<PAGE>
As filed with the Securities and Exchange Commission on January 16, 1997
Registration No. 333-12417
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
POST-EFFECTIVE 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)
CALIFORNIA 3577 68-0101300
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification No.)
Code Number)
----------------------
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
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. / /
----------------------
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>
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 JANUARY 10, 1997, THE CLOSING
PRICE OF THE COMMON STOCK ON THE NASDAQ SMALLCAP MARKET WAS $0.50.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH A PURCHASE OF THE SECURITIES
OFFERED HEREBY.
----------------------
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.
<PAGE>
THE CALIFORNIA DEPARTMENT OF CORPORATIONS REQUIRES THAT ANY CALIFORNIA
RESIDENT WHO PURCHASES THESE SECURITIES MEET CERTAIN MINIMUM FINANCIAL
STANDARDS (THE "INVESTOR SUITABILITY REQUIREMENTS"): NAMELY, THE PURCHASER
MUST (i) HAVE AN ANNUAL GROSS INCOME OF $65,000 AND A NET WORTH OF $250,000,
OR A NET WORTH OF $500,000 (IN EACH CASE EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), (ii) BE A BANK, SAVINGS AND LOAN ASSOCIATION, TRUST
COMPANY, INSURANCE COMPANY, INVESTMENT COMPANY REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING TRUST, OR
CORPORATION OR OTHER ENTITY WHICH, TOGETHER WITH SUCH CORPORATION'S OR OTHER
ENTITY'S AFFILIATES HAS A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO ITS
MOST RECENTLY PREPARED FINANCIAL STATEMENTS (WHICH HAVE BEEN REVIEWED, BUT
NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14.0
MILLION, AND SUBSIDIARIES OF THE FOREGOING (OTHER THAN A PERSON FORMED FOR
THE SOLE PURPOSE OF PURCHASING SUCH SECURITIES), OR (iii) BE AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF REGULATION D UNDER THE ACT.
NO CALIFORNIA RESIDENT WILL BE ALLOWED TO PURCHASE THE SECURITIES
OFFERED HEREBY UNLESS IT MEETS THESE INVESTOR SUITABILITY REQUIREMENTS. UPON
RECEIPT OF THIS PROSPECTUS AND THE ATTACHED SUPPLEMENT, SUCH PURCHASER MUST
REPRESENT THAT IT MEETS THESE SUITABILITY STANDARDS BY SIGNING AND RETURNING
A COPY OF THE SUPPLEMENT ACCOMPANYING THIS PROSPECTUS TO THE SELLING
SECURITYHOLDER OR, IF APPLICABLE, THE COMPANY.
----------------------
<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 JANUARY 16, 1997.
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>
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PROSPECTUS SUMMARY
THE OFFERING
<TABLE>
<S> <C>
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
800,000 Warrants to purchase Common Stock.
Common Stock outstanding after the Offering......... 73,619,189 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
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30 (2),
----------------------------------------------------------------------------------
1996 1995 1994(3) 1993(3) 1992(3)
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. 90,290 $ 308,133 $ 324,805 $337,373 $284,598
Income (loss) from operations.......... (20,456) (104,182) (80,830) (34,583) 20,483
Net income (loss)...................... (975) (131,742) (77,475) (20,139) 13,032
Net income (loss) per share............ (0.05) (8.75) (5.70) (1.56) 1.04
Shares used to compute income
(loss) per share..................... 21,251 15,049 13,598 12,905 12,485
September 30, 1996 (2)
-------------------------------
BALANCE SHEET DATA:
Working capital (working capital deficiency)............... $8,476
Total assets............................................... 45,526
Long-term liabilities...................................... 22,213
Convertible preferred stock................................ 3,000
Shareholders' equity....................................... 3,960
</TABLE>
- ------------
(1) Based on actual shares outstanding as of December 31, 1996 of 54,497,796
shares plus (i) 1,200,000 shares (the "Dividend Shares") issuable by the
Company as stock dividends on the Series A Convertible Preferred Stock
payable in shares of Common Stock (assuming a price per share of $0.50,
the closing price on the Nasdaq SmallCap Market as of January 10, 1997),
(ii) 6,075,333 shares issuable to the holders of the Series A
Convertible Preferred Stock if such stock is converted into Common Stock
under certain circumstances, (iii) 800,000 shares issuable upon the
exercise of Warrants and (iv) 11,046,060 shares issuable pursuant to
Rights, which would be triggered by the conversion of the Series A
Convertible Preferred Stock. If the Series A Convertible Preferred
Stock is not converted into Common Stock, this sum would be reduced to
56,497,796, which number is based on shares outstanding as of December
31, 1996 plus the Dividend Shares. Excludes 7,890,043 shares reserved
for issuance or to be reserved (if IBM Credit Corporation elects to
convert its Series A Convertible Preferred Stock into Common Stock)
under the Company's stock option and employee stock purchase plans and
173,126 shares issuable upon the exercise of options under the Company's
non-employee directors plans. Moreover, other securities or Warrants
may be issued and additional stock options may be approved by the Board
of Directors or the Company's shareholders. See "Description of Capital
Stock --Preferred Stock -- Series A Convertible Preferred Stock" and "--
Warrants" and "Risk Factors -- Shares Eligible for Future Sale."
(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.
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4
<PAGE>
THE COMPANY
Radius Inc. (the "Company" or "Radius") designs, develops, assembles,
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 and net losses, and until
recently, had a deficiency in assets and working capital. During fiscal
1996, management implemented a number of actions to address its cash flow and
operating issues, including: restructuring its outstanding indebtedness to
trade creditors and its secured creditors; 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 a number of businesses and product lines; significantly reducing
expenses and headcount; subleasing all or a portion of its current facility
lease given its reduced occupancy requirements. 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 on November 12,
1996, such shares of Common Stock generally became freely tradeable. The
Company believes that such issuances and tradability of these shares have had
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 has
amended its 1995 Stock Option Plan to reserve for issuance thereunder and
under its other existing Stock Option and Stock Purchase Plans, approximately
10% of the outstanding shares of the Company's Common Stock. Upon conversion
of the Series A Convertible Preferred Stock, the Company intends to either
adopt a new stock option plan or further amend its 1995 Stock Option Plan to
reserve for issuance thereunder (together with the Company's other Stock
Option and Stock Purchase 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
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shares of Common Stock and 135,207 Rights in the Trust. The Company intends
to repay any additional remaining unsatisfied or unknown claims in excess of
the Trust reserve 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.
The Company has no other plans to meet its future working capital needs
other than through cash generated from operations. For fiscal 1996, the
Company had an operating loss of approximately $20.5 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. Furthermore, substantially all
of the Company's assets are subject to a security interest in favor of IBM
Credit and any proceeds would first have to be applied towards the repayment
of amounts owed to IBM Credit and towards redemption of the Series A
Convertible Preferred Stock prior to being available for the Company's
working capital needs. See "Risk Factors -- Need for Additional Financing --
Loan Restrictions."
There can also be no assurance that the Company will achieve 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, the closing price
of the Common Stock has been below $1.00 per share for the entire month of
December. The Nasdaq SmallCap rules require a capital and surplus of $2.0
million, instead of $1.0 million if a security fails to maintain a minimum
bid price of $1.00 per share If the Company fails to maintain this minimum
bid price requirement, it will have 90 days to comply with such minimum bid
requirement and maintain $1.0 million in capital or surplus or, in the event
it cannot maintain the minimum bid requirement, it will have to maintain $2.0
million capital and surplus. The failure to maintain the minimum bid
requirement and/or $1.0 million or $2.0 million capital and surplus would
subject the Common Stock to delisting. 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. Furthermore, the NASD has
recently proposed to institute more stringent initial and continued listing
requirements, which, among other things, would subject any security to
delisting if it did not maintain a minimum bid price of $1.00 per share,
regardless of the financial condition of the issuer. In the event these
proposed requirements are adopted, the Company's Common Stock would not,
absent a significant increase in its trading price, satisfy these proposed
new continued listing requirements. See "Risk Factors -- Possible Delisting
of Common Stock from the Nasdaq SmallCap Market."
NONCOMPLIANCE WITH FINANCIAL COVENANTS OF IBM CREDIT LOAN AGREEMENT
As of September 30, 1996, the Company was not in compliance with all of
the financial covenants under the restructured loan agreement (specifically,
revenues to working capital ratio, net profits to revenues ratio and working
capital) however, IBM Credit has waived such defaults. See Note 2 to
Consolidated Financial Statements. Based on preliminary results for the
three months ended December 31, 1996, the Company believes that it will be in
breach of these covenants as of such date. Based on the value of certain
assets which secure the restructured loan, among other considerations, IBM
Credit will grant a waiver of these defaults, although there can be no
assurance that IBM Credit will continue to do so in the future. See "Risk
Factors -- Need For Additional Financing; Loan."
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RISK FACTORS
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN ADDITION
TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE
SECURITIES OFFERED HEREBY.
CONTINUING OPERATING LOSSE
The Company experienced operating losses in each of the fiscal years
ended September 30, 1993, 1994, 1995 and 1996. 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 realize appreciation in minority interests in Splash Technology
Holdings, Inc. and other investments; 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.
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. Furthermore, the
Company completed a variety of business divestitutes during fiscal 1996,
restructured the terms of its indebtedness to IBM Credit and issued a
substantial amount of equity in the Company to its creditors in satisfaction
of approximately $45.9 million in claims and indebtedness during the fourth
quarter of fiscal 1996. 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, sales of liquid assets 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
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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 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 proceeding and to apply all amounts
on deposit in the Company's bank accounts, which could result in the Company
becoming a debtor in a bankruptcy. 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.
As of September 30, 1996, the Company was not in compliance with all of
the financial covenants under the restructured loan agreement (specifically,
revenues to working capital ratio, net profits to revenues ratio, and working
capital), however IBM Credit has waived such defaults. See Note 2 to
Consolidated Financial Statements. Based on preliminary results for the
three months ended December 31, 1996, the Company believes that it will be in
breach of these covenants as of such date. Based on the value of certain
assets which secure the restructured loan, among other considerations, IBM
Credit will grant a waiver of these defaults, although there can be no
assurance that IBM Credit will continue to do so.
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
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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 on November 12, 1996, the number of freely
tradeable shares increased 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 Company believes that sales by former creditors have played a
significant role in the decline of the trading price of the Common Stock
since November 1996.
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, the substantially larger number of freely tradeable shares of
Common Stock held by former creditors 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 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.
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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 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
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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.
As a result of the consummation of the Plan, certain suppliers and
manufacturers agreed to settle amounts owed by the Company for an amount
substantially less than the amount of the balance owed. Accordingly, certain
suppliers and manufacturers may be reluctant to continue to do business with
the Company in the future.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
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 (or Mac clone manufacturers) introduce 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 (or Mac
clone manufacturers') 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 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
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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 increases in inventory write-down 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, 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 business activity 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. Net sales could also be adversely affected in the future as a
result of the exclusive distributor relationships for Japan and Europe
because the Company will only recognize as net sales a portion of the sales
price of any product sold through such distributor arrangements.
Accordingly, even if sales of units for such regions increase or remain
similar to
13
<PAGE>
historic levels, the Company would recognize a lesser amount of net sales for
such regions as compared to historic levels. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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 former 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 Chief Financial Officer 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, 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), with IBM Credit owning
approximately 9.2% of the Company's voting power and the Committee Members
owning approximately 38.6% of the voting power of the Company. As of
September 13, 1996, the date the Plan was consummated, the Company's four
largest unsecured creditors, SCI Technology, Inc., Mitsubishi Electronics
America Corp., Hamilton Hallmark/Avnet Co. and Manufacturers Services
Limited, Inc. owned 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.
One Committee Member, Carl Carlson of Mitsubishi Electronics America,
Inc. joined the Board of Directors in September 1996.
14
<PAGE>
The Company also intends to continue to do business with many of its
unsecured creditors, including Mitsubishi Electronics America Corp. 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 December 31, 1996, there were approximately 54,497,796 shares of Common
Stock outstanding, substantially all of which were 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. Based on the closing price
of $0.50 per share on January 10, 1997, each quarter, an additional 150,000
shares of Common Stock could be issuable as a dividend on the Series A
Convertible Preferred Stock. 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 September 30, 1996, there were 1,135,351 shares of Common Stock
reserved for issuance upon exercise outstanding options by employees and
consultants. As of such date there were an additional 1,692,782 shares of
Common Stock available for issuance under options to be granted to employees
and consultants and 146,824 shares reserved for issuances for purchases under
the Company's Employee Stock Purchase Plan. Additionally, 173,126 shares of
Common Stock were reserved for issuance under the Company's stock option
plans for non-employee directors, 32,182 of which were subject to outstanding
options. The Company has amended its 1995 Stock Option Plan (the "1995
Plan") to increase the number of shares available for issuance thereunder by
2,716,620 shares, subject to shareholder approval at its Annual Meeting of
Shareholders in February 1997. In accordance with the terms of the
debt-to-equity exchange consummated in September 1996, the 1995 Plan will be
further amended or a new plan adopted in the event that the Series A
Convertible Preferred Stock is converted into Common Stock so that an
aggregate of 7,890,043 shares of Common Stock are covered by the 1995 Plan as
amended and/or any other similar Company plans. The Company may also seek to
obtain Board and/or shareholder approval for grants of options in excess of
the amounts described above. 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. Such availability will further
increase the number of freely tradeable shares of Common Stock outstanding
which could exert downward pressure on the trading price of the Common Stock.
15
<PAGE>
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 or, if the trading price of the Common
Stock remains below $1.00 per share, the Company will be required to maintain
capital and surplus of $2.0 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. Because of the substantial increase in the number of tradable shares
of Common Stock, there could be continued downward pressure on the trading
price of the Common Stock (which has traded over $1.00 per share for the
entire month of December), which makes it less likely that the Company will
meet the minimum bid price requirement for the Nasdaq SmallCap Market and, as
a result, the Company would need to maintain capital and surplus of $2.0
million. Furthermore, under the proposed new continued listing requirements
of the Nasdaq National Market and the Nasdaq SmallCap Market, any securities
with a trading price of less than $1.00 per share would become subject to
delisting, regardless of capital and surplus. 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.
16
<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 1/4
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 1/2 1 7/8
Second Quarter (through January 10, 1997) 15/32 17/32
As of January 10, 1997, the last sales price as reported on the Nasdaq
SmallCap Market for the Common Stock was $0.50.
On December 31, 1996, there were approximately 3,606 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.
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, 1996, 1995 and
1994 and the consolidated balance sheet data at September 30, 1996 and 1995
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,
1993 and 1992 and the consolidated balance sheet data as of September 30,
1994, 1993 and 1992 are derived from audited consolidated financial
statements not included herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
--------------------------------------------------------------------------------------------
1996 1995 1994 (2) 1993 (2) 1992 (2)
---- ---- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $ 90,290 $ 308,133 $324,805 $ 337,373 $ 284,598
Cost of sales 77,382 302,937 276,948 254,321 181,198
-------- --------- -------- --------- ---------
Gross profit 12,908 5,196 47,857 83,052 103,400
Operating expenses:
Research and development 7,478 19,310 33,956 33,503 21,093
Selling, general and administrative 25,886 90,068 94,731 84,132 61,824
-------- --------- -------- --------- ---------
Total operating expenses 33,364 109,378 128,687 117,635 82,917
-------- --------- -------- --------- ---------
Income (loss) from operations (20,456) (104,182) (80,830) (34,583) 20,483
Other income (expense), net 24,032 (3,045) (376) 70 878
Interest expense (3,736) (3,023) (869) - -
Litigation settlement - (12,422) - - -
-------- --------- -------- --------- ---------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle (160) (122,672) (82,075) (34,513) 21,361
Provision (benefit) for income taxes 815 9,070 (4,600) (13,774) 8,329
-------- --------- -------- --------- ---------
Income (loss) before cumulative effect of
a change in accounting principle $ (975) $(131,742) $(77,475) $(20,739) $13,032
Cumulative effect of a change in method of
accounting for income taxes - - - 600 -
-------- --------- -------- --------- ---------
Net income (loss) $ (975) $(131,742) $(77,475) $(20,139) $13,032
-------- --------- -------- --------- ---------
-------- --------- -------- --------- ---------
Net income (loss) per share:
Income (loss) before cumulative effect of
a change in accounting principle $ (0.05) $ (8.75) $ (5.70) $ (1.61) $ 1.04
Cumulative effect of a change in method
of accounting for income taxes - - - 0.05 -
-------- ---------- -------- --------- ---------
Net income (loss) per share $ (0.05) $ (8.75) $ (5.70) $ (1.56) $ 1.04
-------- ---------- -------- --------- ---------
-------- ---------- -------- --------- ---------
Common shares used in computing
net income (loss) per share 21,251 15,049 13,598 12,905 12,485
-------- ---------- -------- --------- ---------
-------- ---------- -------- --------- ---------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
------------------------------------------------------------------------
1996 1995 1994 (2) 1993 (2) 1992 (2)
---- ---- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Working capital (Working capital deficiency) $ 8,476 $(59,334) $ 29,856 $ 86,711 $ 84,303
Total assets 45,526 87,878 126,859 172,275 150,658
Long-term debt-noncurrent portion 22,213 1,331 2,857 3,975 1,935
Convertible preferred stock 3,000 - - - -
Shareholders' equity (Net capital deficiency) 3,960 (57,117) 35,691 98,155 96,631
</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.
20
<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 UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
As shown in the accompanying consolidated financial statements, the
Company has incurred substantial operating and net 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 assemble 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. In addition
to the Plan described below, during 1996, management implemented a number of
actions to address its cash flow and operating issues 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 a number of businesses and product lines; significantly
reducing expenses and headcount; and subleasing all or a portion of its
current facility lease given its reduced occupancy requirements.
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. In connection with the Plan, the Company also 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 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 Trust for the purpose of satisfying a portion
of any such remaining or previously unknown claims. As of December 31, 1996
the Company believes that approximately 444,253 shares of Common Stock and
135,207 Rights remained in the Trust. The Company expects that all shares in
the Trust will be distributed to claimants by September 30, 1997. 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."
21
<PAGE>
The Company experienced net operating losses 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 achieve and sustain
profitable operations will depend upon a number of other factors, including
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 Macintosh computers and operating system 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" 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."
22
<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>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994
----- ------ ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.7 98.3 85.3
----- ----- -----
Operating expenses: 14.3 1.7 14.7
Gross profit
Research and development 8.3 6.3 10.5
Selling, general, and administrative 28.7 29.2 29.2
------ ----- -----
Total operating expenses 37.0 35.5 39.6
Loss from operations (22.7) (33.8) (24.9)
Other income (expense), net 26.6 (1.0) (0.3)
Interest expense (4.1) (1.0) (0.1)
Litigation settlement - (4.0) -
----- ------ ------
Loss before income taxes (0.2) (39.8) (25.3)
Provision (benefit) for income taxes 0.9 2.9 (1.4)
----- ------ ------
Net loss (1.1)% (42.8)% (23.9)%
------ ------- -------
------ ------- -------
</TABLE>
FISCAL 1996 TO FISCAL 1995
NET SALES. Net sales for fiscal 1996 decreased 70.7% to $90.3 million
from $308.1 million 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,
business divestitures and as a result of entering into exclusive distributor
arrangements for Japan and Europe effective April 1,1996 and July 1,1996,
respectively, which relationships provide for the Company to receive as net
sales, a percentage of the sales price of each product sold by those
distributors as compared to the entire sales price of the product prior to
the appointment of the distributor. The Company is highly dependent on the
success of Apple products as the Company's products are designed to provide
additional functionality to Apple products as compared to the entire sales
price of the product prior to the appointment of the distributors.
As a result of the sale by the Company of its Color Server Group, the
Company recorded no net sales of color server products after the 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. The Company sold its Color Server Group in January 1996
and sold its MacOS business in February 1996. Net sales from the Color Server
Group were approximately $7.0 million for fiscal 1996 and approximately $29.3
million for fiscal 1995 and net sales from the MacOS business were
approximately ($1.5 million) for fiscal 1996 and $21.8 million for fiscal
1995. Had the net sales of these businesses not been included in the
Company's net sales for fiscal 1996 or fiscal 1995, the Company's net sales
for such periods would have been approximately $84.8 million and $257.0
million for fiscal 1996 and fiscal 1995, respectively.
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.
One customer accounted for 34.3% of the Company's net sales for fiscal
1996. For fiscal 1995, the same customer accounted for 34.0% of the
Company's net sales.
23
<PAGE>
The Company's export sales for fiscal 1996 were 50.7% of net sales as
compared to 40.4% of net sales for fiscal 1995. Net sales could be adversely
affected in the future as a result of the exclusive distributor relationships
for Japan and Europe because the Company will earn royalties and commissions
on any sales to such regions and therefore will only recognize as net sales a
portion of the sales price of any product sold through such distributor
arrangements. Even if sales for such regions increase or remain similar to
historic levels, the Company would recognize a lesser amount of net sales for
such regions as compared to historic levels. Accordingly, 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 an exclusive Japanese and European distributor and, as described above,
the Company could also experience a decline in the dollar amount of net sales
attributable to such regions. Export sales are also 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 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
fiscal 1996 or 1995.
GROSS PROFIT. The Company's gross profit margin was 14.3% for fiscal
1996, as compared with 1.7% for fiscal 1995. Included in fiscal 1996 is a
one time charge of $3.5 million resulting from the Company's financial
restructuring completed in September 1996. Excluding this one time charge and
the restructuring and other charges recorded in fiscal 1995, gross profit
margin in fiscal 1996 was 18.2% compared to 16.9% in fiscal 1995.
In addition, the Color Server Group had gross profit of approximately
$2.2 million, for fiscal 1996 and the Color Server Group and MacOS business
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 1996 and 1995, gross
profit for such fiscal years would have been approximately $10.6 million and
$14.6 million, respectively with a gross profit margin of approximately 12.6%
and 5.7%, respectively.
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 $19.3 million or 6.3% of net sales for fiscal 1995 to $7.5
million or 8.3% of net sales for 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 fiscal 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 $90.1 million or 29.2 % of net sales
for fiscal 1995 to $25.9 million or 28.7% of net sales for fiscal 1996. 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. Selling general
and administrative expenses in fiscal 1995 reflected 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.
OTHER INCOME (EXPENSE), NET. Other income was $24.0 million for fiscal
1996, as compared to other expense of $3.0 million for 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.
INTEREST EXPENSE. Interest expense was $3.7 million for fiscal 1996 as
compared to $3.0 million for fiscal 1995. This increase was due to higher
average interest rates on higher average borrowings.
24
<PAGE>
PROVISION FOR INCOME TAXES. The Company recorded a provision for income
taxes of $815,000 for fiscal 1996 as compared to a provision for income taxes
for fiscal 1995 of $9.1 million. The provision for fiscal 1996 differs from
the provision computed utilizing the combined statutory rate in effect during
the period primarily as a result of the impact of foreign taxes. The fiscal
1995 provision differs from the provision computed utilizing 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.
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 prior years and as a result of the material changes in
operations, predictability of earnings in future periods is uncertain. The
Company will evaluate the realizability of the deferred tax asset on a
quarterly basis.
As a result of the issuance of Common Stock and Series A Convertible
Preferred Stock in exchange for certain liabilities of the Company in
September 1996, the Company experienced a "change in ownership" as defined
under Section 382 of the Internal Revenue Code. Accordingly, utilization of
substantial net operating losses and tax credit carryforwards will be subject
to an approximately $2.0 million annual limitation due to the ownership
change limitations provided by the Internal Revenue Code of 1986 (and similar
state provisions), except under limited circumstances. This limitation will
result in the expiration of all of the tax credit carryforwards and a
substantial portion of the net operating loss carryforwards. See Note 5 of
Notes to Consolidated Financial Statements.
NET INCOME (LOSS). As a result of the above factors, the Company had a
net loss of $975,000 for fiscal 1996, as compared to a net loss of $131.7
million for fiscal 1995. The Color Server Group had net income of
approximately $0.9 million and $3.5 million for fiscal 1996 and 1995,
respectively had this business not been included in the calculation of the
Company's net loss for fiscal 1996 and 1995, the Company would have had a net
loss of approximately $1.9 million and $135.2 million for fiscal 1996 and
1995, respectively.
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.
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% and 34.5% of net sales for
fiscal 1995 and 1994, 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
25
<PAGE>
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%.
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), NET. Other expense increased to $3.0 million in
fiscal 1995 from $376,000 in fiscal 1994. This increase was due primarily to
increased cash discounts offered to customers for early payment and flooring
charges relating to the Company's accounts receivable.
INTEREST EXPENSE. Interest expense was $3.0 million for fiscal 1995 as
compared to $869,000 for fiscal 1994. This increase was due primarily to
higher average interest rates on higher average borrowings.
26
<PAGE>
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 1994.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1994 and 1995, three restructuring and other charges were
recorded. 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.
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 remaining balance of
$236,000 in its restructuring reserve which related to facility costs, was
eliminated in fiscal 1996.
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 (the "Merger").
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, 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 2,346 44
Revision of the operations business model 9,061 7,078 1,983 -
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
-------- --------- ------- ------
Total charges $43,407 $26,678 $16,685 $ 44
</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 $16.7 million of cash for restructuring through September
30, 1996. The Company has substantially completed this restructuring. 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
27
<PAGE>
(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, 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 $ 33,138 $ 32,300 $ 838 $ -
Excess facilities 2,004 404 1,600 -
Cancellation fees and asset write-offs 19,061 5,196 13,800 65
Employee severance 3,662 - 2,599 1,063
--------- -------- ------- ------
Total charges $ 57,865 $ 37,900 $18,837 $1,128
</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 September 30, 1996, approximately 230 positions of the
240 total planned had been eliminated in connection with the restructuring.
The Company had satisfied approximately $18.8 million of the originally
anticipated cash outlays for this restructuring during fiscal 1996, of which
$5.0 million represented cash expenditures and $13.8 million represented
cancellation of indebtedness or claims in consideration of the issuance of
equity in the Company. 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. The
restructuring is substantially completed and remaining cash outlays relate
primarily to the restructuring of the Company's international operations.
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.
28
<PAGE>
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.
t(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 (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 were converted into shares of Parent
Common Stock in connection with the initial public offering of Parent. Such
stock has been pledged to IBM Credit in order to secure the Company's
obligations to IBM Credit under the restructured loan agreement with IBM
Credit. In connection with the restructuring of the terms of its loan
agreement with IBM Credit, the Company granted IBM Credit an option to
purchase 428 shares of Series B Preferred Stock at $0.01 per share, which now
represents the right to purchase shares of Parent Common Stock. IBM Credit
has not exercised this option. 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 the shares of Parent Common Stock with in one year of the
initial public offering of Parent, which occurred on October 9, 1996, and up
to 25% of the shares of Parent Common Stock 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 shares
of Parent Common Stock after the initial public offering of Parent, IBM
Credit can require Radius to sell such securities to repay such term loan.
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.
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 $1.8
million during fiscal 1996 to approximately $3.0 million at September 30,
1996, as compared with the fiscal 1995 ending balance of cash and cash
equivalents of $4.8 million. Approximately $0.6 million of the $3.0 million
of cash and cash equivalents available at September 30, 1996 was restricted
under various letters of credit. The decrease in the Company's cash and cash
equivalents during fiscal 1996 was primarily attributable to funding of
operating losses of the Company.
The Company also holds securities in Splash Technology Holdings, Inc.
("Splash"), Portrait Display Labs and UMAX Computer Corporation ("UMAX"),
which have been pledged to IBM Credit. Splash became a public company on
October 9, 1996, however, these securities are "restricted securities" under
Rule 144 promulgated under the Securities Act and will become
29
<PAGE>
available for sale in January 1998, subject to certain volume, manner of
sale, notice and availability of public information requirements of such
rule. However, the Company also has certain registration rights with respect
to those securities commencing in April 1997. Because PDL and UMAX are
private companies, there is no market for such securities and there can be no
assurance that one will develop in the future. 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 ending October 9, 1999
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(s) of liquidity currently are cash
generated by operations, if any, and 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. This working line of credit is not expected to provide the
Company with a significant source of liquidity for the foreseeable future.
Accordingly, for the immediate future, the Company intends to finance its
working capital needs through cash generated from operations, if any. As
described above, the Company has minority ownership interests in Splash, UMAX
and PDL. The Company has certain registration rights with respect to the
shares of Common Stock of Splash owned by it and, as a result, the shares of
Common Stock of Splash could provide the Company with an additional source of
liquidity in the future provided that the restructured loan from IBM Credit
is first repaid with any proceeds from the sale of the Splash securities and
that the Series A Convertible Preferred Stock has either been redeemed or
converted into Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations -- 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
$470,000. 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 indebtedness
outstanding under this line of credit at September 30, 1996 was $1.5 million.
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 "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May
Affect the Company's Future Results of Operations -- Need for Additional
Financing; Loan Restrictions."
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<PAGE>
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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect the Company's Future Results of
Operations -- Need for Additional Financing; Loan Restrictions."
Because of the Company's loss for the fourth quarter of fiscal 1996, the
Company failed to comply with several financial covenants of its restructured
loan agreement with IBM Credit (specifically, revenues to working capital
ratio, net profits to revenues ratio and working capital). The Company
obtained a waiver from IBM Credit of this noncompliance. See Note 2
to Consolidated Financial Statements. Based on preliminary results for the
three months ended December 31, 1996, the Company believes that it will be in
breach of these covenants as of such date. Based on the value of certain
assets which secure the restructured loan, among other considerations, IBM
Credit will grant a waiver of these defaults, although there can be no
assurance IBM Credit will continue to do so in the future.
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect the Company's Future Results of Operations -- Need for
Additional Financing; Loan Restrictions."
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 $0.2 million during fiscal 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 September 30, 1996, the Company's principal commitments consisted of
obligations under its restructured loan 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 procure 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. However, the level of operations which it believes
will be able to sustain for the next 12 months will be significantly lower
than historical periods, particularly in the research and development, sales
and marketing and general administrative areas. 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. During fiscal 1997, 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 plans to generate cash by divesting certain liquid assets and is
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, assembles, 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 and net losses and, until
recently, had a deficiency in assets and working capital. During fiscal
1996, management implemented a number of actions to address its cash flow and
operating issues, including: restructuring its outstanding indebtedness to
trade creditors and its secured creditors; 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 a number of businesses and product lines; significantly reducing
expenses and headcount; and subleasing all or a portion of its current
facility lease given its reduced occupancy requirements.
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). In
connection with the Plan, the Company also issued 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 Color publishing, prepress, graphics $1,399
Graphics Products ThunderPower 30/1600 design and professional color imaging 999
(PCI-based) ThunderColor 30/1600 2,499
Thunder Color 30/1152* 1,999
Thunder 30/1600 799
Thunder 30/1152* 799
Precision Color 8/1600* 399
Precision Color 24/1600 499
Color Engine 999
Thunder 3D 3,399
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION SUGGESTED RETAIL PRICE
- ---------------- ------- ------------------ ----------------------
<S> <C> <C> <C>
(NuBus-based) PrecisionColor 8XJ $ 599
Color Reference Press View 21SR Color publishing, prepress 3,999
Displays Press View 17SR and graphics design 2,499
Precision View 21 2,749
Color Management ProSense Display Color publishing and prepress 799
Products Calibrator
Color Composer
Digital Video Telecast Upgrade For VVS Color publishing, prepress, 4,299
Products Video Vision PCI graphics design and 3,999
(PCI-based) professional color imaging,
broadcasting and advertising
(NuBus-based) Telecast 6,399
Video Vision Studio 2.0* 2,999
(Software) Radius Edit 199
- ------------------
* Denotes that product is no longer being manufactured.
</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 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.
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<PAGE>
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 and Results of Operations -- 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 fiscal 1996, 1995, 1994, the Company's expenditures for
research and development totaled $7.5 million, $19.3 million, and $34.0
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."
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
34
<PAGE>
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."
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, through the Company's wholly owned subsidiary located in Tokyo, Japan.
The Company has entered
35
<PAGE>
into exclusive distributor arrangements for Japan and Europe. The Company
maintains international sales offices in Surrey, England; Hamburg, Germany;
and Paris, France. For the fiscal years ended September 30, 1996, 1995 and
1994, the Company's export sales accounted for approximately 50.7%, 40.4%,
and 34.5%, 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 fiscal years ended September 30, 1995, 1994 and 1993, Ingram
Micro, Inc. accounted for approximately 34.3%, 34.0% and 13.5% 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 and 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 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
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<PAGE>
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 December 31, 1996, the Company had approximately 100 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 194,000
square feet of facilities which the Company is currently not using.
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
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<PAGE>
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 advertised 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. Extended settlement
discussions began in connection with a successful demurrer in the California
case. Such discussions have been complicated by the refusal of a small
number of defendants to participate in the proposed settlement. 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 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. 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:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Charles W. Berger 43 Chairman of the Board of Directors and
Chief Executive Officer
Mark Housley 40 President and Chief Operating Officer
Mary E. Godwin 38 Senior Vice President, Operations
Gregory M. Millar 41 Chief Technology Officer
Cherrie L. Fosco 48 Chief Financial Officer
Michael D. Boich(1)(2) 43 Director
Carl A. Carlson(1)(2) 59 Director
-------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</TABLE>
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 and currently serves as the Company's Chief Executive Officer
and Chairman of the Board of Directors. From April 1992 until he joined the
Company, Mr. Berger was Senior Vice President, Worldwide Sales, Operations
and Support for Claris Corporation ("Claris"), a subsidiary of Apple that
develops and markets application software. From February 1991 to April 1992,
he was President of Sun Microsystems Federal, Inc., a subsidiary of Sun
Microsystems, Inc. ("Sun"), a manufacturer of computer work stations. From
July 1989 to February 1991, he served as Vice President of Business
Development for Sun, and from March 1989 to July 1989, he was Sun's Vice
President of Product Marketing. From April 1982 to March 1989, Mr. Berger
held numerous management positions involving sales, marketing, business
development and finance for Apple.
Mr. Housley was appointed President and Chief Operating Officer of the
Company in January 1997. From March 1995 until October 1996, Mr. Housley was
Vice President of Marketing of Spectrum Wireless, Inc., a start-up
manufacturer of wireless infrastructure products. From May 1992 until March
1995, Mr. Housley held various positions of responsibility for the Compnay
and its predecessor, SuperMac Technologies, Inc., including Vice President
and General Manager of the Company's Color Publishing Division. From October
1990 until May 1992, Mr. Housley was a Vice President for Siemens in Santa
Clara, CA, a multinational manufacturer of electronic equipment, directing
product marketing and planning.
Ms. Godwin was appointed Vice President, Operations in August 1995 and
was promoted to Senior Vice President in January 1997. Prior to assuming such
positions she 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.
Ms. Fosco was appointed Chief Financial Officer in November 1996 and
prior to assuming that position served as the Company's Corporate Controller
from March 1995 to November 1996 and as Director of Financial Planning and
Analysis from February 1994 to March 1995. Prior to joining the Company, Ms.
Fosco was Vice President, Controller and Treasurer of Gigatronics, Inc., a
manufacturer of microwave and RF signal generators.
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
39
<PAGE>
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.
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. Carlson was active on the Creditors Committee on behalf of his
employer Mitsubishi Electronics America. 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.
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
Board members are reimbursed for expenses incurred in attending
meetings. A director who resigned in September 1996, Mr. David Pratt,
received $1,500 for each Board Meeting attended.
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 173,126 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 73,126 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).
The 1994 Directors Plan provides for the grant of 10,000 nonqualified
stock options ("NQSOs") to non-employee members of the Board upon
apppointment 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 receives 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. As of September 30, 1996,
options to purchase 5,938 shares of Common Stock were outstanding under the
1994 Directors Plan. Such options must be exercised within 10 years from the
date of grant. During fiscal 1996, Mr. Boich received an option to purchase
2,500 shares of Common Stock under the 1994 Directors Plan at an exercise
price of $10.18 per share.
As of September 30, 1996, options to purchase 26,874 shares of Common
Stock at prices ranging from $8.00 to $17.25 per share were outstanding under
the Prior Directors Plan. Such options are NQSOs, must be exercised within
five years from the date of grant, and were granted in accordance with a
non-discretionary formula.
All director stock options were granted with an exercise price equal to
the market price of the Company's Common Stock on the date of grant.
40
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered in all capacities to the
Company during each of the fiscal years ended September 30, 1994, 1995 and
1996 (except as otherwise indicated) by (i) the Company's Chief Executive
Officer, (ii) the Company's two other most highly compensated executive
officers who were serving as executive officers as of September 30, 1996, and
(iii) two additional individuals for whom disclosure is otherwise required
although such individuals were not serving as executive officers as of
September 30, 1996 (collectively, the "Named Executive Officers"). No other
officer who held office at September 30, 1996 met the definition of "most
highly compensated executive officer" within the meaning of the SEC's
executive compensation disclosure rules for this period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Long Term
Compensation
------------
Securities
Annual Other Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation($)(1)
- --------------------------- ---- --------- -------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger (2) 1996 275,000 350,000 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
Weldon Bloon (6) 1996 183,103 -- -- 22,500 1,000
Vice President, 1995 175,103 10,396 -- 37,500 1,000
North America Sales 1994 -- 1,000
Kevin MacGillivray (7) 1996 52,000 100,000 (8) -- 22,500 1,000
Vice President, Publishing 1995 135,000 18,000 -- 30,000 1,000
1994 -- 7,381 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 $155,000. See "Board
of Directors and Compensation Committee Report on Executive Compensation."
(6) Mr. Bloom resigned in May 1996.
(7) Mr. MacGillivray resigned in February 1996.
(8) Represents a special performance bonus.
41
<PAGE>
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth further information regarding individual
grants of stock options pursuant to the Company's 1995 Stock Option Plan
during fiscal 1996 to each of the Named Executive Officers. In accordance
with the rules of the Securities and Exchange Commission, the table sets
forth the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms based on assumed
annualized rates of compound stock appreciation of 5% and 10% from the dates
the options were granted to the end of the respective option terms. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's Common Stock and overall market conditions. There can be no
assurance that the potential realizable values shown in this table will be
achieved.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------
Potential realizable value
Number of at assumed annual rates
securities % of total of stock price
underlying options granted Exercise appreciation for option
options to employees in or base Expiration terms ($)(1)
Name granted (#) fiscal year price ($/sh) date --------------------------
- ------------------------------------------------------------------------------------------------------ 5% 10%
--------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger 50,000 (2) 5.01% 2.38 12/13/05 74,681 189,257
Gregory M. Millar 22,500 (2) 2.26% 2.38 12/13/05 33,607 85,166
Mary E. Godwin 22,500 (2) 2.26% 2.38 12/13/05 33,607 85,166
Weldon Bloom 0 0 N/A N/A 0 0
Kevin MacGillivray 0 0 N/A N/A 0 0
</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. The assumed rates of appreciation
are mandated by the rules of the Securities and Exchange Commission and
do not represent the Company's estimate or projection of future Common
Stock prices. 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.
42
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of the Named Executive Officers acquired shares of Common Stock
upon the exercise of options during fiscal 1996. The following table shows
the number of shares of Common Stock represented by outstanding stock options
held by each Named Executive Officer as of September 30, 1996 and the value
of such options based on the last sales price of the Company's Common Stock
on September 27, 1996 (the last trading day prior to the end of fiscal 1996),
which was $1 13/16.
<TABLE>
<CAPTION>
Number Of Securities Underlying Value of Unexercised
Unexercised Options At In-The-Money Options
Fiscal Year-End At Fiscal Year-End
---------------------- --------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles W. Berger 231,100/131,250 N/A
Gregory M. Millar 54,621/49,473 N/A
Mary E. Godwin 17,096/36,403 N/A
Weldon Bloom 0/0 N/A
Kevin MacGillivray 0/0 N/A
</TABLE>
43
<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 annual base salary of $225,000, which was increased to
$275,000 per annum in 1995 and currently provides for an annual performance
bonus per a plan adjusted from time to time by the Compensation Committee.
Mr. Berger was also granted stock options to purchase 250,000 shares of the
Company's Common Stock at fair market value on the date of grant and the
Company loaned 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.
MARK HOUSLEY
The Company and Mark Housley, the Company's President and Chief
Operating Officer, entered into an employment relationship by letter dated
December 20, 1996 that provides for his at will employment until such time as
either the Company or Mr. Housley terminates the relationship with or without
cause. The letter provides for an initial annual base salary of $200,000 and
a target annual performance bonus of up to $100,000. Mr. Housley was also
granted a stock option to purchase 1,000,000 shares of the Company's Common
Stock at an exercise price of $0.531 per share, the fair market value on the
date of grant.
If Mr. Housley's employment is terminated by the Company for any reason
other than for cause, Mr. Housley will continue to receive salary and vest
under his option for six months. If Mr. Housley does not have the
opportunity to continue as COO and President after any acquisition of the
Company, Mr. Housley will continue to receive salary and vest under his
option for twelve 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.
44
<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.
Pursuant to the terms of his employment agreement, Mr. Berger was also
granted an option to purchase an additional 250,000 shares of Common Stock on
such date at an exercise price of $7.75 per share.
In December 1995, all stock options held by Mary Godwin, Cherrie Fosco
and Greg Millar were repriced to $2.38, the fair market value on the date of
the repricing.
In October 1996, the Board of Directors authorized the repricing of all
stock options, subject to regulatory approval, for all employees of the
Company, including the Named Executive Officers and Ms. Fosco. The repricing
has not yet occurred. At the same time, additional options to purchase
1,209,807, 604,903 and 604,903 shares were granted to Mr. Berger, Ms. Godwin
and Ms. Fosco, respectively, subject to regulatory approval and shareholder
approval of the amendments to the Company's 1995 Stock Option Plan at the
Company's 1997 Annual Meeting of Shareholders, to be held February 25, 1997.
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.
Carlson, an executive with Mitsubishi Electronics, became a director of the
Company in September 1996. The Company's purchases from SCI for the 1996,
1995 and 1994 fiscal years were approximately $25.2 million. $10.0 million
and $0, respectively (SCI began doing business with the Company in fiscal
1995). Purchases from Mitsubishi for the 1996, 1995 and 1994 fiscal years
were approximately $14.1 million, $30.0 million and $10.0 million,
respectively. The Company no longer does business with HH/Avnet, although
purchases from HH/Avnet for fiscal 1996 were approximately $6.5 million (the
Company began doing business with HH/Avnet during fiscal 1996.)
Each of SCI, Mitsubishi and HH/Avnet beneficially own 6,009,200,
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.
In connection with the Plan, 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.
45
<PAGE>
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. The Company has granted to IBM Credit a security interest in
substantially all of its assets. 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. Also, during the 1995 calendar year, IBM
Credit's parent corporation, International Business Machines Corporation,
manufactured systems products (specifically Mac clones) for the Company for
which it was paid approximately $20 million through the IBM Credit Facility.
In June 1996, the Company granted IBM Credit an option to purchase 10%
of the shares of Series B Preferred Stock of Parent owned by the Company at a
purchase price of $0.01 per share. This option now represents an option to
purchase 10% of the shares of Parent Common Stock owned by the Company.
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.
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.
46
<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
December 31, 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 other 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 or under "Certain Transactions" or in Note 1 to the
Notes to Consolidated Financial Statements, 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 are 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>
Named Executive Officers, Directors
and 5% Shareholders
- -------------------
Michael D. Boich (2) 157,426 * -- 157,426 *
Charles W. Berger (3) 281,250 * -- 281,250 *
Gregory M. Millar (4) 65,671 * -- 65,671 *
Mary E. Godwin (5) 29,179 * -- 29,179 *
Carl A. Carlson (6) 3,199,001 7.3% 5,417,262 0 *
Weldon Bloom (7) 0 * -- 0 *
Kevin MacGillivray (8) 0 * -- 0 *
All current executive officers and
directors as a group (8 persons) (9) 4,547,666 8.3 5,417,262 547,765 *
IBM Credit Corporation (10) 6,123,030 11.2 (11) 0 *
Mitsubishi Electronics America, Inc. (12) 3,999,001 7.3 5,417,262 0 *
SCI Technology, Inc. (13) 6,009,200 11.0 12,677,217 0 *
Hamilton Hallmark/Avnet Co. (14) 3,188,966 5.9 4,159,521 0 *
Selling Securityholders
- -----------------------
A&R Partners (15) 60,577 * 79,013 0 *
All American, Inc. 8,536 * 11,134 0 *
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 *
47
<PAGE>
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
- ------------------------ ------------------------- ------- ---------------- ------ -------
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 & Tatum LLP 63,436 * 82,743 0 *
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 (15) 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. (15) 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 *
48
<PAGE>
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
- ------------------------ ------------------------- ------- ---------------- ------ -------
Marlow Industries, Inc. 72,576 * 94,664 0 *
McCutchen, Doyle, Brown & Enerson 288,703 * 376,569 0 *
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 Components Inc. 227,787 * 297,114 0 *
Total Corporate Services, Inc. 919 * 1,199 0 *
Valmark Industries, Inc. 5,550 * 7,239 0 *
Jean Vollum & Steven Vollum Trustee 1,449,339 2.7 1,890,519 0 *
UTADTD3486
Wajilei Foundation (16) 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>
49
<PAGE>
- ------------
* 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 54,497,796 shares of 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
December 31, 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) Includes 5,625 shares subject to options exercisable within 60 days of
December 31, 1996.
(3) Represents 150 shares held by Mr. Berger as beneficial owner for his
children, and 281,100 shares subject to options exercisable within 60
days of December 31, 1996.
(4) Represents shares subject to options held by Mr. Millar that are
exercisable within 60 days of December 31, 1996.
(5) Includes 26,956 shares subject to options held by Ms. Godwin that are
exercisable within 60 days of December 31, 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) Mr. Bloom resigned in May 1996.
(8) Mr. MacGillivray resigned in February 1996.
(9) Includes the shares described in all footnotes above relating to
current directors and Named Executive Officers, and a total of 15,139
shares subject to options held by one executive officer exercisable within
60 days of December 31, 1996.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) The Company believes that this shareholder has sold substantially all of
its shares of Common Stock.
(16) 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.
50
<PAGE>
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
December 31, 1996, there were outstanding approximately 54,497,496 shares of
Common Stock held of record by approximately 3,606 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 1,099,504 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.
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. The
holders may elect 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.
51
<PAGE>
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.
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.
52
<PAGE>
REGISTRATION RIGHTS
Upon the expiration of this offering, holders of shares of Common Stock
and Rights issued to the Company's 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
ChaseMellon Shareholder Services, L.L.C.
53
<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.
54
<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 CALIFORNIA DEPARTMENT OF CORPORATIONS REQUIRES THAT ANY CALIFORNIA
RESIDENT WHO PURCHASES THESE SECURITIES MEET CERTAIN MINIMUM FINANCIAL
STANDARDS (THE "INVESTOR SUITABILITY REQUIREMENTS"): NAMELY, THE PURCHASER
MUST (i) HAVE AN ANNUAL GROSS INCOME OF $65,000 AND A NET WORTH OF $250,000,
OR A NET WORTH OF $500,000 (IN EACH CASE EXCLUDING HOME, HOME FURNISHINGS AND
PERSONAL AUTOMOBILES), (ii) BE A BANK, SAVINGS AND LOAN ASSOCIATION, TRUST
COMPANY, INSURANCE COMPANY, INVESTMENT COMPANY REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT SHARING TRUST, OR
CORPORATION OR OTHER ENTITY WHICH, TOGETHER WITH SUCH CORPORATION'S OR OTHER
ENTITY'S AFFILIATES HAS A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO ITS
MOST RECENTLY PREPARED FINANCIAL STATEMENTS (WHICH HAVE BEEN REVIEWED, BUT
NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14.0
MILLION, AND SUBSIDIARIES OF THE FOREGOING (OTHER THAN A PERSON FORMED FOR
THE SOLE PURPOSE OF PURCHASING SUCH SECURITIES), OR (iii) BE AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF REGULATION D UNDER THE ACT.
NO CALIFORNIA RESIDENT WILL BE ALLOWED TO PURCHASE THE SECURITIES
OFFERED HEREBY UNLESS IT MEETS THESE INVESTOR SUITABILITY REQUIREMENTS. UPON
RECEIPT OF THIS PROSPECTUS AND THE ATTACHED SUPPLEMENT, SUCH PURCHASER MUST
REPRESENT THAT IT MEETS THESE SUITABILITY STANDARDS BY SIGNING AND RETURNING
A COPY OF THE SUPPLEMENT TO THE SELLING SHAREHOLDER OR, IF APPLICABLE, THE
COMPANY.
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,
1996 and 1995 and for each of the three years in the period ended September
30, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
55
<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, 1996 and 1995 F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994 F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1996, 1995, and 1994 F-5
Consolidated Statements of Convertible Preferred Stock and
Shareholders' Equity F-6
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
September 30, 1996, 1995 and 1994 F-25
Schedule II: Valuation and Qualifying Accounts
UNAUDITED PROFORMA FINANCIAL INFORMATION P-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, 1996 and 1995, 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,
1996. Our audits also included the financial statement schedule listed in
the Index at Item 16 (b). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respect, the consolidated financial position
of Radius Inc. at September 30, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the
period ended September 30, 1996, 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.
/s/ Ernst & Young LLP
San Jose, California
November 7, 1996
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
September 30 (in thousands)
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,974 $ 4,760
Accounts receivable, net of allowance for doubtful accounts
of $2,132 in 1996 and $8,502 in 1995 8,123 61,644
Inventories 12,852 15,071
Prepaid expenses and other current assets 366 2,336
Income tax receivable 514 519
------- ------
Total current assets 24,829 84,330
Investment in Splash Technology Holdings, Inc. 19,152 --
Property and equipment, net 1,495 3,031
Deposits and other assets 50 517
-------- --------
$ 45,526 $ 87,878
-------- --------
-------- --------
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET
CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 5,004 $ 73,098
Accrued payroll and related expenses 2,678 5,815
Accrued warranty costs 478 3,170
Other accrued liabilities 2,545 11,920
Accrued income taxes 2,227 1,665
Accrued restructuring and other charges 425 17,013
Short-term borrowings 1,922 29,489
Obligations under capital leases - current portion 1,074 1,494
------- --------
Total current liabilities 16,353 143,664
Long-term borrowings 21,940 --
Obligations under capital leases-noncurrent portion 273 1,331
Commitments and contingencies
Convertible preferred stock, no par value, 750 shares
authorized and issued and outstanding in 1996; none
authorized or issued and outstanding in 1995 3,000 --
Shareholders' Equity: (Net capital deficiency):
Preferred stock, no par value, 2,000 authorized; none
issued and outstanding in 1996 and 1995 -- --
Common stock, no par value; 100,000 shares authorized;
issued and outstanding 54,408 shares in 1996 and
17,143 shares in 1995 168,746 113,791
Common stock to be issued -- 12,022
Accumulated deficit (183,968) (182,993)
Unrealized gain on available-for-sale securities 19,152 --
Accumulated translation adjustment 30 63
-------- --------
F-3
<PAGE>
Total shareholders' equity
(Net capital deficiency) 3,960 (57,117)
------- --------
$ 45,526 $ 87,878
-------- --------
-------- --------
See accompanying notes.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
1996 1995 1994
---- ---- ----
Net sales $ 90,290 $308,133 $324,805
Cost of sales 77,382 302,937 276,948
-------- -------- --------
Gross profit 12,908 5,196 47,857
-------- -------- -------
Operating expenses:
Research and development 7,478 19,310 33,956
Selling, general and administrative 25,886 90,068 94,731
-------- -------- -------
Total operating expenses 33,364 109,378 128,687
-------- -------- -------
Loss from operations ( 20,456) (104,182) (80,830)
Other income (expense), net 24,032 (3,045) (376)
Interest expense (3,736) (3,023) (869)
Litigation settlement -- (12,422) --
--------- -------- --------
Loss before income taxes 160 (122,672) (82,075)
Provision (benefit) for income taxes 815 9,070 (4,600)
--------- -------- --------
Net loss $ (975)$(131,742) $(77,475)
-------- -------- -------
-------- -------- -------
Net loss per share $(0.05) (8.75) $ (5.70)
-------- -------- -------
-------- -------- -------
Common shares used in computing
net loss per share 21,251 15,049 13,598
-------- -------- -------
-------- -------- -------
See accompanying notes.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized Total
Retained Gain on Shareholders'
Convertible Earnings Available- Equity (Net
Preferred Common (Net Capital for-sale Capital
Stock Stock Deficiency) Securities Deficiency)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $ -- $ 81,949 $ 16,206 $ -- $ 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 (51,326) -- 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 -- -- 1,258
Issuance of 212 shares of common stock
pursuant to the acquisition of
VideoFusion -- 2,857 -- -- 2,857
Settlement of Litigation-
common 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 (182,930) -- (57,117)
Issuance of 120 shares of common stock
under Stock Option Plans -- 406 -- -- 406
Issuance of 14 shares of common stock under
Employee Stock Purchase Plan -- 24 -- -- 24
Issuance of 36,294 shares of common
stock to Creditors -- 42,503 -- -- 42,503
Issuance of 750 shares of preferred
stock to IBM 3,000 -- -- -- 3,000
Issuance of 837 shares of common stock
in partial settlement of litigation -- -- -- -- --
Unrealized gain on available-for-sale securities-- -- -- 19,152 19,152
Translation gain/(loss) -- -- (33) -- (33)
Net loss -- -- (975) -- (975)
----------------------------------------------------------------------
Balance at September 30, 1996 $ 3,000 $ 168,746 $(183,938) $ 19,152 $ 3,960
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
For years ended September 30
(in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(975) $(131,742) $(77,475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,453 4,689 4,542
Gain on the sale of the Color Server Group (20,638) -- --
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
Common stock to be issued -- 12,022 --
Loss on disposal of fixed assets 258 -- --
(Increase) decrease in assets:
Accounts receivable 56,698 (5,471) (20,171)
Allowance for doubtful accounts (6,269) 5,954 426
Inventories 811 (27,140) (1,058)
Prepaid expenses and other current assets 1,970 (862) 1,739
Income tax receivable 5 8,564 468
Deferred income taxes -- 8,400 11,248
Increase (decrease) in liabilities:
Accounts payable (19,874) 33,843 3,470
Accrued payroll and related expenses (3,007) (1,871) (1,441)
Accrued warranty costs (2,582) 915 (1,584)
Other accrued liabilities (8,235) 5,270 (4,039)
Accrued restructuring and other charges (16,588) (13,601) (6,117)
Accrued income taxes 562 428 (1,534)
-------- -------- ----------
Total adjustments (15,436) 89,005 39,188
-------- -------- ----------
Net cash used in operating activities (16,411) (42,737) (38,287)
-------- -------- ----------
Cash flows from investing activities:
Capital expenditures (175) (1,894) (3,460)
Deposits and other assets 467 (238) 71
Net proceeds from the sale of the Color Server Group 20,163 -- --
Purchase of short-term investments -- -- (2,002)
Proceeds from sale of short-term investments -- -- 18,395
-------- -------- ----------
Net cash provided by (used in) investing activities 20,455 (2,132) 13,004
-------- -------- ----------
Cash flows from financing activities:
Principal payments of short-term borrowings, net (4,782) 11,394 15,275
Principal payments of long-term borrowings, net -- -- (43)
Issuance of common stock 430 23,917 3,214
Principal payments under capital leases (1,478) (1,679) (1,179)
-------- -------- ----------
Net cash provided by (used in)
financing activities (5,830) 33,632 17,267
-------- -------- ----------
Net decrease in cash and cash equivalents (1,786) (11,237) (8,016)
Cash and cash equivalents, beginning of period 4,760 15,997 24,013
-------- -------- ----------
Cash and cash equivalents, end of period $ 2,974 $ 4,760 $ 15,997
-------- -------- ----------
-------- -------- ----------
</TABLE>
See accompanying notes.
F-7
<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.
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. In addition, as of
September 30, 1996, the Company was not in compliance with all of the
financial covenants under its credit agreement.
The Company's relatively limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its ability
to procure 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.
During fiscal 1996, management implemented a number of actions to
address its cash flow and operating issues including: restructuring its
outstanding indebtedness to trade creditors and its secured creditor,
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 a number of businesses and product lines;
significantly reducing expenses and headcount; and subleasing all or a
portion of its current facility lease given its reduced occupancy
requirements.
During fiscal 1997, additional funds may be needed to finance ongoing
operations and to implement the Company's development plans and for other
purposes. The Company plans to generate cash by divesting certain liquid
assets and is investigating possible financing and strategic partnering
opportunities. Regarding the Company's Splash Technology Holdings, Inc.
securities, 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. However, the
Company has certain registration rights with respect to those securities
commencing in April, 1997. The closing price of Splash common stock on
December 31, 1996 was $21 per share resulting in an estimated total value of
approximately $36 million. There can be no assurance the Company will be
able to realize this value in the Splash securities or that such financing or
strategic partnering opportunities will materialize. There can also 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-8
<PAGE>
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to September 30
and includes 52 weeks in all 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 balance sheet 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 write down reserves 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 1996 1995
---- ----
Raw materials $ 124 $ 1,559
Work in process 4,488 2,258
Finished goods 8,240 11,254
------- --------
$ 12,852 $ 15,071
------- --------
------- --------
Property and equipment
Property and equipment is stated at cost and consists of the following (in
thousands):
September 30 1996 1995
---- ----
Computer equipment $ 18,091 $ 17,429
Machinery and equipment 10,660 12,335
Furniture and fixtures 5,793 6,023
Leasehold improvements 770 1,084
------- --------
35,314 36,871
Less accumulated depreciation
and amortization (33,819) (33,840)
------- --------
$ 1,495 $ 3,031
------- --------
------- --------
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Equipment under capital
leases and leasehold improvements are being amortized on the straight-line
method over six years or the remaining lease term, whichever is shorter.
LONG-LIVED ASSETS
In 1995, the Financial Accounting Standards Board released the Statement
of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a
material impact on the Company's financial position or results of operations.
REVENUE RECOGNITION
Revenue is recognized when products are shipped. Sales to certain
resellers are subject to agreements allowing certain rights of return and
price protection on unsold merchandise held by these resellers. The Company
provides for estimated returns at the time of shipment and for price
protection following price
F-9
<PAGE>
declines. Revenues earned under royalty or commission agreements is
recognized in the period in which it is earned.\
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.
ADVERTISING EXPENSES
The Company expenses advertising expenses as incurred.
INCOME TAXES
The Company accounts for income taxes using 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.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
common shares outstanding.
Assuming the conversion of accounts payable and other creditor debt into
common stock in the fourth quarter of fiscal 1996 had occurred at the
beginning of fiscal 1996, the supplemental loss per share would have been
$0.02 per share.
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, 1996 or 1995. Approximately $0.6 million of the $3.0 million of cash
available at September 30, 1996 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, 1996, the Company had no
forward contracts.
RELATED PARTIES
IBM Credit is a related party as a result of its ownership interests in
the Company. See Notes 2, 11 and 12. Also, during the calendar year 1995, IBM
Credits parent corporation, International Business Machines Corporation,
manufactured systems products (specifically Mac clones) for the Company for
which it was paid approximately $20 million through the IBM credit facility.
In addition, SCI Technology, Inc. ("SCI") and Mitsubishi Electronics
America, Inc. ("Mitsubishi") are related parties due to board membership
and/or stock ownership with respect to the Company. SCI and
F-10
<PAGE>
Mitsubishi are suppliers to the Company. During fiscal 1996, 1995 and
1994 purchases from SCI were approximately $25.2 million, $10.0 million and
$0, respectively, and purchases from Mitsubishi were approximately $14.1
million, $30.0 million and $10.0 million, respectively. As of September 30,
1996 and 1995, the Company had accounts payable amounting to approximately
$0.1 million and $5.3 million to SCI, respectively, and approximately $0.0
million and $6.6 million to Mitsubishi, respectively.
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. In fiscal 1996, the Company signed a series of
additional agreements with Portrait Display Labs, see Note 11 to the
Consolidated Financial Statements.
FAIR VALUE DISCLOSURES. The carrying values and fair values of various
financial instruments are summarized as follows as of September 30, 1996
(inthousands):
Carrying Value Fair Value
-------------- ----------
Cash and cash equivalents $ 2,974 $ 2,974
Investment in Splash Technology
Holdings, Inc. (See Note 11) 19,152 19,152
Short-term Borrowings (1,922) (1,922)
Long-term Borrowings (21,940) (21,940)
IBM Credit Option on
Splash Shares (See Note 11) 0 (1,915)
The fair value of short-term and long-term borrowings are estimated to
approximate their carrying value as the borrowings are subject to variable
interest rates.
Estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
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 "Loan Agreement"). The Loan 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 Loan
Agreement to finance the manufacturing of the Company's MacOS compatible
products (the "MacOS Advances").
Immediately prior to the consummation of the restructuring of its
unsecured and secured debt in September 1996 (the "Plan"), amounts
outstanding to IBM Credit were approximately $26.4 million. 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 approximately $470,000. In
addition, IBM Credit has restructured the terms of the remaining
approximately $23.4 million indebtedness into a
F-11
<PAGE>
working line of credit and a term loan. Amounts outstanding under the term
loan bear interest at a rate of prime rate plus 3.25% and amounts outstanding
under the working line of credit bear interest at a rate of prime rate plus
2.25%. 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, including payment of dividends, 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.
As of September 30, 1996, approximately $23.8 million was outstanding
under the Loan Agreement consisting of $21.9 million in term loan and
approximately $1.9 million in working line of credit. The $21.9 million in
term loan is included in long-term borrowings in the Consolidated Financial
Statements and the $1.9 million working line of credit is included in
short-term borrowings in the Consolidated Financial Statements.
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.
As of September 30, 1996, the Company was not in compliance with all of
the financial covenants under the Loan Agreement (specifically, revenues to
working capital ratio, net profits to revenues ratio, and working capital);
however, IBM Credit has waived such defaults. See Notes 11 and 12 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 expired on March 19,
1996, allowed 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 amounts
outstanding under this agreement were repaid in January 1996. The weighted
average interest rates in fiscal 1996 and 1995 were 2.1% and 13.0%,
respectively.
One of the Company's subsidiaries had a revolving line of credit with a
bank in Japan, the outstanding balance having been paid in full during the
third quarter of fiscal 1996. The weighted average interest rates in fiscal
1996 and 1995 were 9.93% and 4.9%, respectively.
F-12
<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
---- --------------
1996 $ 7,437 $ 250
1995 7,437 2,642
Future minimum lease payments at September 30, 1996, under capital
leases and noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Net
Capital Operating Sublease Operating
Leases Leases Income Leases
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997 $1,138 $1,735 $1,154 $581
1998 280 1,104 842 262
1999 157 155 2
------ ------ ------ ------
Total Minimum Lease Payments 1,418 2,996 $845
Total sublease income $2,151
Amount representing interest (71)
Present value of minimum lease payments 1,347
Amount due within one year (1,074)
-------
Amount due after one year $273
=======
</TABLE>
Rent expense charged to operations amounted to approximately $1.5
million, $3.5 million and $3.0 million for the fiscal years ended September
30, 1996, 1995 and 1994, respectively. The rent expense amounts for fiscal
1996, 1995 and 1994 exclude a provision for remaining lease obligations on
excess facilities. See Note 8 of Notes to the Consolidated Financial
Statements.
Sublease income for fiscal 1996, 1995 and 1994 was approximately $1.2
million, $0.6 million and $0.1 million, respectively.
CONTINGENCIES
(a) On November 16, 1995, Electronics for Imaging, Inc. (EFI(2)) 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
F-13
<PAGE>
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 advertised 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. Extended settlement
discussions began in connection with a successful demurrer in the California
case. Such discussions have been complicated by the refusal of a small
number of the defendants to participate in the proposed settlement. 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 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. 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.
(e) 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, the Company's insurance
carrier paid $3.7 million in cash and the Company is required to issue
128,695 shares of its Common
F-14
<PAGE>
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
required to issue into a class action settlement fund 707,609 shares of its
Common Stock. The number of shares required to be issued by the Company
increased by 100,000 since the price of the Common Stock was 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.
As of September 30, 1996, the Company had issued 836,674 of its Common
Stock due to the settlement and 99,630 shares remained to be issued.
NOTE FOUR. CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
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 option of
holders of a majority of the shares of Series A Convertible Preferred Stock
at the Liquidation Price as of the date of redemption 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 the Company's other
portfolio interests or the sale of some or all of its operating assets, 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.
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.
The Series A Convertible Preferred Stock will be convertible 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.
The Series A Convertible Preferred Stock is automatically convertible at
any time 90 days after the effective date of a Registration Statement
declared effective in November 1996 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 $0.5432. Upon such a conversion, the Series
A Convertible Preferred Stock would be convertible into an aggregate of
6,075,353 shares of Common Stock (or 8.1004 shares of Common Stock for each
share of
F-15
<PAGE>
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.
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 (the "1986 Plan"),
authorized 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
common stock on the date of grant, as determined by the Board of Directors.
Vesting of shares is also determined by the Board of Directors at the date of
grant. The 1986 Plan expired in October 1996. Outstanding grants of options
to purchase 779,274 shares of Common Stock continue to be exercisable
according to the terms of the grant, however, and all unused shares under the
1986 Plan are reserved for issuance under the 1995 Stock Option Plan.
The Company's 1995 Stock Option Plan (the "1995 Plan") authorizes the
issuance of up to 1,780,305 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. Shares available for grant under the 1995 Stock
Option Plan include 930,305 shares which were not issued under the 1986 Stock
Option Plan. Under the 1995 Plan, options are exercisable for a term of up
to ten years after issuance. Options may be granted at prices ranging from
85% to 100% of the fair market value of the common stock on the date of
grant, as determined by the Board of Directors. Vesting of shares is also
determined by the Board of Directors at the date of grant. As of September
30, 1996, 87,522 options were outstanding under the 1995 Plan. The 1995 Plan
will expire in December 2005.
On August 31, 1994, pursuant to the Merger, Radius assumed 975,239
outstanding options originally issued under the SuperMac 1988 Stock Option
Plan (the "SuperMac Plan"). These options will be administered in accordance
with the SuperMac Plan until all options are exercised or expired. As of
September 30, 1996, 18,701 Options remain outstanding under this Plan. Under
the SuperMac Plan, options are exercisable for a term of up to ten years
after issuance.
The following table summarizes the consolidated activity under the 1986
Plan, the 1995 Plan and the SuperMac Plan:
September 30,
------------------------------------------
1996 1995 1994
---- ---- ----
Outstanding at beginning of year 1,697,535 2,042,481 2,208,783
Granted 1,178,095 707,590 892,131
Exercised (111,522) (213,791) (294,042)
Canceled (1,878,611) (838,745) (764,391)
------------ ----------- ----------
Outstanding at September 30 885,497 1,697,535 2,042,481
============ ============= ==========
Price range at September 30 $1.28-10.56 $0.42-$28.96 $0.42-$32.18
============ ============= ==========
Price range of options exercised $1.36-$2.37 $0.42-$13.13 $0.42-$13.13
============ ============= ==========
Exercisable at September 30 322,492 1,325,222 706,474
============ ============= ==========
Available for grant at September 30 1,695,331 415,586 281,726
============ ============= ==========
F-16
<PAGE>
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 173,126 shares of common stock for
issuance to non-employee directors pursuant to options granted under the 1994
Directors' Stock Option Plan (the "1994 Plan"), including 73,126 shares which
were not issued under the Company's 1990 Directors Stock Option 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, 1996, 5,938 options were
outstanding under this plan at exercise prices ranging from $7.4375 to $12.00
per share. None of the options granted under the 1994 Plan are exercisable
at September 30, 1996.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option
Plan (the "Prior Plan") was in effect. As of September 30, 1996, the Prior
Plan had 26,874 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.
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, 1996 an
additional 209,850 shares were exercisable.
In June 1995, the Company repriced approximately 232,000 of then
outstanding options to an exercise price of $12.00 per share, the fair market
value of the Company's common stock on the date of the repricing.
In December 1995, the Company repriced approximately 930,000 of then
outstanding options for an exercise price of $2.375 per share, the fair
market value of the Company's common stock on the date of 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, 1996, 146,824 shares remain
available for issuance under the plan.
EMPLOYEE STOCK PLANS
The Company accounts 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-17
<PAGE>
NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
---- ---- ----
For years ended September 30
(in thousands)
Federal:
Current $ - $ - $ (12,583)
Deferred - 7,170 12,311
---- ------ ----------
- 7,170 (272)
Foreign:
Current 765 650 376
---- ------ ----------
State:
Current 50 20 (3,641)
Deferred - 1,230 (1,063)
---- ------ ----------
50 1,250 (4,704)
---- ------ ----------
$ 815 $ 9,070 $ (4,600)
---- ------ ----------
---- ------ ----------
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:
1996 1995
---- ----
For years ended September 30
(in thousands)
Deferred tax assets:
Net operating loss carryovers $ 25,232 $ 26,079
Inventory valuation differences 6,364 3,926
Restructuring reserves 3,536 22,995
Reserves and accruals not currently
tax deductible 3,424 20,891
Depreciation 2,390 3,787
Capitalized research & development
expenditures 2,144 2,113
Credit carryovers - 5,807
Other 2,703 -
-------- ---------
Total deferred tax assets 45,793 85,598
-------- ---------
Valuation allowance for deferred
tax assets (38,295) (85,086)
-------- ---------
Deferred tax assets $ 7,498 $ 512
-------- ---------
-------- ---------
Deferred tax liabilities:
Valuation of investment portfolio $ 7,498 -
-------- ---------
Other - 512
Total deferred tax liabilities 7,498 512
-------- ---------
Net deferred tax assets $ - $ -
-------- ---------
-------- ---------
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 prior years and as a result of the material changes in
operations, predictability of earnings in future periods is uncertain. The
Company will evaluate the realizability of the deferred tax asset on a
quarterly basis.
F-18
<PAGE>
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:
1996 1995 1994
---- ---- ----
For years ended September 30
(in thousands)
Expected tax at statutory rate $ (56) $ (42,935) $ (28,726)
Change in valuation allowance 241 49,820 26,724
State income tax, net of federal
tax benefit 50 1,250 (3,105)
Non-deductible merger costs - - 1,054
Non-deductible charge for purchased
research and development - - 763
Other 580 935 (1,310)
------ --------- ---------
$ 815 $ 9,070 $ (4,600)
------ --------- ---------
------ --------- ---------
As of September 30, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$60,000,000 and $56,000,000, respectively. The federal loss carryforwards
will expire beginning in 2011, if not utilized and the state loss
carryforwards will expire beginning in 2007, if not utilized.
As a result of the issuance of Common Stock and Series A Convertible
Preferred Stock in exchange for certain liabilities of the Company in
September 1996, the Company experienced a "change in ownership" as defined
under Section 382 of the Internal Revenue Code. Accordingly, utilization of
net operating loss and tax credit carryforwards will be subject to an annual
limitation of approximately $2.0 million due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions, except under limted circumstances. This limitation will result
in the expiration of all of the tax credit carryforwards and a substantial
portion of the net operating loss carryforwards.
NOTE SIX. STATEMENTS OF CASH FLOWS
1996 1995 1994
---- ---- ----
For years ended September 30,
(in thousands)
Supplemental disclosure of cash
flow information:
Cash paid (received) during the year for:
Interest $ 3,792 $ 1,620 $ 812
-------- -------- --------
-------- -------- --------
Income taxes $ 253 $ (8,370) $ (8,295)
-------- -------- --------
-------- -------- --------
Supplemental schedule of noncash
investing and financing activities:
Common and preferred stock issued
to creditors $ 45,503 $ - $ -
-------- -------- --------
-------- -------- --------
Conversion of short-term borrowings
to long-term borrowings $ 21,940 $ - $ -
-------- -------- --------
-------- -------- --------
Retirement of fully and partially
depreciated assets $ - $ 4,459 $ 6,025
-------- -------- --------
-------- -------- --------
Tax benefit from stock options exercised $ - $ - $ 425
-------- -------- --------
-------- -------- --------
Equipment acquired pursuant to
capital leases $ - $ - $ 2,000
-------- -------- --------
-------- -------- --------
Common stock issued pursuant to
VideoFusion agreement $ - $ 2,857 $ -
-------- -------- --------
-------- -------- --------
F-19
<PAGE>
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company currently operates in one principal industry segment: the
design, assembling and marketing of color publishing and digital video
computer products. The Company is highly dependent on the success of Apple
products as the Company's products are designed to provide additional
functionality to Apple products. The Company's export sales were
approximately $45.8 million, $124.5 million and $112.1 million in the fiscal
years ended September 30, 1996, 1995 and 1994, respectively, and included
export sales to Europe of approximately $21.2 million, $57.3 million and
$60.6 million, respectively. The Pacific, Asia, and Latin America region
sales were approximately $24.6 million, $67.2 million and $51.4 million for
fiscal years ended September 30, 1996, 1995 and 1994, respectively. During
fiscal 1996, the Company entered into exclusive distributor arrangements with
respect to Japan and Europe. In the future, the Company will earn royalties
and commissions under such arrangements.
One customer accounted for approximately 34.3%, 34.0% and 13.5% of the
Company's net sales during the years ended September 30, 1996, 1995 and 1994,
respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
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 (the
"Merger"). 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,
1996 are as follows (in thousands):
Representing
--------------------------
Cash Outlays
--------------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $ 22,296 $ 19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,346 44
Revision of the operations
business model 9,061 7,078 1,983 -
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
--------- -------- -------- -----
Total charges $ 43,407 $ 26,678 $ 16,685 $ 44
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 had spent approximately $16.7 of cash for restructuring through
September 1996. The Company has substantially completed this restructuring.
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.
F-20
<PAGE>
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, 1996 are as follows (in
thousands):
Representing
--------------------------
Cash Outlays
--------------------
Asset
Provision Write-Downs Completed Future
Adjust inventory levels $ 33,138 $ 32,300 $ 838 $ -
Excess facilities 2,004 404 1,600 -
Cancellation fees and asset
write-offs 19,061 5,196 13,800 65
Employee severance 3,662 - 2,599 1,063
--------- --------- ------- ------
Total charges $ 57,865 $ 37,900 $18,837 $1,128
The adjustment of inventory levels reflects the discontinuance of
several product lines. Revenues and product margins 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 16, 1996, approximately 230 positions of the 240 total planned had
been eliminated in connection with the new business model. The Company has
satisfied $18.8 million of the originally anticipated cash outlays for this
restructuring as of September 30, 1996 of which approximately $5.0 million
represented cash expenditures and approximately $13.8 million represented
cancellation of indebtedness or claims in consideration of the issuance of
equity in the Company. As of September 30, 1996, the Company had cash of $3.0
million. See "Management's Business Recovery Plans" at Note 1 to the
Consolidated Financial Statements. 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. The
restructuring is substantially completed and remaining cash outlays relate
primarily to the restructuring of the Company's international operations.
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.
F-21
<PAGE>
In May 1995, the Company entered into an agreement with the former
holders of VideoFusion stock to settle the contingent stock and earnout
payments that were originally contemplated. Pursuant to this agreement, the
Company issued approximately 212,000 shares, and paid approximately $200,000,
to the former holders of VideoFusion stock. These transactions resulted in
additional compensation expense of approximately $3.0 million which was
recorded in fiscal 1995.
NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC.
On August 31, 1994, Radius merged with SuperMac in exchange for
6,632,561 shares of Radius' common stock. SuperMac was a designer,
manufacturer, and marketer of products that enhanced the power and graphics
performance of personal computers. The Merger was accounted for as a
pooling of interests, and, accordingly, the Company's Consolidated Financial
Statements and Notes to Consolidated Financial Statements have been restated
to include the results of SuperMac for all periods presented.
Separate results of operations for the periods prior to the Merger are
as follows (in thousands):
<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)
</TABLE>
The merger related expenses reflect the recording of the merger related
restructuring and other charges.
The results for both the fiscal years ended September 30, 1994 and 1993
include the results of SuperMac's operations for the three months ended
December 31, 1993.
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. BUSINESS DIVESTITURES
COLOR SERVER GROUP. 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. In fiscal 1996, the Company received approximately $21.0 million
in cash and an additional $2.4 million is being maintained in escrow 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 were
converted into shares of the Parent's common stock outstanding in connection
with the initial public offering of Parent. In June 1996, the Company
granted IBM Credit, its secured lender, an option to purchase 428 shares of
Series B Preferred (now Parent Common Stock) in connection with the
restructuring of the terms of its loan agreement with IBM Credit (Also, see
Note 12, regarding the conversion of accounts payable and other creditor debt
to equity in the fourth quarter of fiscal 1996.). These shares of Parent
Common Stock have been pledged to IBM Credit. IBM Credit has not exercised
its option.
On October 8, 1996, the Parent completed its initial public offering of
common stock which reduced the Company's ownership position to approximately
14.6 percent. Consequently, the investment which will be
F-22
<PAGE>
available for sale, subject to certain market trading restrictions,
approximating 1.7 million shares, is accounted for in accordance with FASB
115. The unrealized gain of $19.1 million based upon the initial public
offering price of $11.00 per share is recorded, net of deferred taxes (none),
as a component of shareholders' equity at September 30, 1996.
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. The shares of PDL Common
Stock are pledged 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 are 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.
NOTE TWELVE. STOCK ISSUED TO CREDITORS
In September 1996, the Company, IBM Credit and its unsecured creditors
consummated a restructuring of the Company's outstanding indebtedness
pursuant to which the Company's creditors received equity in satisfaction of
their claims (the "Plan"). 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. As of September 30, 1996, 444,253
shares of Common Stock were held by the Radius Creditors Trust. The Company
also issued 750,000 shares of its Series A Convertible Preferred Stock
(convertible into an aggregate of 5,523,030 shares of Common Stock, or
6,075,333 shares in certain circumstances) and warrants to purchase 600,000
shares of Common Stock to IBM Credit in satisfaction of $3.0 million
indebtedness and in consideration of restructuring its remaining
approximately $23.4 million indebtedness to IBM Credit. The Company also
issued warrants to purchase 200,000 shares of Common Stock to Mitsubishi in
consideration of the extension of open credit terms to the Company. The
Company also issued to its unsecured creditors, who received Common Stock,
Rights ("Rights") to receive up to an additional 11,046,060 shares of 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).
Considering the value of the Common and Preferred Stock issued or
issuable to the creditors, the percentage of the Company's ownership issued
to the creditors, the large blocks of stock issued to a certain few
creditors, Common Stock warrants issued and other costs, such as cash
settlements, legal and accounting expenses and the option to IBM Credit to
purchase 10% of the Company's investment in Parent, and considering
appropriate discounts on the stock issued, the Company concluded that the
value of consideration given up was equal to the indebtedness forgiven. As
a result, the accompanying financial statements do not include any
extraordinary gain or loss resulting from the execution of the Plan.
F-23
<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, 1994 $2,018 $1,283 $0 $ 753 $2,548
Year ended September 30, 1995 $2,548 $6,837 $0 $ 883 $8,502
Year ended September 30, 1996 $8,502 $ 91 $0 $ 6,461 $2,132
</TABLE>
_____________________________
(1) Uncollectable accounts written off.
F-24
<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 consolidated balance sheet as of September 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.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 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 $90,290 $6,967 $83,323
Cost of sales 77,382 4,722 72,660
----------- ------------ -------- -----------
Gross margin 12,908 2,245 10,663
Operating expenses 33,364 1,302 32,062
----------- ------------ -------- -----------
Operating income (loss) (20,456) 943 (21,399)
Other income (expense), net 20,296 -- 593 (A) 20,899
----------- ------------ -------- -----------
Income (loss) before income taxes (160) 943 593 (510)
Provision for income taxes 815 -- -- 815
----------- ------------ -------- -----------
Net income (loss) $ (975) $943 593 $1,325
----------- ------------ -------- -----------
----------- ------------ -------- -----------
Net income per share:
Net income per share $ (0.05) $(0.06)
----------- ------------ -------- -----------
----------- ------------ -------- -----------
Common and common equivalent
shares used in computing net loss
per share 21,251 21,251
----------- ------------ -------- -----------
----------- ------------ -------- -----------
</TABLE>
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(A) Reduction of approximately $593,000 interest expense recorded by the
Company during the twelve months ended September 30, 1996 to reflect
the use of the proceeds to reduce outstanding obligations under the
Company's line of credit agreements.
P-2
<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......................................................... 8
Use of Proceeds...................................................... 16
Price Range of Common Stock.......................................... 17
Dividend Policy...................................................... 17
Selected Consolidated Financial Data................................. 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................................... 21
Business............................................................. 32
Management........................................................... 39
Certain Transactions................................................. 45
Principal and Selling Securityholders................................ 47
Description of Capital Stock......................................... 51`
Plan of Distribution................................................. 54
Legal Matters........................................................ 55
Experts.............................................................. 55
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
---------------
JANUARY 16, 1997
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<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 January 15, 1994, 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.
II-1
<PAGE>
(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.
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:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
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. (6)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc. (6)
3.02 -- Registrant's Bylaws. (7)
4.01 -- Specimen Certificate for shares of Common Stock of the
Registrant. (8)
4.02 -- Specimen Certificate for shares of Series A Convertible
Preferred Stock of the Registrant. (6)
4.03 A Warrant dated September 13, 1995 between IBM Credit Corporation
and the Registrant. (6)
B Warrant dated October 13, 1996, between Mitsubishi Electronics
America, Inc. and the Registrant. (9)
4.04 -- Form of Registration Rights Agreement between the Registrant and
certain shareholders. (6)
II-2
<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
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. (7)
4.06 -- Non-Plan Stock Option Grant to Charles W. Berger. (10)
4.07 -- Form of Subscription Agreement. (6)
4.08 -- Form of Right. (9)
5.01 -- Opinion of Fenwick & West LLP regarding the legality of the
securities being offered. (9)
10.01 A Registrant's 401(k) Savings and Investment Plan. (11)
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 A Registrant's 1995 Stock Option Plan. (3)
B Amendment No. 1 to Registrant's 1995 Stock Option Plan. (12)
C Amendment No. 2 to Registrant's 1995 Stock Option Plan. (12)
10.03 -- Form of Stock Option Agreement and Exercise Request as currently
in effect under 1995 Stock Option Plan.
10.04 -- Registrant's 1990 Employee Stock Purchase Plan and related
documents. (13)
10.05 -- Registrant's 1994 Directors' Stock Option Plan. (3)
10.06 -- Form of Indemnity Agreement with Directors. (8)
10.07 -- Credit Agreement by and among Radius Inc., the certain financial
institutions, and Silicon Valley Bank, dated March 20, 1995. (14)
10.08 A Credit Agreement by and among Radius Inc., the certain financial
institutions, and International Business Machines Credit
Corporation, dated February 17, 1995. (14)
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). (8)
II-3
<PAGE>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
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). (15)
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). (16)
10.12 A Lease Agreement between SuperMac Technologies,
Inc. and Connecticut General Life Insurance Company dated as
of May 4, 1993 (215 Moffett Park Drive, Sunnyvale, California
offices). (17)
B Office Lease dated March 18, 1996 between Registrant and CIGNA. (9)
10.13 -- Employment Agreement by and between Registrant
and Charles W. Berger dated February 26, 1993 as amended on
September 17, 1993. (18)
10.14 -- Full Recourse Promissory Note with Charles W. Berger. (18)
10.15 -- SuperMac Technology, Inc.'s 1988 Stock Option Plan
("Option Plan"). (19)
10.16 -- SuperMac Technology, Inc.'s Form of Incentive Stock Option
Agreement under the Option Plan. (19)
10.17 -- SuperMac Technology, Inc.'s Form of Supplemental Stock Option
Agreement under the Option Plan. (19)
10.18 -- SuperMac Technology, Inc.'s Form of Early Exercise Stock Purchase
Agreement under the Option Plan. (19)
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. (20)
10.20 -- Amended and Restated Working Capital and Term Loan Agreement dated
as of August 30, 1996 between IBM Credit Corporation and the
Registrant. (9)
11.01 -- Computation of per share earnings. (21)
21.01 -- List of Registrant's subsidiaries. (21)
23.01 -- Consent of Ernst & Young LLP, Independent Auditors.
23.02 -- Consent of Fenwick & West LLP (included in Exhibit 5.01).
- -------------------
(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) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (File No. 333-12417) filed on September 20, 1996.
(7) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(8) 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.
(9) Previously filed as an exhibit to the Company's Amendment No. 1 to
Registration Statement on Form S-1 (File No. 333-12417) filed on
November 12, 1996.
(10) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).
(11) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 28, 1992.
(12) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (File No. 333-17881) filed on December 16, 1996.
(13) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 30, 1991.
(14) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on May 10, 1995.
(15) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 18, 1993.
(16) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 12, 1992.
(17) Incorporated by reference to exhibits to SuperMac's Form S-1
(File No. 33-58158) filed on February 11, 1993.
(18) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on January 3, 1994.
(19) 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.
(20) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 15, 1995.
(21) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed January 14, 1997.
II-4
<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-5
<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 16th day of January, 1997.
RADIUS INC.
By: */s/ Cherrie L. Fosco
------------------------
Cherrie L. Fosco
Chief Financial Officer
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
- ------------------------------- Chief Executive Officer January 16, 1997
Charles W. Berger Chairman of the Board of Directors
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
*/s/ Cherrie L. Fosco Chief Executive Officer January 16, 1997
- -------------------------------
Cherrie L. Fosco
ADDITIONAL DIRECTORS:
*/s/ Michael D. Boich Director January 16, 1997
- -------------------------------
Michael D. Boich
*/s/ Carl A. Carlson Director January 16, 1997
- -------------------------------
Carl A. Carlson
*By: /s/ Cherrie L. Fosco Attorney-in-Fact January 16, 1997
- -------------------------------
Cherrie L. Fosco
</TABLE>
II-6
<PAGE>
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 November 7, 1996 in the Registration Statement (Post
Effective Amendment 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.
/S/ ERNST & YOUNG LLP
Palo Alto, California
January 14, 1997
