<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-12417
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
RADIUS INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3577 68-0101300
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
-----------------------
-----------------------
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 541-6100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------------------
-----------------------
CHARLES W. BERGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 541-6100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------
COPIES TO:
EDWIN N. LOWE, ESQ.
JEFFREY R. VETTER, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE, SUITE 800
PALO ALTO, CALIFORNIA 94306
(415) 494-0600
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM
TIME TO TIME FOR A PERIOD OF TWO YEARS AFTER THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT OR UNTIL THE EARLIER OF SALE OF ALL SHARES REGISTERED
HEREUNDER.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of earlier effective registration statement for
the same offering. / /
----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BE REGISTERED REGISTERED OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK 36,372,198 SHARES $1.344 (1) $48,884,234.11 (1) $16,856.63
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES A CONVERTIBLE PREFERRED
STOCK 750,000 SHARES
COMMON STOCK ISSUABLE
UPON CONVERSION OF
SERIES A CONVERTIBLE PREFERRED
STOCK (3) 6,075,333 SHARES $1.344 (2) $8,165,247.55 (2) $2,815.60
- ------------------------------------------------------------------------------------------------------------------------------------
WARRANTS TO PURCHASE COMMON STOCK 600,000 WARRANTS
COMMON STOCK ISSUABLE UPON
EXERCISE OF WARRANTS (4) 600,000 SHARES $1.00 (2) $600,000 (2) $206.90 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (5) $600,000 (2) $206.90
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (6) 11,046,060 SHARES $1.344 (7) $14,845,904.64 (7) $5,119.28
- -----------------------------------------------------------------------------------------------------------------------------------
WARRANTS TO PURCHASE COMMON STOCK 200,000 WARRANTS
COMMON STOCK ISSUABLE UPON
EXERCISE OF WARRANTS (4) 200,000 SHARES $1.00 (8) $200,000 (8) $60.61 (8)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $73,295,386.30 $25,265.92
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated and previously paid pursuant to Rule 457(c) solely for the
purpose of calculating the amount of the registration fee.
(2) Calculated and previously paid pursuant to Rule 457(i) for the purpose
of calculating the amount of the registration fee.
(3) Represents the maximum number of shares of Common Stock issuable upon
conversion of the Company's Series A Convertible Preferred Stock. Also
includes an indeterminate number of additional shares of Common Stock which
may become issuable pursuant to the anti-dilution provisions of the Series
A Convertible Preferred Stock.
(4) Also includes an indeterminate number of additional shares of Common Stock
which may become issuable pursuant to the anti-dilution provisions of the
Warrants.
(5) Represents shares of Common Stock which may be issued in lieu of cash
dividends on the Series A Convertible Preferred Stock for the next two
years.
(6) Represents shares of Common Stock issuable pursuant to Rights.
(7) Calculated pursuant to Rule 457(f) solely for the purpose of calculating
the registration fee.
(8) Calculated pusuant to Rule 457(i) for the purpose of calculating the
registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 12, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
RADIUS INC.
------------------
SHARES OF COMMON STOCK HAVING AN AGGREGATE MARKET PRICE OF $600,000
------------------
750,000 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
800,000 WARRANTS TO PURCHASE COMMON STOCK
54,293,591 SHARES OF COMMON STOCK
-----------------
RADIUS INC., (THE "COMPANY" OR "RADIUS") IS OFFERING A NUMBER OF SHARES
OF COMMON STOCK HAVING A FAIR MARKET VALUE OF $600,000 FOR THE PAYMENT OF
DIVIDENDS IN SHARES OF COMMON STOCK ON THE COMPANY'S SERIES A CONVERTIBLE
PREFERRED STOCK. THESE SHARES OF COMMON STOCK ARE BEING OFFERED IN THE EVENT
THAT THE COMPANY ELECTS TO PAY ALL OF ITS DIVIDEND OBLIGATIONS ON THE SERIES
A CONVERTIBLE PREFERRED STOCK FOR THE NEXT TWO YEARS IN SHARES OF ITS COMMON
STOCK INSTEAD OF CASH. SEE "DESCRIPTION OF CAPITAL STOCK -- PREFERRED STOCK
- -- SERIES A CONVERTIBLE PREFERRED STOCK" AND "PLAN OF DISTRIBUTION." SUCH
SHARES OF COMMON STOCK ARE BEING OFFERED ON A CONTINUOUS BASIS PURSUANT TO
RULE 415 ("RULE 415") UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") DURING A PERIOD WHICH WILL BE TWO YEARS IN LENGTH. SEE "PLAN OF
DISTRIBUTION."
THE REMAINING 54,293,591 SHARES OF COMMON STOCK, 750,000 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK AND 800,000 WARRANTS TO PURCHASE COMMON
STOCK (THE "WARRANTS") ARE BEING OFFERED BY THE SELLING SECURITYHOLDERS. OF
THE SHARES OF COMMON STOCK BEING OFFERED BY THE SELLING SECURITYHOLDERS, UP
TO 6,075,333 SHARES ARE BEING OFFERED UPON CONVERSION OF THE SERIES A
CONVERTIBLE PREFERRED STOCK, 800,000 SHARES ARE BEING OFFERED UPON EXERCISE
OF THE WARRANTS AND 11,046,060 SHARES ARE BEING OFFERED UPON ISSUANCE
PURSUANT TO THE TERMS OF CERTAIN RIGHTS ("RIGHTS") PREVIOUSLY ISSUED TO THE
COMPANY'S UNSECURED CREDITORS. SUCH SHARES ARE ALSO BEING OFFERED ON A
CONTINUOUS BASIS PURSUANT TO RULE 415, DURING A PERIOD WHICH WILL ALSO BE TWO
YEARS IN LENGTH. SEE "PRINCIPAL AND SELLING SECURITYHOLDERS" AND "PLAN OF
DISTRIBUTION."
DIVIDENDS ON THE SERIES A CONVERTIBLE PREFERRED STOCK ARE CUMULATIVE FROM
THE DATE OF ISSUANCE AT A RATE OF 10% PER ANNUM AND ARE PAYABLE ON A QUARTERLY
BASIS AND ARE PAYABLE IN CASH OR IN SHARES OF THE COMPANY'S COMMON STOCK AT THE
COMPANY'S DISCRETION. THE SERIES A CONVERTIBLE PREFERRED STOCK WILL BE
CONVERTIBLE INTO AN AGGREGATE OF 5,523,030 SHARES OF COMMON STOCK OF THE
COMPANY, OR, IN CERTAIN CIRCUMSTANCES, 6,075,333 SHARES OF COMMON STOCK. THE
SERIES A CONVERTIBLE PREFERRED STOCK WILL BE REDEEMABLE AT THE OPTION OF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF SERIES A CONVERTIBLE
PREFERRED STOCK AT AN AGGREGATE REDEMPTION PRICE OF $3.0 MILLION PLUS ACCRUED
BUT UNPAID DIVIDENDS (THE "LIQUIDATION PRICE") UPON THE OCCURRENCE OF CERTAIN
EVENTS. THE SERIES A CONVERTIBLE PREFERRED STOCK WILL BE REDEEMABLE AT THE
OPTION OF RADIUS AT A PREMIUM UPON THE OCCURRENCE OF CERTAIN EVENTS. IN
ADDITION, THE SERIES A CONVERTIBLE PREFERRED STOCK WILL BE AUTOMATICALLY
CONVERTIBLE INTO SHARES OF COMMON STOCK UPON THE OCCURRENCE OF CERTAIN EVENTS.
SEE "DESCRIPTION OF CAPITAL STOCK -- PREFERRED STOCK -- SERIES A CONVERTIBLE
PREFERRED STOCK."
EACH WARRANT ENTITLES THE HOLDER TO PURCHASE ONE SHARE OF COMMON STOCK OF
THE COMPANY, AT AN EXERCISE PRICE EQUAL TO $1.00, SUBJECT TO ADJUSTMENT IN
CERTAIN CIRCUMSTANCES, AT ANY TIME. EACH WARRANT IS EXERCISABLE FOR A PERIOD OF
FOUR YEARS. SEE "DESCRIPTION OF CAPITAL STOCK -- WARRANTS."
NO UNDERWRITING DISCOUNTS OR COMMISSIONS OR EXPENSES ARE PAYABLE OR
APPLICABLE IN CONNECTION WITH THE SALE OF SUCH SECURITIES.
THE COMMON STOCK OF THE COMPANY IS QUOTED ON THE NASDAQ SMALLCAP MARKET
(THE "NASDAQ SMALLCAP MARKET") UNDER THE SYMBOL "RDUS." THE SHARES OF COMMON
STOCK OFFERED HEREBY BY THE SELLING SECURITYHOLDERS WILL BE SOLD FROM TIME TO
TIME AT THEN PREVAILING MARKET PRICES, AT PRICES RELATING TO PREVAILING MARKET
PRICES OR AT NEGOTIATED PRICES. THERE IS CURRENTLY NO PUBLIC MARKET FOR THE
SERIES A CONVERTIBLE PREFERRED STOCK OR THE WARRANTS AND THERE CAN BE NO
ASSURANCE THAT A PUBLIC MARKET FOR SUCH SECURITIES WILL EVER DEVELOP. THE
COMPANY DOES NOT INTEND TO APPLY TO HAVE SUCH SECURITIES LISTED ON ANY NATIONAL
SECURITIES EXCHANGE, THE NASDAQ NATIONAL MARKET SYSTEM OR THE NASDAQ SMALLCAP
MARKET. SEE "RISK FACTORS -- LACK OF PUBLIC MARKET FOR SERIES A CONVERTIBLE
PREFERRED STOCK AND WARRANTS." ON NOVEMBER 7, 1996, THE CLOSING PRICE OF THE
COMMON STOCK ON THE NASDAQ SMALLCAP MARKET WAS $1 7/16.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH A PURCHASE OF THE SECURITIES OFFERED
HEREBY.
-------------------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO THE UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1)(2) SECURITYHOLDERS(2)(3)
------ -------- ------------- ---------------------
<S> <C> <C> <C> <C>
PER SHARE OF COMMON STOCK OFFERED
BY THE SELLING SECURITYHOLDERS SEE TEXT ABOVE NONE SEE TEXT ABOVE SEE TEXT ABOVE
PER SHARE OF COMMON STOCK OFFERED BY THE COMPANY SEE TEXT ABOVE NONE SEE TEXT ABOVE SEE TEXT ABOVE
PER SHARE OF SERIES A CONVERTIBLE PREFERRED
STOCK OFFERED BY THE SELLING SECURITYHOLDERS
SEE TEXT ABOVE NONE SEE TEXT ABOVE SEE TEXT ABOVE
PER WARRANT OFFERED BY THE SELLING SECURITYHOLDERS SEE TEXT ABOVE NONE SEE TEXT ABOVE SEE TEXT ABOVE
TOTAL
- --------------
</TABLE>
(1) THE COMPANY WILL NOT RECEIVE ANY CASH PROCEEDS FROM THE ISSUANCE OF THE
SECURITIES OFFERED BY THE COMPANY HEREBY. RATHER, THE COMMON STOCK OFFERED
BY THE COMPANY HEREBY MAY BE ISSUED AS PAYMENT OF CERTAIN DIVIDEND
OBLIGATIONS ON THE SERIES A CONVERTIBLE PREFERRED STOCK. SEE "PLAN OF
DISTRIBUTION."
(2) THE COMPANY WILL PAY AGGREGATE EXPENSES OF REGISTRATION ESTIMATED AT
$250,000.
(3) THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SECURITIES
OFFERED HEREBY BY THE SELLING SECURITYHOLDERS.
THE DATE OF THIS PROSPECTUS IS NOVEMBER __, 1996.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
also be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of the
Commission's World Wide Web site is http://www.sec.gov. The Company's Common
Stock is quoted for trading on the Nasdaq SmallCap Market and reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected, without
charge, at the offices of the Commission in Washington, D.C. and copies of all
or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon the payment of the fees prescribed by
the Commission.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
3
<PAGE>
PROSPECTUS SUMMARY
THE OFFERING
Securities Offered by the Company. . . . . . . . Shares of Common Stock, having
an aggregate market value of
$600,000 which may be issued
in lieu of the Company's
obligation to pay an aggregate
of $600,000 in cash dividends
payable on the Series A
Convertible Preferred Stock
for the next two years.
Securities Offered by the Selling
Securityholders. . . . . . . . . . . . . . . . . 54,293,591 shares of Common
Stock, 750,000 shares of
Series A Convertible Preferred
Stock and 800,000 Warrants to
purchase Common Stock.
Common Stock outstanding after the Offering. . . 72,819,490 shares (1)
Use of Proceeds. . . . . . . . . . . . . . . . . The Company may issue shares
of Common Stock with an
aggregate market value of
$600,000 in lieu of its
obligation to pay $600,000 in
cash dividends on the Series A
Convertible Preferred Stock.
The Company will not receive
any of the proceeds from the
sale of securities by the
Selling Securityholders. The
Company will bear estimated
expenses of registration of
approximately $250,000. See
"Plan of Distribution."
Nasdaq SmallCap Market symbol. . . . . . . . . . RDUS
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 (2), JUNE 30 (2),
-------------------------------------------------------------- ------------------
1995 1994(3) 1993(3) 1992(3) 1991(3) 1996 1995
---- ------- ------- ------- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales. . . . . . . . . . . . $308,133 $324,805 $337,373 $284,598 $199,033 $83,261 $251,007
Income (loss) from operations. . (104,182) (80,830) (34,583) 20,483 9,485 (11,585) 3,620
Net income (loss). . . . . . . . (131,742) (77,475) (20,139) 13,032 6,204 8,849 (13,857)
Net income (loss) per share. . . (8.75) (5.70) (1.56) 1.04 0.54 0.49 (0.96)
Shares used to compute income
(loss) per share . . . . . . 15,049 13,598 12,905 12,485 11,473 17,950 14,386
<CAPTION>
JUNE 30, 1996 (2)
-------------------
<S> <C>
BALANCE SHEET DATA:
Working capital (working capital deficiency) . . . . . . . . $(49,183)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 43,878
Current Liabilities. . . . . . . . . . . . . . . . . . . . . 91,444
Shareholders' equity (net capital deficiency). . . . . . . . (47,887)
</TABLE>
- -----------------------------------
(1) Based on shares outstanding as of October 31, 1996. Excludes (i) 1,195,124
shares of Common Stock issuable upon the exercise of options outstanding
under the Company's Stock Option Plans at a weighted average exercise price
of $4.34 per share, (ii) 1,818,103 shares of Common Stock reserved for
issuance under the Company's Stock Option Plans and Employee Stock Purchase
Plan, and (iii) approximately 4,706,668 shares to be reserved for issuance
under the Company's 1996 Stock Option Plan (the "1996 Plan") which the
Company intends to adopt in the near future (until conversion of the Series
A Convertible Preferred Stock into Common Stock, 2,865,658 shares will be
reserved for issuance pursuant to the 1996 Plan). Assumes that (i) all
dividends on the Series A Convertible Preferred Stock will be paid in
shares of Common Stock based upon a per share price of $1 11/32, the last
reported sales price of the Company's Common Stock on the Nasdaq SmallCap
Market on September 16, 1996, (ii) 6,075,333 shares of Common Stock, the
maximum number of shares issuable upon conversion of the Series A
Convertible Preferred Stock, will be issued, (this amount of shares is only
issuable in the event that the trading price of the Common Stock exceeds
certain levels and the Series A Convertible Preferred Stock is not
otherwise redeemed. Otherwise the Series A Preferred Stock is convertible
into an aggregate of 5,523,030 shares of Common Stock) and (iii) all
800,000 shares of Common Stock issuable upon exercise of Warrants are
issued. See "Description of Capital Stock -- Preferred Stock -- Series A
Convertible Preferred Stock" and "-- Warrants."
(2) The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end
from the Sunday closest to September 30 to the Saturday closest to
September 30 for operational efficiency purposes. For clarity of
presentation, all fiscal periods are reported as ending on a calendar month
end.
(3) These periods have been restated to reflect the Merger of Radius and
SuperMac Technology, Inc. ("SuperMac") in fiscal 1994 which has been
accounted for as a pooling of interests. See Note 10 of Notes to the
Consolidated Financial Statements. The consolidated financial statements
for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year
basis and SuperMac's on a December 31 calendar year basis.
4
<PAGE>
THE COMPANY
Radius Inc. (the "Company" or "Radius") designs, develops, markets and
supports color publishing and digital video computer products for leading edge
computer users in the publishing, video and education markets. The Company's
current product line includes: accelerated color graphics products that
facilitate the creation and manipulation of graphical images; video systems and
software that can acquire and manipulate video and audio information; and high
resolution color reference displays that allow users to view text, graphics,
images and video.
The primary target markets for the Company's products are color publishing
and multimedia. These markets encompass creative professionals involved in such
areas as color prepress, graphic arts, video editing, video and multimedia
production and playback, and corporate training.
To date substantially all of the Company's products have been designed for
and sold to users of Macintosh computer products (the "Macintosh") manufactured
by Apple Computer, Inc. ("Apple") as Apple products have been the preferred
platform in the Company's target markets.
As shown in the accompanying consolidated financial statements, the Company
has incurred substantial operating losses and until recently, had a deficiency
in assets and working capital. Management has implemented a number of actions
to address this situation including: refocusing its efforts on providing
solutions for high end digital video and graphics customers; discontinuing sales
of mass market and other low value added products; divesting its color server
and monochrome display businesses and its MacOS compatible systems product line;
significantly reducing expenses and headcount; subleasing all or a portion of
its current facility given its reduced occupancy requirements; and investigating
various strategic partnering opportunities. See "Risk Factors -- Continuing
Operating Losses, Going Concern Considerations."
Immediately prior to the consummation of the debt for equity exchange
described under "Recent Developments--Debt for Equity Exchange," the Company had
approximately 18,147,099 shares of Common Stock outstanding. As a result of the
consummation of the Plan described below, an additional 36,294,198 shares of
Common Stock were issued to creditors of the Company, as well as Warrants to
purchase 800,000 shares of Common Stock and 750,000 shares of Series A
Convertible Preferred Stock convertible into up to an aggregate of 6,075,333
shares of Common Stock. In the event that the Series A Convertible Preferred
Stock is converted into Common Stock, up to an additional 11,046,060 shares of
Common Stock will be issued pursuant to the Rights and an additional 1,841,010
shares of Common Stock will be reserved for issuance pursuant to the Company's
Stock Option Plans. Upon the effectiveness of the Registration Statement of
which this Prospectus forms a part, such shares of Common Stock will generally
be freely tradeable. Such issuances and tradability of these shares could have a
materially adverse impact on the trading price of the Common Stock. See "Risk
Factors--Volatility for Stock Price" and "--Shares Eligible for Future Sale."
The Company's executive offices are located at 215 Moffett Park Drive,
Sunnyvale, CA 94089, and its telephone number is (408) 541-6100.
RECENT DEVELOPMENTS
DEBT FOR EQUITY EXCHANGE
As of June 30, 1996, the Company had total assets of approximately $43.9
million and total current liabilities of approximately $91.4 million. The
Company was also delinquent in its accounts payable as payments to certain
vendors were not being made in accordance with vendor terms. As of June 30,
1996, the Company had outstanding accounts payable, short-term borrowings and
current portions of obligations under capital leases of approximately $62.2
million, of which approximately $38.0 million was outstanding under accounts
payable, approximately $22.9 million represented short-term borrowings and
approximately $1.3 million represented current portions of obligations under
capital leases. Several vendors had initiated legal action to collect allegedly
delinquent accounts and at least two vendors had orally threatened the Company
with initiation of insolvency or bankruptcy proceedings.
As a result, the Company established an unofficial unsecured creditors
committee (the "Unofficial Creditors Committee") consisting of eight of its
larger unsecured creditors (the "Committee Members") in an effort to resolve
the delinquent accounts payable, capital deficiency and creditor litigation
issues outside of insolvency or bankruptcy proceedings.
5
<PAGE>
The Company sought to resolve these claims outside of bankruptcy or insolvency
proceedings in order to avoid the significant costs and uncertainties that would
arise in such proceedings, including the likely demoralization of employees,
customers and distributors.
The Company, the Unofficial Creditors Committee and the Company's
secured creditor, IBM Credit Corporation ("IBM Credit"), agreed to a plan
(the "Plan") pursuant to which creditors received equity in the Company in
satisfaction of all or a portion of their claims. Pursuant to the Plan, IBM
Credit, the Company's secured creditor, received Series A Convertible
Preferred Stock in satisfaction of $3.0 million of the Company's
approximately $26.4 million secured indebtedness to IBM Credit and in
consideration of restructuring its loan with the Company, including extension
by IBM Credit of an additional advance of approximately $470,000 for making
Discount Payments (defined below). The Company's unsecured creditors with
claims of approximately $47.8 million (including a $1.0 million reserve for
unknown or unresolved claims) received either shares of Common Stock or, in
the case of certain creditors most of which had claims of less than $50,000
("Convenience Class Creditors"), a discounted cash payment (approximately
$470,000 in the aggregate) in satisfaction of claims of approximately $1.9
million. The Company also issued Warrants to purchase 600,000 shares of
Common Stock to IBM Credit and Warrants to purchase 200,000 shares of Common
Stock to Mitsubishi Electronics America, Inc. ("Mitsubishi Electronics").
While the issuance of the Series A Convertible Preferred Stock, the Common
Stock and the Warrants did not require the approval of the Company's
shareholders, an increase in the authorized number of shares of Common Stock,
which was necessary to implement this Plan, required shareholder approval,
which approval was obtained at a special meeting of shareholders on August
27, 1996.
Pursuant to the Plan, unsecured creditors received 36,294,198 shares of
Common Stock, or 60% of the outstanding Common Stock of the Company after
consummation of the Plan (including 791,280 shares issued to the Radius
Creditors Trust for the purpose of satisfying a portion of any unknown or
unresolved claims). The Company's secured creditor, IBM Credit, received
750,000 shares of Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock is convertible into an aggregate of 5,523,030
shares of Common Stock of the Company (or 6,075,333 shares in certain
circumstances, see "Description of Capital Stock -- Preferred Stock -- Series
A Convertible Preferred Stock"). The unsecured creditors also received
Rights ("Rights") to receive an aggregate of 11,046,060 additional shares of
the Company's Common Stock in the event that the Series A Convertible
Preferred Stock is converted into Common Stock so that the number of shares
of Common Stock received by such unsecured creditors continues to represent
60% of the Company's outstanding Common Stock. In addition, the Company
intends to adopt a new stock option plan to reserve for issuance thereunder
(together with the Company's other stock option plans) approximately 10% of
the outstanding shares of the Company's Common Stock. Therefore,
shareholders holding shares of Common Stock immediately prior to the closing
under the Plan ("Existing Shareholders") represent approximately 30% of
outstanding shares of Common Stock immediately after the Plan was
consummated. Because the Series A Convertible Preferred Stock will vote on
an as-converted basis, Existing Shareholders represent approximately 28% of
the voting power of the Company, assuming all options are exercised. If and
when the Series A Convertible Preferred Stock is converted into Common Stock,
Existing Shareholders will then represent 23% of the outstanding shares of
Common Stock assuming no other issuances of the Company's securities and
exercise of all options available for issuance.
Unsecured creditors accepting equity in satisfaction of their claims
generally had claims in excess of $50,000 ("Major Creditors") and represented
accounts payable or other claims in the aggregate of approximately $45.9
million (including a $1.0 million reserve for unknown or unresolved claims),
of which approximately $29.3 million represented claims of the Committee
Members. The Committee Members included SCI Technology, Inc., Mitsubishi
Electronics, Hamilton Hallmark/Avnet Co., Manufacturers
Services Limited, Avex Electronics, Inc., TechData Corporation, Quantum and
Mitsubishi International Corporation, which were generally the Company's
largest unsecured creditors, with claims of approximately $12.3 million, $5.1
million, $4.0 million, $2.2 million, $2.1 million, $1.6 million, $1.6 million
and $380,000, respectively.
The remaining unpaid indebtedness of approximately $1.9 million owed to
its Convenience Class Creditors was repaid at an average discount of
approximately 75% of the amount of the applicable claim (the amounts paid to
the Convenience Class Creditors are referred to as the "Discount Payment").
The Company repaid these creditors from the proceeds of an additional advance
of approximately $470,000 from IBM Credit which was made for the purpose of
making Discount Payments. The Company was unable to conclude settlements
with 10 unsecured creditors with aggregate claims of approximately $200,000.
The Company has issued 791,280 shares of Common Stock and an additional
240,824 Rights to the Radius Creditors Trust, for the purposes of satisfying
any unknown claims or claims not settled. Since September 13, 1996, the
Radius Creditors Trust has transferred 347,027 shares of Common Stock and
105,617 Rights to four additional creditors, leaving a balance of 444,253
shares of Common Stock and 135,207 Rights in the trust. The Company intends
to repay any additional remaining unsatisfied or unknown claims out of cash
generated from operations, however, there can be no assurance that these
creditors will not seek to enforce their claims or that the Company will have
sufficient available funds to repay such creditors on a timely basis.
Approximately 50 persons whom the Company believed to be creditors claimed
that no balance was owed to such creditors. There can be no assurance that
such persons will not, in the future, assert claims against the Company.
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The Company has no other plans to meet its future working capital needs
other than through cash generated from operations. For the nine months ended
June 30, 1996, the Company had an operating loss of approximately $11.6 million.
If the Company is unable to increase net sales and/or reduce operating expenses,
it may need to divest assets or businesses or seek additional financing to meet
its working capital needs. There can be no assurance that the Company will be
able to divest its assets, on favorable terms, if at all or that such financing
will be available to the Company. See "Risk Factors -- Need for Additional
Financing -- Loan Restrictions."
There can also be no assurance that the Company will maintain or increase
profitability.
NASDAQ NATIONAL MARKET DELISTING
Until late June 1996, the Company's Common Stock was listed on the
Nasdaq National Market System (the "Nasdaq National Market"). As a
requirement to the continued listing of the Company's Common Stock on the
Nasdaq National Market, the National Association of Securities Dealers, Inc.
(the "NASD") required the Company to obtain the approval of the Plan by a
majority of the total votes cast at a shareholders' meeting. The NASD had
required that the Company file preliminary proxy materials with the
Commission with respect to the foregoing by April 10, 1996 and that the Plan
be approved by the Company's shareholders by June 30, 1996 as a condition to
the Company's continued listing on the Nasdaq National Market. Inasmuch as
the Company failed to reach an agreement in principle with IBM Credit and the
Unofficial Creditors Committee until late June 1996, the Company was not able
to meet these conditions. Accordingly, the NASD has delisted the Company's
Common Stock from the Nasdaq National Market for failure to satisfy the
minimum net worth requirement. The Company's Common Stock is now listed on
the Nasdaq SmallCap Market (the "Nasdaq SmallCap Market") and the Company
will be required to meet the continued listing requirements of the Nasdaq
SmallCap Market. The Company will be required to maintain capital and surplus
of $1.0 million. As a result of the Company's substantial losses incurred for
the 1996 fiscal year, if the Company experiences a significant loss in a
subsequent quarterly or annual period, the Company would have insufficient
capital and surplus to satisfy the continued listing requirements of the
Nasdaq SmallCap Market. In addition, as of November 7, 1996, the closing
price of the Common Stock was $1 7/16 per share. In the future, any failure
of the Company to maintain a minimum bid price per share of $1.00 for a
period of 10 consecutive business days would require it to have $2.0 million
in capital and surplus as well as a market value of its publicly traded
securities of $1.0 million. If the Company fails to maintain this minimum bid
price as well as a $2.0 million capital and surplus, it will have 90 days to
comply with such minimum bid requirement. As described under "Risk Factors
- -- Volatility of Stock Price," the substantial increase in tradable shares of
Common Stock could materially and adversely affect the market price of the
Common Stock and if the Company has insufficient capital and surplus, the
Common Stock would be subject to delisting. See "Risk Factors -- Possible
Delisting of Common Stock from the Nasdaq SmallCap Market."
Year End Results
Based on preliminary sales, sales orders, operating and other financial
data through September 30, 1996, the Company believes that net revenues for
the three months ended September 30, 1996 were approximately $7.0 million, as
compared to $57.1 million for the same period in fiscal 1995. Net loss for
the three months ended September 30, 1996 was approximately $9.8 million as
compared to $117.9 million for the same period in fiscal 1995. Fourth quarter
results were negatively affected by significant product shortages during the
quarter. Radius PressView and Precision View displays were not shipped by
Radius' vendor until the last two weeks of the quarter because of the length
of time required to negotiate a new manufacturing agreement. As there was a
substantial backlog for these products at the beginning of the quarter,
the delay in shipments resulted in a lack of supply for customers and
resellers. Similarly, the Company's Video Vision PCI was in short supply
during the quarter. This product was being manufactured by a new turnkey
manufacturing partner for the product and delays were experienced during the
commencement and initial start-up process of this relationship. Fourth
quarter 1996 results also included a one time charge of $3.5 million
resulting from the restructuring which was completed during the quarter.
Net revenues for the entire 1996 fiscal year were approximately $90.3
million as compared to $308.1 million for the prior year. Net loss was
approximately $975,000 as compared to $131.7 million for the prior fiscal
year.
RISK FACTORS
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN ADDITION TO
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SHARES
OF COMMON STOCK OFFERED HEREBY.
CONTINUING OPERATING LOSSES; GOING CONCERN CONSIDERATIONS
The Company experienced operating losses in each of the fiscal
quarters ended March 31, 1996 and December 31, 1995, for the nine months
ended June 30, 1996 and in each of the fiscal years ended September 30, 1993,
1994 and 1995. In addition, based on preliminary operating results for the
fiscal year ending September 30, 1996, the Company will also experience a
substantial operating loss for the 1996 fiscal year. Furthermore, the
Company's independent auditors have included in their report for the fiscal
year ending September 30, 1995 a statement as to the substantial doubt about
the Company's ability to continue as a going concern. In the future, the
Company's ability to sustain profitable operations will depend upon a number
of factors, including the Company's ability to control costs; the Company's
ability to service its outstanding indebtedness to IBM Credit; the Company's
ability to generate sufficient cash from operations or obtain additional
funds to fund its operating expenses; the Company's ability to develop
innovative and cost-competitive new products and to bring those products to
market in a timely manner; the continued commercial acceptance of Apple
computers and the rate and mix of Apple computers and related products sold;
competitive factors such as new product introductions, product enhancements
and aggressive marketing and pricing practices; general economic conditions;
and other factors. The Company has faced and expects to continue to face
increased competition in graphic cards as a result of Apple's transition of
its product line to the PCI Bus. For these and other reasons, there can be
no assurance that the Company will be able to achieve or maintain
profitability in the near term, if at all.
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FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in operating results.
The Company's customers generally order on an as-needed basis, and the Company
has historically operated with relatively small backlogs. Quarterly sales and
operating results depend heavily on the volume and timing of bookings received
during the quarter, which are difficult to forecast. A substantial portion of
the Company's revenues are derived from sales made late in each quarter, which
increases the difficulty in forecasting sales accurately. Since the end of the
Company's 1995 fiscal year, shortages of available cash have restricted the
Company's ability to purchase inventory and have delayed the Company's receipt
of products from suppliers and increased shipping and other costs. Furthermore,
because of its financial condition, the Company believes that many suppliers are
hesitant to continue their relationship with or extend credit terms to the
Company and potential new suppliers are reluctant to provide goods to the
Company. The Company recognizes sales upon shipment of product, and allowances
are recorded for estimated uncollectable amounts, returns, credits and similar
costs, including product warranties and price protection. Due to the inherent
uncertainty of such estimates, there can be no assurance that the Company's
forecasts regarding bookings, collections, rates of return, credits and related
matters will be accurate. A significant portion of the operating expenses of
the Company are relatively fixed in nature, and planned expenditures are based
primarily on sales forecasts which, as indicated above, are uncertain. Any
inability on the part of the Company to adjust spending quickly enough to
compensate for any failure to meet sales forecasts or to receive anticipated
collections, or any unexpected increase in product returns or other costs, could
also have an adverse impact on the Company's operating results. As a strategic
response to a changing competitive environment, the Company has elected, and, in
the future, may elect from time to time, to make certain pricing, service or
marketing decisions or acquisitions that could have a material adverse effect on
the Company's business, results of operations and financial condition. As a
result, the Company believes that period-to-period comparisons of its results of
operations will not necessarily be meaningful and should not be relied upon as
any indication of future performance. Due to all of the foregoing factors, it
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would be likely to be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING; LOAN RESTRICTIONS
The Company intends to finance its working capital needs through cash
generated by operations and borrowings under a restructured working line of
credit with IBM Credit. Because the Company has experienced operating losses in
each of its prior four fiscal years, the Company must significantly reduce
operating expenses and/or significantly increase net sales in order to finance
its working capital needs with cash generated by operations. Furthermore,
pursuant to the restructured loan with IBM Credit, the Company is required to
deposit its revenues in accounts subject to control by IBM Credit. At any time,
regardless of whether the Company is in default of its obligations to IBM
Credit, IBM Credit is permitted to apply these amounts towards the repayment of
any of the Company's obligations to IBM Credit. This loan is also subject to
mandatory prepayment as follows: (i) upon the disposition of any assets of the
Company outside of the ordinary course of business, all net proceeds to the
Company must be applied towards the Company's obligations under the loan; (ii)
upon the closing of any financing, 10% of the proceeds must be applied towards
the Company's obligations under the loan; (iii) upon the thirtieth day following
the end of each fiscal quarter, an amount of no less than 50% of operating cash
flow for such prior fiscal quarter must be applied towards the Company's
obligations under the loan; and (iv) upon the receipt of any other amounts other
than sales of inventory or used or obsolete equipment in the ordinary course of
business, and not otherwise described in the preceding clause (i) - (iii), all
of such amounts must be applied towards the Company's obligations under the
loan. If the Company's obligations under the term loan, as well as finance
charges and amounts outstanding in excess of the "borrowing base" (described
below) under the working line of credit described below, are repaid, IBM Credit
can require such proceeds to be applied towards a redemption of the Series A
Convertible Preferred Stock. IBM Credit's control over the Company's financial
resources as well as these prepayment provisions will place a further strain on
the ability of the Company to fund its working capital needs internally.
Accordingly, there can be no assurance that the Company will be able to
successfully fund its working capital needs internally.
The restructured loan also provides for a working line of credit of up to
$5.0 million. However, the Company will only be able to borrow amounts up to
the "borrowing base" which is defined as the sum of (i) the lesser of 10% of the
gross value of eligible inventory or $500,000; plus (ii) 80% of the value of
eligible domestic accounts receivable; plus (iii) the lesser of 50% of the gross
value of certain Japanese and European accounts receivable or $500,000. Upon
the closing of the restructured loan, approximately $1.5 million, or an amount
equal to the current borrowing base was deemed to be outstanding under this line
of credit. Therefore, in order to draw on this working line of credit, the
Company will need to increase the
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amount of the borrowing base by increasing the amount of certain of its accounts
receivable or repay amounts outstanding under this line of credit. Because most
of the Company's cash flow must be applied towards prepayment of the term loan
and, towards the redemption of the Series A Convertible Preferred Stock, prior
to reducing any amounts outstanding under the working line of credit, there can
be no assurance that the Company will be able to significantly reduce this
working line of credit. Accordingly, there can be no assurance that this
working line of credit will provide a significant source of working capital.
The Company's ability to sell assets in order to satisfy its working
capital needs will also be restricted by the terms of the Series A Convertible
Preferred Stock and the terms of the restructured loan. The Series A
Convertible Preferred Stock will be redeemable at the option of IBM Credit upon
certain dispositions and, as described above, the Company is required to apply
the proceeds of any disposition towards repayment of the term loan component of
the restructured loan.
The restructured loan also imposes certain operating and financial
restrictions on the Company and requires the Company to maintain certain
financial covenants such as minimum cash flow levels, restricts the ability of
the Company to incur additional indebtedness, pay dividends, create liens, sell
assets or engage in mergers or acquisitions, or make certain capital
expenditures. The failure to comply with these covenants would constitute a
default under the loan, which is secured by substantially all of the Company's
assets. In the event of such a default, IBM Credit could elect to declare all
of the funds borrowed pursuant thereto to be due and payable together with
accrued and unpaid interest, which could result in the Company becoming a debtor
in a bankruptcy proceeding and to apply all amounts on deposit in the
Company's bank accounts. The loan restrictions could limit the ability of
the Company to effect future financings or otherwise restrict corporate
activities. Even if additional financing could be obtained, there can be no
assurance that it would be on terms that are favorable or acceptable to the
Company.
The restructured loan may also limit the Company's ability to respond to
changing business and economic conditions, insofar as such conditions may affect
the financial condition and financing requirements of the Company. If the
Company is unable to generate sufficient cash flows from operations in the
future, it may be required to refinance all or a portion of its existing
indebtedness to IBM Credit (which indebtedness can be repaid without prepayment
penalties) or to obtain additional financing. There can be no assurance that
any such refinancing would be possible or that any additional financing could be
obtained on terms that are favorable or acceptable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
VOLATILITY OF STOCK PRICE
Immediately prior to the consummation of the Plan, the Company had
outstanding approximately 18,147,099 shares of Common Stock, most of which
were freely tradeable. Upon the effectiveness of the Registration Statement
of which this Prospectus is a part, the number of freely tradeable shares
will increase by almost 200% and, upon the conversion of the Series A
Convertible Preferred Stock, up to an additional 17,921,393 shares may be
eligible for public resale, an increase of almost 300% from the number of
outstanding shares of Common Stock prior to the consummation of the Plan.
Furthermore, none of the creditors who received shares of Common Stock
pursuant to the Plan have entered into any agreements restricting their
ability to resell the shares of Common Stock which they received. As a
result of this substantially larger public float, it is likely that a
substantial number of creditors may seek to resell their shares at times
when there is an insufficient demand for shares of Common Stock. In such an
event, the trading price of the Common Stock will be materially and adversely
affected.
The price of the Company's Common Stock has fluctuated widely in the past.
Management believes that such fluctuations may have been caused by announcements
of new products, quarterly fluctuations in the results of operations and other
factors, including changes in conditions of the personal computer industry in
general and of Apple Computer in particular, and changes in the Company's
results of operations and financial condition. Stock markets, and stocks of
technology companies in particular, have experienced extreme price volatility in
recent years. This volatility has had a substantial effect on the market prices
of securities issued by the Company and other high technology companies, often
for reasons unrelated to the operating performance of the specific companies.
Due to the factors referred to herein, the dynamic nature of the Company's
industry, general economic conditions and other factors, the Company's future
operating results and stock prices may be subject to significant volatility in
the future.
Such stock price volatility for the Common Stock has in the past provoked
securities litigation, and future volatility could provoke litigation in the
future that could divert substantial management resources and have an adverse
effect on
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the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations --Litigation Settlement."
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been
designed for and sold to users of Apple personal computers, and it is expected
that sales of products for such computers will continue to represent
substantially all of the sales of the Company for the foreseeable future. The
Company's operating results would be adversely affected if Apple should lose
market share, if Macintosh sales were to decline or if other developments were
to adversely affect Apple's business. Furthermore, any difficulty that may be
experienced by Apple in the development, manufacturing, marketing or sale of its
computers, or other disruptions to, or uncertainty in the market regarding,
Apple's business, resulting from these or other factors could result in reduced
demand for Apple computers, which in turn could materially and adversely affect
sales of the Company's products. Recently, Apple has announced large losses,
management changes, headcount reductions, and other significant events which
have led or could lead to uncertainty in the market regarding Apple's business
and products. In addition, news reports indicating that Apple may be or may
have been the target of merger, acquisition, or takeover negotiations, have led
or could lead to uncertainty in the market regarding Apple's business and
products.
As software applications for the color publishing and multimedia markets
become more available on platforms other than Macintosh, it is likely that these
other platforms will continue to gain acceptance in these markets. For example,
recently introduced versions of the Windows operating environment support high
performance graphics and video applications similar to those offered on the
Macintosh. There is a risk that this trend will reduce the support given to
Macintosh products by third party developers and could substantially reduce
demand for Macintosh products and peripherals over the long term.
A number of the Company's products compete with products marketed by Apple.
As a competitor of the Company, Apple could in the future take steps to hinder
the Company's development of compatible products and slow sales of the Company's
products. The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not fully met by Apple's products.
As Apple improves its products or bundles additional hardware or software into
its computers, it reduces the market for Radius products that provide those
capabilities. For example, the Company believes that the on-board performance
capabilities included in Macintosh Power PC products have reduced and continue
to reduce overall sales for the Company's graphics cards. In the past, the
Company has developed new products as Apple's progress has rendered existing
Company products obsolete. However, in light of the Company's current financial
condition there can be no assurance that the Company will continue to develop
new products on a timely basis or that any such products will be successful. In
order to develop products for the Macintosh on a timely basis, the Company
depends upon access to advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information with the Company
would adversely affect the Company's business.
New products anticipated from and introduced by Apple could cause customers
to defer or alter buying decisions due to uncertainty in the marketplace, as
well as presenting additional direct competition for the Company. For example,
the Company believes that Apple's transition during 1994 to Power PC products
caused delays and uncertainties in the marketplace and had the effect of
reducing demand for the Company's products. In addition, sales of the Company's
products have been adversely affected by Apple's revamping of its entire product
line from Nubus-based to PCI Bus-based computers. In the past, transitions in
Apple's products have been accompanied by shortages in those products and in key
components for them, leading to a slowdown in sales of those products and in the
development and sale by the Company of compatible products. In addition, it is
possible that the introduction of new Apple products with improved performance
capabilities may create uncertainties in the market concerning the need for the
performance enhancements provided by the Company's products and could reduce
demand for such products.
COMPETITION
The markets for the Company's products are highly competitive, and the
Company expects competition to intensify. Many of the Company's current and
prospective competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company. The Company believes
that its ability to compete will depend on a number of factors, including the
amount of financial resources available to the Company, whether the Company can
reach an accommodation with its creditors, success and timing of new product
developments by the Company and its competitors, product performance, price and
quality, breadth of distribution and customer support. There can be no
assurance that the Company will be able to compete
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successfully with respect to these factors. In addition, the introduction of
lower priced competitive products could result in price reductions that would
adversely affect the Company's results of operations. See "Business --
Competition."
DEPENDENCE ON LIMITED NUMBER OF MANUFACTURERS AND SUPPLIERS
The Company outsources the manufacturing and assembly of its products to
third party manufacturers. Although the Company uses a number of
manufacturer/assemblers, each of its products is manufactured and assembled by a
single manufacturer. The failure of a manufacturer to ship the quantities of a
product ordered by the Company could cause a material disruption in the
Company's sales of that product. In the past, the Company has at times
experienced substantial delays in its ability to fill customer orders for
displays and other products, due to the inability of certain manufacturers to
meet their volume and schedule requirements and, more recently, due to the
Company's shortages in available cash. Such shortages have caused some
manufacturers to put the Company on a cash or prepay basis and/or to require the
Company to provide security for their risk in procuring components or reserving
manufacturing time, and there is a risk that manufacturers will discontinue
their relationship with the Company. In the past, the Company has been
vulnerable to delays in shipments from manufacturers because the Company has
sought to manage its use of working capital by, among other things, limiting the
backlog of inventory it purchases. More recently, this vulnerability has been
exacerbated by the Company's shortages in cash reserves. Delays in shipments
from manufacturers can cause fluctuations in the Company's short term results
and contribute to order cancellations. The Company currently has arranged
payment terms for certain of its major manufacturers such that certain of the
Company's major customers pay these manufacturers directly for products ordered
and shipped. In the event these customers do not pay these manufacturers, there
can be no assurance that such manufacturers will not cease supplying the
Company. In addition, as a condition to continuing its manufacturing
arrangement with the Company, the Company granted Mitsubishi Electronics, the
manufacturer of the Company's PressView products, a security interest in all of
the Company's technology and intellectual property rights related to and
incorporated into the Company's PressView products. There can be no assurance
that other manufacturers will not require special terms in order to continue
their relationship with the Company.
The Company is also dependent on sole or limited source suppliers for
certain key components used in its products, including certain digital to analog
converters, digital video chips, color-calibrated monitors and other products.
Certain other semiconductor components and molded plastic parts are also
purchased from sole or limited source suppliers. The Company purchases these
sole or limited source components primarily pursuant to purchase orders placed
from time to time in the ordinary course of business and has no guaranteed
supply arrangements with sole or limited source suppliers. Therefore, these
suppliers are not obligated to supply products to the Company for any specific
period, in any specific quantity or at any specific price, except as may be
provided in a particular purchase order. Although the Company expects that
these suppliers will continue to meet its requirements for the components, there
can be no assurance that they will do so. The Company's reliance on a limited
number of suppliers involves a number of risks, including the absence of
adequate capacity, the unavailability or interruption in the supply of key
components and reduced control over delivery schedules and costs. The Company
expects to continue to rely on a limited number of suppliers for the foreseeable
future. If these suppliers became unwilling or unable to continue to provide
these components the Company would have to develop alternative sources for these
components which could result in delays or reductions in product shipments which
could have a material adverse effect on the Company's business, operating
results and financial condition. Certain suppliers, due to the Company's
shortages in available cash, have put the Company on a cash or prepay basis
and/or required the Company to provide security for their risk in procuring
components or reserving manufacturing time, and there is a risk that suppliers
will discontinue their relationship with the Company.
The introduction of new products presents additional difficulties in
obtaining timely shipments from suppliers. Additional time may be needed to
identify and qualify suppliers of the new products. Also, the Company has
experienced delays in achieving volume production of new products due to the
time required for suppliers to build their manufacturing capacity. An extended
interruption in the supply of any of the components for the Company's products,
regardless of the cause, could have an adverse impact on the Company's results
of operations. The Company's products also incorporate components, such as
VRAMs, DRAMs and ASICs that are available from multiple sources but have been
subject to substantial fluctuations in availability and price. Since a
substantial portion of the total material cost of the Company's products is
represented by these components, significant fluctuations in their price and
availability could affect its results of operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
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The personal computer industry in general, and color publishing and
video applications within the industry, are characterized by rapidly changing
technology, often resulting in short product life cycles and rapid price
declines. The Company believes that its success will be highly dependent on
its ability to develop innovative and cost-competitive new products and to
bring them to the marketplace in a timely manner. Should the Company fail to
introduce new products on a timely basis, the Company's operating results
could be adversely affected. Technological innovation is particularly
important for the Company, since its business is based on its ability to
provide functionality and features not included in Apple's products. As
Apple introduces new products with increased functionality and features, the
Company's business will be adversely affected unless it develops new products
that provide advantages over Apple's latest offerings. As a result of the
Company's financial condition, it has had to significantly reduce its
research and development expenditures. For the 1996 fiscal year the Company
spent approximately $7.5 million on research and development as compared with
approximately $19.3 million for the same period in the prior fiscal year.
Furthermore, as described in "--Need for Additional Financing; Loan
Restrictions," the terms of the restructured loan with IBM Credit will
restrict the Company's ability to fund its working capital needs and, as a
result, the ability of the Company to increase research and development
expenditures. Continued reduction in the available cash resources of the
Company could result in the interruption or cancellation of research and
product development efforts which would have a material adverse effect on the
business, operating results and financial condition of the Company.
The Company anticipates that the video editing industry will follow the
pattern of the professional publishing industry in which desktop publishing
products, including those produced by Radius, replaced more expensive,
proprietary products, and the Company also anticipates that this evolution will
lead to an increase in the purchase and use of video editing products. As a
result, the Company has devoted significant resources to this product line.
There can be no assurance that this evolution will occur in the video editing
industry as expected by the Company, or that even if it does occur that it will
not occur at a slower pace than anticipated. There can also be no assurance
that any video editing products developed by the Company will achieve consumer
acceptance or broad commercial success. For example, the Company initially
began its MacOS compatible systems business in the third quarter of fiscal 1995
and devoted substantial financial resources, including raising approximately
$21.4 million in a private placement of its Common Stock and borrowing an
additional $20.0 million from IBM Credit, and incurring significant research and
development and sales and marketing expenses. This business was never
profitable and the Company sold this line of business in February 1996. In the
event that the increased use of such video editing products does not occur or in
the event that the Company is unable to successfully develop and market such
products, the Company's business, operating results and financial condition
would be materially adversely affected.
The introduction of new products is inherently subject to risks of delay.
Should the Company fail to introduce new products on a timely basis, the
operating results of the Company could be adversely affected. The introduction
of new products and the phasing out of older products will require the Company
to carefully manage its inventory to avoid inventory obsolescence and may
require increase in inventory reserves. The long lead times -- as much as three
to five months -- associated with the procurement of certain components
(principally displays and ASICs) exposes the Company to greater risk in
forecasting the demand for new products. There can be no assurance that the
Company's forecasts regarding new product demand and its estimates of
appropriate inventory levels will be accurate. Moreover, no assurance can be
given that the Company will be able to cause all of its new products to be
manufactured at acceptable manufacturing yields, that the Company will obtain
market acceptance for these products or that potential manufacturers will not be
hesitant to manufacture such new products as a result of the Company's financial
condition.
DEPENDENCE ON INDIRECT DISTRIBUTION CHANNELS
The Company's primary means of distribution is through a limited number of
third-party distributors and master resellers that are not under the direct
control of the Company. Furthermore, the Company relies on one exclusive
distributor for its sales in each of Japan and Europe. The Company does not
maintain a direct sales force. As a result, the Company's business and
financial results are highly dependent on the amount of the Company's products
that is ordered by these distributors and resellers. Such orders are in turn
dependent upon the continued viability and financial condition of these
distributors and resellers as well as on their ability to resell such products
and maintain appropriate inventory levels. Furthermore, many of these
distributors and resellers generally carry the product lines of a number of
companies, are not subject to minimum order requirements and can discontinue
marketing the Company's products at any time. Accordingly, the Company must
compete for the focus and sales efforts of these third parties. Because certain
of the Company's major suppliers have arrangements with the Company pursuant to
which certain of the Company's major customers are responsible for payment of
goods sent to the Company, the Company is dependent on certain resellers to make
payments to its suppliers. In addition,
12
<PAGE>
due in part to the historical volatility of the personal computer industry,
certain of the Company's resellers have from time to time experienced declining
profit margins, cash flow shortages and other financial difficulties. The
future growth and success of the Company will continue to depend in large part
upon its indirect distribution channels, including its reseller channels. If
its resellers or other distributors were to experience financial difficulties,
the Company's results of operations could be adversely affected.
INTERNATIONAL SALES
Prior to the second fiscal quarter of 1996, the Company's international
sales were primarily made through distributors and the Company's subsidiary in
Japan. Effective April 1, and July 1, 1996 the Company appointed an exclusive
distributor for Japan and Europe, respectively. The Company expects that
international sales, particularly sales to Japan, will represent a significant
portion of its net sales and that it will be subject to the normal risks of
international sales such as currency fluctuations, longer payment cycles, export
controls and other governmental regulations and, in some countries, a lesser
degree of intellectual property protection as compared to that provided under
the laws of the United States. In addition, demand for the Company's products
in Japan could be affected by the transition of its Japanese sales and marketing
efforts from Radius' subsidiary to a distributor. Furthermore, a reduction in
sales efforts or financial viability of this distributor could adversely affect
the Company's net sales and its ability to provide service and support to
Japanese customers. Additionally, fluctuations in exchange rates could affect
demand for the Company's products. If for any reason exchange or price controls
or other restrictions on foreign currencies are imposed, the Company's business,
operating results and financial condition could be materially adversely
affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. The Company does not carry any key person
life insurance with respect to any of its personnel. Competition for
employees in the computer industry is intense, and there can be no assurance
that the Company will be able to attract and retain qualified employees.
Many members of the Company's management have departed within the past year,
including its Chief Financial Officer and three other Vice Presidents, and
the Company has also had substantial layoffs and other employee departures.
In addition, the Company's current Vice President of Finance and Corporate
Controller has announced her intention to resign in the near future. Because
of the Company's financial difficulties, it has become increasingly difficult
for it to hire new employees and retain key management and current employees.
Moreover, because voting control of the Company rests in the hands of the
Company's creditors as a group, such creditors could, if acting together,
effectuate changes in Board composition or management.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and
trade secret protection, nondisclosure agreements and licensing arrangements to
establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued to the Company will not be challenged, invalidated or
circumvented, or that any rights granted thereunder would provide proprietary
protection to the Company. The Company has a number of trademarks and trademark
applications. There can be no assurance that litigation with respect to
trademarks will not result from the Company's use of registered or common law
marks, or that, if litigation against the Company were successful, any resulting
loss of the right to use a trademark would not reduce sales of the Company's
products in addition to the possibility of a significant damages award.
Although, the Company intends to defend its proprietary rights, policing
unauthorized use of proprietary technology or products is difficult, and there
can be no assurance that the Company's efforts will be successful. The laws of
certain foreign countries may not protect the proprietary rights of the Company
to the same extent as do the laws of the United States.
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that the
Company's products infringe others' patent rights. As a result of such claims
or litigation, it may become necessary or desirable in the future for the
Company to obtain licenses relating to one or more of its products or relating
to current or future technologies,
13
<PAGE>
and there can be no assurance that it would be able to do so on commercially
reasonable terms. See "Business -- Patents and Licenses."
CONTROL BY CREDITORS
Upon consummation of the Plan, the Company's unsecured creditors and IBM
Credit owned in the aggregate approximately 69.7% of the voting power of the
Company (assuming exercise of all available options, such creditors would own
approximately 67% of the voting power of the Company). IBM Credit owns
approximately 9.2% of the Company's voting power and the Committee Members
own approximately 38.6% of the voting power of the Company. The Company's
four largest unsecured creditors, SCI Technology, Inc., Mitsubishi
Electronics America, Inc., Hamilton Hallmark/Avnet Co. and Manufacturers
Services Limited, Inc. own approximately 16.2%, 6.7%, 5.3% and 2.9%,
respectively, of the voting power of the Company. All of the Company's
creditors acting together would have voting control of the management and
direction of the Company and could also impede a merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of the Company. The Committee Members have acted
cooperatively with respect to the negotiation of the Plan, and the Company
expects such creditors to continue to act cooperatively with respect to their
ownership of the Company's securities.
Subsequent to September 13, 1996, two Committee Members, Carl Carlson of
Mitsubishi Electronics America, Inc. and Michael Ledbetter of SCI Systems,
Inc. have joined the Board of Directors. These two directors constitute half
of the current Board members.
The Company also intends to continue to do business with many of its
unsecured creditors, including Mitsubishi Electronics America, Inc. and SCI
Technology, Inc., each of whom beneficially own more than 5% of the Company's
Common Stock. As a result, such creditors may be able to influence the terms of
any business relationship between the Company and such creditor. See "Certain
Transactions."
LACK OF PUBLIC MARKET FOR SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANTS
There has been no public market for the Series A Convertible Preferred
Stock or the Warrants and the Company does not intend to list such securities on
any national securities exchange, the Nasdaq National Market System or the
Nasdaq SmallCap Market. Accordingly, it is unlikely that an active public
market for such securities will ever develop. Trading, if any, of such
securities would be conducted in the over-the-counter market in what are
commonly referred to as the "pink sheets." As a result, purchasers may find it
more difficult to dispose of, or to obtain accurate quotations as to the value
of, these securities. Consequently, this lack of a public market may affect the
ability of purchasers in this offering to sell such securities in the secondary
market.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Company's Common Stock.
As of the date of this Prospectus (the "Effective Date"), there will be
approximately 54,451,586 shares of Common Stock outstanding, substantially
all of which will be available for sale without restriction under the
Securities Act of 1933, as amended (the "Act") (as compared with
approximately 18,147,099 shares of Common Stock outstanding as of August 31,
1996) except for those shares which are held by affiliates of the Company.
If the Series A Convertible Preferred Stock is converted and if the Warrants
are exercised, up to an additional 17,921,393 shares (including 11,046,060
shares issuable pursuant to the Rights) will be available for sale in the
public market. The tradability of such shares of Common Stock could
materially and adversely affect the market price of the Common Stock. See
"-- Volatility of Stock Price."
In addition, the Company is required to pay (on a quarterly basis) an
annual dividend of $300,000 (or $0.40 per share) on the Series A Convertible
Preferred Stock. This dividend may be paid in cash or Common Stock of the
Company. Depending upon its financial position on any dividend payment date,
such dividends may be paid in the form of shares of Common Stock instead of
cash. In the event such dividend is fully paid in shares of Common Stock, a
number of shares having a market value of up to $75,000, the amount of such
quarterly dividend, will be issued each quarter. The Company is offering
Common Stock having a market value of $600,000 (representing the first eight
quarterly dividend payments) in the event that such dividend is paid in
Common Stock and are included in the Registration Statement of which this
Prospectus is a part and will be freely tradable. Subsequent dividends in the
form of shares of Common Stock will be subject to the provisions of Rule 144,
including the holding period requirements.
As of October 31, 1996 there were 1,195,124 shares reserved for issuance
upon exercise of options outstanding under the Company's stock option plans
(collectively, the "Plans"). As of such date there were an additional 1,692,782
shares of
14
<PAGE>
Common Stock available for issuance under options to be granted under the Plans
and 125,321 shares reserved for issuances for purchases under the Company's
Employee Stock Purchase Plan. All of the shares of Common Stock to be issued
upon exercise of options granted or to be granted or upon stock purchases will
be available for sale in the public market, subject to the Rule 144 volume
limitations applicable to affiliates. The Company intends to adopt a new stock
option plan covering 2,865,658 shares of its Common Stock (which plan will be
amended to cover an aggregate of 4,706,668 shares of Common Stock in the event
that the Series A Convertible Preferred Stock is converted into Common Stock).
The Company intends to file a registration statement on Form S-8 to register the
additional shares of Common Stock to be covered by this new plan. Accordingly,
shares subject to options granted under such plan will be available for sale in
the public market after the effective date of such registration statement.
In the event that the Series A Convertible Preferred Stock is not converted
or the Warrants are not exercised during the term of this offering, the holders
of such securities have demand registration rights with respect to the shares of
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock or upon exercise of the Warrants which were not converted or exercised
during such period. IBM Credit also has demand registration rights with respect
to any shares of Common Stock which are paid in lieu of cash dividends on the
Series A Convertible Preferred Stock after such two-year period. These demand
registration rights will permit such holders to cause the Company, on up to two
occasions, to register such unsold shares of underlying Common Stock commencing
two years after the effectiveness of the Registration Statement of which this
Prospectus forms a part. All expenses incurred in connection with such
registrations (other than underwriters' discounts and commissions) will be borne
by the Company. These registration rights will expire once all the securities
covered thereby may be sold pursuant to Rule 144 in a three month period without
registration. Such expiration date will be no earlier than September 1998. See
"Description of Capital Stock -- Registration Rights."
POSSIBLE DELISTING OF COMMON STOCK FROM NASDAQ SMALLCAP MARKET
The Company's Common Stock is listed on the Nasdaq SmallCap Market
pursuant to an agreement with the NASD which requires that the Company comply
with the continued listing requirements for the Nasdaq SmallCap Market.
Failure to meet the continued listing requirements in the future would
subject the Common Stock to delisting. As described under "Recent
Developments -- Nasdaq National Market Delisting," the Common Stock could be
delisted from the Nasdaq SmallCap Market if the Company fails to maintain
capital and surplus of $1.0 million. Because of the substantial losses
experienced by the Company for the 1996 fiscal year, any significant loss
experienced in a subsequent quarter could cause the Company to have
insufficient capital and surplus for continued listing on the Nasdaq SmallCap
Market. The Company's Common Stock is also subject to delisting in the event
that the price of the Common Stock drops below $1.00 per share for 10
consecutive trading days (the last reported sales price for the Common Stock
on the Nasdaq SmallCap Market on November 7, 1996 was $1 7/16 per share).
Because of the substantial increase in the number of tradable shares of
Common Stock, there could be downward pressure on the trading price of the
Common Stock, which could cause the Company to fail to meet the minimum bid
price requirement for the Nasdaq SmallCap Market. If the Company's Common
Stock is delisted, there can be no assurance that the Company will meet the
requirements for initial inclusion in the future, particularly the $3.00
minimum per share bid requirement. Trading, if any, in the listed securities
after delisting would be conducted in the over-the-counter market in what are
commonly referred to as the "pink sheets." As a result, investors may find
it more difficult to dispose of, or to obtain accurate quotations as to the
value of, the Company's securities. See "--Volatility of Stock Price" and
"Recent Developments -- Nasdaq National Market Delisting."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
shares of Common Stock offered by it hereby. The Company may issue such shares
of Common Stock in lieu of its obligation to pay cash dividends of $600,000 for
the next two years on the Series A Convertible Preferred Stock.
The Company will not receive any proceeds from the sale of securities by
the Selling Securityholders. The Company will bear estimated expenses of
approximately $250,000.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
from August 21, 1991 until July 1, 1996. The Company's Common stock is now
quoted on the Nasdaq SmallCap Market under the symbol "RDUS." The high and low
sales prices for the Common Stock are indicated below.
Year Ended September 30, 1995 Low High
- ----------------------------- ---- -----
First Quarter 7 5/8 10 1/4
Second Quarter 9 14 1/2
Third Quarter 9 1/2 13 3/4
Fourth Quarter 6 15/16 12 1/2
Year Ending September 30, 1996
- --------------------------------
First Quarter 1 15/16 7 1/8
Second Quarter 15/16 2 1/2
Third Quarter 2 3/16 4 5/8
Fourth Quarter 1 1/4 2 13/16
Year Ending September 30, 1997
- ------------------------------
First Quarter (through November 7, 1996) 1 3/16 1 7/8
As of November 7, 1996, the last sales price as reported on the Nasdaq
SmallCap Market for the Common Stock was $1 7/16.
On October 31, 1996, there were approximately 3,652 holders of record of
the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. As explained under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" contained
elsewhere in this Prospectus, funds will be required to support future losses
and working capital needs for these reasons. The terms of the Company's
restructured loan agreement with IBM Credit prohibits the payment of any cash
dividends so long as the loans are outstanding. In addition, the 10% annual
cumulative dividend on the Series A Convertible Preferred Stock must be paid
before any dividends may be paid on the Common Stock. The Company currently
anticipates that it will retain any future earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future. The
payment of any future dividends will be at the discretion of the Company's Board
of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the
Company, general business conditions and contractual restrictions on payment of
dividends, if any.
16
<PAGE>
CAPITALIZATION
The following table is intended to provide certain information to illustrate the
effects of the consummation of the Plan on the Company's capitalization. The
table sets forth (i) the historical capitalization of the Company as of June 30,
1996, and (ii) such capitalization, as adjusted to reflect (i) the settlement of
approximately $46.8 million (not including the $1.0 million reserve allocated
to the Radius Creditors Trust) of accounts payable, accrued liabilities and
customer credit balances in exchange for $470,000 in cash (together with the
$1.4 million gain from such discounted cash payment) and 36,294,198 shares of
Common Stock; (ii) the additional advance of $470,000 from IBM Credit; (iii) the
restructuring of the IBM Credit loan and the issuance of 750,000 shares of
Series A Convertible Preferred Stock to IBM Credit; the reversal of the
restructuring accrual of $2.4 million related to the settlement of the related
cancellation fees accrued; and (iv) the issuance of Common Stock having a market
value of $600,000 in lieu of cash dividend payments for the first eight
quarterly dividend payments on the Series A Convertible Preferred Stock (based
upon an assumed market price of $1 11/32 per share, the last sales price on the
Nasdaq SmallCap Market on September 16, 1996). The as adjusted amounts assume
that the carrying value of the claims settled equals the value of the equity
securities issued. The difference, to be determined, between the two values
will not affect the combined total of Common Stock and accumulated deficit.
<TABLE>
<CAPTION>
AS
HISTORICAL ADJUSTED (1)
---------- ------------
<S> <C> <C>
Capitalization:
Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 91,444 25,594
Obligations under capital leases - noncurrent portion. . . . . . . . . 321 321
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . -- 18,420
----------- ----------
Preferred Stock, no par value; 2,000,000 shares authorized,
no shares issued and outstanding, historical; 2,000,000
shares authorized, 750,000 shares of Series A Convertible
Preferred Stock issued and outstanding, as adjusted . . . . . . . -- 3,000
Common Stock, no par value; 50,000,000 shares authorized,
18,147,099 shares issued and outstanding, historical;
100,000,000 shares authorized, 54,887,726 shares
outstanding, as adjusted. . . . . . . . . . . . . . . . . . . . . 126,243 171,743
Accumulated translation adjustment . . . . . . . . . . . . . . . . . 14 14
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (174,144) (170,914)
----------- -----------
Total capitalization . . . . . . . . . . . . . . . . . . . . $ 43,878 $48,178
----------- ----------
----------- ----------
</TABLE>
- -----------------------
(1) Excludes shares issuable upon exercise of any Warrants, conversion of
Series A Convertible Preferred Stock or pursuant to Rights. Also assumes
no exercise of stock options granted or to be granted under the Company's
stock option plans.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere herein. The consolidated statements of operations data set
forth below with respect to the years ended September 30, 1995, 1994 and 1993
and the consolidated balance sheet data at September 30, 1995 and 1994 are
derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere herein and should be read in conjunction
with those financial statements and the notes thereto. The consolidated
statements of operations data for the years ended September 30, 1992 and 1991
and the consolidated balance sheet data as of September 30, 1993, 1992 and 1991
are derived from audited consolidated financial statements not included herein.
The selected consolidated financial data set forth below as of and for the nine-
month periods ended June 30, 1996 and 1995 are derived from the unaudited
consolidated financial statements of the Company and, in the Company's opinion,
include all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial position and results of operations for
those periods. The results of operations for the nine months ended June 30,
1996 are not necessarily indicative of the results that may be expected for any
other interim period or for the fiscal year ending September 30, 1996.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, (1)
---------------------------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2)
----- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $308,133 $324,805 $337,373 $284,598 $199,033
Cost of sales 302,937 276,948 254,321 181,198 130,918
-------- -------- -------- -------- --------
Gross profit 5,196 47,857 83,052 103,400 68,115
-------- -------- -------- -------- --------
Operating expenses:
Research and development 19,310 33,956 33,503 21,093 14,576
Selling, general and administrative 90,068 94,731 84,132 61,824 44,054
-------- -------- -------- -------- --------
Total operating expenses 109,378 128,687 117,635 82,917 58,630
-------- -------- -------- -------- --------
Income (loss) from operations (104,182) (80,830) (34,583) 20,483 9,485
Other income (expense), net (6,068) (1,245) 70 878 731
Litigation settlement (12,422) -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle (122,672) (82,075) (34,513) 21,361 10,216
Provision (benefit) for income taxes 9,070 (4,600) (13,774) 8,329 4,012
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
a change in accounting principle (131,742) (77,475) (20,739) 13,032 6,204
Cumulative effect of a change in method of
accounting for income taxes -- -- 600 -- --
-------- -------- -------- -------- --------
Net income (loss) $(131,742) $(77,475) $(20,139) $13,032 $6,204
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) per share:
Income (loss) before cumulative effect of
a change in accounting principle $ (8.75) $ (5.70) $ (1.61) $ 1.04 $ 0.54
Cumulative effect of a change in method
accounting for income taxes -- -- 0.05 -- --
-------- -------- -------- -------- --------
Net income (loss) per share $ (8.75) $ (5.70) $ (1.56) $ 1.04 $ 0.54
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Common and common equivalent shares
used in computing net income (loss)
per share 15,049 13,598 12,905 12,485 11,473
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
---- ----
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<S> <C> <C>
Net sales $83,261 $251,007
Cost of sales 67,175 184,882
-------- --------
Gross profit 16,086 66,125
-------- --------
Operating expenses:
Research and development 6,241 13,780
Selling, general and administrative 21,430 48,725
-------- --------
Total operating expenses 27,671 62,505
-------- --------
Income (loss) from operations (11,585) 3,620
Other income (expense), net 21,090 (4,605)
Litigation settlement -- (12,422)
-------- --------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle 9,505 (13,407)
Provision (benefit) for income taxes 656 450
-------- --------
Income (loss) before cumulative effect of
a change in accounting principle 8,849 (13,857)
Cumulative effect of a change in method of
accounting for income taxes -- --
-------- --------
Net income (loss) $8,849 $(13,857)
-------- --------
-------- --------
Net income (loss) per share:
Income (loss) before cumulative effect of
a change in accounting principle $ 0.49 $(0.96)
Cumulative effect of a change in method
accounting for income taxes -- --
-------- --------
Net income (loss) per share $ 0.49 $ (0.96)
-------- --------
-------- --------
Common and common equivalent shares
used in computing net income (loss)
per share 17,950 14,386
------ -------
------ -------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
--------------------------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2) JUNE 30, 1996
---- ------- -------- ------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (Working capital deficiency) ($59,334) $29,856 $ 86,711 $ 84,303 $ 60,748 $(49,183)
Total assets 87,878 126,859 172,275 150,658 106,306 43,878
Long-term debt---concurrent portion 1,331 2,857 3,975 1,935 2,707 321
Shareholders' equity (Net capital deficiency) (57,117) 35,691 98,155 96,631 70,400 (47,887)
</TABLE>
(1) The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end from the
Sunday closest to September 30 to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal
periods are reported as ending on a calendar month end.
(2) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
As shown in the accompanying consolidated financial statements, the
Company has incurred recurring operating losses and until recently, had a
deficiency in assets and working capital. In addition, the Company has
recently restructured its loan agreement with IBM Credit. The Company has
granted a security interest in most of its assets to IBM Credit. Since the
end of its last fiscal year, the Company's relatively limited cash resources
have restricted the Company's ability to purchase inventory, which in turn
has limited its ability to manufacture and sell products and has resulted in
additional costs for expedited deliveries. The adverse effect on the
Company's results of operations due to its limited cash resources can be
expected to continue until such time as the Company is able to return to
profitability, or generate additional cash from other sources. These
conditions raise concerns about the Company's ability to continue operations
as a going concern. In addition to the Plan described below, management has
implemented a number of actions to address these conditions including:
refocusing its efforts on providing solutions for high end digital video and
graphics customers; discontinuing sales of mass market and other low value
added products; divesting its color server, monochrome display businesses and
its MacOS compatible systems products and other product lines; significantly
reducing expenses and headcount; subleasing all or a portion of its current
facility given its reduced occupancy requirements; and investigating various
strategic partnering opportunities and other divestitures.
In September 1996, the Company, IBM Credit and its unsecured creditors
consummated a debt-for-equity exchange (the "Plan"). Unsecured creditors
forgave approximately $45.9 million of claims (including a $1.0 million
reserve for unknown or unresolved claims) in consideration of the issuance of
36,294,198 shares of Common Stock and Rights to receive 11,046,060 additional
shares of Common Stock in the event that the Series A Convertible Preferred
Stock is converted into Common Stock (such numbers include 791,280 and
240,824 shares of Common Stock and Rights, respectively, issued to the Radius
Creditors Trust for the purpose of satisfying a portion of any unknown or
unresolved claims). Certain unsecured creditors, most of which had claims of
less than $50,000 (representing an aggregate of approximately $1.9 million in
claims), were paid cash at an average discount of approximately 75% of the
amount of the claim in satisfaction of their claims. The Company's secured
creditor, IBM Credit, received 750,000 shares of Series A Convertible
Preferred Stock and Warrants to purchase 600,000 shares of Common Stock in
satisfaction of $3.0 million of indebtedness and restructuring the terms of
the Company's remaining approximately $23.4 million indebtedness to IBM
Credit.
As of October 3, 1996, the Company granted 200,000 Warrants to purchase
shares of Common Stock to Mitsubishi Electronics America, Inc. in
consideration of the extension of open credit terms to the Company.
After the consummation of the Plan, to the Company's knowledge, there
remained unsatisfied claims against the Company, which the Company has not
disputed, of approximately $200,000. The Company has issued an aggregate of
791,280 shares of Common Stock and an additional 240,504 Rights to the Radius
Creditors Trust, for the purpose of satisfying a portion of any such
remaining or previously unknown claims. As of November 7, 1996 the Company
believes that approximately 444,253 shares of Common Stock and 135,207 Rights
remained in the Radius Creditors Trust. There can be no assurance that this
amount will be sufficient to satisfy any such claims. If the Company cannot
settle or repay these remaining claims or any previously unknown claims,
there can be no assurance that such claimants will not institute enforcement
proceedings in order to collect their claims. Any such proceedings could
have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, of the approximately 300
persons the Company believed to be Convenience Class Creditors, approximately
50 persons claimed that no balance was owed to such creditors. There can be
no assurance that such creditors will not, in the future, assert claims
against the Company. See "Recent Developments -- Debt for Equity Exchange."
The adverse effect on the Company's results of operations due to its
limited cash resources can be expected to continue until such time as the
Company is able to return to operational profitability, or generate
additional cash from other sources. There can be no assurance that the
Company will be able to do so. See "Risk Factors -- Continuing Operating
Losses; Going Concern Considerations."
Based on preliminary sales, sales orders, operating and other financial
data through September 30, 1996, the Company believes that net revenues for
the three months ended September 30, 1996 were approximately $7.0 million, as
compared to $57.1 million for the same period in fiscal 1995. Net loss for
the three months ended September 30, 1996 was approximately $9.8 million as
compared to $117.9 million for the same period in fiscal 1995. Fourth quarter
results were negatively affected by significant product shortages during the
quarter. Radius PressView and Precision View displays were not shipped by
Radius' vendor until the last two weeks of the quarter because of the length
of time required to negotiate a new manufacturing arrangement. As there
was a substantial backlog for these products at the beginning of the quarter,
the delay in shipments resulted in a lack of supply for customers and
resellers. Similarly, the Company's Video Vision PCI was in short supply
during the quarter. This product was being manufactured by a new turnkey
manufacturing partner for the product and delays were experienced during the
commencement and initial start-up process of this relationship. Fourth
quarter 1996 results also included a one time charge of $3.5 million
resulting from the restructuring which was completed during the quarter.
Net revenues for the entire 1996 fiscal year were approximately $90.3
million as compared to $308.1 million for the prior year. Net loss was
approximately $975,000 as compared to $131.7 million for the prior fiscal
year.
The Company experienced net operating losses in the fiscal quarters
ended March 31, 1996 and December 31, 1995, and in each of the fiscal years
ended September 30, 1996, 1995, 1994 and 1993. The Company's ability to
continue operations will depend, initially, upon the Company's ability to
repay creditors with whom accommodations cannot be reached (assuming such
remaining creditors do not institute enforcement proceedings against the
Company). In the future, the Company's ability to sustain profitable
operations will depend upon a number of other factors, including
20
<PAGE>
the Company's ability to control costs; the Company's ability to service and
repay its restructured indebtedness to IBM Credit; the Company's ability to
develop innovative and cost-competitive new products and to bring those
products to market in a timely manner; the continual commercial acceptance of
Apple computers and the rate and mix of Apple computers and related products
sold; competitive factors such as new product introductions, product
enhancements and aggressive marketing and pricing practices; general economic
conditions; and other factors. The Company has faced and expects to continue
to face increased competition in graphic cards as a result of Apple's
transition of its product line to the PCI Bus. For these and other reasons,
there can be no assurance that the Company will be able to achieve or
maintain profitability in the near term, if at all. See "Risk Factors --
Continuing Operating Losses; Going Concern Considerations," and "-- Need for
Additional Financing; Loan Restrictions."
The Company has experienced substantial fluctuations in operating results.
The Company's customers generally order on an as-needed basis, and the Company
has historically operated with relatively small backlogs. Quarterly sales and
operating results depend heavily on the volume and timing of bookings received
during the quarter, which are difficult to forecast. A substantial portion of
the Company's revenues are derived from sales made late in each quarter, which
increases the difficulty in forecasting sales accurately. Since the end of its
1995 fiscal year, shortages of available cash have delayed the Company's receipt
of products from suppliers and increased shipping and other costs. The Company
recognizes sales upon shipment of product, and allowances are recorded for
estimated uncollectable amounts, returns, credits and similar costs, including
product warranties and price protection. Due to the inherent uncertainty of
such estimates, there can be no assurance that the Company's forecasts regarding
bookings, collections, rates of return, credits and related matters will be
accurate. A significant portion of the operating expenses of the Company are
relatively fixed in nature, and planned expenditures are based primarily on
sales forecasts which, as indicated above, are uncertain. Any inability on the
part of the Company to adjust spending quickly enough to compensate for any
failure to meet sales forecasts or to receive anticipated collections, or any
unexpected increase in product returns or other costs, could also have an
adverse impact on the Company's operating results. See "Risk Factors --
Fluctuations in Operating Results."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
operational data as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------- -----------------------
1995 1994 1993 1996 1995
---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 98.3 85.3 75.4 80.7 73.7
---- ------ ------ ------ ------
Gross profit 1.7 14.7 24.6 19.3 26.3
------ ------
Operating expenses:
Research and development 6.3 10.5 9.9 7.5 5.5
Selling, general, and administrative 29.2 29.2 24.9 25.7 19.4
----- ---- ----- ------- ------
Total operating expenses 35.5 39.6 34.9 33.2 24.9
----- ----- ----- ------ ------
Income (loss) from operations (33.8) (24.9) (10.3) (13.9) 1.4
Other income (expense), net (2.0) (0.4) 25.3 (1.8)
Litigation settlement (4.0) -- -- -- (4.9)
----- ------- ------- ------ -----
Income (loss) before income taxes (39.8) (25.3) (10.2) 11.4 (5.3)
Provision (benefit) for income taxes 2.9 (1.4) (4.1) 0.8 0.2
---- ------ ------- ------ -----
Income (loss) before cumulative effect of
a change in accounting principle (42.8) (23.9) (6.1) 10.6 (5.5)
Cumulative effect of change in method of
accounting for income taxes -- -- 0.2 -- --
------ ------- ----- ------ ------
Net income (loss) (42.8)% (23.9)% (6.0)% 10.6 % (5.5)%
-------- -------- ------- ------- ------
-------- -------- ------- ------- ------
</TABLE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
NET SALES. Net sales for the first nine months of fiscal 1996 decreased
66.8% to $83.3 million from $251.0 million in the same period in fiscal 1995.
This decline was primarily due to the Company's efforts to refocus its business
which included exiting markets for high-volume low-margin displays, reduced
sales of the Company's video and graphics products caused by Apple's shift from
Nubus to PCI Bus computers, and business divestitures.
As a result of the sale by the Company of its Color Server Group, the
Company recorded no revenue from sales of color server products in the third and
second quarter of its 1996 fiscal year and recorded approximately $7.0 million
of net sales for the first quarter of its 1996 fiscal year. The Company
anticipates significantly lower overall net sales in the immediate future as a
result of the Company's decision to focus its efforts on providing solutions for
high end digital video and graphics customers, discontinue selling mass market
displays and other low value added products, and the divestiture of certain
businesses such as its color server group and MacOS compatible systems. Revenues
attributable to the Company's Color Server Group were $21.7 million for the nine
months ended June 30, 1995. Had the net sales of the Color Server Group not been
included in net sales for the nine months ended June 30, 1995 and 1996, net
sales for such periods would have been $229.3 million and $76.3 million,
respectively. See "-- Business Divestitures."
One customer accounted for 39.0% of the Company's net sales for the nine
months ended June 30, 1996. For the corresponding period of fiscal 1995, one
customer accounted for 25.1% of the Company's net sales.
The Company's export sales for the nine months ended June 30, 1996 was
52.8% of net sales. The Company anticipates a decline in the percentage of net
sales attributable to the Asia-Pacific and European sales regions in connection
with the appointments of a Japanese and a European distributor. Export sales
are subject to the normal risks associated with doing business in foreign
countries such as currency fluctuations, longer payment cycles, greater
difficulties in accounts receivable collection, export controls and other
government regulations and, in some countries, a lesser degree of intellectual
property protection as compared to that provided under the laws of the United
States. The Company hedges substantially all of its trade receivables
denominated in foreign currency through the use of foreign currency forward
exchange contracts based on third party commitments. Gains and losses
22
<PAGE>
associated with currency rate changes on forward contracts are recognized in the
Company's consolidated statements of operations upon contract settlement and
were not material in the first nine months of fiscal 1996 or 1995.
GROSS PROFIT. The Company's gross profit margin was 19.3% for the nine
month period ending June 30, 1996, as compared with 26.3% for the corresponding
period in fiscal 1995. The decline in gross margin was primarily due to pricing
pressure, greater competition in PCI Bus products than in Nubus products, and
price declines on lower margin displays related to the Company's exit from that
business.
In addition, the Color Server Group had gross profit margin of 34.9% for
the nine months ended June 30, 1995. Had the Color Server Group business been
excluded from the calculation of gross profit margin for such period, the
Company's gross profit margin would have been 22.6% for the nine months ended
June 30, 1995.
The Company anticipates continued price reductions and margin pressure
within its industry. The Company is responding to these trends by focusing on
higher margin products, taking further steps to reduce product costs and
controlling expenses. There can be no assurance that the Company's gross
margins will recover or remain at current levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased from $13.8 million or 5.5% of net sales for the first nine months of
fiscal 1995 to $6.2 million or 7.5% of net sales for the corresponding period in
fiscal 1996. The Company decreased its research and development expenses
primarily by reducing expenses related to headcount resulting from the Company's
efforts to refocus its business and business divestitures. The increase in
research and development expenses expressed as a percentage of net sales for the
nine months ended June 30, 1996, was primarily attributed to the decrease in net
sales and the Company's refocusing on higher-end products, rather than high-
volume lower-margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $48.7 million or 19.4% of net sales for
the first nine months of fiscal 1995 to $21.4 million or 25.7% of net sales for
the corresponding period in fiscal 1996. Expenses in the nine month period of
fiscal 1995 included a reduction of approximately $2.1 million of merger-related
restructuring reserves to reflect current requirements.
During the second quarter of fiscal 1996, the building in which the Company
leases its headquarters was sold. In connection with the sale, the Company
terminated its existing lease and entered into a lease with the new owner of the
building. In connection with the final terms of this new lease, expenses in the
third quarter of fiscal 1996 included a reduction of approximately $913,000 of
restructuring reserves to reflect current requirements. The Company anticipates
that the change of rental terms will help reduce the Company's occupancy costs
and long-term lease obligations.
The Company decreased its selling, general and administrative expenses
primarily by reducing expenses related to headcount resulting from the Company's
efforts to refocus its business and business divestitures. The increase in
selling, general and administrative expenses expressed as a percentage of net
sales was primarily attributed to the decrease in net sales and the Company's
refocusing on higher-end products, rather than high-volume lower-margin
products.
OTHER INCOME (EXPENSE), NET. Other income was $21.1 million for the nine
months ended June 30, 1996, as compared to other expense of $4.6 million for the
corresponding period in fiscal 1995. The increase was due primarily to other
income of approximately of $23.8 million resulting from the Company's
divestitures of three business lines, including the Color Server Group,
partially offset by approximately $3.1 million in interest expense on amounts
outstanding under the Company's loan agreements.
PROVISION FOR INCOME TAXES. The Company recorded a tax provision of
$656,000 for the nine months ended June 30, 1996 as compared to a provision for
taxes for the comparable period of fiscal 1995 of $450,000. The tax provision
is primarily comprised of foreign taxes.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
23
<PAGE>
As a result of the issuance of Common Stock and Series A Convertible
Preferred Stock in exchange for certain liabilities of the Company, the Company
has experienced a "change of ownership" as defined under Section 382 of the
Internal Revenue Code. Accordingly, the net operating loss and tax credit
carryforwards will be subject to a substantial annual limitation regarding their
utilization against future tax liabilities. This limitation will result in the
expiration of all of the tax credit carryforwards and a substantial portion of
the net operating loss carryforwards.
NET INCOME (LOSS). As a result of the above factors, the Company had net
income of $8.8 million for the nine months ended June 30, 1996, as compared to a
net loss of $13.9 million for the nine months ended June 30, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. The Company's net sales decreased 5.1% to $308.1 million in
fiscal 1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were
reduced by approximately $11.4 million due to reserves taken by the Company in
anticipation of future price reductions on a number of its graphics cards, MacOS
compatible systems and other products that are designed for Apple's NuBus-based
computers which have been largely replaced by Apple's recently introduced PCI
Bus-based computers.
During the 1995 fiscal year, net sales of graphics cards declined
substantially due primarily to reduced demand resulting from Apple's
incorporation of built-in graphics capabilities in its PowerPC based Macintosh
systems. Net sales from displays, accelerator cards and printers also declined
during the 1995 fiscal year. These declines were largely offset by sales of
MacOS compatible systems which were first introduced in the 1995 fiscal year and
by a substantial increase of approximately $13.5 million in net sales from the
Company's color server products. In January 1996, the Company completed the
sale of its color server business and in February, 1996, its MacOS business.
While net sales from the Company's digital video products increased
slightly during the fiscal year, the Company anticipates lower revenue from this
product line until the introduction of new products now under development.
There can be no assurance that the Company will be able to successfully develop,
introduce and market these new products or that these products will achieve
commercial success.
The Company anticipates significantly lower overall net sales in fiscal
1996 as a result of the Company's decision to focus its efforts on providing
solutions for high end digital video and graphics customers, discontinue selling
mass market displays and other low value added products, and the divestiture of
certain businesses such as its color server group and MacOS compatible systems.
Net sales attributable to the Company's Color Server Group and MacOS compatible
systems were approximately $29.3 million and $21.8, respectively for fiscal
1995. Had the net sales of these businesses not been included in net sales for
the 1995 fiscal year, the Company's net sales for such fiscal year would have
been approximately $257 million.
Export sales represented approximately 40.4%, 34.5%, and 32.0% of net sales
for fiscal 1995, 1994 and 1993, respectively. See Note 7 of Notes to
Consolidated Financial Statements. Export sales are subject to the normal risks
associated with doing business in foreign countries such as currency
fluctuations, longer payment cycles, greater difficulties in accounts receivable
collection, export controls and other government regulations and, in some
countries, a lesser degree of intellectual property protection as compared to
that provided under the laws of the United States.
GROSS PROFIT. The Company's gross profit margin including restructuring
and other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in fiscal
1994. The Company's gross profit margin excluding the restructuring and other
charges declined to 16.9% in fiscal 1995, compared to 27.3% in fiscal 1994.
Excluding restructuring and other charges, the Company's gross profit margin
declined primarily due to lower sales of higher margin graphics cards, costs
incurred to process higher than expected product returns resulting from the
consolidation of the Radius and SuperMac product lines and slower than expected
sell through of its Radius Telecast digital video product, significant price
erosion on NuBus based MacOS compatible systems combined with high production
costs for these systems, the sale of end of life products, and increased pricing
pressures. The Company anticipates continued competitive pricing actions
resulting in declining prices in its industry.
In addition, the Color Server Group and MacOS businesses had gross profit
(loss) of approximately $9.8 million and ($19.2 million), respectively for
fiscal 1995. Had those businesses not been included in the calculation of the
Company's gross profit for fiscal 1995, gross profit for such fiscal year would
have been approximately $14.6 million, with a gross profit margin of
approximately 5.7%.
24
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $19.3 million, or 6.3% of net sales, in fiscal 1995 from $34.0
million, or 10.5% of net sales, in fiscal 1994. The Company's research and
development expenses in fiscal 1994 included restructuring and other charges of
$4.3 million. No restructuring and other charges were included in research and
development expenses in fiscal 1995. The remainder of the decrease in research
and development expenses during the fiscal year was primarily due to the
reduction of expenses as a result of the Company's restructuring following the
Merger. The merger-related restructuring resulted in reduced costs primarily
related to headcount, depreciation, and facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses including restructuring and other charges decreased to
$90.1 million, or 29.2% of net sales, in fiscal 1995 from $94.7 million, or
29.2% of net sales, in fiscal 1994. Selling, general and administrative
expenses excluding restructuring and other charges decreased to $79.2 million,
or 25.7% of net sales, in fiscal 1995 from $84.0 million, or 25.9% of net
sales, in fiscal 1994. The decrease in selling, general and administrative
expenses during the fiscal year was primarily due to the reduction of expenses
as a result of the Company's restructuring following the Merger. The merger-
related restructuring resulted in reduced costs primarily related to headcount,
depreciation and facilities.
PROVISION FOR INCOME TAXES. The Company's annual combined federal and
state effective income tax rates were approximately (7.4%) (expense) in fiscal
1995 and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the
combined statutory rate in effect during the period primarily as a result of the
impact of not benefiting the 1995 operating losses and the reversal of existing
deferred tax assets. The fiscal 1994 rate differs from the combined statutory
rate in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
OTHER INCOME (EXPENSE). Other expense increased 387.4% to $6.1 million in
fiscal 1995 from $1.2 million in fiscal 1994. This increase was due primarily
to increased interest expense for outstanding borrowings and increased cash
discounts offered to customers for early payment and flooring charges relating
to the Company's accounts receivable.
NET INCOME (LOSS). As a result of the above factors net loss increased
69.9% to $131.7 million in fiscal 1995 from $77.5 million in fiscal year 1994.
The Color Server Group had net income of approximately $3.5 million for fiscal
1995, had this business not been included in the calculation of the Company's
net loss for fiscal 1995, the Company would have had a net loss of approximately
$135.2 million for such fiscal year.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. The Company's net sales decreased 3.7% to $324.8 million in
fiscal 1994 from $337.4 million in fiscal 1993. The Company believes that this
decline in net sales was in part attributable to the customers postponing
purchasing decisions during the fourth quarter as a result of uncertainty as to
which of the Company's product lines would be supported and which would be
discontinued following the Merger. Sales were flat for the nine months ended
June 30, 1994 prior to the Merger. Net sales of video products and displays
increased but this increase was offset by pricing pressure on graphics cards.
Demand was lower than anticipated for graphics cards due to the introduction of
the Power Macintosh by Apple and the resulting customer uncertainty surrounding
the need for graphics acceleration given the built-in video capabilities of this
new product.
GROSS PROFIT. The Company's gross profit margin including the
restructuring and other charges declined to 14.7% in fiscal 1994, compared to
24.6%, in fiscal 1993. The Company's gross profit margin excluding the
restructuring charges declined to 27.3% in fiscal 1994, compared to 31.8% in
fiscal 1993. See Note 8 of Notes to Consolidated Financial Statements regarding
the restructuring and other charges for SuperMac in December 1993 and Merger
related restructuring and other
25
<PAGE>
charges in September 1994. Excluding the restructuring charges, the decline in
gross margins was due to increased pricing pressures and a change in the product
mix favoring lower margin displays over higher margin graphics accelerator
cards.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased slightly to $34.0 million, or 10.5% of net sales, in fiscal 1994 from
$33.5 million, or 9.9% of net sales, in fiscal 1993. The relatively flat
absolute dollar expenditures in research and development activities were due to
recording significant restructuring and other charges related to development
project cancellations, equipment disposal, and severance in fiscal 1994 offset
by the decrease in expenditures in fiscal 1994 as a result of the cancellation
of Radius' efforts to develop a variety of technologies originally intended for
a minicomputer-class server product. Additionally, the research and development
expenses appeared flat due to the SuperMac 1993 restructuring of $2.0 million
for development project cancellations included in both the fiscal 1993 and
fiscal 1994 results of operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $94.7 million, or 29.2% of net sales, in
fiscal 1994 from $84.1 million, or 24.9% of net sales, in fiscal 1993. The
increase in absolute dollars was primarily due to increased personnel expense,
market development expenses, restructuring and other charges in fiscal 1994 and
the Company's investment in its information system. The 1993 restructuring and
other charges included the elimination of excess facilities, capital equipment
write-offs, severance payments and the termination of certain contractual
agreements. Restructuring and other charges for fiscal 1994 included the
elimination of duplicative facilities, property and equipment and other assets,
severance payments, as well as transaction fees and costs incidental to the
Merger.
PROVISION FOR INCOME TAXES. The Company's annual combined federal and
state effective income tax rates were approximately 6% in fiscal 1994 and 40% in
fiscal 1993 before the cumulative effect of the change in method of accounting
for income taxes. The fiscal 1994 rate differs from the combined statutory rate
in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss. The 1993 rate differs from the combined
statutory rate in effect during the period primarily as a result of the
utilization of the research and development tax credit.
OTHER INCOME (EXPENSE). Other expense increased to $1.2 million in fiscal
1994 from other income of $70,000 in fiscal 1993. The increase in other expense
was due primarily to reduced interest earned on cash balances, increased
interest expense on outstanding borrowings, the offering of cash discounts to
customers for early payment and flooring charges relating to the Company's
accounts receivable.
NET INCOME (LOSS). As a result of the above factors, net loss increased
285.6% to $77.5 million in fiscal 1994 from $20.1 million in fiscal 1993.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1993, 1994 and 1995, four restructuring and other charges
were recorded. Radius recorded a $15.5 million restructuring charge during the
third quarter of fiscal 1993 in connection with the implementation of a program
designed to reduce costs and improve operating efficiencies. SuperMac recorded
a $16.6 million restructuring charge during December 1993 in connection with a
program to realign its inventory and facility and personnel resources.
Subsequently, the two companies merged and incurred a restructuring charge of
$43.4 million. In September 1995, Radius recorded $57.9 million restructuring
charge in connection with the Company's efforts to refocus and streamline its
business. A discussion of each of these events follows.
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES. In June 1993, Radius
announced a restructuring program designed to reduce costs and improve operating
efficiencies. The program included, among other things, the write-down of
inventory following Radius' decision to phase out its older generation of
products, lease termination expenses, capital equipment write-offs, severance
payments, and costs associated with the discontinuation of Radius' minicomputer-
class server product. The restructuring program costs of $15.5 million were
recorded during the third quarter of fiscal 1993. These charges (in thousands)
are included in: cost of sales ($10,993); research and development ($411); and
selling, general and administrative expenses ($4,096). The Company completed
this restructuring event by the end of calendar 1994. There were no material
changes in the restructuring plan or in the estimates of the restructuring costs
from the recognition of the charge in June 1993 with the completion of the
restructuring program in December 1994.
26
<PAGE>
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES. In December 1993,
SuperMac recorded charges of $16.6 million in connection with a program to
adjust inventory levels, eliminate excess facilities, terminate certain projects
and contract arrangements and reduce the number of employees. The charges (in
thousands) are included in: cost of sales ($13,352); research and development
($2,000); and selling, general and administrative expenses ($1,238). There have
been no material changes in the restructuring plan or in the estimates of the
restructuring costs. The Company has $236,000 remaining in its restructuring
reserve related to facility costs, the balance of which is expected to be
eliminated in fiscal 1996. As noted in the Consolidated Financial Statements,
the consolidated results for the Company in both the twelve months ended
September 30, 1994 and the fiscal period ended 1993 include SuperMac's $16.6
million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES. In the
fourth quarter of fiscal 1994, the Company recorded charges of $43.4 million in
connection with the Merger of Radius and SuperMac. These charges include the
discontinuance of duplicative product lines and related assets; elimination of
duplicative facilities, property and equipment and other assets; and personnel
severance costs as well as transaction fees and costs incidental to the merger.
The charges (in thousands) are included in: net sales ($3,095); cost of sales
($25,270); research and development ($4,331); and selling, general and
administrative expenses ($10,711). The elements of the total charge as of
June 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
------------------------------------
Cash Outlays
-----------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $3,096 $ -
Excess facilities 2,790 400 2,261 129
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
-------- ------- ------- -------
Total charges $43,407 $26,678 $15,885 $ 844
</TABLE>
The adjustment of inventory levels reflects the discontinuance of
duplicative product lines. The provision for excess facility costs represents
the write-off of leaseholds and sublease costs of Radius' previous headquarters,
the consolidation into one main headquarters and the consolidation of sales
offices. The revision of the operations business model reflects the
reorganization of the combined Company's manufacturing operations to mirror
Radius' manufacturing reorganization in 1993. This reorganization was designed
to outsource a number of functions that previously were performed internally,
reduce product costs through increased efficiencies and lower overhead, and
focus the Company on a limited number of products. Employee severance costs are
related to employees or temporary employees who were released due to the revised
business model. Approximately 250 employees were terminated in connection with
the Merger. The provision for merger related costs is for the costs associated
with the Merger transaction, such as legal, investment banking and accounting
fees. The Company has spent $15.9 million of cash for restructuring through
June 30, 1996. The Company expects to have substantially completed the
restructuring by September 1996. During fiscal 1995, approximately $2.1 million
of merger related restructuring reserves were reversed and recorded as an
expense reduction due to changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES. In September 1995,
Radius recorded charges of $57.9 million in connection with the Company's
efforts to restructure its operations by refocusing its business on the color
publishing and multimedia markets. The charges primarily included a writedown
of inventory and other assets. Additionally, the charges included expenses
related to the cancellation of open purchase orders, excess facilities and
employee severance. The charges (in thousands) are included in cost of sales
($47,004), and selling, general and administrative expense ($10,861). The
elements of the total charge as of June 30, 1996 are as follows (in thousands):
27
<PAGE>
<TABLE>
<CAPTION>
REPRESENTING
---------------------------------
Cash Outlays
------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $33,138 $ 32,300 $838 $ -
Excess facilities 2,004 404 1,415 185
Cancellation fees and asset write-offs 19,061 5,196 18 13,847
Employee severance 3,662 - 2,552 1,110
-------- ------- ------ -------
Total charges $57,865 $37,900 $4,823 $15,142
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. Revenues and gross profit (loss) for significant product lines
discontinued were as follows: Mac-OS compatible systems were approximately
$21.8 million and $(19.2) million, respectively; and low-margin displays were
approximately $82.9 million and $19.6 million, respectively. The provision for
excess facility costs represent the write-off of leasehold improvements and the
costs associated with anticipated reductions in facilities. The cancellation
fees and asset write-offs reflect the Company's decision to refocus its efforts
on providing solutions for the color publishing and multimedia markets.
Employee severance costs are related to employees or temporary employees who
have been or will be released due to the restructuring. As of June 30, 1996,
approximately 228 positions of the 240 total planned had been eliminated in
connection with the restructuring. The Company had spent approximately $4.8
million of cash for this restructuring during the nine months ended June 30,
1996 and during the quarter ended June 30, 1996, approximately $913,000 of
restructuring charges were reversed and recorded as an expense reduction due to
changes in estimated requirements. As of June 30, 1996, the Company had cash of
$3.3 million. The Company expects to have substantially completed the
restructuring by the end of September 1996.
LITIGATION SETTLEMENT
In September 1992, the Company and certain of its officers and directors
were named as defendants in a securities class action litigation brought in the
United States District Court for the Northern District of California that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. In July 1994, SuperMac
Technology, Inc. ("SuperMac") and certain of its officers and directors, several
venture capital firms and several of the underwriters of SuperMac's May 1992
initial public offering and its February 1993 secondary offering were named as
defendants in a class action litigation brought in the same court that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
experts' fees and costs, and equitable relief (including the imposition of a
constructive trust on the proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and
entered a Final Judgment and Order of Dismissal. Under the settlement of the
litigation brought in 1992 against the Company, the Company's insurance
carrier paid $3.7 million in cash and the Company issued a total of 128,695
shares of its Common Stock to a class action settlement fund. In the
settlement of the litigation brought in 1994 against SuperMac, the Company
paid $250,000 in cash and is to issue into a class action settlement fund a
total of 707,609 shares of its Common Stock. The number of shares to be
issued by the Company increased by 100,000 because the price of the Company's
Common Stock was below $12 per share during the 60-day period following the
initial issuance of shares. In connection with these settlements, the
financial statements for the first quarter of fiscal 1995 included a charge
to other income of $12.4 million, reflecting settlement costs not covered by
insurance as well as related legal fees, resulting in a reduction in net
income from $1.4 million to a net loss of $11.0 million or $0.78 per share
for the quarter.
As of September 30, 1996, the Company had issued 836,674 shares of its
Common Stock due to the settlements and 99,630 shares remained to be issued.
BUSINESS DIVESTITURES
COLOR SERVER GROUP DIVESTITURE. In January 1996, the Company completed the
sale of its Color Server Group ("CSG") to Splash Merger Company, Inc. (the
"Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc. (the
"Parent"), a corporation formed by various investment entities associated with
Summit Partners. The Company received approximately $17.2 million in cash and
4,282 shares of the Parent's 6% Series B Redeemable and Convertible Preferred
Stock
28
<PAGE>
(the "Series B Preferred Stock"). An additional $4.7 million was placed in
escrow to secure certain post-closing and indemnification obligations. In
April 1996, approximately $2.3 million was released from this escrow to the
Company and the Company also received approximately $1.5 million as a result
of post-closing adjustments. The shares of Series B Preferred Stock are
convertible by the Company at any time into approximately 19.9% of the
Parent's Common Stock outstanding as of the closing of the transaction. The
Company has not converted the Series B Preferred Stock into Common stock of
the Parent. Furthermore, such stock has been pledged to IBM Credit. In
connection with IBM Credit agreeing to subordinate its security interest in
certain technology and intellectual property rights incorporated in the
Company's Pressview products to the security interest granted to Mitsubishi
Electronics, the Company granted IBM Credit an option to purchase 428 shares
of Series B Preferred Stock at $0.01 per share. IBM Credit has exercised this
option and the Company has assigned 428 of its shares of Series B Preferred
Stock to IBM Credit. In addition, under the terms of the new loan agreement
with IBM Credit, IBM Credit has the right to require Radius to sell up to 50%
of its Series B Preferred Stock (or the shares of Common Stock into which
such Series B Preferred Stock is convertible) within one year of the initial
public offering of Parent, which occurred on October 9, 1996, and up to 25%
of its Series B Preferred Stock (or the shares of Common Stock into which
such Series B Preferred Stock is convertible) during each of the second and
third year following such initial public offering. If the balance due under
the term loan with IBM Credit exceeds 90% of the market value of such Series
B Preferred Stock (or the shares of Common Stock into which such Series B
Preferred Stock is convertible) after the initial public offering of Parent,
IBM Credit can require Radius to sell such securities to repay such term
loan. The shares of Series B Preferred Stock also will be redeemable by the
Parent at any time, and will be subject to mandatory redemption beginning on
the sixth anniversary of issuance, in each case at a redemption price of
$1,000 per share plus accrued dividends. The Company has certain
indemnification obligations in connection with the patent lawsuit brought by
Electronics for Imaging, Inc. The net proceeds of the CSG transaction were
paid to Silicon Valley Bank ("SVB"), in order to repay the Company's
indebtedness to SVB, and to IBM Credit, in order to reduce the Company's
outstanding indebtedness to IBM Credit. See "Unaudited Pro Forma Financial
Information."
PORTRAIT DISPLAY LABS. In January 1996, the Company entered into a series
of agreements with Portrait Display Labs, Inc. ("PDL"). The agreements assigned
the Company's pivoting technology to PDL and canceled PDL's on-going royalty
obligation to the Company under an existing license agreement in exchange for a
one-time cash payment. The Company did not receive any material amount of
payments under such license agreement. PDL also granted the Company a limited
license back to the pivoting technology. Under these agreements, PDL also
settled its outstanding receivable to the Company by paying the Company $500,000
in cash and issuing to the Company 214,286 shares of PDL's Common Stock. The
cash proceeds were paid to IBM Credit.
UMAX DATA SYSTEMS, INC. In February 1996, the Company sold its MacOS
compatible systems business to UMAX Computer Corporation ("UCC"), a company
formed by UMAX Data Systems, Inc. ("UMAX"). The Company received approximately
$2.3 million in cash and debt relief, and 1,492,500 shares of UCC's Common
Stock, representing approximately 19.9% of UCC's then outstanding shares of
Common Stock. The cash proceeds were paid to IBM Credit and the shares of UCC
Common Stock were pledged to IBM Credit.
DISPLAY TECHNOLOGIES ELECTROHOME INC. In December 1995, the Company
completed the sale of its monochrome display monitor business to Display
Technologies Electrohome Inc. ("DTE"). DTE purchased Radius' monochrome display
monitor business and certain assets related thereto, for approximately $200,000
in cash and cancellation of $2.5 million of the Company's indebtedness to DTE.
In addition, DTE and Radius canceled outstanding contracts relating to DTE's
manufacture and sale of monochrome display monitors to Radius.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $11.2
million during fiscal 1995 to approximately $4.8 million at September 30, 1995,
as compared with the fiscal 1994 ending balance of cash and cash equivalents of
$16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash
equivalents available at September 30, 1995 was restricted under various letters
of credit. The decrease in the Company's cash and cash equivalents during
fiscal 1995 was primarily attributable to expenditures made in connection with
the development and introduction of the Company's MacOS compatible systems. The
Company's cash increased approximately $500,000 in the third quarter of fiscal
1996 to $3.3 million at June 30, 1996 as compared to the ending balance at March
31, 1996 of $2.8 million. Approximately $400,000 of the $3.3 million of cash
and cash equivalents available at June 30, 1996 was restricted under various
letters of credit.
29
<PAGE>
The Company also holds securities in Splash Technology Holdings, Inc.
and UMAX Computer Corporation ("UMAX"), which securities have been pledged to
IBM Credit. Splash Technology Holdings, Inc. recently became a public
company, however, these securities are "restricted securities" under Rule 144
promulgated under the Securities Act and will become available for sale in
January 1998, subject to certain volume, manner of sale, notice and
availability of public information requirements of such rule. The Company
also has certain registration rights with respect to those securities. Because
UMAX is a private company, there is no market for such securities. In addition,
as described under "-- Business Divestitures -- Color Server Group
Divestiture," the Company will be required to sell its securities in Splash
Technology Holdings, Inc. over no longer than a three year period after such
Company's initial public offering if amounts are outstanding under the loan
with IBM Credit.
The Company has granted to IBM Credit a security interest in substantially
all of its assets to secure the Company's various obligations to IBM Credit.
The Company has also granted to Mitsubishi Electronics a security interest
(securing an amount up to $4.4 million) in all of the Company's technology and
intellectual property rights related to and incorporated into the Company's
PressView products.
The Company's principal source of liquidity is an up to $5.0 million
working line of credit provided by IBM Credit pursuant to the terms of the
restructured loan with IBM Credit, however this working line of credit is not
expected to provide the Company with a significant source of liquidity for the
foreseeable future. Accordingly, the Company intends to finance its working
capital needs through cash generated from operations. See "Risk Factors -- Need
for Additional Financing; Loan Restrictions."
In connection with the Plan, IBM Credit received 750,000 shares of the
Company's Series A Convertible Preferred Stock and Warrants to purchase 600,000
shares of Common Stock in consideration of the cancellation of $3.0 million of
indebtedness to IBM Credit and for an additional advance of $500,000. In
addition, IBM Credit has restructured the terms of the remaining approximately
$23.4 million indebtedness into a working line of credit and a term loan. The
Company has an up to $5.0 million working line of credit and IBM Credit will
extend advances under this line of credit in an amount not to exceed the
borrowing base (which is defined as (i) the lesser of 10% of the gross value of
eligible inventory or $500,000; plus (ii) 80% of the Company's eligible domestic
accounts receivable; plus (iii) the lesser of 50% of the gross value of certain
eligible Japanese and European accounts receivable or $500,000). The $470,000
advanced by IBM Credit pursuant to the Plan is included in this working line of
credit but will not be included in the calculation of the borrowing base. The
initial amount of current indebtedness to be outstanding under this line of
credit is $1.5 million, the amount of the borrowing base on the date of the
closing of the restructured loan. The remaining $21.9 million balance of the
Company's indebtedness to IBM Credit has been converted to a four-year term
loan. Principal on such term loan will be repaid on a mandatory prepayment
schedule. The restructured loan with IBM Credit is subject to mandatory
prepayment as follows: (i) upon the disposition of any assets of the Company
outside of the ordinary course of business, all net proceeds to the Company must
be applied towards the Company's obligations under the loan; (ii) upon the
closing of any financing, 10% of the proceeds must be applied towards the
Company's obligations under the loan; (iii) upon the thirtieth day following the
end of each fiscal quarter, an amount of no less than 50% of operating cash flow
for such prior fiscal quarter must be applied towards the Company's obligations
under the loan; and (iv) upon the receipt of any other amounts other than sales
of inventory or used or obsolete equipment in the ordinary course of business,
and not otherwise described in the preceding clause (i) - (iii), all of such
amounts must be applied towards the Company's obligations under the loan. If
the Company's obligations under the term loan, as well as finance charges and
amounts outstanding in excess of the "borrowing base" (described above) under
the working line of credit, are repaid, IBM Credit can require such proceeds to
be applied towards a redemption of the Series A Convertible Preferred Stock. In
addition, the Company is required to deposit its revenues in accounts controlled
by IBM Credit. At any time, regardless of whether the Company is in default of
its obligations to IBM Credit, IBM Credit is permitted to apply these amounts
towards the repayment of any of the Company's obligations to IBM Credit. As a
result of IBM Credit's control over the Company's cash flow and these prepayment
and redemption provisions, together with the other terms and covenants of the
restructured loan agreement, the Company's ability to generate working capital
or to undertake a variety of other merger, disposition or financing activities
will be substantially restricted. See "Risk Factors -- Need for Additional
Financing; Loan Restrictions."
As a result of IBM's control over the Company's cash flow and these
restrictions on the Company's excess cash flow, the Company anticipates that it
will not have significant cash available for expenditures other than for its
ordinary course of business operating expenses. In the event the Company were
unable to generate sufficient net sales or if the Company incurs unforeseen
operating expenses, it may not be able to meet its operating expenses without
additional financing or a restructuring of its loan agreements with IBM Credit.
In the event that the Company desired to acquire any strategic technologies or
businesses, it would probably be unable to do so without obtaining additional
financing or the consent of IBM Credit. See "Risk Factors -- Need for
Additional Financing; Loan Restrictions."
30
<PAGE>
Previously, the Company funded its operations through the public and
private sale of equity securities, bank loans and cash flow from operations.
The Company completed a private placement during the third quarter of the 1995
fiscal year, the proceeds of which were utilized to build inventory of MacOS-
compatible systems components and reduce other vendor payables. This business
never generated a positive gross margin and the Company subsequently sold its
MacOs business in February 1996. See "Risk Factors -- Technological Change;
Continuing Need to Develop Products." In this private placement, the Company
sold 2,509,319 shares of its Common Stock resulting in net proceeds to the
Company of approximately $21.4 million. Other than the loan from IBM Credit,
the Company currently has no other bank loans.
Capital expenditures were approximately $215,000 during the nine months
ended June 30, 1996 and were $1.9 million in fiscal 1995 and $3.5 million in
fiscal 1994 and were primarily for leasehold improvements and upgrading the
Company's management information systems. The Company has no present plans for
any significant amount of capital expenditures in the future.
At October 31, 1996, the Company's principal commitments consisted of
obligations under its credit agreement with IBM Credit and its obligations under
building and capital leases. See Notes 2 and 3 to Consolidated Financial
Statements. The Company is also a party to various litigation proceedings, the
costs of defending which or the outcome of which could adversely affect the
Company's liquidity. See "Business -- Legal Proceedings."
Recently, the Company's limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its ability to
manufacture and sell products and has resulted in additional costs for expedited
deliveries. The adverse effect on the Company's results of operations due to
its limited cash resources can be expected to continue until such time as the
Company is able to return to profitability, or generate additional cash from
other sources. There can be no assurance that the Company will be able to do
so.
The Company believes it has sufficient funds to finance its operations for
the next 12 months. Additional funds will be needed to finance the Company's
operations, product development plans and for other purposes if the Company's
operating expenses are higher than anticipated. Additional financing will also
be required if the Company desires to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
While the Company is now investigating possible financing opportunities, there
can be no assurance that additional financing will be available when needed or,
if available, that the terms of such financing will not adversely affect the
Company's results of operations.
31
<PAGE>
BUSINESS
Overview
The Company designs, develops, manufactures, markets and supports color
publishing and digital video computer products for creative professionals. The
Company's current product line includes: accelerated color graphics products
that facilitate the creation and manipulation of graphical images; video systems
and software that can acquire and manipulate video and audio information; and
high resolution color reference displays that allow users to view text,
graphics, images and video.
The primary target markets for the Company's products are color publishing
and multimedia. These markets encompass creative professionals involved in such
areas as color prepress, graphic arts, video editing, video and multimedia
production and playback, and corporate training.
To date substantially all of the Company's products have been designed for
and sold to users of Macintosh computer products (the "Macintosh") manufactured
by Apple Computer, Inc. ("Apple") as Apple products have been the preferred
platform in the Company's target markets.
As shown in the accompanying consolidated financial statements, the Company
has incurred substantial operating losses and, until recently, had a deficiency
in assets and working capital. Management has implemented, a number of actions
to address this situation including: refocusing its efforts on providing
solutions for high end digital video and graphics customers; discontinuing sales
of mass market and other low value added products; divesting its color server
and monochrome display businesses and its MacOS compatible systems products and
other product lines; significantly reducing expenses and headcount; subleasing
all or a portion of its current facility given its reduced occupancy
requirements; and investigating various strategic partnering opportunities.
The Company, IBM Credit and its unsecured creditors recently consummated
the Plan pursuant to which the Company's creditors received equity in
satisfaction of their claims. The Company issued 36,294,198 shares of Common
Stock in satisfaction of approximately $45.9 million in unsecured claims
(including a $1.0 million reserve for unknown or unresolved claims) and
repaid approximately $1.9 million of unsecured claims, most of which were
less than $50,000, at an average discount of approximately 75% of the amount
of the claim. Of these shares of Common Stock issued pursuant to the Plan,
791,280 were issued to the Radius Creditors Trust for the purpose of
satisfying unresolved or unknown claims. The Company also issued 750,000
shares of its Series A Convertible Preferred Stock and Warrants to purchase
600,000 shares of Common Stock in satisfaction of $3.0 million indebtedness
to IBM Credit and in consideration of restructuring its remaining
approximately $23.4 million indebtedness to IBM Credit. The Company also
issued Rights to receive an additional 11,046,060 shares of Common Stock to
its unsecured creditors who received Common Stock in the event that the
Series A Convertible Preferred Stock is converted into Common Stock
(including 240,824 Rights issued to the Radius Creditors Trust). As of
October 13, 1996, the Company granted 200,000 Warrants to Mitsubishi
Electronics in consideration of the extension of open credit terms to the
Company. See "Recent Developments -- Debt for Equity Exchange."
The Company's executive offices are located at 215 Moffett Park Drive,
Sunnyvale, CA 94089, and its telephone number is (408) 541-6100.
PRODUCTS AND APPLICATIONS
A summary of some of the Company's principal products and their typical
applications is set forth below:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION SUGGESTED RETAIL PRICE
- ---------------- ------- ------------------ ----------------------
<S> <C> <C> <C>
Accelerated Color ThunderPower 30/1920 $1,999
ThunderColor 30/1600 Color publishing, prepress, graphics 2,499
Graphics Products Thunder Color 30/1152 design and professional color
imaging 1,999
(PCI-based) Thunder 30/1600 1,199
Thunder 30/1152 999
Precision Color 8/1600 399
Precision Color 24/1600 599
Color Engine 999
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION SUGGESTED RETAIL PRICE
- ---------------- ------- ------------------ ----------------------
<S> <C> <C> <C>
(NuBus-based) Thunder IV GX1600 $1,199
Thunder IV GX1360 1,099
Thunder/24 GT 599
Precision Color Pro 24X 649
PrecisionColor 8XJ 599
Color Reference PressView 21SR Color publishing, prepress and
graphics design 3,999
Displays PressView 17SR 2,499
Precision View 21 2,749
Color Management ProSense Display Color publishing and prepress 799
Products Calibrator
Color Composer
</TABLE>
ACCELERATED COLOR GRAPHICS PRODUCTS
The Radius graphics product families offer a wide range of user choices to
enhance the graphics performance of Apple Macintosh computers based on both the
NuBus and PCI bus architectures. The choices range from an entry level
accelerated 8-bit color graphics card (256 colors with up to 1 million pixels of
color display information) to a variety of accelerated 24-bit color graphics
cards (up to 16.7 million colors). All of the Company's graphics card products
offer a range of high speed QuickDraw acceleration features and support numerous
Radius, Apple and other third-party displays ranging from 13-inches to 21-inches
in size. The Company's graphics card products also allow the user to switch
resolutions "on-the-fly" without having to reboot the computer.
The Thunder (PCI), ThunderPower (PCI), ThunderColor (PCI) and Thunder IV
(NuBus) class graphics cards offer enhanced resolutions, as well as a number of
other acceleration capabilities for Adobe Photoshop, a popular application for
working with computer images. These graphics cards also feature hardware pan
and zoom capability, enabling users to quickly change the size and the amount of
the information on their color display. The Company believes these capabilities
allow users working with large amounts of detailed information to be more
productive because they can quickly accomplish a variety of tasks using these
hardware-based acceleration features.
The ThunderColor (PCI), Thunder 30 (PCI), and Thunder IV (NuBus) graphics
cards include multiple 66 MHz AT&T digital signal processors ("DSPs") that
accelerate Adobe Photoshop. Having parallel processing DSPs rather than the
base Macintosh's CPU perform the millions of computations required to manipulate
Photoshop images means that customers can produce finished results more quickly
and are more productive in their creative and production process. These cards
include chip technology that enables users to use Photoshop's CMYK color mode
faster than the native Macintosh. This is attractive to imaging professionals
who use Photoshop to work with and edit images comprised of 'ink' data which is
ready for printing. The Company believes this special "CMYK acceleration"
technology makes working with ink images on a computer display more interactive.
DIGITAL VIDEO SYSTEMS AND SOFTWARE
Radius offers a number of products for the non-linear digital video editing
and production market. Non-linear digital editing enables video editors to
manipulate pictures and sound in a faster, easier and more cost effective manner
than traditional analog tape-based systems. Editors can randomly access and
digitally "cut and paste" images, videos and sound clips avoiding the tedious
process of winding and rewinding of linear tape and the subsequent physical
cutting and splicing of film segments.
VideoVision Studio and VideoVision PCI, Radius' leading desktop video
product, was the first fully QuickTime compatible video editing and production
system that supported full-screen (640 x 480 pixels), full-motion video at 60-
fields per-second. VideoVision Studio offers JPEG video
compression/decompression capabilities, 16-bit C.D. stereo audio, and
33
<PAGE>
allows users to output their finished product directly and easily to
videotape. VideoVision Studio is compatible with QuickTime based software
applications for editing, effects, titling, graphics, animation and audio.
Radius Telecast (NuBus) offers broadcast quality digital video for short
form projects. Radius Telecast features include: high-quality, Betacam SP
component, S-video and composite digitizing and play back; QuickTime-compliant
video system software; 16-bit analog audio; and a 19" rack-mountable design.
Radius Telecast is designed to provide full QuickTime support, a high degree of
studio integration and professional video and audio support.
Radius also offers a QuickTime compliant digital video non linear
editing, compositing and animation software applications that facilitate the
creation and editing of digital video content. Radius Edit 2.0 is a
non-linear professional digital video editing solution that features an
intuitive user interface, FX templates, built-in titling, multiple key
frames, batch digitizing and picture-in-picture capabilities. Radius Edit
2.0 also offers a variety of high-quality special effects for digital video
editing including pan-zoom-rotating, chroma keying and compositing.
DISPLAYS
The Company currently offers a variety of large color reference displays
designed for desktop color publishers and graphic artists. The PressView SR
series (PressView 21SR and PressView 17SR) is designed to offer the color
accuracy, resolution and clarity needed for high quality color prepress, media
authoring, photography, medical imaging and scientific image processing. These
color reference displays offer consistent and accurate color preproofing at
resolutions of up to 1600 by 1200 pixels. The PrecisionView 21 also offers
resolutions of up to 1600 by 1200 pixels but at a lower price point. The
PressView SR series supports Kodak PrecisionColor, Agfa FotoFlow, Apple
ColorSync 2.0 and EFI Color management systems to ensure color accuracy.
In the past, the Company has also offered a variety of monochrome displays.
As part of its strategy to refocus its business, the Company entered into a
definitive agreement on December 21, 1995 to sell its monochrome display
business to Display Technologies Electrohome Inc. For a more complete
discussion see "Management's Discussion and Analysis of Financial Condition --
Business Divestitures."
COLOR MANAGEMENT PRODUCTS
Color peripherals tend to vary over time from their original
specifications, thus causing significant color variances. Display calibrators
control the way peripherals produce color, making the color more consistent and
predictable. The Company's Prosense Display Calibrator works with sensing
technology and Macintosh software to measure the actual color performance of a
display and then adjust information in the Macintosh graphics card so that the
colors will be accurate. This product also communicates with a number of third
party color management systems to provide color information about the display so
that color can be managed from one peripheral to another.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's research and development efforts are focused on creating new
products and technologies for customers who create, review, approve and utilize
high resolution color images and moving video. Current research and development
efforts include: (i) performance improvements and cost reductions of current
products; (ii) development of 3D graphics subsystems; (iii) development of
application software to facilitate the creation and manipulation of video and
high resolution still images; (iv) development of integrated software that
improves ease of use and functionality of the Company's graphics cards, digital
video cards, and color reference displays; and (v) development of next
generation technology to enable new methods of displaying and creating
information with greater flexibility, speed, and quality.
The Company believes that the competitive nature of the computer industry,
along with the rapid pace of technological evolution, requires that it continue
to introduce innovative products on a timely basis to compete effectively.
During the nine months ended June 30, 1996 and fiscal 1995, 1994 and 1993, the
Company's expenditures for research and development totaled $6.2 million, $19.3
million, $34.0 million, and $33.5 million, respectively. To date, all of the
Company's research and development expenditures have been charged to operations
as incurred. Because of its financial condition, the Company does not
anticipate having research and development expenditures equal to its historical
levels, which could adversely affect the Company's ability to develop and
introduce new products. See "Risk Factors -- Need for Additional Financing;
Loan Restrictions."
34
<PAGE>
There can be no assurance that the Company's development efforts will
result in commercially successful products, or that the Company's products will
not be rendered obsolete by changing technology or new products introduced by
others. Additionally, should the Company fail to introduce new products on a
timely basis, the Company's operating results could be adversely affected. In
the past, the Company expended substantial resources towards its MacOS product
line which did not achieve profitability and which was subsequently sold. See
"Risk Factors -- Technological Change; Continuing Need to Develop New Products."
The principles and features underlying the design of the Company's products
are: identification and reduction of performance bottlenecks in graphics and
video systems; providing consistency of color fidelity across products and
applications; utilization of ASIC technology; and innovation within standard
operating system environments.
IDENTIFICATION AND REDUCTION OF BOTTLENECKS IN GRAPHICS AND VIDEO SYSTEMS
The Company analyzes the performance of applications and hardware products
within the environment of the host CPU and operating system with the goal of
determining which parts of the overall solution are most resource and time
intensive so that products can be developed which outperform the existing
solutions. The Company has developed considerable knowledge of system software
such as Apple's QuickDraw and QuickTime and critical application software such
as Adobe Photoshop. The Company believes that its ability to eliminate
bottlenecks in a manner that is compatible with existing Apple and third party
products is a significant advantage in the marketplace.
PROVIDING CONSISTENCY OF COLOR FIDELITY ACROSS PRODUCTS AND APPLICATIONS
The Company strives to provide users with the most accurate and repeatable
color available. The Company's high-end color reference displays provide tools
to calibrate the display with both objective standards and visual perception,
and to adjust the color range of the display to fit user needs.
UTILIZATION OF ASIC TECHNOLOGY
On a selective basis, the Company uses its in-house integrated computer
aided engineering capabilities to develop proprietary ASIC chips for use in its
own products. The use of ASIC chips allows the Company to increase performance
while reducing chip count and board size which thereby reduces cost. ASICs are
used heavily throughout the Company's graphics card line. In some cases,
however, commercially available devices offer better overall price/performance
than proprietary ASICs (given the development cost involved), and the Company's
strategy is to make the tradeoff on a product-by-product basis to provide the
most cost-effective solution.
INNOVATION WITHIN STANDARD OPERATING SYSTEM ENVIRONMENTS
In order to maintain compatibility with the broad existing base of
installed hardware and software, the Company seeks to innovate in conjunction
with existing standards. For example, the Company's graphics cards are
compatible with third party graphics software (such as Adobe Photoshop and Quark
Pagemaker) as well as NuBus and PCI-based computers. Similarly, the Company's
digital video cards are tightly integrated into Apple's standard QuickTime
environment.
MARKETING, SALES AND DISTRIBUTION
The Company employs a two-tiered distribution model whereby it sells its
products primarily through a limited number of distributors and master resellers
that in turn distribute the Company's products to a variety of resellers
including superstores, independent dealers, educational resellers, systems
integrators, value added resellers and mail order resellers. The Company's
distributors and master resellers purchase products at discounts from suggested
retail prices based on purchase volumes.
In the United States, the Company sells its products primarily through the
following major distributors and master resellers: Ingram Micro, Inc.; and
MicroAge. The Company's business and financial results are highly dependent on
the success of these distributors and master resellers. To assist these
domestic distributors and master resellers and to provide marketing, training
and technical support, the Company maintains field sales facilities in a number
of locations throughout the United States. See "Risk Factors -- Dependence on
Indirect Distribution Channels."
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<PAGE>
Radius provides market development funds that give distributors and master
resellers incentives to increase sales, improve reporting and achieve a product
mix favoring higher margin products.
Internationally, sales are made through worldwide distributors, which
market, sell and service the Company's products, and until the second quarter of
1996, the Company's wholly owned subsidiary located in Tokyo, Japan. Currently
has entered into exclusive distributor arrangements for Japan and Europe. The
Company maintains international sales offices in Surrey, England; Hamburg,
Germany; and Paris, France. For the nine months ended June 30, 1996, and for
the fiscal years ended September 30, 1995, 1994 and 1993, the Company's export
sales accounted for approximately 52.8%, 40.4%, 34.5% and 32.0%, respectively,
of the Company's net sales. See Note 7 of Notes to Consolidated Financial
Statements. The Company's export sales are subject to certain risks common to
international operations, such as currency fluctuations and governmental
regulation. See "Risk Factor -- International Sales."
For the nine months ended June 30, 1996 and for the fiscal years ended
September 30, 1995, 1994 and 1993, Ingram Micro, Inc. accounted for
approximately 39.0%, 34.0%, 13.5% and 11.5% of the Company's net sales,
respectively.
Many of the Company's distributors and master resellers have the right to
return products purchased from the Company. While the Company provides for
estimated product returns, if in the future the Company were to experience
returns from customers significantly in excess of this estimate, such returns
could have a material adverse effect on the Company's results of operations.
The Company's marketing programs support worldwide sales and distribution
of its products. The Company's principal marketing activities include frequent
participation in industry trade shows and seminars, advertising in major trade
publications worldwide, public relations activities with the trade and business
press, publication of technical articles, distribution of sales literature and
product specifications and communications with its installed base of end users.
The Company's marketing programs are designed to generate sales leads for its
distributors and master resellers as well as to enhance the Company's brand name
recognition.
MANUFACTURING AND SUPPLIERS
As a result of the Company's outsourcing of manufacturing, substantially
all of the Company's assembly, quality control testing, packaging and other
manufacturing operations are performed by the Company's suppliers, contract
manufacturers, and other subcontractors. The Company has developed a quality
assurance program with these third parties.
The Company attempts to utilize standard parts and components available
from multiple vendors. However, certain components used in the Company's
products are available only from sole or limited suppliers, such as certain
ASICs from LSI Logic NEC and certain VideoVision parts from Toshiba. The
Company's products also incorporate components, such as video random access
memory, that are available from multiple sources but have been subject to
substantial fluctuations in availability and price. Although the Company has
been able to obtain an adequate supply of such components in the past, there can
be no assurance that it will be able to obtain an adequate supply in the future.
See "Risk Factors -- Dependence on Limited Number of Manufacturers and
Suppliers."
COMPETITION
The color publishing and multimedia markets are, and are expected to
remain, highly competitive. The Company's principal competitors in the color
publishing market include Apple, ATI Technology and Diamond Multimedia Systems.
The Company's principal competitors in the multimedia market include Truevision
(formerly RasterOps Corporation), Data Translation, Inc., Matrox, Inc., Avid
Technology, Inc., VideoLogic, Inc. and Fast Electronics GmbH. The market for
the Company's products is evolving, and it is difficult to predict all future
sources of competition.
Although Apple is principally a supplier of general purpose computing
platforms upon which third parties are encouraged to build more complete
solutions, the Company also faces competition from Apple. Apple markets a
number of products, including computer systems and color displays, that compete
directly or indirectly with the Company. Apple also could introduce additional
products, add functionality to their computer systems that is similar to that
provided by certain of the Company's products, or alter its systems'
architecture in a manner that could adversely affect the Company's ability to
compete. For example, Apple's PowerPC based products which have on-board
graphic functionality and faster processing speed, could
36
<PAGE>
be considered competitors of specific product lines of the Company's. See
"Risk Factors -- Dependence on and Competition with Apple."
The Company believes that the principal competitive factors for its
product line are product performance, breadth of distribution, brand name
recognition, price and customer support. There can be no assurance that the
Company will be able to compete successfully with respect to these factors.
In addition, many of the Company's current and prospective competitors have
significantly greater technical, manufacturing and marketing resources than
the Company. See "Risk Factors -- Competition."
PATENTS AND LICENSES
The Company relies on a combination of patent, copyright, trademark and
trade secret protection, nondisclosure agreements and licensing arrangements
to establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any
patents that may be issued to the Company will not be challenged, invalidated
or circumvented, or that any rights granted thereunder would provide
proprietary protection to the Company. The Company has a number of
trademarks and trademark applications. There can be no assurance that
litigation with respect to trademarks will not result from the Company's use
of registered or common law marks, or that, if litigation against the Company
were successful, any resulting loss of the right to use a trademark would not
reduce sales of the Company's products in addition to the possibility of a
significant damages award. Although, the Company intends to defend its
proprietary rights, policing unauthorized use of proprietary technology or
products is difficult, and there can be no assurance that the Company's
efforts will be successful. The laws of certain foreign countries may not
protect the proprietary rights of the Company to the same extent as do the
laws of the United States.
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that
the Company's products infringe others' patent rights. As a result of such
claims or litigation, it may become necessary or desirable in the future for
the Company to obtain licenses relating to one or more of its products or
relating to current or future technologies, and there can be no assurance
that it would be able to do so on commercially reasonable terms. See "Risk
Factors --Dependence on Proprietary Rights."
EMPLOYEES
As of October 31, 1996, the Company had approximately 110 full time
employees.
The Company's success will depend, in large measure, on its ability to
attract and retain highly qualified technical, marketing, engineering and
management personnel, who are in great demand. See "Risk Factors --
Dependence on Key Personnel."
The Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage. The
Company believes that its employee relations are good.
PROPERTIES
The Company's primary facility is located in Sunnyvale, California and
consists of leased space of approximately 40,000 square feet. The Company
believes that its current facilities are adequate for its needs. The lease
on the primary facility will expire in March 1998.
The Company has subleased to other companies approximately 281,000 square
feet of facilities which the Company is currently not using.
The Company maintains field sales facilities in a number of locations
throughout the United States as well as in Surrey, England; Paris, France;
Hamburg, Germany; and Tokyo, Japan. See Note 3 of Notes to Consolidated
Financial Statements.
37
<PAGE>
LEGAL PROCEEDINGS
(a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a
suit in the United States District Court in the Northern District of
California alleging that the Company infringes a patent allegedly owned by
EFI. Although the complaint does not specify which of the Company's products
allegedly infringe the patent, subsequent pleading indicates that EFI alleges
that the Company's Color Server products allegedly infringe. In January
1996, the Company completed the divestiture of the Color Server Group.
The Company has filed an answer denying all material allegations, and has
filed counterclaims against EFI alleging causes of action for interference
with prospective economic benefit, antitrust violations, and unfair business
practices. EFI's motion to dismiss or sever the Company's amended
counterclaims was granted in part and the ruling permitted the Company to
file an amended counterclaim for antitrust violations. The Company has filed
an amended antitrust claim. The Company believes it has meritorious defenses
to EFI's claims and is defending them vigorously. In addition, the Company
believes it has indemnification rights with respect to EFI's claims. A
motion for summary judgment based on these indemnification rights disposing
of EFI's claims was filed, and the court granted this motion finding the
Company immune from suit under the patent after February 22, 1995. The
Company expects to vigorously defend the remaining claims of EFI and to
vigorously prosecute the claims it has asserted against EFI. In the opinion
of management, based on the facts known at this time, although the eventual
outcome of this case is unlikely to have a material adverse effect on the
results of operations or financial position of the Company, the costs of
defense, regardless of outcome, may have a material adverse effect on the
results of operations or financial position of the Company. In addition, in
connection with the divestiture of its Color Server business, the Company has
certain indemnification obligations for which approximately $2.3 million
remains held in escrow to secure such obligations in the event that the
purchaser suffers any losses resulting from such litigation.
(b) The Company was named as one of approximately 42 defendants in Shapiro
et al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one of
approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December
15, 1995. Plaintiffs in each case purport to represent alleged classes of
similarly situated persons and/or the general public, and allege that the
defendants falsely advertise that the viewing areas of their computer monitors
are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995 and
was served with the Maizes complaint on January 5, 1996. Defendants' petition
to the California State Judicial Council to coordinate the Shapiro case with
similar cases brought in other California jurisdictions was granted in part and
it is anticipated that the coordinated proceedings will be held in Superior
Court of California, San Francisco County. An amended consolidated complaint
was filed on March 26, 1996. Discovery proceedings are scheduled to begin. The
Company believes it has meritorious defenses to the plaintiffs' claims and is
defending them vigorously. In the opinion of management, based on the facts
known at this time, the eventual outcome of these cases may have a material
adverse effect on the results of operations or financial position of the Company
in the financial period in which they are resolved. In addition, whether or not
the eventual outcomes of these cases have a material adverse effect on the
results of operations or financial condition of the Company, the costs of
defense, regardless of outcome, may have a material adverse effect on the
results of operations and financial condition of the Company.
(c) On April 17, 1996, the Company was served with a complaint filed by
Colorox Corporation ("Colorox"), in the Circuit Court of the State of Oregon,
County of Multnomah, case no. 9604-02481, which alleges that the Company
breached an alleged oral contract to sell its dye sublimation printer business
to Colorox for $200,000, and seeks both specific performance of the alleged
contract and alleged damages of $2.5 million. The lawsuit also alleges that an
officer of the Company interfered with the alleged contract. The Company
believes it has meritorious defenses to the plaintiff's claims and intends to
defend them vigorously. Nevertheless, the costs of defense, regardless of
outcome, could have an adverse effect on the results of operations and financial
condition of the Company.
(d) The Company is involved in a number of other judicial and
administrative proceedings incidental to its business, including litigation by
alleged trade creditors who did not participate in the Plan. The Company
intends to defend such lawsuits vigorously and although adverse decisions (or
settlements) may occur in one or more of such cases, the final resolution of
these lawsuits, individually or in the aggregate, is not expected to have a
material adverse effect on the financial position of the Company. However,
depending on the amount and timing of an unfavorable resolution of these
lawsuits, it is possible that the Company's future results of operations or cash
flows could be materially adversely affected in a particular period. In
addition, the costs of defense -- regardless of the outcome -- could have a
material adverse effect on the results of operations and financial condition of
the Company.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
------ ----- ----------
Charles W. Berger. . . . 42 Chairman of the Board of Directors,
Chief Executive Officer and President
Mary E. Godwin . . . . . 37 Vice President, Operations
Gregory M. Millar. . . . 40 Vice President, Engineering and Chief
Technology Officer
Michael D. Boich(1)(2) . 42 Director
Carl A. Carlson(1) . . . 50 Director
Michael W. Ledbetter(2). 46 Director
------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Berger was appointed President, Chief Executive Officer and a
director of the Company in March 1993 and Chairman of the Board of Directors
in March 1994. From April 1992 until he joined the Company, Mr. Berger was
Senior Vice President, Worldwide Sales, Operations and Support for Claris
Corporation ("Claris"), a subsidiary of Apple that develops and markets
application software. From February 1991 to April 1992, he was President of
Sun Microsystems Federal, Inc., a subsidiary of Sun Microsystems, Inc.
("Sun"), a manufacturer of computer work stations. From July 1989 to
February 1991, he served as Vice President of Business Development for Sun,
and from March 1989 to July 1989, he was Sun's Vice President of Product
Marketing. From April 1982 to March 1989, Mr. Berger held numerous
management positions involving sales, marketing, business development and
finance for Apple.
Ms. Godwin was appointed Vice President, Operations in August 1995 and
prior to assuming that position served as the Company's Director of
Operations Engineering beginning when she joined the Company in July 1993 .
Prior to joining the Company, Ms. Godwin spent seven years with Apple as a
supply base manager, and seven years with Xerox Corporation ("Xerox"), a
diversified manufacturer of document copying and processing equipment, as a
technical specialist.
Mr. Millar was appointed Vice President, Engineering and Chief
Technology Officer in October 1995 and prior to assuming that position served
as the Company's Vice President, Research from October 1993 to October 1995,
and as Vice President, Engineering from July 1991 to October 1993. From
January 1989 to July 1991, he held various managerial positions in the
Company including General Manager of the Advanced Development Group, General
Manager of the Macintosh Business Unit and Director of Software Development.
Prior to joining the Company, Mr. Millar was Vice President of Engineering
and a founder of Infa Corporation, a pen-based computing company, from June
1987 to December 1988.
Mr. Boich has been a director of the Company since its inception in May
1986 and was the Chairman of the Board of Directors from April 1991 until March
1994. Mr. Boich has been President and Chief Executive Officer of Rendition,
Inc., a developer of graphics chips, since March 1994. Mr. Boich served as the
Company's President and Chief Executive Officer from its inception until April
1991 and again assumed these positions from September 1992 through February
1993. From July 1985 to April 1986, Mr. Boich worked as an independent data
communications consultant. From March 1982 to July 1985, Mr. Boich was employed
by Apple, where he was part of the original Macintosh development team and was
responsible for applications software acquisitions and promoting third-party
software development for the Macintosh.
39
<PAGE>
Mr. Carlson had been a director of the Company since September 1996.
Mr. Carlson has been Assistant Vice President--Credit of Mitsubishi
Electronics America, Inc., an Electronic Components company, since 1982.
Mr. Ledbetter has been a director of the Company since October 1996. Mr.
Ledbetter had been the Corporate Asset Manager of SCI Systems, Inc., an
electronic manufacturing services company since June 1990.
Both Mr. Carlson and Mr. Ledbetter were active on the Creditors
Committee on behalf of their respective employers.
ELECTION OF DIRECTORS
Directors are elected by the shareholders at each annual meeting of
shareholders to serve until the next annual meeting of shareholders at which
such directors are to be elected or until their successors are duly elected and
qualified, or until their earlier resignation or removal. Officers are chosen
by, and serve at the discretion of, the Board of Directors.
COMPENSATION OF DIRECTORS
During fiscal 1995, the Board adopted a director compensation policy
pursuant to which all directors appointed to the Board on or after June 1995
will receive $1,500 for each Board meeting attended. This compensation policy
was implemented to facilitate the recruitment of additional directors. The
directors of the Company appointed prior to June 1995 do not currently receive
compensation for services on the Board or any committee thereof.
The 1994 Directors Stock Option Plan (the "1994 Directors Plan") was
adopted by the Company's Board on December 14, 1994 and approved by the
Company's shareholders on February 15, 1995. A total of 155,000 shares of the
Company's Common Stock have been reserved for issuance under the 1994 Directors
Plan (consisting of 100,000 shares allocated to the 1994 Directors Plan at the
time of its adoption by the Board plus 55,000 shares that were authorized for
issuance, but not issued or subject to outstanding options, under the Company's
1990 Directors' Stock Option Plan (the "Prior Directors Plan") as of February
15, 1995). In addition, shares of the Company's Common Stock issuable upon
exercise of outstanding stock options granted under the Prior Directors Plan
that expire or become unexercisable for any reason after February 15, 1995 will
be available for issuance under the 1994 Directors Plan. A total of 23,750
shares of Common Stock from the Prior Directors Plan have been added to the 1994
Directors Plan since February 15, 1995 as a result of the expiration of stock
options under the Prior Directors Plan.
The 1994 Directors Plan provides for the grant of 10,000 nonqualified stock
options ("NQSOs") to non-employee members of the Board upon appointment to the
Board and annual grants of 2,500 NQSOs on each anniversary of a director's
initial grant under either the Prior Directors Plan or the 1994 Directors Plan,
provided the Director continues to serve on the Board at such time. In
addition, each director who received a grant to purchase 1,250 shares under the
Prior Directors Plan after August 30, 1994 and before February 15, 1995 was
eligible to receive a one time grant under the 1994 Directors Plan to purchase
1,250 shares of the Company's Common Stock. Although options granted prior to
termination of the Prior Directors Plan remain outstanding in accordance with
their terms, no further options may be granted under the Prior Directors Plan.
During fiscal 1995, the following directors received options to purchase
shares of the Company's Common Stock under the 1994 Directors Plan and/or the
Prior Directors Plan: Mr. Pratt received an option to purchase 10,000 shares at
exercise price of $12.00 per share; Mr. Boich received an option to purchase
2,500 shares at an exercise price of $10.88 per share; and Mr. McKenna received
two options to purchase a total of 2,500 shares at an exercise price of $8.00.
During fiscal 1995 and during fiscal 1996, the following individuals who
resigned from the Board received options to purchase shares of the Company's
Common Stock under the 1994 Directors Plan and/or the Prior Directors Plan:
William Campbell, who resigned effective as of April 1995, received two options
to purchase a total of 2,500 shares at an exercise price of $8.00 per share.
Lawrence G. Finch, who resigned effective as of October 1995, received an option
to purchase 2,500 shares at exercise price of $7.44 per share. Michael A.
McConnell whose term ended in February 1996 received an option to purchase
10,000 shares at exercise price of $10.56 per share.
All director stock options were granted at the market price of the
Company's Common Stock on the date of grant.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered in all capacities to the
Company during each of the fiscal years ended September 30, 1994, 1995 and 1996
(except as otherwise indicated) by (i) the Company's Chief Executive Officer and
(ii) the Company's two other most highly compensated executive officers who
were serving as executive officers as of September 30, 1996 (collectively, the
"Named Executive Officers"). No other officer who held office at September
30, 1996 met the definition of "most highly compensated executive officer"
within the meaning of the SEC's executive compensation disclosure rules for
this period.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Long Term
Compensation
------------
Other Securities
Annual ----- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)(1)
- ---------------------------- ----- --------- --------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger (2) 1996 275,000 100,000 77,459 (3) 50,000 34,333 (4)
President, CEO and 1995 275,000 48,700 77,459 (3) 62,500 35,600 (4)
Chairman of the Board of Directors 1994 225,000 117,500 88,417 (3) -- 35,600 (4)
Gregory M. Millar 1996 182,769 45,000 -- 22,500 1,000
Vice President, Engineering 1995 180,000 167,700 (5) -- 40,250 1,000
and Chief Technology Officer 1994 150,000 38,900 -- -- 1,000
Mary E. Godwin 1996 140,000 47,000 -- 22,500 1,000
Vice President, Operations 1995 129,540 18,374 -- 13,500 1,000
1994 115,884 29,025 -- 7,500 1,000
</TABLE>
- --------------------------------------
(1) Includes the Company's $1,000 matching payment under the Company's 401(k)
Plan.
(2) Mr. Berger joined the Company in March 1993.
(3) Consists of a payment to Mr. Berger to pay for outstanding mortgage
interest on his home.
(4) Includes $34,600 for each of 1994 and 1995, and $33,333 for 1996, of
principal and interest forgiven on a $100,000 loan to Mr. Berger. See
"Certain Transactions."
(5) Includes a one-time special performance bonus of $155,000. See "Board of
Directors and Compensation Committee Report on Executive Compensation."
41
<PAGE>
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth further information regarding individual
grants of stock options pursuant to the Company's 1986 Stock Option Plan
during fiscal 1996 to each of the Named Executive Officers. In accordance
with the rules of the Securities and Exchange Commission, the table sets
forth the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms based on assumed
annualized rates of compound stock appreciation of 5% and 10% from the dates
the options were granted to the end of the respective option terms. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Potential realizable value
at assumed annual rates
Number of of stock price
securities % of total appreciation for option
underlying options granted Exercise terms ($)(1)
options to employees in or base Expiration --------------------------
Name granted (#) fiscal year price ($/sh) date 5% 10%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger 50,000 (2) 3.78% 2.38 12/13/05 74,839 189,656
Gregory M. Millar 20,000 (2) 1.51% 2.38 12/13/05 29,936 75,863
2,500 (3) 0.19% 2.38 12/13/05 3,742 9,483
Mary E. Godwin 20,000 (2) 1.51% 2.38 12/13/05 29,936 75,863
2,500 (3) 0.19% 2.38 12/13/05 3,742 9,483
</TABLE>
- -------------------------------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant, compounded annually. It is calculated by
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its
term for the appreciated stock price. Actual gains, if any, on option
exercises are dependent on future performance of the Company's Common
Stock and overall market conditions. There can be no assurance that the
potential realizable values shown in this table will be achieved.
(2) These stock options were granted with an exercise price equal to the
closing fair market value of the Company's Common Stock on the date of
grant. These options become exercisable with respect to 25% of the
options granted on both the first and second anniversaries of their
grant, and with respect to 50% of the options on the third anniversary
of their grant. These options lapse within 30 days after the
termination of an employment or consultancy relationship with the
Company.
(3) This stock option was granted with an exercise price equal to the closing
fair market value of the Company's Common Stock on the date of grant.
This option becomes exercisable in its entirety over one year. The
option will lapse within 30 days after the termination of an employment
or consultancy relationship with the Company.
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<PAGE>
EMPLOYMENT AND SERVICE AGREEMENTS
CHARLES W. BERGER
The Company and Mr. Berger entered into an employment agreement dated
February 26, 1993, as amended on September 17, 1993, that provides for his at
will employment until such time as either the Company or Mr. Berger terminates
the employment agreement with or without cause. Under the employment agreement,
the Company paid Mr. Berger a sign-on bonus of $25,000 and an initial base
salary of $225,000. The employment agreement established an annual performance
bonus of up to $50,000 in fiscal 1993 and up to $100,000 in fiscal 1994, unless
otherwise increased by the Compensation Committee of the Board. The employment
agreement also required the Company to grant Mr. Berger stock options for
250,000 shares of the Company's Common Stock at fair market value on the date of
grant and to loan him $100,000. See "Certain Transactions."
In the event of an acquisition following which Mr. Berger is not offered
the position of President and Chief Executive Officer of the surviving company
(i) the vesting of a portion of his option shares will accelerate, (ii) all
remaining principal and interest under his loan will be forgiven, and (iii) Mr.
Berger will, subject to certain conditions, continue to receive his salary and
benefits during a twelve month transition period. For purposes of the
employment agreement, an "acquisition" is defined as the sale of all or
substantially all of the assets of the Company, the merger or consolidation of
the Company with or into another corporation, or the acquisition of more than
fifty percent (50%) of the outstanding shares of the Company by a single person
or a group of related persons.
If Mr. Berger's employment is terminated by the Company for any reason
other than cause or following an acquisition, Mr. Berger will continue to
receive his salary, and vest under his stock options for six months.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The provisions of Section 317 of the California Corporations Code,
Article V of the Registrant's Articles of Incorporation and Article VI of the
Registrant's Bylaws provide for indemnification to the fullest extent permitted
by law for expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with any proceeding arising by reason of
the fact that any person is or was a director, officer or employee of the
Registrant. This indemnification may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the Securities Act. In addition, Article IV of the Registrant's
Articles of Incorporation provides that the liability of the Registrant's
directors shall be eliminated to the fullest extent permissible under the
California Law.
The Company has entered into Indemnity Agreements with each of its
current directors to give such directors additional contractual assurances
regarding the scope of the indemnification and liability limitations set forth
in the Registrant's Articles of Incorporation and Bylaws.
The Company currently carries a director and officer liability insurance
policy with a per claim and annual aggregate coverage limit of $10 million.
43
<PAGE>
CERTAIN TRANSACTIONS
In September 1993, the Company loaned $100,000 to Charles W. Berger, the
Company's President and Chief Executive Officer, as required under the terms of
his Employment Agreement. The loan has a three-year term and accrues simple
interest at the rate of 3.9% per annum. The loan is secured by shares of Common
Stock subject to Mr. Berger's stock option, and fifty percent (50%) of the
proceeds from the sale of any such shares is payable to the Company until such
time as the loan is paid in full. One third of the principal amount, together
with all accrued interest, was forgiven by the Company on each anniversary of
the date that Mr. Berger commenced employment with the Company, which was March
22, 1993. As of June 30, 1996, no amounts remained outstanding under the loan.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements the officer or
director may be required to pay in actions or proceedings which the officer or
director is or may be made a party by reason of the officer's or director's
position with the Company, and otherwise to the full extent permitted under
California law and the Company's By-laws.
Three shareholders of the Company, SCI Technology, Inc. ("SCI"),
Mitsubishi Electronics America Corp. ("Mitsubishi" or "Mitsubishi
Electronics") and Hamilton Hallmark/Avnet Co. ("HH/Avnet"), have been
significant suppliers of the Company. SCI provides graphics cards;
Mitsubishi supplies monitors; and HH/Avnet supplied components for the
Company's systems business (which was sold to UMAX in February 1996). Mr.
Ledbetter, an executive with SCI, became a director of the Company in October
1996. Mr. Carlson, an executive with Mitsubishi Electronics, became a
director of the Company in September 1996. The Company's purchases from SCI
for the current fiscal year and the 1995 fiscal year were approximately $35.0
million in aggregate (SCI began doing business with the Company in fiscal
1995). Purchases from Mitsubishi for the current fiscal year are expected to
be approximately $25.0 million, purchases for the 1995 and 1994 fiscal years
were significantly higher, at approximately $30.0 million and $10.0 million,
respectively. The Company no longer does business with HH/Avnet, although
purchases from HH/Avnet for the current fiscal year were approximately $6.5
million (the Company began doing business with HH/Avnet during the current
fiscal year.)
Each of SCI, Mitsubishi and HH/Avnet beneficially own 9,719,200,
3,999,901 and 3,188,966 shares of Common Stock respectively and 2,958,017,
1,217,361 and 970,555 Rights, respectively. All of the foregoing securities
were acquired pursuant to the Plan, pursuant to which SCI, Mitsubishi and
HH/Avnet accepted such securities in satisfaction claims of approximately $12.8
million, $5.1 million and $4.0 million, respectively.
As of October 13, 1996, the Company granted Mitsubishi Electronics a
warrant to purchase up to 200,000 shares of Common Stock at an exercise price
of $1.00 per share in consideration of the extension of open credit terms to
the Company. Currently, the Company's credit line is $500,000. If no higher
amount of credit is extended and utilized then only 50,000 Warrants may be
exercised. If $2,000,000 in credit is extended and utilized, then all
200,000 warrants will be exercisable. The warrants are exercisable for a four
year period, unless Mitsubishi Electronics terminates the credit for reasons
other than a default by the Company.
Mitsubishi was granted a security interest of up to $4.4 million in the
technology and intellectual property utilized in the Company's PressView
products in order to secure the Company's payment obligations with respect to
the manufacturing of the Company's PressView products.
IBM Credit has been the Company's primary secured lender since February
1995. For the current fiscal year and the 1995 fiscal year, interest
payments to IBM Credit were approximately $1.4 million and $2.9 million
respectively.
As described under "Recent Developments--Debt for Equity Exchange" the
Company issued 750,000 shares of Series A Convertible Preferred Stock and
Warrants to purchase 600,000 shares of Common Stock in satisfaction of $3.0
million of indebtedness to IBM Credit, as well as in consideration of
restructuring the terms of the Company's remaining $23.4 million indebtedness to
IBM Credit. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" for a description of
the terms of the restructured IBM Credit loan.
44
<PAGE>
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. All future transactions between the Company
and its officers, directors and principal shareholders and their affiliates will
be approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
45
<PAGE>
PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
November 7, 1996 for (i) each shareholder who is known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock; (ii) the
Chief Executive Officer and each of the Named Executive Officers; (iii) each of
the Company's directors, (iv) all current directors and executive officers of
the Company as a group and (v) the Selling Securityholders. This table assumes
that the Selling Securityholders will sell all of the Company's securities held
by them. The Company is unable to determine the exact number of shares that
will actually be sold. Assignees of Selling Securityholder, if any, who acquire
shares of Common Stock of the Company from the Selling Securityholder and
satisfy certain conditions are entitled to the same registration rights as the
Selling Securityholder. If any such assignee wishes to sell shares hereunder,
this Prospectus will be amended or supplemented to name such assignee as a
Selling Securityholder. Except as otherwise described below, all Selling
Securityholders were creditors of the Company to whom the Company had
outstanding accounts payable, and such creditors agreed to receive Common Stock
and Rights in satisfaction of their claims, and the Selling Securityholders have
not had any other position, office or other material relationship with the
Company within the past three years. Unless otherwise noted, all Selling
Securityholders and offering shares of Common Stock.
<TABLE>
<CAPTION>
Shares Beneficially
Owned After
Offering (1)
Shares Beneficially Owned Number of Shares ---------------------
Name of Beneficial Owner Prior to Offering (1) Percent Being Offered Number Percent
- ------------------------ ---------------------------- ------- ------------------ ------ -------
<S> <C> <C> <C> <C> <C>
Executive Officers, Directors
and 5% Shareholders
- -------------------
Michael D. Boich (2) 214,301 * -- 214,301 *
Charles W. Berger (3) 262,500 * -- 262,500 *
Gregory M. Millar (4) 57,967 * -- 57,967 *
Mary E. Godwin (5) 27,866 * -- 27,866 *
Carl A. Carlson (6) 4,199,901 7.3% 5,417,262 0 *
Michael W. Ledbetter (7) 9,719,200 17.9 12,677,217 0 *
All current executive officers
and directors as a group
(6 persons) (8) 14,481,035 26.5 18,094,479 0 *
IBM Credit Corporation (9) 6,123,030 11.2 (10) 0 *
Mitsubishi Electronics America,
Inc. (11) 4,199,901 7.3 5,417,262 0 *
SCI Technology, Inc. (12) 9,719,200 17.9 12,677,217 0 *
Hamilton Hallmark/Avnet Co. (13) 3,188,966 5.9 4,159,521 0 *
<CAPTION>
Selling Securityholders
- -----------------------
A&R Partners 60,577 * 79,013 0 *
All American, Inc. 8,536 * 11,134 0 *
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned After
Offering (1)
Shares Beneficially Owned Number of Shares ---------------------
Name of Beneficial Owner Prior to Offering (1) Percent Being Offered Number Percent
- ------------------------ ---------------------------- ------- ------------------ ------ -------
<S> <C> <C> <C> <C> <C>
American Credit Indemnity 117,723 * 153,552 0 *
AMP Incorporated 99,655 * 129,985 0 *
Apple Computer Inc. 295,885 * 385,937 0 *
Avex Electronics, Inc. 1,649,208 3.0 2,151,141 0 *
Bell Microproducts, Inc. 156,303 * 203,874 0 *
Boise Cascade Office Products
Corp. 19,625 * 25,598 0 *
Broniec Associates 124,781 * 162,758 0 *
Cadence Design Systems Inc. 161,562 * 210,733 0 *
Capetronic, Inc. 69,527 * 90,687 0 *
Capital Components 2,806 * 3,660 0 *
CB Commercial, Inc. 146,387 * 190,940 0 *
The Cerplex Group, Inc. 237,262 * 309,472 0 *
CKS Group, Inc. 159,496 * 208,038 0 *
Clearbrook & Co. Ltd. 966,153 1.8 1,260,199 0 *
Communication Arts 6,659 * 8,686 0 *
Continental Circuits Corp. 666,177 1.2 868,927 0 *
Cooley Godward Castro Huddleson & 63,436 * 82,743 0 *
Tatum LLP
Mike Coryell 233,198 * 304,171 0 *
Craftsman Printing Inc. 99,633 * 129,956 0 *
Crystal Semiconductor Inc. 23,646 * 30,842 0 *
DGR Technologies 39,579 * 51,625 0 *
Digital Equipment Corporation 929,474 1.7 1,212,357 0 *
Discopylabs 33,703 * 43,960 0 *
Douglas Stewart Co. 171,708 * 223,967 0 *
Dynamic Circuits Inc. 54,246 * 70,756 0 *
Entex Information Services 124,781 * 162,758 0 *
Epson America Inc. 165,457 * 215,813 0 *
Eric Electronics, Inc. 72,946 * 95,147 0 *
Icon International, Inc. 472,207 * 615,922 0 *
Inacom Corp. 146,072 * 190,529 0 *
Infinity Technical Sales, Inc. 59,560 * 77,687 0 *
International Communications, Inc. 70,185 * 91,546 0 *
Lanier Worldwide Inc. 164,270 * 214,265 0 *
Lasex 3,174 * 4,140 0 *
Ramina Kachi 2,875 * 3,750 0 *
Mack Technologies, Inc. 580,008 1.1 756,532 0 *
Magnetek, Inc. 223,878 * 292,015 0 *
Manufacturers Services Limited 1,721,137 3.2 2,244,961 0 *
Marlow Industries, Inc. 72,576 * 94,664 0 *
McCutchen, Doyle, Brown & Enerson 288,703 * 376,569 0 *
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned After
Offering (1)
Shares Beneficially Owned Number of Shares ---------------------
Name of Beneficial Owner Prior to Offering (1) Percent Being Offered Number Percent
- ------------------------ ---------------------------- ------- ------------------ ------ -------
<S> <C> <C> <C> <C> <C>
Merisel 872,930 1.6 1,138,604 0 *
Metrowerks Corporation 1,853 * 2,417 0 *
Microage Computer 885,783 1.6 1,155,369 0 *
Mitsubishi International
Corporation 300,797 * 392,344 0 *
Morgan Stanley & Co., Inc. 475,414 * 620,105 0 *
Oracle Corporation 147,202 * 192,003 0 *
Pacific Rim Data Sciences 57,109 * 74,490 0 *
Pan International (USA) 9,021 * 11,766 0 *
Robert A. Pollock 13,452 * 17,546 0 *
Proto Engineering 46,982 * 61,281 0 *
PTA Corporation 8,671 * 11,310 0 *
Quantum 1,266,048 2.3 1,651,367 0 *
Rand Technology, Inc. 4,921 * 6,419 0 *
RSVP 59,346 * 77,408 0 *
Sampo Corporation of America 88,704 * 115,701 0 *
San Jose Blueprint 3,303 * 4,308 0 *
Sherpa Corporation 268,196 * 349,721 0 *
Synopsys, Inc. 90,997 * 118,692 0 *
Tech Data Corporation 1,296,908 2.4 1,691,619 0 *
Tektronix, Inc. 67,982 * 88,672 0 *
Telo Electronics, Inc. 7,517 * 9,805 0 *
Toshiba America Electronics 227,787 * 297,114 0 *
Components Inc.
Total Corporate Services, Inc. 919 * 1,199 0 *
Valmark Industries, Inc. 5,550 * 7,239 0 *
Jean Vollum & Steven Vollum 1,449,339 2.7 1,890,519 0 *
Trustee UTADTD3486
Wajilei Foundation (14) 158,000 * 182,348 0 *
Mark Wiprud 233,198 * 304,171 0 *
Yamamoto Mfg. (USA) Inc. 46,031 * 60,041 0 *
Ziff-Davis Publishing Company Inc. 140,697 * 183,518 0 *
Radius Creditors' Trust 444,253 * 579,460 0 *
</TABLE>
- -------------------------
* Less than one percent.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Based on 54,451,586 shares of
48
<PAGE>
Common Stock outstanding prior to the offering. A person is deemed to be
the beneficial owner of securities that can be acquired by such person
within 60 days upon the exercise of Warrants or options or conversion of
convertible securities. Calculations of percentages of beneficial
ownership assume the exercise of Warrants or options or conversion of
convertible securities by only the respective named securityholder of all
Warrants, options or convertible securities convertible into Common Stock
held by such securityholder which are convertible or exercisable within
60 days of November 7, 1996. Because the shares of Common Stock
issuable pursuant to the Rights are issuable only in the event that the
Series A Convertible Preferred Stock is converted into Common Stock, the
shares of Common Stock beneficially owned by Selling Securityholders do
not include an aggregate of 11,046,060 shares issuable pursuant to Rights
issued to Selling Securityholders other than IBM Credit (which Selling
Securityholder does not own any Rights).
(2) Represents 208,676 shares held by Mr. Boich, and 5,625 shares subject to
options exercisable within 60 days of November 7, 1996.
(3) Represents 150 shares held by Mr. Berger as beneficial owner for his
children, and 262,350 shares subject to options exercisable within 60
days of November 7, 1996.
(4) Includes 43,271 shares subject to options held by Mr. Millar that are
exercisable within 60 days of November 7, 1996.
(5) Includes 25,203 shares subject to options held by Ms. Godwin that are
exercisable within 60 days of November 7, 1996
(6) Represents shares held by Mitsubishi Electronics America, Inc., of
which Mr. Carlson is an executive officer. Mr. Carlson disclaims
beneficial ownership of all such shares.
(7) Represents shares held by SCI Technology, Inc., of which Mr. Ledbetter is
an executive officer. Mr. Ledbetter disclaims beneficial ownership of
all such shares.
(8) Includes the shares described in all footnotes above relating to current
directors and Named Executive Officers.
(9) Represents shares issuable upon conversion of Series A Convertible
Preferred Stock and upon exercise of Warrants. Also assumes that
5,523,030 shares of Common Stock is issuable upon conversion of the
Series A Convertible Preferred Stock. In the event the trading price of
the Company's Common Stock exceeds certain levels, an aggregate of
6,075,333 shares of Common Stock could be issued upon conversion of the
Series A Convertible Preferred Stock. IBM Credit is the Company's
secured lender. See "Certain Transactions." IBM Credit's address is
1133 Westchester Avenue, White Plains, NY 10604.
(10) IBM Credit is offering up to 6,675,333 shares of Common Stock, 750,000
shares of Series A Convertible Preferred Stock and 600,000 Warrants.
(11) Does not include 1,242,459 shares of Common Stock pursuant to Rights in
the event the Series A Convertible Preferred Stock is converted into
Common Stock. Includes 200,000 shares issuable upon exercise of Warrants.
Mitsubishi Electronics America, Inc.'s address is 5665 Plaza Drive,
Cypress, CA 90630.
(12) Does not include 3,019,003 shares of Common Stock issuable pursuant to
Rights in the event the Series A Convertible Preferred Stock is converted
into Common Stock. SCI Technology Inc.'s address is 2101 Clinton Avenue,
Huntsville, AL 35805.
(13) Does not include 990,565 shares of Common Stock issuable pursuant to
Rights in the event the Series A Convertible Preferred Stock is converted
into Common Stock. Hamilton Hallmark/Avnet Co.'s address is P.O. Box
100340, Pasadena, CA 91189.
(14) Such Selling Securityholder acquired 78,000 of the shares of Common Stock
offered hereby in connection with a private placement transaction
occurring in June 1995 (the "Private Placement").
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock and 2,000,000 shares of Preferred Stock. As of October
31, 1996, there were outstanding approximately 54,451,586 shares of Common Stock
held of record by approximately 3,652 shareholders, 750,000 shares of Preferred
Stock outstanding, all of which are designated as Series A Convertible Preferred
Stock and held of record by IBM Credit, and options to purchase approximately
1,195,124 shares of Common Stock.
COMMON STOCK
Each shareholder is entitled to one vote for each share of Common Stock
held on all matters. The holders of Common Stock have no preemptive or other
rights to subscribe for additional shares. All outstanding shares of Common
Stock are, and those offered hereby will be, validly issued, fully paid and non
assessable. Subject to preferences that may be applicable to holders of any
Preferred Stock then outstanding, holders of Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation, dissolution or winding up of the Company,
the assets legally available for distribution to shareholders are distributable
ratably among the holders of the Common Stock at that time outstanding, subject
to prior distribution rights of creditors of the Company and to the preferential
rights of any shares of Preferred Stock then outstanding.
49
<PAGE>
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by California law, to provide for the issuance of shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the rights, preferences and
privileges of the shares of each wholly unissued series and any qualifications,
limitations or restrictions thereon, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by the shareholders. The
Board of Directors may authorize the issuance of Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Common Stock. Thus, the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no Preferred Stock other than the Series A Convertible
Preferred Stock and has no current plan to issue any additional shares of
Preferred Stock.
SERIES A CONVERTIBLE PREFERRED STOCK
The dividend, liquidation and certain redemption features of the Series A
Convertible Preferred Stock, each of which is discussed in greater detail below,
are determined by reference to the Liquidation Price of the Series A Convertible
Preferred Stock, which is defined in the aggregate as $3.0 million plus any
accrued but unpaid dividends.
Dividends on the Series A Convertible Preferred Stock accrue cumulatively
at a rate of 10% per annum of the Liquidation Price and are payable on a
quarterly basis in cash or in shares of Common Stock, at the Company's
discretion. The Series A Convertible Preferred Stock ranks senior to any other
Preferred Stock and the Common Stock with respect to the declaration and payment
of dividends.
Upon dissolution, liquidation or winding up of the Company, holders of
the Series A Convertible Preferred Stock will be entitled to receive from the
assets of the Company available for distribution to shareholders an amount in
cash or property or a combination thereof per share equal to the Liquidation
Price. The Series A Convertible Preferred Stock ranks senior to the Common
Stock and any other Preferred Stock which may subsequently be issued with
respect to the receipt of liquidation proceeds.
The Series A Convertible Preferred Stock is redeemable at the Liquidation
Price the option of holders of a majority of the outstanding shares of Series A
Convertible Preferred Stock upon the sale by the Company of any part of the
Company's interest in Splash Technology Holdings, Inc. or its other portfolio
interests, upon the occurrence of certain extraordinary events such as the sale
or disposition of some or all of the Company's operating assets or businesses,
the sale of the Company's inventory outside of the ordinary course of business,
or the merger or consolidation of the Company with another entity (such events
are referred to as "Triggering Events") which Triggering Event (or combination
of Triggering Events for the prior 12 months) yields available net proceeds to
the Company of $100,000 (only to the extent of the available net proceeds from
such Triggering Event and subject to legal availability of funds therefor).
Available net proceeds are defined as the net proceeds to the Company from a
Triggering Event after any required payments to holders of the Company's
indebtedness. If the holders have not elected to have their shares redeemed
within 10 days after sending of the notice of the Triggering Event (the
"Election Period"). In the event that such holders do not elect such redemption
within the Election Period, Radius can redeem the Series A Convertible Preferred
Stock (to the extent of the available net proceeds to the Company resulting from
such Triggering Event and subject to the legal availability of funds therefor)
at a redemption price equal to 110% of the Liquidation Price by notifying the
holders of its intention to so redeem the Series A Convertible Preferred Stock
within 30 days after the expiration of the Election Period (the "Second
Notice"). The holders may then elect, within fifteen days of receiving the
Second Notice, to convert into Common Stock. The number of shares subject to
such conversion shall be equal to the amount of the available net proceeds to
the Company from such Triggering Event divided by the Liquidation Price.
The Series A Convertible Preferred Stock will vote on all matters
submitted to a vote of the Company's shareholders together as a single class
with all other classes of the Company's capital stock with each share of Series
A Convertible Preferred Stock having the number of votes which would be cast if
such shares were converted at the option of the holders into Common Stock on the
day prior to the date of the vote except as otherwise required by applicable
law.
Except as described below, the Series A Convertible Preferred Stock will
be subject to conversion from time to time, in whole or in part, at the option
of the holder, into an aggregate of 5,523,030 shares of Common Stock with each
share being convertible into 7.364 shares of Common Stock, subject to adjustment
in the event of a stock dividend, stock split, combination or reclassification
of the Common Stock.
50
<PAGE>
A portion of the Series A Convertible Preferred Stock is automatically
subject to conversion at any time 90 days after the effective date of the
Registration Statement of which this Prospectus is a part (and if such
Registration Statement is in effect or the use of this Prospectus has not been
suspended) in the event that the trading price of the Company's Common Stock
exceeds, for a period of 15 consecutive trading days, a price per share equal to
$0.815 and a registration statement with respect to the Common Stock issuable
upon conversion of such securities is in effect. Upon such an event, 93,750
shares of the Series A Convertible Preferred Stock would be convertible into an
aggregate of 759,413 shares of Common Stock (or 8.1004 shares of Common Stock
for each share of Series A Convertible Preferred Stock). No more than 93,750
shares of Series A Convertible Preferred Stock may be so converted in any fiscal
quarter. The trading price of the Common Stock must then exceed $0.815 per
share in a subsequent quarter before the Series A Convertible Preferred can be
again subject to such a conversion.
RIGHTS
The Company issued Rights to receive an aggregate of 11,046,060 shares of
Common Stock to unsecured creditors who received shares of Common Stock in
satisfaction of their claims, (including 240,824 Rights to the Radius Creditors
Trust). Each Right entitles the holder thereof to receive one share of Common
Stock if and when all of the shares of Series A Convertible Preferred Stock is
converted into Common Stock. The Rights are not transferable.
The Rights contain standard antidilution provisions in the event of a
stock dividend, stock split, combination or reclassification of the Common
Stock.
WARRANTS
The Company issued Warrants to purchase an aggregate of 600,000 shares of
Common Stock to IBM Credit and an aggregate of 200,000 shares of Common Stock to
Mitsubishi Electronics.
The Warrants are exercisable at any time, for a four-year period at an
exercise price of $1.00 per share, and may also be exercised on a "net exercise"
or "cashless" basis or in settlement of debt. The term of Mitsubishi's Warrants
will terminate thirty days after the complete withdrawal of credit for any
reason other than a default by the Company.
The Warrants contain standard antidilution provisions in the event of a
stock dividend, stock split, combination or reclassification of the Common
Stock.
The Company expects to grant Warrants to other Suppliers which extend open
credit terms to the Company for up to an additional 400,000 shares of Common
Stock, although such Warrants will not be included in the Registration
Statement of which this Prospectus is a part.
REGISTRATION RIGHTS
Upon the expiration of this offering, holders of shares of Common Stock
and Rights issued to its unsecured creditors as well as the Series A
Convertible Preferred Stock and Warrants will have demand registration rights
with respect to the shares of Common Stock held by them and the shares of
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock or upon exercise of the Rights and Warrants. IBM Credit will also have
demand registration rights with respect to any shares of Common Stock which
are paid in lieu of cash dividends on the Series A Convertible Preferred
Stock. These registration rights will permit such holders to cause the
Company to register such shares of Common Stock as soon as practicable after
the Closing. The Company will maintain the effectiveness of any such
registration statement until such shares may be sold pursuant to Rule 144 in
a three-month period without registration or until it is eligible to file a
registration statement on Form S-3, at which time the original registration
statement will be terminated and the Company will file a registration
statement on Form S-3 as soon thereafter as practicable in order to minimize
any period of non-effectiveness. Notwithstanding the foregoing, upon the
occurrence of certain events, the Company will be entitled to suspend the use
of the Registration Statement. All expenses incurred in connection with such
registrations (other than underwriters' discounts and commissions) will be
borne by the Company. See "Risk Factors -- Shares Eligible For Future Sale."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
First Interstate Bank.
51
<PAGE>
PLAN OF DISTRIBUTION
SHARES TO BE OFFERED BY THE COMPANY
The Registration Statement of which this Prospectus forms a part includes
shares of Common Stock with a fair market value of up to $600,000 in the event
that the Company elects to make its first eight quarterly dividend payments on
the Series A Convertible Preferred Stock in shares of Common Stock in lieu of
cash.
The Company has not entered into, and does not intend to enter into, any
agreement, arrangement or understanding with any underwriter or any broker or
market maker with respect to the securities offered by the Company hereby.
IBM Credit received 750,000 shares of Series A Convertible Preferred
Stock in connection with the Plan. Because dividends on the Series A
Convertible Preferred Stock may be paid in cash or in shares of the Company's
Common Stock, the Company may elect to pay such dividends in shares of Common
Stock with a fair market value of $75,000 on each of the first eight quarterly
dividend payment dates for the Series A Convertible Preferred Stock. The
Company will not receive any cash proceeds from the issuance of Common Stock in
lieu of such cash dividends. See "Recent Developments -- Debt for Equity
Exchange," "Use of Proceeds" and "Description of Capital Stock."
SECURITIES TO BE OFFERED BY THE SELLING SECURITYHOLDERS
In connection with the Plan, the Company and the Selling
Securityholders entered into a Registration Rights Agreement (the
"Agreement") with the Company. The Registration Statement of which this
Prospectus forms a part has also been filed pursuant to the Agreement.
To the Company's knowledge, the Selling Securityholders have not entered
into any agreement, arrangement or understanding with any underwriter or any
particular broker or market maker with respect to the shares offered hereby, nor
does the Company know the identity of the brokers or market makers which will
participate in the offering.
The shares of Common Stock to be offered by the Selling Securityholders
hereby may be offered and sold from time to time by the Selling
Securityholders. The Selling Securityholders will act independently of the
Company in making decisions with respect to the timing, manner and size of
each sale. Such sales may be made over the SmallCap Market or otherwise, at
prices and on terms then prevailing or at prices related to the then market
price, or in negotiated transactions. The shares may be sold by one or more
of the following: (a) a block trade in which the broker-dealer engaged by
the Selling Securityholder will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by the broker-dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; and (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers. The Company has been advised by the Selling Securityholder that
it has not, as of the date hereof, entered into any arrangement with a
broker-dealer for the sale of shares through a block trade, special offering,
or secondary distribution of a purchase by a broker-dealer. In effecting
sales, broker-dealers engaged by the Selling Securityholder may arrange for
other broker-dealers to participate. Broker-dealers will receive commissions
or discounts from the Selling Securityholder in amounts to be negotiated
immediately prior to the sale.
In offering the shares, the Selling Securityholders and any
broker-dealers who execute sales for the Selling Securityholders may be
deemed to be "underwriters" within the meaning of the Securities Act in
connection with such sales, and any profits realized by the Selling
Securityholders and the compensation of such broker-dealer may be deemed to
be underwriting discounts and commissions.
The Selling Securityholders have advised the Company that, during such
time as they may be engaged in a distribution of the shares of Common Stock
included herein, they will comply with Rules 10b-6 and 10b-7 under the Exchange
Act and, in connection therewith, the Selling Shareholders have agreed not to
engage in any stabilization activity in connection with any securities of the
Company, to furnish copies of this Prospectus to each broker-dealer through
which the shares of Common Stock included herein may be offered, and not to bid
for or purchase any securities of the Company or attempt to induce any person to
purchase any securities of the Company except as permitted under the Exchange
Act. The Selling Securityholders have also agreed to inform the Company and
broker-dealers through whom sales may be made hereunder when the distribution of
the shares is completed.
52
<PAGE>
Rule 10b-6 under the Exchange Act prohibits participants in a
distribution from bidding for or purchasing for an account in which the
participant has a beneficial interest, any of the securities that are the
subject of the distribution. Rule 10b-7 under the Exchange Act governs bids and
purchases made to stabilize the price of a security in connection with a
distribution of the security.
The Agreement provides that the Registration Statement of which this
Prospectus forms a part will remain in effect for 24 months. Notwithstanding
the foregoing, upon the occurrence of certain events, the Company may suspend
the use of this Prospectus.
Upon the occurrence of any of the following events, this Prospectus will
be amended to include additional disclosure before offers and sales of the
securities in question are made: (a) to the extent the securities are sold at a
fixed price or at a price other than the prevailing market price, such price
would be set forth in the Prospectus, (b) if the securities are sold in block
transactions and the purchaser acting in the capacity of an underwriter wishes
to resell, such arrangements would be described in the Prospectus, (c) if the
Selling Securityholder sells to a broker-dealer acting in the capacity as an
underwriter, such broker-dealer will be identified in the Prospectus and (d) if
the compensation paid to broker-dealers is other than usual and customary
discounts, concessions or commissions, disclosure of the terms of the
transaction would be included in the Prospectus.
The Company will bear estimated expenses of approximately $250,000 in
connection with the offering of the securities offered hereby.
LEGAL MATTERS
The validity of the issuance of the shares of Series A Convertible
Preferred Stock, Common Stock and the Warrants offered hereby will be passed
upon for the Company by Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California 94306.
EXPERTS
The consolidated financial statements of Radius Inc. at September 30,
1995 and 1994 and for each of the three years in the period ended September 30,
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon, (which contains an explanatory paragraph with respect to the
uncertainty of the Company's ability to continue as a going concern as mentioned
in Note 1 to the consolidated financial statements), appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Ernst & Young LLP, Independent Auditors F-2
Consolidated Balance Sheets at September 30, 1995
and 1994 F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1995, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity for
the Years Ended September 30, 1995, 1994, and 1993 F-5
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995, 1994, and 1993 F-6
Notes to Consolidated Financial Statements F-7
September 30, 1995, 1994 and 1993 F-22
Schedule II: Valuation and Qualifying Accounts
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at June 30, 1996 F-23
Consolidated Statements of Operations for the Three
Months Ended June 30, 1996 and 1995 and for the Nine
Months Ended June 30, 1996 and 1995 F-24
Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1996 and 1995 F-25
Notes to Consolidated Financial Statements F-26
UNAUDITED PROFORMA FINANCIAL INFORMATION P-1
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
RADIUS INC.
We have audited the accompanying consolidated balance sheets of Radius Inc. as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended September 30, 1995. Our audits also
included the financial statement schedule listed in the Index at page F-1.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Radius
Inc. at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Radius Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, and has a
deficiency in assets and working capital. In addition the Company has not
complied with certain covenants of loan agreements with its lenders. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. (Management's plans in regard to these matters are also
described in Note 1.) The financial statements do not include any adjustment to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
Palo Alto, California
December 8, 1995,
except for Note 11, as to which the
date is December 27, 1995
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
September 30 (in thousands)
1995 1994
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,760 $ 15,997
Accounts receivable, net of allowance for doubtful
accounts of $8,502 in 1995 and $2,548 in 1994 61,644 62,145
Inventories 15,071 21,069
Prepaid expenses and other current assets 2,336 1,473
Income tax receivable 519 9,083
Deferred income taxes - 8,400
-------- --------
Total current assets 84,330 118,167
Property and equipment, net 3,031 7,728
Deposits and other assets 517 964
-------- --------
$ 87,878 $126,859
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 73,098 $ 39,255
Accrued payroll and related expenses 5,815 4,024
Accrued warranty costs 3,170 2,255
Other accrued liabilities 11,920 6,650
Accrued income taxes 1,665 1,237
Accrued restructuring and other charges 17,013 15,148
Short-term borrowings 29,489 18,095
Obligations under capital leases - current portion 1,494 1,647
-------- --------
Total current liabilities 143,664 88,311
Obligations under capital leases-noncurrent portion 1,331 2,857
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Convertible preferred stock, no par value, 1,000 shares
authorized; none issued and outstanding
Common stock, no par value; 50,000 shares authorized;
issued and outstanding--17,143 shares in 1995 and
14,046 shares in 1994 113,791 87,017
Common stock to be issued 12,022 -
Accumulated deficit (182,993) (51,251)
Accumulated translation adjustment 63 (75)
-------- --------
Total shareholders' equity (Net capital deficiency) (57,117) 35,691
-------- --------
$ 87,878 $126,859
-------- --------
-------- --------
See accompanying notes.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
1995 1994 (1) 1993 (1)
-------- -------- --------
Net sales $308,133 $324,805 $337,373
Cost of sales 302,937 276,948 254,321
-------- -------- --------
Gross profit 5,196 47,857 83,052
-------- -------- --------
Operating expenses:
Research and development 19,310 33,956 33,503
Selling, general and administrative 90,068 94,731 84,132
-------- -------- --------
Total operating expenses 109,378 128,687 117,635
-------- -------- --------
Loss from operations (104,182) (80,830) (34,583)
Interest and other income (loss) (3,045) (376) 705
Interest expense (3,023) (869) (635)
Litigation settlement (12,422) - -
-------- -------- --------
Loss before income taxes (122,672) (82,075) (34,513)
Provision (benefit) for income taxes 9,070 (4,600) (13,774)
-------- -------- --------
Loss before cumulative
effect of a change in accounting principle (131,742) (77,475) (20,739)
Cumulative effect of a change in method
of accounting for income taxes - - 600
-------- -------- --------
Net loss $(131,742) $(77,475) $(20,139)
-------- -------- --------
-------- -------- --------
Net loss per share:
Loss before cumulative effect
of a change in accounting principle $ (8.75) $ (5.70) $ (1.61)
Cumulative effect of a change in method
of accounting for income taxes - - 0.05
-------- -------- --------
Net loss per share $ (8.75) $ (5.70) $ (1.56)
-------- -------- --------
-------- -------- --------
Common and common equivalent shares used in
computing net loss per share 15,049 13,598 12,905
-------- -------- --------
-------- -------- --------
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for fiscal 1993 have not been restated to adjust SuperMac's
fiscal year end to that of Radius. This period includes Radius' results of
operations and balance sheet data on a September 30 fiscal year basis and
SuperMac's on a December 31 calendar year basis. The operating results for
both the twelve months ended September 30, 1994 and September 30, 1993
include the restructuring and other charges of $16.6 million recorded by
SuperMac in December 1993.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended September 30, 1995, 1994 and 1993
(in thousands, except share data) Total
Retained Shareholders
Earnings Accumulated Equity
Common (Accumulated Deferred Translation (Net Capital
Stock Deficit) Compensation Adjustment Deficiency)
-------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 (1) $60,203 $ 36,449 $ (58) $ 37 $ 96,631
Issuance of 738 shares of common stock
under the SuperMac public offering 15,401 15,401
Issuance of 517 shares of common stock
under Stock Option Plans 1,324 - - - 1,324
Issuance of 159 shares of common stock
under the Employee Stock Purchase Plans 1,663 - - - 1,663
Tax benefit from stock options exercised 3,358 - - - 3,358
Amortization of deferred compensation - - 36 - 36
Currency translation adjustment - - - (119) (119)
Net loss - (20,139) - - (20,139)
------- -------- ------- ------ --------
Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155
Issuance of 350 shares of common stock
under Stock Option Plans 1,800 - - - 1,800
Issuance of 170 shares of common stock
under Employee Stock Purchase Plans 989 - - - 989
Issuance of 206 shares of common stock
pursuant to the acquisition of VideoFusion 1,854 - - - 1,854
Tax benefit from stock options exercised 425 - - - 425
Amortization of deferred compensation - - 22 - 22
Currency translation adjustment - - - 7 7
Net loss - (77,475) - - (77,475)
Elimination of SuperMac net loss
for the three months ended December 31, 1993 9,914 - - 9,914
------- -------- ------- ------ -------
Balance at September 30, 1994 87,017 (51,251) - (75) 35,691
Issuance of 214 shares of common stock
under Stock Option Plans 1,254 1,254
Issuance of 162 shares of common stock
under Employee Stock Purchase Plan 1,298 1,298
Issuance of 212 shares pursuant to the
acquisition of VideoFusion 2,857 2,857
Settlement of Litigation-stock to be issued 12,022 12,022
Issuance of 2,509 shares of common stock
through private placement 21,365 21,365
Currency translation adjustment 138 138
Net Loss (131,742) (131,742)
------- -------- ------- ------ --------
Balance at September 30, 1995 $125,813 $(182,993) - $ 63 $(57,117)
-------- ---------- ------- ----- --------
-------- ---------- ------- ----- --------
</TABLE>
See accompanying notes.
(1) These periods have been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30
(in thousands) 1995 1994 1993(1)
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(131,742) $(77,475) $(20,139)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,689 4,542 8,160
Acquired in-process research and development expenses - 2,550 -
Elimination of SuperMac net loss for the three months
ended December 31, 1993 - 9,914 -
Non-cash restructuring and other charges 57,865 40,775 28,981
Common stock to be issued 12,022 - -
(Increase) decrease in assets:
Accounts receivable (5,471) (20,171) (7,543)
Allowance for doubtful accounts 5,954 426 297
Inventories (27,140) (1,058) (5,633)
Prepaid expenses and other current assets (862) 1,739 15
Income tax receivable 8,564 468 (9,551)
Deferred income taxes 8,400 11,248 (11,322)
Increase (decrease) in liabilities:
Accounts payable 33,843 3,470 2,570
Accrued payroll and related expenses (1,871) (1,441) 1,014
Accrued warranty costs 915 (1,584) 438
Other accrued liabilities 5,270 (4,039) 2,171
Accrued restructuring and other charges (13,601) (6,117) -
Accrued income taxes 428 (1,534) 4,585
---------- -------- --------
Total adjustments 89,005 39,188 14,182
---------- -------- --------
Net cash used in operating activities (42,737) (38,287) (5,957)
---------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,894) (3,460) (7,739)
Deposits and other assets (238) 71 -
Purchase of short-term investments - (2,002) (31,914)
Proceeds from sale of short-term investments - 18,395 35,938
---------- -------- --------
Net cash provided by (used in) investing activities (2,132) 13,004 (3,715)
---------- -------- --------
Cash flows from financing activities:
Issuance of short-term borrowings, net 11,394 15,275 1,158
Issuance of common stock 23,917 3,214 18,388
Principal payments of long-term debt - (43) (1,388)
Principal payments under capital leases (1,679) (1,179) (1,140)
---------- -------- --------
Net cash provided by
financing activities 33,632 17,267 17,018
---------- -------- --------
Net increase (decrease) in cash and cash equivalents (11,237) (8,016) 7,346
Cash and cash equivalents, beginning of period 15,997 24,013 16,667
---------- -------- --------
Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013
---------- -------- --------
---------- -------- --------
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal
year end to that of Radius. This period includes Radius' results of operations
and balance sheet data on a September 30 fiscal year basis and SuperMac's on a
December 31 calendar year basis.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Radius
Inc. ("Radius") and its wholly owned subsidiaries after elimination of
significant intercompany transactions and balances.
Radius and SuperMac Technologies, Inc. ("SuperMac") merged into the
combined company (the "Company") effective August 31, 1994 (the
"Merger"), which was accounted for as a pooling of interests. The
consolidated financial statements for fiscal 1993 have not been
restated to adjust SuperMac's fiscal year end to that of Radius. This
period includes Radius' results of operations and balance sheet data
on a September 30 fiscal year basis and SuperMac's on a December 31
calendar year basis.
FINANCIAL STATEMENTS ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Such estimates include the level
of allowance for potentially uncollectible receivables and sales
returns; inventory reserves for obsolete, slow-moving, or non-salable
inventory; and estimated cost for installation, warranty and other
customer support obligations. Actual results could differ from these
estimates.
MANAGEMENT'S BUSINESS RECOVERY PLANS
As shown in the accompanying consolidated financial statements, the
Company has incurred recurring operating losses, and has a deficiency
in assets and working capital. In addition, as of September 30, 1995,
the Company was not in compliance with all of its contractual
obligations and financial covenants under its credit agreements. The
Company also is delinquent in its accounts payables as payments to
vendors are not being made in accordance with vendor terms.
The Company's relatively limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its
ability to manufacture and sell products and has resulted in
additional costs for expedited deliveries. The adverse effect on the
Company's results of operations due to its limited cash resources can
be expected to continue until such time as the Company is able to
return to profitability, or generate additional cash from other
sources.
These conditions raise concerns about the Company's ability to
continue operations as an ongoing concern. Management has implemented,
or has developed plans to implement, a number of actions to address
these conditions including: refocusing its efforts on providing
solutions for high end digital video and graphics customers;
discontinuing sales of mass market and other low value added products;
divesting its color server and monochrome display businesses and
exploring opportunities for the divestiture of its MacOS compatible
systems products and other product lines; significantly reducing
expenses and headcount; subleasing all or a portion of its current
facility given its reduced occupancy requirements; and investigating
various strategic partnering opportunities.
Additional funds will be needed to finance the Company's development
plans and for other purposes, and the Company is now investigating
possible financing opportunities. There can be no assurance that
additional financing will be available when needed or, if available,
that the terms of such financing will not adversely affect the
Company's results of operations.
F-7
<PAGE>
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to September 30
and includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal
years presented. During fiscal 1995, the Company changed its fiscal
year end from the Sunday closest to September 30 to the Saturday
closest to September 30 for operational efficiency purposes. For
clarity of presentation, all fiscal periods in this Form 10-K are
reported as ending on a calendar month end.
FOREIGN CURRENCY TRANSLATION
The Company translates the assets and liabilities of its foreign
subsidiaries into dollars at the rates of exchange in effect at the
end of the period and translates revenues and expenses using rates in
effect during the period. Gains and losses from these translations
are accumulated as a separate component of shareholders' equity.
Foreign currency transaction gains or losses, which are included in
the results of operations, are not material.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company
reviews the levels of its inventory in light of current and forecasted
demand to identify and provide reserve for obsolete, slow-moving, or
non-salable inventory. Cost is determined using standard costs that
approximate cost on a first-in, first-out basis. Inventories consist
of the following (in thousands):
September 30 1995 1994
---------- ---------
Raw materials $ 1,559 $ 4,515
Work in process 2,258 6,852
Finished goods 11,254 9,702
---------- ----------
$ 15,071 $ 21,069
---------- ----------
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following
(in thousands):
September 30 1995 1994
----------- -----------
Computer equipment $ 17,429 $ 18,007
Machinery and equipment 12,335 14,184
Furniture and fixtures 6,023 5,562
Leasehold improvements 1,084 1,683
----------- -----------
36,871 39,436
Less accumulated depreciation
and amortization (33,840) (31,708)
----------- -----------
$ 3,031 $ 7,728
----------- -----------
----------- -----------
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Equipment under
capital leases and leasehold improvements are being amortized on the
straight-line method over six years or the remaining lease term,
whichever is shorter.
LONG-LIVED ASSETS
In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS 121 requires recognition of impairment
of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such
assets. SFAS 121 is effective for fiscal years beginning after
December 15, 1995. Adoption of SFAS 121 is not expected to have a
material impact on the Company's financial position or results of
operations.
F-8
<PAGE>
REVENUE RECOGNITION
Revenue is recognized when products are shipped. Sales to certain
resellers are subject to agreements allowing certain rights of return
and price protection on unsold merchandise held by these resellers.
The Company provides for estimated returns at the time of shipment and
for price protection following price declines.
WARRANTY EXPENSE
The Company provides at the time of sale for the estimated cost to
repair or replace products under warranty. The warranty period
commences on the end user date of purchase and is normally one year
for displays and digital video products and for the life of the
product for graphics cards.
INCOME TAXES
Effective October 1, 1992, the Company adopted FASB Statement 109,
"Accounting for Income Taxes." Under Statement 109, the liability
method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. Prior
to the adoption of Statement 109, income tax expense was determined
using the liability method prescribed by Statement 96, which is
superseded by Statement 109. Among other changes, Statement 109
changes the recognition and measurement criteria for deferred tax
assets included in Statement 96.
As permitted by Statement 109, the Company has elected not to restate
the financial statements of any prior years. The cumulative effect of
the change in method of accounting for income taxes decreased the net
loss by $600,000 or $0.05 per share in fiscal 1993 on a combined
basis.
LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity
from date of purchase of three months or less to be cash equivalents;
investments with maturities between three and twelve months are
considered to be short-term investments. Cash equivalents are carried
at cost which approximates market. There were no short-term
investments as of September 30, 1995 or 1994. Approximately $1.6
million of the $4.8 million of cash and cash equivalents available at
September 30, 1995 was restricted under various letters of credit.
OFF BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK
The Company sells its products to direct computer resellers in the
United States and to distributors in various foreign countries. The
Company performs on-going credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves
for potential credit losses.
The Company also hedges substantially all of its trade accounts
receivable denominated in foreign currency through the use of foreign
currency forward exchange contracts based on firm third party
commitments. Gains and losses associated with currency rate changes
on forward contracts are recognized in the consolidated statements of
operations upon contract settlement and were not material. At
September 30, 1995, the Company had forward contracts to sell three
different foreign currencies which totaled the equivalent of
approximately $11.1 million and mature between October 1995 and
November 1995. At September 30, 1995, the fair value of the Company's
forward contracts approximated cost.
F-9
<PAGE>
RELATED PARTIES
In fiscal 1994, the Company acquired shares of preferred stock of
Portrait Display Labs ("PDL") and a warrant to purchase additional
shares of PDL preferred stock in exchange for the cancellation of
certain rights held by the Company to purchase all of the outstanding
equity securities or assets of the predecessor entity to PDL. The
warrant permitted the purchase of approximately an additional 10%
interest in PDL. The Company also was granted one seat on PDL's Board
of Directors. In addition, the Company licensed PDL certain pivot
display technology in exchange for the payment of royalties. Product
revenues were approximately $5.0 million in fiscal 1994. In fiscal
1995, the Company exercised the warrant for an additional 10% interest
in PDL in exchange for cancellation of approximately $945,000 in
accounts receivable. There were no product revenues for the fiscal
1995 to this related party. The receivable from PDL at September 30,
1995 was approximately $980,000. Subsequent to September 30, 1995,
the Company signed a series of additional agreements with Portrait
Display Labs, see Note 11 to the Consolidated Financial Statements.
There were no material transactions from this or any other related
party during fiscal 1993.
NOTE TWO. BORROWINGS
LINE OF CREDIT ARRANGEMENT
In February 1995, the Company and IBM Credit Corp. ("IBM Credit")
entered into a $30.0 million Inventory and Working Capital Financing
Agreement (the "IBM Credit Agreement"). The IBM Credit Agreement
permits advances for inventory and working capital up to the lesser of
$30.0 million or 85% of eligible receivables ("Inventory and Working
Capital Advances"). In September 1995, IBM Credit advanced an
additional $20.0 million under the IBM Credit Agreement to finance the
manufacturing of the Company's MacOS compatible products (the "MacOS
Advances"). The weighted average interest rate during 1995 was
approximately 12.6%. Advances bear interest at rates ranging from
prime rate plus 2.25% to prime rate plus 4% and are secured by all the
assets of the Company. The IBM Credit Agreement expires in March 1996.
As of September 30, 1995, $50.8 million was outstanding under the IBM
Credit Agreement consisting of $30.8 million in Inventory and Working
Capital Advances and approximately $20.0 million in MacOS Advances.
The outstanding Inventory and Working Capital Advances included $18.7
million in working capital advances supported by eligible receivables,
$6.1 million in working capital advances in excess of the borrowing
base, and $6.1 million in inventory advances. The $24.7 million in
working capital advances are included in Short-term borrowings in the
Consolidated Financial Statements. The $6.1 million in inventory
advances, together with the approximately $20.0 million in MacOS
Advances, are included in Accounts payable in the Consolidated
Financial Statements.
As of September 30, 1995, the Company was not in compliance with all
of its contractual obligations and financial covenants under the IBM
Credit Agreement (specifically, revenues to working capital ratio, net
profit to revenue, and total liabilities to total net worth); however,
IBM Credit has waived such defaults pursuant to an amendment to the
IBM Credit Agreement. See Note 11 to the Consolidated Financial
Statements.
In addition, the Company entered into a Business Loan Agreement on
March 20, 1995 with Silicon Valley Bank. The agreement, which expires
on March 19, 1996, allows the Company to issue letters of credit as a
sub-facility under a $5.0 million foreign accounts receivable
revolving line of credit subject to an interest rate of up to the
prime rate plus 1.25%. The weighted average interest rate during 1995
was approximately 13.0%. The related debt outstanding as of September
30, 1995 was $1.7 million and outstanding letters of credit were $0.8
million. The Company was not in compliance with all the terms of this
credit arrangement.
One of the Company's subsidiaries has a revolving line of credit with
a bank in Japan. Borrowings were approximately $3.1 million at
September 30, 1995. This note bears interest at the lesser of the
Euro-yen rate or the bank's prime lending rate (1.5 percent at
September 30, 1995, the prime rate). The weighted average interest
rate during 1995 was approximately 4.9% The line of credit is renewed
every six months with the next renewal in December 1995.
F-10
<PAGE>
NOTE THREE. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities under operating leases and certain
computer equipment and office furniture under capital leases.
Depreciation expense for assets under capital leases is included in
depreciation and amortization expense. The cost and net book value of
these capitalized lease assets included in property and equipment are
(in thousands):
At September 30, Cost Net Book Value
--------- --------------
1995 $ 7,437 $ 2,642
1994 7,437 4,021
Future minimum lease payments at September 30, 1995, under capital
leases and noncancelable operating leases are as follows (in
thousands):
Capital Operating
Leases Leases
------- --------
1996 $ 1,686 $ 1,837
1997 1,155 1,887
1998 280 1,843
1999 - 1,750
2000 - 1,759
------- --------
Total minimum lease payments 3,121 $ 9,076
Amount representing interest (296)
-------
Present value of minimum lease
payments 2,825
Amount due within one year (1,494)
-------
Amount due after one year $1,331
-------
-------
Rent expense charged to operations amounted to approximately $3.5
million, $3.0 million and $3.8 million for the years ended September
30, 1995, 1994 and 1993, respectively. The rent expense amounts for
fiscal 1995, 1994 and 1993 exclude a provision for remaining lease
obligations on excess facilities. See Note 8 of Notes to the
Consolidated Financial Statements.
Sublease income for fiscal 1995 and 1994 was approximately $0.6
million and $0.1 million. There was no sublease income for fiscal
1993.
CONTINGENCIES
DISPLAY SCREEN SIZE
The Company was named as one of approximately 42 defendants in Shapiro
et al. v. ADI Systems, Inc. et al., Superior Court of California,
Santa Clara County, case no. CV751685, filed August 14, 1995. Radius
was named as one of approximately 32 defendants in Maizes & Maizes et
al. v. Apple Computer et al., Superior Court of New Jersey, Essex
County, case no. L-13780-95, filed December 15, 1995. Plaintiffs in
each case purport to represent alleged classes of similarly situated
persons and/or the general public, and allege that the defendants
falsely advertise that the viewing areas of their computer monitors
are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995,
and has not yet been served with the Maizes complaint. Defendants'
petition to the California State Judicial Council to coordinate the
Shapiro case with similar cases brought in other California
jurisdictions was granted in part and it is anticipated that the
coordinated proceedings will be held in Superior Court of California,
San Francisco County. Discovery proceedings have not yet begun in
either case. In the opinion of management, based on the facts known
at this
F-11
<PAGE>
time, the eventual outcome of these cases is unlikely to have a material
adverse effect on the results of operations or financial position of the
Company.
ELECTRONICS FOR IMAGING
On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a
suit in the United States District Court in the Northern District of
California alleging that the Company infringes a patent allegedly
owned by EFI. Although the complaint does not specify which Radius
products allegedly infringe the patent, EFI is a prime competitor of
Radius in the Color Server market. Radius' Color Server products are
material to its business.
The Company has filed an answer denying all material allegations, and
has filed counterclaims against EFI alleging causes of action for
interference with prospective economic benefit, antitrust violations,
and unfair business practices. The Company believes it has
meritorious defenses to EFI's claims and is defending them vigorously.
In addition, the Company believes it may have indemnification rights
with respect to EFI's claims. In the opinion of management, based on
the facts known at this time, the eventual outcome of this case is
unlikely to have a material adverse effect on the results of
operations or financial position of the Company.
SECURITIES LITIGATION.
In September 1992, the Company and certain of its officers and
directors were named as defendants in a securities class action
litigation brought in the United States District Court for the
Northern District of California that sought unspecified damages,
prejudgment and postjudgment interest, attorneys' fees, expert witness
fees and costs, and equitable relief. In July 1994, SuperMac and
certain of its officers and directors, several venture capital firms
and several of the underwriters of SuperMac's May 1992 initial public
offering and its February 1993 secondary offering were named as
defendants in a class action litigation brought in the same court that
sought unspecified damages, prejudgment and postjudgment interest,
attorneys' fees, experts' fees and costs, and equitable relief
(including the imposition of a constructive trust on the proceeds of
defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations
and entered a Final Judgment and Order of Dismissal. Under the
settlement of the litigation brought in 1992 against the Company, our
insurance carrier paid $3.7 million in cash and the Company will issue
128,695 shares of its Common Stock to a class action settlement fund.
In the settlement of the litigation brought in 1994 against SuperMac,
the Company paid $250,000 in cash and will issue into a class action
settlement fund 707,609 shares of its Common Stock. The number of
shares to be issued by the Company will increase by up to 100,000 if
the price of the Common Stock is below $12 per share during the 60-day
period following the initial issuance of shares. In connection with
these settlements, the Company recorded a charge of $12.4 million in
the Consolidated Financial Statements reflecting settlement costs not
covered by insurance as well as related legal fees.
The Company has periodically received communications from third
parties asserting infringement of patent rights on certain of the
Company's products and features. Management does not believe any
claims made will have a material adverse effect on the results of
operations or financial position of the Company.
NOTE FOUR. SHAREHOLDERS' EQUITY
COMMON STOCK
In June 1995, the Company sold approximately 2.5 million shares of its
Common Stock in a series of private placements to a small number of
investors unaffiliated with the Company. Proceeds from the offering,
net of commission and other related expenses were $21.4 million. The
net proceeds were used for working capital.
STOCK OPTIONS
The Company's 1986 Stock Option Plan, as amended, authorizes the
issuance of up to 2,975,000 shares of common stock upon the exercise
of incentive stock options or nonqualified stock options that may be
granted to officers, employees (including directors who are also
employees), consultants and independent contractors. Under the plan,
options are exercisable for a term of up to ten years after issuance.
Options may be granted at prices ranging from 50% to 100% of the fair
market value of the stock on the date of grant, as determined by the
F-12
<PAGE>
Board of Directors. Vesting of shares is also determined by the Board of
Directors at the date of grant. The 1986 Stock Option Plan will expire
in October 1996.
On August 31, 1994, pursuant to the Merger, Radius assumed 975,239
outstanding options originally issued under the SuperMac 1988 Stock
Option Plan. These options will be administered in accordance with
the SuperMac 1988 Stock Option Plan until all options are exercised or
expired. Under the plan, options are exercisable for a term of up to
ten years after issuance.
The following table summarizes the consolidated activity of the 1986
and 1988 Stock Option Plans and the 1992 Non-Employee Directors' Stock
Option Plan:
September 30,
---------------------------------
1995 1994 1993
Outstanding at beginning of year 2,042,481 2,208,783 2,157,040
Granted 707,590 892,131 1,219,514
Exercised (213,791) (294,042) (516,597)
Canceled (838,745) (764,391) (651,174)
----------- ----------- ------------
Outstanding at September 30 1,697,535 2,042,481 2,208,783
------------ ------------ ------------
------------ ------------ ------------
Price range at September 30 $1.36-$28.96 $0.42-$32.18 $0.42-$30.14
------------ ------------ ------------
------------ ------------ ------------
Price range of options
exercised $0.42-$13.13 $0.42-$13.13 $0.42-$22.35
------------ ------------ ------------
------------ ------------ ------------
Exercisable at September 30 1,325,222 706,474 455,241
------------ ------------ ------------
------------ ------------ ------------
Available for grant at
September 30 415,586 281,726 331,314
------------ ------------ ------------
------------ ------------ ------------
The stock option activity as shown in the table for fiscal 1993 has not been
restated to adjust SuperMac's fiscal year end to that of Radius. Fiscal 1993
includes Radius' activity on a September 30 fiscal year basis and SuperMac's
activity on a December 31 calendar year basis. The fiscal 1994 period includes
the Radius activity for fiscal year ended September 30, 1994 and SuperMac
activity for the nine months ended September 30, 1994.
The Company has also reserved 100,000 shares of common stock for issuance to
non-employee directors pursuant to options granted under the 1994 Directors'
Stock Option Plan (the "1994 Plan"). Such options may only be nonqualified
stock options, must be exercised within ten years from the date of grant, and
must be granted in accordance with a non-discretionary formula. Under this
formula, each new director receives an option to purchase 10,000 shares when
that director is first appointed to the Board and an option to purchase 2,500
shares on each anniversary of such director's appointment. As of September 30,
1995, 27,500 shares had been granted under this plan at exercise prices ranging
from $7.44 to $12.00 per share. Options to purchase 1,250 shares were canceled
following the resignation of a director. None of the options granted under the
1994 Plan are exercisable.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option Plan
(the "Prior Plan") was in effect. As of September 30, 1995, the Prior Plan had
33,750 options outstanding at prices ranging from $8.00 to $17.25. Such options
are nonqualified stock options, must be exercised within five years from the
date of grant, and were granted in accordance with a non-discretionary formula.
Options unissued under the Prior Plan become available for grant under the 1994
Plan. As of September 30, 1995, options to purchase 37,500 shares became
available upon the resignation of three directors. In addition, 28,750 options
to purchase shares, which were never granted under the Prior Plan were
transferred to the 1994 Plan.
In March 1993, the Company granted a nonqualified stock option to one officer to
purchase a total of 250,000 shares of common stock outside the Company's 1986
Stock Option Plan at an exercise price of $7.75 per share. This option is
exercisable for a term of ten years and vests over a fifty month period
commencing on the date of grant. During fiscal 1994, 150 of these shares were
exercised by the officer, and as of September 30, 1995 an additional 149,850
shares were exercisable.
F-13
<PAGE>
In June 1995, the Company repriced approximately 232,000 of then outstanding
options to an exercise price of $12.00 per share, the fair market value of the
Company's stock on the date of the repricing.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which substantially all
employees may purchase common stock through payroll deductions at a price equal
to 85% of its fair market value as of certain specified dates. Stock purchases
under this plan are limited to 10% of an employee's compensation, and in no
event may exceed $21,250 per year. Under this plan a total of 650,000 shares of
common stock have been reserved for issuance to employees. At September 30,
1995, 255,859 shares remain available for issuance under the plan.
EMPLOYEE STOCK PLANS
The Company account for its stock option plans and the Employee Stock Purchase
Plan in accordance with provisions of the accounting Principles Board's Opinion
No. 25 (APB 25), "Accounting for Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provision of APB
25. Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
F-14
<PAGE>
NOTE FIVE, FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
For years ended September 30
---------------------------------------
1995 1994 1993
-------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Federal:
Current $ - $ (12,583) $ (3,974)
Deferred 7,170 12,311 (7,505)
-------- ---------- ---------
7,170 (272) (11,479)
Foreign:
Current 650 376 297
-------- ---------- ---------
State:
Current 20 (3,641) 844
Deferred 1,230 (1,063) (3,436)
-------- ---------- ---------
1,250 (4,704) (2,592)
-------- ---------- ---------
$ 9,070 $ (4,600) $(13,774)
-------- ---------- ---------
-------- ---------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
For years ended September 30
-----------------------------
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 27,077 $ 5,100
Reserves and accruals not currently tax deductible 22,342 10,055
Restructuring reserves 22,314 -
Credit carryovers 6,280 3,100
Inventory valuation differences 4,188 12,612
Depreciation 4,079 4,202
Capitalized research & development expenditures 3,202 2,193
Other - 374
---------- ----------
Total deferred tax assets 89,482 37,636
---------- ----------
Valuation allowance for deferred tax assets (85,086) (26,724)
---------- ----------
Deferred tax assets $ 4,396 $ 10,912
---------- ----------
---------- ----------
Deferred tax liabilities:
State income tax $ 3,849 $ 2,512
Other 547 -
---------- ----------
Total deferred tax liabilities 4,396 2,512
---------- ----------
Net deferred tax assets $ - $ 8,400
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before taxes. The sources and tax
effects of the differences are as follows:
<TABLE>
<CAPTION>
For years ended September 30
-----------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Expected tax at statutory rate $ (42,935) $ (28,726) $ (12,080)
Change in valuation allowance 49,820 26,724 -
State income tax, net of federal tax benefit 1,250 (3,105) (1,707)
Non-deductible merger costs - 1,054 -
Non-deductible charge for purchased
research and development - 763 -
Research and development tax credits (497) (458) (734)
Other 1,432 (852) 747
---------- ---------- ----------
$ 9,070 $ (4,600) $ (13,774)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
As of September 30, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $71.0 million and $27.9
million, respectively. The state loss carryforwards will expire as follows;
$8.0 million in 1998, $5.0 million in 1999; and $14.9 million in 2000, if not
utilized, and the federal loss carryforwards will expire primarily in 2009 and
2010, if not utilized. In addition, the Company had tax credit carryforwards of
approximately $6.3 million which will expire in 2005, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses before
utilization.
F-16
<PAGE>
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For years ended September 30
-----------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Supplemental disclosure of cash
flow information (in thousands):
Cash paid (received) during the year for:
Interest $ 1,620 $ 812 $ 927
---------- ---------- ----------
---------- ---------- ----------
Income taxes $ (8,370) $ (8,295) $ 2,661
---------- ---------- ----------
---------- ---------- ----------
Supplemental schedule of noncash
investing and financing activities
(in thousands):
Retirement of fully and partially
depreciated assets $ 4,459 $ 6,025 $ 1,544
---------- ---------- ----------
---------- ---------- ----------
Tax benefit from stock options
exercised $ - $ 425 $ 3,358
---------- ---------- ----------
---------- ---------- ----------
Equipment acquired pursuant to
capital leases $ - $ 2,000 $ 4,138
---------- ---------- ----------
---------- ---------- ----------
Common stock issued pursuant to
VideoFusion agreement $ 2,857 $ - $ -
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company currently operates in one principal industry segment: the design,
manufacturing and marketing of color publishing and digital video computer
products. The Company's export sales were approximately $124.5 million, $112.0
million and $108.1 million in the fiscal years ended September 30, 1995, 1994
and 1993, respectively, and included export sales to Europe of approximately
$57.3 million, $60.6 million, and $59.5 million, respectively. Export sales to
Japan were approximately $57.2 million, $35.7 million and $33.0 million for
fiscal years ended September 30, 1995, 1994 and 1993, respectively.
One customer accounted for approximately 34.0%, 13.5% and 11.5% of the Company's
net sales during the years ended September 30, 1995, 1994 and 1993,
respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce costs
and improve operating efficiencies. The program included, among other things,
the write-down of inventory following Radius' decision to phase out its older
generation of products, lease termination expenses, capital equipment write-
offs, severance payments, and costs associated with the discontinuation of
Radius' minicomputer-class server product. The restructuring program costs of
$15.5 million were recorded during the third quarter of fiscal 1993. These
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the estimates of
the restructuring costs from the recognition of the charge in June 1993 with the
completion of the restructuring program in December 1994.
F-17
<PAGE>
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection with
a program to adjust inventory levels, eliminate excess facilities, terminate
certain projects and contract arrangements and reduce the number of employees.
The charges (in thousands) are included in: cost of sales ($13,352); research
and development ($2,000); and selling, general and administrative expenses
($1,238). There have been no material changes in the restructuring plan or in
the estimates of the restructuring costs. The Company has $236,000 remaining in
its restructuring reserve related to facility costs, the balance of which is
expected to be eliminated in fiscal 1996. As noted in the Consolidated
Financial Statements, the consolidated results for the Company in both the
twelve months ended September 30, 1994 and the fiscal period ended 1993 include
SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well as transaction fees and costs incidental
to the merger. The charges (in thousands) are included in: net sales ($3,095);
cost of sales ($25,270); research and development ($4,331); and selling, general
and administrative expenses ($10,711). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
-------------------------------
Cash Outlays
-----------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,236 154
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
---------- ---------- ---------- ----------
Total charges $ 43,407 $ 26,678 $ 15,860 $ 869
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarter and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees
or temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The
Company has spent $15.9 million of cash for restructuring through September 30,
1995. The Company expects to have substantially completed the restructuring by
September 1996. During fiscal 1995, approximately $2.1 million of merger
related restructuring reserves were reversed and recorded as an expense
reduction due to changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to refocus its business on the color publishing and
multimedia markets. The charges primarily included a writedown of inventory and
other assets. Additionally, it included expenses related to the cancellation of
open purchase orders, excess facilities and severance. The charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
F-18
<PAGE>
<TABLE>
<CAPTION>
Representing
-------------------------------
Cash Outlays
-----------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - - 3,662
---------- ---------- ---------- ----------
Total charges $ 57,865 $ 37,900 $ - $ 19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. Revenues and gross profit (loss) for significant product lines
discontinued were as follows: MacOS-compatible systems were $21.8 million and
$(19.2) million, respectively; and low-margin displays $82.9 million and $19.6
million, respectively. The provision for excess facility costs represent the
write-off of leasehold improvements and the costs associated with anticipated
reductions in facilities. The cancellation fees and asset write-offs reflect the
Company's decision to refocus its efforts on providing solutions for the color
publishing and multimedia markets. Employee severance costs are related to
employees or temporary employees who have been or will be released due to the
revised business model. As of December 15, 1995, approximately 157 positions of
the 240 total planned had been eliminated in connection with the new business
model. The Company had not spent any cash for this restructuring as of
September 30, 1995. As of September 30, 1995, the Company had cash and cash
equivalents of $4.8 million. See "Management's Business Recovery Plans" at Note
1 due to the Consolidated Financial Statements. The Company expects to have
substantially completed the restructuring by September 1996.
NOTE NINE. VIDEOFUSION ACQUISITION
The Company acquired VideoFusion, Inc. ("VideoFusion") on September 9, 1994.
VideoFusion is a developer of advanced digital video special effects software
for Apple Macintosh and compatible computers. The Company acquired VideoFusion
in exchange for approximately 890,000 shares of the Company's Common Stock,
205,900 shares of which were issued at the closing of the acquisition. The
balance of the shares were to be issued in installments over a period of time
contingent on the achievement of certain performance milestones and other
factors. In addition, the Company was required to pay up to $1.0 million in
cash based upon net revenues derived from future sales of products incorporating
VideoFusion's technology. The purchase price for VideoFusion, including closing
costs and the issuance of shares of Common Stock valued at $500,000 in
connection with the achievement of the first milestone was approximately $2.4
million. This amount was allocated to the assets and liabilities of VideoFusion
and resulted in identifiable intangibles of approximately $440,000 and an in-
process research and development expense of approximately $2.2 million. The
intangible asset was to be amortized over two years. The Company recognized the
charge of approximately $2.7 million for in-process research and development and
other costs associated with the acquisition of VideoFusion during the fourth
quarter of fiscal 1994.
In May 1995, the Company entered into an agreement with the former holders of
VideoFusion stock to settle the contingent stock and earnout payments that were
originally contemplated. Pursuant to this agreement, the Company issued
approximately 212,000 shares, and paid approximately $200,000, to the former
holders of VideoFusion stock. These transactions resulted in additional
compensation expense of approximately $3.0 million which was recorded in fiscal
1995.
NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC.
On August 31, 1994, Radius merged with SuperMac in exchange for 6,632,561 shares
of Radius' common stock. SuperMac was a designer, manufacturer, and marketer of
products that enhanced the power and graphics performance of personal computers.
The Merger was accounted for as a pooling of interests, and, accordingly, the
Company's Consolidated Financial Statements and Notes to Consolidated Financial
Statements have been restated to include the results of SuperMac for all periods
presented.
F-19
<PAGE>
Separate results of operations for the periods prior to the Merger are as
follows (in thousands):
<TABLE>
<CAPTION>
Merger-
Related
Radius SuperMac Expenses Adjustment Combined
--------- --------- ---------- -----------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Net revenues $ 162,922 $ 164,978 $ (3,095) $ - $ 324,805
Net loss (18,293) (15,775) (43,407) - (77,475)
Year ended September 30, 1993
(SuperMac as of December 1993)
Net revenues 134,872 202,501 - - 337,373
Net loss (17,415) (2,724) - - (20,139)
</TABLE>
The merger related expenses reflect the recording of the merger related
restructuring and other charges.
Prior to the Merger, SuperMac's fiscal year end was December 31. SuperMac's
separate results for fiscal 1994 have been restated to conform with the twelve
months ended September 30. The Consolidated Financial Statements for all
periods prior to fiscal 1994 have not been restated to adjust SuperMac's fiscal
year end to that of Radius. Such periods include Radius' results of operations
and balance sheet data on a September 30 fiscal year basis and SuperMac's on a
December 31 calendar year basis. Therefore, the results for both the fiscal
year ended September 30, 1994 and the results for the fiscal year ended 1993
include the results for SuperMac's three months ended December 31, 1993.
Unaudited revenues, cost and expenses, and net loss of SuperMac for the three
months ended December 31, 1993 were, $48.5 million, $64.7 million and $9.9
million, respectively.
The Company incurred substantial costs in connection with the Merger and
consolidation of operations. Included in the accompanying consolidated
statement of operations for the year ended September 30, 1994 are merger related
expenses totaling $43.4 million consisting primarily of charges for the
discontinuance of duplicative product lines and related assets, elimination of
duplicative facilities, property and equipment and other assets, and personnel
severance costs as well as transaction fees and costs incident to the Merger.
See Note 8 of Notes to the Consolidated Financial Statements.
NOTE ELEVEN. SUBSEQUENT EVENTS
PORTRAIT DISPLAY LABS
On December 19, 1995, the Company signed a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting technology.
Under these agreements, PDL settled its outstanding receivable to the Company by
paying the Company $500,000 in cash and issuing to the Company 214,286 shares of
PDL's Common Stock. See Note 1 to the Consolidated Financial Statements.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and an
Asset Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements and subject to certain closing conditions,
DTE will purchase Radius' monochrome display monitor business and certain assets
related thereto, for approximately $200,000 in cash and cancellation of $2.5
million of the Company's indebtedness to DTE. In addition, DTE and Radius will
cancel outstanding contracts relating to DTE's manufacture and sale of
monochrome display monitors to Radius.
F-20
<PAGE>
COLOR SERVER GROUP
On December 23, 1995, the Company signed a definitive agreement pursuant to
which the Company will sell its Color Server business to Splash Merger Company,
Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology Holdings,
Inc. (the "Parent"), a corporation formed by various investment entities
associated with Summit Partners. The Company will receive approximately
$21,945,175 in cash (subject to certain post-closing adjustments) and 4,282
shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock
(the "Series B Preferred Stock"). The shares of Series B Preferred Stock will
be convertible by the Company at any time into 19.9% of the Parent's common
stock outstanding as of the closing of the transaction. The shares of Series B
Preferred Stock also will be redeemable by the Parent at any time, and will be
subject to mandatory redemption beginning on the sixth anniversary of issuance,
in each case at a redemption price of $1,000 per share plus accrued dividends.
The transaction is expected to close in January 1996. Under the Inventory and
Working Capital Agreement, as recently amended, with IBM Credit Corp., the
Company is required to pay all of the net proceeds of the Color Server business
transaction to IBM Credit Corp. in order to reduce the Company's outstanding
indebtedness under that agreement.
IBM CREDIT CORP.
On December 14, 1995, the Company and IBM Credit Corp. ("IBM Credit") amended
the Inventory and Working Capital Financing Agreement (the "IBM Credit
Agreement") entered into by the Company and IBM Credit on February 17, 1995 and
subsequently revised in September 1995 to fund the manufacturing of the
Company's MacOS compatible systems products. See Note 2 to the Consolidated
Financial Statements. Under the amendment, IBM Credit waived the Company's
failure to comply with all of its contractual obligations and financial
covenants under the IBM Credit Agreement. The IBM Credit Amendment, among other
things, also provides that until March 31, 1996 IBM Credit will extend advances
to the Company in an amount up to 90% of the Company's collections and fund the
Company's payroll in the event that collections are insufficient to permit the
advances needed for this purpose. Such advances and payroll funding, however,
may be suspended by IBM Credit (i) immediately following a default of the IBM
Credit Amendment, and (ii) following thirty (30) days notice in the event of any
default of the IBM Credit Agreement. The IBM Credit Amendment also requires the
Company to pay all of the net proceeds of the Color Server Group transaction to
IBM Credit to reduce the Company's outstanding indebtedness under the IBM Credit
Agreement.
1995 STOCK OPTION PLAN
On December 20, 1995, the Company's Board of Directors adopted the 1995 Stock
Option Plan to replace the 1986 Stock Option Plan that expires in 1996, and
reserved 850,000 shares (plus all unissued and unexercised shares available
under the existing 1986 Stock Option Plan) for issuance thereunder. The 1995
Stock Option Plan is subject to shareholder approval. See Note 4 to the
Consolidated Financial Statements.
F-21
<PAGE>
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions(1) period
----------- --------- ---------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended September 30, 1993 (2) $ 1,825 $ 1,272 $ 0 $ 975 $ 2,122
Year ended September 30, 1994 $ 2,018 (2) $ 1,283 $ 0 $ 753 $ 2,548
Year ended September 30, 1995 $ 2,548 $ 6,837 $ 0 $ 883 $ 8,502
</TABLE>
_____________________________
(1) Uncollectable accounts written off.
(2) The Consolidated Financial Statements for fiscal 1993 have not been
restated for the change in fiscal year. This period includes Radius'
results of operations and balance sheet data on a September 30 fiscal year
basis and SuperMac's on a December 31 calendar year basis.
F-22
<PAGE>
RADIUS INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
JUNE 30, 1996
(unaudited)
-------------
ASSETS:
Current assets:
Cash $ 3,264
Accounts receivable, net 22,234
Inventories 15,825
Prepaid expenses and other current assets 424
Income tax receivable 514
----------
Total current assets 42,261
Property and equipment, net 1,475
Deposits and other assets 142
----------
$ 43,878
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY (Net capital deficiency)
Current liabilities:
Accounts payable $ 37,952
Accrued payroll and related expenses 2,196
Accrued warranty costs 687
Other accrued liabilities 8,866
Accrued income taxes 2,056
Accrued restructuring and other charges 15,474
Short-term borrowings 22,920
Obligations under capital leases - current portion 1,293
----------
Total current liabilities 91,444
Obligations under capital leases - noncurrent portion 321
Shareholders' equity: (Net capital deficiency)
Common stock 126,243
Common stock to be issued -
Accumulated deficit (174,144)
Accumulated translation adjustment 14
----------
Total shareholders' equity (Net capital deficiency) (47,887)
----------
$ 43,878
----------
----------
See accompanying notes.
F-23
<PAGE>
RADIUS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 20,034 $ 87,325 $ 83,261 $ 251,007
Cost of sales 13,470 65,211 67,175 184,882
--------- ---------- ---------- ----------
Gross profit 6,564 22,114 16,086 66,125
--------- ---------- ---------- ----------
Operating expenses:
Research and development 1,092 4,990 6,241 13,780
Selling, general and administrative 4,518 18,442 21,430 48,725
--------- ---------- ---------- ----------
Total operating expenses 5,610 23,432 27,671 62,505
--------- ---------- ---------- ----------
Income (loss) from operations 954 (1,318) (11,585) 3,620
Other income (expense), net 3,975 (1,531) 21,090 (4,605)
Settlement of litigation -- -- -- (12,422)
--------- ---------- ---------- ----------
Income (loss) before income taxes 4,929 (2,849) 9,505 (13,407)
Provision for income taxes 216 263 656 450
--------- ---------- ---------- ----------
Net income (loss) $ 4,713 $ (3,112) $ 8,849 $ (13,857)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Income (loss) per share:
Net income (loss) per share $ 0.26 $ (0.21) $ 0.49 $ (0.96)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Common and common equivalent shares used
in computing net income (loss) per share 18,412 14,791 17,950 14,386
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-24
<PAGE>
RADIUS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands, unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,849 $ (13,857)
Adjustments to reconcile net income (loss) to net cash
(used in) operating activities:
Depreciation and amortization 1,470 2,988
Gain on the sale of the Color Hard Copy Group (20,638) -
Common stock to be issued - 12,022
Loss on the disposal of fixed assets 301 -
(Increase) decrease in assets:
Accounts receivable 39,202 (16,751)
Allowance for doubtful accounts (2,900) (1,610)
Inventories (2,162) (17,292)
Prepaid expenses and other current assets 1,912 545
Income tax receivable 5 8,390
Increase (decrease) in liabilities:
Accounts payable (31,584) 17,064
Accrued payroll and related expenses (3,489) (297)
Accrued warranty costs (2,373) 623
Other accrued liabilities (1,914) 308
Accrued restructuring costs (1,539) (13,477)
Accrued income taxes 391 75
--------- ----------
Net cash used in operating activities (14,469) (21,269)
Cash flows from investing activities:
Capital expenditures (215) (2,848)
Goodwill - (2,692)
Deposits and other assets 375 (1,233)
Net proceeds from the sale of the Color Hard Copy Group 20,163 -
--------- ----------
Net cash provided by (used in) investing activities 20,323 (6,773)
Cash flows from financing activities:
Principal payments of short-term borrowings, net (6,569) 3,414
Principal payments of long-term debt and capital leases (1,211) (1,301)
Issuance of common stock 430 26,200
--------- ----------
Net cash provided by (used in) financing activities (7,350) 28,313
--------- ----------
Net increase (decrease) in cash and cash equivalents (1,496) 271
Cash and cash equivalents, beginning of period 4,760 15,997
--------- ----------
Cash and cash equivalents, end of period $ 3,264 $ 16,268
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest paid $ 2,804 $ 2,009
--------- ----------
--------- ----------
Income taxes paid $ 260 $ -
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-25
<PAGE>
RADIUS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Radius Inc. ("Radius") as of June 30,
1996 and for the three and nine months ended June 30, 1996 and 1995 are
unaudited. In the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the financial position and results of operations for
the interim periods presented. These consolidated financial statements should
be read in conjunction with the Audited Consolidated Financial Statements and
notes thereto included elsewhere herein.
During the first quarter of its 1995 fiscal year, the Company changed its fiscal
year end from the Sunday closest to September 30 to the Friday closest to
September 30. During the second quarter of its 1995 fiscal year, the Company
changed its fiscal year end to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal
periods are reported as ending on a calendar month end.
NOTE 2. INVENTORIES
Inventories, stated at the lower of cost or market, consist of (in thousands):
JUNE 30,
1996
--------
Raw materials $ 539
Work in process 3,113
Finished goods 12,173
--------
$ 15,825
--------
--------
NOTE 3. COMMITMENTS AND CONTINGENCIES
(a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in
the United States District Court in the Northern District of California alleging
that the Company infringes a patent allegedly owned by EFI. Although the
complaint does not specify which of the Company's products allegedly infringe
the patent, subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. In January 1996, the Company
completed the divestiture of the Color Server Group.
The Company has filed an answer denying all material allegations, and has filed
counterclaims against EFI alleging causes of action for interference with
prospective economic benefit, antitrust violations, and unfair business
practices. EFI's motion to dismiss or sever the Company's amended counterclaims
was granted in part and the ruling permitted the Company to file an amended
counterclaim for antitrust violations. The Company has filed an amended
antitrust claim. The Company believes it has meritorious defenses to EFI's
claims and is defending them vigorously. In addition, the Company believes it
may have indemnification rights with respect to EFI's claims. In the opinion of
management, based on the facts known at this time, although the eventual outcome
of this case is unlikely to have a material adverse effect on the results of
operations or financial position of the Company, the costs of defense,
regardless of outcome, may have a material adverse effect on the results of
operations or financial position of the Company. In addition, in connection
with the divestiture of its Color Server business, the Company has certain
indemnification obligations for which approximately $2.3 million remains held in
escrow to secure such obligations in the event that the purchaser suffers any
losses resulting from such litigation.
(b) The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one of
approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December
15, 1995. Plaintiffs in each case purport to represent alleged classes of
similarly situated
F-26
<PAGE>
persons and/or the general public, and allege that the defendants falsely
advertise that the viewing areas of their computer monitors are larger than in
fact they are.
The Company was served with the Shapiro complaint on August 22, 1995 and was
served with the Maizes complaint on January 5, 1996. Defendants' petition to
the California State Judicial Council to coordinate the Shapiro case with
similar cases brought in other California jurisdictions was granted in part and
it is anticipated that the coordinated proceedings will be held in Superior
Court of California, San Francisco County. An amended consolidated complaint
was filed on March 26, 1996. Discovery proceedings are scheduled to begin. The
Company believes it has meritorious defenses to the plaintiffs' claims and is
defending them vigorously. In the opinion of management, based on the facts
known at this time, the eventual outcome of these cases may have a material
adverse effect on the results of operations or financial position of the Company
in the financial period in which they are resolved. In addition, whether or not
the eventual outcomes of these cases have a material adverse effect on the
results of operations or financial condition of the Company, the costs of
defense, regardless of outcome, may have a material adverse effect on the
results of operations and financial condition of the Company.
(c) On April 17, 1996, the Company was served with a complaint filed by Colorox
Corporation ("Colorox"), in the Circuit Court of the State of Oregon, County of
Multnomah, case no. 9604-02481, which alleges that the Company breached an
alleged oral contract to sell its dye sublimation printer business to Colorox
for $200,000, and seeks both specific performance of the alleged contract and
alleged damages of $2.5 million. The lawsuit also alleges that an officer of
the Company interfered with the alleged contract. The Company believes it has
meritorious defenses to the plaintiff's claims and intends to defend them
vigorously. Nevertheless, the costs of defense, regardless of outcome, could
have an adverse effect on the results of operations and financial condition of
the Company.
(d) The Company is involved in a number of other judicial and administrative
proceedings incidental to its business, including litigation by alleged trade
creditors who did not participate in the Plan. The Company intends to defend
such lawsuits vigorously and although adverse decisions (or settlements) may
occur in one or more of such cases, the final resolution of these lawsuits,
individually or in the aggregate, is not expected to have a material adverse
effect on the financial position of the Company. However, depending on the
amount and timing of an unfavorable resolution of these lawsuits, it is possible
that the Company's future results of operations or cash flows could be
materially adversely affected in a particular period. In addition, the costs of
defense -- regardless of the outcome -- could have a material adverse effect on
the results of operations and financial condition of the Company.
NOTE 4. BUSINESS DIVESTITURES
COLOR SERVER GROUP DIVESTITURE
In January 1996, the Company completed the sale of its Color Server Group
("CSG") to Splash Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary
of Splash Technology Holdings, Inc. (the "Parent"), a corporation formed by
various investment entities associated with Summit Partners. Through June 30,
1996 the Company has received approximately $21.0 million in cash and an
additional $2.4 million is being maintained in escrow for certain post-closing
adjustments and to secure certain indemnification obligations. The Company also
received 4,282 shares of the Parent's 6% Series B Redeemable and Convertible
Preferred Stock (the "Series B Preferred Stock"). The shares of Series B
Preferred Stock will be convertible by the Company at any time into
approximately 19.9% of the Parent's common stock outstanding as of the closing
of the transaction. The Company has not converted the Series B Preferred Stock.
In June 1996, the Company granted IBM Credit Corp. ("ICC"), its secured lender,
an option to purchase 428 shares of Series B Preferred as a fee for the
restructuring of the terms of its credit agreement with ICC. The shares of
Series B Preferred Stock also will be redeemable by the Parent at any time, and
will be subject to mandatory redemption beginning on the sixth anniversary of
issuance, in each case at a redemption price of $1,000 per share plus accrued
dividends. These shares of Series B Preferred Stock have been pledged to ICC.
The Company has certain indemnification obligations in connection with the
patent lawsuit brought by Electronics for Imaging, Inc. The net proceeds from
the sale of the Color Server Group were paid to Silicon Valley Bank ("SVB") in
order to repay the Company's indebtedness to SVB, and to ICC, in order to reduce
the Company's outstanding indebtedness to ICC.
PORTRAIT DISPLAY LABS
In January 1996, the Company entered into a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting
F-27
<PAGE>
technology. Under these agreements, PDL also settled its outstanding receivable
to the Company by paying the Company $500,000 in cash and issuing to the Company
214,286 shares of PDL's Common Stock. These shares of PDL Common Stock have
been pledged to ICC.
UMAX DATA SYSTEMS, INC.
In February 1996, the Company sold its MacOS compatible systems business to UMAX
Computer Corporation ("UCC"), a company formed by UMAX Data Systems, Inc.
("UMAX"). The Company received approximately $2.3 million in cash and debt
relief, and 1,492,500 shares of UCC's Common Stock, representing approximately
19.9% of UCC's then outstanding shares of Common Stock. The Company has a right
to receive royalties based on UCC's net revenues related to the MacOS compatible
systems business. These shares of UCC Common Stock have been pledged to ICC.
NOTE 5. RESTRUCTURING RESERVE REVERSAL
During the quarter ended June 30, 1996, the Company reversed approximately
$913,000 of restructuring reserves as a result of a favorable settlement related
to facility lease cancellation fees.
NOTE 6. SUBSEQUENT EVENTS
In September 1996, the Company, IBM Credit and its unsecured creditors
consummated a debt-for-equity exchange (the "Plan"). Unsecured creditors
forgave approximately $45.9 million of claims (including a $1.0 million
reserve for unknown or unresolved claims) in consideration of the issuance of
36,294,198 shares of Common Stock and Rights to receive 11,046,060 additional
shares of Common Stock in the event that the Series A Convertible Preferred
Stock is converted into Common Stock (such numbers include 791,280 shares of
Common Stock and 280,824 Rights issued to the Radius Creditors Trust for the
purpose of satisfying a portion of unknown or unresolved claims). Certain
unsecured creditors, most of which had claims of less than $50,000
(representing approximately $1.9 million in claims), were paid cash at an
average discount of approximately 75% of the amount of the claim in
satisfaction of their claims. The Company's secured creditor, IBM Credit,
received 750,000 shares of Series A Convertible Preferred Stock and Warrants
to purchase 600,000 shares of Common Stock in satisfaction of $3.0 million of
indebtedness and restructuring the terms of the Company's remaining
approximately $23.4 million indebtedness to IBM Credit.
After the consummation of the Plan, to the Company's knowledge, there remained
unsatisfied unsecured claims against the Company, which the Company does not
dispute, of approximately $200,000. The Company has issued an aggregate of
791,280 shares of Common Stock and an additional 240,824 Rights to the Radius
Creditors Trust, for the purpose of satisfying a portion of any such remaining
or previously unknown claims. There can be no assurance that this amount will
be sufficient to satisfy any such claims. If the Company cannot settle or repay
these remaining claims or any previously unknown claims, there can be no
assurance that such claimants will not institute enforcement proceedings in
order to collect their claims. Any such proceedings could have a material
adverse effect on the Company's business, results of operations and financial
condition. Of the approximately 300 persons the Company believed to be
Convenience Class Creditors, approximately 50 persons claimed that no balance
was owed to such creditors. There can be no assurance that such creditors will
not, in the future, assert claims against the Company.
F-28
<PAGE>
PRO FORMA UNAUDITED FINANCIAL INFORMATION
In January 1996, the Company completed the sale (the "Disposition") of its
Color Server Group ("CSG") to Splash Technology Holdings, Inc. ("Splash"), a
corporation formed by various investment entities associated with Summit
Partners. The Company received approximately $21.0 million in cash ($2.4
million remains in escrow to secure certain indemnification obligations), and
also received 4,282 shares of Splash 6% Series B Redeemable and Convertible
Preferred Stock. The net proceeds of the CSG transaction were used to repay
certain indebtedness of the Company. Reference is made to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements included elsewhere in this Prospectus for a
further description of the CSG transaction.
The Unaudited Pro Forma Statements of Operations for the nine months ended
June 30, 1996 and the twelve months ended September 30, 1995 reflect the
elimination of net revenue, cost of sales and operating expenses related to CSG.
The Unaudited Pro Forma Statements of Operations assumes that the Disposition
and the other referenced events were completed at the beginning of the relevant
reporting period.
No Pro Forma Unaudited Balance Sheet is presented as the Disposition has
been reflected in the unaudited consolidated balance sheet as of June 30, 1996
included elsewhere herein.
The pro forma financial information does not purport to be indicative of
the results of operations that would actually have been reported had the
transaction underlying the pro forma adjustments actually been consummated on
such dates or of the results of operations that may be reported by the Company
in the future.
The accompanying pro forma financial information should be read in
conjunction with the historical financial statements of the Company and the
related notes thereto.
P-1
<PAGE>
RADIUS INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
LESS: TOTAL
RADIUS INC. COLOR HARD COPY LESS: AS
CONSOLIDATED GROUP INTEREST ADJUSTED
-------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net revenue $308,133 $29,328 $278,805
Cost of sales 302,937 19,559 283,378
-------------- ----------------- ---------------
Gross margin 5,196 9,769 (4,573)
Operating expenses 109,378 6,300 103,078
-------------- ----------------- ---------------
Operating income (loss) (104,182) 3,469 (107,651)
Other income (expense), net (6,068) 0 1,675 (A) (4,393)
-------------- ----------------- -------------- ---------------
Litigation settlement (12,422) 0 (12,422)
-------------- ----------------- -------------- ---------------
Income (loss) before income taxes ($122,672) $3,469 $1,675 ($124,466)
Provision for income taxes 9,070 -- -- 9,070
-------------- ----------------- -------------- ---------------
Net income (loss) ($131,742) $3,469 $1,675 ($133,536)
-------------- ----------------- -------------- ---------------
-------------- ----------------- -------------- ---------------
Net loss per share:
Net loss per share ($8.75) ($8.87)
-------------- ---------------
-------------- ---------------
Common and common equivalent
shares used in computing net loss
per share 15,049 15,049
-------------- ---------------
-------------- ---------------
</TABLE>
P-2
<PAGE>
RADIUS INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESS:
RADIUS INC. COLOR SERVER LESS: TOTAL
CONSOLIDATED GROUP INTEREST AS ADJUSTED
-------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net revenue $83,261 $6,967 $76,294
Cost of sales 67,175 4,722 62,453
-------------- ----------------- ---------------
Gross margin 16,086 2,245 13,841
Operating expenses 27,671 1,302 26,369
-------------- ----------------- ---------------
Operating income (loss) (11,585) 943 (12,528)
Other income (expense), net 21,090 -- 593 (A) 21,683
-------------- ----------------- -------------- ---------------
Income before income taxes 9,505 943 593 9,155
Provision for income taxes 656 -- -- 656
-------------- ----------------- --------------
Net income $8,849 $943 593 $8,499
-------------- ----------------- -------------- ---------------
-------------- ----------------- -------------- ---------------
Net income per share:
Net income per share $0.49 $0.47
-------------- ---------------
-------------- ---------------
Common and common equivalent
shares used in computing net loss
per share 17,950 17,950
-------------- ---------------
-------------- ---------------
</TABLE>
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Reduction of approximately $593,000 and approximately $1.7 million in
interest expense recorded by the Company during the nine months ended June
30, 1996 and the twelve months ended September 30, 1995, respectively, to
reflect the use of the proceeds to reduce outstanding obligations under the
Company's line of credit agreements.
P-3
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------------------
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 3
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PRICE RANGE OF COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . 16
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . 18
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . 20
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 44
PRINCIPAL AND SELLING SECURITYHOLDERS. . . . . . . . . . . . . . . . . 46
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 49
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 52
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RADIUS INC.
----------------
SHARES OF COMMON STOCK HAVING
AN AGGREGATE MARKET PRICE
OF $600,000
------------------
750,000 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
WARRANTS TO PURCHASE 800,000
SHARES OF COMMON STOCK
54,293,591 SHARES OF COMMON STOCK
-----------------
-----------------
PROSPECTUS
-----------------
-----------------
November , 1996
------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
Securities and Exchange Commission registration fee. . $25,205.30
Nasdaq SmallCap Market filing fee. . . . . . . . . . . 4,466
Accounting fees and expenses . . . . . . . . . . . . . 25,000
Legal fees and expenses. . . . . . . . . . . . . . . . 75,000
Printing . . . . . . . . . . . . . . . . . . . . . . . 50,000
Printing and engraving stock certificates. . . . . . . 5,000
Blue sky fees and expenses . . . . . . . . . . . . . . 20,000
Transfer agent and registrar fees and expenses . . . . 10,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 35,328.70
----------
Total. . . . . . . . . . . . . . $ 250,000
----------
----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of Section 317 of the California Corporations Code, Article
V of the Registrant's Articles of Incorporation and Article VI of the
Registrant's Bylaws provide for indemnification to the fullest extent permitted
by law for expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with any proceeding arising by reason of
the fact that any person is or was a director, officer or employee of the
Registrant. This indemnification may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the Securities Act. In addition, Article IV of the Registrant's
Articles of Incorporation provides that the liability of the Registrant's
directors shall be eliminated to the fullest extent permissible under the
California Law.
The Registrant has entered into Indemnity Agreements with each of its
current directors to give such directors additional contractual assurances
regarding the scope of the indemnification and liability limitations set forth
in the Registrant's Articles of Incorporation and Bylaws.
The Registrant currently carries a director and officer liability insurance
policy with a per claim and annual aggregate coverage limit of $10 million.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since June 30, 1993, the Company has sold and issued the following
unregistered securities:
(a) In June 1995, the Company issued an aggregate of 2,509,319 shares of
its Common Stock to 18 unaffiliated investors, including Wajilei Foundation, for
aggregate proceeds of approximately $21.5 million. These securities were issued
in reliance on Section 4(2) of, or Regulation D promulgated under, the
Securities Act.
(b) In June 1995, the Company settled shareholder litigation with certain
shareholders of Radius and SuperMac Technologies, Inc., for a combination of
cash and shares of the Company's Common Stock. In November and December 1995
and in June 1996, the Company issued 188,605, 70,525 and 577,544 shares of
Common Stock, respectively. There are 99,630 shares of Common Stock remaining
to be issued. These securities were and will be issued in reliance on Section
3(a)(10) of the Securities Act.
(c) In September 1996, the Company issued 36,294,198 shares of Common Stock
and Rights to receive 11,046,060 shares of Common Stock in the event that the
Series A Convertible Preferred Stock is converted into Common Stock to unsecured
creditors in satisfaction of approximately $45.9 million in claims against the
Company. These securities were issued in reliance on Section 4(2) of, or
Regulation D promulgated under, the Securities Act.
(d) In September 1996, the Company issued 750,000 shares of Series A
Convertible Preferred Stock and Warrants to purchase 600,000 shares of Common
Stock to IBM Credit in satisfaction of $3.0 million of indebtedness and for
restructuring the terms of the Company's indebtedness to IBM Credit. These
securities were issued in reliance on Section 4(2) of, or Regulation D
promulgated under, the Securities Act.
(e) In October 1996, the Company issued Warrants to purchase 200,000
shares of Common Stock to Mitsubishi Electronics in consideration of the
extension of open credit terms. These securities were issued in reliance in
section 4(2) of, or Regulation D promulgated under, the Securities Act.
II-1
<PAGE>
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------
<S> <C> <C>
2.01 -- Agreement and Plan of Reorganization dated May 20, 1994 between
Radius Inc. and SuperMac Technology, Inc. (1)
2.02 -- Modification Agreement dated July 21, 1994 to Agreement and Plan
of Reorganization between Radius Inc. and SuperMac Technology,
Inc. (1)
2.03 -- Agreement and Plan of Reorganization dated July 19, 1994 between
Radius Inc. and VideoFusion, Inc. (2)
2.04 -- First Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated August 25, 1994. (3)
2.05 -- Second Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated September 6, 1994. (3)
2.06 -- Third Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated May 10, 1995. (3)
2.07 -- Merger Agreement (the "Merger Agreement") dated as of December
21, 1995 among Radius Inc., Splash Technology, Inc., Summit
Subordinated Debt Fund, L.P., Summit Ventures IV, L.P., Summit
Investors II, L.P., Splash Technology Holdings, Inc. and Splash
Merger Company, Inc. (4)
2.08 -- Amendment No. 1 to Merger Agreement dated as of January 30, 1996.
(4)
3.01 A Registrant's Sixth Amended and Restated Articles of
Incorporation. (5)
B Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (3)
C Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation.*
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc.*
3.02 -- Registrant's Bylaws. (6)
4.01 -- Specimen Certificate for shares of Common Stock of the
Registrant. (7)
4.02 -- Specimen Certificate for shares of Series A Convertible Preferred
Stock of the Registrant.*
4.03 A Warrant dated September 13, 1995 between IBM Credit Corporation
and the Registrant.*
B Warrant dated October 13, 1996, between Mitsubishi
Electronics America, Inc. and the Registrant.
4.04 -- Form of Registration Rights Agreement between the Registrant and
certain shareholders.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------
<S> <C> <C>
A The Registrant's Sixth Amended and Restated Articles of
Incorporation. (5)
B Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (3)
C Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (See exhibit 3.01)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc. (See exhibit 3.01).
4.05 -- The Registrant's Bylaws. (6)
4.06 -- Non-Plan Stock Option Grant to Charles W. Berger. (8)
4.07 -- Form of Subscription Agreement.*
4.08 -- Form of Right.
5.01 -- Opinion of Fenwick & West LLP regarding the legality of the
securities being offered.
10.01 A Registrant's 401(k) Savings and Investment Plan. (9)
B Amendment to Registrant's 401(k) Savings and Investment Plan.
(3)
C Registrant's 401(k) Savings and Investment Plan Loan Policy. (3)
10.02 -- Registrant's 1995 Stock Option Plan. (3)
10.03 -- Form of Stock Option Agreement and Exercise Request as currently
in effect under 1995 Stock Option Plan. (3)
10.04 -- Registrant's 1990 Employee Stock Purchase Plan and related
documents. (10)
10.05 -- Registrant's 1994 Directors' Stock Option Plan. (3)
10.06 -- Form of Indemnity Agreement with Directors. (7)
10.07 -- Credit Agreement by and among Radius Inc., the certain financial
institutions, and Silicon Valley Bank, dated March 20, 1995. (11)
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and International Business Machines Credit
Corporation, dated February 17, 1995. (11)
B Acknowledgment, Waiver and Amendment to Radius Inc. Inventory and
Working Capital Financing Agreement by and between Radius Inc.
and International Business Machines Credit Corporation dated
December 14, 1995. (3)
10.09 A Lease Agreement by and between Registrant and the Equitable Life
Assurance Society of the United States dated June 22, 1988, as
amended by the Commencement of Term Agreement dated February 13,
1989 and Amendment No. One dated July 20, 1989, and related
documents (1710 Fortune Drive, San Jose, California offices). (7)
B Second Amendment to Lease dated January 27, 1993 amending Lease
Agreement by and between Registrant and the Fortune Drive
Partners (successor in interest to the Equitable Life Assurance
Society of the United States) dated June 22, 1988 (1710 Fortune
Drive, San Jose, California offices). (12)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------
<S> <C> <C>
10.10 -- Lease Agreement by and between Registrant and Board of
Administration, as Trustee for the Police and Fire Department
Fund, and Board of Administration, as Trustee for the Federated
City Employees Retirement Fund dated December 11, 1990, and
related documents (Milpitas, California warehouse space). (5)
10.11 -- Lease Agreement by and between Registrant and South Bay/Copley
Associates III Joint Venture dated May 11, 1992; Sublease by and
between Core Industries, Inc. and Registrant dated May 12, 1992;
and related documents (2040 Fortune Drive, San Jose California
offices). (13)
10.12 A Lease Agreement between SuperMac Technologies, Inc. and
Connecticut General Life Insurance Company dated as of
November 13, 1993 (215 Moffett Park Drive, Sunnyvale,
California offices). (14)
B Office Lease dated March 18, 1996 between Registrant and CIGNA.
10.13 -- Employment Agreement by and between Registrant and Charles W.
Berger dated February 26, 1993 as amended on September 17, 1993.
(15)
10.14 -- Full Recourse Promissory Note with Charles W. Berger. (15)
10.15 -- SuperMac Technology, Inc.'s 1988 Stock Option Plan ("Option
Plan"). (16)
10.16 -- SuperMac Technology, Inc.'s Form of Incentive Stock Option
Agreement under the Option Plan. (16)
10.17 -- SuperMac Technology, Inc.'s Form of Supplemental Stock Option
Agreement under the Option Plan. (16)
10.18 -- SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase
Agreement under the Option Plan. (16)
10.19 -- Distribution Agreement between Radius Inc. and Ingram Micro, Inc.
dated June 5, 1991 as amended on April 1, 1992, May 31, 1995 and
July 14, 1995. (17)
10.20 -- Amended and Restated Working Capital and Term Loan Agreement
dated as of August 30, 1996 between IBM Credit Corporation and
the Registrant.
11.01 -- Computation of per share earnings.*
21.01 -- List of Registrant's subsidiaries. (3)
23.01 -- Consent of Ernst & Young LLP, Independent Auditors.
23.02 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).
</TABLE>
II-4
<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----- -------------
24.01 -- Power of Attorney (see page II-7).
- ------------
(1) Incorporated by reference to exhibits to the Company's Amendment No. 2
(File No. 33-79732) to Form S-4 filed on July 25, 1994.
(2) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 17, 1994.
(3) Incorporated by reference to exhibits to the Company's Report Form 10-K
filed on December 15, 1995.
(4) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on February 13, 1996
(5) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 24, 1990.
(6) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(7) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-35769) which became effective on
August 16, 1990.
(8) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).
(9) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 28, 1992.
(10) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 30, 1991.
(11) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on May 10, 1995.
(12) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 18, 1993.
(13) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 12, 1992.
(14) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No.
33-58158) filed on February 11, 1993.
(15) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on January 3, 1994.
(16) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s
Registration Statement on Form S-1, as amended (File No. 33-46800), which
became effective on May 15, 1992.
(17) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 15, 1995.
- ---------------------
* Previously filed.
II-5
<PAGE>
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts (See page F-22)
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the Financial Statements or the
Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information in the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; PROVIDED,
HOWEVER, that paragraphs (i) and (ii) do not apply if the information required
to be included in a post-effective amendment is contained in periodic reports
filed with or furnished to the Securities and Exchange Commission by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 12th day of November, 1996.
RADIUS INC.
By: /s/ Charles W. Berger
------------------------
Charles W. Berger
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Charles W. Berger and Cherrie L. Fosco, and each
of them, his or her attorneys-in-fact and agents, each with the power of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- -----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Charles W. Berger President, Chief Executive November 12, 1996
- ---------------------------------- Officer and Chairman of the
Charles W. Berger Board of Directors
PRINCIPAL FINANCIAL OFFICER:
/s/ Charles W. Berger Acting Chief Financial Officer November 12, 1996
- ----------------------------------
Charles W. Berger
PRINCIPAL ACCOUNTING OFFICER:
/s/ Cherrie L. Fosco Vice President and November 12, 1996
- ---------------------------------- Corporate Controller
Cherrie L. Fosco
ADDITIONAL DIRECTORS:
* Director November 12, 1996
- ---------------------------------
Michael D. Boich
/s/ Carl A. Carlson Director November 12, 1996
- ---------------------------------
Carl A. Carlson
Director November 12, 1996
- ---------------------------------
Michael W. Ledbetter
* By: /s/ Charles W. Berger Attorney-in-fact November 12, 1996
- ---------------------------------
Charles W. Berger
</TABLE>
II-7
<PAGE>
EXHIBIT 4.03B
THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN EXEMPTION THEREFROM OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR A NO ACTION LETTER OR INTERPRETIVE OPINION
OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
RADIUS INC.
WARRANT
VOID AFTER OCTOBER 13, 2000
1. THE WARRANT.
(a) THE GRANTING OF A WARRANT. This Warrant is executed and
delivered by Radius Inc., a California corporation (the "COMPANY"), to
Mitsubishi Electronics America, Inc. ("Holder") in consideration of the
extension of open credit terms to the Company in an amount not less than
$500,000 as of the effective date.
(b) NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT. Subject to the
terms and conditions herein set forth, Holder is entitled to purchase from the
Company, at any time commencing on the date hereof (the "EXERCISE COMMENCEMENT
DATE") until this Warrant has expired in accordance with subparagraph (e) below,
200,000 shares of fully paid and non-assessable shares of Common Stock of the
Company (the "SHARES") at a purchase price of one dollar per share (the "WARRANT
PRICE"). The number and purchase price of such shares are subject to adjustment
pursuant to paragraph 2 hereof. This Warrant will be exercisable by the holder
at any time after the earlier to occur of (i) effectiveness of a Registration
Statement pursuant to the Securities Act of 1933, as amended, with respect to
the Shares, or (ii) six months from the date of the issuance hereof by its
giving to the Company written notice of its intent to exercise ("EXERCISE
NOTICE") on or before the expiration of this Warrant, in the form attached
hereto as ATTACHMENT 1. Upon giving such notice, the Holder will surrender this
Warrant at the principal office of the Company and pay the full purchase price
for the Shares to be acquired upon payment in cash or by check.
Notwithstanding the total number of shares subject to this warrant, the warrant
may be exercised only in proportion to the highest amount of open term trade
credit utilized by the Company prior to the first exercise of the warrant.
Specifically, for
<PAGE>
every $100,000 of credit utilized at a point in time, then Holder is thereafter
entitled to exercise 10,000 warrants up to 200,000. If $500,000 credit is
utilized, then 50,000 warrants are exercisable. If $2,000,000 credit is
utilized, then all 200,000 warrants are exercisable. In any event, the minimum
number of warrants exercisable is 50,000, provided that at least $500,000 in
open credit is actually EXTENDED to the Company as of the effective date of this
warrant.
(c) NET EXERCISE. In lieu of exercising this Warrant pursuant to
Section 1(b) above, the holder may elect to receive a number of Shares to be
calculated as follows:
X = Y(A-B)
------
A
where X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock requested to be
exercised under this Warrant.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Common
Stock shall mean with respect to each share of Common Stock:
(i) if traded on a national securities exchange or the Nasdaq National
Market (or similar national quotation system), the fair market value shall
be deemed to be the closing price (last reported sale) on the day the
current fair market value of the securities is being determined;
(ii) if traded over-the-counter, the fair market value shall be deemed to
be the closing bid price quoted on the day the current fair market value of
the securities is being determined; or
(iii) if at any time the Common Stock is not traded as described in (i)
or (ii) above, the current fair market value shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith
by its Board of Directors, unless the Company shall become subject to a
merger, acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the fair market value shall be
deemed to be the value received by the holders of the Company's Common
Stock on a common equivalent basis pursuant to such merger or acquisition.
(d) EFFECT OF EXERCISE. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
Shares issuable upon such exercise shall be treated
-2-
<PAGE>
for all purposes as the holder of record of such shares as of the close of
business on such date. As soon as practicable on or after such date, the
Company shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of Shares issuable upon such
exercise.
(e) TERM. Unless earlier exercised in whole, this Warrant shall
terminate and expire as of 5:00 p.m. local California time on the earlier of (I)
the fourth anniversary of the effective date of this Agreement or (II) thirty
days after any complete withdrawal of open credit terms to the Company by
Mitsubishi Electronics America, Inc. other than a withdrawal caused by the
failure of the Company to timely repay previously extended credit according to
its terms after ten days notice.
(f) PARTIAL EXERCISE. This Warrant may be exercised by the holder
from time to time as to all or a portion of the Shares subject hereto. In the
event that this Warrant is exercised as to only a portion of the Shares subject
hereto, the Company will, upon issuance of the Shares so acquired, deliver to
the holder a new Warrant representing the remaining Shares subject hereto.
2. (a) ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. In case at any
time or from time to time on or after the effective date hereof all holders of
the Common Stock of the Company (or any shares of stock or other securities at
the time receivable upon the exercise of this Warrant) shall have received, or,
on or after the record date fixed for the determination of eligible
shareholders, shall have become entitled to receive, without payment therefor,
other or additional stock of the Company by way of dividend, then and in each
case, the holder of this Warrant shall, upon the exercise hereof, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of such other or additional stock of the Company which such holder would
hold on the date of such exercise had it been the holder of record of such
Common Stock on the date hereof and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and/or all other additional stock receivable by it as aforesaid during such
period, giving effect to all adjustments called for during such period by
paragraphs (b) and (c) of this paragraph 2.
(b) ADJUSTMENT FOR RECLASSIFICATION, REORGANIZATION OR MERGER. In
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the holder or this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case,
-3-
<PAGE>
the terms of this paragraph 2 shall be applicable to the shares of stock or
other securities properly receivable upon the exercise of this Warrant after
such consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If at any time on or
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall be proportionately decreased.
4. Holder represents and warrants to, and agrees with, the Company, that:
(a) PURCHASE FOR OWN ACCOUNT. This Warrant and the Warrant Shares
are being acquired for investment for Holder's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the Act, and such Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same.
(b) DISCLOSURE OF INFORMATION. Holder has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Warrant. Holder has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the Warrant and the Warrant Shares and to obtain
additional information necessary to verify any information furnished to Holder
or to which Holder had access.
(c) INVESTMENT EXPERIENCE. Holder understands that the receipt of
the Warrants and the purchase of the Warrant Shares involves substantial risk.
Holder: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of such investment in the Warrants and Warrant Shares and has
such knowledge and experience in financial or business matters that Holder is
capable of evaluating the merits and risks of this investment in the Warrants
and Warrant Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship with
the Company and certain of its officers, directors or controlling persons of a
nature and duration that enables Holder to be aware of the character, business
acumen and financial circumstances of such persons.
(d) RESTRICTED SECURITIES. Holder understands that the Warrants and
the Warrant Shares are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, Holder represents that Holder is familiar with Rule 144 of the
U.S. Securities and Exchange Commission, as presently in effect, and understands
the resale limitations imposed
-4-
<PAGE>
thereby and by the Securities Act. Holder understands that the Company is under
no obligation to register any of the securities sold hereunder except as
provided in any written registration rights agreement between the Company and
Holder. Holder understands that no public market now exists for the Warrant any
of the Warrant Shares and that it is uncertain whether a public market will ever
exist for the Warrant Shares.
(e) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Holder further agrees not to make any
disposition of the Warrant or all or any portion of the Warrant Shares unless
and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) Holder shall have
furnished the Company, at the expense of Holder or its transferee, with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the
Securities Act.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be required: (1) for any
transfer of any Warrant Shares in compliance with SEC Rule 144 or (2) for the
transfer by gift, will or intestate succession by Holder to his or her spouse or
lineal descendants or ancestors or any trust for any of the foregoing; PROVIDED
that in each of the foregoing cases the transferee agrees in writing to be
subject to the terms of this Section 4 to the same extent as if the transferee
were the original Holder hereunder.
(f) LEGENDS. It is understood that the certificates evidencing the
Warrant Shares will bear the legends set forth below:
(i) THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. NO SALE OR OTHER DISPOSITION OR
PLEDGE OF THESE SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN EXEMPTION THEREFROM OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS PERMITTED
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR A NO ACTION LETTER OR
INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
(ii) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 if the California Corporations Code or any other state
securities laws.
-5-
<PAGE>
The legend set forth in (i) above shall be removed by the Company from any
certificate evidencing Warrant Shares upon delivery to the Company of an opinion
by counsel, reasonably satisfactory to the Company, that a registration
statement under the Securities Act is at that time in effect with respect to the
legended security or that such security can be freely transferred in a public
sale without such a registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Warrant Shares.
(g) ACCREDITED INVESTOR STATUS. Holder is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
5. OTHER ADJUSTMENTS. Except as provided in paragraph 2, no adjustment
on account of dividends or interest on Common Stock will be made upon the
exercise hereof.
6. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
7. NO SHAREHOLDER RIGHTS. This Warrant shall not entitle its holder to
any of the rights of a shareholder of the Company.
8. EXERCISE OF WARRANT. The holder's ability to exercise this Warrant is
subject to the Company having obtained all necessary governmental approvals
prior to such exercise. The Company shall use its best efforts to obtain such
consents after the date hereof. Subject to such approvals, this Warrant may be
exercised by the registered holder or its registered assigns, in minimum
increments of 50,000 shares of Common Stock (or any remaining shares of Common
Stock subject to this Warrant if the number of shares of Common Stock subject to
this Warrant is less than 50,000) by the surrender of this Warrant at the
principal office of the Company, accompanied by payment in full of the Warrant
Price as described above. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of such Shares of record as of the close of business on such date.
As promptly as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share as provided
above.
9. CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price is adjusted, as
herein provided, upon written request by the holder, the Company shall deliver
to the record holder of this Warrant a certificate of an officer of the Company
setting forth the Warrant Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
-6-
<PAGE>
10. RESTRICTIONS ON TRANSFER OF WARRANT. This Warrant and all rights
hereunder are transferable, in whole or in part. The terms of this Warrant
shall be binding upon the successors and assigns of the holder.
11. MARKET STANDOFF AGREEMENT. Each holder hereby agrees that it shall
not, to the extent requested by an underwriter of securities of the Company,
sell or otherwise transfer or dispose of any Shares (other than to donees or
partners of the holder who agree to be similarly bound) for up to one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Act; PROVIDED, HOWEVER, that all officers and
directors of the Company then holding Common Stock of the Company enter into
similar agreements. In order to enforce the foregoing covenant, the Company
shall have the right to place restrictive legends on the certificates
representing the Shares and to impose stop transfer instructions with respect to
the Shares (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
12. MISCELLANEOUS. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the
Company and the registered holder hereof. All notices and other communications
from the Company to the holder of this Warrant shall be mailed by first-class
registered or certified mail, postage prepaid, to the address furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address to the Company in writing.
ISSUED this 13th day of October 1996 (the "effective date" of this
agreement).
HOLDER RADIUS INC.
By: By:
------------------------- ----------------------
-7-
<PAGE>
ATTACHMENT 1
EXERCISE NOTICE
1. The undersigned hereby elects to purchase _______ shares of the Common
Stock of Radius Inc. pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full. The highest
amount of open credit utilized by the Company prior to the initial exercise of
the warrant was $___________.
2. Please issue a certificate representing said shares in the name of the
undersigned or in such other name as specified below:
---------------------------------
(Name)
---------------------------------
---------------------------------
---------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
------------------------------ ---------------------------------
(Date) (Signature)
-8-
<PAGE>
THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE NON TRANSFERABLE. NO SALE
OR OTHER DISPOSITION OR PLEDGE OF THE SHARES OF COMMON STOCK ISSUABLE PURSUANT
HERETO MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN EXEMPTION THEREFROM OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR A NO ACTION LETTER OR INTERPRETIVE OPINION
OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
RADIUS INC.
COMMON STOCK RIGHT
*Non-Transferable*
Sunnyvale, California __________Rights
September 13, 1996
1. THE RIGHT.
(a) GRANTING OF RIGHTS. This Right is executed and delivered by
Radius Inc., a California corporation (the "COMPANY"), to ____________________
("Holder").
(b) NUMBER OF SHARES SUBJECT TO RIGHT. Subject to the terms and
conditions herein set forth, Holder is entitled to receive from the Company,
upon the conversion of all of the 750,000 shares of the Company's Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") into
shares of the Company's Common Stock until this Right has expired in accordance
with subparagraph (e) below, an aggregate of ________ shares of fully paid and
non-assessable shares of Common Stock of the Company (the "SHARES"). The number
of such shares are subject to adjustment pursuant to paragraph 2 hereof.
(c) PARTIAL CONVERSION OF SERIES A PREFERRED STOCK. Notwithstanding
the provisions of paragraph 1(b), in the event that on any occasion less than
750,000 shares of Series A Convertible Preferred Stock are converted into Common
Stock, Holder shall be entitled to receive a lesser number of shares of fully
paid and non-assessable shares of Common Stock, and the Shares shall be reduced
by a like number as follows:
<PAGE>
N = TXC
750,000
where N = the number of shares of Common Stock to be issued to the holder.
T = the number of Shares originally covered by this Right
as of September 13, 1996.
C = the number of shares of Series A Convertible Preferred
Stock which are to be converted into Common Stock.
(d) EFFECT OF CONVERSION. The shares of Common Stock issuable
pursuant to this Right shall be deemed to have been issued immediately prior to
the close of business on the date of the conversion of the Series A Convertible
Preferred Stock as provided above, and the person entitled to receive the Shares
shall be treated for all purposes as the holder of record of such shares as of
the close of business on such date. As soon as practicable on or after such
date, the Company shall issue and deliver to the person or persons entitled to
receive the same a certificate or certificates for the number of Shares issuable
upon such conversion.
(e) TERM. This Right shall terminate and expire as follows: (i) as
of 5:00 p.m. local California time on the date that no shares of the Company's
Series A Convertible Preferred Stock remain outstanding, or (ii) upon the sale,
transfer, assignment, pledge or hypothecation or other disposition of all or any
portion of the Rights represented by this certificate.
(f) PARTIAL EXERCISE. In the event that only a portion of the Shares
subject hereto are issued as a result of the partial conversion of the Series A
Convertible Preferred Stock described in paragraph 1(c) above, the Company will,
upon issuance of the Shares so acquired, deliver to the holder a new Right
representing the remaining Shares subject hereto.
2. (a) ADJUSTMENT OF NUMBER OF SHARES. In case at any time or from time
to time on or after the effective date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
pursuant to this Right) shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock of the Company
by way of dividend, then and in each case, the holder of this Right shall, upon
the exercise hereof, be entitled to receive, in addition to the number of shares
of Common Stock receivable thereupon, and without payment of any additional
consideration therefor, the amount of such other or additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by paragraphs (b) and (c) of this paragraph 2.
2
<PAGE>
(b) ADJUSTMENT FOR RECLASSIFICATION, REORGANIZATION OR MERGER. In
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable pursuant to the terms of
this Right) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the holder of this Right, upon the
conversion of Series A Convertible Preferred Stock at any time after the
consummation of such reclassification, change, reorganization, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable pursuant hereto prior to such consummation,
the stock or other securities or property to which such holder would have been
entitled upon such consummation if the Series A Convertible Preferred Stock was
covered immediately prior thereto, all subject to further adjustment as provided
in paragraphs (a) and (c); in each such case, the terms of this paragraph 2
shall be applicable to the shares of stock or other securities properly
receivable pursuant to this Right after such consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If at any time on or
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the number of shares receivable
pursuant to this Right shall be proportionately increased; and, conversely, if
at any time on or after the date hereof the outstanding number of shares of
Common Stock shall be combined into a smaller number of shares, the number of
shares receivable pursuant to this Right shall be proportionately decreased.
3. OTHER ADJUSTMENTS. Except as provided in paragraph 2, no adjustment
on account of dividends or interest on Common Stock will be made upon the
exercise hereof.
4. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued hereunder. In lieu of any fractional shares which would otherwise be
issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of Common Stock on the date of
exercise, as determined in good faith by the Company's Board of Directors.
5. NO SHAREHOLDER RIGHTS. This Right shall not entitle its holder to any
of the rights of a shareholder of the Company.
6. APPROVALS. The holder's ability to receive shares of Common Stock
pursuant to this Right is subject to the Company having obtained all necessary
governmental approvals prior to any issuance of shares hereunder. The Company
shall use its best efforts to obtain such consents after the date hereof.
7. RESTRICTIONS ON TRANSFER OF RIGHT. THIS RIGHT AND ALL RIGHTS
HEREUNDER ARE NOT TRANSFERABLE, IN WHOLE OR IN PART.
8. MARKET STANDOFF AGREEMENT. No shares of Common Stock may be issued
hereunder, unless to the extent requested by an underwriter of securities of the
Company, holder agrees in writing not to sell or otherwise transfer or dispose
of any Shares (other than to donees
3
<PAGE>
or partners of the holder who agree to be similarly bound) for up to one hundred
eighty (180) days following the effective date of a registration statement of
the Company filed under the Act.
9. MISCELLANEOUS. This Right shall be governed by the laws of the State
of California. The headings in this Right are for purposes of convenience and
reference only, and shall not be deemed to constitute a part hereof. Neither
this Right nor any term hereof may be changed, waived, discharged or terminated
except by an instrument in writing signed by the Company and the registered
holder hereof. All notices and other communications from the Company to the
holder of this Right shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Right who shall have furnished an address to the Company in
writing.
ISSUED this 13th day of September 1996.
RADIUS INC.
By:
------------------------------
Charles W. Berger, Chairman of
the Board, Chief Executive
Officer and President
4
<PAGE>
EXHIBIT 5.01
November 12, 1996
Radius Inc.
215 Moffett Park Drive
Sunnyvale, California 94089
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(the "REGISTRATION STATEMENT") filed by you with the Securities and Exchange
Commission on September 20, 1996 in connection with the registration under
the Securities Act of 1933, as amended, of (i) 750,000 shares of Series A
Convertible Preferred Stock of Radius (the "SERIES A PREFERRED"), (ii)
warrants to purchase 800,000 shares of Common Stock of Radius (the
"WARRANTS"), (iii) 36,372,198 shares of Common Stock of Radius (together with
the Series A Preferred and the Warrants, the "OUTSTANDING SECURITIES"), (iv)
up to 6,075,333 shares of Common Stock of Radius issuable upon conversion of
the Series A Preferred (the "CONVERSION SHARES"), (v) up to 800,000 shares of
Common Stock of Radius issuable upon exercise of the Warrants (the "WARRANT
SHARES"), (vi) up to 11,046,060 shares of Common Stock of Radius issuable
pursuant to Rights issued by Radius on September 13, 1996 (the "RIGHTS
SHARES"), and (vii) shares of Common Stock of Radius having a market value of
up to $600,000.00 which may be issued by Radius in lieu of cash dividends on
the Series A Preferred (the "DIVIDEND SHARES").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, together with the Exhibits filed as a part
thereof;
(2) the Prospectus prepared in connection with the Registration Statement;
(3) the minutes of meetings and actions by written consent of the
shareholders and Board of Directors which you have provided to us;
(4) the shareholder lists dated July 29, 1996 and September 30, 1996
you have provided to us, and a list of holders of stock options
dated as of October 28, 1996 you have provided to us; and
(5) The Articles of Incorporation of Radius, as amended through September
6, 1996 and the Bylaws of Radius, both as certified by Radius on
November 12, 1996.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity
<PAGE>
Radius Inc.
November 12, 1996
Page 2
of all documents submitted to us as originals, the conformity to originals of
all documents submitted to us as copies, the lack of any undisclosed
terminations, modifications, waivers or amendments to any documents reviewed by
us and the due execution and delivery of all documents where due execution and
delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information and records included in the
documents referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, we are not
aware of any facts that would lead us to believe that the opinions expressed
herein are not accurate.
Based upon the foregoing, it is our opinion that:
1. The Outstanding Shares are legally issued, fully paid and
nonassessable; and
2. Each of the Conversion Shares and the Dividend Shares, the Warrant
Shares and the Rights Shares when issued in accordance with the terms of the
Series A Preferred, the Warrants and the Rights, respectively, and in the manner
referred to in the Prospectus associated with the Registration Statement, will
be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and is intended solely for the your
use as an exhibit to the Registration Statement for the purpose of the above
sale of the securities described above and is not to be relied upon for any
other purpose.
Very truly yours,
/S/ FENWICK & WEST LLP
<PAGE>
OFFICE LEASE DATED MARCH 18, 1996
(Exhibit B to the Closing Memorandum Agreement dated March 18, 1996)
0. INCORPORATION. Radius Inc. ("Tenant") and Connecticut General Life
Insurance Company ("Cigna") entered into a lease of real property effective
November 13, 1992 (the "Old Lease"). Tenant and Cigna have agreed to terminate
the Old Lease along with all amendments and supplements to it in connection with
Integrated Systems, Inc.'s ("Landlord's) purchase of the real property. The Old
Lease is attached. Landlord and Tenant have agreed to lease a portion of the
real property on all the terms set forth in the Old Lease except as set forth
below (the "Lease"). Therefore, all of the provisions of the Old Lease are
incorporated and made a part of this Lease, except as set forth below, and this
Lease supersedes the Old Lease as of the closing of Landlord's purchase of the
real property.
1. PARTIES. Section 1 is replaced with the following: "This Lease is made by
and between Integrated Systems, Inc. and Radius Inc., both California
corporations. Therefore, the word "Tenant" is substituted wherever Supermac
Technology, Inc. is referred to in the Old Lease."
2. PREMISES. Section 2 is replaced with the following: "Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord those certain premises
situated at 215 Moffett Park Drive in Sunnyvale, California consisting of
approximately 44,241 rentable square feet of space depicted on Exhibit A (the
"Premises"). Tenant will have begun relocating from all other portions of the
building on March 18, 1996 and will have completed such relocation prior to
April 15, 1996 in stages as described in Exhibit C (with Landlord occupying or
using such portions on the same timetable), and Landlord will complete certain
tenant improvements pursuant to Exhibit C (the "Improvements" as defined in
Exhibit C) thereafter. During the term, Landlord also authorizes the use of the
common areas appurtenant to the Premises and defined as the "Outside Area" in
Section 11 below and the use of the personal property on the Premises identified
in Exhibit E according to Exhibit E. The Premises are part of a building (the
"Building") located on the legal parcel described in Exhibit B (the "Parcel").
The Building in which the Premises are located, the Parcel, and the Outside Area
are collectively referred to below as the "Complex"."
3. TERM. Section 3 is replaced with the following: "The term will begin on
the closing of the purchase of the Parcel by Landlord (the "Commencement Date"
which is estimated to be on March 18, 1996) and will expire two years thereafter
(estimated to be on March 17, 1998.) Notwithstanding the foregoing, Tenant, in
its sole discretion, can elect to terminate the Lease early on ninety days'
written notice to Landlord provided that Tenant is not in default or cures such
default at the time of tendering notice."
4. RENT. Section 4F is deleted and Sections 4B, D and E are replaced with the
following:
"B. MONTHLY INSTALLMENT. Subject to adjustment as set forth in Section 22
below (holding over), the Monthly Installment is: $ 42,028.95 ($.95 times the
square footage inserted into Section 2 above)."
"D. ADDITIONAL RENT. All other charges due from Tenant to Landlord under this
Lease will be deemed "Additional Rent" and will be paid in addition to the
Monthly Installment after notice to Tenant. In the event of Tenant's failure to
pay Additional Rent, Landlord will have all of the same rights and remedies as
Landlord has for the nonpayment of a Monthly Installment."
"E. PLACE OF PAYMENT. Rent will be payable to Landlord in US currency at the
Building or such other place as Landlord may reasonably designate in writing
from time to time."
5. SECURITY DEPOSIT. This Section is deleted.
6. There are no changes to this Section.
7. TAXES AND ASSESSMENTS. Section 7B is deleted.
<PAGE>
8. INSURANCE. The last sentence of Section 8B and the last two sentences of
Section 8C are deleted. Landlord and Tenant agree to review the specific
coverages from time to time to ensure that redundant coverages and waste are
minimized.
9. UTILITIES. This Section is replaced with the following: "Tenant will pay
for all telephone charges and any other direct services to the Premises arranged
for by Tenant. Landlord will pay for all other services provided to the
Complex, such as electricity, gas, water, sewage, and scavenger. Tenant will
use no more than customary and reasonable amounts of such services and will
comply with Landlord's reasonable conservation measures upon request. "
10. REPAIRS. All provisions of this Section except the final paragraph are
replaced with the following: "Subject to the provisions of Section 16, Landlord
will maintain the Premises in good condition and repair. However, Tenant will
reimburse Landlord as Additional Rent for any repairs resulting from Tenant's
(including employees, visitors and agents) intentional misconduct or gross
negligence. Tenant will exercise reasonable care in its use of the Premises and
promptly notify Landlord of any need for repairs."
11. OUTSIDE AREA. This Section is amended as follows. The last paragraph is
deleted. The rights referred to in the first paragraph are NON-exclusive. And
the Outside Area is defined also to include those common areas of the Building
which Tenant must use in order to have access to the Premises. Except for a
limited number of designated visitor spaces for Landlord, the required number of
handicap access spaces and a space for the "employee of the month", parking
spaces will be not be designated for exclusive use, rather they will be utilized
on a first come, first use basis.
12. CHARGES. This Section is deleted.
13. ALTERATIONS. Section 13B will not apply to any of the improvements
performed pursuant to Exhibit C.
14. There are no changes to this Section.
15. DEFAULT. Section 15A is amended by adding the following as a final
paragraph:
"(9) Or Tenant's failure to return or maintain the personal property as set
forth in Exhibit E, or at Landlord's election, Tenant's material, uncured breach
of any warranty contained in the bill of sale from Tenant to Landlord of the
personal property whose use is governed by Exhibit E."
16. DESTRUCTION. Section 16 is modified as follows: Tenant will have no duty
under this Section to reimburse Landlord for the deductible under Landlord's
insurance coverage, i.e., the parenthetical expression in the middle of the
second paragraph of the Section is deleted as is the last three and one half
lines of the third paragraph beginning after "damage or destruction".
17-21. There are no changes to these Sections.
22. HOLDING OVER. This Section is amended by replacing "expiration" with
"expiration or other termination" wherever "expiration" is used; and "monthly
rent" in the eighth line is replaced with "Monthly Installment".
23. NOTICES. The address for Landlord and Tenant is replaced with the
following new information:
"Landlord: Integrated Systems, Inc.
[215] Moffett Park Drive
Sunnyvale, CA 94089-1374
attn: Chief Executive, Administrative, Legal or Financial Officer"
"Tenant: Radius Inc.
215 Moffett Park Drive
<PAGE>
Sunnyvale, CA 94809-1374
attn: Chief, Executive, Administrative, Legal or Financial
Officer"
24. There is no change to this Section.
25. ASSIGNMENT. This Section is replaced with the following: "Because of the
unique nature of the larger transaction among Landlord, Tenant and Cigna and the
bargain element of the Lease, under no circumstances will Tenant be allowed to
assign this Lease or sublease any portion of the Premises, except to an
"Affiliate" after ten days' notice to Landlord. An "Affiliate" for purposes of
this Section is a wholly owned subsidiary of Tenant as well as UMAX Computer
Corp. and Splash Technology, Inc., which corporations were occupants of the
Premises upon the termination of the Old Lease, provided that (i) each such
Affiliate agrees to be bound by the provisions of this Lease, (ii) UMAX Computer
Corp. vacates the Premises by April 15, 1996 and (iii) Splash Technology, Inc.
vacates the Premises within 90 days after the Commencement Date. Also, in the
event Tenant desires to assign this Lease to the survivor of any merger with a
third party, Tenant will seek Landlord's approval prior to the merger and
Landlord will not unreasonably withhold or delay its consent. However, Landlord
can elect to expand into the Premises and terminate the lease as of the
effective date of the merger by so notifying Tenant, unless the survivor agrees
to increase the Monthly Installment by 150% and promptly notifies Landlord of
such election. Any other attempt to assign or sublease will be null and void at
Landlord's election. In the case of any other effective assignment or sublease,
Landlord will have the right of first refusal to lease the space on the same
terms and the right to one half of the net proceeds of any such assignment or
sublease. Despite any assignment or sublease, Tenant will remain liable for
the performance of all tenant obligations under this Lease."
26-31. There are no changes to these Sections.
32. PARKING. Add at the end of the first sentence: "and is consistent with
Landlord's general signage plan which Landlord may establish in its discretion."
It is understood that the two large exterior "Radius" signs at two corners of
the Building will be replaced by Landlord at its expense with its own signage.
Tenant's signage will include a monument at the entrance to the parking lot and
one other directional sign referring to the location of the Radius lobby.
33-36. There are no changes to these Sections.
37. BROKERS. The references to CPS Commercial Brokerage and Cornish & Carey
Commercial Real Estate are deleted.
38. There is no change to this Section.
39. Section 39D is amended as follows: the clause "occurring during the Lease
Term (including any extensions thereof)" in the final two lines of the first
paragraph is replaced with "occurring during Tenant's use or occupancy of any
portion of the Complex".
40-42. These Sections are deleted.
In witness whereof, the parties execute this Lease.
Landlord: Integrated Systems, Inc. Tenant: Radius Inc.
_______________________________ ______________________________
By: date By: date
(List of exhibits)
Exhibit A -- the Premises (replaced with a new Exhibit A)
<PAGE>
Exhibit B -- the real property legal description (no change)
Exhibit C -- the Improvements (replaced with a new Exhibit C)
Exhibit D -- Truck parking area (no change)
Exhibit E -- Personal Property use (replaced with a new Exhibit E)
Exhibit F -- Complex landscaping (no change)
<PAGE>
EXHIBIT "A"
(attach floorplan)
<PAGE>
EXHIBIT "C"
IMPROVEMENTS
Exhibit C to the Old Lease is replaced with the following new Exhibit C.
Landlord and Tenant have agreed on the improvements to be constructed on or
about the Premises. These improvements are set forth in the attached final
plans and specifications (the "Improvements"). Landlord will bear the cost of
the Improvements except for $0 (or the costs associated with a specific scope of
work identified on Schedule C-1, if applicable) ("Tenant's Share").
Prior to and after the Commencement Date, Tenant will consolidate within the
Premises as reasonably required by Landlord to permit the construction work to
be performed expeditiously and to permit Landlord to occupy the balance of the
Building in stages between March 18, 1996 and April 30, 1996 as described in the
attached plans. Promptly after the Commencement Date, Landlord will retain a
general contractor to construct the Improvements. Landlord will direct the
general contractor to construct the Improvements as quickly as the work can be
performed in a commercially reasonable manner by no later than April 30, 1996.
There may be some disruption to Tenant's use of the Premises during
construction, and Tenant will reasonably cooperate with the general contractor
and its subcontractors in facilitating the performance of the work. Tenant will
not attempt to withhold or delay any payment nor seek compensation as a result
of any of these inconveniences.
No changes in the scope of work for the Premises will be made without Landlord's
and Tenant's prior written approval. Otherwise, changes in the plans and
specifications will be made only to accommodate the reasonable requests of the
permitting authorities. If Tenant requests a change that either delays
completion or increases costs and the change is approved, the related costs be
shall added to Tenant's Share.
Upon substantial completion of the Improvements, Landlord will so notify Tenant
and the parties will schedule a walk through with the general contractor or
construction manager. If reasonably satisfied, Tenant will promptly sign an
acceptance of the Improvements, subject only to the performance of any "punch
list" items, which do not materially impair the use of the final Premises. Upon
such acceptance, Tenant will tender payment of Tenant's Share to Landlord.
Tenant's unreasonable refusal to promptly accept the Improvements or to relocate
on a timely basis will be a material breach of this Lease, if Landlord is
thereby prevented from occupying the remainder of the Building by between March
18, 1996 and April 30, 1996 according to the schedule attached to the plans
referred to above. In such event and in addition to the remedies identified in
Section 15 of the Lease, because actual damages are impractical to calculate and
because of the obvious bargain element in the regular rental rate, the Monthly
Installment will automatically increase by 150% until the breach has been cured
to Landlord's reasonable satisfaction, provided that Tenant has had a reasonable
opportunity to cure the breach prior to the increase.
<PAGE>
(attach 3 page plan and timetable)
<PAGE>
EXHIBIT "E"
LICENSE TO USE CERTAIN PERSONAL PROPERTY
Exhibit E to the Old Lease is replaced with the following new Exhibit E.
During the term, Tenant is authorized to use the personal property identified on
Schedule 0 on an exclusive basis. Tenant will relocate such property at its own
expense prior to the Commencement Date to the Premises depicted on Exhibit A.
Tenant will use reasonable care in the use and relocation of such property and
will return such property to Landlord in good condition, normal wear and tear
excepted, upon termination of the Lease. During the term, Tenant is also
authorized to use the personal property identified on Schedule 0 on a shared or
nonexclusive basis (e.g., the existing telephone system). All items of personal
property will be clearly marked by Tenant as Landlord's property throughout such
period of use. Tenant will promptly notify Landlord if the property requires
repair, which will be the responsibility of Landlord, unless the repair is
necessitated by Tenant's (including employees, visitors and agents) gross
negligence or intentional misconduct. Landlord is also responsible for insuring
the property and paying related real and personal property taxes accruing after
Landlord takes title to such property. Landlord will have no obligation to
replace any item, unless its cost is fully covered by insurance. Tenant agrees
to execute such other documents or perform such other acts as may be reasonably
be necessary in Landlord's discretion to ensure that Landlord's title to such
property remains unimpaired by creditors or representatives of Tenant, e.g.,
filing financing statements. Under no circumstances will Tenant challenge
Landlord's ownership of the personal property or attempt to offset the value of
the personal property against any obligation owed to Landlord during or after
the term.
During the term, Landlord will continue to operate the cafeteria through a
subcontractor and Tenant will be authorized to use the cafeteria subject to
Landlord's and the subcontractor's reasonable rules and regulations. The
cafeteria will not be obligated to provide services other than lunch Monday
through Friday.
In the event of a material breach of this Lease by Tenant, including the failure
to pay a Monthly Installment or Additional Rent, Tenant's rights to use the
personal property and the cafeteria without additional charge will be
automatically suspended after Tenant has had a reasonable opportunity to cure
such breach until the breach is cured to Landlord's reasonable satisfaction.
<PAGE>
Schedule 0 -- List of personal property transferred
Herman Miller Panel System
- - 224 cubicles or office panel systems, including one each of task chair, two
drawer meridian file, a file, box/box and flipper storage(2), whether
freestanding or located within offices (including those in areas to be
occupied by transferee)
- - 100 cubicles or office panel systems leased from CIT Equipment Leasing
pursuant to a lease dated May 19, 1993, , including the same components of
the 224 nonleased cubicles, whether freestanding or located within offices
(including those in areas to be occupied by transferee)
The contents of conference rooms and cubicles used as conference rooms,
including tables, chairs and audio visual equipment **
Board room contents, including tables, chairs, visual aids, cabinetry (and
specifically excluding rolling white board and overhead projector)
Board room kitchen counter and dishwasher
Conference with big screen and rear projection (excluding special effects
computer)
Lobby furniture
Cafeteria equipment, including cooking fixtures, pots, pans, ovens, sinks and
stainless steel tables (specifically excluding cafeteria vending and
beverage disbursement equipment owned by vendors)
Northern Telecom telephone system, including telephones, SMDR, voicemail and
related peripheral equipment and wiring **
Data cabling and racks *
Hughes cardkey system, including computer, cameras, vcrs' and related
printers *
* During the term of Radius' lease with Integrated, Radius will be able to use
portions of the telephone system, Hughes cardkey system and data cabling and
racks on a non exclusive basis.
** During the term of Radius' lease with Integrated, Radius will be able to use
the conference room/office contents located within the Premises as well as the
telephone handsets within the Premises on an exclusive basis.
<PAGE>
(attach "Old Lease")
<PAGE>
AMENDED AND RESTATED WORKING CAPITAL
FINANCING AND TERM LOAN AGREEMENT
This AMENDED AND RESTATED WORKING CAPITAL FINANCING AND TERM LOAN AGREEMENT (as
amended, supplemented or otherwise modified from time to time, this "Agreement")
is hereby made this 30th day of August, 1996, by and between IBM CREDIT
CORPORATION with a place of business at 5000 Executive Parkway, Suite 450, San
Ramon, CA 94583 ("IBM Credit"), and RADIUS INC. with a place of business at 215
Moffett Park Drive, Sunnyvale, CA 94089 ("Customer").
RECITALS
WHEREAS, Customer and IBM Credit entered into that certain Inventory and
Working Capital Financing Agreement dated as of February 17, 1995 (as amended,
supplemented or otherwise modified prior to the date hereof, the "Existing
Financing Agreement") pursuant to which Customer requested that IBM Credit
finance Customer's acquisition of inventory and equipment and finance Customer's
working capital requirements;
WHEREAS, Customer has been in default of the terms and conditions of the
Existing Financing Agreement and has been in default of payments to its other
creditors;
WHEREAS, on or about January 29, 1996 certain of the largest unsecured
creditors of Customer formed a committee (the "Unsecured Creditors Committee")
to resolve Customer's payment defaults to its unsecured creditors;
WHEREAS, Customer and IBM Credit have agreed that IBM Credit shall not
finance Customer's purchases of Products (as defined in the Existing Financing
Agreement) from Authorized Suppliers (as defined in the Existing Financing
Agreement);
WHEREAS, IBM Credit is willing to agree to restructure the indebtedness of
Customer under the Existing Financing Agreement by (1) converting Three Million
($3,000,000.00) of such indebtedness to senior convertible preferred stock of
Customer, (2) continuing a portion of such indebtedness under a secured working
capital line of credit and (3) continuing the remaining portion of such
indebtedness as a secured term loan;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Existing Financing Agreement is
hereby amended and restated in its entirety to read as follows:
Section 1. DEFINITIONS
1.1 Special Definitions. The following terms shall have the following
respective meanings in this Agreement:
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"A/R Advance": any loan or advance of funds made by IBM Credit to Customer
pursuant to Section 2.2 of this Agreement.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Finance Charges": as defined on Attachment A.
"Abacus": Abacus, Ltd., successor in interest to Gradeup, Ltd. and a wholly-
owned subsidiary of Computers Unlimited (Europe).
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to Customer
pursuant to this Agreement including, without limitation, A/R Advances and the
Term Loan.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Approved Officer": the chief executive officer, chief financial officer or
other officer of Radius approved in writing by IBM Credit.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding A/R Advances at such time.
"Average Daily Balance": the sum of the Outstanding A/R Advances or Outstanding
Term Loan, as the case may be, as of the end of each day during a calendar
month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
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<PAGE>
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by an Approved Officer, in
the form of Attachment F hereto, detailing and certifying, among other items:
Customer's Eligible Accounts, Customer's Eligible Foreign Accounts, the amounts
and aging of all of Customer's Accounts, the amounts and aging of Customer's
accounts payable as of a specified date, all of Customer's IBM Credit borrowing
activity during a specified period and the total amount of Customer's Borrowing
Base as well as Customer's Outstanding A/R Advances, Outstanding Term Loan,
Available Credit and any Shortfall Amount as of a specified date.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Account": as defined in Section 3.1.
"Eligible Foreign Account": an account of Customer for which the account debtor
is QMS (Japan) or Abacus that, but for (i) such account being payable in other
than U.S. dollars and (ii) the account debtor for such account not being a
resident of the United States, constitutes an Eligible Account.
"Eligible Inventory": inventory of the Customer that (i) is in the possession or
under the control of Customer, (ii) is located in a jurisdiction in the United
States where IBM Credit has filed effective financing statements, (iii) is
subject to the perfected security interest of IBM Credit that is prior to all
other security interests in or liens on such inventory, (iv) is being held by
Customer for sale to customers in the ordinary course of business and (v) is not
inventory constituting spare parts.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or
any successor statutes.
"Event of Default": as defined in Section 9.1.
3
<PAGE>
"Financial Statements": the consolidated and consolidating balance sheets,
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases, (3) all obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations issued or created for the
account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof. For purposes of clarification,
Customer and IBM Credit acknowledge that preferred stock of Customer held by IBM
Credit shall not be considered "Indebtedness" as defined herein.
"Investment": with respect to any Person (the "Investor"), (1) any investment
by the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Line of Credit": as defined in Section 2.1.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving
4
<PAGE>
consideration to reasonably likely delays in payment and reasonable costs of
enforcement) in the liquidation of such Collateral to recover the Obligations in
full, or (3) on the rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and
(2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Agreements": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules, contracts and similar agreements executed by
Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise,
and all amendments, supplements and other modifications to the foregoing from
time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of the
Outstanding A/R Advances and the Outstanding Term Loan.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
"Outstanding Term Loan": at any time of determination, the sum of (1) the
unpaid principal amount of the Term Loan; and (2) any finance charge, fee,
expense or other amount related to the Term Loan charged to Customer's account
with IBM Credit. "Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B; (3) guaranties in
favor of IBM Credit;
(4) guaranties on behalf of Subsidiaries of Customer in favor of other creditors
in an aggregate amount at any time not exceeding fifty thousand dollars
($50,000.00);
(5) Customer's obligations under its lease relating to 215 Moffett Park Drive,
Sunnyvale, CA. as in existence on the date hereof;
5
<PAGE>
(6) Purchase Money Indebtedness incurred to purchase equipment to be used in
Customer's business in an amount not to exceed $250,000 per fiscal quarter; and
(7) Other Indebtedness consented to by IBM Credit in writing prior to the
incurrence thereof.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an intercreditor agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Liens described in Section I of Attachment B;
(3) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(4) attachment or judgment Liens individually or in the aggregate not in excess
of fifty thousand dollars ($50,000.00) (exclusive of (A) any amounts that are
duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full);
(5) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(6) extensions and renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(7) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in
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<PAGE>
order to be in conformity with GAAP and an adverse determination in such
proceedings could not reasonably be expected to have a Material Adverse Effect;
(8) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(9) Purchase Money Security Interests securing Purchase Money Indebtedness
constituting Permitted Indebtedness;
(10) Liens in favor of IBM Credit arising pursuant to this Agreement; and
(11) other Liens arising after the date hereof and consented to by IBM Credit
in writing prior to the incurrence thereof.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Agreements.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of
America National Trust & Savings Association as their prime or base rate, as of
the last Business Day of the calendar month immediately preceding the date of
determination, whether or not such announced rates are the actual rates charged
by such banking institutions to their most creditworthy borrowers.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets to be used in the Customer's
business not to exceed the lesser of (1) the purchase price or acquisition cost
of such asset and (2) the fair market value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.2.
"Requirement of Law": as to any Person, the articles of incorporation and by-
laws of such Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Transaction Fee": as defined on Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of
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<PAGE>
directors or other Persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Term Loan": as defined in Section 2.9.
"Termination Date": shall mean the earlier of (i) the fourth anniversary of the
date of this Agreement or such other date as IBM Credit and Customer may agree
to in writing from time to time and (ii) the date that is ninety (90) days
following the date on which the Term Loan is paid in full.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES
2.1. Line of Credit. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit
pursuant to Section 9.2, IBM Credit agrees to extend to the Customer a line of
credit ("Line of Credit") in the amount set forth in Attachment A pursuant to
which IBM Credit will make to the Customer, from time to time, A/R Advances in
an aggregate amount at any one time outstanding not to exceed the Maximum
Advance Amount. Notwithstanding any other term or provision of this Agreement,
IBM Credit may, at any time and from time to time, in its sole discretion, (i)
temporarily increase the amount of the Line of Credit above the amount set forth
in Attachment A and decrease the amount of the Line of Credit back to the amount
of the Line of Credit set forth in Attachment A, in each case upon notice to
Customer and (y) make Advances pursuant to this Agreement upon the request of
Customer in an aggregate amount at any one time outstanding in excess of the
Line of Credit.
2.2. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide
an A/R Advance, Customer shall deliver to IBM Credit (i) written notice of
Customer's request for such an Advance ("Request for A/R Advance") and (ii) a
Collateral Management Report. For any requested A/R Advance pursuant to which
monies will be disbursed to Customer or any Person other than IBM Credit, a
Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00
p.m. (New York City, NY time) one Business Day prior to the requested A/R
Advance Date. The Request for A/R Advance shall specify (i) the requested A/R
Advance Date and (ii) the amount of the requested A/R Advance. Customer may
deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance
delivered to IBM Credit shall be irrevocable.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to the Customer in immediately
available funds to an account maintained
8
<PAGE>
by Customer. If IBM Credit is making an A/R Advance hereunder on a day on which
Customer is to repay all or any part of an Outstanding Advance (or any other
amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance
to such repayment and only an amount equal to the difference, if any, between
the amount of the A/R Advance and the amount being repaid shall be made
available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "A/R
Finance Charge", and (b) the highest rate from time to time permitted by
applicable law. If it is determined that amounts received from the Customer
were in excess of such highest rate, then the amount representing such excess
shall be considered reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance shall be due and payable on the Termination
Date.
2.3. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Term Loan Finance Charge or
A/R Finance Charge provided for in this Agreement by Customer's applicable
Average Daily Balance. The Delinquency Fee Rate, the Term Loan Finance
Charge and the A/R Finance Charge provided for in this Agreement are each
computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by Customer. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, will be set forth in
IBM Credit's monthly billing statement to Customer and shall be payable on the
15th day of each month, or IBM Credit may, in its sole discretion, add unpaid
finance charges and Other Charges to the Customer's outstanding Advances.
(D) If any amount owed under this Agreement, including, without
limitation, any Advance, the Term Loan or any Shortfall Amount, is not paid when
due (whether at maturity, by acceleration or otherwise), the unpaid amount
thereof will bear a late charge from and including its due date (or in the case
of any Shortfall Amount, from and including the date demand for payment is made)
to but not including the date IBM Credit receives payment thereof, at a per
annum rate equal to the lesser of (a) the amount set forth in Attachment A to
this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time
to time permitted by applicable law. In addition, if any Shortfall Amount shall
not be paid when due pursuant to Section 2.5 hereof, Customer shall pay IBM
Credit an additional late charge equal to the
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<PAGE>
Shortfall Transaction Fee. If it is determined that amounts received from
Customer were in excess of such highest rate, then the amount representing such
excess shall be considered reductions to principal of Advances.
2.4. Statements Regarding Customer's Account. IBM Credit will send statements
of each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) calendar days after such statement of transaction or billing
statement is received by Customer, Customer provides IBM Credit written notice
objecting that such amount or transaction is incorrectly described therein and
specifying the error(s), if any, contained therein. IBM Credit may at any time
adjust such statements of transaction or billing statements to comply with
applicable law and this Agreement.
2.5. Shortfall. If, on any date, the Outstanding A/R Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then A/R Advances
in an amount equal to the Shortfall Amount shall be due and payable on such date
and Customer shall on such date repay the Outstanding Advances in an amount
equal to such Shortfall Amount.
2.6. Application of Payments. Customer hereby agrees that all checks and other
instruments delivered to IBM Credit on account of Customer's Obligations shall
constitute conditional payment until such items are actually collected by IBM
Credit. Customer waives the right to direct the application of any and all
payments at any time or times hereafter received by IBM Credit on account of the
Customer's Obligations. Subject to the provision of Section 2.10, Customer
agrees that IBM Credit shall have the continuing exclusive right to apply and
reapply any and all such payments to Customer's Obligations in such manner as
IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any
of its books and records.
2.7. Prepayment and Reborrowing By Customer. (A) All amounts received by IBM
Credit, including all amounts in respect of Accounts deposited to the Special
Accounts, may be credited by IBM Credit from time to time to the repayment of
the Obligations under this Agreement or, in IBM Credit's sole and absolute
discretion, may be disbursed to Customer. The crediting of amounts received by
IBM Credit in respect of such Obligations shall in all cases be subject to the
final collection thereof.
(B) Customer may at any time prepay, without notice or penalty, in whole or
in part amounts owed under this Agreement. IBM Credit may apply payments made to
it (whether by the Customer or otherwise) to pay finance charges and other
amounts owing under this Agreement first and then to the principal amount owed
by the Customer.
(C) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding A/R Advances may
be reborrowed by Customer in accordance with the provisions of this Agreement.
2.8. Application of Collections by IBM Credit. Subject to the provisions of
Section 2.10,
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Customer agrees that IBM Credit may from time to time apply any and all monies,
reserves and proceeds received or collected by IBM Credit with respect to the
Accounts and other Goods or property of Customer at any time or times hereafter,
including, without limitation, any and all funds collected from the Lockbox and
the Special Account, to pay or prepay, as the case may be, any amounts owing by
Customer to IBM Credit whether or not such amounts are then due and payable, or
IBM Credit may, in its sole discretion, disburse any part of or all such monies,
reserves and proceeds to Customer. Customer agrees that IBM Credit may, but
shall not be obligated to, cause funds collected from the Lockbox to be swept on
a daily basis.
2.9. Term Loan. (A) On the Closing Date, the portion of the Outstanding
Advances pursuant to the Existing Financing Agreement in an amount to be agreed
upon by Customer and IBM Credit (which amount shall include an Advance by IBM
Credit to Customer hereunder on the Closing Date in an amount not to exceed
$500,000 to fund Customer's settlement of claims with certain unsecured
creditors) shall constitute a term loan to Customer (the "Term Loan"). The Term
Loan shall be subject to the Mandatory Pre-Payments set forth in Section 2.10.
Unless otherwise due and payable at an earlier date (whether by acceleration,
Mandatory Pre-Payment or otherwise), the principal balance of the Term Loan
shall be due and payable on August 31, 2000 (or if such date is not a Business
Day, on the Business Day immediately preceding such date).
(B) The Term Loan shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "Term Loan
Finance Charge", and (b) the highest rate from time to time permitted by
applicable law. If it is determined that amounts received from the Customer
were in excess of such highest rate, then the amount representing such excess
shall be considered reductions to principal of Advances.
2.10. Mandatory Pre-Payments. On each Mandatory Pre-Payment Date, the
Obligations of Customer to IBM Credit shall be due and payable in an amount
equal to the Mandatory Pre-Payment Amount. For purposes of this Agreement,
"Mandatory Pre-Payment Date" shall mean each of the following dates: (i) the
date of the consummation of any sale, transfer or other disposition by Customer
of any assets (other than inventory and used or obsolete equipment in the
ordinary course of business) or operations of Customer, including, without
limitation, the sale, transfer or other disposition of Customer's interest in
Splash Technology Holdings, Inc., UMAX Computer Corporation and Portrait Display
Labs, Inc., (ii) the date of the receipt by Customer of any other Non-Operating
Cash Flow, (iii) the date of the consummation of any equity investment, debt
issue or capital infusion in Customer from any source, and (iv) the thirtieth
(30th) day following the end of each fiscal quarter of Customer. For purposes
of this Agreement, "Mandatory Pre-Payment Amount" shall mean each of the
following amounts: (1) an amount equal to the proceeds of any sale, transfer or
other disposition set forth in clause (i) of the definition of Mandatory Pre-
Payment Date, (2) an amount equal to the amount of any Non-Operating Cash Flow
received by Customer, (3) an amount equal to ten percent (10%) of the proceeds
of an equity investment, debt issue or capital infusion set forth in clause
(iii) of the definition of Mandatory Pre-Payment Date, and (4) an amount equal
to fifty percent (50%) of the Operating Cash Flow of Customer for the
immediately preceding fiscal quarter, in the case of each of clauses (1), (2)
and (3) of this sentence, net of all reasonable and customary out-of-pocket
costs and expenses thereof. For purposes of this Agreement, "Non-Operating Cash
Flow" shall
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mean the proceeds or other amounts received by Customer in respect of any event
other than (x) for sales of inventory and used or obsolete equipment in the
ordinary course of business and (y) any event described in clauses (1), (3) or
(4) of the definition of Mandatory Pre-Payment Amount. For purposes of this
Agreement, "Operating Cash Flow" shall mean, with respect to a fiscal quarter of
Customer, the greater of (x) the Operating Cash Flow of Customer for such fiscal
quarter determined on substantially the same basis set forth in Attachment D and
(y) seventy-five percent (75%) of the projected Operating Cash Flow of Customer
for such fiscal quarter, as set forth on Attachment D. Customer shall cause the
Mandatory Pre-Payment Amounts to be transferred directly by the transferor to an
account of IBM Credit specified by IBM Credit. The Mandatory Pre-Payment
Amounts shall be applied to the Obligations of Customer under this Agreement in
the following order: first, to pay any past-due finance charges, second, to pay
any outstanding Shortfall Amount, third, to pay the Term Loan, and fourth, upon
the request of IBM Credit, to redeem shares of convertible preferred stock of
Customer held by IBM Credit. For purposes of clarification, Customer and IBM
Credit acknowledge that Customer shall not be obligated to satisfy the
Customer's obligations pursuant to the Line of Credit (other than for past-due
interest and principal, including any Shortfall Amount) prior to redeeming the
preferred stock held by IBM Credit. Customer shall make such arrangements and
execute such agreements, documents, instruments and papers as IBM Credit may
request to carry out the terms of this paragraph 2.10.
2.11. Sale of Stock Splash. During the first year following the registration
of any of the common stock of Splash Technology Holdings, Inc. ("Splash") in
connection with a sale of any such stock in a public offering (the "Splash
Registration"), upon the request of IBM Credit, Customer shall use its best
efforts to sell, as soon as possible thereafter, fifty percent (50%) of
Customer's interest in Splash (as of the date hereof and excluding any shares
subject to an option issued by Customer in favor of IBM Credit). During the
second year following the Splash Registration, upon the request of IBM Credit,
Customer shall use its best efforts to sell, as soon as possible thereafter, a
percent of Customer's interest in Splash (as of the date hereof and excluding
any shares subject to an option issued by Customer in favor of IBM Credit) equal
to seventy-five percent (75%) minus the percent of shares sold by Customer in
the previous year. During the third year following the Splash Registration,
upon the request of IBM Credit, Customer shall use its best efforts to sell, as
soon as possible thereafter, a percent of Customer's interest in Splash (as of
the date hereof and excluding any shares subject to an option issued by Customer
in favor of IBM Credit) equal to one hundred percent (100%) minus the percent of
shares sold by Customer in the previous two years. In addition to the
foregoing, if at any time following the Splash Registration the amount of the
Outstanding Term Loan shall exceed ninety percent (90%) of the market value of
Customer's interest in Splash (as of the date of determination and excluding any
shares subject to an option issued by Customer in favor of IBM Credit), upon the
request of IBM Credit, Customer shall use its best efforts to sell, as soon as
possible thereafter, a percent of Customer's interest in Splash (as of the date
hereof and excluding any shares subject to an option issued by Customer in favor
of IBM Credit) equal to one hundred percent (100%) minus the percent of shares
previously sold by Customer.
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Section 3. LINE OF CREDIT
ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of services
on non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an account debtor if fifty percent (50%) or more
of the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
(D) Accounts payable by an account debtor (other than Abacus to the extent
Abacus is an Affiliate of Customer solely by reason of an officer or director of
Abacus being an officer or director of Customer) that is an Affiliate of
Customer, or an officer, employee, agent, guarantor, stockholder or Affiliate of
Customer or is related to or has common shareholders, officers or directors with
Customer;
(E) Accounts arising from consignment sales;
(F) Accounts with respect to which the payment by the account debtor is or
may be conditional;
(G) Accounts with respect to which:
(i) the account debtor is not a commercial entity, or
(ii) the account debtor is not a resident of the United States;
(H) Accounts payable by any account debtor to which Customer is
or may become liable for goods sold or services rendered by such
account debtor to Customer;
(I) Accounts arising from the sale or lease of goods purchased
for a personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods
that has been used for demonstration purposes or loaned or leased by
the Customer to another party;
(K) Accounts which are progress payment accounts or contra
accounts;
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(L) Accounts upon which IBM Credit does not have a valid,
perfected, first priority security interest;
(M) Accounts payable by an account debtor that is or Customer
knows will become, subject to proceedings under United States
Bankruptcy Law or other law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any account debtor that is a remarketer
of computer hardware or software products and whose purchases of such
products from Customer have been financed by another person who pays
the proceeds of such financing directly to Customer on behalf of such
debtor;
(P) Accounts arising from the sale or lease of goods which are
billed to any account debtor but have not yet been shipped by
Customer;
(Q) Accounts with respect to which Customer has permitted or
agreed to any extension, compromise or settlement, or made any change
or modification of any kind or nature, including, but not limited to,
any change or modification to the terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide
transactions completed in accordance with the terms and conditions
contained in the invoices, purchase orders and contracts relating
thereto;
(S) Accounts that are discounted for the full payment term
specified in Customer's terms and conditions with its account debtors,
or for any longer period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that
are billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates,
discounts, credits, and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its
reasonable discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall
hereinafter be referred to as "Eligible Accounts".
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3.2. Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer and its Subsidiaries shall
establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set
forth in Attachment A with the financial institution(s) listed in Attachment A
(each, a "Bank") pursuant to an agreement between the Customer and each Bank in
form and substance satisfactory to IBM Credit. Customer shall also establish
and maintain a deposit account which shall contain only proceeds of Customer's
Collateral ("Special Account") with each Bank. Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the benefit
of IBM Credit in form and substance satisfactory to IBM Credit pursuant to
which, among other things, such Bank shall agree that, upon notice from IBM
Credit, disbursements from the Special Account shall be made only as IBM Credit
shall direct. Customer acknowledges that IBM Credit has notified or will notify
each Bank that disbursements from the Special Account shall be made only as IBM
Credit shall direct, and consents to such notification.
3.4. Deposit Accounts. Customer shall cause to be maintained with each bank or
other financial institution at which Customer or any of its Subsidiaries has
funds (each, a "Deposit Account Institution"), an agreement between IBM Credit
and such Deposit Account Institution, in form and substance satisfactory to IBM
Credit, to perfect IBM Credit's security interest in such funds ("Deposit
Account Agreement"). Customer shall not deposit funds into, or allow funds to
remain in any account that is not subject to a Deposit Account Agreement.
3.5. Collections. Customer shall instruct all account debtors and all
transferors of amounts described in Section 2.10 hereof to remit payments
directly to a Lockbox or a Special Account. In addition, Customer shall have
such instruction (i) printed in conspicuous type on all invoices sent to Account
debtors and (ii) include as a term of any agreement with any such transferor and
shall use such other reasonable efforts to cause account debtors and transferors
to comply with such instructions as IBM Credit may request. Customer shall
instruct the Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Without limiting the Customer's foregoing obligations, if, at
any time, Customer receives a remittance directly from an account debtor or
other transferor, then Customer shall make entries on its books and records in a
manner that shall reasonably identify such remittances and shall keep a separate
account on its record books of all remittances so received and deposit the same
into the Special Account. Until so deposited into the Special Account, Customer
shall keep all remittances separate and apart from Customer's other property so
that they are capable of identification as the proceeds of Collateral in which
IBM Credit has a security interest.
3.6. Application of Remittances and Credits. Customer shall apply all
remittances with respect to Accounts against the aggregate of Customer's
outstanding Accounts no later than the end of the Business Day on which such
remittances are deposited into the Special
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Account. Customer also agrees to apply each remittance with respect to Accounts
against its respective Account no later than three (3) Business Days from the
date such remittance is deposited into the Special Account. In addition,
Customer shall promptly apply any credits owing in respect to any Account when
due.
3.7. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Agreements;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations; and upon the occurrence and during the continuance of an Event
of Default as defined in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
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(L) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise;
(M) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(N) take control in any manner of any term of payment of proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance of
the Obligations when due (whether at the stated maturity, by acceleration or
otherwise), Customer hereby grants IBM Credit a security interest in all of
Customer's right, title and interest in and to all property and assets of every
kind, character and description whatsoever, whether now owned or hereafter
acquired or existing and wherever located, including but not limited to the
following:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
and all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
(C) general intangibles, including patents, trademarks, trade names and
copyrights;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
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All of the above assets shall be collectively defined herein as the
"Collateral".
Customer covenants and agrees with IBM Credit that: (a) the security provided by
this Agreement is in addition to any other security from time to time held by
IBM Credit and (b) the security hereby created is a continuing security interest
and will cover and secure the payment and performance of all Obligations both
present and future of Customer to IBM Credit pursuant to this Agreement and the
Other Agreements.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request, such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and that IBM Credit may deem necessary to fully consummate all of
the transactions contemplated under this Agreement and the Other Agreements.
Customer shall make appropriate entries on its books and records disclosing IBM
Credit's security interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the satisfaction of, or waiver in
writing by IBM Credit of compliance with, the following conditions precedent on
or prior to September 13, 1996:
(A) this Agreement executed and delivered by Customer and IBM Credit and
receipt by IBM Credit of all attachments hereto in form and substance
satisfactory to IBM Credit in its sole discretion;
(B) (i) copies of the resolutions of the Board of Directors of Customer in
form and substance satisfactory to IBM Credit in its sole and absolute
discretion certified by the secretary or assistant secretary of Customer
authorizing the execution, delivery and performance of this Agreement and each
Other Agreement executed and delivered in connection herewith, (ii) a
certificate of the secretary or an assistant secretary of Customer, in form and
substance satisfactory to IBM Credit in its sole and absolute discretion,
certifying the names and true signatures of the officers of Customer authorized
to sign this Agreement and the Other Agreements and (iii) copies of the articles
of incorporation and by-laws of Customer in form and substance satisfactory to
IBM Credit in its sole and absolute discretion certified by the secretary or
assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business unless the failure to so qualify could not reasonably be
expected to have a Material Adverse Effect;
(D) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit in its sole and absolute
discretion, which are required to
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enable Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Agreements, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Agreements and (c) the execution delivery or performance
and legality, validity, binding effect or enforceability of the restructuring
contemplated in connection herewith;
(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each
Bank in form and substance satisfactory to IBM Credit;
(G) the security interest of the Credit Managers Association shall have
been released, the security agreement between Customer and the Credit Managers
Association shall have been terminated, UCC termination statements relating
thereto shall have been filed, appropriate filings shall have been made
terminating any filings made by the Credit Managers Association with the United
States Patent and Trademark Office and the United States Copyright Office, all
in form and substance satisfactory to IBM Credit in its sole and absolute
discretion;
(H) a favorable opinion of counsel for Customer, satisfactory to IBM
Credit, in form and substance satisfactory to IBM Credit and Customer;
(I) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets and all other
statements, instruments and act (including, possession by IBM Credit) necessary
to perfect IBM Credit's security interest in the Collateral;
(J) Customer shall have delivered to IBM Credit convertible preferred
stock of the Customer and warrants to purchase common stock of Customer, in form
and substance satisfactory to IBM Credit in its sole and absolute discretion;
(K) Customer and IBM Credit shall have executed a registration rights
agreement in form and substance satisfactory to IBM Credit in its sole and
absolute discretion, which agreement shall include terms providing for a fee to
IBM Credit in an amount equal to $3,000,000 in the event the securities obtained
by IBM Credit pursuant to the recapitalization (including those securities set
forth in paragraph J above) are not subject to an effective registration
statement on or prior to a date to be agreed upon by Customer and IBM Credit;
(L) The existing creditors of Customer (other than IBM Credit) shall have
either (i) converted their claims against Customer for common stock of Customer
or (ii) released their claims against Customer for cash in an amount not to
exceed $500,000 in the aggregate, other than current claims payable by customer
in an amount satisfactory to IBM Credit, all in form and substance satisfactory
to IBM Credit in its sole and absolute discretion;
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(M) All acts necessary or desirable, in the sole and absolute discretion
of IBM Credit, to the recapitalization of Customer outlined in the Private
Placement Memorandum dated August 9, 1996 shall have occurred and be in full
force and effect;
(N) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(O) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2 Conditions to each Advance. No Advance will be required to be made or
renewed by IBM Credit under this Agreement unless, on and as of the date of such
Advance, the following statements shall be true to the satisfaction of IBM
Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection herewith, are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result which would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM
Credit in writing prior to each request, each request (or deemed request
pursuant to Section 2.2 (D)) for an Advance hereunder and the receipt (or deemed
receipt) by the Customer of the proceeds of any Advance hereunder shall be
deemed to be a representation and warranty by Customer that, as of and on the
date of such Advance, the statements set forth in (A) through (D) above are true
statements. No such disclosures by Customer to IBM Credit shall in any manner
be deemed to satisfy the conditions precedent to each Advance that are set forth
in this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) has the power and
authority to own its properties and assets and to transact the businesses in
which it presently is engaged and (iii) except as otherwise disclosed in
Attachment
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B or to the extent the failure to so qualify could not reasonably be expected to
have a Material Adverse Effect, is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it, respectively, as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Permitted Liens. The Liens granted by the Customer and each of its
Subsidiaries pursuant to this Agreement, the Guaranties and the Other Agreements
in the Collateral constitute the valid and enforceable first, prior and
perfected Liens on the Collateral, except to the extent any Liens that are prior
to IBM Credit's Liens are the subject of an intercreditor agreement between IBM
Credit and the holder of such Lien.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Agreements (i) are within its corporate power;
(ii) have been duly authorized by all necessary corporate action; (iii) are not
in contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not result in the imposition of any Liens upon
any of its properties (other than for Liens in favor of IBM Credit).
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location. There is no jurisdiction in which Customer has any assets, equipment
or inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.
6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
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6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. Except as set forth on Attachment B, the Customer is not in
default under any term of any indenture, contract, lease, agreement, instrument
or other commitment to which it is a party or by which it, or any of its
properties are bound. Customer has no knowledge of any dispute regarding any
such indenture, contract, lease, agreement, instrument or other commitment. No
Default or Event of Default has occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(F) of this Agreement, Customer is not a party
to any labor dispute. There are no strikes or walkouts or labor controversies
pending or threatened against the Customer which could reasonably be expected to
have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan.
Customer has no "multi-employer benefit plan". As used in this Agreement the
terms "employee benefit plan", "employee pension benefit plan", "defined benefit
plan", and "multi-employer benefit plan" have the respective meanings assigned
to them in Section 3 of ERISA and any applicable rules and regulations
thereunder. The Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC") in connection with a Plan (other than for
premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of its businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substance; (ii) the Customer is not currently generating, transporting
or disposing of any Hazardous Substance; (iii) the Customer has no knowledge
that (a) any of its real property (whether owned, leased, or otherwise directly
or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substance, or (b) any of its business
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operations have contaminated lands or waters of others with any Hazardous
Substance; (iv) the Customer and its respective assets are not subject to any
Environmental Liability and, to the best of the Customer's knowledge, any
threatened Environmental Liability; (v) the Customer has not received any notice
of or otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substance for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with respect to any violation or alleged
violation of any Environmental Law; provided however, that the parties
acknowledge that any generation, transportation, use, storage and disposal of
certain such Hazardous Substances in Customer's or its Subsidiaries' business
shall be excluded from representations (i) and (ii) above so long as, and only
so long as, Customer is at all times generating, transporting, utilizing,
storing and disposing such Hazardous Substances in accordance with all
applicable Environmental Laws and in a manner designed to minimize the risk of
any spill, contamination, release or discharge of Hazardous Substances other
than as authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade names
and trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Agreements or to perform its
obligations hereunder or thereunder.
6.17. Taxes and Tax Returns. Except as otherwise disclosed on Attachment B,
Customer has timely filed all federal, state, and local tax returns and other
reports which it is required by law to file, and has either duly paid all taxes,
fees and other governmental charges indicated to be due on the basis of such
reports and returns or pursuant to any assessment received by the Customer, or
made provision for the payment thereof in accordance with GAAP. The charges and
reserves on the books of the Customer in respect of taxes or other governmental
charges are in accordance with GAAP. No tax liens have been filed against
Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its
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business; the goods and inventory being sold and the Accounts created are its
exclusive property and are not and shall not be subject to any Lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever
(other than Permitted Liens). The Customer's customers have accepted goods or
services and owe and are obligated to pay the full amounts stated in the
invoices according to their terms. There are no proceedings or actions known to
Customer which are pending or threatened against any Material Account Obligor
(as defined in Section 7.14(B) of this Agreement) of any of the Accounts which
could reasonably be expected to result in a material adverse effect on the
obligor's ability to pay the full amounts due to Customer.
6.19. Affiliate/Subsidiary Transactions. Except as set forth on Attachment B,
Customer is not a party to or bound by any agreement or arrangement (whether
oral or written) to which any Affiliate or Subsidiary of the Customer is a party
except (i) in the ordinary course of and pursuant to the reasonable requirements
of Customer's business and (ii) upon fair and reasonable terms no less favorable
to Customer than it could obtain in a comparable arm's-length transaction with
an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Agreement, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors
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without a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit or, if so qualified, an opinion which
shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such
Auditors' "Management Letter" to Customer, if any, (c) a written statement
signed by the Auditors stating that in the course of the regular audit of the
business of Customer and its consolidated Subsidiaries, which audit was
conducted by the Auditors in accordance with generally accepted auditing
standards, the Auditors have not obtained any knowledge of the existence of any
Default under any provision of this Agreement, or, if such Auditors shall have
obtained from such examination any such knowledge, they shall disclose in such
written statement the existence of the Default and the nature thereof, it being
understood that such Auditors shall have no liability, directly or indirectly,
to anyone for failing to obtain knowledge of any such Default; (ii) if composed,
a narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer and
its Subsidiaries for such fiscal year prepared by an Approved Officer; and (iii)
a Compliance Certificate along with a schedule, in substantially the form of
Attachment C hereto, of the calculations used in determining, as of the end of
such fiscal year, whether Customer is in compliance with the financial covenants
set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by an Approved Officer of
Customer as having been prepared in accordance with GAAP; (ii) if composed, a
narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer and
its Subsidiaries for such period and for the fiscal year to date prepared by an
Approved Officer of Customer; and (iii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal quarter, whether Customer is
in compliance with the financial covenants set forth in Attachment A;
(C) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of an Approved Officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(D) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
an Approved Officer of Customer specifying the nature thereof and the Customer's
proposed response thereto, each in reasonable detail;
(E) promptly after Customer obtains knowledge that (i) any order, judgment
or decree in excess of fifty thousand dollars ($50,000.00) shall have been
entered against Customer or any of
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its properties or assets, or (ii) it has received any notification of a material
violation of any Requirement of Law from any Governmental Authority, a
certificate of an Approved Officer of Customer specifying the nature thereof and
the Customer's proposed response thereto, each in reasonable detail;
(F) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, or the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of an Approved
Officer of Customer specifying the nature thereof and the Customer's proposed
response thereto, each in reasonable detail;
(G) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any of its Subsidiary's business affairs and financial condition;
(H) on the first Business Day of each week, a Collateral Management Report
(with back-up in form and detail satisfactory to IBM Credit) as of the last
Business Day of the immediately preceding week;
(I) along with the Financial Statements set forth in Section 7.1(A) and
(B), and at such other times as IBM Credit may request, the name, address and
phone number of each of its account debtors' primary contacts for each Account
on the Accounts aging report contained in its most recent Collateral Management
Report; and
(J) within three (3) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders, and within
three (3) days after the same are filed, copies of all financial statements,
reports and any other documents which Customer may make to, or file with, the
Securities and Exchange Commission or any successor or analogous governmental
authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an Approved Officer of Customer, which signature shall be deemed a
representation and warranty that the information contained in such certificate,
schedule or report is true and accurate in all material respects on the date as
of which such certificate, schedule or report is made and does not omit to state
a material fact necessary in order to make the statements contained therein not
misleading at such time. Each financial statement delivered pursuant to this
Section 7.1 shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
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7.3. Changes in Customer. Customer shall provide 30 days prior written notice
to IBM Credit of any change in Customer's name, chief executive office and
principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any Other Agreement limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC has instituted or will institute proceedings to terminate any
Plan. Notwithstanding the foregoing, the Customer shall have no obligation to
notify IBM Credit as to any "reportable event" as to which the 30-day notice
requirement of Section 4043(b) has been waived by the PBGC, until such time as
such Customer is required to notify the PBGC of such reportable event. Such
notification shall include a certificate of an Approved Officer of Customer
setting forth details as to such "reportable event" and the action which
Customer proposes to take with respect thereto, together with a copy of any
notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any Governmental
Authority with respect to the presence of any Hazardous Substances on or in any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, and (iv) any
occurrence or condition which could constitute a violation of any Environmental
Law.
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7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, which shall reflect IBM
Credit's interest in the Collateral.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, (iii)
discussing the affairs, finances and business of Customer with any officers,
employees and directors of Customer or with the Auditors and (iv) verifying
Eligible Accounts, Eligible Foreign Accounts and other Collateral. Customer
also agrees to provide IBM Credit with such reasonable information and
documentation that IBM Credit deems necessary to conduct the foregoing
activities, including, without limitation, reasonably requested samplings of
purchase orders, invoices and evidences of delivery or other performance. Upon
the occurrence and during the continuance of a Default which has not been waived
by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities
in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice
of any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In
addition, all Policies so maintained are to name IBM Credit as an additional
insured as its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall
keep and maintain, at its sole expense, the Collateral insured for an amount not
less than the amount set forth on Attachment A from time to time opposite the
caption "Collateral Insurance Amount" against all loss or damage under an "all
risk" Policy in companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
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reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit.
Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon
the Policy issued by it or by independent instruments furnished to IBM Credit,
at least ten (10) days written notice before any Policy shall be altered or
cancelled and that no act or default of Customer or any other person shall
affect the right of IBM Credit to recover under the Policies. Customer hereby
agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit. If Customer fails to pay any
cost, charges or premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit
hereunder shall be considered an additional debt owed by Customer to IBM Credit
due and payable by Customer immediately upon receipt of an invoice by IBM
Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, and to the operation of
its business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year
ending September 30 unless Customer provides IBM Credit at least thirty (30)
days prior written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. Collateral. Customer shall:
(A) from time to time upon the request of IBM Credit, provide IBM Credit
with access to copies of all invoices, delivery evidences and other such
documents relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account obligor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account Obligor");
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(C) promptly upon Customer's learning thereof, notify IBM Credit in
writing of any event which would cause any obligation of a Material Account
Obligor to become an Ineligible Account;
(D) keep all goods rejected or returned by any account debtor and all
goods repossessed or stopped in transit by Customer from any account debtor
segregated from other property of Customer, holding the same in trust for IBM
Credit until Customer applies a credit against such account debtor's outstanding
obligations to Customer or sells such goods in the ordinary course of business,
whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit; until so delivered to IBM Credit or its
designated agent, Customer shall hold such chattel paper and instruments as
agent for IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform
all matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof;
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and the Other Agreements and of the rights and
powers herein and therein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted herein
and the payment of any and all recording taxes and filing fees in connection
therewith;
(K) promptly, but in any event within two (2) days of authorizing such
credits, apply
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rebate, price protection or other credits to the Accounts;
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties and grant to IBM Credit perfected
first priority security interests in their assets.
7.16. On Site Collateral Verification. Customer shall from time to time upon
the request of IBM Credit allow employees, agents and representatives of IBM
Credit access, during normal business hours and as often as IBM Credit may
request, to the premises, inventory, books and records of Customer or any of its
Subsidiaries to verify the Collateral and Customer's compliance with the terms
of this Agreement and to discuss the business, operations, properties and
financial and other condition of the Company or any of its Subsidiaries with
such officers and employees and agents, including without limitation, its
independent certified public accounts, as IBM Credit may from time to time
request. Customer shall use reasonable efforts to obtain permission from third
party facilities where Collateral is located for IBM Credit to have access to
such facilities to inspect and verify such Collateral.
7.17. Lockbox Participation and Special Account Deposits. Without limiting
Customer's other Obligations, Customer acknowledges and reaffirms its
obligations pursuant to Section 3.4 of this Agreement and acknowledges and
reaffirms that such obligations apply to all Accounts of Customer including,
without limitation, Accounts payable by account debtors that are not residents
of the United States (including Accounts that are payable by Ingram Micro, Inc.
(Canada), Merisel Canada, Inc., QMS (Japan) and Abacus) and Accounts payable by
an account debtor that is a remarketer of computer hardware and software
products whose purchases of such products from Customer have been financed by
another person who pays proceeds of such financing directly to Customer on
behalf of such account debtor. Customer agrees that if Customer receives a
remittance directly from an account obligor, then Customer shall deposit the
same into the Special Account within one Business Day of such receipt.
7.18. Further Assurances Regarding Patents, Trademarks, Tradenames and
Copyrights. Customer shall do and cause to be done all things necessary to
preserve and keep in full force and effect all registrations of patents,
trademarks, tradenames and copyrights necessary or advisable for the profitable
conduct of its business. With respect to any federal registration of any patent,
trademark, tradename or copyright or the filing of any application therefor,
Customer promptly shall cooperate with IBM Credit to deliver to IBM Credit a
collateral assignment with respect to each such registration and application, in
form and substance satisfactory to IBM Credit. IBM Credit shall prepare the
form of collateral assignment based upon information provided by Customer and,
upon execution by Customer, IBM Credit shall file such collateral assignment
with the appropriate agency. Whenever, Customer, either by itself or through
any agent, employee, licensee or designee, shall file an application for the
registration of any patent, trademark, tradename or copyright with the United
States Patent and Trademark Office or United States Copyright Office, Customer
shall report such filing to IBM Credit within five Business Days after such
filing occurs. Upon request of IBM Credit, Customer shall execute and deliver
any and all agreements, instruments, documents, and papers, which IBM Credit
shall prepare based upon information provided by Customer, as IBM Credit may
request to evidence and/or perfect IBM Credit's security interest in any patent,
trademark, tradename or copyright and the
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goodwill and general intangibles relating thereto or represented thereby, and
Customer hereby constitutes IBM Credit its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed, such power being coupled with an interest and
irrevocable until the Obligations are paid in full and this Agreement is
terminated. For the purposes of enabling IBM Credit to exercise its rights and
remedies under this Agreement, Customer hereby grants to IBM Credit an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Customer) to use, assign, license or sublicense, following
the occurrence of an Event of Default and the exercise by IBM Credit of its
rights and remedies with respect thereto, any of the Collateral consisting of
patents, trademarks, tradenames or copyrights now owned or hereafter acquired by
Customer, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof. Upon
payment in full of all Obligations and termination of this Agreement, the
license granted by Customer pursuant to the immediately preceding sentence shall
be terminated.
7.19. Collateral Reconciliation Reports. Customer shall provide to IBM Credit
on each Business Day a Collateral Reconciliation Report as of the close of
business on the Business Day immediately preceding the day such report is
provided to IBM Credit. Such Collateral Reconciliation Report shall be in form
and detail satisfactory to IBM Credit and shall include back-up documentation
supporting such reconciliation in form and detail satisfactory to IBM Credit.
Such Collateral Reconciliation Report shall reconcile the most recently
preceding Collateral Reconciliation Report to such Collateral Reconciliation
Report and shall include new sales, collections, credits issued, purchases,
returns and any other item affecting the accounts receivable or inventory
balance since the prior reconciliation. Such Collateral Reconciliation Report
shall also include a summary of domestic gross receivables and Eligible
Receivables, foreign gross receivables and Eligible Foreign Receivables, gross
inventory and Eligible Inventory by location.
7.20. Listings and Reconciliations. Customer shall provide to IBM Credit on or
prior to the twentieth (20th) Business Day following each fiscal month a copy of
all bank statements received by Customer for such month along with a
reconciliation of account balances in such account from the preceding statement
to account balances in such account as of the date of such statement.
7.21. Price Protection Credits. Except as set forth on Attachment B, Customer
shall not, without IBM Credit's prior consent, announce any program for price
protection credits that could have the effect of reducing accounts receivable in
which IBM Credit has a security interest.
7.22. Additional Reporting Requirements. Customer shall deliver to IBM Credit,
on the first Business Day of each week, a listing, in form and detail
satisfactory to IBM Credit in its reasonable discretion, as of the Saturday
immediately preceding such Business Day, of (i) Customer's inventory, (ii) the
location of such inventory and (iii) the lower of the cost (net of any
applicable credits) and the fair market value of such inventory. Customer shall
deliver to IBM Credit, on the last Business Day of each week, a cash flow
projection, in form and detail satisfactory to IBM Credit in its reasonable
discretion, for the immediately following week and
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each week remaining in such fiscal quarter based upon Customer's best estimate
of minimum levels of activity for such week to support Customer's on going
business activities. Customer shall provide to IBM Credit on the first Business
Day of each week, a projection, in form and detail satisfactory to IBM Credit in
its reasonable discretion, for such week of Customer's Outstanding A/R Advances
and Customer's Borrowing Base.
7.23. Subsidiaries. Customer shall not make any Investment in or loan to, or
transfer any assets to any Subsidiary or Affiliate without the prior written
consent of IBM Credit.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any assets other than (i)
sales of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property,
other than patents, trademarks, trade names and copyrights, in the ordinary
course of business, provided, that the aggregate book value of all such assets
and property so sold or disposed of under this section 8.2 (ii) in any fiscal
year shall not exceed 5% of the consolidated assets of the Customer as of the
beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the prior written
consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate,
dissolve or enter into or engage in any operation or activity materially
different from that presently being conducted by Customer.
8.4. Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any other
Person, except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities or warranties in connection with the sale of inventory
or other asset dispositions permitted hereunder, (iii) for guaranties in favor
of IBM Credit, or (iv) on behalf of its Subsidiaries not to exceed an aggregate
amount of fifty thousand dollars ($50,000.00) per annum.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether
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now or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
Customer, provided, however that Customer may (x) purchase for cash from
directors, officers and employees of Customer shares of capital stock in
connection with the termination of any such director's, officer's or employee's
service to Customer to the extent such purchases are consistent with past
practices (which may not be changed without IBM Credit's prior consent) and are
in an aggregate amount not exceeding fifty thousand dollars ($50,000.00) per
annum and (y) redeem and pay dividends on the convertible preferred stock of
Customer held by IBM Credit; or (ii) make any optional payment or prepayment on
or redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make,
maintain or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America
or any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of Customer;
(D) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation;
(E) the investments set forth on Attachment E.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited transactions"
under the Code or ERISA, (C) fail to pay to any Plan any contribution which they
are obligated to pay under the terms of such Plan, if such failure would result
in a material "accumulated funding deficiency", whether or not waived, (D) allow
or suffer to exist any occurrence and during the continuance of a "reportable
event" or any other event or
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condition, which presents a material risk of termination by the PBGC of any Plan
(other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit
as required in Section 7.5. As used in this Agreement, the terms "accumulated
funding deficiency" and "reportable event" shall have the respective meanings
assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8,
the terms material liability, tax, penalty, accumulated funding deficiency and
risk of termination shall mean a liability, tax, penalty, accumulated funding
deficiency or risk of termination which could reasonably be expected to have a
Material Adverse Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer, concurrently with the delivery of such
Collateral to such party, causes such party to issue and deliver to IBM Credit,
in form and substance satisfactory to IBM Credit, warehouse receipts in the name
of IBM Credit evidencing the storage of such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds
of any Advances other than for its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.
8.13. Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement, provided, however, that
Customer may make loans to its officers in an aggregate outstanding amount at
any time not exceeding two hundred fifty thousand dollars ($250,000.00), and to
its Subsidiaries in an aggregate outstanding amount at any time not exceeding
one hundred thousand dollars ($100,000.00).
8.15. Premium Payments. Customer shall not make, directly or indirectly, any
payments to suppliers at a premium above the regular invoice price on account of
past due indebtedness to such supplier without the prior written consent of IBM
Credit.
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Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Agreements:
(A) The failure to make timely payment of the Obligations or any part
thereof, within the earlier of (i) one Business Day after receiving written
notice that such payment has not been made when due in accordance with the terms
of any documents evidencing the same and (ii) five days after such payment
becomes due in accordance with the terms of any documents evidencing the same;
(B) (x) the failure to comply with or observe any term, covenant or
agreement (other than pursuant to Sections 7.1 (C) (i), 8.1, 8.2 or 8.3)
contained in this Agreement that is capable of being remedied by Customer if
such failure shall remain unremedied for ten (10) days after written notice from
IBM Credit thereof; provided that during such 10-day period Customer is
diligently taking efforts necessary to remedy such failure or (y) Customer fails
to comply with or observe any term, covenant or agreement contained in Sections
8.1, 8.2 or 8.3 that is capable of being remedied by Customer if such failure
shall remain unremedied for 10 days; provided that during such 10-day period,
Customer is diligently taking efforts necessary to remedy such failure;
(C) Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement other than as referred to in paragraphs
(A) or (B);
(D) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any Subsidiary or guarantor to IBM Credit was false
in any material respect at the time when made or deemed made;
(E) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
(F) Customer or any Subsidiary or guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer or any Subsidiary or any of its respective properties or have any of
its respective properties seized or attached, or take any action to authorize,
or for the purpose of effectuating, the foregoing; provided, however, that
Customer or any Subsidiary shall have a period of forty-five (45) days within
which to discharge any involuntary petition for bankruptcy or similar
proceeding; provided, further, however, that any of the foregoing set forth in
this paragraph (F), with respect to any Subsidiary or guarantor, could
reasonably be expected to have a Material Adverse Effect;
(G) The use by Customer of any funds borrowed from IBM Credit under this
Agreement for any purpose other than as provided in this Agreement;
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(H) The entry of any judgment against Customer or any guarantor in an
amount in excess of fifty thousand dollars ($50,000.00) and such judgment is not
satisfied, dismissed, stayed or superseded by bond within thirty (30) days after
the day of entry thereof (and in the event of a stay or supersedeas bond, such
judgment is not discharged within thirty (30) days after termination of any such
stay or bond) or such judgment is not fully covered by insurance as to which the
insurance company has acknowledged its obligation to pay such judgment in full;
(I) The dissolution or liquidation of Customer or any guarantor, or
Customer or any guarantor or any of their directors or stockholders shall take
any action to dissolve or liquidate Customer or any guarantor;
(J) Any "going concern" or like qualification or exception, or
qualification arising after the date of this Agreement out of the scope of an
audit by an Auditor of his opinion relative to any Financial Statement delivered
to IBM Credit under this Agreement;
(K) There issues a warrant of distress or distraint or any similar
proscription for any rent or taxes with respect to any of Customer's properties,
assets or premises and such warrant shall continue for a period of two (2)
Business Days from the date such warrant is issued;
(L) Customer suspends business;
(M) The occurrence of any event or condition which enables the holder of
any Indebtedness or trade liabilities arising in one or more related or
unrelated transactions, in aggregate principal amount exceeding fifty thousand
dollars ($50,000.00) to accelerate the maturity thereof or the failure of
Customer to pay when due any such Indebtedness or trade liabilities;
(N) Any guaranty of any or all of the Customer's Obligations executed by
any guarantor in favor of IBM Credit, shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void by a court
of competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(O) Customer is in default under the material terms of any of the Other
Agreements after the expiration of any applicable cure periods;
(P) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(Q) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer; or
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(R) Customer is in default of any of the terms or conditions of its
agreements with Mitsubishi Electronics America which default allows Mitsubishi
Electronics America to exercise any of its rights under any security agreement
by and between Customer and Mitsubishi Electronics America.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may,
in its sole discretion, take any or all of the following actions, without
prejudice to any other rights it may have at law or under this Agreement to
enforce its claims against the Customer: (a) declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 9.1(F) hereof, in which case all Obligations shall
automatically become immediately due and payable without the necessity of any
notice or other demand) without presentment, demand, protest or any other action
or obligation of IBM Credit; and (b) immediately terminate the Line of Credit
hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, IBM Credit
may exercise all rights and remedies of a secured party under the U.C.C.
Without limiting the generality of the foregoing, IBM Credit may: (i) remove
from any premises where same may be located any and all documents, instruments,
files and records (including the copying of any computer records), and any
receptacles or cabinets containing same, relating to the Accounts, or IBM Credit
may use (at the expense of the Customer) such of the supplies or space of the
Customer at Customer's place of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
or non-judicial procedure, or take possession of any or all of the Collateral
without judicial process and enter any premises where any Collateral may be
located for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase, including for a credit bid, at any such sale. If IBM Credit, in its
sole discretion, determines that any of the Collateral requires rebuilding,
repairing, maintenance or preparation, IBM Credit shall have the right, at its
option, to do such of the aforesaid as it deems necessary for the purpose of
putting such Collateral in such saleable form as
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IBM Credit shall deem appropriate. The Customer hereby agrees that any
disposition by IBM Credit of any Collateral pursuant to and in accordance with
the terms of a repurchase agreement between IBM Credit and the manufacturer or
any supplier (including any Authorized Supplier) of such Collateral constitutes
a commercially reasonable sale. The Customer agrees, at the request of IBM
Credit, to assemble the Collateral and to make it available to IBM Credit at
places which IBM Credit shall select, whether at the premises of the Customer or
elsewhere, and to make available to IBM Credit the premises and facilities of
the Customer for the purpose of IBM Credit's taking possession of, removing or
putting such Collateral in saleable form. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) Business Days
notice shall constitute reasonable notification.
(C) IBM Credit is hereby granted, upon the occurrence and during the
continuance of any Event of Default which has not been waived in writing by IBM
Credit, an irrevocable, non-exclusive license to use, assign, license or
sublicense all computer software programs, data bases, processes and materials
used by the Customer in its businesses or in connection with any of the
Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other legal or equitable rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral
by any court process Customer hereby irrevocably waives to the extent permitted
by applicable law any bonds, surety and security relating thereto required by
any statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the
extent permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that it intends to terminate this Agreement which date shall be
no less than 90 days following the receipt by IBM Credit of such written notice,
and (iii) termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of
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Customer's Obligations shall be immediately due and payable in their entirety,
even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Agreements
shall in any way affect or impair the Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to such
termination, and IBM Credit's security interest in the Collateral.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated
to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result
of IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement. IBM Credit shall notify
Customer in writing promptly upon obtaining knowledge of any claim subject to
indemnification pursuant to this paragraph 10.2 and shall use reasonable efforts
to minimize the amount of any indemnified Loss. Customer agrees to pay
promptly, upon demand, all reasonable costs and fees, including reasonable
attorney's fees, incurred by IBM Credit in the administration, renewal,
extension, modification, documentation, restructuring, "workout", enforcement or
collection of any or all of the Obligations, or in any litigation, arbitration,
mediation, bankruptcy or other proceeding of any type, relating thereto.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM
Credit in performing in satisfaction or on account of the foregoing and any
expenses, including reasonable attorney's fees, court costs, and other charges
relating thereto, shall be a part of the Obligations, payable on demand and
secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER
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PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER,
EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Agreements, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Agreement shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Agreements shall not waive or affect
any other Default by the Customer under this Agreement or any of the Other
Agreements, whether such Default is prior or subsequent to such other Default
and whether of the same or a different type. None of the undertakings,
agreements, warranties, covenants, and representations of the Customer contained
in this Agreement or the Other Agreements and no Default by the Customer shall
be deemed waived by IBM Credit unless such waiver is in writing signed by an
authorized representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Agreements
or the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Agreements
being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Agreements
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations in accordance with the provisions of this Agreement;
provided, however, IBM Credit may release to the Customer such portions of such
monies, reserves and proceeds as IBM Credit may from time to time determine, in
its sole discretion.
10.9. No Merger or Novations. Neither the obtaining of any judgment nor the
exercise of any power of seizure or sale shall operate to extinguish the
Obligations of the Customer to IBM
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Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the
Other Agreements are for convenience only and do not define or limit the
contents of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Agreements
shall be binding upon and inure to the benefit of IBM Credit and the Customer
and their respective successors and assigns; provided, that the Customer shall
have no right to assign this Agreement or any of the Other Agreements without
the prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
5000 Executive Parkway, Suite #450
San Ramon, CA 94583
Attention: Remarketer Finance Center Manager
Telecopy: (510) 277-5675
(ii) If to Customer at:
Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Chief Executive Officer
Telecopy: 408-541-5271
or to such other address or number as each party designates to the other in the
manner prescribed herein.
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10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. Amendment and Restatement. Notwithstanding anything contained herein or
in any other document to the contrary, it is understood and agreed by Customer
and IBM Credit that the claims of IBM Credit arising hereunder and existing as
of the date hereof constitute continuing claims arising out of the obligations
of Customer under the Existing Financing Agreement. Customer acknowledges and
agrees that the Indebtedness represented by the Advances outstanding as of the
date hereof has not been satisfied or discharged and that this Agreement amends
and restates such Indebtedness and is not intended to effect a novation of the
obligations of Customer which were evidenced by the Existing Financing
Agreement.
10.15. Third Party Beneficiaries. This Agreement is made and entered into for
the sole protection and benefit of the parties hereto and their permitted
successors and assigns, and neither this Agreement nor any of the Other
Agreements is intended to operate as, directly or indirectly, nor shall be
construed as effecting in any way, directly or indirectly, a waiver, estoppel,
discharge, release, or other modification of the parties rights against any
Person, nor shall any other Person have any right of action hereunder.
10.16. General Release. Customer does hereby release, acquit and forever
discharge, for itself and its successors and assigns, IBM Credit, Affiliates of
IBM Credit, and each and every present and former officer, director, employee,
agent, successor and assign of IBM Credit and Affiliate of IBM Credit (the
"Releasees") from any and all manner of actions, causes of action, suits, debts,
costs, claims and demands whatsoever, regardless of whether known or unknown, at
law or in equity or under federal, state, foreign, or other law, which against
the Releasees or any one or more of them Customer, ever had, now has or which
can, shall or may hereafter accrue for, upon or by reason of, arising out of or
in connection with any matter, cause or thing whatsoever from the beginning of
the world to the day of this Agreement, excluding claims arising under ordinary
product and service warranties for product and services purchased by Customer
from Affiliates of IBM Credit in the ordinary course of Customer's business, but
including any claims relating to Mississippi I or Mississippi II product or
services. Customer hereby waives, to the fullest extent permitted by law, the
benefits of any statute, law, rule, regulation or common law, which may limit
the scope of the covenants and releases contained herein. Customer intends by
this Release to forever release, acquit, waive and forever discharge the
Releasees of and from any and all claims and rights described above, it being
understood that all claims or rights which Customer or any person who claims by,
through or under Customer may have against the Releasees shall be forever
released, acquitted, waived and forever discharged, and such persons shall be
forever barred from bringing or asserting the same in their own name or names,
jointly or with or through any other person, natural, corporate or otherwise;
provided, however, that Customer is not waiving any rights or claims under this
Agreement arising on or after the date hereof.
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SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA PROVIDES AS
FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
CUSTOMER IS AWARE THAT IT MAY HEREAFTER DISCOVER CLAIMS OR FACTS IN
ADDITION TO OR DIFFERENT FROM THOSE IT NOW KNOWS OR BELIEVES TO BE TRUE WITH
RESPECT TO THE MATTERS RELATED HEREIN. NEVERTHELESS, IT IS THE INTENTION OF
CUSTOMER TO FULLY, FINALLY AND FOREVER SETTLE AND RELEASE ALL SUCH MATTERS, AND
ALL CLAIMS RELATIVE THERETO, WHICH DO NOW EXIST, MAY EXIST, OR HERETOFORE HAVE
EXISTED BETWEEN CUSTOMER AND THE RELEASEES. IN FURTHERANCE OF SUCH INTENTION,
THE RELEASES GIVEN HEREIN SHALL BE AND REMAIN IN EFFECT AS FULL AND COMPLETE
RELEASES OF ALL SUCH MATTERS, NOTWITHSTANDING THE DISCOVERY OR EXISTENCE OF ANY
ADDITIONAL CLAIMS OF FACTS RELATIVE THERETO. CUSTOMER WAIVES AND RELINQUISHES
ANY AND ALL RIGHTS IT MAY HAVE UNDER SECTION 1542 OF THE CALIFORNIA CIVIL CODE
AS CURRENTLY WORDED OR HEREAFTER AMENDED.
10.17. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL),
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POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT
SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.18. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
Initials: /s/CB
----------
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.
RADIUS INC.
By: /s/ Charles W. Berger
---------------------------------------------------------
Print Name: Charles W. Berger
------------------------------------------------
Title: Chairman of the Board and Chief Executive Officer
-----------------------------------------------------
45
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ACCEPTED this 30th day of August, 1996,
IBM CREDIT CORPORATION
By: /s/ Philip N. Morse
---------------------------------------------------------
Print Name: Philip N. Morse
------------------------------------------------
Title: Director, Remarketer Financing Portfolio Controls
-----------------------------------------------------
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EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 8, 1995, (except Note 11 as to which the
date is December 27, 1995), in the Registration Statement (Amendment No. 1 to
Form S-1) and related Prospectus of Radius Inc. for the registration of
54,293,591 shares of its common stock, 750,000 shares of Series A Convertible
Preferred Stock and Warrants to purchase 800,000 shares of common stock.
Palo Alto, California
November 8, 1996
