as a percentage of revenue for the three months ended and six months ended June 30, 2000. The Company expects to continue to acquire companies and technologies that are complementary to the Company's business and product offerings. REVENUES
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Revenues........................ $86,170 40% $ 61,351 $167,463 47% $114,049
Revenues increased by $24.8 million or 40% for the three months ended June 30, 2000 compared to the three months ended June 30, 1999 and $53.4 million or 47% for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. The increase in revenues is due to growth within existing product lines and movement into higher growth markets, primarily communications. In addition, revenue in the six months ended June 30, 2000 includes revenues from the Company's 1999 acquisitions (ARTIC in March 1999 and OCP in late December 1999) for the entire period. The Company's top five customers collectively represented approximately 43% and 40% of revenue for the three months and six months ended June 30, 2000, respectively. COST OF GOODS SOLD
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Cost of goods sold................ $55,635 45% $38,440 $108,070 49% $72,299 As a % of revenues................ 65% 63% 65% 63%
Cost of goods sold increased by $17.2 million or 45% for the three months ended June 30, 2000 compared to the three months ended June 30, 1999 and $35.8 million or 49% for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. This was primarily as a result of 12 increased revenues. The slight increase in cost of goods sold as a percentage of revenues for the three months ended and the six months ended June 30, 2000 is due to the change in product mix in 2000 compared to 1999. RESEARCH AND DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Research and development............ $9,306 18% $7,873 $18,286 26% $14,535 As a % of revenues.................. 11% 13% 11% 13%
Although overall research and development expenses have increased, they have declined by almost 2% as a percentage of revenue for the three months ended and six months ended June 30, 2000 compared to the three months ended and six months ended June 30, 1999. This percentage decline can is primarily attributable to increased efficiencies as a result of the integration of Texas Micro. In addition, the impact of the OCP acquisition resulted in lower research and development costs as a percentage of revenues, because OCP's business model incorporated lower R&D expenses as a percentage of revenues. SELLING, GENERAL AND ADMINISTRATIVE
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Selling, general & administrative... $9,707 7% $9,101 $19,249 9% $17,606 As a % of revenues.................. 11% 15% 11% 15%
Selling, general and administrative (SG&A) expenses as a percentage of revenues have declined by 4% for the three months ended and six months ended June 30, 2000 compared to the three months ended and six months ended June 30, 1999. The decline is largely a result of the integration of Texas Micro into the Company. For example, the Company experienced significant savings by combining the sales organizations and eliminating manufacturing representatives in the Texas Micro model, as well as the impact of significantly greater revenue volumes. In addition, the OCP acquisition resulted in lower SG&A expenses, as OCP's business model incorporated lower SG&A expenses as a percentage of revenues. GOODWILL AND INTANGIBLES AMORTIZATION
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------------- -------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Goodwill & intangibles amortization... $1,727 143% $712 $3,451 241% $1,011 As a % of revenues.................... 2% 1% 2% 1%
Goodwill amortization expense increased by $1.0 million for the three months ended June 30, 2000, compared to the three months ended June 30, 1999, and increased $2.4 million for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. This is a result of the ARTIC acquisition in March 1999 and the OCP acquisition in December 1999. Amortization of these amounts commenced in the three months ended March 31, 1999 and the three months ended March 31, 2000, respectively. Amortization periods for goodwill and intangibles range from five to fifteen years. 13 INTEREST INCOME, OTHER INCOME AND INCOME TAX PROVISION
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------------- ----------------------------------- JUNE 30, PERCENTAGE JUNE 30, JUNE 30, PERCENTAGE JUNE 30, 2000 CHANGE 1999 2000 CHANGE 1999 -------- ---------- -------- -------- ---------- -------- Interest income, net................. $ 260 (3)% $ 269 $ 203 (71)% $ 707 Other income (expense), net.......... $ (232) 511 % $ (38) $ 606 N/A $ -- Income tax provision (benefit)....... $2,977 177% $(3,886) $5,739 294% $(2,954)
Net interest income, decreased $504 for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. This decrease is primarily due to the lower cash and cash equivalents levels resulting from the funding of the ARTIC Business Unit acquisition on March 1, 1999 and increased interest expense as a result of the $13.9 million line of credit outstanding during the six months ended June 30, 2000 at an interest rate of 8.5%. Other income, net increased by $606 for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. This increase is primarily due to the sale of 367 shares of General Automation common stock, which resulted in a recorded gain of $856. This gain was offset by approximately $200 of foreign exchange currency expense. The increase in the income tax provision is attributable to increased net income before taxes of $9.9 million for the six months ended June 30, 2000 compared to the six months ended June 30, 1999. Additionally, the effective income tax rate for the six months ended June 30, 2000 as 30% compared to (32)% for the six months ended June 30, 1999. The lower rate in 1999 is attributed to the a favorable impact from income tax law changes and a resulting net operating loss benefit. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2000, the Company had $42.4 million in cash and cash equivalents and working capital of approximately $94.6 million. The Company has a $20.0 million line of credit with a bank which expires September, 2000. As of June 30, 2000, $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 the lender's prime rate (9.5% at June 30, 2000). Cash and cash equivalents increased by $26.7 million in the six months ended June 30, 2000, and decreased by $21.4 in the six months ended June 30, 1999. Activities impacting cash and cash equivalents are as follows:
SIX MONTHS ENDED ------------------- JUNE 30, JUNE 30, 2000 1999 -------- -------- Cash provided by operating activities...................... $22.1 $ 8.8 Cash used for investing activities......................... (6.8) (32.1) Cash provided by financing activities...................... 11.3 2.2 Effect of exchange rate changes on cash.................... .1 (.3) ----- ------- Net increase (decrease).................................... $26.7 $ (21.4) ===== =======
In addition to net income of $13.5 million plus depreciation and amortization of $8.5 million, significant changes in balance sheet accounts contributed to the increase in cash from operations for the six months ended June 30, 2000 as compared to the six months ended June 30, 1999. The increase in cash included an increase in accounts payable of $13.1 million, partially offset by an increase in accounts receivable of $10.2 million. Significant investing and financing activities impacting cash 14 included $5.4 million in capital expenditures and capital software additions, and $11.4 million in proceeds from common stock issuances. Capital expenditures were primarily for the purchase of furniture and office equipment, computer hardware, manufacturing and engineering equipment, and the implementation of SAP applications. Capital expenditures for 2000 are expected to range from $7.0 million to $9.0 million, resulting in part from the Company's plan to continue increasing its manufacturing capacities and investments in information systems. Investing activities for the quarter ending June 30, 1999, primarily consisted of the ARTIC acquisition of $27.5 million. During August 2000, the Company issued $100 million aggregated principal amount of convertible subordinated notes at a stated interest rate of 5.5% per annum due August 2007. The notes are convertible into the Company's common stock at the option of the holders at a conversion rate of $67.8038 per share. The Company may use a portion of the net proceeds to acquire or invest in complementary businesses, products or technologies when the opportunity arises. The Company has no understandings, commitments or agreements with respect to any acquisition. The Company expects to use the net proceeds from this offering to fund expansion and repay debt and for general corporate purposes, including capital expenditures and working capital. The Company believes its existing cash and cash equivalents and cash from operations will be sufficient to fund its current 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 before the expiration of 12 months. FORWARD-LOOKING STATEMENTS Statements and information in this Quarterly Report on Form 10-Q and the statements the Company's management may make, from time to time concerning the Company's future liquidity, development, business activities, potential acquisitions and capital expenditures 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: - dependence on the relationship with Intel Corporation and its products; - lower than expected sales in the communications market; - lower than expected design wins with key OEMs; - failure of leading OEMs to incorporate the Company's solutions in successful products; - deliveries of products containing errors, defects and bugs; - dependence on a limited number of suppliers or, in some cases, one supplier for components and equipment used to manufacture products; - difficulties in integrating acquired businesses and assets, including Texas Micro; - competition in the embedded computer market, which may lead to pricing pressures; - political, economic and regulatory risks associated with international operations; - technological developments; - the inability to protect the Company's intellectual property or successfully to defend against infringement claims by others; - availability of qualified personnel; - business conditions in the general economy and in the markets the Company serves; 15 - technological difficulties and resource constraints encountered in developing new products; and - difficulty or inability to meet our obligations to repay indebtedness. The forward-looking statements should be considered in light of these factors. ITEM 3. 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 for the six months ended June 30, 2000 or the year ended December 31, 1999 was not material. 16 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting on May 16, 2000, the holders of the Company's outstanding Common Stock took the actions described below. As of the record date for the Annual Meeting, 16,853,421 shares of Common Stock were issued and outstanding and entitled to vote. 1. The shareholders elected each of Dr. Glenford J. Myers, James F. Dalton, Richard J. Faubert, C. Scott Gibson, Jean-Pierre D. Patkay and Jean-Claude Peterschmitt to the Company's Board of Directors, by the votes indicated below, to serve for the ensuing year. DR. GLENFORD J. MYERS
14,522,810 shares in favor 186,174 shares against or withheld 0 abstentions 0 broker nonvotes
JAMES F. DALTON
14,481,006 shares in favor 227,978 shares against or withheld 0 abstentions 0 broker nonvotes
RICHARD J. FAUBERT
14,479,873 shares in favor 229,111 shares against or withheld 0 abstentions 0 broker nonvotes
C. SCOTT GIBSON
14,481,016 shares in favor 227,968 shares against or withheld 0 abstentions 0 broker nonvotes
JEAN-PIERRE D. PATKAY
14,522,697 shares in favor 186,287 shares against or withheld 0 abstentions 0 broker nonvotes
JEAN-CLAUDE PETERSCHMITT
14,520,195 shares in favor 188,789 shares against or withheld 0 abstentions 0 broker nonvotes
17 2. The shareholders adopted, by the vote indicated below, an amendment to the Company's Second Restated Articles of Incorporation to increase the number of authorized shares of Common Stock of the Company from 50,000,000 to 100,000,000. 13,452,482 shares in favor 1,100,138 shares against or withheld 156,364 abstentions 0 broker nonvotes
3. The shareholders adopted, by the vote indicated below, amendments to the Company's 1995 Stock Incentive Plan to (a) increase the number of shares of Common Stock of the Company that may be issued pursuant to the plan from 4,125,000 to 5,425,000, (b) include in the plan a provision that shareholder approval is required before any option or stock appreciation right granted under the plan may be repriced, replaced and regranted through the cancellation and reissuance of the option or stock appreciation right at a lower exercise price, or by lowering the exercise price of a previously granted option or stock appreciation right, and (c) clarify that incentive stock options can be granted to both employees of the Company and employees of the Company's subsidiaries. 6,148,508 shares in favor 5,786,745 shares against or withheld 164,222 abstentions 2,609,509 broker nonvotes
4. The shareholders adopted, by the vote indicated below, an amendment to the Company's 1996 Employee Stock Purchase Plan to increase the number of shares of Common Stock of the Company that may be issued pursuant to the Plan from 750,000 shares to 1,250,000. 11,716,437 shares in favor 218,498 shares against or withheld 164,540 abstentions 2,609,509 broker nonvotes
ITEM 6. EXHIBITS (a) Exhibits 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 Statement No. 33-95892). 3.2 Amendment to Second Restated Articles of Incorporation. 10.1 1995 Stock Incentive Plan, as amended. 10.2 1996 Employee Stock Purchase Plan, as amended. 27 Financial Date Schedule.
(b) Reports on Form 8-K None. 18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 11, 2000 RADISYS CORPORATION By: /s/ STEPHEN F. LOUGHLIN ----------------------------------------- Stephen F. Loughlin VICE PRESIDENT OF FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER (Authorized officer and Principal Financial Officer)
19 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ------------------------------------------------------------ 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 Statement No. 33-95892). 3.2 Amendment to Second Restated Articles of Incorporation. 10.1 1995 Stock Incentive Plan, as amended. 10.2 1996 Employee Stock Purchase Plan, as amended. 27 Financial Data Schedule.
20 EX-3.2 2 ex-3_2.txt EX-3.2 ARTICLES OF AMENDMENT TO SECOND RESTATED ARTICLES OF INCORPORATION OF RADISYS CORPORATION 1. The name of the corporation is RadiSys Corporation (the "Corporation"). 2. Article IV(A) of the Second Restated Articles of Incorporation of the Corporation is amended and restated to read in its entirety as follows: The aggregate number of shares which the corporation shall have authority to issue shall consist of 100,000,000 shares of common stock, without par value ("Common Stock"), and 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"). 3. The amendment was adopted by the shareholders of the Corporation on May 16, 2000. 4. Shareholder action was required to adopt the amendment. The shareholder vote was as follows:
Outstanding Number Votes Votes Designation Shares of Votes Cast For Cast Against ----------- ------ -------- -------- ------------ Common 16,853,421 16,853,421 13,452,482 1,100,138
5. The person to contact about this filing is Mary P. Pounds at (503)294-9832. Dated: May 17, 2000. RADISYS CORPORATION By: /s/ STEPHEN F. LOUGHLIN ---------------------------- Stephen F. Loughlin Vice President of Finance and Administration and Chief Financial Officer EX-10.1 3 ex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 RADISYS CORPORATION 1995 STOCK INCENTIVE PLAN (As Amended Through May 16, 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 5,425,000(*) 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 - -------------------------- (*) 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. Board of Directors may suspend or terminate the Plan at any time except with respect to 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. 2 Any such awards may be made to employees, including employees who are officers or 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 or any subsidiary 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; provided, however, that, notwithstanding anything to the contrary contained herein, in no event shall any option or stock appreciation right granted under the Plan be repriced, replaced or regranted through the cancellation and reissuance thereof at a lower exercise price, or by lowering the exercise price of a previously granted option or stock appreciation right, without the prior approval of the shareholders of the Company. 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 3 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 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 4 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 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 5 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, 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: - --------------------------- (*) 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. 6 (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. (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. 7 (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. (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 8 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 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 9 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 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 10 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 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 11 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 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 12 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. 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. 13 (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 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 14 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 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. 15 (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 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). Amended: May 16, 2000 (to increase shares in paragraph 2 to 5,425,000 and to make certain other changes to paragraph 5). 16 EX-10.2 4 ex-10_2.txt EX-10.2 EXHIBIT 10.2 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through June 6, 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: 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 prior to 4:00 p.m., Pacific Time on 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 prior to 4:00 p.m., Pacific Time on 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 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. 2 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. 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 on or prior to August 15, 2000, and no more than one-sixth of which may be purchased on any Purchase Date after August 15, 2000. 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 prior to 4:00 p.m. Pacific Time on 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 15% of the Compensation paid to the Participant during each pay period in the Offering, or other such minimum or 3 maximum percentages as the Plan Administrator shall establish from time to time; provided, however, that a Participant in any Offering that commenced prior to August 15, 2000 may not specify during that Offering contributions to the Plan of more than 10% of Compensation. 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. 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 since the last Purchase Date 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 at any time 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; provided, however, that a Participant in any Offering that commenced prior to August 15, 2000 may not change the amount of that person's payroll deduction more than three times during that Offering. 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. 4 For purposes of the above, an amended Payroll Deduction Authorization form shall be effective for a specific pay period when filed 7 days prior to the last day of such payroll period; provided, however, that for a Participant in any Offering that commenced prior to August 15, 2000 an amended Payroll Deduction Authorization form shall be effective for a specific pay period during that Offering 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 prior to 4:00 p.m. Pacific Time on 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 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. 5 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 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. 6 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 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. 7 VIII. SHARES PURCHASED UNDER THE PLAN SOURCE AND LIMITATION OF SHARES The Company has reserved for sale under the Plan 1,250,000(*) 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 1,250,000* 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. 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 - --------------------------- (*) 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. 8 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 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 9 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. XI. TERMINATION OF EMPLOYMENT LEAVE A person's Employment shall not terminate on account of an authorized leave of absence or sick leave, 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 or sick leave shall be considered a resignation effective as of the expiration of such leave of absence or sick leave. 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 10 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 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 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. 11 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 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. 12 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 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. 13 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. 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. 14 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. 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. 15 CUSTODIAL shall mean the account maintained by the Custodian for a ACCOUNT Participant 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 an 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. 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 until August 15, 2000 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. Beginning with the Offering that commences on August 15, 2000, Offering shall mean any one of the separate overlapping eighteen (18) 16 month periods commencing on February 15, May 15, August 15 and November 15 of each calendar year under the Plan. 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 FORM that 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, ADMINISTRATOR whichever shall be administering the Plan from time to time in the discretion of the Board of Directors, as described in Section IX. PURCHASE DATE until August 15, 2000 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. Beginning on August 15, 2000, for all then pending Offerings and any Offerings commenced on or after that date, Purchase Date shall mean the last day of the third, sixth, ninth, twelfth, fifteenth and eighteenth one-month periods of each Offering. Accordingly, since after August 15, 2000 the Enrollment Dates occur on February 15, May 15, August 15 and November 15 of each year, Purchase Dates shall occur on February 14, May 14, August 14 and November 14 of each year beginning with November 14, 2000. 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 DATE Shares 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 17 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: May 16, 2000 (shareholders approved increase in shares in Article VIII to 1,250,000) June 6, 2000 (board approved revisions to Articles III, IV, and V and to the definitions of Employee, Offering and Purchase Date in Exhibit A) 18 EX-27 5 ex-27.txt EXHIBIT 27
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 42,391 0 68,858 941 46,234 163,419 21,360 26,027 228,698 68,798 0 0 0 152,431 7,469 228,698 167,463 167,463 108,070 40,986 606 0 203 19,216 5,739 13,477 0 0 0 13,477 0.80 0.74
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