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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18690
RADIUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0101300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
460 E MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 404-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )
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AS OF NOVEMBER 30, 1998
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AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING
BID PRICE OF SUCH STOCK: $8,644,022
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 5,532,174
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DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 26, 1999 ARE INCORPORATED BY REFERENCE INTO
PART III (ITEMS 10, 11, 12, AND 13) HEREOF.
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RADIUS INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I Page
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ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 2
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 7
ITEM 4. Submission of Matters to a Vote of Security Holders. . . 8
ITEM 4A. Executive Officers of Registrant . . . . . . . . . . . . 8
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . . 9
ITEM 6. Selected Financial Data. . . . . . . . . . . . . . . . . 10
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . 11
ITEM 7A Quantitative and Qualitative Disclosures about Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 8. Financial Statements and Supplementary Data. . . . . . . 23
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . 23
PART III
ITEM 10. Directors and Executive Officers of the Registrant . . . 24
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . 24
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 13. Certain Relationships and Related Transactions . . . . . 24
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 25
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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Radius, the Radius logo, PressView and PrecisionView, among others are
registered trademarks and/or registered service marks of Radius Inc. Radius
Edit, EditDV, MotoDV, PhotoDV and Roto, among others, are trademarks and/or
service marks of Radius Inc. or one of it subsidiaries. Other brands or products
contained in this document are trademarks, service marks, registered trademarks
or registered service marks of their respective holders and should be treated as
such.
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PART I
ITEM 1. BUSINESS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following discussion
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 that are subject to risks and uncertainties.
Statements indicating that the Company or management "intends", "plans",
"expects," "estimates" or "believes" are forward-looking, as are all other
statements concerning future financial results, product offerings or other
events that have not yet occurred. There are several important factors that
could cause actual results or events to differ materially from those anticipated
by the forward-looking statements contained in this discussion and other
sections of this Form 10-K.
OVERVIEW
The Company designs, develops, assembles, markets and supports digital
video computer products for creative professionals and consumers who use digital
camcorders. The Company's current product line includes: multimedia authoring
and editing video systems and software that can acquire and manipulate video and
audio information.
The primary target markets for the Company's products are video editors,
video producers, and creators of multimedia. These markets encompass creative
professionals involved in such areas as multimedia authoring, video editing,
video and multimedia production and corporate training.
Historically, 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. This past year, the Company
added cross platform (Windows and Macintosh) capabilities to many of the
Company's products in order to market these products to users of the Windows
operating system. In the last quarter of fiscal 1998, 27% of unit sales were
made to Macintosh only users, 43% were made to Windows only users, and 30% were
made to cross-platform buyers.
As shown in the accompanying consolidated financial statements, the Company
has incurred substantial operating losses. During fiscal 1997 and 1998,
management implemented a number of actions to address its cash flow and
operating issues including; refocusing its efforts on providing solutions for
digital video customers; discontinuing sales of mass market and other low value
added products; divesting a number of businesses and product lines, including
most recently the agreement for the sale and related license of significant
assets of its monitor business to Korea Data Systems America, Inc. ("KDS");
significantly reducing expenses and headcount; and reducing its lease
obligations given its reduced occupancy requirements. There can be no assurance
that these measures will be sufficient to allow the Company to achieve
profitability. As of September 30, 1998, the Company had a working capital
deficit of $5.2 million. The Company intends to finance its working capital
needs through cash generated by operations and borrowings under a working
capital line of credit with Silicon Valley Bank. The Company may need to
further reduce its operating expenses or seek additional sources of working
capital if software product sales do not increase at the rate assumed in the
Company's current operating plans.
The Company's executive offices are located at 460 E. Middlefield Road,
Mountain View, CA 94043, and its telephone number is (650) 404-6000.
RECENT DEVELOPMENTS
LICENSING OF AND AGREEMENT TO SELL MONITOR BUSINESS ASSETS TO KOREA DATA SYSTEMS
AMERICA, INC. ("KDS")
In June 1998, the Company licensed certain technology and assets necessary
to conduct its monitor and color publishing business to KDS, leaving the Company
free to focus on its digital video software business. The brand name and
trademark RADIUS was one of the assets so licensed because of its primary
association with monitors. In August 1998, the Company amended and restated
this license and agreed to sell the licensed assets to KDS pursuant to an asset
transfer agreement, subject to certain contingencies, at the discretion of KDS.
The monitor business has accounted for substantially all of the revenues of the
color publishing product line and 55.3% of the Company's revenues during fiscal
1998. Under the license and asset transfer agreement, Radius has transferred
(by licensing or by assignment if KDS elects to close the asset transfer
agreement) its Radius, Supermac, PressView and certain other trademarks to KDS
and has licensed certain intellectual property pertaining to PressView
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and PrecisionView monitors. KDS has not agreed to purchase any inventory or
other tangible assets of Radius under the license and asset transfer
agreement. The expected value of the transaction is $6.2 million paid or to
be paid in installments, including $0.85 million paid in August 1998 and
$0.35 million in September 1998 under the amended license and $0.5 million
under the original license in June 1998. The remaining amount is payable in
installments through October 1999. KDS' performance is guaranteed by a
Korean corporation and its US affiliate. The asset transfer agreement is
expected to close by June 1999, if contingencies are satisfied. If KDS
elects to deem such contingencies satisfied and the purchase transaction
closes, then the Company will be obligated to seek shareholder approval to
change its corporate name to a name that does not include "Radius".
Management believes that the corporate name change will facilitate the sale
and intends to seek shareholder approval of a corporate name change at the
February 1999 annual meeting, whether or not the sale is concluded, in view
of the Company's focus on the digital video software business. The new name
is expected to more closely reflect the Company's current business
objectives. After significant study with the assistance of professional
advisors, management has recommended that the name be changed to "Digital
Origin, Inc.". There can be no assurance that the closing or name change
will occur. In the interim, Radius expects to wind down its monitor business
activities as current supplies of monitors are sold, whether or not the asset
purchase agreement is closed. Radius will continue to use the transferred
trademarks and technology until this transition is completed over the next
several months.
POTENTIAL NASDAQ SMALLCAP MARKET DELISTING; REVERSE STOCK SPLIT
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. For example, companies traded on the Nasdaq SmallCap Market have
been required since March 1998 to maintain a minimum bid price of $1.00 per
share. For this reason, the Company implemented a one for ten reverse stock
split in March 1998. There have been periods in 1998 when the Company's Common
Stock has had a minimum bid price below $1.00. This condition has not been
sustained for a period of time sufficient to cause action by Nasdaq. However,
there can be no assurance that the Company will continue to meet this or other
listing requirements of Nasdaq. If the Company's Common Stock is delisted,
there can be no assurance that the Company will meet the requirements for
initial inclusion on the Nasdaq SmallCap Market in the future, particularly in
light of the fact that Nasdaq currently requires traded securities to have a
$4.00 minimum per share bid requirement. Moreover, the NASD is considering the
elimination of the SmallCap Market altogether. Trading, if any, in the listed
securities after delisting or the elimination of the SmallCap Market would be
conducted in the over-the-counter market in what are commonly referred to as the
"pink sheets." As a result, investors would find it more difficult to dispose
of, or to obtain accurate quotations as to the value of, the Company's
securities.
TECHNOLOGY PURCHASE FROM POST DIGITAL SOFTWARE, INC.
On November 23, 1998, the Company acquired certain software and other
intangible property from Post Digital Software, Inc. for (i) an initial payment
of $50,000, (ii) earnout payments equal to at least $50,000 but not exceeding
$700,000 based on subsequent sales of the Company's digital video products
incorporating such software and (iii) a warrant to purchase up to 50,000 shares
of the Company's Common Stock at an exercise price of $1.50 per share. The
warrant is exercisable over a four year period through November 23, 2002. The
warrant can be exercised for up to 12,000 shares beginning May 1, 1999, plus an
additional 2,000 shares for each full month that transpires thereafter, up to a
total of 50,000 shares. Stephen Manousos, a candidate for election to the
Company's Board of Directors at the Company's annual shareholders meeting on
February 26, 1999, is a principal shareholder, officer and director of Post
Digital Software, Inc. Post Digital Software, Inc. is in the process of winding
up its business.
SALE OF CERTAIN COLOR PUBLISHING TECHNOLOGY
On December 4, 1998, the Company agreed to sell certain software and
other intangible property associated with its monitor and color publishing
business to Splash Technology Holdings, Inc. ("Splash") in consideration of
$275,000 and the early release of $1.0 million from an escrow established for
the benefit of Splash when the Company's Color Server Group was sold to
Splash in January 1996. See Management's Discussion and Analysis of Financial
Condition - Divestitures". These funds were received on December 16, 1998.
In the transaction, Splash licensed some of the transferred technology back
to the Company for a term of two years on a fully paid up basis.
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PRODUCTS AND APPLICATIONS
A summary of some of the Company's principal products and their typical
applications is set forth below:
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Product Suggested Retail Price
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PhotoDV (with FireWire) $299
MotoDV (with FireWire) $499
MotoDV Studio (with FireWire) $899
EditDV (with FireWire) $999
EditDV Unplugged $ 99
Software upgrades to:
PhotoDV $199
MotoDV $399
EditDV $799
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The prices listed above are suggested retail prices. Actual prices could vary
based on purchase volumes, competition, seasonality and promotions or other
sales incentives, among others.
DIGITAL VIDEO SYSTEMS AND SOFTWARE
Radius offers a number of products for both the multimedia authoring and
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
linear tape and the subsequent physical cutting and splicing of film segments.
PhotoDV is a software tool, used as an Adobe Photoshop import plug-in. It
is available with or without the Radius FireWire card and a digital interface
cable. PhotoDV enables a Digital Video ("DV") camcorder to perform as a still
image camera, in addition to being used to record video. Pictures are acquired
digitally over FireWire (IEEE 1394) and can be used for Web sites, picture
databases, printed pages, and QuickTime VR scenes. PhotoDV is available for
both the Macintosh and Windows operating systems.
MotoDV is an input/output utility that provides a digital method for moving
DV camcorder footage from the camcorder to a personal computer for the purpose
of editing. MotoDV is targeted at video designers and other creative
professionals who produce video and multimedia content for tape, CD-ROM, and Web
delivery. The MotoDV application remotely controls the DV camcorder or DV video
tape recorder over FireWire and captures DV clips, in real-time or time-lapse
mode. As clips are being captured, MotoDV converts the integrated DV data stream
into QuickTime movies with separate video and audio tracks. These clips can then
be imported into any QuickTime-compliant editing or special effects application,
including Radius EditDV, Adobe Premiere, and Adobe After Effects. MotoDV is
available for both the Macintosh and Windows operating systems. MotoDV Studio
builds on MotoDV by including Adobe Premiere for Windows and a set of custom
Radius developed plug-ins and is targeted towards the large installed base that
Adobe has for Premiere.
EditDV is a digital non-linear editing system which operates on the MacOS
in conjunction with digital camcorders, Apple's QuickTime (an industry standard
architecture of digital media) and FireWire connections. Users can create
digital video with multiple video and effects tracks, rubber-band audio, and
traditional wipes and fades for fast interactive editing, color modification and
keying.
EditDV also provides QuickTime-compliant digital video non-linear editing,
compositing and animation capability that facilitates the creation and editing
of digital video content. EditDV 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. It also offers a variety of high-quality special effects for
digital video editing including pan-zoom-rotating, chroma
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keying and compositing. EditDV Unplugged is an entry level version of EditDV
targeted to the beginning non-linear editor, and is available for both the
Macintosh and Windows operating systems.
The Company expects to continue to invest significant resources in its
software digital video products during fiscal 1999, including developing cross
platform functionality for the Windows environment, and intends to introduce
various enhancements to these products.
MONITOR AND COLOR PUBLISHING PRODUCTS
During fiscal 1998, the Company offered two large color reference displays
designed for desktop color publishers and graphic artists. The PressView SR
series was 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. During fiscal 1998, the Company also offered
the Prosense display calibrator. 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 adjusts information in the Macintosh graphics
card so that the colors will be accurate. As a result of the KDS transactions,
the Company does not expect to invest significant resources in the development
or distribution of such products in the future.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's current development focus is on developing digital video
acquisition products and editing tools for the Macintosh and Windows operating
systems. The Company's research and development efforts are focused on creating
new products and technologies for customers who create, review, approve and
utilize moving video. Current research and development efforts include: (i)
performance improvements and cost reductions of current products; (ii)
development of application software to facilitate the creation and manipulation
of video and high resolution still and full motion images; (iii) development of
technology to enable new methods of displaying and creating digital video
information with greater flexibility, speed, and quality; (iv) development of
technology to permit use of all of the Company's main digital video software
products in the Windows operating environment, including EditDV.
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 1998, 1997 and 1996, the Company's expenditures for research and
development totaled $2.8 million, $5.0 million and $7.5 million, respectively.
Of these expenditures 68.98%, 28.95% and 11.79%, respectively, were allocated to
the digital video software product line. To date, all of the Company's research
and development expenditures have been charged to operations as incurred.
Because of its smaller size and narrowing of product focus, the Company does not
anticipate having research and development expenditures equal to earlier levels
and there can be no assurance that the Company will be able to successfully
develop new or enhanced products, commercially successful products, or products
that will not be rendered obsolete by changing technology or new products
introduced by others. Additionally, should the Company fail to introduce new
products on a timely basis, the Company's operating results could be adversely
affected. The Company does plan to devote increasing percentages of its
research and development expenditures to products for the Windows or cross
platform markets. Although these markets are potentially much larger than the
Macintosh market, the Company has less experience in such markets and they are
known to become more competitive over time. 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 -- Technological
Change; Continuing Need to Develop New Products."
MARKETING, SALES AND DISTRIBUTION
Domestically the Company employs a two-tiered distribution model through
which it sells its products primarily through a limited number of
distributors 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 domestic distributors purchase products at discounts from suggested
retail prices based on purchase volumes. The Company also sells directly in
the United States using its site on the World Wide Web and its toll-free call
center. The Company major distributors are: Ingram Micro, Inc., Pinacor,
Canon, Broadfield, and Wynit. The Company's business and financial results
are highly dependent on the success of these distributors. To assist these
domestic distributors and to provide
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marketing, training and technical support, the Company provides sales
representatives in a number of locations in the United States. Radius also
provides market development funds to give distributors incentives to increase
sales, improve reporting and achieve a product mix favoring higher margin
products.
Internationally, sales are made through foreign distributors, which
market, sell and service the Company's products. During fiscal 1996, the
Company entered into exclusive distributor arrangements with respect to Japan
and Europe which resulted in revenues in the form of sales commissions,
rather than gross sales proceeds. These commission-based and exclusive
arrangements have been terminated and all international sales are currently
reported in terms of gross sales. For fiscal years ended September 30, 1998,
1997 and 1996, the Company's export sales accounted for approximately 23.4%,
15.7%, and 50.7% 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. During the third quarter of fiscal
1997, exclusivity with the Japanese distributor was terminated, however, no
other distribution relationship for Japan has been entered into by the
Company. During the fourth quarter of fiscal 1998, the Company terminated its
exclusive distribution contract for Europe. The Company is in the process of
establishing new distributors in Europe. During the fourth quarter of fiscal
1998, the Company appointed a marketing representative for Europe to assist
the Company in building a network of distributors. There is no assurance
that these efforts will increase sales and profits from these markets. 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 -- International Sales."
For the fiscal years ended September 30, 1998, 1997 and 1996 one customer
accounted for approximately 53.5%, 66.1%, and 34.3% of the Company's net sales,
respectively.
Many of the Company's distributors 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 active use
of its own web site and others on the world wide web, 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. 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.
COMPETITION
All markets in which the Company competes are expected to remain highly
competitive. The Company's principal competitors in the digital video market
include Adobe, Avid Technology, Inc. and Ulead. The market for the Company's
products is evolving, and it is difficult to predict all future sources of
competition. For example, Apple is expected to introduce a non linear digital
video editing product during fiscal 1999. Therefore, the Company could face
significant competition in the future from newly established companies or newly
introduced or improved products of others. Although Apple and Microsoft are
principally suppliers of general purpose computing platforms and other
applications upon which third parties are encouraged to build more complete
solutions, the Company may face competition from Apple and Microsoft. Apple
currently markets a number of products that compete directly or indirectly with
the Company. Apple and Microsoft 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 their systems' architecture in a
manner that could adversely affect the Company's ability to compete. 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 -- Dependence on and Competition with Apple and Microsoft.
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The Company believes that the principal competitive factors for its product
line are product performance, breadth of distribution, brand name recognition,
price and customer support. There can be no assurance that the Company will be
able to compete successfully with respect to these factors. In addition, many
of the Company's current and prospective competitors have significantly greater
financial, technical and marketing resources than the Company. As a result,
there can be no assurance that the Company will compete effectively with current
or future competitors or that competitive pressures faced by the Company will
not have a material adverse affect on the Company's business, financial
condition or results of operations. 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 -- Competition."
EMPLOYEES
As of October 30, 1998, the Company had approximately 42 full time
employees, 17 of which are in sales and marketing functions, 13 of which are in
research and development, and the balance are in administration (finance,
operations, and senior management). The Company's success will depend, in large
measure, on its ability to attract, motivate and retain highly qualified
technical, marketing, engineering and management personnel, who are in great
demand. 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 -- 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.
ITEM 2. PROPERTIES
The Company's primary facility is located in Mountain View, California
and consists of leased space of approximately 19,000 square feet. The
Company believes that its current facilities are sufficient for its current
needs. The lease on the primary facility will expire in April 1999. The
Company expects to be able to renew its current lease for a three year
period for an annual cost that is similar to its current annual costs. The
Company has subleased, to another company, a facility of approximately 86,000
square feet which the Company is currently not using. This master and
sublease arrangement expires in December 1998. The Company has no other
facilities.
ITEM 3. 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 infringe. In January 1996, the Company completed the
divestiture of the Color Server Group to Splash Technology Holdings, Inc.
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 or additional immunity with respect to elements
of 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.
In March 1998, EFI and the Company agreed to dismiss their remaining claims
against each other pending the outcome of EFI's appeal of this summary judgment
finding. Pursuant to this agreement, if the Company prevails on appeal, the
remaining claims will be dismissed. On the other hand, if EFI were to prevail
on appeal, then EFI could refile its claims and the Company would intend to
continue to vigorously defend against such claims and prosecute its own claims
against EFI. In such event, neither the Company nor Splash Technology Holdings,
Inc. would be able to advance the immunity defense ruled on in the summary
judgment motion, which would require the Company to defend EFI's claims based
upon their merits. EFI filed its notice of appeal on April 7, 1998, each party
submitted opening briefs, oral argument was heard in December 1998 and the
District Court summary judgement was affirmed by the Federal Circuit Court after
the oral argument. No further appeal is expected and the case should be
concluded.
(b) On July 18, 1997, Intelligent Electronics, Inc. ("IE") and its affiliates
filed a suit in the United States District Court for the District of Colorado
alleging a breach of contract and related claims in the approximate amount of
$800,000, maintaining that the Company failed to comply with various return,
price protection, inventory balancing and marketing development funding
-7-
<PAGE>
undertakings. In 1997, the Company filed an answer to the complaint and cross
claimed against the plaintiffs and in October 1997 additionally cross claimed
against Deutsche Financial, Inc., a factor in the account relationship between
the Company and the plaintiffs, seeking the recovery of approximately $2
million. The Company continues to investigate these claims as well as cross
claims and expects to vigorously defend and prosecute them as applicable. The
Company has provided reserves for the full amount of accounts receivable due
from Intelligent Electronics, Inc. and Deutsche Financial, Inc.
(c) 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Housley 42 Chairman of the Board of Directors,
Chief Executive Officer and President
</TABLE>
MARK HOUSLEY has been President and Chief Operating Officer of the Company
since January 1997, CEO since August 1997 and Chairman since December 1997.
From March 1995 until October 1996, Mr. Housley was founder and Vice President
of Marketing of Spectrum Wireless, Inc., a manufacturer of wireless
infrastructure products. From May 1992 until March 1995, Mr. Housley held
various positions of responsibility for the Company 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 AG in Santa Clara, a multinational
manufacturer of electronic equipment, directing product marketing and planning.
HENRY V. MORGAN was the Chief Financial Officer and Senior Vice President,
Finance and Administration since February 1997. He resigned from these
positions in September 1998 in order to assume his current duties at Redcreek
Communications, Inc., an Internet start up company. He remained Secretary to
the Company and was appointed to the Board of Directors in October 1998.
STEVE PETRACCA was the Senior Vice President of Engineering and Operations
since April 1997. He resigned from this position in March 1998.
-8-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock was 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, adjusted to reflect the
one-for-ten reverse split effective March 9, 1998. See "Recent Developments -
Potential Nasdaq SmallCap Market Delisting."
<TABLE>
<CAPTION>
Year Ended September 30, 1997 Low High
----------------------------- --- ----
<S> <C> <C>
First Quarter $4.69 $18.12
Second Quarter 3.12 5.31
Third Quarter 1.87 4.06
Fourth Quarter 2.50 7.19
Year Ending September 30, 1998
------------------------------
First Quarter 2.81 7.19
Second Quarter 2.25 4.37
Third Quarter 2.37 5.87
Fourth Quarter 0.94 2.94
</TABLE>
On September 30, 1998, there were approximately 2,207 holders of record of
the Company's Common Stock.
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, changes in the Company's results of
operations and financial condition and sales of large numbers of shares of
Common Stock by former creditors of the Company. Stock markets, and stocks of
technology companies in particular, have experienced extreme price volatility in
recent years. This volatility has had a substantial effect on the market prices
of securities issued by the Company and other high technology companies, often
for reasons unrelated to the operating performance of the specific companies.
Due to the factors referred to herein, the dynamic nature of the Company's
industry, general economic conditions, and other factors, the Company's future
operating results and stock prices may be subject to significant volatility in
the future. Such stock price volatility for the Common Stock has in the past
provoked securities litigation, and future volatility could provoke litigation
in the future that could divert substantial management resources and have an
adverse effect on the Company's results of operations.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company anticipates that it will retain any future earnings for use
in its business or the retirement of debt and does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total net sales $ 15,668 $ 31,150 $ 90,290 $ 308,133 $ 324,805
Cost of sales 9,921 31,032 77,382 302,937 276,948
--------- --------- --------- --------- ---------
Gross profit 5,747 118 12,908 5,196 47,857
Operating expenses:
Research and development 2,801 5,002 7,478 19,310 33,956
Selling, general and administrative 7,107 21,355 25,886 90,068 94,731
--------- --------- --------- --------- ---------
Total operating expenses 9,908 26,357 33,364 109,378 128,687
--------- --------- --------- --------- ---------
Loss from operations (4,161) (26,239) (20,456) (104,182) (80,830)
Other income (expense), net 12,353 30,600 24,032 (3,045) (376)
Interest expense (459) (2,777) (3,736) (3,023) (869)
Litigation settlement - - - (12,422) -
--------- --------- --------- --------- ---------
Income (loss) before income taxes 7,733 1,584 (160) (122,672) (82,075)
Provision (benefit) for income taxes (1,000) 316 815 9,070 (4,600)
--------- --------- --------- --------- ---------
Net income (loss) $ 8,733 $ 1,268 $ (975) $(131,742) $ (77,475)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Preferred stock dividend - 272 - - -
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ 8,733 $ 996 $ (975) $(131,742) $ (77,475)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share:
Basic net income (loss) per share applicable
to common shareholders * $ 1.58 $ 0.18 $ (0.46) $ (87.54) $ (56.97)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted net income (loss) per share applicable
to common shareholders * $ 1.57 $ 0.18 $ (0.46) $ (87.54) $ (56.97)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in per share computation:
Shares used in computing basic net income
(loss) per share * 5,522 5,389 2,125 1,505 1,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing diluted net income
(loss) per share * 5,557 5,522 2,125 1,505 1,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
SEPTEMBER 30, (1)
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Working capital (Working capital deficiency) $ (5,216) $ 7,909 $ 8,476 $(59,334) $ 29,856
Total assets 6,556 26,272 45,526 87,878 126,859
Long-term debt---noncurrent portion - - 22,213 1,331 2,857
Convertible preferred stock - - 3,000 - -
Shareholders' equity (Net capital deficiency) $ (5,083) $ 8,158 $ 3,960 $(57,117) $ 35,691
</TABLE>
* Reflects the one-for-ten reverse stock split effective March 9, 1998.
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<PAGE>
(1) The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal years 1993 and 1998. All other fiscal years
presented are 52 weeks. 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 consistency of presentation, all
fiscal periods in this Form 10-K are reported as ending on a calendar month end.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: The following discussion
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 that are subject to risks and uncertainties.
Statements indicating that the Company or management "intends", "plans",
"expects," "estimates" or "believes" are forward-looking, as are all other
statements concerning future financial results, product offerings or other
events that have not yet occurred. There are several important factors that
could cause actual results or events to differ materially from those anticipated
by the forward-looking statements contained in this discussion and other
sections of this Form 10-K. Such factors include, but are not limited to: the
Company's ability to achieve profitability; receipt of timely installment
payments from KDS; the Company's ability to repay its indebtedness to Silicon
Valley Bank; the Company's ability to successfully renew its lease of space for
its main offices in Mountain View; the Company's ability to successfully
conclude its litigation with IE; the success of the Company's digital video
software products on which the Company expects to be substantially dependent;
the success of the Apple Macintosh computer line and operating system, the
success of Apple, as well as the Company's ability to compete successfully with
Apple in its markets, including the non linear digital video editing software
market; the success of Apple's Quicktime technology for Windows; favorable
licensing terms for Quicktime from Apple; the Company's ability to successfully
develop, introduce and market new software products, including products for the
Windows operating system, to keep pace with technological innovation,
particularly in light of its limited financial resources; the Company's ability
to compete in the digital video software market, including with Apple; the
ability of the Company's manufacturers and suppliers to deliver components and
manufacture the Company's products; the Company's reliance on international
sales and its new distributor arrangements with respect to Europe and Japan; and
the Company's ability to attract and retain its key personnel.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated certain operational
data as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total net sales 100.0% 100.0% 100.0%
Cost of sales 63.3 99.6 85.7
----- ----- -----
Gross profit 36.7 0.4 14.3
Operating Expenses:
Research and development 17.9 16.1 8.3
Selling, general, and administrative 45.3 68.5 28.7
----- ----- -----
Total operating expenses 63.2 84.6 37.0
----- ----- -----
Loss from operations (26.5) (84.2) (22.7)
Other income (expense), net 78.8 98.2 26.6
Interest expense (2.9) (8.9) (4.1)
----- ----- -----
Income (loss) before income taxes 49.4 5.1 (0.2)
Provision (benefit) for income taxes (6.3) 1.0 0.9
----- ----- -----
Net income (loss) 55.7% 4.1% (1.1)%
----- ----- -----
----- ----- -----
</TABLE>
-11-
<PAGE>
FISCAL 1998 TO FISCAL 1997
NET SALES. The Company's net sales for fiscal 1998 decreased 50% to $15.7
million from $31.2 million for fiscal 1997. The decline is due primarily to the
following factors: the Company's efforts to refocus its efforts on its digital
video software product lines while discontinuing the development of its color
publishing, accelerated color graphics products and its DOS on Mac products; and
a decline in fourth quarter sales of its color publishing products due to the
agreement for the license of significant assets of its monitor business to Korea
Data Systems America, Inc. ("KDS"). The color display products had $8.7 million
in sales for fiscal 1998 as compared to $16.6 million for fiscal 1997. As a
result of these factors, product sales decreased 45.9% in fiscal 1998 from
fiscal 1997. Commissions and royalties decreased in fiscal 1998 by 77.3% to $1.1
million from $4.9 million in fiscal 1997 due to the termination of the exclusive
distributor relationships in Europe and Japan and due to the expiration of the
royalty agreement with Umax Computer Corporation in March 1998. Also as a
result of the distributor relationships in Japan and Europe, the Company's
export sales for fiscal 1998 declined to $3.7 million as compared to $4.9
million for fiscal 1997. The Company anticipates that sales in Asia will remain
weak for the near future. Sales growth in the Asia market has been impacted by
certain factors including weaker economic conditions and stronger dollar versus
the local currencies.
Revenue is recognized when products are shipped. Sales to certain
distributors are subject to agreements allowing certain rights of return and
price protection on unsold merchandise held by these distributors. The
Company provides for estimated returns at the time of shipment and for price
protection following price declines. Revenue earned under royalty or
commission agreements is recognized in the period in which it is earned.
As a result of the KDS transaction, the Company anticipates significantly
lower overall net sales in the immediate future. Future sales will be
predominately attributable to sales of software products since the Company's
digital video product line is primarily software. Revenue recognition related
to software product sales is as follows: Revenue from the sale of software, net
of estimated returns, is recognized upon either shipment of the physical product
or delivery of electronic product, at which time, collectibility is probable and
the Company has no remaining obligations.
In May 1997, the Financial Accounting Standards Board approved the American
Institute of Certified Public Accountants Statement of Position, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides revised and expanded
guidance on software revenue recognition and applies to all entities that earn
revenue from licensing, selling or otherwise marketing computer software. SOP
97-2 is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The application of SOP 97-2 is not expected to have a
material impact on the Company's results of operations.
The sale of the software products for digital video camcorders (PhotoDV
introduced in April 1997 and MotoDV introduced in September 1997 and EditDV
introduced in November 1997) have increased during 1998. There can be no
assurance that sales of these software products will continue to increase or
that they will increase to a sufficient extent to offset the elimination of
hardware sales.
Effective January 1, 1998, the Company modified its relationships with its
distributors in Japan and Europe for its digital video software products. Rather
than paying commissions to Radius for products sold, they purchase products
from the Company at a discount from the price list. Commissions will still be
paid on the sales of the Company's other products sold through these
distributors, although the Company believes that these sales will not be
material.
One customer accounted for 53.5% of the Company's net sales for fiscal
1998. For fiscal 1997 the same distributor accounted for 66.1% of the Company's
net sales.
GROSS PROFIT. The Company's gross profit margin was 36.7% for fiscal 1998,
as compared with 0.4% for fiscal 1997. This increase was a result of the
Company's decision to refocus its business on higher margin digital video
software products. Included in fiscal 1997 cost of sales are one-time charges
of $9.7 million consisting principally of inventory write downs of $7.7 million
and reserves for excess purchase order commitments of $2.0 million for inventory
in excess of anticipated demand. These charges reflect decreases in demand and
the Company's decision to refocus its business. Excluding these one-time
charges, gross profit margin in fiscal 1997 was 31.5%.
The Company expects the gross profit margins will be higher in the future
due to the impact of the decreased sales of monitor products and focus on sales
of higher gross margin software products. Additionally, the Company is taking
further steps to reduce product costs and control expenses. However, there can
be no assurance that the Company's gross margins will improve or remain at
current levels.
-12-
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased from $5.0 million or 16.1% of net sales for fiscal 1997 to $2.8
million or 17.9% of net sales for fiscal 1998. 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. The
increase in research and development expenses expressed as a percentage of net
sales for fiscal 1998 was primarily attributable to the decrease in net sales
and the Company's refocusing on higher margin products, rather than high volume,
lower margin products. The Company expects that decreases in its research and
development expenses due to the de-emphasis in its monitor business will be
offset by increases in the expenses for the digital video product line and
therefore, expects to devote approximately $3.0 million to research and
development during the entire fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $21.4 million or 68.6% of net sales for
fiscal 1997 to $7.1 million or 45.4% of net sales for fiscal 1998. Included in
these expenses for fiscal 1997 is a $2.6 million charge to increase the
allowance for doubtful accounts due to accounts which the Company determined
were unlikely to be collected in full. Adjusting for these charges and
reductions, selling, general and administrative expenses would have been $18.8
million or 60.3% of net sales in fiscal 1997. The Company decreased its fiscal
1998 selling, general and administrative expenses in absolute and percentage
terms primarily by reducing expenses related to headcount resulting from the
Company's efforts to refocus its business. Although the Company expects
selling, general and administrative expenses to increase gradually over time,
the Company does not expect them to approach historical levels in absolute
amount.
OTHER INCOME (EXPENSE), NET. Other income was $12.4 million for fiscal
1998 compared to $30.6 million for fiscal 1997. The other income for fiscal
1998 was due to the sale of 570,139 shares of Splash Common Stock compared to
996,875 shares of Splash Common Stock in fiscal 1997. Fiscal 1998 also includes
$1.6 million related to the KDS license.
INTEREST EXPENSE. Interest expense was $0.5 million for fiscal 1998 as
compared to $2.8 million for fiscal 1997. This decrease was due to lower
average borrowings primarily as a result of the repayment of the working capital
line of credit to IBM Credit.
PROVISION FOR INCOME TAXES. The Company recorded a reversal of accrual for
income taxes of $1.0 million for fiscal 1998 compared to a provision of $0.3
million for fiscal 1997. The reversal reflects the fact that exposure in
certain foreign jurisdictions, as a result of the passage of time, has become
remote. The provision for fiscal 1997 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 offset by the impact of previously unused
net operating losses and the reversal of existing deferred tax assets.
FASB Statement 109, Accounting for Income Taxes, 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
assets 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 approximate $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 without full utilization. See Note 5 of
Notes to Consolidated Financial Statements.
NET INCOME (LOSS). As a result of the above factors, the Company had net
income of $ 8,733,000 in fiscal 1998 compared to a net income of $996,000 for
fiscal 1997.
FISCAL 1997 TO FISCAL 1996
NET SALES. The Company's net sales for fiscal 1997 decreased 65.5% to
$31.2 million from $90.3 million for fiscal 1996. The decline is due to the
following factors: the Company's efforts to refocus its business on higher
margin products; the divestiture of certain business units, such as its Color
Server Copy Group which had $7.0 million in sales for fiscal 1996; entering into
distributor arrangements for Japan and Europe effective April 1, 1996 and July
1, 1996, respectively, which relationships provide for the Company to recognize
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 which was
recognized by the Company as net sales prior to the appointment of these
distributors; uncertainty regarding the viability of the Apple Macintosh product
line; and the slow development of the 3D graphics market due to limited
applications software availability. As a result of these factors, product sales
decreased 70.2% in fiscal 1997 from fiscal 1996. Commissions and royalties
increased in fiscal 1997 by 125.5% to $4.9 million from $2.2 million in
-13-
<PAGE>
fiscal 1996 due to the distributor relationships in Europe and Japan and due to
royalties paid by Umax Computer Corporation under its license agreement for the
MacOS compatible systems signed in February 1996. Also as a result of the
distributor relationships in Japan and Europe, the Company's export sales for
fiscal 1997 declined to 15.7% of net sales as compared to 50.7% of net sales for
fiscal 1996.
One customer accounted for 66.1% of the Company's net sales for fiscal
1997. For fiscal 1996 the same distributor accounted for 34.3% of the Company's
net sales.
GROSS PROFIT. The Company's gross profit margin was 0.4% for fiscal 1997,
as compared with 14.3% for fiscal 1996. Included in fiscal 1997 cost of sales
are one-time charges of $9.7 million consisting principally of inventory write
downs of $7.7 million reflecting current market conditions for the Company's
products and reserves for excess purchase order commitments of $2.0 million for
inventory in excess of anticipated demand. These charges reflect decreases in
demand and the Company's decision to refocus its business. Included in fiscal
1996 cost of sales was a one-time charge of $3.5 million resulting from the
Company's financial restructuring completed in September 1996. Excluding these
one time charges, gross profit margin in fiscal 1997 was 31.5% compared to 18.3%
in fiscal 1996. This increase was a result of the Company's decision to refocus
its business on higher margin products.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased from $7.5 million or 8.3% of net sales for fiscal 1996 to $5.0 million
or 16.1% of net sales for fiscal 1997. 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 1997 was primarily attributed to the decrease
in net sales and the Company's refocusing on higher margin products, rather than
high volume, lower margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $25.9 million or 28.7% of net sales for
fiscal 1996 to $21.4 million or 68.6% of net sales for fiscal 1997. Included in
these expenses for fiscal 1997 is a $2.6 million charge to increase the
allowance for doubtful accounts due to accounts which the Company determined
were unlikely to be collected in full. Included in these expenses for fiscal
1996 was a reduction of $0.9 million in restructuring reserves to reflect the
then current requirements. Adjusting for these charges and reductions, selling,
general and administrative expenses would have been $18.8 million or 60.3% of
net sales in fiscal 1997, compared to $26.8 million or 29.7% of net sales in
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. The
increase in selling, general and administrative expenses expressed as a
percentage of net sales was primarily attributed to the decrease in net sales
and the Company's refocusing on higher margin products, rather than high volume,
lower margin products.
OTHER INCOME (EXPENSE), NET. Other income was $30.6 million for fiscal
1997 compared to $24.0 million for fiscal 1996. The other income for fiscal
1997 was due to the sale of 996,875 shares of Splash Common Stock in August
1997. The other income in fiscal 1996 was primarily due to approximately $23.8
million resulting from the Company's divestitures of three business lines,
including the Color Server Group.
INTEREST EXPENSE. Interest expense was $2.8 million for fiscal 1997 as
compared to $3.7 million for fiscal 1996. This decrease was due to lower
average borrowings.
PROVISION FOR INCOME TAXES. The Company recorded a provision for income
taxes of $316,000 for fiscal 1997 as compared to $815,000 for fiscal 1996. The
provision for fiscal 1997 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 offset by the impact of previously unbenefited net
operating losses and the reversal of existing deferred tax assets. 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.
NET INCOME (LOSS). As a result of the above factors, the Company had net
income of $996,000 in fiscal 1997 compared to a net loss of $975,000 for fiscal
1996. The Color Server Group had net income of approximately $0.9 million for
fiscal 1996. Had this business not been included in the calculation of the
Company's net loss for fiscal 1996, the Company would have had a net loss of
approximately $1.9 million.
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,
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<PAGE>
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 at September 30, 1995 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 Technology Inc. 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 remaining balance of $44,000 in its
restructuring reserve, which related to facility costs, was eliminated in fiscal
1997.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES. In September 1995,
Radius recorded charges of $57.9 million in connection with the Company's
efforts to restructure its operations by refocusing its business on the color
publishing and multimedia markets. The charges primarily included a writedown
of inventory and other assets. Additionally, the charges included expenses
related to the cancellation of open purchase orders, excess facilities and
employee severance. The charges (in thousands) are included in cost of sales
($47,004), and selling, general and administrative expense ($10,861). The
remaining balance of $20,000 in its restructuring reserve, which related to
employee severance costs, was eliminated in fiscal 1998.
DIVESTITURES
COLOR SERVER GROUP DIVESTITURE. In January 1996, the Company completed the
sale of its Color Server Group ("CSG") to Splash Merger Company, Inc. (the
"Buyer"), a wholly owned subsidiary of Splash Technology Holdings, Inc.
("Splash"), 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 Splash'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. As of September 30, 1998, $2.0 million remained in
this escrow. See Note 14 to Consolidated Financial Statements. The shares of
Series B Preferred Stock were converted into shares of Splash Common Stock in
connection with the initial public offering of Splash. Such stock was 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 a nominal amount (174,113 shares of Splash Common Stock after conversion).
The Company has certain indemnification obligations in connection with the
patent lawsuit brought by Electronics for Imaging, Inc. (See Note 3 to
Consolidated Financial Statements). 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. As of July 1998, IBM Credit had
exercised all its option to purchase Splash Common Stock and the working capital
line of credit with IBM Credit was fully repaid in fiscal 1998.
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 Company does not expect to realize
any material value from PDL's Common Stock.
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 UCC Common
Stock. The cash proceeds were paid to IBM Credit and the shares of UCC Common
Stock were pledged to IBM Credit. In March 1998, due to Apple Computer's
reversal in MacOS licensing policy, the Company sold the Common Stock of Umax
Computer Corporation held by it to Umax Data Systems, Inc. for $550,000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $0.2
million during fiscal 1998 to approximately $0.6 million at September 30, 1998,
as compared with the fiscal 1997 ending balance of cash and cash equivalents of
$0.8 million. Approximately $0.1 million of the $0.6 million of cash and cash
equivalents available at September 30, 1998 was restricted under a letter of
credit. The decrease in the Company's cash and cash equivalents during fiscal
1998 was primarily attributable to funding of operating losses of the Company.
As of September 30, 1998, the Company's total assets had decreased to $6.6
million from $26.3 million on September 30, 1997. The Company's liabilities
exceeded its assets. This was due primarily to the substantial decline in the
trading price of Splash Common Stock from $38.75 as of the end of fiscal 1997 to
an average of $19.52 which was realized on the sale of the Splash Common Stock
during fiscal 1998. The proceeds of the sale of the Splash Common Stock were
used to repay in full the working line of credit with IBM Credit, and to fund
the operating losses of the Company.
Under the license and asset transfer agreement with KDS, Radius has
transferred (by licensing or by assignment if KDS elects to close the asset
transfer agreement) its Radius, Supermac, PressView and certain other trademarks
to KDS and has licensed certain intellectual property pertaining to PressView
and PrecisionView monitors. KDS has not agreed to purchase any inventory or
other tangible assets of Radius under these agreements. The expected value of
the transaction is $6.2 million which is payable in installments, including
$0.85 million paid in August 1998 and $0.35 million in September 1998 and $0.5
million in June 1998. The remaining amount is payable in installments through
October 1999. KDS' performance is guaranteed by a Korean corporation and its US
affiliate. The asset transfer agreement is expected to close by June 1999, if
contingencies are satisfied. These installment payment obligations have been
pledged to secure a $4.2 million line of credit from Silicon Valley Bank. There
can be no assurance that the closing will occur or that installment payments
under the license will be timely made.
The Company had agreed with KDS to continue to support the sale of monitors
through the Company's sales force during August and September 1998 in return for
$55,000 a month and a sharing of the gross margin from the sale of the monitor
products during this period. The Company will provide a diminishing level of
support until KDS has fully assumed all relevant activities. KDS will reimburse
the Company for this support.
The Company believes that the cash flows from KDS, results of operations
and other sources of financing will be sufficient to fund operations for at
least the next 12 months. However, there can be no assurances that the sale of
software products will continue to increase to a sufficient extent to offset the
loss of revenues and gross margin from the monitor business or that the
installment payments will be timely made. The Company may need to further
reduce its operating expenses or seek additional sources of working capital if
software product sales do not increase at the rate assumed in the Company's
current operating plans. The Company and its management believes that it can
further reduce such operating expenses, if necessary, and that other sources of
financing will be available.
The Company's principal sources of liquidity currently are cash generated
by operations, if any, and up to $4.2 million working capital line of credit
provided by Silicon Valley Bank which is secured by the installment payment
obligations of the KDS transaction. Under the terms of the $4.2 million working
capital line of credit, the amount available to borrow will be decreased by
eighty percent of the payments made by KDS, since the borrowing base under the
working capital line of credit is eighty percent of the unpaid balance of KDS'
installment obligations. As the borrowing base is dependent on the continued
payment of monthly installments, there can be no assurance that it will be
sufficient to allow the Company to borrow up to the full amount of the working
capital line of credit.
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. 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."
Capital expenditures were approximately $0.1 million during fiscal 1998,
$0.1 million in fiscal 1997 and $0.2 million in fiscal 1996 and were primarily
for leasehold improvements and upgrading the Company's management information
systems. The Company expects this level of expenditures to continue in fiscal
1999 barring unexpected developments. See Management's Discussion and Analysis
of Financial Condition and Results of Operation -- Certain Factors That May
Affect the Company's Future Results of Operations -- Impact Year 2000.
At September 30, 1998, the Company's principal commitments consisted of
obligations under a loan agreement with Silicon Valley Bank and its obligations
under building leases. See Notes 2 and 3 to Consolidated Financial Statements.
The
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Company is also a party to various litigation proceedings, the costs of
defending or the outcome of which could adversely affect the Company's
liquidity. See "Business -- Legal Proceedings."
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, the following:
CONTINUING OPERATING LOSSES
The Company experienced operating losses in each of its prior five fiscal
years. In the future, the Company's ability to achieve and subsequently 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 Silicon Valley Bank; timely receipt of the KDS
transaction installment payments; the Company's ability to generate sufficient
cash from operations or obtain additional funds to fund its operating expenses;
the Company's ability to successfully market its software products; the
Company's ability to develop innovative and cost-competitive new products and to
bring those products to market in a timely manner; the commercial acceptance of
Apple computers and the MacOS and the rate and mix of Apple computers and
related products sold; the Company's ability to successfully develop and market
products for the Microsoft Windows and NT operating systems in a timely manner;
competitive factors such as new product introductions, product enhancements and
aggressive marketing and pricing practices; general economic conditions; the
Company's ability to successfully negotiate a lease renewal for its main office
facility, and negotiate a settlement or other favorable conclusion of the EFI
and IE litigation; and other factors. For these and other reasons, there can be
no assurance that the Company will be able to achieve or subsequently 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 relationships 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 mateial adverse effect on
the Company's business, results of operations and financial condition. The
Company also completed a variety of business divestitures during fiscal 1996,
1997 and 1998, 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 and has licensed (and agreed to sell) its
monitor business in August 1998. In addition, the Company is focusing its
efforts on developing and marketing software products, an area in which it has
limited experience. 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."
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NEED FOR ADDITIONAL FINANCING; LOAN RESTRICTIONS
As of September 30, 1998, the Company had a working capital deficit of
$5.2 million. The Company intends to finance its working capital needs
through cash generated by operations and borrowings under a working capital
line of credit with Silicon Valley Bank. Because the Company has experienced
operating losses in each of its prior five fiscal years and has liabilities
in excess of assets, the Company must significantly reduce operating expenses
and/or significantly increase net sales in order to finance its working
capital needs with cash generated by operations. There can be no assurance
that the Company will be able to successfully fund its working capital needs
internally.
Although the Silicon Valley Bank loan provides for a working capital line
of credit of up to $4.2 million, the Company will only be able to borrow amounts
up to the "borrowing base" which is defined as eighty percent of the unpaid
portion of the KDS transaction installment payments. Once the line of credit
has been reduced to zero, the Company does not expect that it will be a source
of working capital in the future.
In the event that cash from operations and the working capital line of
credit are insufficient to fund the Company's working capital needs, the Company
may need to raise additional capital through public or private financing,
strategic relationships or other arrangements. There can be no assurance that
the Company will be able to raise additional capital on commercially reasonable
terms or at all. The failure of the Company to raise capital when needed would
have a material adverse effect on the Company's business, operating results and
financial condition. If the additional funds are raised through the issuance of
equity securities, the percentage ownership of the Company of its then-current
shareholders would be reduced. Furthermore, such equity securities might have
rights, preferences or privileges senior to those of the Company's Common Stock.
DEPENDENCE ON AND COMPETITION WITH APPLE
Although the Company has begun to market certain products for the Windows
environment, it is expected that sales of products for Apple computers will
continue to represent a significant portion of the Company's sales for fiscal
1999. Apple has lost significant market share over recent years. The Company's
operating results would be adversely affected if these trends should continue or
if other developments were to adversely affect Apple's business. Furthermore,
any continued 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 further reduced demand for Apple computers, which
in turn could materially and adversely affect sales of the Company's 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,
newer versions of the Windows operating environment support high performance
graphics and video applications similar to those offered on the Macintosh.
There is a risk that this trend will reduce the support given to Macintosh
products by third party developers and could substantially reduce demand for
Macintosh products and peripherals over the long term.
A number of the Company's products compete with products marketed by Apple.
As a competitor of the Company, Apple could in the future take steps to hinder
the Company's development of compatible products and slow sales of the Company's
products. The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not fully met by Apple's products.
As Apple improves its products or bundles additional hardware or software into
its computers, it reduces the market for Radius products that provide those
capabilities. 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. In addition,
Apple may introduce a non linear digital video software editing program during
fiscal 1999 which could adversely affect and reduce sales of EditDV. 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.
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DEPENDENCE ON AND COMPETITION WITH MICROSOFT
New products introduced by Microsoft could cause customers to defer or
alter buying decisions due to uncertainty in the marketplace, as well as present
additional competition for the Company. In addition, it is possible that the
introduction of new Microsoft 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, its ability to repay its
indebtedness, 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 experienced
substantial delays in its ability to fill customer orders due to the inability
of certain manufacturers to meet their volume and schedule requirements. There
can be no assurance that 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. Certain other components are
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,
particularly in light of the Company's financial condition. 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.
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TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The video applications industry is 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. As a result of the Company's financial condition, it has
had to significantly reduce its research and development expenditures. For the
1998 fiscal year, the Company spent approximately $2.8 million, for the 1997
fiscal year, the Company spent approximately $5.0 million on research and
development as compared with approximately $7.5 million for the 1996 fiscal
year. 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, in
particular digital video editing products for use with digital video camcorders.
As a result, the Company has devoted significant resources to this product line.
There can be no assurance that this evolution will occur in the digital 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 digital video editing products developed by the Company will
achieve consumer acceptance or broad commercial success. 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, particularly in light of the fact that the
Company has licensed or sold its remaining hardware product lines over the last
three years.
DEPENDENCE ON INDIRECT DISTRIBUTION CHANNELS
The Company's primary means of distribution is through a limited number of
third-party distributors that are not under the direct control of the Company.
Furthermore, the Company relies on one primary distributor for its sales in
Japan and is creating a new distribution network in Europe. The Company
maintains only a small 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. Such orders are in turn
dependent upon the continued viability and financial condition of these
distributors as well as on their ability to resell such products and maintain
appropriate inventory levels. Furthermore, many of these distributors 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. In addition, due in part to the historical volatility of
the personal computer industry, certain of the Company's distributors 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. If
its 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 distributors
for Japan and Europe, respectively. Effective January 1, 1998, the Company
modified its relationships with these distributors for its digital video
software products. Rather than paying commissions to Radius for products sold,
they purchase products from the Company at a discount from the price list.
Commissions will still be paid on the sales of the Company's other products sold
through these distributors, although the Company believes that these sales will
not be material. Although such distribution arrangements are no longer
exclusive, no other distributor has yet been retained in either area.
The Company expects that international sales, primarily in Europe, 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.
Sales in Japan could be affected by the economic conditions in that region,
which are currently unfavorable. Sales in Asian markets, which are also
unfavorable, have not been, and the Company does not expect them to be, material
in the future outside of Japan. Furthermore, a reduction in sales efforts or
financial viability of the distributors could adversely affect the Company's net
sales and its ability to provide service and support
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to Japanese and European customers. Additionally, fluctuations in exchange
rates could affect demand for the Company's products. If for any reason
exchange or price controls or other restrictions on foreign currencies are
imposed, the Company's business, operating results and financial condition could
be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. The Company currently has one Executive
Officer. 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 senior management
team have departed since 1997, including its former President and Chief
Executive Officer, two Chief Financial Officers and four other Vice Presidents,
and the Company has also had substantial layoffs and other employee departures.
Because of the Company's financial difficulties and the very tight labor market
for technical personnel, it has become increasingly difficult for it to hire new
employees and retain key management and current employees. The failure of the
Company to attract and retain key personnel would have a material adverse effect
on the Company's business, operating results and financial condition.
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 --
Litigation."
IMPACT OF YEAR 2000
The year 2000 Issue ("Y2K Issue") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs or hardware that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company's plan to resolve the Y2K Issue involves the following four phases:
assessment, remediation, testing, and implementation. To date, the Company has
fully completed its assessment of all internal systems and products that could
be significantly affected. The assessment of risks associated with suppliers
and distributors is not yet complete.
Based on recent assessments of its information management and accounting
systems, the Company has determined that it will be required to modify or
replace significant portions of its software and certain hardware so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with such modifications, the Y2K Issue can be mitigated
without a material adverse impact on the Company. However, if such
modifications and replacements are not timely made, the Y2K Issue could have a
material impact on the operations of the Company. None of these systems
interoperate directly with the systems of suppliers or distributors.
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Based on a review of its product line, the Company has determined that
primarily all of the products it has sold and will continue to sell do not
require remediation to be Year 2000 compliant, as primarily all operate in
conjunction with the MacOS. Accordingly, the Company does not believe that the
Y2K Issue presents a material risk with respect to the Company's products.
The Company is approximately 50% through the remediation phase with respect
to its information management and accounting systems and expects to complete
software and hardware replacement no later than September 30, 1999. Once the
software and hardware is replaced for a system, the Company begins testing and
implementation. These phases run concurrently for different systems. The
Company has completed 50% of its testing. Completion of the testing phase for
all significant software systems is expected by January 31, 1999, with all
remediated systems fully tested and implemented by December 31, 1999.
None of the Company systems interface directly with significant third party
suppliers. The Company is starting the process of working with third party
suppliers and distributors to ensure that any Company systems that could
interface directly with third parties are Year 2000 compliant by December 31,
1999. Remediation and testing of all significant systems is expected no later
than December 31, 1999. The Company believes that its key suppliers, two of
whom are sole sources, are in the process of making their billing systems Year
2000 compliant. The Company is not aware of any supplier or distributor with a
Y2K Issue that would materially impact the Company's results of operations,
liquidity, or capital resources. However, the Company has no means of ensuring
that such suppliers and distributors will be Year 2000 ready. The inability of
suppliers and distributors to complete their Year 2000 resolution process in a
timely fashion could materially impact the Company. There are no vendors that
could not be replaced in a reasonable period of time, except for transport
vendors. The failure of Fedex, UPS, Airborne and the U.S. Mail would impact
direct sales. The effect of this occurrence is not determinable.
The Company will utilize both internal and external resources to reprogram,
or replace, test, and implement the software and operating equipment for Year
2000 compliance. The total future cost of the Year 2000 compliance is estimated
at $200,000 to $600,000 and is being funded through net cash flows or capital
leases. Some of these expenditures were likely to have been made in the
ordinary course of upgrading and replacing obsolete systems without regard to
the Y2K Issue. Through fiscal 1998, the Company has incurred less than $100,000
related to all phases of the Year 2000 project and $100,000 has been budgeted
for fiscal 1999, under the assumption that most of the new system cost will be
funded via leasing.
Management of the Company believes it has an effective program in place to
resolve those aspects of the Y2K Issue within its control in a timely manner.
As noted above, the Company has not completed all necessary phases of the Year
2000 program. In the event that the Company does not complete these phases, the
Company would be unable in some degree to take customer orders, manufacture and
ship products, invoice customers and collect payments. In addition, disruptions
in the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, for example, equipment shutdown or failure to
properly date business records. Furthermore, although Management is not aware
of any Y2K Issue with products sold, there can be no assurance that the use of
such products alone or in conjunction with other products will not malfunction
and expose the Company to liability. The amount of potential liability and lost
revenue associated with these risks cannot be reasonably estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies. All of the Company's production, shipping, purchasing, billing and
inventory functions could be accomplished via outsource vendors that are
currently readily available, although there can be no assurance that such
vendors will be available on reasonable terms as the millenium approaches.
-22-
<PAGE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to the Company's Financial Statements, Financial Schedules, and
the Report of the Independent Auditors appears in Part IV of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
-23-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning the Company's directors required by Item 10
is incorporated by reference herein to section entitled "Proposal No. 1 -
Election of Directors" of the Proxy Statement for its 1999 Annual Meeting of
Shareholders (the "Proxy Statement"). The information concerning the Company's
executive officers required by Item 10 is incorporated by reference to Item 4A
in Part 1 hereof entitled "Executive Officers of Registrant."
With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the sections entitled "Executive Compensation" and "Proposal No. 1 - Election
of Directors--Compensation of Directors" of the Proxy Statement.
With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Transactions" of the Proxy Statement.
With the exception of the information specifically stated as being
incorporated by reference from the Company's Proxy Statement in Part III of this
Annual Report on Form 10-K, the Company's Proxy Statement is not to be deemed as
filed as part of this report. The Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days of the Company's fiscal year
end.
-24-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS. The Company's financial statements filed
herewith are as follows:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 31
Consolidated Balance Sheets at September 30, 1998 and 1997 32
Consolidated Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996 33
Consolidated Statements of Convertible Preferred Stock and
Shareholders' Equity for the Years Ended September 30, 1998,
1997, and 1996 34
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1997, and 1996 35
Notes to Consolidated Financial Statements 36
<CAPTION>
(a) (2) FINANCIAL STATEMENT SCHEDULES. The Company's financial
statement schedule filed herewith is as follows:
Page
----
<S> <C>
Schedule II: Valuation and Qualifying Accounts 52
</TABLE>
All other financial statement schedules are omitted because the
information called for is not present in amounts sufficient to
require submission of the schedules or because the information
required is shown either in the financial statements or the notes
thereto.
(a) (3) The following exhibits are filed herewith or incorporated by
reference herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C> <C>
2.01 -- Agreement and Plan of Reorganization dated May 20, 1994
between Radius Inc. and SuperMac Technology, Inc. (1)
2.02 -- Modification Agreement dated July 21, 1994 to Agreement and
Plan of Reorganization between Radius Inc. and SuperMac
Technology, Inc. (1)
2.07 -- 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)
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C> <C>
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. (17)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc. (17)
3.02 -- Registrant's Bylaws. (6)
4.01 -- Specimen Certificate for shares of Common Stock of the
Registrant. (7)
4.03 A Warrant dated September 13, 1995 between IBM Credit
Corporation and the Registrant. (17)
B Warrant dated October 13, 1996, between Mitsubishi Electronics
America, Inc. and the Registrant. (18)
4.04 -- Form of Registration Rights Agreement between the Registrant
and certain shareholders. (17)
A The Registrant's Sixth Amended and Restated Articles of
Incorporation. (5)
B Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation. (3)
C Certificate of Amendment of Registrant's Sixth Amended and
Restated Articles of Incorporation.
(See exhibit 3.01)
D Certificate of Determination of Preferences of Series A
Convertible Preferred Stock of Radius Inc.
(See exhibit 3.01).
4.05 -- The Registrant's Bylaws. (6)
4.06 -- *Non-Plan Stock Option Grant to Charles W. Berger. (8)
10.01 A *Registrant's 401(k) Savings and Investment Plan. (9)
B *Amendment to Registrant's 401(k) Savings and Investment
Plan. (3)
C *Registrant's 401(k) Savings and Investment Plan Loan
Policy. (3)
10.02 -- *Registrant's 1995 Stock Option Plan. (3)
10.03 -- *Form of Stock Option Agreement and Exercise Request as
currently in effect under 1995 Stock Option Plan. (3)
10.04 -- *Registrant's 1990 Employee Stock Purchase Plan and related
documents. (10)
10.05 -- *Registrant's 1994 Directors' Stock Option Plan. (3)
10.06 -- Form of Indemnity Agreement with Directors. (7)
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C> <C>
10.08 A Credit Agreement by and among Radius Inc., the certain
financial institutions, and International Business Machines
Credit Corporation, dated February 17, 1995. (11)
B Acknowledgment, Waiver and Amendment to Radius Inc. Inventory
and Working Capital Financing Agreement by and between Radius
Inc. and International Business Machines Credit Corporation
dated December 14, 1995. (3)
C Amended and Restated Working Capital and Term Loan Agreement
dated as of August 30, 1996 between IBM Credit Corporation and
the Registrant. (18)
D Amended and Restated Working Capital and Term Loan Agreement
dated as of May 12, 1997 between IBM Credit Corporation and
the Registrant. (19)
E Amended and Restated Working Capital and Term Loan Agreement
dated as of November 10, 1997 between IBM Credit Corporation
and the Registrant. (24)
F Amended and Restated Working Capital and Term Loan Agreement
dated as of January 8, 1998 between IBM Credit Corporation and
the Registrant. (21)
G Amended and Restated Working Capital and Term Loan Agreement
dated as of April 16, 1998 between IBM Credit Corporation and
the Registrant. (22)
10.09 A Lease Agreement by and between Registrant and the Equitable
Life Assurance Society of the United States dated June 22,
1988, as amended by the Commencement of Term Agreement dated
February 13, 1989 and Amendment No. One dated July 20, 1989,
and related documents (1710 Fortune Drive, San Jose,
California offices). (7)
B Second Amendment to Lease dated January 27, 1993 amending
Lease Agreement by and between Registrant and the Fortune
Drive Partners (successor in interest to the Equitable Life
Assurance Society of the United States) dated June 22, 1988
(1710 Fortune Drive, San Jose, California offices). (12)
10.13 -- *SuperMac Technology, Inc.'s 1988 Stock Option Plan ("Option
Plan"). (15)
10.14 -- *SuperMac Technology, Inc.'s Form of Incentive Stock Option
Agreement under the Option Plan. (15)
10.15 -- *SuperMac Technology, Inc.'s Form of Supplemental Stock Option
Agreement under the Option Plan. (15)
10.16 -- *SuperMac Technology, Inc.'s Form of Early Exercise Stock
Purchase Agreement under the Option Plan. (15)
10.17 -- 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. (16)
10.18 -- *Employment Agreement by and between Registrant and Mark
Housley dated December 20, 1996. (20)
10.19 Asset Purchase Agreement dated as of August 7, 1998 between
Korea Data Systems America, Inc. and the Registrant. (23)
10.20 -- Amended and Restated License Agreement dated as of August 7,
1998 between Korea Data Systems America, Inc. and the
Registrant. (23)
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C> <C>
10.21 -- Credit Agreement by and among Radius Inc., the certain
financial institutions, and Silicon Valley Bank, dated August
28, 1998.
10.22 -- Asset Purchase Agreement dated as of November 23, 1998 between
Post Digital Software, Inc. and the Registrant.
10.23 -- Asset Sale Agreement dated as of December 4, 1998 between
Splash Technology Holdings, Inc. and the Registrant.
10.24 -- Supplement to the License and Asset Purchase Agreement dated
December 4, 1998 between Korea Data Systems America, Inc. and
the Registrant.
21.01 -- List of Registrant's subsidiaries.
23.01 -- Consent of Ernst & Young LLP, Independent Auditors.
27.01 -- Financial Data Schedule (EDGAR version only)
</TABLE>
- ---------------
(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.
(4) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on February 13, 1996
(5) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 24, 1990.
(6) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(7) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-35769) which became effective on
August 16, 1990.
(8) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).
(9) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 28, 1992.
(10) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 30, 1991.
(11) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on May 10, 1995.
(12) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 18, 1993.
(13) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 12, 1992.
(15) 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.
(16) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 15, 1995.
-28-
<PAGE>
(17) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-12417) filed on September 20, 1996.
(18) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-12417) filed on
November 12, 1996.
(19) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 12, 1997.
(20) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on February 11, 1997.
(21) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on February 10, 1998.
(22) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on May 12, 1998.
(23) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 11, 1998.
(24) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on January 9, 1998.
* management contracts or compensatory plans required to be filed as an exhibit
to Form 10-K.
- ----------------
(b) REPORTS ON FORM 8-K.
No report on Form 8-K was filed during the last quarter of fiscal 1998.
(c) EXHIBITS - See (a) (3) above.
FINANCIAL STATEMENT SCHEDULES - See (a) (2) above.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RADIUS INC.
By: /s/ Mark Housley
-------------------------------
Mark Housley
Chairman of the Board of
Directors, Chief Executive
Officer and President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark Housley
and Henry V. Morgan, jointly and severally, his true and attorneys-in-fact, each
with the power of substitution, for him in any and all capacities, to sign
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATES
- ---- ----- -----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Mark Housley Chairman of the Board of Directors, December 23, 1998
- ------------------------------------------ Chief Executive Officer and President
Mark Housley
PRINCIPAL FINANCIAL OFFICER
AND CHIEF ACCOUNTING OFFICER:
/s/ Edwin Silliman Interim Chief Financial Officer December 23, 1998
- ------------------------------------------
Edwin Silliman
DIRECTORS:
/s/ Michael D. Boich Director December 23, 1998
- ------------------------------------------
Michael D. Boich
/s/ Charles W. Berger Director December 23, 1998
- ------------------------------------------
Charles W. Berger
/s/ Henry V. Morgan Director, Secretary December 23, 1998
- ------------------------------------------
Henry V. Morgan
/s/ John C. Kirby Director December 23, 1998
- ------------------------------------------
John C, Kirby
</TABLE>
-30-
<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, 1998 and 1997, and the related consolidated statements of
operations, convertible preferred stock and shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1998. Our audits
also included the financial statement schedule listed in the Index at Item 14
(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Radius
Inc. at September 30, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1998, 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
October 30, 1998
-31-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 (in thousands)
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 600 $ 773
Accounts receivable, net of allowance for doubtful accounts
of $3,894 in 1998 and $4,758 in 1997 364 2,168
Note receivable from Korea Data Systems America, Inc. 4,500 -
Inventories 803 805
Investment in Splash Technology Holdings, Inc. - 22,093
Prepaid expenses and other current assets 156 184
-------- ---------
Total current assets 6,423 26,023
Property and equipment, net 133 249
-------- ---------
$ 6,556 $ 26,272
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,971 $ 4,511
Accrued payroll and related expenses 324 1,320
Other accrued liabilities 2,069 3,228
Deferred income 4,833 -
Accrued income taxes 1,102 2,111
Accrued restructuring and other charges - 2,033
Short-term borrowings 1,340 4,638
Obligations under capital leases - 273
-------- ---------
Total current liabilities 11,639 18,114
Shareholders' Equity (Net Capital Deficiency):
Preferred stock, no par value, 2,000 authorized; none
issued and outstanding in 1998 and 1997 - -
Common stock, no par value; 100,000 shares authorized;
issued and outstanding--5,524 shares in 1998 and
5,502 shares in 1997 169,102 168,994
Accumulated deficit (174,239) (182,972)
Unrealized gain on available-for-sale securities - 22,093
Accumulated translation adjustment 54 43
-------- ---------
Total shareholders' equity (Net capital deficiency) (5,083) 8,158
--------- ---------
$ 6,556 $ 26,272
-------- ---------
-------- ---------
See accompanying notes.
</TABLE>
-32-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For years ended September 30
(in thousands, except per share data)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 14,564 $ 26,276 $ 88,129
Commissions and royalties 1,104 4,874 2,161
--------- -------- ---------
Total net sales 15,668 31,150 90,290
Cost of sales 9,921 31,032 77,382
--------- -------- ---------
Gross profit 5,747 118 12,908
--------- -------- ---------
Operating expenses:
Research and development 2,801 5,002 7,478
Selling, general and administrative 7,107 21,355 25,886
--------- -------- ---------
Total operating expenses 9,908 26,357 33,364
--------- -------- ---------
Loss from operations (4,161) (26,239) (20,456)
Other income, net 12,353 30,600 24,032
Interest expense (459) (2,777) (3,736)
--------- -------- ---------
Income (loss) before income taxes 7,733 1,584 (160)
Provision (benefit) for income taxes (1,000) 316 815
--------- -------- ---------
Net income (loss) $ 8,733 $ 1,268 $ (975)
--------- -------- ---------
--------- -------- ---------
Preferred stock dividend - 272 -
--------- -------- ---------
Net income (loss) applicable to
common shareholders $ 8,733 $ 996 $ (975)
--------- -------- ---------
--------- -------- ---------
Net income (loss) per common share:
Basic net income (loss) per share applicable
to common shareholders $ 1.58 $ 0.18 $ (0.46)
--------- -------- ---------
--------- -------- ---------
Diluted net income (loss) per share applicable
to common shareholders $ 1.57 $ 0.18 $ (0.46)
--------- -------- ---------
--------- -------- ---------
Shares used in computing net income
(loss) per common share:
Shares used in computing basic net income
(loss) per common share 5,522 5,389 2,125
--------- -------- ---------
--------- -------- ---------
Shares used in computing diluted net income
(loss) per common share 5,557 5,522 2,125
--------- -------- ---------
--------- -------- ---------
</TABLE>
See accompanying notes.
-33-
<PAGE>
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended September 30, 1998, 1997 and 1996
(in thousands)
Shareholder's Equity
--------------------------------------------------
Accumulated Unrealized
Deficit Gain on
Convertible and Available- Total
Preferred Common Translation for-Sale Shareholders'
Stock Stock Adjustment Securities Equity
---------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ - $ 125,813 $(182,930) $ - $ (57,117)
Issuance of 12 shares of common stock
under Stock Option Plans - 406 - - 406
Issuance of 2 shares of common stock
under Employee Stock Purchase Plan - 24 - - 24
Issuance of 3,629 shares of common
stock to Creditors - 42,503 - - 42,503
Issuance of 75 shares of preferred stock to IBM 3,000 - - - -
Issuance of 84 shares of common stock
in partial settlement of litigation - - - - -
Unrealized gain on available-for-sale securities - - - 19,152 19,152
Currency translation adjustment - - (33) - (33)
Net loss - - (975) - (975)
--------- -----------------------------------------------------
Balance at September 30, 1996 3,000 168,746 (183,938) 19,152 3,960
Issuance of 53 shares of common stock
under Stock Option Plans - 200 - - 200
Issuance of 8 shares of common stock under
Employee Stock Purchase Plan - 48 - - 48
Redemption of 75 shares of preferred stock
held by IBM (3,000) - - - -
Unrealized gain on available-for-sale securities - - - 2,941 2,941
Currency translation adjustment - - 13 - 13
Dividends paid on convertible preferred stock - - (272) - (272)
Net income - - 1,268 - 1,268
--------- ----------------------------------------------------
Balance at September 30, 1997 - 168,994 (182,929) 22,093 8,158
Issuance of 22 shares of common stock
under Stock Option Plans - 108 - - 108
Unrealized gain on available-for-sale securities - - - (22,093) (22,093)
Currency translation adjustment - - 11 - 11
Net income - - 8,733 - 8,733
--------- ----------------------------------------------------
Balance at September 30, 1998 $ - $ 169,102 $ (174,185) $ - $ (5,083)
--------- ----------------------------------------------------
--------- ----------------------------------------------------
</TABLE>
See accompanying notes.
-34-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,733 $ 1,268 $ (975)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 149 801 1,453
Gain on the sale of Splash Common Stock in 1997
and 1998 and the Color Server Group in 1996 (10,011) (30,779) (20,638)
Gain on the monitor license to KDS (1,615) - -
Gain on the sale of Umax Common Stock (534) - -
Non-cash restructuring and other charges - 2,162 -
Loss on disposal of fixed assets 22 500 258
(Increase) decrease in assets:
Accounts receivable 2,679 3,342 56,698
Allowance for doubtful accounts (864) 2,626 (6,269)
Note receivable (4,500) - -
Inventories 2 12,047 811
Prepaid expenses and other current assets 28 182 1,970
Income tax receivable - 514 5
Increase (decrease) in liabilities:
Accounts payable (2,540) (493) (19,874)
Accrued payroll and related expenses (996) (1,492) (3,007)
Other accrued liabilities (1,159) 205 (10,817)
Deferred income 4,833 - -
Accrued income taxes (1,009) (116) 562
Accrued restructuring and other charges (2,033) (420) (16,588)
---------- ------------ ----------
Total adjustments (17,548) (10,921) (15,436)
---------- ------------ ----------
Net cash used in operating activities (8,815) (9,653) (16,411)
---------- ----------- ---------
Cash flows from investing activities:
Capital expenditures (55) (55) (175)
Deposits and other assets - 50 467
Net proceeds from the sale of Splash Common Stock in
1998 and 1997 and the Color Server Group in 1996 10,011 30,779 20,163
Proceeds from the monitor license to KDS 1,615 - -
Net proceeds from the sale of Umax Common Stock 534 - -
--------- ----------- ---------
Net cash provided by investing activities 12,105 30,774 20,455
--------- ----------- ---------
Cash flows from financing activities:
Principal payment of short-term borrowings, net (3,298) 2,716 (4,782)
Principal payment of long-term borrowings, net - (21,940) -
Redemption of preferred stock and related dividend - (3,272) -
Issuance of common stock 108 248 430
Principal payments under capital leases (273) (1,074) (1,478)
---------- ------------ ----------
Net cash used in financing activities (3,463) (23,322) (5,830)
---------- ------------ ----------
Net decrease in cash and cash equivalents (173) (2,201) (1,786)
Cash and cash equivalents, beginning of year 773 2,974 4,760
--------- ----------- ---------
Cash and cash equivalents, end of year $ 600 $ 773 $ 2,974
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
See accompanying notes.
-35-
<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" or the "Company") and its wholly-owned subsidiaries after
elimination of significant intercompany transactions and balances.
FINANCIAL STATEMENT 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. During fiscal 1996, 1997
and 1998, 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 digital video customers; discontinuing sales of mass
market and other low value added products; divesting a number of businesses
and product lines, including most recently the agreement for the sale and
related license of significant assets of its monitor business to Korea Data
Systems America, Inc. significantly reducing expenses and personnel
headcount; and subleasing unoccupied portions of its facility leases
commensurate with its reductions in operations. All revenue in the years
ended September 30, 1996 and 1997 and approximately $13.0 million in the year
ended September 30, 1998, relates to businesses and product lines that have
been disposed of over the last three years. Approximately $2.6 million of
revenue in the year ended September 30, 1998 relates to digital video-related
software. See Notes 3 and 10.
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 1999, 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 from operations and borrowings
under a working capital line of credit of $4.2 million with Silicon Valley
Bank secured by the $5.2 million note issued by Korea Data Systems America,
Inc. (KDS), and is investigating possible financing and strategic partnering
opportunities. The Company and its management believes that it can further
reduce such operating expenses, if necessary, and that other sources of
financing will be available. The note issued to KDS relates to a license
agreement under which income is being recognized as cash is received.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to September 30
and includes 53 weeks in fiscal 1998. All other fiscal years presented
include 52 weeks. For consistency of presentation, all fiscal periods in this
Form 10-K are reported as ending on a calendar month end
-36-
<PAGE>
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 in the Consolidated Balance Sheets.
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. Cost is
determined using standard costs that approximate cost on a first-in,
first-out basis. The Company reviews the levels of its inventory in light of
current and forecasted demand to identify and provide reserves for obsolete,
slow-moving, or non-salable inventory. Inventories consist of the following
(in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 20 $ -
Work in process 238 176
Finished goods 545 629
-------- ---------
$ 803 $ 805
-------- ---------
-------- ---------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following
(in thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Computer equipment $ 6,423 $ 18,170
Machinery and equipment 120 553
Furniture and fixtures 354 626
Leasehold improvements 439 439
-------- ---------
7,336 19,788
Less accumulated depreciation
and amortization (7,203) (19,539)
--------- ---------
$ 133 $ 249
-------- ---------
-------- ---------
</TABLE>
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Leasehold improvements have
been fully amortized.
CARRYING VALUE OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In accordance with FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
records impairment losses on long-lived assets when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts
of those assets. Based on the Company's estimate of future undiscounted cash
flows, the Company expects to recover the carrying amounts of its long-lived
assets. Nonetheless, it is reasonably possible that the estimate of
undiscounted cash flows may change in the near term resulting in the need to
write-down those assets to fair value.
REVENUE RECOGNITION
Revenue is recognized when products are shipped. Sales to certain
resellers are subject to agreements allowing certain rights of return and
price protection on unsold merchandise held by these resellers. The Company
provides for estimated returns at the time of shipment and for price
protection following price declines. Revenue earned under royalty or
commission agreements is recognized in the period in which it is earned.
-37-
<PAGE>
Revenue from the sale of software, net of estimated returns, is
recognized upon either shipment of the physical product or delivery of
electronic product, at which time, collectibility is probable and the Company
has no remaining obligations.
In May 1997, the Financial Accounting Standards Board approved the
American Institute of Certified Public Accountants Statement of Position,
"Software Revenue Recognition" (SOP 97-2). SOP 97-2 provides revised and
expanded guidance on software revenue recognition and applies to all entities
that earn revenue from licensing, selling or otherwise marketing computer
software. SOP 97-2 is effective for transactions entered into in fiscal
years beginning after December 15, 1997. The application of SOP 97-2 is not
expected to have a material impact on the Company's results of operations.
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.
NET INCOME (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128 in fiscal 1998. This statement requires the presentation of basic
and diluted net income per share. Basic net income per share is computed
using the weighted average number of common shares outstanding during the
period. Diluted net income per share is computed using the weighted average
number of common and dilutive common shares outstanding during the period.
Dilutive common equivalent shares consist of employee stock options using the
treasury stock method. The Company has restated all prior period per share
data presented as required by SFAS No. 128. Restated numbers as computed
using the diluted method under SFAS No. 128 approximate those computed using
the primary method as defined in Accounting Principals Board Opinion No. 15.
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 basic and diluted loss per share
for fiscal 1996 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, 1998 or 1997. Approximately $0.1 million of the $0.6 million of cash at
September 30, 1998 was restricted under various letters of credit.
OFF BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK
The Company sells its products to distributors in the United States and
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.
FAIR VALUE DISCLOSURES
The carrying values of cash and cash equivalents and short-term
borrowings approximate their fair values as of September 30, 1998. The fair
value of short-term borrowings are estimated to approximate their carrying
value as the borrowings are subject to variable interest rates.
-38-
<PAGE>
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income". SFAS 130 establishes standards for reporting
comprehensive income in a financial statement. Comprehensive income items
include changes in equity (net assets) not included in net income. Examples
are foreign currency translation adjustments and unrealized gains/losses on
available for sale securities. This disclosure prescribed by SFAS 130 is
required beginning with the quarter ending December 31, 1998. Adoption of
SFAS No. 130 is not anticipated to have a material impact on the Company's
financial statements.
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and related Information." This statement establishes standards
for the way companies report information about operating segments in
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The
Company has not yet determined the impact, if any, of adopting this standard.
The disclosures prescribed by SFAS 131 are required in fiscal year 1999.
RECLASSIFICATIONS
Certain amounts in the September 30, 1996 financial statements have been
reclassified to conform to the current year presentation.
NOTE TWO. BORROWINGS
LINE OF CREDIT ARRANGEMENT
In August 1998, the Company entered into a $4.2 million working capital
line of credit agreement with Silicon Valley Bank secured by the $5.2 million
note issued by Korea Data Systems America, Inc. (KDS). The borrowing base
under the working capital line of credit is eighty percent of the balance on
the KDS note held by the Company. Under the terms of the working capital
line of credit, the amount available to borrow will be decreased to an amount
equal to eighty percent of the unpaid balance of KDS' installment
obligations. As the borrowing base is dependent on the continued payment of
monthly installments required by the note, there can be no assurance that it
will be sufficient to allow the Company to borrow up to the full amount of
the working capital line of credit. Interest is paid at the rate of 1.25% per
month of 125% of the average daily outstanding balance of the loan. In
addition, a one time administrative fee of .50% of 125% of each advance
amount is also paid to Silicon Valley Bank. As of September 30, 1998, the
outstanding loan balance was $1.3 million and is included as short-term
borrowings in the accompanying Consolidated Balance Sheet.
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 permitted 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 (See Note 11). In
connection with the Plan, IBM Credit received 750,000 shares of the Company's
Series A Convertible Preferred Stock and warrants to purchase 60,000 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 restructured the terms of the remaining
approximately $23.4 million indebtedness into a working line of credit and a
term loan. The term loan was repaid and the Convertible Preferred Stock was
redeemed in August 1997 with the proceeds from the sale of 996,875 shares of
the 1,741,127 shares of Splash Common Stock owned by the Company.
-39-
<PAGE>
During fiscal 1998, IBM exercised the option to purchase 174,113 shares of
Splash Common Stock and a portion of the proceeds of the sale of the
remaining 570,139 shares owned by the Company were used to repay in full the
working line of credit with IBM Credit.
NOTE THREE. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities in Mountain View, California, where it has
established its headquarters operations, and in San Jose, California, under
operating leases.
Future annual minimum lease payments under all noncancelable operating
leases at September 30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Net
Operating Sublease Operating
Leases Income Leases
------ ------ ------
<S> <C> <C> <C>
1999 $352 $155 $197
----- ----- -------
Total minimum lease payments $352 $197
----- --------
----- --------
Total sublease income $155
-----
-----
</TABLE>
Rent expense charged to operations amounted to approximately $0.5
million, $0.6 million and $1.5 million for the fiscal years ended September
30, 1998, 1997 and 1996, respectively. The rent expense amounts for fiscal
1998, 1997 and 1996 exclude a provision for remaining lease obligations on
excess facilities.
Sublease income for fiscal 1998, 1997 and 1996 was approximately $0.8
million, $1.3 million and $1.2 million, respectively.
CONTINGENCIES
(a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a
suit in the United States District Court in the Northern District of
California alleging that the Company infringes a patent allegedly owned by
EFI. Although the complaint does not specify which of the Company's products
allegedly infringe the patent, subsequent pleading indicates that EFI alleges
that the Company's Color Server products infringe. In January 1996, the
Company completed the divestiture of the Color Server Group to Splash
Technology Holdings, Inc.
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 or
additional immunity with respect to elements of 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. In March 1998,
EFI and the Company agreed to dismiss their remaining claims against each
other pending the outcome of EFI's appeal of this summary judgment finding.
Pursuant to this agreement, if the Company prevails on appeal, the remaining
claims will be dismissed. On the other hand, if EFI were to prevail on
appeal, then EFI could refile its claims and the Company would intend to
continue to vigorously defend against such claims and prosecute its own
claims against EFI. In such event, neither the Company nor Splash Technology
Holdings, Inc. would be able to advance the immunity defense ruled on in the
summary judgment motion, which would require the Company to defend EFI's
claims based upon their merits. EFI filed its notice of appeal on April 7,
1998, each party submitted opening briefs, oral argument was heard in
December 1998 and the District Court summary judgement was affirmed by the
Federal Circuit Court after the oral argument. No further appeal is expected
and the case should be concluded.
-40-
<PAGE>
(b) On July 18, 1997, Intelligent Electronics, Inc. and its affiliates
filed a suit in the United States District Court for the District of Colorado
alleging a breach of contract and related claims in the approximate amount of
$800,000, maintaining that the Company failed to comply with various return,
price protection, inventory balancing and marketing development funding
undertakings. In 1997, the Company filed an answer to the complaint and
cross-claimed against the plaintiffs and in October 1997 additionally cross
claimed against Deutsche Financial, Inc., a factor in the account
relationship between the Company and the plaintiffs, seeking the recovery of
approximately $2 million. The Company continues to investigate these claims
as well as cross claims and expects to vigorously defend and prosecute them
as applicable. The Company has provided for the full amount of accounts
receivable due from Intelligent Electronics, Inc. and Deutsche Financial,
Inc.
(c) 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.
NOTE FOUR. SHAREHOLDERS' EQUITY
STOCK SPLITS
A one-for-ten reverse split of the Company's Common Stock became
effective March 9, 1998. All references to share and per share data for all
periods presented have been adjusted to give effect to this split.
SHARES SUBJECT TO ISSUANCE
As of September 30, 1998, the Company was subject to issuing
approximately 10,000 shares of Common Stock associated with the settlement of
a securities class action lawsuit in fiscal 1995.
STOCK OPTIONS
The Company's 1986 Stock Option Plan, as amended (the "1986 Plan"),
authorized the issuance of up to 297,500 shares of common stock upon the
exercise of incentive stock options or nonqualified stock options that may
be granted to officers, employees, directors, consultants and independent
contractors. Under the 1986 Plan, options are exercisable, subject to
vesting, for a term of up to ten years after the date of grant. The 1986
Plan expired in October 1996 and provided for options to 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. Outstanding
grants of options to purchase 21,446 shares of Common Stock continue to be
exercisable according to the terms of the grants, 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 769,892 shares of common stock upon the exercise of
incentive stock options or nonqualified stock options that may be granted to
officers, employees, directors, consultants and independent contractors.
Shares available for grant under the 1995 Plan include 143,231 shares which
were not issued under the 1986 Plan. Under the 1995 Plan, options are
exercisable, subject to vesting, for a term of up to ten years after the
grant date. 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, 1998, 571,416 options
were outstanding under the 1995 Plan. The 1995 Plan will expire in December
2005.
Pursuant to the 1994 merger with SuperMac Technologies, Inc., Radius
assumed 97,524 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
-41-
<PAGE>
30, 1998, 762 options remain outstanding under the SuperMac Plan and are
exercisable, subject to vesting, for a term of up to ten years after the date
of grant.
The Company has also reserved 19,000 shares of common stock for issuance
to non-employee directors pursuant to options granted under the 1994
Directors' Stock Option Plan (the "1994 Plan"), including 9,000 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 1,000 shares when that director is first appointed to the
Board and an option to purchase 250 shares on each anniversary of such
director's appointment. As of September 30, 1998, 1,750 options were
outstanding under this plan at exercise prices ranging from $3.438 to $108.75
per share. Of the options granted under the 1994 Plan, 627 are exercisable
at September 30, 1998.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option
Plan (the "Prior Plan") was in effect. As of September 30, 1998, the Prior
Plan had 1,000 options outstanding at $97.50. 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
former officer to purchase a total of 25,000 shares of common stock outside
the Company's 1986 Stock Option Plan at an exercise price of $77.50 per
share. This stock option was subsequently repriced to $4.688. 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, 15 of these shares were
exercised by the officer, and as of September 30, 1998, the remaining 24,985
shares were exercisable.
During fiscal 1998, the Company granted, outside of the Company's Stock
Option Plans, 50,000 nonqualified stock options to an employee for an
exercise price of $2.625, the fair market value of the Company's Common Stock
on the relevant date. These options are exercisable for a term of ten years
and vest over a two year period commencing on the date of grant.
-42-
<PAGE>
The following table summarizes the consolidated activity under all of
the Company's plans:
<TABLE>
<CAPTION>
Weighted
Shares Under Average
Option Exercise Price Exercise Price
------------ -------------- --------------
<S> <C> <C> <C>
Outstanding at September 30, 1995 200,739 $13.60 - $289.60 $102.60
Granted 120,546 $12.80 - $ 44.40 $ 23.60
Exercised (11,152) $13.60 - $ 23.70 $ 23.70
Canceled (193,317) $13.60 - $255.80 $ 70.70
-------------
Outstanding at September 30, 1996 116,816 $12.80 - $172.50 $ 43.40
Granted 712,211 $ 2.80 - $ 5.90 $ 4.00
Exercised (52,579) $ 3.40 - $ 4.70 $ 4.70
Canceled (92,851) $ 2.80 - $172.50 $ 28.00
-------------
Outstanding at September 30, 1997 683,597 $ 2.80 - $108.75 $ 4.20
Granted 458,957 $ 1.56 - $ 6.25 $ 2.87
Exercised (21,935) $ 3.44 - $ 4.69 $ 4.14
Canceled (275,759) $ 2.81 - $ 6.25 $ 3.77
-------------
Outstanding at September 30, 1998 844,860 $ 1.56 - $108.75 $ 3.62
-------------
-------------
</TABLE>
The following table summarizes information concerning
outstanding and exercisable options at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted
Average Weighted Weighted
Range of Options Remaining Average Options Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices Life Price Price
---------------- ------------- ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.56 - $ 3.88 455,408 9.39 Years $ 2.87 118,607 $ 2.88
$ 4.06 - $ 5.31 387,952 8.40 Years $ 4.18 347,536 $ 4.17
$19.38 - $108.75 1,500 6.30 Years $86.35 1,314 $91.62
---------------- ------------- -----------
$ 1.56 - $108.75 844,860 8.93 Years $ 3.62 467,457 $ 4.09
------------- -----------
------------- -----------
</TABLE>
The Company accounts for stock options in accordance with FASB Statement
No. 123, Accounting for Stock-Based Compensation ("FAS 123"). Under FAS 123,
the Company may continue following existing accounting rules or adopt a new
fair value method of valuing stock-based awards. The Company has elected to
continue to follow APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its stock
options plans and the Employee Stock Purchase Plan and has not adopted the
alternative fair value method of accounting provided under FAS 123. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted
subsequent to September 30, 1995 under the fair value method of that
Statement. The weighted-average grant-date fair value of options granted in
fiscal 1998 was $2.18. The fair value of options was estimated at the
-43-
<PAGE>
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for fiscal years 1998, 1997 and 1996,
respectively: risk free interest rate of approximately 5.5%, 6% and 6%;
dividend yield of 0% for all years; volatility factors of the expected market
price of the Company's Common Stock of 1.148, 1.077 and 1.077 and a
weighted-average expected life of the option of four years.
For purposes of pro forma disclosures, the estimated fair values of the
options are amortized to expense over the related vesting periods. The
Company's pro forma net income (loss) for 1997 and 1996 was not materially
different from reported amounts.
The Company's pro forma information for 1998 follows (in thousands
except for income per share information):
<TABLE>
<CAPTION>
Year ended
September 30, 1998
------------------
<S> <C>
Net income applicable to common
shareholders as reported $8,733
------
------
Pro forma net income applicable
to common shareholders for FAS 123 $8,089
------
------
Pro forma net income per common share:
Pro forma basic net income per share applicable
to common shareholders $1.46
-----
-----
Pro forma diluted net income per share
applicable to common shareholders $1.46
-----
-----
Shares used in computing pro forma net income per common
share:
Shares used in computing pro forma basic net
income per common share 5,522
-----
-----
Shares used in computing pro forma diluted
net income per common share 5,557
-----
-----
</TABLE>
Since FAS 123 is applicable only to options granted subsequent to
September 30, 1995, its pro forma effect will not be fully reflected until
fiscal year 2002.
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. The
Company suspended the operation of its employee stock purchase plan in fiscal
1997 and expects to be able to resume operation of the plan during fiscal
1999. At September 30, 1998, 15,900 shares remain available for issuance
under the plan.
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<PAGE>
NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Federal:
Current $ - $ 50 $ -
Foreign:
Current (1,000) 251 765
State:
Current - 15 50
-------- --------- --------
$ (1,000) $ 316 $ 815
--------- --------- --------
--------- --------- --------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 25,017 $ 19,687
Reserves and accruals not currently tax deductible 3,232 8,542
Capitalized research & development expenditures 2,769 4,399
Inventory write-downs 1,275 4,835
Other 1,082 3,122
--------- ---------
Total deferred tax assets 33,375 40,585
Valuation allowance for deferred tax assets (33,375) (40,585)
---------- --------
Deferred tax assets $ - $ -
--------- ---------
--------- ---------
</TABLE>
FASB Statement 109, Accounting for Income Taxes, 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.
-45-
<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:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Expected tax at statutory rate $ 2,707 $ 554 $ (56)
Change in valuation allowance (2,707) (504) 241
Reversal of previously accrued foreign taxes (1,000) - -
State income tax, net of federal tax benefit - 15 50
Other - 251 580
--------- --------- ----------
$ (1,000) $ 316 $ 815
---------- --------- ----------
---------- --------- ----------
</TABLE>
During the fourth quarter of fiscal 1998, the Company reversed
approximately $1.0 million of previously accrued foreign taxes as a result of
reduced tax exposures in certain foreign jurisdictions.
As of September 30, 1998, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$62.0 million and $65.0 million, respectively. The federal loss
carryforwards will expire beginning in 2011, if not utilized and the state
loss carryforwards will expire beginning in 1999, 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 generated prior to September
1996 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 limited circumstances.
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest $ 495 $ 2,988 $ 3,792
--------- --------- ----------
--------- --------- ----------
Income taxes $ 9 $ 8 $ 253
--------- --------- ----------
--------- --------- ----------
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
--------- --------- ----------
--------- --------- ----------
</TABLE>
-46-
<PAGE>
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company's export sales were approximately $3.7 million, $4.9 million
and $45.8 million in the fiscal years ended September 30, 1998, 1997 and
1996, respectively, and included export sales to Europe of approximately $1.3
million, $1.8 million and $21.2 million, respectively. The Pacific, Asia,
and Latin America region sales were approximately $2.4 million, $3.1 million
and $24.6 million for fiscal years ended September 30, 1998, 1997 and 1996,
respectively. During fiscal 1996, the Company entered into exclusive
distributor arrangements with respect to Japan and Europe and earns royalties
and commissions under such arrangements. In fiscal 1998, the Company
modified its relationships with its distributors in Japan and Europe for its
digital video software products and terminated the exclusivity provisions.
These products are purchased from the Company at a discount from the price
list and no commissions are paid. For the fiscal year ended September 30,
1998, the Company earned approximately $0.5 million and $0.2 million in
royalties and commissions from Europe and Japan, respectively, which are
included in the above amounts.
One customer accounted for approximately 53.5%, 66.1% and 34.3% of the
Company's net sales during the years ended September 30, 1998, 1997 and 1996,
respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
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 are included in cost of sales ($47.0 million), and
selling, general and administrative expense ($10.9 million). The remaining
balance of $20,000 in its restructuring reserve, which related to employee
severance costs, was eliminated in fiscal 1998.
NOTE NINE. TECHNOLOGY LICENSING FROM REPLY CORPORATION
On March 31, 1997, the Company licensed certain technology from Reply
Corporation ("Reply") that allowed the Company to develop and market PCI bus
adapter cards featuring Windows compatibility to users of Macintosh products.
First customer shipments of these products were made during the third fiscal
quarter of 1997. Effective in the third fiscal quarter, the Company
purchased such technology along with certain assets and inventory. The
purchase price of such assets and inventory was approximately $401,000,
although the Company is required to pay a royalty fee based upon the number
of products sold which incorporate such technology. The Company pays a
royalty for Radius products containing the acquired technology in the amount
of 5% of net revenue until cumulative royalties exceed $1.5 million, when the
rate is reduced to 3%, until cumulative royalties of $2.5 million are paid,
after which no royalty is due. In September 1997, the Company discontinued
the development of its DOS on Mac products and shipments of related products
were terminated in the first quarter of fiscal 1998. As of September 30,
1998, the Company has paid an aggregate of approximately $86,000 in
royalties. Additionally, the Company issued a warrant to Reply to purchase
50,000 shares of the Company's Common Stock at a price of $12.50 per share
exercisable over a forty-two month period. The Company has agreed with
representatives of the current holders of the warrant to repurchase the
warrant for $10,000, subject to final documentation.
-47-
<PAGE>
NOTE TEN. 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. ("Splash"). In
fiscal 1996, the Company received approximately $21.0 million in cash and, as
of September 30, 1998, an additional $2.0 million is being maintained in
escrow to secure certain indemnification obligations. The Company also
received 4,282 shares of Splash's 6% Series B Redeemable and Convertible
Preferred Stock which were converted into shares of Splash's Common Stock
outstanding in connection with the initial public offering of Splash. In
June 1996, the Company granted IBM Credit, its secured lender, an option to
purchase 174,113 shares of Splash Common Stock in connection with the
restructuring of the terms of its loan agreement with IBM Credit (also, see
Note 11). The remaining shares of Splash Common Stock were also pledged to
IBM Credit. As of July 1998, IBM Credit had exercised its option of Splash
Common Stock in full and the working capital line of credit with IBM Credit
was fully repaid in fiscal 1998.
PORTRAIT DISPLAY LABS. In January 1996, the Company entered into a
series of agreements with Portrait Display Labs, Inc. ("PDL"). Under these
agreements, PDL settled its outstanding receivable to the Company by paying
the Company $500,000 in cash and issuing to the Company 214,286 shares of
PDL's Common Stock. The cash proceeds were paid to IBM Credit. Due to an
expected recapitalization of PDL, the Company's interests became deeply
subordinated to new investors in PDL. Therefore, the Company does not
anticipate that it will realize any future material benefit from its
investment in PDL. These shares are not valued for financial statement
purposes.
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 UCC Common Stock. The cash proceeds were paid to IBM
Credit. In March 1998, due to Apple's recent reversal in MacOS licensing
policy, the Company sold the Common Stock of Umax Computer Corporation held
by it to Umax Data Systems, Inc. for $550,000.
NOTE ELEVEN. 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 3,629,420 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,
79,128 were issued to the Radius Creditors Trust for the purpose of
satisfying unresolved or unknown claims. As of September 30, 1997, all
shares of Common Stock held by the Radius Creditors Trust had been disbursed
to various claimants. The Company also issued 750,000 shares of its Series A
Convertible Preferred Stock (convertible into an aggregate of 552,303 shares
of Common Stock) and warrants to purchase 60,000 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 5,000 shares of
Common Stock to Mitsubishi in consideration of the extension of open credit
terms to the Company. The warrants expire October 13, 2000. The Company
also issued to its unsecured creditors, who received Common Stock, Rights
("Rights") to receive up to an additional 1,104,606 shares of Common Stock in
the event that the Series A Convertible Preferred Stock is converted into
Common Stock (including 24,082 Rights issued to the Radius Creditors Trust).
All outstanding shares of the Convertible Preferred Stock were redeemed in
September 1997. Because such Series A Convertible Preferred Stock was
redeemed prior to conversion of any shares of such Preferred Stock into
Common Stock, no shares of CommonStock will be issuable pursuant to the
Rights. All such Rights have expired.
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
-48-
<PAGE>
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 Splash, 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.
NOTE TWELVE. LICENSING OF ASSETS TO KOREA DATA SYSTEMS AMERICA , INC.
In June 1998, the Company licensed certain technology and assets
necessary to conduct its monitor and color publishing business to KDS,
leaving the Company free to focus on its digital video software business.
The brand name and trademark RADIUS was one of the assets so licensed because
of its primary association with monitors. In August 1998, the Company
amended and restated this license and agreed to sell the licensed assets to
KDS pursuant to an asset transfer agreement, subject to certain contingencies
at the discretion of KDS. The monitor business has accounted for
substantially all of the revenues of the color publishing product line and
55.3% of the Company's revenues during fiscal 1998. Under the license and
asset transfer agreement, Radius has transferred (by licensing or by
assignment if KDS elects to close the asset transfer agreement) its Radius,
Supermac, PressView and certain other trademarks to KDS and has licensed
certain intellectual property pertaining to PressView and PrecisionView
monitors. KDS has not agreed to purchase any inventory or other tangible
assets of Radius under the license and asset transfer agreement. The
expected value of the transaction is $6.2 million paid or to be paid in
installments, including $0.85 million paid in August 1998 and $0.35 million
in September 1998 under the amended license and $0.5 million under the
original license in June 1998. The remaining amount is payable in
installments through October 1999. These installment payment obligations
have been pledged to secure a $4.2 million line of credit from Silicon Valley
Bank. KDS' performance is guaranteed by a Korean corporation and its US
affiliate. The agreement is expected to close by June 1999 if contingencies
are satisfied. In the interim, Radius has licensed KDS the use of its
monitor trademarks and specific technology and expects to wind down its
monitor business activities as current supplies of monitors are sold, whether
or not the asset purchase agreement is completed. In the event that the
asset purchase agreement is not completed, the license agreement will
continue as a perpetual license. Radius will continue to use the transferred
trademarks and technology until the transition is completed over the next
several months and expects to focus on its digital video line of business
during this transition period. Additionally, the Company had agreed with KDS
to continue to support the sale of the monitors through the Company's sales
force during August and September in return for $55,000 a month and a sharing
of the gross margin from the sale of the monitor products during this period.
The Company will provide a diminishing level of support until KDS has fully
assumed all relevant activities. KDS will reimburse the Company for this
support.
As of September 30, 1998, the remaining balance receivable under the
agreement was $4.5 million which is included as note receivable and deferred
revenue in the accompanying Consolidated Balance Sheet. The Company will
recognize other income under the license agreement as cash is received on the
note.
-49-
<PAGE>
NOTE THIRTEEN. COMPUTATION OF PER SHARE COMMON INCOME (LOSS)
The following table presents the calculation of basic and diluted earnings per
share as required under SFAS 128:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ---------
(in thousands, except per-share amounts)
<S> <C> <C> <C>
NUMERATOR:
Numerator for basic and diluted earnings per share -
income (loss) available to common stockholders $ 8,733 $ 996 $ (975)
-------- -------- ---------
-------- -------- ---------
DENOMINATOR:
Denominator for basic earnings per share - weighted-average
shares outstanding 5,522 5,389 2,125
Effect of dilutive securities:
Employee stock options 35 133 -
-------- -------- --------
Dilutive potential common shares 35 133 -
Denominator for diluted earnings per share - adjusted
weighted-average shares outstanding 5,557 5,522 2,125
-------- -------- --------
-------- -------- --------
Basic earnings (loss) per share $ 1.58 $ 0.18 $ (0.46)
-------- -------- ---------
-------- -------- ---------
Diluted earnings (loss) per share $ 1.57 $ 0.18 $ (0.46)(1)
-------- -------- ---------
-------- -------- ---------
</TABLE>
(1) Diluted earnings per share does not reflect any potential shares
relating to employee stock options or the convertible preferred stock
due to a loss reported for the period, in accordance with FAS 128. The
assumed issuance of any additional shares would be antidilutive.
Diluted earnings per share in 1998 and 1997 also does not include certain stock
options as those options are at exercise prices in excess of fair market value,
750,446 and 341,252, respectively.
For additional disclosure regarding the employee stock options, see Note 4.
-50-
<PAGE>
NOTE FOURTEEN. SUBSEQUENT EVENTS (UNAUDITED)
TECHOLOGY PURCHASE FROM POST DIGITAL SOFTWARE, INC.
On November 23, 1998, the Company acquired certain software and other
intangible property from Post Digital Software, Inc. for (i) an initial payment
of $50,000, (ii) earnout payments equal to at least $50,000 but not exceeding
$700,000 based on subsequent sales of the Company's digital video products
incorporating such software and (iii) a warrant to purchase up to 50,000 shares
of the Company's Common Stock at an exercise price of $1.50 per share. The
warrant is exercisable over a four year period through November 23, 2002. The
warrant can be exercised for up to 12,000 shares on May 1, 1999, plus an
additional 2,000 shares for each full month that transpires thereafter, up to a
total of 50,000 shares.
SALE OF CERTAIN COLOR PUBLISHING TECHNOLOGY
On December 4, 1998, the Company agreed to sell certain software and
other intangible property associated with its monitor and color publishing
business to Splash Technology Holdings, Inc. ("Splash") in consideration of
$275,000 and the early release of $1.0 million from an escrow established for
the benefit of Splash when the Company's Color Server Group was sold to
Splash in January 1996. These funds were received on December 16, 1998. In
the transaction, Splash licensed some of the transferred technology back to
the Company for a term of two years on a fully paid up basis. See Note 10.
CONCLUSION OF LITIGATION WITH ELECTRONICS FOR IMAGING, INC.
On December 8, 1998, the appeal by EFI was briefed and was argued to the
court. On December 9, 1998, in a per curium order, the Federal Circuit Court
affirmed the summary judgment by the district court in favor of the Company. No
further appeal is expected and the case should be concluded. See Note 3. As a
result, the Company has requested the release of all remaining funds from the
escrow established in connection with the disposition of the Color Server Group
to Splash. See Note 10.
-51-
<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, 1996 $8,502 $ 91 $0 $6,461 $2,132
Year ended September 30, 1997 $2,132 $4,706 $0 $2,080 $4,758
Year ended September 30, 1998 $4,758 $ 30 $0 $ 894 $3,894
</TABLE>
- -----------------------------
(1) Uncollectible accounts written off.
-52-
<PAGE>
EXHIBIT 10.21
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
(408) 654-1000 - Fax (408) 980-6410
This NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of August 28,
1998, is between SILICON VALLEY BANK ("Buyer") and RADIUS INC., a California
Corporation ("Seller"), with its chief executive office at:
<TABLE>
<S> <C>
Street Address: 460 Middlefield Road
City: Mountain View
County: Santa Clara
State: California
Zip Code: 94303
Phone: 650/404-6000
</TABLE>
1. DEFINITIONS. In this Agreement:
1.1 "Adjustments" is the meaning set forth in Section 7 hereof.
1.2 "Administrative Fee" is the meaning set forth in Section 2.4
hereof.
1.3 "Interest" is the meaning set forth in Section 2.3 hereof.
1.4 "Purchased Note" is that Promissory Note between Radius Inc., a
California Corporation, and Korean Data Services, Inc., a California
Corporation, dated August 7, 1998 in the amount of $5,200,000.00 in United
States Currency. "Purchased Note" also includes books and records about the
Purchased Note and proceeds from voluntary or involuntary dispositions,
including insurance proceeds.
1.5 "Reconciliation Period" is each calendar month of every year.
1.6 "Reserve" is the meaning set forth in Section 2.6 hereof.
1.7 "Related Property" is all returned or rejected goods connected
with the Purchased Note or books and records about the returned or rejected
goods; or proceeds from voluntary or involuntary dispositions of the returned
or rejected goods, including insurance proceeds.
1.8 "Schedule" is the attached schedule showing the: Purchase Date,
Schedule of Due Dates, Face Amount of Note, Total Purchased Note and Advance
Amount.
2. PURCHASE AND SALE OF NOTE.
2.1 Sale and Purchase. On the Purchase Date, Seller sells and Buyer
buys Seller's right, title, and interest (but none of Sellers obligations) to
payment on the Purchased Note, (the "Note Debtor").
2.2 Payment of Advance Amount. Buyer will pay Seller, on the
Purchase Date, $1,100,000 (the "Advance Amount").
2.3 Payment of Interest. On each Reconciliation Date Seller will
pay Buyer interest at the rate of 1.25(%) percent per month of 125% the
average daily outstanding balance of the Advance Amount during the applicable
Reconciliation Period (the "Interest"). Buyer will deduct the accrued
Interest from the Reserve as set forth in Section 2.6 below.
2.4 Payment of Administrative Fee. On the Reconciliation Date
Seller shall pay to Buyer an Administrative Fee equal to .50(%) percent of
125% the original amount of the Advance Amount (the "Administrative Fee").
2.5 In the event that the Advance Amount is less than One Million
Dollars and No/100**** ($1,000,000.00) by September 30, 1998, the interest
rate defined in Section 2.3 above will be 1.75(%) per month.
2.6 Establishment of a Reserve. Upon the purchase by Buyer of the
Purchased Note, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Note exceeds the Advance
Amount on that Total Purchased Note (the "Reserve"); provided, the Reserve
with respect to that Total Purchased Note outstanding at any one time shall
be an amount not less than 20(%) percent of the Total Purchased Note at the
time and may be set at a higher percentage at Buyer's discretion. The reserve
shall be the book balance maintained on the records of Buyer and shall not be
a segregated fund.
<PAGE>
3. COLLECTION, PAYMENTS AND REMITTANCES.
3.1 Application of Payments. All Payments for the Purchased Note,
not exceeding the Total Purchased Note plus any unpaid fees and interest (if
any), received by Seller or Buyer, are Buyers property.
3.2 No Obligation to Take Action. Buyer has a right, but no
obligation, to perform Seller's obligations.
3.3 Application of Payments. All payments in respect of the
Purchased Note, whether received from the Note Debtor or any other source and
whether received by Seller or Buyer, shall first be applied for the account
of Buyer until Buyer has received full and final payment in an amount equal
to the Advance Amount plus interest, administrative fees, expenses and
indemnity amounts payable to Buyer hereunder, with the remaining balance, if
any, payable to Seller.
4. REPURCHASE OBLIGATIONS.
4.1 Seller's Agreement to Repurchase. Seller will, at Buyer's
option, repurchase from Buyer the Purchased Note for a purchase price equal
to the unpaid principal of the Purchase Note if:
(a) There has been any breach of warranty, representation or
covenant in this Agreement; or
(b) The Note Debtor asserts any discount, allowance, return,
dispute, defense, right of recoupement, right of return, warranty claim, or
short payment; or
(c) The Purchased Note remains unpaid after October 1, 1999.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and
its successors and assigns as Seller's true and lawful attorney in fact, and
hereby authorizes Buyer, regardless of whether there has been an Event of
Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the
whole or any part of the Purchased Note; (b) to demand, collect, receive,
sue, and give releases to the Note Debtor for those monies due or which may
become due upon or with respect to the Purchased Note and to compromise,
prosecute, or defend an action, claim, case or proceeding relating to the
Purchased Note, including filing a claim or voting of such claims in any
bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose;
(c) to prepare, file and sign Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien or mechanics' lien or
similar document with respect to Purchased Note; (d) to notify the Note
Debtor with respect to the Purchased Note to pay Buyer directly; (e) to
receive, open, and dispose of all mail addressed to Seller for the purpose of
collecting the Purchased Note; (g) to execute on behalf of Seller any and
all instruments, documents, financing statements and the like to perfect
Buyer's interest in the Purchased Note and Collateral; and (h) to do all acts
and things necessary or expedient, in furtherance of any such purposes. If
Buyer receives a check or item which is payment for both the Purchased Note
and another receivable, the funds shall first be applied to the Purchased
Note and, so long as there does not exist an Event of Default or an event
that notice, lapse of time or otherwise would constitute an Event of Default,
the excess shall be remitted to Seller. Upon the occurrence and continuation
of an Event of Default, all of the power of attorney rights granted by Seller
to Buyer hereunder shall be applicable with respect to the Purchased Note and
all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1 Purchased Note--Warranties, Representations and Covenants.
Seller represents, warrants and covenants for the Purchased Receivable:
(a) It is the owner with legal right to sell, transfer and
assign it;
(b) The correct amount is shown in Section 1.4 and is not
disputed;
(c) Payment is not contingent on any obligations or contact,
and it has fulfilled all its obligations as of the Purchase Date;
(d) There are no defenses, offsets, counterclaims or
agreements in which the Note Debtor may claim any deduction or discount;
(e) It reasonably believes the Note Debtor is not insolvent
as defined in the United States Bankruptcy Code ("US Code") or the California
Uniform Commercial Code ("UCC") and the Note Debtor has not filed or had
filed against it a voluntary or involuntary petition for relief under the US
Code; and
<PAGE>
(f) The Note Debtor has not objected to payment for or the
quality or quantity of the subject of the Purchased Note.
6.2 Additional Warranties, Representation and Covenants. Seller
represents, warrants and covenants:
(a) Its name, form of organization, chief executive office
and the place where the records about the Purchased Note are kept is shown at
the beginning of this Agreement and it will give Buyer at least 10 days prior
written notice of changes to its name, organization, chief executive office
or location of records.
(b) It has not filed a voluntary petition or had filed
against it an involuntary petition under the US Code and does not anticipate
any filing.
7. ADJUSTMENTS. If the Note Debtor asserts a discount, allowance,
return, offset, defense, warranty claim, or the like (an "Adjustment"), Seller
will promptly advise Buyer and, with Buyer's approval, resolve the dispute.
8. INDEMNIFICATION.
(a) If the Note Debtor is released from the payment obligation for
the Purchased Note because of: (i) Seller's act or omission; or (ii) any of
the documentation about the Purchased Note which results in termination of
any of the Note Debtor's obligation for the Purchased Note, then Seller will
pay Buyer the lesser of the Purchased Note not payable or the unpaid portion
of the Purchased Note.
(b) Seller indemnifies and holds Buyer harmless from any taxes
from this transaction (except Buyer's income taxes) and costs, expenses and
reasonable attorney fees if Buyer promptly notifies it if any taxes of which
Buyer has notice.
9. REPURCHASE EVENTS. Any of the following is an Event of Repurchase:
(a) Seller fails to pay Buyer any amount when due;
(b) An involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Note or Related Property; and
(c) Seller breaches a covenant, agreement, warranty, or
representation in this Agreement and the breach is not cured to Buyer's
satisfaction within 10 days after Buyer gives Seller oral or written notice.
A breach that cannot be cured is an immediate default; and
(d) The Note Debtor fails to pay any amount under the Purchased
Note when due.
10. REPURCHASE OPTION. When an Event of Repurchase occurs Buyer shall
have a right to require Seller to repurchase all of the affected Purchased
Note for a purchase price equal to the amount specified in Section 4.1. Buyer
shall also have all rights and remedies under this Agreement and the law,
including those of a secured party under the UCC, and the right to collect,
dispose of, sell, lease or use all Purchased Note and Related Property.
11. FEES, COSTS AND EXPENSES. Immediately on demand Seller will pay
all reasonable fees, costs and expenses (including attorney and professional
fees) that Buyer incurs from (a) preparing, negotiating, administering and
enforcing this Agreement or any other agreement, including amendments, waiver
or consents, (b) litigation or disputes relating to the Purchased Note, the
Related Property, this Agreement or any other agreement, (c) enforcing rights
against Seller, (d) protecting or enforcing its title to the Purchased Note
or its security interest in the Related Property, (e) collecting any amounts
due from Seller or for a Purchased Note under a breach of Seller's
representation, warranty or covenant and (f) any bankruptcy case or
insolvency proceeding involving Seller.
12. CHOICE OF LAW, VENUE AND JURY WAIVER. California law governs this
Agreement.
<PAGE>
Seller and Buyer each submit to the exclusive jurisdiction of the State and
Federal courts in Santa Clara County, California.
SELLER AND BUYER EACH WAIVE ITS RIGHT TO A JURY TRIAL FROM ANY CAUSE OF
ACTION RELATED TO AGREEMENT, INCLUDING CONTRACT, TORT, BREACH OF DUTY OR
OTHER CLAIM. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
13. NOTICES. Notices or demands by either party about this Agreement
must be in writing and personally delivered or sent by an overnight delivery
service, by certified mail postage prepaid return receipt requested, or by
FAX to the address below:
Seller: Radius, Inc.
460 Middlefield Road
Mountain View, CA 94303
Attn: Chief Financial Officer
FAX: (650) 404-6205
Buyer: Silicon Valley Financial Services/Silicon Valley Bank
3003 Tasman Drive/NC481
Santa Clara, CA 95054
Attn: Credit Manager
FAX: (408) 980-6410
A party may change notice address by written notice to the other party.
14. GENERAL PROVISIONS.
14.1 Successors and Assigns. This Agreement binds and is for
the benefit of successors and permitted assigns of each party. Seller may not
assign this Agreement or any rights under it without Buyer's prior written
consent which may be granted or withheld in Buyers discretion. Buyer may,
without the consent of or notice to Seller, sell, transfer, or grant
participation in any part of Buyer's obligations, rights, or benefits under
this Agreement.
14.2 Indemnification. Seller will indemnify, defend and hold
harmless Buyer and its officers, employees, and agents against: (a)
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transaction contemplated by this Agreement; and (b)
losses or expenses incurred, or paid by Borrower from or consequential to
transactions between Buyer and Seller (including reasonable attorneys fees
and expenses), except for losses caused by Buyer's gross negligence or
willful misconduct.
14.3 Time of Essence. Time is of the essence for performance
of all obligations in this Agreement.
14.4 Severability of Provision. Each provision of this
Agreement is severable from every other provision in determining the
enforceability of any provision.
14.5 Amendments in Writing, Integration. All amendments to
this Agreement must be in writing. This Agreement is the entire agreement
about this subject matter and supersedes prior negotiations or agreements.
14.6 Counter Parts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts and
when executed and delivered are one Agreement.
14.7 Survival. All covenants, representations and warranties
made in this Agreement continue in full force while any Purchased Note amount
remains outstanding. Seller's indemnification obligations survive until all
statutes of limitations for actions that may be brought against Buyer have run.
14.8 Confidential Information. Buyer will use the same degree
of care in handling
<PAGE>
Seller's confidential information that is used for its own proprietary
information, but may disclose information; (i) to its subsidiaries or
affiliates in connection with their business with Seller, (ii) to prospective
transferees or purchasers of any interest in the Agreement, (iii) as required
by law, regulation, subpoena, or other order, (iv) as required in connection
with an examination or audit and (v) as it considers appropriate exercising
the remedies under this Agreement. Confidential information does not include
information that is either: (a) in the public domain or in Buyer's possession
when disclosed, or becomes part of the public domain after disclosure to
Buyer; or (b) disclosed to Buyer by a third party, if Buyer does not know
that the third party, is prohibited from disclosing the information.
SELLER: RADIUS INC.
A CALIFORNIA CORPORATION
By /s/ [illegible]
---------------------------------------
Title CFO
---------------------------------------
BUYER: SILICON VALLEY BANK
By /s/ [illegible]
---------------------------------------
Title VICE PRESIDENT
---------------------------------------
<PAGE>
SCHEDULE DATED AUGUST 28, 1998
TO
NOTE PURCHASE AGREEMENT
DATED AS OF AUGUST 28, 1998
SELLER: Radius Inc.
BUYER: Silicon Valley Bank
PURCHASE DATE: August 28, 1998
SCHEDULE OF DUE DATES: See attached Schedule of Due Dates
FACE AMOUNT OF NOTE: $5,200,000.00 ***USD
TOTAL PURCHASED NOTE: $5,200,000.00 ***USD
ADVANCE AMOUNT: $1,100,000 ***USD
Seller warrants and represents that (a) its warranties and representation in
the Agreement are true and correct as of the date of this Schedule and (b) no
Event of Default has occurred under the Agreement.
SELLER: RADIUS INC.
A CALIFORNIA CORPORATION
By /s/ [illegible]
---------------------------------------
Title CFO
---------------------------------------
BUYER: SILICON VALLEY BANK
By /s/ [illegible]
---------------------------------------
Title VICE PRESIDENT
---------------------------------------
<PAGE>
CORPORATE RESOLUTION TO SELL
I, the Secretary or Assistant Secretary of Radius, Inc. (the "Seller"),
certify that:
The Seller is a California corporation, and
Attachments 1 and 2 are copies of Seller's Articles of
Incorporation and Bylaws which are currently effective, and
At a duly held meeting of Seller's directors at which a quorum was
present (or by other authorized corporate action) the following
resolutions were adopted:
"RESOLVED THAT any ( ) of the following officers of Seller,
whose signatures are below:
<TABLE>
<CAPTION>
Name Title Signature
<S> <C> <C>
Mark Housley CEO
----------------------- ------------------ -----------------------
Henry V. Morgan CFO /s/ Henry V. Morgan
----------------------- ------------------ -----------------------
----------------------- ------------------ -----------------------
----------------------- ------------------ -----------------------
</TABLE>
acting for Seller are authorized to:
EXECUTE PURCHASE AGREEMENT. To enter a Note Purchase Agreement with
Silicon Valley Bank ("Buyer") on terms agreed by them and Buyer
for the sale of certain Seller's notes and to execute renewals,
extensions, modifications, refinancings, consolidations or
substitutions of any notes and to do other acts and things and
execute and deliver other documents that they consider necessary to
carry out the effect of these Resolutions.
FURTHER RESOLVED THAT:
any acts authorized by these Resolutions but performed before their
passage are ratified, and
these Resolutions remain effective and Buyer may rely on them until
it receives written notice of their revocation, but that notice will
not affect any of Seller's agreements or commitments then
effective."
I ALSO CERTIFY that the officers or agents above are duly elected or
appointed by Seller and hold the positions opposite their names and that
their signatures are true and that the Resolutions are effective and have not
been modified or revoked.
/s/ Henry V. Morgan August 28, 1998
- -------------------------------------------- --------------------
(signature) Assistant Secretary or Secretary Date
<PAGE>
SCHEDULE OF DUE DATES
TO
NOTE PURCHASE AGREEMENT
DATED AS OF AUGUST 20, 1998
<TABLE>
<CAPTION>
DUE DATE AMOUNT DUE
<S> <C>
August 7, 1998 $350,000.00
September 1, 1998 $350,000.00
October 1, 1999 $350,000.00
November 1, 1999 $350,000.00
December 1, 1999 $350,000.00
January 1, 1999 $350,000.00
February 1, 1999 $350,000.00
March 1, 1999 $350,000.00
April 1, 1999 $350,000.00
May 1, 1999 $350,000.00
June 1, 1999 $350,000.00
July 1, 1999 $350,000.00
August 1, 1999 $350,000.00
September 1, 1999 $350,000.00
October 1, 1999 $300,000.00
TOTAL PURCHASED NOTE $5,200,000.00
</TABLE>
<PAGE>
NOTE PURCHASE MODIFICATION AGREEMENT
This Note Purchase Modification Agreement is entered into as of
September 23, 1998, by and between Radius, Inc., (the "Seller") whose address
460 Middlefield Road, Mountain View, California 94303 and Silicon Valley
Financial Services, a division of Silicon Valley Bank ("Buyer"), whose
address is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Seller to Buyer, Seller is indebted to Buyer pursuant to, among
other documents, a Note Purchase Agreement, dated August 28, 1998 by and
between Seller and Buyer (the "Note Purchase Agreement"). Capitalized terms
used without definition herein shall have the meanings assigned to them in
the Note Purchase Agreement.
Hereinafter, all indebtedness owing by Seller to Buyer shall be referred to
as the "indebtedness" and the Note Purchase Agreement and any and all other
documents executed by Seller in favor of Buyer shall be referred to as the
"Existing Documents."
2. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO NOTE PURCHASE AGREEMENT, EFFECTIVE AS OF THE
DATE FIRST WRITTEN ABOVE:
Section 2.2 of the Note Purchase Agreement is amended and restated
to read in full as follows:
"2.2 Payment of Advance Amount. Buyer will pay Seller, on the
Purchase Date, the amount of One Million One Hundred Thousand and
No/100*****$1,100,000.00 (the "Initial Advance"). Upon payment by
Buyer to Seller of the Initial Advance, Buyer and Seller shall
execute a Schedule to this Agreement evidencing the receipt by
Seller of the Initial Advance. At one or more times after the
Purchase Date, Buyer shall, upon the request of Seller, advance
additional sums to Seller aggregating not more than Three Million
Sixty Thousand and No/100*****($3,060,000.00), (the "Additional
Advances"; the Additional Advances and the Initial Advance are
collectively called the "Advance Amount"). Upon payment by Buyer to
Seller of each Additional Advance, Buyer and Seller shall execute a
Schedule to this Agreement evidencing the receipt by Seller of such
Additional Advance."
3. CONSISTENT CHANGES. The Existing Documents are each hereby amended
wherever necessary to reflect the changes described above.
4. NO DEFENSES OF SELLER. Seller agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
5. CONTINUING VALIDITY. Seller understands and agrees that in modifying the
existing Indebtedness, Buyer is relying upon Seller's representations,
warranties, and agreements, as set forth in the Existing Documents. Except as
expressly modified pursuant to this Note Purchase Modification Agreement, the
terms of the Existing Documents remain unchanged and in full force and
effect. Buyer's agreement to modifications to the existing Indebtedness
pursuant to this Note Purchase Modification Agreement in no way shall
obligate Buyer to make any future modifications to the Indebtedness. Nothing
in this Note Purchase Modification Agreement shall constitute a satisfaction
of the Indebtedness. It is the intention of Buyer and Seller to retain as
liable parties all makers and endorsers of Existing Documents, unless the
party is expressly released by Buyer in writing. No maker, endorser, or
guarantor will be released by virtue of this
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Note Purchase Modification Agreement. The terms of this paragraph apply not
only to this Note Purchase Modification Agreement, but also to any subsequent
Note Purchase modification agreements.
This Note Purchase Modification Agreement is executed as of the date first
written above.
SELLER: BUYER:
Radius, Inc. Silicon Valley Financial Services,
a division of Silicon Valley Bank
By: /s/ Henry V. Morgan By: /s/ [illegible]
--------------------------- ------------------------------
Name: Henry V. Morgan Name: [illegible]
--------------------------- ------------------------------
Title: Secretary Title: Vice President
--------------------------- ------------------------------
2
<PAGE>
EXHIBIT 10.22
INTANGIBLE ASSET PURCHASE AGREEMENT
This Intangible Asset Purchase Agreement (this "AGREEMENT") dated
November 23, 1998 (the "EFFECTIVE DATE") is made between Post Digital Software,
Inc. ("SELLER"), a California corporation doing business at 1119 Pacific Ave.,
Suite 300, Santa Cruz, CA 95060, and Radius Inc., a California corporation doing
business at 460 East Middlefield Road, Mountain View, CA 94043, and Radius
(Cayman Islands) Ltd., Radius Inc.'s wholly owned subsidiary, (collectively
"BUYER"). Seller is engaged in the business of designing, developing,
assembling, marketing and selling the "SOFTWARE" identified on EXHIBIT A. Buyer
owns other software and products which are complementary to the Software and
wants to acquire the Software and all related intellectual property from Seller.
The parties, therefore, agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
have the following meanings:
1.1 "CLOSING" means the day upon which the conditions to
concluding this Agreement are met and the parties exchange the deliveries
specified in Section 2 below.
1.2 "CONTRACTS" means those agreements between Seller and
third parties assumed by Buyer as of the Closing and which are listed on
EXHIBIT C, if any.
1.3 "DISCLOSURE SCHEDULE" means EXHIBIT B to this Agreement.
1.4 "INTANGIBLE ASSETS" means all right, title and interest
in and to the Software, the other intangible assets identified on EXHIBIT C to
this Agreement and all Intellectual Property Rights therein. The Intangible
Assets do not include the Third Party Intangibles (defined below).
1.5 "INTELLECTUAL PROPERTY RIGHTS" means any and all patents,
patents pending and other patent rights, copyright rights (including but not
limited to rights in audiovisual works), Moral Rights, trade secret rights,
trade and service marks, the right to bring any claim related thereto and the
right to receive income or payments therefrom and any other intellectual
property rights recognized by the law of any jurisdiction.
1.6 "MORAL RIGHTS" means any right to claim authorship of a
work, any right to object to any distortion or other modification of a work, and
any similar right, existing under the law of any country in the world, or under
any treaty.
1.7 "PURCHASE PRICE" means the purchase price payable to
Seller for the Purchased Assets as specified in Section 3.1 below.
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1.8 "PURCHASED ASSETS" means the Intangible Assets and
Seller's rights in the Contracts.
1.9 "SITE" means the street address of Radius Inc. set forth
in the introductory paragraph of this Agreement.
1.10 "SOFTWARE" means the computer program in object and
source code described on EXHIBIT A, including all predecessor versions, and all
related user and developer documentation.
1.11 "THIRD-PARTY INTANGIBLES" means the Intellectual Property
Rights of third parties specifically identified on EXHIBIT B to this Agreement.
1.12 "WARRANT" means the security defined by the provisions of
EXHIBIT D.
2. PURCHASE AND SALE.
2.1 PURCHASE AND SALE. On the Closing, Seller shall grant,
sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase
and accept from Seller the Purchased Assets, free and clear of all liens,
claims, encumbrances, security interests, restrictions and rights of any third
parties other than the Third-Party Intangibles.
2.2 TRANSFER OF PURCHASED ASSETS. On or before the Closing,
Seller shall, at its expense, tender possession of the Purchased Assets to Buyer
at the Site or such other locations and times and by such means as have been
agreed by the parties.
2.3 FURTHER ACTION. On and after the Closing, Seller will
execute and deliver to Buyer such documents and instruments of transfer and take
such further action as may be reasonably requested by Buyer to transfer to Buyer
the Purchased Assets and vest or perfect in Buyer good and marketable title in
and to the Purchased Assets subject to the terms of this Agreement. Seller
hereby waives any Moral Rights with respect to the Software and Intangible
Assets.
2.4 NO ASSUMPTION OF LIABILITY. Except to the extent Buyer
assumes prospective liability under the Contracts, Buyer has not and will not,
by the execution, delivery or performance for this Agreement, or otherwise,
assume or otherwise become responsible for any liability or obligation of any
nature of Seller, including without limitation: (i) any liability or obligation
under contracts of Seller arising prior to the Closing; (ii) any tax liabilities
related to the Purchased Assets arising prior to the Closing; (iii) any taxes,
wage claims or liabilities for employment-related contributions or liabilities;
(iv) any liabilities arising from a failure to properly withhold from employees
or a failure to file required tax returns or reports with respect to employees
or consultants: and (v) any compensation or benefits to which the Seller's
employees are entitled from Seller (collectively referred to as "PRE-CLOSING
RISKS"). Seller hereby agrees to indemnify, defend and hold Buyer harmless from
and against all
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<PAGE>
loss, liability, claims and expenses (including reasonable attorneys' fees)
related to such Pre-Closing Risks; provided that Buyer gives Seller reasonable
notice of such claim and reasonably cooperates in the defense and settlement of
such claim
3. PURCHASE PRICE AND MANNER OF PAYMENT.
3.1 PURCHASE PRICE. As consideration for the sale of the
Purchased Assets, Buyer will pay Seller payments pursuant to EXHIBIT E and
deliver the Warrant.
3.2 EXPENSES AND TAXES. Each party will bear its own costs
in preparing this Agreement and for taxes in connection with this Agreement and
the transactions contemplated hereby, except as set forth below. Seller agrees
that it shall be responsible for the timely payment of any applicable sales and
use taxes on the transfer of the Purchased Assets and will indemnify Seller from
all loss, liability, claim, risk and expense (including reasonable attorneys'
fees) occasioned by Buyer's failure to pay such taxes.
4. DUE AUTHORIZATION. As of the Effective Date and as of the
Closing:
4.1 BUYER. Buyer hereby represents and warrants to Seller
that Buyer has the full right, power, legal capacity and authority to execute
and delivery this Agreement and to perform its obligations hereunder, and that
no approval and consent of any other person, entity or governmental authority is
necessary to such performance hereof, except as shall be validly and timely
obtained before such performance is required.
4.2 SELLER. Seller hereby represents and warrants to Buyer
that Seller has the full right, power, legal capacity and authority to execute
and deliver this Agreement and to perform its obligations hereunder, and no
approval or consent of any other person, entity or governmental authority is
necessary to such performance thereof, except as shall be validly and timely
obtained prior to Closing.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Buyer that, except as set forth the
Disclosure Schedule attached hereto as EXHIBIT B, the matters set forth in the
following subsections of this Section 5 are true and correct as of the Effective
Date and the Closing.
5.1 CORPORATE ORGANIZATION AND GOOD STANDING. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of California. The nature of the business conducted or properties owned by
Seller do not require Seller to be qualified in any other jurisdiction. Seller
has all corporate power and authority to own, lease and operate its properties
and to conduct its business as such is presently conducted.
5.2 AUTHORIZATION FOR AGREEMENT. The execution, delivery and
performance of this Agreement by Seller has been duly authorized by all
necessary actions of its Board of Directors and its shareholders, and this
Agreement, when executed and delivered by Seller, will constitute the valid and
binding obligation of Seller,
3
<PAGE>
enforceable according to its terms.
5.3 NO BREACH OF STATUTE OR CONTRACT. Neither the execution
nor delivery by Seller of this Agreement nor compliance by Seller with the terms
and provisions hereof will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, the Articles of Incorporation or Bylaws of Seller, any judgment or
award of any court or arbitrator or any other material agreement (including any
material agreement with shareholders) or to Seller's knowledge any applicable
law to which Seller or any of the Purchased Assets is subject, nor will such
execution or delivery result in the creation of any lien or charge upon the
Purchased Assets. Seller is not a party to, or otherwise subject to any
provision contained in, any instrument evidencing indebtedness, any agreement
relating thereto or any other contract or agreement (including its Articles of
Incorporation) which restricts or otherwise limits Seller's power or authority
to transfer the Purchased Assets. Seller is not a party to any joint venture or
similar affiliation involving the Purchased Assets.
5.4 TITLE AND CONDITION OF PROPERTY. Seller owns all right,
title and interest in and to the Purchased Assets free and clear of all claims,
mortgages, liens, security interests or encumbrances of any nature other than
the Third Party Intangibles; and (i) to Seller's knowledge, the transfer of the
Purchased Assets to Buyer and Buyer's use thereof does and will not infringe
upon any Intellectual Property Rights of any third party and (ii) to Seller's
knowledge, no third party is using any element of the Purchased Assets nor
infringing on the Intellectual Property Rights therein.
5.5 LITIGATION. There are no actions, suits, investigations
or proceedings pending, or, to the knowledge of Seller, threatened (i) against
Seller, the Purchased Assets or any properties or rights of Seller which arose
out of or are based upon the ownership or use of the Purchased Assets before any
court, arbitrator or administrator or governmental body, and there is no
judgment, order, writ or decree of any governmental authority applicable to
Seller which might result in any material adverse change in the value of the
Purchased Assets or Buyer's ability to design, develop, assemble, market and
incorporate such Assets into Buyer's other products, (ii) challenging the
ownership or use, in any respect, of the Purchased Assets, or (iii) asserting
the invalidity of this Agreement or seeking to prevent any of the transactions
contemplated hereby. To the knowledge of Seller, no valid basis for any
successful action, suit, investigation or proceeding of the nature referred to
above exists, which if so asserted would have a material adverse effect on the
value of the Purchased Assets or Buyer's ability to design, develop, assemble,
market and incorporate such Assets into Buyer's other Products.
5.6 FINANCIAL RECORDS. On or before the Effective Date and
the Closing, Seller has made available to Buyer access to all records of Seller
pertaining to the Purchased Assets (the "FINANCIAL RECORDS").
5.7 UNDISCLOSED LIABILITIES. To Seller's knowledge, Seller
has no obligations or liabilities related to the Purchased Assets of any
material nature, including but not limited to employees or consultants, whether
absolute, accrued, contingent or
4
<PAGE>
otherwise, except and to the extent disclosed in the Disclosure Schedule or this
Agreement. (Buyer is not assuming any Seller obligations under this Agreement
except as set forth in Section 2.4.)
5.8 PROPRIETARY INFORMATION AGREEMENTS. All persons who have
had access to the confidential and proprietary information related to the
Purchased Assets have executed a non-disclosure agreement and assignment with
Seller. Concurrently with the execution of this Agreement, the rights to
enforce these agreements with respect to the Purchased Assets and the
confidential and proprietary information contained therein is being assigned to
Buyer to the extent necessary to preserve Buyer's Intellectual Property Rights
in the Purchased Assets. Josh Jeffe was at all times an employee of Seller when
authorized to work on the Software.
5.9 SOFTWARE SPECIFICATIONS. The Software conforms to the
specifications included in EXHIBIT A. To Seller's knowledge, the current "bug
list" for the Software provided to Buyer is complete and Seller knows of no
other significant errors in the Software. The Software is year 2000 compliant
and does not contain any computer virus or keying mechanism.
5.10 LIQUIDATION. Seller intends to cease operations, satisfy
all creditor obligations and liquidate its remaining assets after the Closing.
Seller warrants that all creditor obligations will be satisfied in full or
assumed by responsible third parties prior to making any distributions to its
shareholders. To Seller's knowledge, the consideration to be received from
Buyer for the Purchased Assets is reasonable and fair in light of all
circumstances.
5.11 NO OTHER WARRANTIES. Seller makes no other warranties in
connection with the Purchased Assets, express or implied, INCLUDING THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller that the matters set forth in the following subsections
of this Section 6 are true and correct as of the Effective Date and the Closing.
6.1 CORPORATE ORGANIZATION AND GOOD STANDING. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California or the Cayman Islands, as applicable. Buyer has all
corporate power and authority to own, lease and operate its properties and to
conduct its business as such is presently conducted.
6.2 AUTHORIZATION FOR AGREEMENT. The execution and
performance of this Agreement by Buyer has been duly authorized by all necessary
actions of its Board of Directors, and this Agreement, when executed and
delivered by Buyer, will constitute the valid and binding obligation of Buyer,
enforceable against Buyer according to its terms.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. As of the Closing,
the
5
<PAGE>
following conditions have been satisfied, unless waived by Buyer in accordance
with Section 9:
7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by Seller in Sections 4 and 5 above shall be
true and correct in all material respects on the Closing Date.
7.2 CORPORATE APPROVALS. On or prior to the Closing, this
Agreement and all transactions contemplated hereby shall have been duly and
validly authorized and adopted by the Board of Directors and shareholders of
Seller.
7.3 CONSENTS. Seller will have obtained all consents,
permits and waivers and made all filings necessary or appropriate for the
consummation of the transactions contemplated hereby, including but not limited
to the approvals of parties to the Contracts.
7.4 CLOSING CERTIFICATE. On the Closing Date, Seller shall
have delivered to Buyer a certificate signed by the chief financial officer of
Seller, dated the Closing Date and certifying to the fulfillment of the
conditions set forth in Sections 7.1, 7.2, and 7.3 above.
7.5 DELIVERIES OBTAINED. All deliveries to Buyer required to
be made by Seller under Section 2 hereof shall have been made.
7.6 DILIGENCE. Buyer is satisfied with the results of its
investigation of the Purchased Assets prior to the Closing and the terms under
which any Contracts are to be assigned.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. As of the
Closing, all of the following conditions shall have been satisfied, unless
waived by Seller in accordance with Section 9:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by Buyer in Sections 4 and 6 above shall be
true and correct in all material respects on the Closing.
8.2 CORPORATE APPROVAL. On or prior to the Closing Date,
this Agreement and all transactions contemplated hereby shall have been duly and
validly authorized and adopted by the Board of Directors of Buyer, and Buyer
shall have delivered to Seller certified copies of the resolutions of its Board
of Directors authorizing the execution, delivery and performance of this
Agreement and the transactions contemplated hereby.
8.3 CLOSING CERTIFICATE. On the Closing Date, Buyer shall
have delivered to Seller a certificate signed by the chief financial officer of
Buyer, dated the Closing Date and certifying to the fulfillment of the
conditions set forth in Sections 8.1 and 8.2 and that there have been no
material adverse changes to Buyer's financial conditions or business.
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8.4 DELIVERIES. Buyer shall deliver the Warrant and the
initial payment specified in EXHIBIT E.
9. WAIVERS OF CONDITIONS; TERMINATION; CERTAIN COVENANTS.
9.1 WAIVERS OF CONDITIONS. Either party can elect to waive
any condition for its benefit on prior written notice to the other party and
upon such waiver will not thereafter be able to seek any legal recourse against
the other party for the failure to satisfy such condition. In any event, Seller
shall have no liability to Buyer if the conditions identified in Section 7.3 are
not satisfied, provided that commercially reasonable efforts are made to satisfy
them during the term of this Agreement.
9.2 TERMINATION OF THIS AGREEMENT. This Agreement may be
terminated upon the mutual written consent of Seller and Buyer, and will be
terminated in any event if the Closing has not occurred by January 31, 1999
(unless extended by agreement of the parties), in which case only the
obligations of Sections 10 and 12 shall survive.
9.3 CERTAIN SELLER COVENANTS.
Until the termination of this Agreement or the Closing:
(a) Seller shall conduct its business with respect to
the Purchased Assets only in the ordinary course.
(b) Seller shall reasonably cooperate with Buyer in
the orderly transition of the business related to the Purchased Assets to
Buyer's control by the Closing.
(c) Seller shall use reasonable best efforts to
preserve for Buyer the good will of Seller's customers and others having
business relations with the Seller related to the Purchased Assets.
(d) Seller shall refrain from negotiating the license
or other form of transfer of any portion of the Purchased Assets with any third
party.
Until the first anniversary of the Closing, Seller shall
use reasonable commercial efforts to ensure that the operator of the Aptos Post,
Inc. web site provides reasonable links to Buyer's web site for site users
interested in the Software, all without charge to Buyer.
10. SURVIVAL, INDEMNIFICATION AND EXCULPATION.
10.1 INDEMNIFICATION OF SELLER. Buyer will defend, indemnify
and hold Seller (including Seller's officers, directors, shareholders,
employees, distributors and agents) harmless from all loss, liability, claims
and expenses (including reasonable
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<PAGE>
attorneys' and experts' charges) (collectively, the "LOSSES") occasioned by
Buyer's breach of any of its representations and warranties herein, except to
the extent such Losses are caused by Seller's intentional misconduct or gross
negligence.
10.2 INDEMNIFICATION OF BUYER. Seller will defend, indemnify
and hold Buyer (including Buyer's officers, directors, shareholders, employees,
distributors and agents) harmless from all Losses occasioned by Seller's breach
of any of its representations and warranties herein, except to the extent such
Losses are caused by Buyer's intentional misconduct or gross negligence.
10.3 SURVIVAL. The representations and warranties of Seller
and Buyer pursuant to Articles 4, 5 and 6 respectively will survive as long as
any payments may be payable by Buyer to Seller pursuant to EXHIBIT E or until
the Warrant expires or is completely exercised, whichever is longer. Any
action for breach must therefore accrue prior to such expiration. The
provisions of Sections 1, 10 and 12 shall survive any termination or expiration
of this Agreement. The provisions of Section 12.4 (Confidentiality) shall
survive any termination or expiration of this Agreement for a period of three
years.
11. NONCOMPETITION AND NONSOLICITATION. As an inducement to enter
into this Agreement and consummate the transactions contemplated hereby, the
parties agree as follows:
(a) During the period from the Closing until the first
anniversary of the Closing (the "NONCOMPETE PERIOD"), Seller shall not (i)
develop or assist any other person, entity or venture in developing or
maintaining any software with substantially similar functionality to the
Software, nor (ii) knowingly induce any employee of Buyer to leave the employ of
Buyer without Buyer's written approval; PROVIDED, HOWEVER, that in the event
this Agreement is assigned or the Seller's assets and funds are distributed to
any individual persons in connection with any liquidation, dissolution or
winding up of Seller, the provisions of this Section 11 shall not be binding
upon such persons, unless Seller shall have previously breached this Section 11
or unless such person is Stephen Manousos.
(b) During the Noncompete Period, Buyer and its affiliates
shall not knowingly induce any employee of Seller to leave the employment of
Seller in order to provide services to Buyer without Seller's written approval.
(c) The parties acknowledge and agree that money damages may
not be an adequate remedy for any breach or threatened breach of the provisions
of subparagraph (a) or (b) of this Section 11 and that, in such event, the
aggrieved party or its successors or assigns may, in addition to any other
rights and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance, injunctive and other relief in order to
enforce or prevent any violations of the provisions of this Section 11
(including the extension of the Noncompete Period by a period equal to the
length of court proceedings necessary to stop such violation). Any injunction
shall be available without the posting of any bond or other security. In the
event of an alleged breach or violation of any of the provisions of this
Section 11, the Noncompete Period
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will be tolled until such alleged breach or violation is resolved; PROVIDED,
HOWEVER, that if it is found that the provisions of this Section 11 have not
been violated, then the Noncompete Period will not be deemed to have been
tolled. The parties agree that the restrictions contained in this Section 11
are reasonable in all respects in light of all circumstances.
12. MISCELLANEOUS
12.1 NO ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement
may not be assigned by Seller or Buyer and any attempt to do so will be void;
except that, subject to the provisions of Section 11, (i) Buyer may assign this
Agreement in connection with a merger or sale of substantially all of its assets
or similar reorganization, and (ii) Seller may assign this Agreement in
connection with the liquidation, dissolution and winding up of Seller provided
that Buyer is timely compensated for any increased administrative expenses
associated with such assignment as such expenses are incurred. This Agreement
and the terms and conditions contained herein are binding upon, and will inure
to the benefit of, the parties hereto and their respective representatives,
executors, administrators, heirs, successors and assigns.
12.2 SEVERABILITY. If any provision of this Agreement is found
to be invalid, illegal or unenforceable, then it will be enforced to the maximum
extent possible and the remaining provisions of this Agreement will continue
unaffected to the extent equitable. Moreover, if for any reason, other than the
knowing fault of Buyer, the transfer of any significant portion of the Purchased
Assets is found by a court to be invalid, illegal or unenforceable and any court
requires in a final judgment that Buyer either return same or relinquish its
ownership rights in a manner that materially and adversely affects Buyer's
interest in the Purchased Assets, then all payments made by Buyer and the
Warrant shall first be returned to Buyer, Buyer shall be relieved of all payment
obligations and Buyer shall continue to have the perpetual, nonexclusive,
irrevocable, transferable and sublicensable right to copy, use, modify, make
derivative works of, market, offer, sell and license all software elements of
the Purchased Assets (including documentation) and all trademarks and
tradenames associated therewith in consideration of the significant resources
devoted by Buyer to the further development of the Purchased Assets.
12.3 WAIVERS. No waiver by any party hereto of any term or
condition of this Agreement will be effective unless set forth in a writing
signed by such party. No waiver of any provision of this Agreement will be
deemed a waiver of any other provision, or constitute a continuing waiver unless
otherwise expressly provided in writing by the waiving party. No failure or
delay on the part of any party in exercising any right, power or privilege under
this Agreement will operate as a waiver thereof, nor will a single or partial
exercise thereof preclude any other or further exercise of any other rights,
powers or privileges.
12.4 CONFIDENTIALITY. Each party acknowledges that it will
receive information which is confidential and proprietary to the other party
(the "CONFIDENTIAL INFORMATION"). Each party agrees not to use the Confidential
Information except in performance of this Agreement and not to disclose the
Confidential Information to third
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parties. Each party shall take all reasonable steps to protect the
Confidential Information from unauthorized or inadvertent disclosure or use,
including without limitation, all steps that it takes to protect its own
proprietary information. Neither party will issue a press release in connection
with the entry into or Closing of this Agreement without the prior approval of
the other party, except as may be required by law
12.5 NOTICES. All notices which are required to be given
hereunder shall be in writing and shall be addressed (i) if to Seller, at
Seller's address set forth in the introductory paragraph of this Agreement, or
(ii) if to Buyer, at the address as set forth in the introductory paragraph of
this Agreement (each to the attention of the chief executive officer or chief
financial officer), or at such other address as the relevant party furnishes to
the other party hereto in writing pursuant to this Section. Any such notice may
be delivered personally, by commercial overnight courier or facsimile
transmission which shall be followed by a hard copy (U.S. mail prepaid, first
class or better) and shall be deemed to have been served if by hand when
delivered, if by commercial overnight courier 48 hours after deposit with such
courier, and if by facsimile transmission when transmission has been confirmed.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts (original or facsimile), each of which shall be deemed an
original and all of which together shall constitute but one instrument.
12.7 BROKER'S FEES/EXPENSES. Each party represents that it
has not engaged the services of any broker or finder in connection with the
transactions contemplated by this Agreement and jointly and severally agree to
indemnify the other and hold it harmless from and against any claims for
broker's or finder's fees or other compensation in connection with such
transactions. Otherwise, each party will bear its own expenses in connection
with this Agreement.
12.8 DISPUTES. If any dispute arising out of or in connection
with this Agreement cannot be resolved by the parties consensually or through
mutually agreeable forms of mediation or arbitration, then such dispute shall be
adjudicated in any court of competent jurisdiction applying California law. The
parties agree that the state or federal courts of Santa Clara County California
are competent to hear any such dispute and consent to service there.
12.9 NO ADDITIONAL REPRESENTATIONS. Buyer and Seller each
acknowledge that the other has not made any representations or warranties, of
any kind, either express or implied.
12.10 ATTORNEYS' FEES. If any action at law or in equity or
arbitration or mediation proceeding is necessary to enforce or interpret the
provisions of this Agreement, then the prevailing party shall be entitled to
reasonable attorneys' and experts' charges in addition to any other relief to
which such prevailing party may be entitled.
12.11 INTEREST. Except as otherwise provided in EXHIBIT E, any
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obligation under the Agreement which can be reduced to a monetary sum and which
is not satisfied when due under this Agreement will bear interest at the rate of
one percent per month or any lower legal maximum until satisfied.
12.12 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement,
together with the exhibits attached hereto, each of which is incorporated herein
by this reference, constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes in its entirety all prior
agreements, understandings, negotiations and discussions between the parties,
whether oral or written, with respect to the subject matter hereof. No
supplement, modification or amendment to this Agreement will be binding unless
executed in writing by all parties hereto. There are no intended third party
beneficiaries of this Agreement. An ambiguity or inconsistency in this
Agreement shall not be construed against its drafter. "Including" and "for
example" are used inclusively, without limitation. The adequacy and fairness of
consideration is acknowledged by each party.
[Balance of page left blank; signature block follows.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written:
POST DIGITAL SOFTWARE, INC. RADIUS INC.
By: By:
--------------------------- ---------------------------
Name: Stephen Manousos Name: Mark Housley
Title: Chief Executive Officer Title: Chief Executive Officer
Radius (Cayman Islands) Ltd.
By:
---------------------------
Name: Mark Housley
Title: Chief Executive Officer
EXHIBITS
Exhibit A The Software and its Specifications
Exhibit B Disclosure Schedule and Third Party Intangibles
Exhibit C Other Intellectual Property and the Contracts
Exhibit D The Warrant
Exhibit E Payment Provisions
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EXHIBIT A
The Software and its Specifications
For the purpose of this Agreement, the term "Software" means:
The computer software programs developed by or for Post Digital, Inc. or its
shareholders that comprise the products known as "Roto" and "Media Paint" in
source and object code for all platforms, including Macintosh and Windows,
including but not limited to: (i) the HoloPaint Specification from June 23, 1998
including screen shots, (ii) related databases, (iii) the lite and full
versions; (iv) all other computer code and documentation created, designed,
published, conceptualized, developed, manufactured, assembled, produced,
acquired, licensed, distributed or otherwise disposed of by or for Post Digital
Inc. related to the foregoing, (v) all related or supplementary products and/or
programs related thereto, (vi) all derivative works, modifications,
alterations, amendments, corrections, updates, enhancements, changes, upgrades,
and additions to the foregoing, (vii) all know how, inventions, work in
progress, algorithms, diagnostic routines, processes related to or associated
with the foregoing, (viii) all business files and records relating to or used in
connection with the foregoing, (ix) any and all related manuals, logic diagrams,
flow charts, programmers' notes, and other documentation relating to the
foregoing and (x) bug data bases and tech support files.
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EXHIBIT B
THIRD PARTY INTANGIBLES
Strata Incorporated, a Utah corporation, jointly owns rights to the version of
the source code for Media Paint in existence when the Disengagement Agreement
among Strata Incorporated, Neil Media, Inc. and others was entered into as of
January 17, 1997, a copy of which has been provided to Buyer. Under the
Disengagement Agreement, Neil Media is restricted to using only the code that
was written as a part of the main application, and is free to develop and derive
any products for sale which are based on the shared source code for Media Paint.
Post Digital Software acquired all of Neil Media's right, title and interest to
Media Paint pursuant to the Software Acquisition Agreement among Neil Media,
Post Digital Software and others dated January 7, 1997, a copy of which has been
provided to Buyer.
DISCLOSURE SCHEDULE
The following are exceptions to the representations and warranties of
Post Digital Software, Inc. (the "SELLER") contained in the Intangible Asset
Purchase Agreement dated November 23, 1998 (the "AGREEMENT"), and should be
considered an integral part of the Agreement. The section numbers in this
Disclosure Schedule correspond to the section numbers in the Agreement. Any
terms defined in the Agreement shall have the same meaning when used in this
Disclosure Schedule as when used in the Agreement, unless the context otherwise
requires. Copies of agreements and documents described herein have been made
available to the Buyer.
5.4 TITLE AND CONDITION OF PROPERTY
See Exhibit B, "Third Party Intangibles" above; and Section 5.8,
"Proprietary Information Agreements" below.
5.5 LITIGATION
Letter from Puffin Designs, Inc. to Seller dated July 9, 1998, informing
Seller that Puffin Designs has filed a number of patent applications for
features of Commotion, its real time visual effects tool.
5.6 FINANCIAL RECORDS
Seller has not provided Buyer with any financial records.
5.7 UNDISCLOSED LIABILITIES
Seller has issued promissory notes to each of Lee Lorenzen and Stephen
Manousos, each in the amount of $522,000.
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5.8 PROPRIETARY INFORMATION AGREEMENTS
Neither Josh Jeffe nor Scott Meyer signed employment agreements with
invention assignment provisions. However, each of Josh Jeffe and Scott Meyer
were full-time employees, and each signed Seller's standard nondisclosure
agreement. The nondisclosure agreement between Josh Jeffe and Seller is dated
May 6, 1997, and the nondisclosure agreement between Scott Meyer and Seller is
dated May 13, 1997.
5.10 LIQUIDATION
Seller has issued promissory notes to each of Lee Lorenzen and Stephen
Manousos, each in the amount of $522,000.
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EXHIBIT C
Other Intellectual Property and Contracts
The trademarks and applications therefor of: "Roto" and variations thereof and
all goodwill associated therewith.
All trade dress, labels, logos and box designs, including specifications in all
forms, for all product packaging and promotional materials related to the
Software.
All marketing and promotional literature in all forms.
All prospective customer lists, the lead database from NAB, email addresses of
users registered via the web and the list of VARs who expressed an interest in
handling the Software.
The Roto web site pages and all related source HTML files and documentation
associated with the operation of such site.
Contracts
There are no Contracts assumed by Buyer.
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EXHIBIT D
WARRANT
THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN EXEMPTION THEREFROM OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR A NO ACTION LETTER OR INTERPRETIVE OPINION
OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
RADIUS INC. WARRANT
VOID AFTER NOVEMBER 23, 2002
1. THE WARRANT.
(a) THE GRANTING OF A WARRANT. This Warrant is executed and
delivered by Radius Inc., a California corporation (the "COMPANY"), to Post
Digital Software, Inc. (the "Holder") in connection with the closing of the
Intangible Asset Purchase Agreement dated November 23, 1998 (the "Purchase
Agreement").
(b) NUMBER AND PRICE OF SHARES SUBJECT TO WARRANT. Subject to the
terms and conditions herein set forth, Holder is entitled to purchase from the
Company, at any time commencing on the date hereof (the "EXERCISE COMMENCEMENT
DATE") until this Warrant has expired in accordance with subparagraph (e) below,
50,000 shares of fully paid and non-assessable shares of Common Stock of the
Company (the "SHARES") at a purchase price of $1.50 (one and one half dollars)
per share (the "WARRANT PRICE"). The number and purchase price of such shares
are subject to adjustment pursuant to paragraph 2 hereof. This Warrant will be
exercisable by the holder at any time after the earlier to occur of twelve
months from the date of the issuance hereof by its giving to the Company written
notice of its intent to exercise ("EXERCISE NOTICE") on or before the expiration
of this Warrant, in the form attached hereto as ATTACHMENT 1. Upon giving such
notice, the Holder will surrender this Warrant at the principal office of the
Company and pay the full purchase price for the Shares to be acquired upon
payment in cash or by check. Notwithstanding the foregoing, the Warrant will
not be exercisable until May 1, 1999, and then for only up to 12,000 shares.
Thereafter, the Warrant can be exercised for up to 12,000 shares plus an
additional 2,000 shares for each full month which has transpired since April 30,
1999. The Warrant will therefore not be exercisable for the entire 50,000
shares until December 1, 2000.
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(c) NET EXERCISE. In lieu of exercising this Warrant pursuant to
Section 1(b) above, the Holder may elect to receive a number of Shares to be
calculated as follows:
X = Y(A-B)
------
A
where X = the number of shares of Common Stock to be issued to the
holder.
Y = the number of shares of Common Stock requested to be
exercised under this Warrant.
A = the fair market value of one (1) share of Common Stock.
B = the Warrant Price.
For purposes of the above calculation, current fair market value of
Common Stock shall mean with respect to each share of Common Stock:
(i) if traded on a national securities exchange or the Nasdaq
National Market (or similar national quotation system), the fair market
value shall be deemed to be the closing price (last reported sale) on
the day the current fair market value of the securities is being
determined;
(ii) if traded over-the-counter, the fair market value shall be deemed
to be the average of the closing bid or sales price (as applicable) over
the thirty calendar day period ending three days before the date of
calculation; or
(iii) if at any time the Common Stock is not traded as described in (i)
or (ii) above, the current fair market value shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors, unless the Company shall become subject
to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the fair market value
shall be deemed to be the value received by the holders of the Company's
Common Stock on a common equivalent basis pursuant to such merger or
acquisition.
(d) EFFECT OF EXERCISE. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
Shares issuable upon such exercise shall be treated for all purposes as the
holder of record of such shares as of the close of business on such date. As
soon as practicable on or after such date, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or
certificates for the number of Shares issuable upon such exercise.
(e) TERM. Unless earlier exercised in whole, this Warrant shall
terminate and expire as of 5:00 p.m. local California time on November 23, 2002.
(f) PARTIAL EXERCISE. This Warrant may be exercised by the holder
from time to time as to all or a portion of the Shares subject hereto. In the
event that this Warrant is exercised as to only a portion of the Shares subject
hereto, the Company will, upon issuance of the Shares so acquired, deliver to
the holder a new Warrant representing the remaining Shares subject hereto.
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(g) VALIDITY. The Warrant and Warrant Shares, when issued,
delivered and paid for in accordance with this Agreement, will be duly and
validly authorized and issued, fully paid and non-assessable and will not
subject the holder thereof to personal liability by reason of being such holder.
There are no preemptive rights of any shareholder of the Company, as such, to
acquire the Warrant or Warrant Shares.
2. (a) ADJUSTMENT FOR STOCK DIVIDENDS. In case at any time or from time
to time on or after the effective date hereof all holders of the Common Stock of
the Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor, other or additional stock
of the Company by way of dividend, then and in each case, the Holder of this
Warrant shall, upon the exercise hereof, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of such other or additional
stock of the Company which such holder would hold on the date of such exercise
had it been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock receivable
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by paragraphs (b) and (c) of this paragraph 2.
(b) ADJUSTMENT FOR RECLASSIFICATION, REORGANIZATION OR MERGER. In
case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the holder or this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c); in each such case, the terms
of this paragraph 2 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If at any time on or
after the date hereof the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common Stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares
receivable upon exercise of the Warrant shall be proportionately
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decreased.
3. (a) CERTAIN INFORMATION RIGHTS. Subject to the provisions of Section
2 above, while a public market exists for the Warrant Shares, the Company agrees
to make and keep public information available, as those terms are construed in
Rule 144 under the Securities Act of 1933, to file with the commission in a
timely manner all periodic reports and to use its best efforts to file other
documents required of the Company under the such Act and the Securities Exchange
Act of 1934 for applicable time periods under Rule 144. Upon the request of any
Holder, the Company will furnish such Holder a copy of such filings. Holder can
elect to purchase Shares separately from this Agreement in order to become
eligible to receive information provided to all shareholders and can elect to be
on Company's non obligatory "courtesy copy" fax list in order to receive
corporate (as opposed to commercial or product) press releases along with other
interested parties by providing Company with current contact information from
time to time.
(b) SEC FILINGS. The Company represents and warrants that it has
filed all forms, reports and documents required to be filed by it with the
Securities and Exchange Commission (the "SEC") (the "COMPANY SEC REPORTS"). The
Company SEC Reports, as well as all forms, reports and documents to be filed by
the Company with the SEC after the date of the Purchase Agreement, (i) were or
will be prepared in accordance with the requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended, as the
case may be, and the rules and regulations thereunder, (ii) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading, and (iii)
did not at the time they were filed, or will not at the time they are filed,
omit any documents required to be filed as exhibits thereto. No subsidiary of
the Company is required to file any form, report or other document with the SEC.
4. Holder represents and warrants to, and agrees with, the Company, that:
(a) PURCHASE FOR OWN ACCOUNT. This Warrant and the Warrant Shares
are being acquired for investment for Holder's own account, not as a nominee or
agent, and not with a view to the public resale or distribution thereof within
the meaning of the Act, and such Holder has no present intention of selling,
granting any participation in, or otherwise distributing the same.
(b) DISCLOSURE OF INFORMATION. Holder has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Warrant. Holder has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the Warrant and the Warrant Shares and to obtain
additional information necessary to verify any information furnished to Holder
or to which Holder had access. Holder acknowledges receipt of Company's most
recent periodic reports on forms 10-K and 10-Q as well as all current reports on
form 8-K.
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(c) INVESTMENT EXPERIENCE. Holder understands that the receipt of
the Warrants and the purchase of the Warrant Shares involves substantial risk.
Holder: (i) has experience as an investor in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of such investment in the Warrants and Warrant Shares and has
such knowledge and experience in financial or business matters that Holder is
capable of evaluating the merits and risks of this investment in the Warrants
and Warrant Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship with
the Company and certain of its officers, directors or controlling persons of a
nature and duration that enables Holder to be aware of the character, business
acumen and financial circumstances of such persons.
(d) RESTRICTED SECURITIES. Holder understands that the Warrants and
the Warrant Shares are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this connection, Holder represents that Holder is familiar with Rule 144 of the
U.S. Securities and Exchange Commission, as presently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. Holder
understands that the Company is under no obligation to register any of the
securities sold hereunder except as set forth in Section 11. Holder understands
that no public market now exists for the Warrant and that it is uncertain
whether a public market will continue to exist for the Warrant Shares.
(e) FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, Holder further agrees not to make any
disposition of the Warrant in whole or part or all or any portion of the Warrant
Shares unless and until:
(i) there is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (B) Holder shall
have furnished the Company, at the expense of Holder or its transferee, with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the
Securities Act.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be required: (1) for any
transfer of all or any portion of the Warrant or any Warrant Shares in
compliance with SEC Rule 144 or (2) for the transfer by gift, will or intestate
succession by Holder to his or her spouse or lineal descendants or ancestors or
any trust for any of the foregoing or (3) in connection with a final liquidating
distribution to creditors and shareholders of Holder which has been approved by
a court with jurisdiction and which is exempt from
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federal securities laws; PROVIDED that in each of the foregoing cases the
transferee agrees in writing to be subject to the terms of this Warrant to the
same extent as if the transferee were the original Holder hereunder.
(f) LEGENDS. It is understood that the certificates evidencing the
Warrant Shares will bear the legends set forth below:
(i) THE SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. NO SALE OR OTHER
DISPOSITION OR PLEDGE OF THESE SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN EXEMPTION THEREFROM OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT A PROPOSED DISPOSITION OR PLEDGE IS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR A NO ACTION
LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE
COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.
(ii) Any legend required by the laws of the State of
California, including any legend required by the California Department of
Corporations and Sections 417 and 418 if the California Corporations Code or any
other state securities laws.
The legend set forth in (i) above shall be removed by the Company from any
certificate evidencing Warrant Shares upon delivery to the Company of an opinion
by counsel, reasonably satisfactory to the Company, that a registration
statement under the Securities Act is at that time in effect with respect to the
legended security or that such security can be freely transferred in a public
sale without such a registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Warrant Shares.
(g) PURCHASE AGREEMENT OFFSET. Holder or its predecessor has
received the Warrant in consideration in part for various undertakings in the
Purchase Agreement. The Company can elect to refuse to authorize the transfer
of any Warrant or the issuance of the Warrant Shares until all indemnification
and payment obligations to it under the Purchase Agreement (including Exhibit E)
are satisfied pursuant to the terms of the Purchase Agreement (other than by
discharge in bankruptcy); provided however, that such authorization of transfer
or issuance shall not be unreasonably withheld or delayed. This Section 4(g)
shall not apply to the proposed transfer of the Warrant or Warrant Shares to any
shareholder of the Holder in connection with the liquidation, dissolution and
winding up of Holder.
5. OTHER ADJUSTMENTS. Except as provided in paragraph 2, no adjustment on
account of dividends or interest on Common Stock will be made upon the exercise
hereof.
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6. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
7. NO SHAREHOLDER RIGHTS. Until effectively exercised, this Warrant shall
not entitle its Holder to any of the rights of a shareholder of the Company. The
Company will not, by amendment of its charter or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
corporate action, seek to avoid the observance or performance of any of the
terms of this Warrant and will at all times reasonably assist in the carrying
out of all such terms of the Warrant and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder of this
Warrant in accordance with its terms.
8. EXERCISE OF WARRANT. The Holder's ability to exercise this Warrant is
subject to the Company having obtained any necessary regulatory approvals prior
to such exercise. The Company shall use its best efforts to obtain any such
consents after the date hereof. Subject to such approvals, this Warrant (or
portion thereof pursuant to Section 10) may be exercised by each registered
holder or each of its registered assigns on only four occasions and in minimum
increments of 10,000 shares of Common Stock (or any remaining shares of Common
Stock subject to this Warrant if the number of shares of Common Stock subject to
this Warrant is less than 10,000) by the surrender of this Warrant at the
principal office of the Company, accompanied by payment in full of the Warrant
Price as described above. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of such Shares of record as of the close of business on such date.
As promptly as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share as provided
above. The Company will at all times reserve and keep available, solely for the
issuance and delivery upon the exercise of this Warrant, such shares of Warrant
Shares and other stock, securities and property, as from time to time shall be
issuable upon the exercise of this Warrant.
9. CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price is adjusted, as
herein provided, upon written request by the holder, the Company shall deliver
to the record holder of this Warrant a certificate of an officer of the Company
setting forth the (i) Warrant Price after such adjustment, (ii) setting forth a
brief statement of the facts requiring such adjustment, and (iii) the kind and
amount of stock or other securities or property into which this Warrant shall be
exercisable after such adjustment.
10. RESTRICTIONS ON TRANSFER OF WARRANT. This Warrant and all rights
hereunder are transferable, in whole or in part, subject to the provisions of
Sections 4(d), (e), (f) and (g) above; provided that Holder first offer the
Company the opportunity to acquire the Warrant on the same terms as are offered
to or by any bona fide third party (each
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such opportunity expiring if the Company has not accepted the offer in writing
within seven business days after notice of the terms). The foregoing right of
first refusal shall not apply to the initial Holder's liquidating distribution
to its shareholders, nor to any transfer of the Warrant Shares. The terms of
this Warrant shall be binding upon the successors and assigns of the holder.
11. PIGGYBACK REGISTRATION AND MARKET STANDOFF AGREEMENT. If: (i) Holder is
unable to dispose of its Warrant Shares pursuant to Rule 144 of the SEC (or any
successor regulation) within the three months after the notice referred to
below; (ii) Holder desires to sell all 50,000 Warrant Shares as soon as
practicable (or as many as the Company's investment banker deems prudent); (iii)
the Company has conferred registration rights to third parties and such rights
have been effectively exercised; and (iv) in the Company's reasonable opinion
the inclusion of such Warrant Shares in a registration statement at such time
will not prejudice the rights and opportunity of such third parties or result in
a breach of the Company's obligations to such third parties; then the Company
will notify Holder of the opportunity to participate in such registered
offering. Unless Holder confirms its irrevocable election to participate in the
registered offering within ten days after receipt of such notice, then Holder
will be deemed to have waived its election to participate. If Holder timely
elects to participate, then Holder will enter into the same undertakings
regarding the registered offering as are applicable to the other selling
shareholders (e.g., indemnification). Holder's failure to timely do so will be
deemed to waive Holder's right to participate in the registered offering. If
Holder does not participate in the registered offering after being offered to
participate, the Company is not required to offer further opportunities to
participate in such registered offering and such nonparticipation by Holder
shall not affect Holder's right to participate in a subsequent registered
offering by the Company. In any event, Holder hereby agrees that it shall not,
to the extent requested by an underwriter of securities or the Company, sell or
otherwise transfer or dispose of any Shares (other than to donees or partners of
the holder who agree to be similarly bound) for up to one hundred eighty (180)
days following the effective date of a registration statement of the Company
filed under the Act; PROVIDED, HOWEVER, that all officers and directors of the
Company then holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the Shares and to
impose stop transfer instructions with respect to the Shares (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
12. MISCELLANEOUS. This Warrant shall be governed by the laws of the
State of California without giving effect to conflicts of law principles.
The headings in this Warrant are for purposes of convenience and reference
only, and shall not be deemed to constitute a part hereof. Neither this
Warrant nor any term hereof may be changed, waived, discharged or terminated
except by an instrument in writing signed by the Company and the registered
holder hereof. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by
the last holder of this Warrant who shall have furnished an address to the
Company in writing.
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ISSUED this 23rd day of November, 1998 (the "Effective Date" of this agreement).
HOLDER - POST DIGITAL SOFTWARE, INC. RADIUS INC.
By: By:
------------------------ ------------------------
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ATTACHMENT 1
EXERCISE NOTICE
1. The undersigned hereby elects to purchase _______ shares of the Common
Stock of Radius Inc. pursuant to the terms of the attached Warrant and to
utilize the net exercise provisions of Section 1(c) of the Warrant (unless
payment of the purchase price of such shares in full is made herewith.)
2. Please issue a certificate representing said shares in the name of the
undersigned or in such other name as specified below:
(Name)
(taxpayer ID#)
(Address)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
(Date) (Signature)
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Exhibit E Payment Provisions
Pursuant to Section 3.1 of the Intangible Asset Purchase Agreement dated
November 23, 1998, Buyer will pay Seller payments equal to:
(a) $50,000 upon the Closing (the "Initial Payment");
(b) $50,000 upon the earlier of (i) the first anniversary of the Effective
Date or (ii) the "Commercialization" of the Software by Buyer;
Commercialization means the first commercial shipment of any product of
Buyer containing twenty percent or more of the Software object code;
(c) "Unit Payments" equal to ten percent of Buyer's "Net Selling Price" (as
defined below) for the Software when sold on or licensed for the Apple
Macintosh platform; equal to four percent of Buyer's Net Selling Price
for the Software when sold on or licensed for the Windows platform; and
equal to seven percent of Buyer's Net Selling Price for the Software
when sold or licensed as a package for both the Apple Macintosh and
Windows platform ; and
(d) "Prorated Unit Payments" equal to a percentage of Buyer's Net Selling
Price when the Software or certain portions thereof are sold along with
other software or technology of Buyer. Prorated Unit Payments will be
calculated as follows: (i) the included Software must contain one or
more of the "app framework", "paint", "compositor", "particle",
"object", and "realtime playback" functionalities of the Software; (ii)
for each functionality included, the "Factor" will equal twenty percent
(not exceeding one hundred percent), i.e., the presence of two
functionalities would yield a Factor of forty percent; (iii) the list
price of the standalone Software product and the other Buyer product
will be established as "Roto ASP" and "Other Product ASP", respectively;
(iv) the applicable Unit Payment percentage will be established as ten,
four or seven percent depending on whether the combined product is for
use on the Apple Macintosh, Windows platform or both, as applicable;
(v) the "ASP Ratio" will then be determined as the Roto ASP divided by
the sum of the Roto ASP and the Other Product ASP; (vi) the Prorated
Unit Payment for a product sold will then equal the Unit Payment times
the Factor times the ASP Ratio. For example, assuming a Roto ASP and a
Other Product ASP of $1000 each for the Apple Macintosh platform with a
Factor of forty percent, the Prorated Unit Payment will then equal: 10%
times $1000 (assuming no netting factors) or $100 [i.e., the non
prorated Unit Payment] times the Factor of 40% times the ASP Ratio of
fifty percent, or $20.
Notwithstanding the foregoing, the total payments, that is the sum of the
Initial Payment, the payment upon the first anniversary of the Effective Date or
Commericalization, the aggregate Unit Payments and the aggregate Prorated Unit
Payments, will not exceed $750,000. Payments are due within 45 days after the
end of each quarter for transactions closed during such quarter. NET SELLING
PRICE shall mean gross sales revenue and licensing proceeds from all applicable
transactions during the applicable quarter excluding, if applicable, sales, use,
value added and similar taxes, shipping, insurance and actual discounts, less
returns and net deferrals arising from stock balancing, coop advertising, market
development and price protection
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<PAGE>
undertakings. Subject to the foregoing, Buyer will calculate and account for
gross sales revenue and Net Selling Prices from applicable products (i.e., those
containing one or more of the six functionalities of the Software referred to
above) in the same manner as such quantities are established for Buyer's other
products (i.e., those not containing any one of the six functionalities of the
Software referred to above). In the event Buyer assigns (voluntarily or by
operation of law) all of its rights in the Software to a third party or any
affiliate, then the assignee will be subject to the provisions of this Exhibit E
as if the assignee were the Buyer, unless either Buyer or the assignee elects to
and does pay the balance of all payment obligations potentially due in the
future hereunder (i.e., $750,000 less the sum of all payments previously made).
Revenue from the assignment of less than all of Buyer's rights in the Software
shall be treated like revenue from the sale of products including the Software
or the license of the Software pursuant to paragraph (c) above. All payments
under this Agreement will be made in United States currency by bank-to-bank wire
transfer to an account designated by Seller, unless otherwise specified by
Seller in writing.
In the event there are no list prices established for the Software or any other
products sold together with the product containing the Software or one or more
of the six functionalities, then Buyer will establish deemed list prices in good
faith in light of market value and demand. If Seller disputes such deemed prices
by notice to Buyer within thirty days after receipt of Buyer's quarterly report,
then the parties will cooperate to establish mutually acceptable prices.
However, if the parties do not arrive at such mutually acceptable deemed prices
within thirty days after notice of the dispute is given, then the parties will
submit the matter to an appraiser having extensive experience in setting prices
or establishing values for similar products or technology for binding
determination. If the parties cannot agree on the selection of an appraiser
within such time period, then either party can submit such selection for
determination to the American Arbitration Association or any court with
jurisdiction. After appointed, the appraiser will request relevant information
from each party, make such other inquiries as deemed appropriate and notify each
party of the determination and the bases therefore within thirty days. Seller
will bear the cost of the appraiser unless the appraiser determines that Buyer's
deemed list prices understated Seller's applicable payment obligation for the
applicable time period by more than ten percent, in which case Buyer will bear
the expense of the appraiser and promptly pay such deficiency to Seller.
Buyer reserves the right to reduce payments by any sums due it from Seller (its
predecessors and successors) which have not been paid on a net thirty day basis
and payment obligations pursuant to the Agreement. Moreover, Buyer can elect to
reduce payments by any Losses (as defined in Section 10.1 of the Purchase
Agreement) incurred by Buyer (i) in connection with claims by any third party
that the Software or its use infringes its rights whether or not Seller had any
knowledge of such risk of claim, (ii) in enforcing the Intellectual Property
Rights conferred by the Purchase Agreement against third parties who had access
to the Software prior to the Effective Date by or through Seller, (iii) as a
result of the illegality of Seller's entry into or performance of the Agreement
or (iv) as a result of the Stephen Manousos engaging in any conduct prior to the
first anniversary of the Effective Date which would have violated the provisions
of Section 11 of the Agreement had Seller engaged directly in
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<PAGE>
such conduct.
All amounts payable under this Agreement are inclusive of all sales, use,
value-added, withholding, and other taxes and duties. Buyer has no obligation to
pay such taxes. Seller will pay all taxes and duties assessed in connection
with these payments by any authority within or outside of the U.S to Seller
under this Agreement. Seller will promptly reimburse Buyer for any and all
taxes or duties that Buyer may be required to pay on Seller's behalf in
connection with each payment. If any withholding or similar tax must be paid
under the laws of any country outside of the U.S. based on the payments due to
Seller under this Agreement, then Buyer may elect to pay all such taxes and the
amounts payable to Seller under this Agreement will be decreased by the amounts
actually so paid. Buyer will provide Seller with written documentation,
including but not limited to copies of receipts, of any and all such taxes paid
on Seller's behalf in connection with this Agreement.
Buyer will maintain complete records regarding the distribution of relevant
products during and for two years after the termination Buyer's obligation to
make payments under this Agreement and for the duration of any dispute which
arises during such time period.
Within 45 days after the close of each quarter ending March 31, June 30,
September 30 and December 31, Buyer will deliver to Seller a report which will
provide all information reasonably necessary for computation and/or confirmation
of the payments, if any, due or credited to Seller for such quarterly period.
Such reports will identify the relevant products sold, the quantities sold, the
list prices of such products, the gross sales revenue therefrom, permissible
deductions to arrive at net revenue, any prorations or allocations of net
revenue and the payment(s) due less any permissible offsets or credits.
An independent certified public accountant selected by Seller (but responsible
to both Seller and Buyer as clients) may, upon reasonable notice and during
normal business hours, inspect the records of Buyer on which such reports are
based. If, upon performing such audit, it is determined that Buyer has
underpaid Seller by an amount greater than five percent of the payments due
Seller in the period being audited, Buyer will bear all reasonable expenses and
costs of such audit in addition to its obligation to make full payment. Such
sum will be paid within thirty days after invoicing by Seller. No transaction
may be audited more than once, nor more than three years after accrued. An
audit may be performed no more frequently than once during any twelve month
period.
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Exhibit 10.23
SPLASH TECHNOLOGY HOLDINGS, INC.
AND RADIUS, INC.
SOFTWARE PURCHASE AGREEMENT
This Software Purchase Agreement ("Agreement") is entered into by and
between Splash Technology Holdings, Inc., a Delaware corporation, with principal
offices at 555 Del Rey Avenue, Sunnyvale, California 94086 ("Splash"), and
Radius, Inc., a California corporation, with principal offices at 460 East
Middlefield Road, Mountain View, California 94043-4032 ("Radius"). This
Agreement is effective as of November __, 1998 (the "Effective Date").
WHEREAS, Radius has developed certain Software products entitled
"Separation Lab" and "Profile Lab"; and
WHEREAS, Radius desires to transfer, assign and sell to Splash certain
rights to "Separation Lab" and "Profile Lab," and Splash desires to obtain such
rights, pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree to the following terms and conditions.
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
1.1 "BLUE PURPLE FUNCTIONALITY AND THE GCR" means the specific method
under U.S. Patent Application 08/788,934 for correcting errors in perceived hue
when using the LAB color space for gamut mapping and the specific proprietary
method to add black (k) instead of cyan (c), magenta (m) and yellow (y) (as
opposed to the standard industry definition of GCR).
1.2 "CODE" means computer programming code. "Object Code" means the
binary machine-executable form of Code, including object files, libraries,
executable program, scripts and HTML pages. "SOURCE CODE" means the
human-readable form of Code.
1.3 "DERIVATIVE WORK(S)" has the meaning set forth in the United
States Copyright Act of 1976 as amended, as interpreted in relevant case law.
1.4 "INTELLECTUAL PROPERTY" means: (i) all patents and applications
therefor and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof; (ii) all inventions (whether patentable or not in
any country), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefor in any country, and all other rights corresponding
thereto throughout the world (iv) all designs and any registrations and
applications therefor; (v) all software and any proprietary rights in such
software; (vi) all rights to income, royalties (with the exception of income
and/or royalties due and/or payable from Korea Data Services (America), Inc. and
its guarantors or their successors in interest, collectively "KDS"), damages
(excluding damages related to the foregoing parenthetical expression) and any
other payments now and hereafter due and/or payable with respect to any of the
<PAGE>
foregoing (except as noted and except for payments received in the ordinary
course from Radius distributors and customers in connection with the purchase,
sale and license of Radius products incorporating elements of the Software,
including, without limitation, damages and payments for past or future
infringement or misappropriation thereof; and (vii) all rights to sue for past,
present and future infringements or misappropriation of any of the foregoing.
1.5 "LITE VERSION" means the Software product entitled Separation Lab
which has been modified by Radius pursuant to this Agreement to eliminate the
Blue to Purple Functionality and GCR.
1.6 "PROFILE DATA SETS" means any and all of the profile data sets,
including core measurements of multi-dimensional colour patches from printed
output, in file format as listed in EXHIBIT A.
1.7 "PROFILE LAB" means the Software entitled Profile Lab including
any or all of that portion of the Code listed in EXHIBIT A.
1.8 "SOFTWARE" means Separation Lab, Profile Lab, Profile Data Sets
and Scripts collectively and all documentation relating to such Software and all
versions and components of such Software and all other Software from which such
Software was derived.
1.9 "SCRIPTS" means any coded instructions to automate a process,
namely the reading of patch data using greytag SpectraLino as listed in EXHIBIT
A.
1.10 "SEPARATION LAB" means the Software product entitled Separation
Lab including any or all of the Code listed in EXHIBIT A, INCLUDING THE "LITE
VERSION".
2. ASSIGNMENT.
2.1 ASSIGNMENT. Radius hereby sells, transfers, grants and assigns
to Splash, and Splash hereby accepts, all of the Software and all of Radius'
Intellectual Property rights and licenses therein throughout the world in and to
the Software. At any time or from time to time on and after the Effective Date,
at the request of Splash, Radius shall execute and deliver or cause to be
executed and delivered, all such assignments, documents or further instruments
of transfer as Splash may reasonably deem necessary in order for Splash to
obtain the full benefits of the assignment, sale, grant and transfer set forth
in this Section 2.1 including, but not limited to, registration and assignment
of the U.S. copyright as soon as permitted by law. Nothing in this Agreement
restricts Splash from re-registering the U.S. copyright for the Software.
2.2 Radius irrevocably constitutes and appoints Splash with full
power of substitution, to be its true and lawful attorney, and in its name,
place or stead, to execute, acknowledge, swear to and file, all instruments,
conveyances, certificates, agreements and other documents, and to take any
action which shall be necessary, appropriate or desirable to effectuate the
transfer of the Software and Intellectual Property to Splash in accordance with
the terms of this Agreement; PROVIDED, HOWEVER, that such power shall be
exercised by Splash only in the event that Radius fails to take the necessary
actions required to affect or record the transfer of the Software at
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Splash's request. This power of attorney shall be deemed to be coupled with an
interest and shall be irrevocable for the term of this Agreement
3. TECHNOLOGY TRANSFER.
3.1 DELIVERABLES. On or before the Effective Date, Radius shall
provide Splash with all copies of the Software (other than the Lite Version) and
Intellectual Property, including Source Code and Object Code and data files,
notebooks, flowcharts, prototypes, all such deliverables will be made
electronically in a manner mutually acceptable to Splash and Radius. Within
ten(10) days of the Effective Date, Radius shall deliver the Lite Version to
Splash. In addition, within ten (10) days from the Effective Date, Radius shall
deliver all units or copies of Separation Lab in Radius's inventory or at
distributors, which shall be no less than one hundred (100) units, as referred
to in Section 8.1.6., to Splash's facilities. Within ten days after the
Effective Date, Radius may elect to deliver the Lite Version.
3.2 ACCEPTANCE. Within ten (10) days of the receipt of the Lite
Version, Splash shall test the Lite Version to ascertain if the Blue to Purple
Functionality and GCR have been removed from the Software. If Splash determines
the Blue to Purple Functionality and GCR have not been removed, Splash shall
promptly notify Radius and at Splash's sole option, Radius shall, within ten
(10) days of the such notification, make any further changes to the Lite
Version will be made as necessary to eliminate the Blue to Purple Functionality
and GCR.
4. PERSONNEL.
4.1 EMPLOYMENT. As a condition to Splash's obligations to close
under this Agreement, Radius shall cause Andrew Bryant, currently an employee of
Radius, to accept employment with Splash simultaneously with the execution of
this Agreement.
4.2 NON-SOLICITATION. For a period of twelve (12) months after the
Effective Date, Radius shall not solicit the employment of or offer employment
to Splash's employee, Andrew Bryant.
5. FEES AND TAXES.
5.1 FEES. In consideration of the sale, transfer and assignments
granted to Splash herein with respect to the Software and Intellectual Property,
Splash shall: (a) pay two hundred and seventy-five thousand dollars ($275,000)
in cash on the Effective Date; and (b) direct the Escrow Agent to pay one
million dollars ($1,000,000) on the Effective Date to Radius which shall be paid
from the escrow account in existence pursuant to an Escrow Agreement between the
parties dated January 30, 1996 (the "Escrow Agreement").
5.2 TAXES. All payments are in U.S. Dollars and are exclusive of any
applicable taxes. Radius shall be responsible for and shall pay sales or use
taxes whenever and however levied with respect to this Agreement or shall
provide Splash with an appropriate exemption certificate. Radius shall be
responsible for and shall pay all other taxes, assessments, permits and fees,
however designated, which are levied upon this Agreement whenever and however
levied except taxes based
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upon Splash's net income. Each party shall cooperate with the other in
minimizing any applicable tax to the extent permitted by law.
6. PROPRIETARY RIGHTS.
6.1 SPLASH PROPRIETARY RIGHTS. Title to and ownership of all copies
of Software, whether in machine-readable or printed form, and all Intellectual
Property Rights therein, and all Derivative Works thereof created by or on
behalf of Splash and all Intellectual Property Rights therein, are and shall
remain the exclusive property of Splash. Radius shall not take any action to
jeopardize, limit or interfere in any manner with Splash's ownership of and
rights with respect to the Software.
6.2 DERIVATIVE WORKS. Title to and ownership of all Derivative Works
created by Radius, and all Intellectual Property Rights therein, shall be the
exclusive property of Splash and Radius shall execute and deliver or cause to be
executed and delivered, all such assignments, documents or further instruments
of transfer as Splash may reasonably deem necessary in order for Splash to
obtain the full benefits of the ownership of the Derivative works as set forth
in this Section 6.2.
6.3 PRE-EXISTING RIGHTS. Notwithstanding the foregoing, (i) the
rights of third parties to continue to use Radius products that were
purchased prior to the Effective Date and that incorporate the elements of
the technology embodied by the Software and Intellectual Property shall not
be impaired, and (ii) the rights of KDS in such technology, Software and
Intellectual Property pursuant to the Amended and Restated License Agreement
and Asset Purchase Agreement, each with Radius and dated August 7, 1998,
shall not be impaired. Splash shall have no liability to Radius or any of
Radius' customers or any of the third parties listed above, including KDS,
for such use of the technology embodied by the software and Intellectual
Property.
7. CONFIDENTIALITY.
7.1 DEFINITION. For purposes of this Agreement "Confidential
Information" shall mean confidential and proprietary information disclosed by
one party to the other party hereunder including, without limitation, the
Software, Intellectual Property, computer programs, Code, flow charts,
algorithms, names and expertise of employees and consultants, know-how,
formulas, processes, ideas, inventions (whether patentable or not), schematics
and other technical, business, financial and product development plans,
forecasts and strategies, and other information which is marked "Confidential,"
or if disclosed verbally, identified as confidential at the time of disclosure.
The parties acknowledge and agree that all Source Code received by a party
hereunder, and any portions thereof, is and are deemed Confidential Information
regardless of whether it is identified as confidential and that all information
described in the foregoing sentence that is observed by Radius or their
employees or independent contractors while at Splash facilities is deemed
Confidential Information regardless of whether it is identified as confidential.
7.2 OBLIGATIONS. Each party agrees to maintain all Confidential
Information of the other party in confidence to the same extent that it protects
its own similar Confidential Information and to use and disclose such
Confidential Information only as permitted under this Agreement. Each
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party agrees to take all reasonable precautions to prevent any unauthorized
disclosure or use of Confidential Information including, without limitation
disclosing Confidential Information only to its employees and permitted
independent contractors (a) with a need to know to further permitted uses of
such information and (b) who are parties to appropriate agreements sufficient to
comply with this Section 7, and (c) who are informed of the
non-disclosure/non-use obligations imposed by this Section 7, and both parties
shall take appropriate steps to implement and enforce such
non-disclosure/non-use obligations. Neither party shall be subject to any
restrictions with respect to its own Confidential Information.
7.3 EXCEPTIONS. The foregoing restrictions on disclosure and use
shall survive for three (3) years following termination of this Agreement (or,
with respect to Source Code, ten (10) years) but shall not apply with respect to
any Confidential Information which: (i) was or becomes publicly known by action
of the disclosing party or otherwise through no fault of the receiving party;
(ii) was rightfully known or becomes rightfully known to the receiving party
without confidential or proprietary restriction from a source other than the
disclosing party; (iii) is independently developed by the receiving party
without the participation of individuals who have had access to the Confidential
Information; (iv) is approved by the disclosing party for disclosure without
restriction in a written document which is signed by a duly authorized officer
of such disclosing party; (v) the receiving party is requested to disclose by
the U.S. government in connection with security and export matters or (vi) the
receiving party is legally compelled to disclose; provided, however, that prior
to any such compelled disclosure, the receiving party will (a) assert the
privileged and confidential nature of the Confidential Information against the
third party seeking disclosure and (b) cooperate fully with the disclosing party
in protecting against any such disclosure and/or obtaining a protective order
narrowing the scope of such disclosure and/or use of the Confidential
Information. In the event that such protection against disclosure is not
obtained, the receiving party will be entitled to disclose the Confidential
Information, but only as and to the extent necessary to legally comply with such
compelled disclosure.
7.4 LIMITATION. Although certain information may be generally known
in the relevant industry, the fact that the receiving party uses same may not be
so known and in such instance would comprise Confidential Information if so
characterized. Furthermore, the fact that various fragments of information or
data may be generally known in the relevant industry does not mean that the
manner in which the disclosing party combines them, and the results obtained
thereby, are so known and in such instance would also comprise Confidential
Information if so characterized.
7.5 CONFIDENTIALITY OF AGREEMENT. Unless required by law, and except
to assert its rights hereunder or for disclosures to its own employees on a
"need to know" basis, or as required by law or regulations, each party agrees
not to disclose the terms of this Agreement or matters relating thereto without
the prior written consent of the other, which consent shall not be unreasonably
withheld.
8. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
8.1 RADIUS REPRESENTATIONS AND WARRANTIES. Radius represents and
warrants to Splash that, as of the Effective Date:
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8.1.1 Radius is a corporation duly organized, validly
existing and in good standing under, and by virtue of the laws of the State of
California;
8.1.2 All of the Software constitutes an original work of
Radius authored by employees of Radius within the scope of their employment for
Radius or by contractors of Radius who have transferred any rights in such
Software to Radius;
8.1.3 It has all requisite ate right, power and authority to
enter into this Agreement and grant all of the rights, powers and authorities
herein granted;
8.1.4 The execution, delivery and performance of this
Agreement does not contravene any contractual restriction or other restrictions
binding on or affecting it;
8.1.5 Subject to Section 6.3 and Section 8.1.6, Radius has
not previously assigned, transferred, conveyed or otherwise encumbered the
right, title or interest in the Software or Intellectual Property rights
therein;
8.1.6 Radius has produced a maximum of two hundred fifty
(250) units of Separation Lab for distribution, Radius has sold no more than ONE
HUNDRED fifty (150) licenses to use Separation Lab and Radius will deliver the
remaining units of Separation Lab to Splash as set forth in Section 3.1.
8.1.7 Radius is the sole and exclusive owner of the Software,
and all Intellectual Property rights therein, free and clear of any liens,
charges and encumbrances, and no other person or entity has or shall have any
claim of ownership with respect to the Software, and all Intellectual Property
rights therein whatsoever;
8.1.8 Radius has not included any third party software in the
Software and no royalties are payable to any third parties for use of the
Software.
8.1.9 Radius has not provided a warranty or support and
maintenance rights to Separation Lab to any other person or entity other than
KDS or in the ordinary course of the sale of products incorporating the Software
technology;
8.1.10 To Radius' knowledge, the Software does not infringe
any rights owned or possessed by any third party, including without limitation
any rights with respect to copyrights, trademarks, patents or trade secrets; and
8.1.11 To Radius's knowledge, no person is infringing any of
Radius's Intellectual Property rights in the Software.
8.1.12 The foregoing representations and warranties are
exclusive. SUBJECT TO THE FOREGOING, RADIUS MAKES NO OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF FITNESS FOR
A PARTICULAR PURPOSE, MERCHANTABILITY AND NONINFRINGEMENT WITH THE EXCEPTION OF
SECTION 8.1.9. The Software is not error
-6-
<PAGE>
free and may not satisfy Splash's requirements. Radius has no duty to correct,
modify or update the Software. The Software is provided "as is".
8.2 RADIUS INDEMNIFICATION.
8.2.1 Radius, at no expense to Splash, shall, at all times,
defend, indemnify, save and hold harmless Splash and its affiliates and each of
their respective directors, officers, partners, employees, representatives and
agents, from and against any and all liabilities, claims, causes of action,
suits, damages and expenses, including reasonable attorneys' fees and expenses,
interest, fines and penalties which any such entity or person may suffer, be
liable for, may incur or be compelled to pay, or is otherwise threatened against
such person or entity by reason of any breach by Radius of its representations
and warranties set forth in Section 8.1. The indemnification provisions
contained in this Section 8.2 shall be Splash's exclusive remedy and exclusive
means for obtaining relief in the event of such breach by Radius or their
representations and warranties hereunder, except claims relating to the fraud or
willful misconduct of Radius.
8.3 SPLASH REPRESENTATIONS AND WARRANTIES. Splash represents and
warrants to Radius that, as of the Effective Date:
8.3.1 Splash is a corporation duly organized, validly
existing and in good standing under, and by virtue of, the laws of the State of
Delaware.
8.3.2 Splash has all requisite legal and corporate power and
authority to execute and deliver this Agreement.
8.3.3 All corporate action on the part of Splash necessary
for the authorization, execution and delivery of this Agreement and the
performance of all obligations of Splash hereunder has been taken.
9. LIMITATION OF LIABILITY.
9.1 CONSEQUENTIAL DAMAGES. Under no circumstances shall Splash or
Radius be liable to each other for any consequential, special, indirect or
incidental damages (including, without limitation, loss of use, data, business
or profits) arising out of or under this Agreement or any use or exploitation
the Software or Intellectual Property, even if such party has been advised of
the possibility of such loss or damage.
9.2 DAMAGES CAP. Splash's cumulative liability to Radius from all
causes of action and all theories of liability under or arising out of this
Agreement, whether arising in contract, tort (including but not limited to
negligence) or otherwise, will not exceed fifty thousand dollars ($50,000),
except for a willful or reckless uncured breach of Section 7; provided that
Radius has received the payments required pursuant to Section 5.1. Radius'
liability to Splash hereunder shall not exceed two hundred and seventy-five
thousand ($275,000) dollars, except for a willful or grossly negligent breach
of Section 7 or 8.
10. GENERAL PROVISIONS.
-7-
<PAGE>
10.1 NOTICES. Any notice, request, demand, or other communication
required or permitted hereunder shall be in writing and shall be deemed to be
properly given upon the earlier of (i) actual receipt by the addressee,
(ii) five (5) business days after deposit in the mail, postage prepaid, or
(iii) three (3) days after deposit in an overnight industry courier, to the
respective parties at the addresses first set forth above or to such other
person or address as the parties may from time to time designate in a writing
delivered pursuant to this Section 10.1.
10.2 PUBLICITY. Neither party shall use the name or describe the
products or business of the other party in any publicity, product announcement,
brochure, advertising, product labeling, promotion or otherwise for any purpose
without the prior written consent of such other party.
10.3 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, U.S.A.,
without reference to its conflicts of law provisions. The parties agree that
any suit or proceeding brought in connection with, arising out of or relating
to, this Agreement shall be instituted only in a court of law located in the
County of Santa Clara, State of California, U.S.A. and the parties hereby
irrevocably agree and submit to the jurisdiction and venue of any such
proceeding and agree that service of process may be effected in the same manner
notice is given hereunder.
10.4 DISPUTE RESOLUTION. Any dispute hereunder will be negotiated
between the parties commencing upon written notice from one party to the other.
Settlement discussions and materials will be confidential and inadmissible in
any subsequent proceeding without both parties' consent. If the dispute is not
resolved by negotiation within sixty (60) days following such notice, the
parties have the right to proceed under Section 10.3.
10.5 FORCE MAJEURE. Neither party shall be deemed to be in default of
any provision hereof or be liable for any delay, failure in performance
(excepting the obligation to pay) or interruption of service resulting directly
or indirectly from act of war, act of God, act of civil or military authority,
civil disturbance or any other cause beyond its reasonable control.
10.6 INDEPENDENT CONTRACTORS. The relationship between Splash and
Radius is that of independent contractors. Neither party, nor its agents or its
employees shall be deemed to be the agent, partner or franchisor/franchisee of
the other party. Neither party shall have the right to bind the other party,
transact any business in the other party's name or in its behalf or incur any
liability for or on behalf of the other party.
10.7 ATTORNEYS' FEES. If any dispute arises under this Agreement, the
prevailing party shall be reimbursed by the other party for any and all
reasonable legal fees and costs associated therewith.
10.8 ASSIGNMENT. Radius may assign this Agreement in its entirety
upon receipt of prior written consent from Splash, however, Radius may assign
this Agreement without consent to an entity, with the exception of Electronics
For Imaging, Inc. ("EFI") or any corporation formed from a merger or
consolidation with EFI that succeeds to all or substantially all of the business
or assets of Radius to which this Agreement relates and all such rights and
licenses are assigned to such
-8-
<PAGE>
successor entity. Splash may assign this Agreement in its entirety; however,
any such assignee under this Section 10.8 shall agree in writing to be bound
by the terms of this Agreement. This Agreement shall be binding upon and
shall inure to the benefit of the parties, their successors and permitted
assigns. Any attempted assignment of rights, duties or obligations
hereunder, except in accordance with this Agreement, shall be null and void.
10.9 AMENDMENT. No provisions of this Agreement may be altered or
amended unless such alteration or amendment is in writing and executed by a
duly authorized officer of Splash and Radius, except where otherwise
specifically provided for in this Agreement.
10.10 HEADINGS. The headings to the sections of this Agreement are
included merely for convenience of reference and shall not affect the meaning
of the language included therein.
10.11 TERMINATION OF SOFTWARE LICENSE AGREEMENT. The Software
License Agreement dated January 30, 1996 between Splash and Radius (the
"Software License Agreement") is hereby terminated by mutual agreement of the
parties. Notwithstanding the foregoing, the provisions of Section 7 of the
Software License Agreement shall govern such termination. Subject to Section
3 of this Agreement, Radius shall comply with Section 7(c)(iii) of the
Software License Agreement.
10.12 ENTIRE AGREEMENT. This Agreement, together with its
exhibits, constitutes the entire agreement and understanding between the
parties relating to the subject matter hereof, supersedes all other
agreements, oral or written, heretofore made between the parties with respect
to such subject. Neither party is relying on any representation, warranty or
agreement not expressly set forth in this Agreement.
10.13 SEVERABILITY. If any provision in this Agreement should be
held illegal or unenforceable by a court having jurisdiction, such illegal or
unenforceable provision shall be modified to the extent necessary to render
it enforceable without losing its intent, or severed from this Agreement if
no such modification is possible, and other provisions of this Agreement
shall remain in full force and effect.
10.14 WAIVER. A waiver by either party of any term or condition of
this Agreement or any breach thereof, in any one instance, shall not be
deemed or construed to be a waiver of such term or condition or any
subsequent breach thereof.
10.15 COUNTERPARTS. This Agreement may be executed in counterparts
or by facsimile, each of which shall be an original, but all of which
together shall constitute one agreement.
10.16 ATTORNEYS CONSULTED. Both parties have had the opportunity
to review and negotiate this Agreement with the advice and assistance of
legal counsel and no provision of this Agreement shall be construed against
either party because such party or such party's legal counsel drafted such
provision.
-9-
<PAGE>
10.16 ATTORNEYS CONSULTED. Both parties have had the opportunity
to review and negotiate this Agreement with the advice and assistance of
legal counsel and no provision of this Agreement shall be construed against
either party because such party or such party's legal counsel drafted such
provision.
10.17 INJUNCTIVE RELIEF. Notwithstanding the provisions of Section
10.4 or any other provision of this Agreement, the parties may apply to any
court of competent jurisdiction at any time for temporary or permanent
injunctive relief under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Technology Agreement to be
executed by their duly authorized representatives as of the Effective Date.
SPLASH TECHNOLOGY HOLDINGS, INC. RADIUS, INC.
By: /s/ Kevin Macgillvray By: /s/ Mark Housley
-------------------------- -----------------------------
Signature Signature
Name: /s/ Kevin Macgillvray Name: Mark Housley
------------------------- ---------------------------
Print or Type Print or Type
Title: CEO Title: CEO
------------------------ --------------------------
Date: 12/4/98 Date: 12/4/98
------------------------- --------------------------
-10-
<PAGE>
EXHIBIT A
SEPARATION LAB, PROFILE LAB, PROFILE DATA SETS AND SCRIPTS
See attached.
-11-
<PAGE>
EXHIBIT 10.24
December 4, 1998
Mr. John Hui
Korea Data Systems America, Inc.
12300 Edison Way
Garden Grove, CA 92841
Re: supplement to August 7, 1998 transactions
Dear John:
Since we concluded the Amended and Restated License Agreement and
the Asset Purchase Agreement, we have agreed to supplement the License and
Agreement with the following changes:
1) KDS agrees to purchase certain tangible personal property
pursuant to the attached Bill of Sale for $50,000 due on
mutual execution of this letter.
2) Radius agrees to transfer its rights in the "EMACHINES" and
"COLORMATCH" trademarks pursuant to the attached Assignment
Agreement for $50,000 due on the mutual execution of this
letter.
3) The assignment of trademarks and sale of tangible property is
"as is", without any warranty by Radius, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR A PARTICULAR
PURPOSE, except as specifically otherwise provided in the
attached Assignment and Bill of Sale. KDS agrees to pay or
reimburse Radius for all federal, state and local sales, use,
personal property and other taxes, fees or duties arising out
of the transactions contemplated by this supplement (other
than taxes on the net income of Radius). Radius will timely
cooperate with KDS in signing and filing such other documents
as may be reasonably necessary to effectuate the foregoing.
4) KDS waives the "shareholder approval or opinion of counsel"
condition set forth in Section 7.05 of the Asset Purchase
Agreement.
5) KDS and Radius agree to extend the date by which the Asset
Purchase Agreement must close to the close of business on May
17, 1999 (amending Section 9.02 of the Asset Purchase
Agreement).
6) Radius agrees to consent to the assignment of the Amended and
Restated License and the Asset Purchase Agreement (as amended
by this letter) to miro Displays, Inc.; provided that KDS
remains liable for all obligations under such License and
Agreement if such assignee fails to timely perform and
provided that the Guarantors' obligations under such License
and Agreement are unimpaired. Such assignment will occur prior
to July 4, 1999, if at all, and
1
<PAGE>
KDS will promptly notify Radius of the effective date of such
assignment. The License and Agreement are in all other
respects affirmed.
Please indicate your acceptance of the foregoing by
signing below.
Sincerely,
/s/ Mark Housley
Mark Housley, Chairman and CEO
Accepted: /s/ John Hui 12/11/98
------------------------------- --------------------
John Hui, Chairman Date
2
<PAGE>
BILL OF SALE
For good and valuable consideration, the undersigned "Seller" transfers all
of its right, title and interest in the personal property identified ON THE
ATTACHED LIST free of all liens and encumbrances to the undersigned "Buyer".
Buyer accepts the personal property "as is" and "where is". Seller also
transfers to Buyer any of its assignable warranties from third parties on the
personal property. THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
ASSOCIATED WITH THE PERSONAL PROPERTY AND SELLER EXPRESSLY DISCLAIMS ANY
OTHER WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTIBILITY AND FITNESS FOR
A PARTICULAR PURPOSE. Buyer accepts the transfer of personal property on
these terms and acknowledges that the consideration paid to Seller reflects a
reasonable allocation of such risks. Buyer shall pay all sales and use taxes
associated with this transfer and will indemnify Seller from all loss,
liability, claims and expense, including reasonable attorneys' charges,
associated with Buyer's failure to timely discharge such obligation.
BUYER: Korea Data Systems America, Inc. SELLER: Radius Inc.
By: By: /s/ Mark Housley
------------------------------ ------------------------------
Name: Name: Mark Housley
------------------------------ ------------------------------
Address: Address: 460 E Middlefield
------------------------------ ------------------------------
Mtn View, CA
------------------------------ ------------------------------
(Attach list of personal property)
3
<PAGE>
LIST OF ASSETS TO BE TRANSFERRED TO KDS/MIRO
<TABLE>
<CAPTION>
I.D.
ASSET # QTY DESCRIPTION SERIAL # ASSET
<S> <C> <C> <C> <C>
10371 1 MONITOR--PRESSVIEW 17" MNB5290A0032
10372 1 PC--MAC POWER 8500/180 XB63907C8FB
10421 1 MONITOR--PRESSVIEW 17"SR MNB5290A0135
10422 1 MONITOR--MULTI SYNC--3D EQA940002322
10423 1 PC--IBM, 286 EQA940002323
10424 1 PC--MAC POWER 9500/1150 XB62400M767
10427 1 MONITOR--PRESSVIEW 21"SR MNAG290A0029
10429 1 MONITOR--RADIUS PV.21"SR MNA5200A0448
10432 1 PC--MAC QUADRA 950 F522652F672
11247 1 PC--IBM PENTIUM
11445 1 MONITOR 850 APPLE WR7301FN947
R-1096 1 OSCILLOSCOPE 400MHZ B014488
R-4440 1 SPECTRAL SCANNER--PHOTO RESEARCH 1020
R-5503 1 STD LUMINANCE INDICATOR (METER) (2 PIECES)
R-6215 1 PRINTER--COMPAQ PAGEMERQ 20
R-6287 1 COLOR ANALYZER--MINOLTA CTR 75011029
R-6329 1 POWER SUPPLY 3870120
R-6502 1 PC PWR MAC 9600/233 XB7251PL9XJ
R-6503 1 DTP 92 XRITE 522
R-6504 1 SWATCHBOOK DIGITAL XRITE 1674
R-6505 1 MONITOR PV 21"
R-6508 1 Radius System 100 BATA00001264
R-6508 1 Radius System 100 BATA00001274
R-6510 1 SPECTRA SCAN 10247
R-6511 1 SIGNAL GEN
R-6512 1 MONITOR PV21SR MNA7160A0473
R-6513 1 MONITOR PV21SR MNA6400A0002
1 Radius System 100
R-6234 1 COLOR ANALYZER--MINOLTA CTR
R-6207 1 SIGNAL GEN
1 OSCILLOSCOPE 400MHZ
1 Prototype X-chassis .28mm AG
1 Prototype X-chassis .28mm AG
1 Synoptics Hub 2803 2318953
1 Synoptics Hub 2803 1112182
</TABLE>
Asset List for Miro Final Page 1 12/4/98
<PAGE>
LIST OF ASSETS TO BE TRANSFERRED TO KDS/MIRO
<TABLE>
<CAPTION>
I.D.
ASSET # QTY DESCRIPTION SERIAL # ASSET
<S> <C> <C> <C> <C>
1 Synoptics Hub 2803 2291961
1 Synoptics Hub 2803 2318882
R-6470 1 Cisco 2501 Router
1 NAT LANB/290 Router
1 Shiva Lanrover 4E 103940
1 Shiva Lanrover 4E 103398
1 Verilink 56K DSU B440A2768
1 Verilink 56K DSU B446B1896
R-5292 1 Verilink T1 DSU 163739
R-5293 1 Verilink T1 DSU 163715
R-5470 1 Cisco WS-C1201 10T Switch 62010376
R-6520 1 Synoptics Hub 2813 2567673
R-6521 1 Synoptics Hub 2813 1926969
R-6524 1 Synoptics Hub 2813 1112062
R-6526 1 Synoptics Hub 2813 1122462
1 Small Radius Light Box
1 MONITOR--RADIUS PV.21"SR MNA5470A0152
8 Pedestals for Trade Show Booth (assuming inventory
available)
4 Counter tops for Trade Show Booth (assuming inventory
available)
1 Metal Trade Show Bin
1 Hanging Radius for Trade Show Booth
1 Internet Class "C" address 198.148.212.X (subject to
ARIN approval)
</TABLE>
Asset List for Miro Final Page 2 12/4/98
<PAGE>
ASSIGNMENT
For good and valuable consideration, Radius Inc. transfers all of its right,
title and interest in the U.S. trademarks #_________, #_________ and #_________
("EMACHINES", the stylized "E" and "COLORMATCH"), as well as all related
goodwill and the right to sue for any infringement, the "Trademarks") to
Korea Data Systems America, Inc. ("Assignee"), subject only to the right of
Radius and its designees to continue to use the Trademarks as necessary to
service, repair or replace goods sold by or through Radius and its
predecessors under such Trademarks prior to the date of this assignment.
Assignee will indemnify Radius from all loss, liability, claims and expense
(including attorneys' and experts' charges), collectively "Losses",
occasioned by Assignee's use of the Trademarks after the date of this
assignment. Radius will indemnify Assignee from all Losses occasioned by
Radius' continued use of such Trademarks after the date of this assignment.
Radius will execute such other documents as may be reasonably requested by
Assignee to effect the recordation of such assignment. The date of this
assignment is November 26, 1998.
Assignee:
Korea Data Systems America, Inc.
By: John Hui, chairman /s/ John Hui
--------------------------------------------
Date: 12/11/98
--------------------------------------------------------------
Radius Inc.
By: Mark Housley, chairman and CEO /s/ Mark Housley
--------------------------------
Date: 12/4/98
--------------------------------------------------------------
5
<PAGE>
EXHIBIT 21.01 -- LIST OF SUBSIDIARIES
SUBSIDIARY
FRANCE
Radius France S.A.
Radius S.A.R.L.
ASIA
Nihon SuperMac K.K.
SuperMac Asia Pacific
UNITED KINGDOM
SuperMac Technology Europe
GERMANY
Radius GmbH
OTHERS
Radius FSC Inc.
Radius (Cayman Island) Ltd.
Radius Canada
All subsidiaries are either inactive or in dissolution or preparation therefor,
except Radius (Cayman Island) Ltd.
-53-
<PAGE>
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-37376, 33-43116, 33-47525, 33-71636, 33-77238, 33-83824,
33-59571, 333-17881 and 333-04765) pertaining to the 1986 Stock Option Plan, the
1988 SuperMac Technology, Inc. Stock Option Plan, the Directors' Stock Option
Plan, the 1990 Employee Stock Purchase Plan, Non-Plan Stock Options and the 1995
Stock Option Plan, as amended, of Radius Inc. of our report dated October 30,
1998 with respect to the consolidated financial statements and schedule of
Radius Inc. included in this Annual Report (Form 10-K) for the year ended
September 30, 1998.
/s/ ERNST & YOUNG LLP
San Jose, California
December 18, 1998
-54-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 600
<SECURITIES> 0
<RECEIVABLES> 4258
<ALLOWANCES> (3894)
<INVENTORY> 803
<CURRENT-ASSETS> 6423
<PP&E> 7336
<DEPRECIATION> (7203)
<TOTAL-ASSETS> 6556
<CURRENT-LIABILITIES> 11639
<BONDS> 0
0
0
<COMMON> 169102
<OTHER-SE> (174185)
<TOTAL-LIABILITY-AND-EQUITY> 6556
<SALES> 15668
<TOTAL-REVENUES> 15668
<CGS> 9921
<TOTAL-COSTS> 9921
<OTHER-EXPENSES> 9908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 7733
<INCOME-TAX> (1000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8733
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.57
</TABLE>
