-----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, GnPhuklS8eaxDJIwWEn32FFgoNkVt3O76S+Eueigrh/r9cgr+yDj21RzQbj3AhsL aw793qwIGLaZmHqqqqUO+A== 0001025894-01-500188.txt : 20010814 0001025894-01-500188.hdr.sgml : 20010814 ACCESSION NUMBER: 0001025894-01-500188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADISYS CORP CENTRAL INDEX KEY: 0000873044 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 930945232 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26844 FILM NUMBER: 1706967 BUSINESS ADDRESS: STREET 1: 5445 NE DAWSON CREEK DR CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036461800 MAIL ADDRESS: STREET 1: 5445 NE DAWSON CREEK DRIVE CITY: HILLSBORO STATE: OR ZIP: 97124 10-Q 1 r_q106.txt QUARTERLY REPORT, 6-30-2001 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, 2001 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 9, 2001 was 17,294,447. RADISYS CORPORATION PART I. FINANCIAL INFORMATION
Page No. -------- Item 1. Consolidated Financial Statements (Unaudited) Consolidated Balance Sheet - June 30, 2001 and December 31, 2000 3 Consolidated Statement of Operations - Three months ended June 30, 2001 and 2000, and six months ended June 30, 2001 and 2000 4 Consolidated Statement of Changes in Shareholders' Equity - December 31, 2000 through June 30, 2001 5 Consolidated Statement of Cash Flows - Six months ended June 30, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 24 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 25 Item 6. Exhibits and Reports on Form 8-K 26 Signatures 27
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RadiSys Corporation Consolidated Balance Sheet (in thousands) June 30, December 31, 2001 2000 (Unaudited) --------------- --------------- ASSETS Current assets Cash and cash equivalents $ 60,862 $ 124,086 Short term investments 63,978 9,799 Accounts receivable, net 44,898 68,241 Inventories, net 50,480 53,247 Other current assets 6,321 2,783 Deferred income taxes 6,680 4,682 --------------- --------------- Total current assets 233,219 262,838 Property and equipment, net 24,478 28,128 Goodwill and intangible assets, net 32,388 30,444 Other assets 16,770 12,593 --------------- --------------- Total assets $ 306,855 $ 334,003 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 21,424 $ 32,602 Accrued restructuring 6,197 - Accrued interest payable 2,062 2,185 Income taxes payable 235 5,642 Accrued wages and bonuses 5,610 7,876 Other accrued liabilities 9,006 9,176 --------------- --------------- Total current liabilities 44,534 57,481 Convertible subordinated notes 97,338 97,191 --------------- --------------- Total liabilities 141,872 154,672 --------------- --------------- Shareholders' equity Common stock, 100,000 shares authorized, 17,255 and 17,070 shares issued and outstanding 156,997 153,482 Retained earnings 9,826 27,766 Accumulated other comprehensive income (loss): Cumulative translation adjustment (1,867) (1,917) Unrealized gain on securities available for sale 27 - --------------- -------------- Total shareholders' equity 164,983 179,331 --------------- --------------- Total liabilities and shareholders' equity $ 306,855 $ 334,003 =============== ===============
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, 2001 2000 2001 2000 ------------- --------------- ------------ ------------ Revenues $ 61,803 $ 86,170 $ 117,962 $ 167,464 Cost of sales 51,513 55,635 97,924 108,071 ------------- --------------- ------------- ------------ Gross profit 10,290 30,535 20,038 59,393 Research and development 9,167 9,306 18,451 18,286 Selling, general and administrative 8,708 9,707 18,114 19,249 Goodwill and intangibles amortization 1,656 1,727 3,212 3,451 Restructuring charges 3,219 - 13,062 - ------------- --------------- ------------- ------------ Income (loss) from operations (12,460) 9,795 (32,801) 18,407 Interest income, net 70 260 594 203 Other income (expense), net (17) (232) (724) 606 -------------- ---------------- -------------- ------------ Income (loss) before income tax provision (benefit) (12,407) 9,823 (32,931) 19,216 Income tax provision (benefit) (2,945) 2,977 (14,991) 5,739 -------------- ----------- -------------- ------------ Net income (loss) $ (9,462) $ 6,846 $ (17,940) $ 13,477 ============== =============== ============== ============ Net income (loss) per share (basic) $ (0.55) $ 0.40 $ (1.04) $ 0.80 ============== =============== ============== ============ Net income (loss) per share (diluted) $ (0.55) $ 0.38 $ (1.04) $ 0.74 ============= =============== ============ ============
The accompanying notes are an integral part of this statement. 4
RadiSys Corporation Consolidated Statement of Changes in Shareholders' Equity (in thousands) (unaudited) Cumulative Unrealized Total other Common Stock translation gain Retained comprehensive Shares Amount adjustment on securities earnings Total loss ------- --------- ---------- ------------- -------- --------- ------------- Balances, December 31, 2000 17,070 $ 153,482 $ (1,917) $ - $ 27,766 $ 179,331 Shares issued pursuant to benefit plans 185 3,053 3,053 Tax benefit of options exercised 462 462 Translation adjustment 50 50 $ 50 Unrealized gain on securities 27 27 $ 27 Net loss for the period (17,940) (17,940) (17,940) ------- --------- ---------- ------------- -------- --------- ------------- Balances, June 30, 2001 17,255 $ 156,997 $ (1,867) $ 27 $ 9,826 $ 164,983 ======= ========= ========== ============= ======== ========= Total other comprehensive loss, six months ended June 30, 2001 $ (17,863) =============
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, June 30, 2001 2000 -------------- --------------- Cash flows from operating activities: Net income (loss) $ (17,940) $ 13,477 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 8,856 8,496 Non-cash interest expense 147 - Recognized loss on writedown of marketable equity securities 390 - Gain on sale of marketable equity securities - (856) Impairment of fixed assets 2,620 - Write-off of capitalized software 2,530 - Write-off of inventories 10,714 - Deferred income taxes (8,627) 909 Tax benefit of options exercised 462 4,332 Net changes in current assets and current liabilities: Decrease (increase) in accounts receivable 23,343 (10,239) Decrease (increase) in interest receivable (1,216) - Decrease (increase) in inventories (7,947) (4,860) Decrease (increase) in other current assets 241 (375) Increase (decrease) in accounts payable (11,178) 13,101 Increase (decrease) in interest payable (123) - Increase (decrease) in income taxes payable (7,970) 902 Increase (decrease) in accrued wages and bonuses (2,266) 2,065 Increase (decrease) in accrued restructuring 6,197 - Increase (decrease) in other accrued liabilities (170) (505) -------------- --------------- Net cash provided by (used for) operating activities (1,937) 26,447 -------------- --------------- Cash flows from investing activities: Purchase of short-term investments (63,876) - Sales of short-term investments 9,697 - Business acquisitions and intangibles (5,165) (1,761) Capital expenditures (2,912) (3,712) Purchase of long-term asset (387) - Sale of assets - 350 Capitalized software production costs and other assets (1,747) (1,645) -------------- --------------- Net cash used for investing activities (64,390) (6,768) -------------- --------------- Cash flows from financing activities: Issuance of common stock, net 3,053 7,069 Payments on capital lease obligation - (73) -------------- --------------- Net cash provided by financing activities 3,053 6,996 -------------- --------------- Effect of exchange rate changes on cash 50 8 -------------- --------------- Net increase (decrease) in cash and cash equivalents (63,224) 26,683 Cash and cash equivalents, beginning of period 124,086 15,708 -------------- --------------- Cash and cash equivalents, end of period $ 60,862 $ 42,391 ============== ===============
The accompanying notes are an integral part of this statement 6 RADISYS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) (unaudited) June 30, 2001 1. Significant Accounting Policies Basis of Presentation RadiSys Corporation (the Company) was incorporated in March 1987 under the laws of the State of Oregon for the purpose of developing, producing and marketing computer system (hardware and software) products for embedded computer applications in manufacturing automation, medical, transportation, telecommunications and test equipment marketplaces. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 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, 2000. 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 judgments made by management of the Company include matters such as collectibility of accounts receivable, realizability of inventories, recoverability of capitalized software and deferred tax assets and adequacy of accrued restructuring costs. Reclassifications Reclassifications have been made to amounts in prior years to conform to current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity. Cash flows Non-cash investing and financing activities for the three months ended June 30, 2001 included the effect of an increase in the market value of the shares of common stock of GA eXpress (GA) held by the Company. The increase of $.03 million, net of tax, impacted Other non-current assets and Unrealized gain on securities available for sale. Non-cash investing and financing activities for the six months ended June 30, 2001 included an impairment write-down of $.4 million on the Company's available for sale investment in GA common stock. 7 Non-cash investing and financing activities for the three month period ended June 30, 2000 included a decrease of $1.7 million, net of tax, to Unrealized gain on securities available for sale and Other assets. Non-cash investing and financing activities for the six months ended June 30, 2000 included the effect of an increase of $0.8 million, net of tax, to Unrealized gain on securities available for sales and Other assets. Long-lived Assets The Company accounts for long-lived assets in accordance with Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires the Company to review the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the carrying amounts of long-lived assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the Company over the remaining amortization period, the carrying amounts of the long-lived assets are reduced by the estimated shortfall of cash flows. During the six months ended June 30, 2001 the Company wrote off fixed assets totaling $2.5 million as a result of an impairment analysis of its Houston manufacturing plant associated with the first quarter restructuring plan and $.1 million as a result of an impairment analysis of its Boston DSP design center related to the second quarter restructuring plan. See footnote 7 "Accrued Restructuring." New Pronouncements In 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. FAS 137 delayed adoption of FAS 133 to fiscal years commencing after June 30, 2000. The adoption of FAS 133 did not and has not had a material effect on the Company's financial position or results of operations due to its limited use of derivative instruments. In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141 establishes new standards for accounting and reporting requirements for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. The Company expects to adopt this statement during the third quarter of 2001. Management does not believe that the adoption of SFAS 141 will have a material impact on the Company's consolidated financial statements. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets, which supersedes APB Opinion No. 17, "Intangible Assets." Under its proposed changes, SFAS 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company expects to adopt this statement during the first quarter of 2002. Goodwill amortization totaled $5.4 million for the year ended December 31, 2000. 2. Accounts Receivable Trade accounts receivable are net of an allowance for doubtful accounts of $811 and $655 at June 30, 2001 and December 31, 2000, respectively. The Company's customers are concentrated in the technology industry. 3. Inventories 8 June 30, Dec 31, 2001 2000 ------------- ------------ Raw materials $ 38,802 $ 44,572 Work-in-progress 3,315 4,518 Finished goods 8,363 4,157 ------------- ------------ $ 50,480 $ 53,247 ============= ============ During the six months ended June 30, 2001, the Company wrote down inventory by $10.7 million ($3.9 million and $6.8 million in the first and second quarters of 2001, respectively) due to the Company's decision to consolidate its manufacturing operations, acceleration of the Company's end-of-life strategy on non-strategic products and reduced demand and decreasing component prices in the marketplace. 4. Property and Equipment June 30, Dec 31, 2001 2000 ------------- ------------ Land and building $ 3,919 $ 3,919 Manufacturing equipment 20,407 20,907 Office equipment and software 27,260 25,170 Leasehold improvements 5,715 7,278 ------------- ------------ 57,301 57,274 Less: accumulated depreciation 32,823 29,146 ------------- ------------ $24,478 $28,128 ============= ============ As a result of the decision to close its Houston, Texas manufacturing plant, the Company wrote off $2.5 million of impaired fixed assets during the three months ended March 31, 2001. The Company wrote off an additional $0.1 million of impaired fixed assets during the three months ended June 30, 2001 due to the closure of the Boston DSP design center. See description of the fixed assets written off at footnote 7 "Accrued Restructuring." These write-offs were recorded as restructuring charges. 5. Goodwill and Intangible Assets Goodwill and intangible assets increased by $1.9 million, net from $30.4 million at December 31, 2000 to $32.4 million at June 30, 2001. Goodwill and intangibles increased by $4.5 million as a result of the S-Link acquisition and $.7 million resulting from increased purchase price recorded for the Open Computing Platform (OCP) acquisition based upon a formula tied to certain OCP revenues pursuant to the acquisition agreement. These increases were offset by $3.3 million of amortization for the six months ended June 30, 2001. Amortization periods range from five to fifteen years. 6. Other Assets Other assets include capitalized software, deferred tax assets, investments in marketable securities, and unamortized debt issuance costs. During the six months ended June 30, 2001 the Company wrote off $2.6 million of capitalized software associated with its end-of-life strategy on certain products as part of its restructuring activities. This write off was included in restructuring charges. See footnote 7 "Accrued Restructuring." 9 The Company's non-current deferred tax assets increased by $6.6 million since December 31, 2000 as a result of the recognition of federal and state net operating losses and research and development tax credit carry-forwards. During the first quarter of 2001, the Company wrote down its investment in GA common stock to market value as of March 31, 2001, recording a realized loss of $.4 million. During the three months ended June 30, 2001, the Company recorded an unrealized gain on its investment in GA common stock of $.03 million, net of tax, as a result of an increase in the market price of GA stock as of the end of the quarter. 7. Accrued Restructuring First Quarter 2001 Restructuring Charge During the quarter ended March 31, 2001, the Company recorded restructuring charges of $9.8 million, primarily the result of management's decision to close its Houston, Texas manufacturing plant and consolidate all internal manufacturing operations into the Company's Hillsboro, Oregon plant. Additionally, certain sales offices were consolidated and end-of-life programs were accelerated on non-strategic products. Costs included in the charges were: (i) employee termination and other related costs; (ii) facility and leasehold improvement charges related to vacating the manufacturing plant and two international sales offices; (iii) write-downs of property and equipment impaired as a result of the restructuring; (iv) capitalized software write-downs associated with end-of-life product strategies as a result of the restructuring; and (v) other charges including legal and accounting fees. The Company anticipates that substantially all of the personnel charges will be paid and all of the property and equipment disposals will be completed by the end of September 2001. Facility charges will continue to be paid and will be taken against the accrual once the premises are vacated and until the leases have expired or the buildings have been sub-leased. Of the $9.8 million in restructuring charges, approximately $5.4 million will consist of cash expenditures, of which $1.6 million have been made as of June 30, 2001. The following table summarizes the restructuring charges, write-offs, and expenditures relating to these initiatives, which commenced during the quarter ended March 31, 2001:
Employee termination Leasehold and related improvements Property Capitalized Other costs and facilities and equipment software charges Total ------------ -------------- -------------- ------------ ---------- ------------ Restructuring costs $ 2,777 $ 3,434 $ 2,460 $ 1,067 $ 105 $ 9,843 Expenditures (159) (159) Write-offs (2,460) (1,067) (3,527) ------------ -------------- -------------- ------------ ---------- ------------ Balance of accrued restructuring, March 31, 2001 $ 2,618 $ 3,434 $ - $ - $ 105 $ 6,157 ------------ -------------- -------------- ------------ ---------- ------------ Expenditures (1,395) (60) (43) (1,498) ------------ -------------- -------------- ------------ ---------- ------------ Balance accrued as of June 30, 2001 $ 1,223 $ 3,374 $ - $ - $ 62 $ 4,659 ============ ============== ============== ============ ========== ============
Employee termination costs consist of severance and insurance benefits and related costs associated with the elimination of approximately 150 manufacturing positions in Houston, Texas along with approximately 50 other positions in supporting functions (procurement, information systems, general and administrative) and sales as announced by the Company on March 30, 2001. Approximately 60 percent of these terminations were completed by June 30, 2001 with the remainder to be completed by September 30, 2001. The Company paid $1.4 million of severance costs during the three months ended June 30, 2001. 10 Included in the leasehold improvements and facilities charge is $2.5 million related to the future abandonment of leased space at the Company's Houston plant and vacant sales offices in France and Germany. Lease costs and amortization of leasehold improvements for these facilities will be charged against the restructuring accrual on a monthly basis upon vacation of the premises, until the lease contracts expire or the facilities are sub-leased. Leasehold improvements approximating $1.0 million relate to the Houston site, which is expected to be occupied through September 2001. During the three months ended June 30, 2001 the Company charged $.06 million of lease costs and amortization of leasehold improvements against the restructuring accrual. As a result of the decision to close the Houston manufacturing plant, an analysis was conducted and the majority of property and equipment at the site was deemed to be impaired. Accordingly, all furniture, fixtures, manufacturing and office equipment expected to be sold or scrapped were written down to estimated recovery values as of March 31, 2001. No adjustments were made for assets expected to be transferred for use at the Company's Hillsboro location. The $2.5 million charge to write down the impaired assets is included in Restructuring charges in the Consolidated Statement of Operations during the quarter ended March 31, 2001. Most of the impaired assets will continue to be utilized until the September 30, 2001 plant closure date, at which time they will be removed and sold or scrapped. A smaller portion of the assets relating to SMT production were removed from use and disposed of during the second quarter of 2001. During the quarter ended March 31, 2001, management discontinued all non-strategic in-process capitalized software efforts. As a result of these decisions, the Company wrote off $1.1 million relating to these capitalized software projects as there will be no future revenue associated with them. This write off is included in Restructuring charges in the Consolidated Statement of Operations. Second Quarter 2001 Restructuring Charge During the three months ended June 30, 2001, management recorded a restructuring provision of $3.2 million, primarily relating to the closure of the Boston DSP design center and severance of approximately 40 other employees. Costs included in the charges were: (i) employee termination and other related costs; (ii) facility and leasehold improvement charges related to vacating the design center; (iii) write-downs of property and equipment impaired as a result of the restructuring; (iv) capitalized software write-downs associated with the discontinuance of the DSP design center; and (v) other charges including legal and accounting fees. The Company anticipates that substantially all of the personnel charges will be paid and all of the property and equipment disposals will be completed by the end of September 2001. Facility charges will continue to be paid and will be taken against the accrual once the premises are vacated and until the lease has expired or the building has been sub-leased. Of the $3.2 million in restructuring charges, approximately $1.5 million will consist of cash expenditures. The following table summarizes the restructuring charges, write-offs, and expenditures relating to the second quarter restructuring charge:
Employee termination Leasehold and related improvements Property Capitalized Other costs and facilitiesand equipment software charges Total ------------ ------------ -------------- ------------ ------------ ------------ Restructuring costs $ 1,298 $ 249 $ 51 $ 1,521 $ 100 $ 3,219 Expenditures - Write-offs (109) (51) (1,521) (1,681) ------------ ------------ -------------- ------------ ------------ ------------ Balance accrued as of June 30, 2001 $ 1,298 $ 140 $ - $ - $ 100 $ 1,538 ============ ============ ============== ============ ============ ============
11 Employee termination costs consist of severance and insurance benefits and related costs associated with the elimination of 18 positions at of the Boston DSP design center along with approximately 40 other positions, as announced by the Company on June 27, 2001. Approximately 80 percent of these terminations were completed by June 30, 2001 with the remainder to be completed by September 30, 2001. Included in the facilities charge is $.1 million related to the future abandonment of leased space at the Company's Boston Design Center. Lease costs for these facilities will be charged against the restructuring accrual on a monthly basis upon vacation of the premises, until the lease contracts expire or the facilities are sub-leased. Leasehold improvements totaling $.1 million which relate to the Boston Design Center were written off as of June 30, 2001 when normal business activities in the Boston office ceased. As a result of the decision to close the Boston Design Center, an analysis was conducted and certain property and equipment at the site was deemed to be impaired. Accordingly, all furniture, fixtures, office equipment, and engineering test equipment expected to be sold or scrapped were written down to estimated recovery values as of June 30, 2001. No adjustments were made for assets expected to be transferred for use at one of the Company's other locations. The $.1 million charge to write down the impaired assets is included in Restructuring charges in the Consolidated Statement of Operations. During the three months ended June 30, 2001, management discontinued all capitalized software efforts at the Boston design center. As a result, the Company wrote off $1.5 million relating to these capitalized software projects as there will be no future revenue associated with them. This write-off is included in Restructuring charges in the Consolidated Statement of Operations. 8. Earnings Per Share Net income (loss) per share is based on the weighted average number of shares of common stock and common stock equivalents (stock options) outstanding during the periods, computed using the treasury stock method. This calculation does not include the effects of the convertible debt or stock options as they were anti-dilutive, nor the effect of stock options in the first six months of 2001 because of the net loss. Weighed average shares consisted of the following:
Three Six months ended months ended -------------------------- ------------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Weighted average shares (basic) 17,218 16,905 17,174 16,788 Effect of dilutive stock options - 1,288 - 1,411 ------------ ------------ ------------ ------------ Weighted average shares (diluted) 17,218 18,193 17,174 18,199 ============ ============ ============ ============
9. 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 12 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 sales and long-lived asset information by geographic area is as follows:
Revenues -------------------------------------------------------------- Three months ended Six months ended ------------------------------- ------------------------------ June 30, June 30, June 30, June 30, Country 2001 2000 2001 2000 - ------- ---- ---- ---- ---- United States $ 30,958 $ 49,459 $ 56,660 $ 95,761 Europe 26,317 34,299 51,563 67,001 Asia Pacific - Japan 3,035 2,412 6,146 4,230 Other foreign 1,493 - 3,593 472 --------------- -------------- --------------- ------------ Total $ 61,803 $ 86,170 $ 117,962 $167,464 =============== ============== =============== ============
Long Lived Assets ------------------------------- June 30, Dec 31, Country 2001 2000 - ------- ---- ---- United States $ 23,537 $ 26,929 Europe 892 1,138 Asia Pacific - Japan 49 61 -------------- -------------- $ 24,478 $ 28,128 ============== ============== Two customers accounted for $13.0 million, or 21.0% of the total revenue for the three months ended June 30, 2001, and $30.2 million, or 25.6% of total revenue for the six months ended June 30, 2001. 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. 10. Acquisitions S-Link Acquisition On April 20, 2001 the Company acquired privately-held S-Link Corporation in a cash transaction valued at approximately $4.7 million. The Company anticipates that the acquisition will enhance its 13 technology and building blocks for signaling applications within packet networks. The acquisition of S-Link was accounted for using the purchase method. The results of operations for S-Link have been included in the financial statements since the date of acquisition. The aggregate purchase price of $4.7 million was allocated to fixed assets ($.2 million), goodwill ($2.8 million), and other intangible assets relating to acquired technology ($1.7 million). Unaudited Pro Forma Disclosure 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 beginning of the period presented, after giving effect to adjustments of amortization of goodwill and the estimated impact on the income tax provision. The unaudited pro forma information is not necessarily indicative of what the consolidated results of operations for future periods or that actually would have been realized had RadiSys and S-Link been a consolidated entity during the periods presented. Six Months Ended Six Months Ended June 30, 2001 June 30, 2000 (unaudited) (unaudited) ---------------- ------------------- Revenues $118,137 $167,839 Net income (loss) (18,575) 12,454 Net income (loss) per share (basic) (1.08) 0.74 Net income(loss) per share (diluted) (1.08) 0.68 11. Subsequent Events Subsequent to the quarter ended June 30, 2001, RadiSys Corporation and Microware Systems Corporation announced that they had entered into a definitive agreement under which a wholly owned subsidiary of the Company would commence a cash tender offer to purchase all outstanding shares of common stock of Microware at $0.68 per share. The tender offer expired on August 10, 2001, and the Company accepted all of the tendered shares for payment. The Company expects to consummate the Microware acquisition in late August. At that time, the Company's wholly owned subsidiary would be merged with and into Microware, with Microware surviving the merger as a wholly owned subsidiary of the Company. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) OVERVIEW Total revenue was $61.8 million for the three months ended June 30, 2001 compared to $86.2 million for the three months ended June 30, 2000 and $118.0 million for the six months ended June 30, 2001 compared to $167.5 million for the six months ended June 30, 2000. The Company had a net loss of $9.5 million for the three months ended June 30, 2001 compared to net income of $6.8 million for the three months ended June 30, 2000 and a net loss of $17.9 million for the six months ended June 30, 2001 compared to net income of $13.5 million for the six months ended June 30, 2000. 14 The net loss for the three months ended June 30, 2001 includes, before income tax, restructuring charges of $3.2 million and other adjustments of $7.2 million. The restructuring charges are related to the closure of the Company's Boston design center and severance of approximately 40 other employees. The Company expects that this restructuring decision will result in improved operating performance by approximately $1.5 million per quarter once the plan has been fully implemented. Other adjustments for the three months ended June 30, 2001 include a $6.8 million inventory write-down related to the Company's reduced demand and decreasing component prices in the marketplace and $.4 million of severance costs not related to the restructuring. The net loss for the six months ended June 30, 2001 also includes the Company's first quarter restructuring charges of $9.8 million and other adjustments during the first quarter of $5.1 million before income taxes. The first quarter restructuring charges are primarily the result of the decision to consolidate all internal manufacturing operations out of the Houston, Texas manufacturing plant into the Company's Hillsboro, Oregon plant, the closure of certain sales offices in France and Germany, and the elimination of approximately 200 positions from throughout the Company. The Company expects that the first quarter restructuring decision will result in lower manufacturing costs and improve operating performance by approximately $8.0 million per year once the plan has been fully implemented. Other adjustments for the three months ended March 31, 2001 include: $3.9 million of inventory write-downs related to the Company's consolidation of manufacturing operations, acceleration of the Company's end-of-life strategy on non-strategic products and for excess materials resulting from reduced demand; $.8 million in charges to consolidate other Company facilities, and a $.4 million permanent write-down of an investment received in connection with a prior divestiture. On April 20, 2001 the Company acquired privately-held S-Link Corporation in a cash transaction valued at approximately $4.7 million. The Company anticipates that the acquisition will enhance its technology and building blocks for signaling applications within packet networks. The acquisition of S-Link was accounted for using the purchase method. On July 2, 2001, the Company and Microware Systems Corporation announced that they had entered into a definitive agreement under which a wholly owned subsidiary of the Company would commence a cash tender offer to purchase all outstanding shares of common stock of Microware at $0.68 per share. The tender offer expired on August 10, 2001, and the Company accepted all of the tendered shares for payment. The Company expects to consummate the Microware acquisition in late August. At that time, the Company's wholly owned subsidiary would be merged with and into Microware, with Microware surviving the merger as a wholly owned subsidiary of the Company. The Company will pay approximately $13.1 million to acquire all of the outstanding shares of Microware's common stock. In addition, the Company has paid $2.2 million on Microware's behalf to retire certain equity and debt securities of Microware. The Company anticipates that the Microware acquisition will provide a network processor family and will offer customers complete faster-to-market solutions for certain applications. REVENUES Three months ended Six months ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ---- ------- ---- ---- ---- Revenues $61,803 (28%) $86,170 $117,962 (30%) $167,464 Revenues decreased by $24.4 million or 28% for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and decreased by $49.5 million or 30% for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The decrease in revenues for the three and six months ended June 30, 2001 was primarily attributable to lower customer sales as a result of the continued downturn in the business of most of the Company's customers and generally poor economic conditions. The Company's top five customers collectively represented approximately 42% of total revenues for the three months ended June 30, 2001, and 48% of total revenues for the six months ended June 30, 2001. The Company does not expect its restructuring events to impact future revenues. 15
COST OF SALES Three months ended Six months ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------- ---- ---- ------ ---- Cost of sales $51,513 (7%) $55,635 $97,924 (9%) $108,071 As a % of revenues 83% 65% 83% 65%
Cost of sales decreased by $4.1 million or 7% for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and decreased $10.1 million or 9% for the six months ended June 30, 2001 compared to the six months ended June 30, 2000 . The cost of sales decrease was a result of the decrease in revenue during the six months ended June 30, 2001. The increase in cost of sales as a percentage of revenues for the three months and six months ended June 30, 2001 was due to inventory write-downs of $3.9 million and $6.8 million in the first and second quarters of 2001, respectively, and due to reduced utilization of manufacturing capacity relating to the decrease in revenues. As revenue volume increases, the Company will experience decreases in cost of sales as a percentage of revenues as a result of manufacturing efficiencies and the effects of cost savings from the restructuring activities, which are expected to be partially realized beginning in the third quarter of 2001 and fully realized by the fourth quarter of 2001. RESEARCH AND DEVELOPMENT
Three Months Ended Six Months Ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Research and development $9,167 (2%) $9,306 $18,451 1% $18,286 As a % of revenues 15% 11% 16% 11%
Research and development expenses decreased by $.1 million or 2% for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and increased $.2 million or 1% for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The decrease for the three months ended June 30, 2001 is a result of lower spending as a result of additional cost control measures originally implemented during the first quarter of 2001 and fully in effect for the second quarter. These cost savings were offset by increases in engineering headcount since June 30, 2000. The increase for the six months ended June 30, 2001 was primarily attributable to the increase in engineering headcount since June 30, 2000 of approximately 15 people, but was only partially offset by lower spending as a result of cost control measures implemented during the quarter ended March 31, 2001. The increase as a percentage of revenue for the three and six months ended June 30, 2001 was associated with the decline in revenue during the quarter. The Company expects savings in research and development expense resulting from the Boston design center closure, but anticipates these savings will be offset by an increase in research and development costs going forward as a result of the April 2001 acquisition of S-Link Corporation. SELLING, GENERAL AND ADMINISTRATIVE
Three Months Ended Six Months Ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Selling, general and administrative $8,708 (10%) $9,707 $18,114 (6%) $19,249 16 As a % of revenues 14% 11% 15% 11%
Selling, general and administrative (SG&A) expenses decreased by $1.0 million or 10% for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and decreased $1.1 million or 6% for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The decrease is due to lower spending as a result of cost control measures and a reduction in sales commission expense related to lower sales. This decrease was partially offset by investments made in the Company's infrastructure during the latter half of 2000, including the implementation of SAP. The increase as a percentage of revenue is associated with decreased revenue volume during the three months and six months ended June 30, 2001. GOODWILL AND INTANGIBLES AMORTIZATION
Three Months Ended Six Months Ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Goodwill and intangibles amortization $1,656 (4%) $1,727 $3,212 (7%) $3,451 As a % of revenues 3% 2% 3% 2%
Goodwill amortization expense decreased by $.07 million or 4% for the three months ended June 30, 2001, compared to the three months ended June 30, 2000 and $.2 million or 7% for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. During the third quarter of 2000 management revised its estimate of total goodwill associated with the 1999 acquisition of Open Computing Platform (OCP), based upon the future expected obligation to IBM as defined in the acquisition agreement. As a result, this change in estimate reduced the amortization recorded for OCP during the three months and six months ended June 30, 2001 compared to the three and six months ended June 30, 2000. This decrease was partially offset by amortization of $.1 million related to the S-Link acquisition, of which $2.8 million was recorded as goodwill. Amortization periods for goodwill and intangibles range from five to fifteen years. RESTRUCTURING CHARGES
First Quarter 2001 Restructuring Charge Three Months Ended Six Months Ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Restructuring charges $3,219 $ - $13,062 $ - As a % of revenues 5% 11%
In March 2001, the Company recorded restructuring charges of $9.8 million, primarily the result of management's decision to close its Houston, Texas manufacturing plant and consolidate all internal manufacturing operations into the Company's Hillsboro, Oregon plant. Additionally, certain sales offices were consolidated and end-of-life programs were accelerated on non-strategic products. These decisions were made in light of overall market conditions and economic downturns experienced in the latter part of the fourth quarter of 2000 and, more significantly, during the first quarter of 2001. In 2000, the Company began migrating board assembly work to its Oregon plant, and in January 2001, announced its plan to complete board assembly consolidation. As the quarter progressed, management recognized the need for even greater operating efficiency and decided to completely eliminate manufacturing operations in Texas by September 30, 2001. The Company will continue to operate a major design center in Houston as well 17 as a product repair center. The Company expects that this decision will result in lower manufacturing costs and will improve operating performance by approximately $8.0 million per year once the plan has been fully implemented. Costs included in the charges were: (i) employee termination and other related costs; (ii) facility and leasehold improvement charges related to vacating the manufacturing plant and two international sales offices; (iii) write-downs of property and equipment impaired as a result of the restructuring; (iv) capitalized software write-downs associated with end-of-life product strategies as a result of the restructuring; and (v) other charges including legal and accounting fees. The Company anticipates that substantially all of the personnel charges will be paid and all of the property and equipment disposals will be completed by the end of September 2001. Facility charges will continue to be paid and will be taken against the accrual once premises are vacated and until the leases have expired or the buildings have been sub-leased. Of the $9.8 million in restructuring charges, approximately $5.4 million will consist of cash expenditures. The following table summarizes the restructuring charges, write-offs, and expenditures relating to these initiatives, which commenced during the quarter ended March 31, 2001:
Employee termination Leasehold and related improvements Property Capitalized Other costs and facilities and equipment software charges Total ------------ -------------- ------------- ----------- -------- ------------ Restructuring costs $ 2,777 $ 3,434 $ 2,460 $ 1,067 $ 105 $ 9,843 Expenditures (159) (159) Write-offs (2,460) (1,067) (3,527) ------------ -------------- ------------- ----------- -------- ------------ Balance of accrued restructuring, March 31, 2001 $ 2,618 $ 3,434 $ - $ - $ 105 $ 6,157 ------------ -------------- ------------- ----------- -------- ------------ Expenditures (1,395) (60) (43) (1,498) ------------ -------------- ------------- ----------- -------- ------------ Balance accrued as of June 30, 2001 $ 1,223 $ 3,374 $ - $ - $ 62 $ 4,659 ============ ============== ============= =========== ======== ============
Employee termination costs consist of severance and insurance benefits and related costs associated with the elimination of approximately 150 manufacturing positions in Houston, Texas along with approximately 50 other positions in supporting functions (procurement, information systems, general and administrative) and sales as announced by the Company on March 30, 2001. Approximately 60 percent of these terminations were completed by June 30, 2001 with the remainder expected to be completed by September 30, 2001. The Company paid $1.4 million of severance costs during the three months ended June 30, 2001. Included in the leasehold improvements and facilities charge is $2.4 million related to the future abandonment of leased space at the Company's Houston plant and vacant sales offices in France and Germany. Lease costs and amortization of leasehold improvements for these facilities will be charged against the restructuring accrual on a monthly basis upon vacation of the premises, until the lease contracts expire or the facilities are sub-leased. Leasehold improvements approximating $1.0 million relate to the Houston site, which is expected to be occupied through September 2001. During the three months ended June 30, 2001 the Company charged $.06 million of lease costs and amortization of leasehold improvements against the restructuring accrual. As a result of the decision to close the Houston manufacturing plant, an analysis was conducted and the majority of property and equipment at the site was deemed to be impaired. Accordingly, all furniture, fixtures, manufacturing and office equipment expected to be sold or scrapped were written down to estimated recovery values as of March 31, 2001. No adjustments were made for assets expected to be transferred for use at the Company's Hillsboro location. Most of the impaired assets will continue to be 18 utilized until the September 30, 2001 plant closure date, at which time they will be removed and sold or scrapped. A smaller portion of the assets relating to SMT production were removed from use and disposed of during the second quarter of 2001. During the quarter ended March 31, 2001, management discontinued all non-strategic in-process capitalized software efforts. As a result of these decisions, the Company wrote off $1.1 million relating to these capitalized software projects as there will be no future revenue associated with them. This write-off is included in Restructuring charges in the Consolidated Statement of Operations. Second Quarter 2001 Restructuring Charge In June 2001, management recorded a restructuring provision of $3.2 million, primarily relating to the closure of the Boston DSP design center and severance of approximately 40 other employees. The decision to close the design center and eliminate positions was a result of a thorough review of the Company's infrastructure with the goal of achieving profitability and reducing its break-even point in subsequent quarters. Costs included in the charges were: (i) employee termination and other related costs; (ii) facility and leasehold improvement charges related to vacating the design center; (iii) write-downs of property and equipment impaired as a result of the restructuring; (iv) capitalized software write-downs associated with end-of-life product strategies as a result of the restructuring; and (v) other charges including legal and accounting fees. The Company anticipates that substantially all of the personnel charges will be paid and all of the property and equipment disposals will be completed by the end of September 2001. Facility charges will continue to be paid and will be taken against the accrual once the premises are vacated and until the lease has expired or the building has been sub-leased. Of the $3.2 million in restructuring charges, approximately $1.5 million will consist of cash expenditures. The following table summarizes the restructuring charges, write-offs, and expenditures relating to the second quarter restructuring charge:
Employee termination Leasehold and related improvements Property Capitalized Other costs and facilities and equipment software charges Total ----------- -------------- -------------- ------------ ------------ ---------- Restructuring costs $ 1,298 $ 249 $ 51 $ 1,521 $ 100 $ 3,219 Expenditures - Write-offs (109) (51) (1,521) (1,681) ----------- -------------- -------------- ------------ ------------ ---------- Balance accrued as of June 30, 2001 $ 1,298 $ 140 $ - $ - $ 100 $ 1,538 =========== ============== ============== ============ ============ ==========
Employee termination costs consist of severance and insurance benefits and related costs associated with the elimination of 18 positions at the Boston DSP design center along with approximately 40 other positions, as announced by the Company on June 27, 2001. Approximately 80 percent of these terminations were completed by June 30, 2001 with the remainder expected to be completed by September 30, 2001. The Company expects that this decision will result in lower manufacturing costs and will improve operating performance by approximately $1.5 million per quarter once the plan has been fully implemented. Included in the leasehold improvements and facilities charge is $.1 million related to the future abandonment of leased space at the Company's Boston design center. Lease costs for this facility will be charged against the restructuring accrual on a monthly basis upon vacation of the premises, until the lease contract expires or the facility is sub-leased. Leasehold improvements totaling $.1 million which relate to 19 the Boston design center were written off as of June 30, 2001 when normal business activities in the Boston office ceased. As a result of the decision to close the Boston design center, an analysis was conducted and certain property and equipment at the site was deemed to be impaired. Accordingly, all furniture, fixtures, office equipment, and engineering test equipment expected to be sold or scrapped were written down to estimated recovery values as of June 30, 2001. No adjustments were made for assets expected to be transferred for use at one of the Company's other locations. The $.1 million charge to write down the impaired assets is included in Restructuring charges in the Consolidated Statement of Operations. During the three months ended June 30, 2001, management discontinued all capitalized software efforts at the design center. As a result of this decision, the Company wrote off $1.5 million relating to these capitalized software projects as there will be no future revenue associated with them. This write-off is included in Restructuring charges in the Consolidated Statement of Operations. INTEREST INCOME AND OTHER INCOME
Three Months Ended Six Months Ended ------------------ ---------------- June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Interest income, net $70 (73%) $260 $594 193% $203 Other income (expense), net ($17) (93%) ($232) ($724) (220%) $606
Net interest income decreased $.2 million for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and increased $.4 million for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. During the three and six months ended June 30, 2001 the Company earned interest on short-term investments, which was offset by interest expense incurred on the $100 million of convertible notes. During the second quarter of 2001, the Company received less interest income on short-term investments than during the first quarter of 2001 because of continued decreases in market interest rates offered on short-term investments. During the three and six months ended June 30, 2000 the Company did not hold any short-term investments. The Company's increased supply of cash for investing during the three and six months ended June 30, 2001 originated primarily from the Company's $100 million convertible debt issuance in the third quarter of 2000. Also contributing to the fluctuation in net interest income was the existence of $13.9 million outstanding on a $20.0 million line of credit with a bank at an interest rate of 8.5% during the three and six months ended June 30, 2000. There were no amounts outstanding on the line of credit at any time during the six months ended June 30, 2001. Net other expense decreased by $.2 million for the three months ended June 30, 2001 compared to the three months ended June 30, 2000 and increased by $1.3 million for the six months ended June 30, 2001 compared to the six months ended June 30, 2000. The Company wrote down its investment in common stock of GA eXpress (GA) to market value, recognizing a loss of $.4 million for the three months ended March 31, 2001. The impact of foreign exchange rate fluctuations for the three months ended March 31, 2001 resulted in expense of approximately $.3 million. Adding to the fluctuation in Other income for the six months ended June 30, 2001 compared to the six months ended June 30, 2000, the Company sold 367 shares of GA common stock during the first quarter of 2000, resulting in a gain of $.9 million. INCOME TAX PROVISION (BENEFIT)
Three Months Ended Six Months Ended ------------------ ---------------- 20 June 30, Percentage June 30, June 30, Percentage June 30, 2001 Change 2000 2001 Change 2000 ---- ------ ---- ---- ------ ---- Income tax provision (benefit) ($2,945) (199%) $2,977 ($14,991) (361%) 5,739
The effective income tax rate for the six months ended June 30, 2001 was a benefit of 45.5% compared to a 30.0% tax provision rate for the six months ended June 30, 2000. The change in the effective rate from June 30, 2000 to June 30, 2001 is primarily due to net losses incurred year-to-date and resulting lower estimated pre-tax income, expected research and development tax credit benefits for 2001, and anticipated tax benefits associated with the Company's offshore operations and foreign sales corporations. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2001, the Company had $60.9 million in cash and cash equivalents, $64.0 million in short-term investments, and working capital of approximately $188.7 million. Cash and cash equivalents decreased by $63.2 million during the six months ended June 30, 2001 from $124.1 million at December 31, 2000. Activities impacting cash and cash equivalents are as follows: Six months ended ------------------ June 30, June 30, 2001 2000 ---- ---- Cash provided by (used for) operating activities $ (1.9) $ 26.5 Cash used for investing activities (64.4) (6.8) Cash provided by financing activities 3.0 7.0 Effect of exchange rate changes on cash 0.1 - ------- ------- Net increase (decrease) $(63.2) $ 26.7 ======= ======= The fluctuation in operating cash generation for the six months ended June 30, 2001 compared to the six months ended June 30, 2000 is primarily due to the Company's net loss of $17.9 million as of June 30, 2001. Also impacting the decrease was an $11.2 million decrease in accounts payable, an $8.0 million decrease in income tax payable, and an $8.6 million increase in deferred income taxes. This decrease in operating cash was partially offset by the Company's decrease in accounts receivable of $23.3 million and the Company's decision to write off $2.6 million of fixed assets, $2.5 million of capitalized software and $10.7 million of inventory. Significant investing activities affecting cash for the six months ended June 30, 2001 included $64.0 million in purchases of short-term investments, business acquisition expenditures of $5.2 million, $2.9 million in capital expenditures, and $1.7 million in capital software additions. Business acquisitions primarily consisted of the purchase of S-Link for $4.7 million ($4.5 million of goodwill and $.2 million of capital expenditures) and the increased purchase price recorded for the OCP acquisition of $.7 million based upon a formula tied to certain OCP revenues pursuant to the acquisition agreement. Capital expenditures primarily consisted of assets acquired from S-Link and network upgrades. The Company's financing activities for the six months ended June 30, 2001 included $3.1 million in net proceeds from common stock issuance in connection with the exercise of options under the 1995 Stock Incentive Plan and the purchase of shares under the 1996 Employee Stock Purchase Plan. 21 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 prior to the expiration of twelve months and that this financing would be available. 22 FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q and statements the Company's management may make from time to time contain forward-looking statements. All statements, other than statements of historical fact, that relate to future events or to the Company's future performance are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's or the Company's industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include, among other things, o dependence on the relationship with Intel Corporation and its products; o lower than expected or delayed sales by the Company's customers; o lower than expected or delayed or cancelled design wins with key OEMs; o deliveries of products containing errors, defects or bugs; o dependence on a limited number of suppliers or, in some cases, one supplier for components and equipment used to manufacture products; o competition in the building block markets for internet and communications, electronics assembly and medical equipment, which may lead to lower than expected sales prices for the Company's products or reduced sales volume; o availability of qualified personnel; o business conditions in the general economy and in the markets the Company serves, particularly the communications markets; o political, economic and regulatory risks associated with international operations; o difficulty or inability to meet the Company's obligations to repay indebtedness; o difficulties in integrating acquired businesses and assets, including S-Link; o difficulty implementing restructuring activities; and o those listed under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 and subsequently filed reports. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," "our future success depends," "seek to continue," "its intent," "intends," or the negative of these terms or other comparable terminology. In particular, these statements include, among other things, statements relating to the Company's business strategy, including the Company's acquisition strategy; the development of the Company's products; the Company's ability to identify new products and services; the Company's ability to achieve market acceptance of the Company's products; and the Company's projected financial performance, including revenues, earnings, gross margins, capital expenditures and liquidity. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider the risks outlined above and those listed under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 23 2000 and subsequently filed reports. These risk factors may cause the Company's actual results to differ materially from any forward-looking statement. The Company does not guarantee future results, levels of activity, performance or achievements and does not assume responsibility for the accuracy and completeness of these statements. The Company is under no duty to update any of the forward-looking statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity trading prices, which could impact its results of operations and financial condition. 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 affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to the short duration of the Company's investment portfolio, an immediate 10% change in interest rates would not have a material effect on the fair market value of the portfolio. Therefore, the Company would not expect its operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on its securities portfolio. 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 affected by changes in these or other factors. The Company is also exposed to foreign exchange rate fluctuations as they relate to revenues, operating expenses, and net assets as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. Because 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, 2001 and for the six months ended June 30, 2000 was not material. Equity Price Risk. The Company is exposed to equity price risk due to the equity investments held by the Company. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. Neither a 10% increase nor a 10% decrease in equity prices would have a material effect on the Company's financial position, results of operations, or cash flow, as such investments are recorded on the Company's balance sheet at less than $1 million. 24 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting on May 15, 2001, the holders of the Company's outstanding Common Stock took the actions described below. As of the record date for the Annual Meeting, 17,166,827 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, Jean-Claude Peterschmitt and Carl W. Neun to the Company's Board of Directors, by the votes indicated below, to serve for the ensuing year. Dr. Glenford J. Myers 15,520,888 shares in favor 66,253 shares against or withheld 0 abstentions 0 broker nonvotes James F. Dalton 15,328,144 shares in favor 258,997 shares against or withheld 0 abstentions 0 broker nonvotes Richard J. Faubert 15,477,545 shares in favor 109,596 shares against or withheld 0 abstentions 0 broker nonvotes C. Scott Gibson 15,479,443 shares in favor 107,698 shares against or withheld 0 abstentions 0 broker nonvotes 25 Jean-Pierre D. Patkay 15,519,783 shares in favor 67,358 shares against or withheld 0 abstentions 0 broker nonvotes Jean-Claude Peterschmitt 15,514,777 shares in favor 72,364 shares against or withheld 0 abstentions 0 broker nonvotes Carl W. Neun 15,519,075 shares in favor 68,066 shares against or withheld 0 abstentions 0 broker nonvotes 2. 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 1,250,000 shares to 1,750,000. 15,103,118 shares in favor 447,648 shares against or withheld 36,375 abstentions 0 broker nonvotes Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2.1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among the Company, Drake Merger Sub, Inc. and Microware Systems Corporation. Incorporated by reference to Exhibit (d)(1) to the Tender Offer Statement filed by the Company on Schedule TO dated July 5, 2001, SEC File No. 005-49337. 10.1 1996 Employee Stock Purchase Plan, as amended. 10.2 Executive Severance and Change of Control Agreement dated April 23, 2001 between the Company and Robert Dunne. (b) Reports on Form 8-K None. 26 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 13, 2001 RADISYS CORPORATION By:/s/GLENFORD J. MYERS --------------------------- Glenford J. Myers Chief Executive Officer and President, acting Chief Financial Officer (Authorized officer and Principal Financial Officer) 27 EXHIBIT INDEX Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of June 29, 2001, by and among the Company, Drake Merger Sub, Inc. and Microware Systems Corporation. Incorporated by reference to Exhibit (d)(1) to the Tender Offer Statement filed by the Company on Schedule TO dated July 5, 2001, SEC File No. 005-49337. 10.1 1996 Employee Stock Purchase Plan, as amended. 10.2 Executive Severance and Change of Control Agreement dated April 23, 2001 between the Company and Robert Dunne. 28 EX-10.1 2 r_q106x1.txt 1996 EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.1 RADISYS CORPORATION 1996 EMPLOYEE STOCK PURCHASE PLAN (As Amended through May 15, 2001) 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. 1 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 3 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 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 4 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. 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 5 cash. Participants will be furnished such other reports and statements, and at such intervals, as the Custodian and Plan Administrator shall determine from time to time. VI. PURCHASE OF SHARES Purchase of Shares Subject to the limitations of Section VII, on each Purchase Date in an Offering, the Company shall apply the amount credited to each Participant's Account to the purchase of as many full Shares that may be purchased with such amount at the price set forth in this Section VI, and shall promptly deliver such Shares to the Custodian for deposit into the Participant's Custodial Account. Payment for Shares purchased under the Plan will be made only through payroll withholding deductions in accordance with Section IV. Price The price of Shares to be purchased on any Purchase Date shall be the lower of: (a) Eighty-five percent (85%) of the fair market value of the Shares on the Enrollment Date of the Offering; or (b) Eighty-five percent (85%) of the fair market value of the Shares on the Purchase Date. Fair Market Value 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 6 Upon termination of a Participant's Employment for any reason other than death, the payroll deductions credited to such Participant's Account shall be returned to the Participant. A Participant shall have no right to accrue Shares upon termination of the person's Employment. Termination upon Death Upon termination of the Participant's Employment because of that person's death, the payroll deductions credited to that person's Account shall be used to purchase Shares as provided in Section VI on the next Purchase Date. Any Shares purchased and any remaining balance shall be transferred to the deceased Participant's Beneficiary, or if none, to that person's estate. Designation of Beneficiary 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. 7 (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. VIII. SHARES PURCHASED UNDER THE PLAN Source and Limitation of Shares The Company has reserved for sale under the Plan 1,750,000 shares of common stock, subject to adjustment upon changes in capitalization of the Company as provided in Section X. Shares sold under the Plan may be newly issued Shares or Shares reacquired in private transactions or open market purchases, but all Shares sold under the Plan regardless of source shall be counted against the 1,750,000 Share limitation. If there is an insufficient number of Shares to permit the full exercise of all existing rights to purchase Shares, or if the legal obligations of the Company prohibit the issuance of all Shares purchasable upon the full exercise of such rights, the Plan Administrator shall make a pro rata allocation of the Shares remaining available in as nearly a uniform and equitable manner as possible, based pro rata on the aggregate amounts then credited to each Participant's Account. In such event, payroll deductions to be made shall be reduced accordingly and the Plan Administrator shall give written notice of such reduction to each Participant affected thereby. Any amount remaining in a Participant's Account immediately after all available Shares have been purchased will be promptly remitted to such Participant. Determination by the Plan Administrator in this regard shall be final, binding and conclusive on all persons. No deductions shall be permitted under the Plan at any time when no Shares are available. 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 8 from time to time. The Participant shall have no interest in Shares purchasable under the Plan until payment for the Shares has been completed at the close of business on the relevant Purchase Date. The Plan provides only an unfunded, unsecured promise by the Company to pay money or property in the future. Except with respect to the Shares purchased on a Purchase Date, an Employee choosing to participate in the Plan shall have no greater rights than an unsecured creditor of the Company. After the purchase of Shares, the Participant shall be entitled to all rights of a stockholder of the Company. IX. ADMINISTRATION Plan Administrator At the discretion of the Board of Directors, the Plan shall be administered by the Board of Directors or by a Committee appointed by the Board of Directors. Each member of the Committee shall be either a director, an officer or an Employee of the Company. Each member shall serve for a term commencing on a date specified by the Board of Directors and continuing until that person dies, resigns or is removed by the Board of Directors. Powers The Plan Administrator shall be vested with full authority to make, administer and interpret the rules and regulations as it deems necessary to administer the Plan. Any determination, decision or act of the Plan Administrator with respect to any action in 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 9 Subject to any required action by stockholders, the number of Shares covered by the Plan as provided in Section VIII and the price per Share shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Company resulting from a subdivision or consolidation of Shares or the payment of a stock dividend or any other increase or decrease in the number of such Shares effected without receipt or payment of consideration by the Company. Consolidation or Merger In the event of the consolidation or merger of the Company with or into any other business entity, or sale by the Company of substantially all of its assets, the successor may at its discretion continue the Plan by adopting the same by resolution of its Board of Directors or agreement of its partners or proprietors. If, within 90 days after the effective date of a consolidation, merger, or sale of assets, the successor corporation, partnership or proprietorship does not adopt the Plan, the Plan shall be terminated in accordance with Section XIII. 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. 10 XII. STOCKHOLDER APPROVAL AND RULINGS The Plan is expressly made subject to (a) the approval of the Plan within twelve (12) months after the Plan is adopted by the stockholders of the Company and (b) at the Company's election, to the receipt by the Company from the Internal Revenue Service of a ruling in scope and content satisfactory to counsel to the Company, affirming qualification of the Plan within the meaning of Section 423 of the Code. If the Plan is not so approved by the stockholders within 12 months after the date the Plan is adopted 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 11 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. 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. 12 Registration and Qualification of Shares The offering of Shares hereunder shall be subject to the effecting by the Company of any registration or qualification of the Shares under any federal or state law or the obtaining of the consent or approval of any governmental regulatory body which the Company shall determine, in its sole discretion, is necessary or desirable as a condition to, or in connection with, the offering or the issue or purchase of the Shares covered thereby. The Company shall make every reasonable effort to effect such registration or qualification or to obtain such consent or approval. Responsibility and Indemnity Neither the Company, its Board of Directors, the Custodian, nor any member, officer, agent or employee of any of them, shall be liable to any Participant under the Plan for any mistake of judgment or for any omission or wrongful act unless resulting from gross negligence, willful misconduct or intentional misfeasance. The Company will indemnify and save harmless its Board of Directors, the Custodian and any such member, officer, agent or employee against any claim, loss, liability or expense arising out of the Plan, except such as may result from the gross negligence, willful misconduct or intentional misfeasance of such entity or person. Plan Not a Contract of Employment The Plan is strictly a voluntary undertaking on the part of the Employer and shall not constitute a contract between the Employer and any Employee, or consideration for or an inducement or a condition of employment of an Employee. Except as otherwise required by law, or any applicable collective bargaining agreement, nothing contained in the Plan shall give any Employee the right to be retained in the service of the 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. 13 Notice All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received by the Plan Administrator. Any notice required by the Plan to be received by the Company prior to an Enrollment Date, payroll period or other specified date, and received by the Plan Administrator subsequent to such date shall be effective on the next occurring Enrollment Date, payroll period or other specified date to which such notice applies. Governing Law The Plan shall be interpreted, administered and enforced in accordance with the Code, and the rights of Participants, former Participants, Beneficiaries and all other persons shall be determined in accordance with it. To the extent state law is applicable, the laws of the State of Oregon shall apply. 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 ACCOUNT for a 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 ACCOUNT FORM a 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, 16 Offering shall mean any one of the separate overlapping eighteen (18) 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 DEDUCTION a Participant shall elect to participate in the Plan AUTHORIZATION and the Offering under the Plan and designate the FORM percentage of 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 Shares is to be 17 DATE determined for purposes of setting the price of Shares under Section VI (that is, the Enrollment Date or the applicable Purchase Date). If the Enrollment Date or the Purchase Date is not a date on which the fair market value may be determined in accordance with Section VI, the Valuation Date shall be the first day prior to the Enrollment Date or the Purchase Date, as applicable, for which such fair market value may be determined. VESTED shall mean non-forfeitable. Initial Adoption: December 5, 1995 Last amended: 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) May 15, 2001 (shareholders approved increase in shares in Article VIII to 1,750,000) 18 EX-10.2 3 r_q106x2.txt EXECUTIVE AGREEMENT Exhibit 10.2 EXECUTIVE SEVERANCE AND CHANGE OF CONTROL AGREEMENT April 23, 2001 Robert Dunne Executive 20180 NW Paulina Drive Portland, Oregon 97229 RadiSys Corporation an Oregon corporation 5445 NE Dawson Creek Parkway Hillsboro , Oregon 97124 the Company 1. Employment Relationship. Executive is currently employed by the Company as Vice President Sales. Executive and the Company acknowledge that either party may terminate this employment relationship at any time and for any or no reason, provided that each party complies with the terms of this Agreement. 2. Release of Claims. In consideration for and as a condition precedent to receiving the severance benefits outlined in this Agreement, Executive agrees to execute a Release of Claims in the form attached as Exhibit A ("Release of Claims"). Executive promises to execute and deliver the Release of Claims to the Company within the later of (a) 45 days from the date Executive receives the Release of Claims or (b) the last day of Executive's active employment. 3. Additional Compensation Upon Certain Termination Events. 3.1 General. In the event of a Termination of Executive's Employment (as defined in Section 6.1 of this Agreement) other than for Cause (as defined in Section 6.2 of this Agreement), death, or Disability (as defined in Section 6.3 of this Agreement), or in the circumstances described in Section 3.2, and contingent upon Executive's execution of the Release of Claims and compliance with Section 8, as severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment after employment has ended and eight days have passed following execution of the Release of Claims without revocation, an amount in cash equal to $225,000 (Two Hundred Twenty Five Thousand Dollars). 3.2. Change of Control. In the event of a Termination of Executive's Employment (as defined in Section 6.1) other than for Cause (as defined in Section 6.2), death or Disability (as defined in Section 6.4), within 12 months following a Change of Control (as defined in Section 6.3 of this Agreement) or within three months preceding a Change of Control, and contingent upon Executive's execution of the Release of Claims without revocation, and compliance with Section 8, Executive shall be entitled to the following benefits: 1 (a) As severance pay and in lieu of any other compensation for periods subsequent to the date of termination, the Company shall pay Executive, in a single payment after employment has ended and eight days have passed following execution of the Release of Claims without revocation, an amount in cash equal to 12 months of Executive's annual base pay at the rate in effect immediately prior to the date of termination. (b) Executive is entitled to extend coverage under any group health plan in which Executive and Executive's dependents are enrolled at the time of termination of employment under the COBRA continuation laws for the 18-month statutory period, or so long as Executive remains eligible under COBRA. The Company will pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of 12 months under the COBRA continuation laws Executive's group health and dental plan coverage in effect at the time of termination. Executive may use this payment, as well as any payment made under Section 3.1(a), for such COBRA continuation coverage or for any other purpose. (c) All stock options granted to the Executive under the Company's 1995 Stock Incentive Plan or any other equity plan shall become immediately exercisable in full in accordance with the applicable provisions of the relevant option agreement and plan, and such stock options that are not Incentive Stock Options under the Internal Revenue Code or 1986, as amended, shall also be amended to permit the Executive to exercise such stock options for a period of 90 days after the effective date of the Executive's termination. 3.3 Notwithstanding the foregoing, if the total payments and benefits to be paid to or for the benefit of Executive under this Agreement would cause any portion of those payments and benefits to be "parachute payments" as defined in section 280G(b)(2) of the Internal Revenue Code of 1986, as amended, or any successor provision, the total payments and benefits to be paid to or for the benefit of Executive under this Agreement shall be reduced to an amount that would not cause any portion of those payments and benefits to constitute "parachute payments." 4. Withholding; Subsequent Employment. 4.1 Withholding. All payments provided for in this Agreement are subject to applicable withholding obligations imposed by federal, state and local laws and regulations. 4.2 Offset. The amount of any payment provided for in this Agreement shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by Executive as the result of employment by another employer after termination. 5. Other Agreements. If that severance benefits are payable to Executive under any other agreement with the Company in effect at the time of termination (including but not limited to any employment agreement, but excluding for this purpose any stock option agreement that may provide for accelerated vesting or related benefits upon the occurrence of a change in control), the benefits provided in this Agreement shall not be payable to Executive. Executive may, however, elect to receive all of the benefits provided for in this Agreement in lieu of all of 2 the benefits provided in all such other agreements. Any such election shall be made with respect to the agreements as a whole, and Executive cannot select some benefits from one agreement and other benefits from this Agreement. 6. Definitions. 6.1 Termination of Executive's Employment. Termination of Executive's Employment means that the Company has terminated Executive's employment with the Company (including any subsidiary of the Company). Termination of Executive's Employment shall also include termination by Executive by written notice to the Company also for "Good Reason" based on: (a) a significant reduction by the Company or the surviving company in Executive's base pay as in effect immediately prior to the Change of Control, other than a salary reduction that is part of a general salary reduction affecting employees generally: (b) a significant reduction by the Company or the surviving company in total benefits available to Executive under cash incentive, stock incentive and other employee benefit plans after the Change of Control compared to the total package of such benefits as in effect prior to the Change of Control; (c) The Company or the surviving company requires Executive to be based more than 50 miles from where Executive's office is located immediately prior to the Change of Control except for required travel on company business to an extent substantially consistent with the business travel obligations which Executive undertook on behalf of the Company prior to the Change of Control; or (d) The assignment of Executive to a different title, job or responsibilities that results in a material decrease in the level of responsibility of Executive with respect to the surviving company after the Change of Control when compared to Executive's level of responsibility for the Company's operations prior to the Change of Control; provided, that Good Reason shall not exist if Executive continues to have substantially the same or a greater general level of responsibility with respect to the former operations of the Company after the Change of Control as Executive had prior to the Change of Control even if the former such operations are a subsidiary or division of the surviving company. 6.2 Cause. Termination of Executive's Employment for "Cause" shall mean termination upon (a) the willful and continued failure by Executive to perform substantially 3 Executive's reasonably assigned duties with the Company (other than any such failure resulting from Executive's incapacity due to physical or mental illness) after a demand for substantial performance is delivered to Executive by the Board of Directors, the Chief Executive Officer or the President of the Company which specifically identifies the manner in which the Board of Directors or the Company believes that Executive has not substantially performed Executive's duties or (b) the willful engaging by Executive in illegal conduct which is materially and demonstrably injurious to the Company. No act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive without reasonable belief that Executive's action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors shall be conclusively presumed to be done, or omitted to be done, by Executive in the best interests of the Company. 6.3 Change of Control. A Change of Control shall mean that one of the following events has taken place: (a) The shareholders of the Company approve one of the following: (i) Any merger or statutory plan of exchange involving the Company ("Merger") in which the Company is not the continuing or surviving corporation or pursuant to which Common Stock would be converted into cash, securities or other property, other than a Merger involving the Company in which the holders of Common Stock immediately prior to the Merger continue to represent more than 50 percent of the voting securities of the surviving corporation after the Merger; or (ii) Any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company. (b) A tender or exchange offer, other than one made by the Company, is made for Common Stock (or securities convertible into Common Stock) and such offer results in a portion of those securities being purchased and the offeror after the consummation of the offer is the beneficial owner (as determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities representing more than 50 percent of the voting power of outstanding securities of the Company. (c) The Company receives a report on Schedule 13D of the Exchange Act reporting the beneficial ownership by any person of securities representing more than 50 percent of the voting power of outstanding securities of the Company, except that if such 4 receipt shall occur during a tender offer or exchange offer described in (b) above, a Change of Control shall not take place until the conclusion of such offer. Notwithstanding anything in the foregoing to the contrary, no Change of Control shall be deemed to have occurred for purposes of this Agreement by virtue of any transaction which results in Executive, or a group of persons which includes Executive, acquiring, directly or indirectly, securities representing 20 percent or more of the voting power of outstanding securities of the Company. 6.4 Disability. "Disability" means Executive's absence from Executive's full-time duties with the Company for 180 consecutive days as a result of Executive's incapacity due to physical or mental illness, unless within 30 days after notice of termination by the Company following such absence Executive shall have returned to the full-time performance of Executive's duties. This Agreement does not apply if the Executive is terminated due to Disability. 7. Successors; Binding Agreement. This Agreement shall be binding on and inure to the benefit of the Company and its successors and assigns. This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's legal representatives, executors, administrators and heirs. 8. Resignation of Corporate Offices; Reasonable Assistance. Executive will resign Executive's office, if any, as a director, officer or trustee of the Company, its subsidiaries or affiliates and of any other corporation or trust of which Executive serves as such at the request of the Company, effective as of the date of termination of employment. Executive further agrees that, if requested by the Company or the surviving company following a Change of Control, Executive will continue his employment with the Company or the surviving company for a period of up to six months following the Change of Control in any capacity requested, consistent with Executive's area of expertise, provided that the Executive receives the same salary and substantially the same benefits as in effect prior to the Change of Control. Executive agrees to provide the Company such written resignation(s) and assistance upon request and that no severance will be paid until after such resignation(s) or services are provided. 9. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon 10. Amendment. No provision of this Agreement may be modified unless such modification is agreed to in a writing signed by Executive and the Company. 5 11. Severability. If any of the provisions or terms of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other terms of this Agreement, and this Agreement shall be construed as if such unenforceable term had never been contained in this Agreement. RADISYS CORPORATION EXECUTIVE By: /s/ Glenford J. Myers /s/ Robert Dunne ----------------------------------------- --------------------------- Glenford J. Myers Robert Dunne Chief Executive Officer and President 6 EXHIBIT A RELEASE OF CLAIMS 1. Parties. The parties to Release of Claims (hereinafter "Release") are _____________ and RadiSys Corporation, an Oregon corporation, as hereinafter defined. 1.1 Executive. For the purposes of this Release, "Executive" means _____________________ and his or her attorneys, heirs, executors, administrators, assigns, and spouse. 1.2 The Company. For purposes of this Release the "Company" means RadiSys Corporation, an Oregon corporation, its predecessors and successors, corporate affiliates, and all of each corporation's officers, directors, employees, insurers, agents, or assigns, in their individual and representative capacities. 2. Background And Purpose. Executive was employed by Company. Executive's employment is ending effective __________ under the conditions described in Section 3.1 of the Executive Severance Agreement ("Agreement"). The purpose of this Release is to settle, and the parties hereby settle, fully and finally, any and all claims Executive may have against Company, whether asserted or not, known or unknown, including, but not limited to, claims arising out of or related to Executive's employment, any claim for reemployment, or any other claims whether asserted or not, known or unknown, past or future, that relate to Executive's employment, reemployment, or application for reemployment. 3. Release. Executive waives, acquits and forever discharges Company from any obligations Company has and all claims Executive may have including but not limited to obligations and/or claims arising from the Agreement or any other document or oral agreement relating to employment compensation, benefits, severance or post-employment issues. Executive hereby releases Company from any and all claims, demands, actions, or causes of action, whether known or unknown, arising from or related in any way to any employment of or past or future failure or refusal to employ Executive by Company, or any other past or future claim (except as reserved by this Release or where expressly prohibited by law) that relates in any way to Executive's employment, compensation, benefits, reemployment, or application for employment, A-1 with the exception of any claim Executive may have against Company for enforcement of this Release. This release includes any and all claims, direct or indirect, which might otherwise be made under any applicable local, state or federal authority, including but not limited to any claim arising under state statutes dealing with employment, discrimination in employment, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Family and Medical Leave Act of 1993, the Equal Pay Act of 1963, Executive Order 11246, the Rehabilitation Act of 1973, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Age Discrimination in Employment Act, the Fair Labor Standards Act, state wage and hour statutes, all as amended, any regulations under such authorities, and any applicable contract, tort, or common law theories. 3.1 Reservations Of Rights. This Release shall not affect any rights which Executive may have under any medical insurance, disability plan, workers' compensation, unemployment compensation, indemnifications, applicable company stock incentive plan(s), or the 401(k) plan maintained by the Company. 3.2 No Admission Of Liability. It is understood and agreed that the acts done and evidenced hereby and the release granted hereunder is not an admission of liability on the part of Executive or Company, by whom liability has been and is expressly denied. 4. Consideration To Executive. After receipt of this Release signed by Executive, and the expiration of the seven-day revocation period provided by the Older Workers Benefit Protection Act without Executive's revocation, Company shall pay the Executive the severance benefits as provided in Section 3 of the Agreement. 5. No Disparagement. Executive agrees that henceforth Executive will not disparage or make false or adverse statements about Company. The Company should report to Executive any actions or statements that are attributed to Executive that the Company believes are disparaging. The Company may take actions consistent with breach of this Release should it determine that Executive has disparaged or made false or adverse statements about Company. The Company agrees to follow the applicable policy(ies) regarding release of employment reference information. A-2 6. Confidentiality, Proprietary, Trade Secret And Related Information Executive acknowledges the duty and agrees not to make unauthorized use or disclosure of any confidential, proprietary or trade secret information learned as an employee about Company, its products, customers and suppliers, and covenants not to breach that duty. Moreover, Executive acknowledges that, subject to the enforcement limitations of applicable law, the Company reserves the right to enforce the terms of Executive's Employee Agreement with Company and any paragraph(s) therein. Should Executive, Executive's attorney or agents be requested in any judicial, administrative, or other proceeding to disclose confidential, proprietary or trade secret information Executive learned as an employee of Company, Executive shall promptly notify the Company of such request by the most expeditious means in order to enable the Company to take any reasonable and appropriate action to limit such disclosure. 7. Scope Of Release. The provisions of this Release shall be deemed to obligate, extend to, and inure to the benefit of the parties; Company's parents, subsidiaries, affiliates, successors, predecessors, assigns, directors, officers, and employees; and each parties insurers, transferees, grantees, legatees, agents and heirs, including those who may assume any and all of the above-described capacities subsequent to the execution and effective date of this Release. 8. Opportunity For Advice Of Counsel. Executive acknowledges that Executive has been encouraged to seek advice of counsel with respect to this Release and has had the opportunity to do so. 9. Entire Release. This Release and the Agreement signed by Executive contain the entire agreement and understanding between the parties and, except as reserved in paragraph 3, supersede and replace all prior agreements, written or oral, prior negotiations and proposed agreements, written or oral. Executive and Company acknowledge that no other party, nor agent nor attorney of any other party, has made any promise, representation, or warranty, express or implied, not contained in this Release concerning the subject matter of this Release to induce this Release, and Executive and Company acknowledge that they have not executed this Release in reliance upon any such promise, representation, or warranty not contained in this Release. A-3 10. Severability. Every provision of this Release is intended to be severable. In the event any term or provision of this Release is declared to be illegal or invalid for any reason whatsoever by a court of competent jurisdiction or by final and unappealed order of an administrative agency of competent jurisdiction, such illegality or invalidity should not affect the balance of the terms and provisions of this Release, which terms and provisions shall remain binding and enforceable. 11. Parties May Enforce Release. Nothing in this Release shall operate to release or discharge any parties to this Release or their successors, assigns, legatees, heirs, or personal representatives from any rights, claims, or causes of action arising out of, relating to, or connected with a breach of any obligation of any party contained in this Release . 12. Costs And Attorney's Fees. In the event of any administrative or civil action to enforce the provisions of this Release, the Company shall pay Executive's reasonable attorneys' fees through trial and/or on appeal. 13, Acknowledgment. Executive acknowledges that the Release provides severance pay and benefits which the Company would otherwise have no obligation to provide. A-4 14. Revocation. As provided by the Older Workers Benefit Protection Act, Executive is entitled to have forty-five (45) days to consider this Release. For a period of seven (7) days from execution of this Release, Executive may revoke this Release. Upon receipt of Executive's signed Release and the end of the revocation period, payment by Company as described in paragraph 4 above will be forwarded by mail in a timely manner as provided herein. ____________________________________ Dated: __________ _____, ______ [Name of Executive] STATE OF OREGON ) ) ss. County of _______________) Personally appeared the above named and acknowledged the foregoing instrument to be his or her voluntary act and deed. Before me: ------------------------------------ Notary Public for ------------------ My commission expires: ------------ COMPANY By:____________________________________ Dated:________________ Its:___________________________________ On Behalf of "Company" A-5 -----END PRIVACY-ENHANCED MESSAGE-----