<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of
the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RADIUS INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO]
January __, 1998
To Our Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders of Radius Inc. to be held at Radius Inc.'s offices at 215
Moffett Park Drive, Sunnyvale, California 94089 on Wednesday, February 11,
1998 at 11:00 a.m.
The matters expected to be acted upon at the meeting are described in
detail in the Notice of Annual Meeting of Shareholders and the Proxy
Statement following this letter. Audited financial statements and certain
other useful information are included in Appendix A to the Proxy Statement
entitled "Additional Information for Shareholders."
It is important that you use this opportunity to take part in the
affairs of your company by voting on the business to come before the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PRIOR TO THE MEETING IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. Returning the proxy does NOT prevent you from
attending the meeting and voting your shares in person. Note that if your
shares are not held in your name, however, you must bring a letter of
authorization from the record holder confirming your beneficial ownership of
the shares, if you intend to vote the shares at the meeting.
We look forward to seeing you at the meeting.
Sincerely,
Mark Housley
Chairman & CEO
<PAGE>
RADIUS INC.
215 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
Radius Inc. (the "Company") will be held at the offices of the Company at 215
Moffett Park Drive, Sunnyvale, California on Wednesday, February 11, 1998 at
11:00 a.m. for the following purposes:
1. To elect four directors of the Company to hold office until the next
annual meeting of shareholders and until their respective successors
have been elected and qualified or until their earlier resignation or
removal. The Board of Directors intends to nominate the following
individuals for election: Charles W. Berger; Michael D. Boich; Mark
Housley; and John C. Kirby.
2. To consider and vote upon a proposal to amend the Company's 1995
Stock Option Plan and to reserve an additional 2,700,000 shares of
Common Stock for issuance thereunder.
3. To authorize the amendment of the articles of incorporation of the
Company to effectuate a reverse stock split.
4. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the current fiscal year.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on December 11,
1997 are entitled to notice of and to vote at the meeting and any adjournment
thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY AND RETURN IT PRIOR TO THE MEETING IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
By Order of the Board of Directors
Sunnyvale, California Henry V. ("Hank") Morgan
January __, 1998 Secretary
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RADIUS INC.
PROXY STATEMENT
JANUARY __, 1998
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GENERAL
The accompanying proxy is solicited on behalf of the Board of Directors
of Radius Inc., a California corporation (the "Company"), for use at the 1998
Annual Meeting of Shareholders of the Company to be held at the principal
executive offices of the Company at 215 Moffett Park Drive, Sunnyvale,
California 94089 on Wednesday, February 11, 1998 at 11:00 a.m. Pacific Time
(the "Meeting"). Only holders of record of the Company's Common on December
11, 1997 (the "Record Date") will be entitled to vote at the Meeting. On the
Record Date, the Company had 55,092,198 shares of Common Stock outstanding
and entitled to vote at the Meeting. A majority, or 27,546,100 of these
shares represented in person or by proxy will constitute a quorum for the
transaction of business at the Meeting. This Proxy Statement and the
accompanying proxy were first mailed to shareholders on or about January __,
1998.
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. Any person signing a proxy in the form
accompanying this Proxy Statement has the power to revoke it prior to the
Meeting or at the Meeting prior to the vote pursuant to the proxy. A proxy
may be revoked by (i) a writing delivered to the Company stating that the
proxy is revoked, (ii) a subsequent proxy executed by the person executing
the prior proxy and presented at the Meeting, or (iii) attendance at the
Meeting and voting in person. Please note, however, that if a shareholder's
shares are held of record by a broker, bank or other nominee and that
shareholder wishes to vote at the Meeting, the shareholder must bring to the
Meeting a letter from the broker, bank or other nominee confirming that
shareholder's beneficial ownership of the shares.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the proxyholder may propose one or more
adjournments of the Meeting to permit further solicitations of proxies. Any
such adjournment would require the affirmative vote of the majority of the
shares present in person or represented by proxy at the Meeting.
The expenses of soliciting proxies in the form accompanying this Proxy
Statement will be paid by the Company. Following the original mailing of the
proxies and other soliciting materials, the Company and/or its agents may
also solicit proxies by mail, telephone, facsimile or in person. The Company
has retained Skinner & Co., a proxy solicitation firm, and will pay Skinner &
Co. a fee of approximately $3,500, plus expenses estimated at $3,500. In
addition, the Company will request brokers, custodians, nominees and other
record holders of the Company's Common Stock to forward copies of the proxy
and other soliciting materials to persons for whom they hold shares of Common
Stock and to request authority for the exercise of proxies. In such cases,
the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, shareholders will elect a board of four directors to
hold office until the next annual meeting of shareholders and until their
respective successors have been elected and qualified or until their earlier
resignation or removal. Shares represented by a proxy returned to the
Company will be voted for the election of the nominees set forth below unless
the proxy is marked in such a manner as to withhold authority so to vote. If
any nominee for any reason is unable to serve or for good cause will not
serve, the proxies may be voted for such substitute nominee as the proxy
holder may determine. The Company is not aware of any nominee who will be
unable to, or for good cause will not, serve as a director. Directors are
elected by the affirmative vote of a plurality of the shares of Common Stock
represented in person or by proxy and voting at the Meeting. Abstentions
will have no effect. Broker non-votes will be disregarded. All nominees
currently serve on the Company's Board of Directors (the "Board").
<PAGE>
DIRECTORS/NOMINEES
The names of the nominees, and certain information about them (including
their respective terms of service), are set forth below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- --------
<S> <C> <C> <C>
Charles W. Berger (1) (2) 44 Chairman of the Board and Chief 1993
Executive Officer of Imgis, Inc.
Michael D. Boich (2) 44 President and Chief Executive Officer 1986
of Rendition, Inc.
Mark Housley 41 Chairman, President and Chief Executive 1997
Officer of the Company
John C. ("Jack") Kirby (1) 53 President and Chief Executive Officer of 1997
Cabrillo Crane & Rigging, Inc.
</TABLE>
___________________________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
MR. BERGER was appointed President, Chief Executive Officer and a
director of the Company in March 1993 and Chairman of the Board of Directors
in March 1994. He resigned as CEO in July 1997 and as Chairman in December
1997. He is currently President and CEO of Imgis, Inc., an internet start up
company. He is also on the board of directors of Splash Technology Holdings,
Inc., a publicly traded company which was organized around the Company's
color server group in January 1996. From April 1992 until he joined the
Company, Mr. Berger was Senior Vice President, Worldwide Sales, Operations
and Support for Claris Corporation, a subsidiary of Apple Computer, Inc.
("Apple") that develops and markets application software ("Claris"). From
February 1991 to April 1992, he was President of Sun Microsystems Federal,
Inc., a subsidiary of Sun Microsystems, Inc. ("Sun"), a manufacturer of
computer work stations. From July 1989 to February 1991, he served as Vice
President of Business Development for Sun, and from March 1989 to July 1989,
he was Sun's Vice President of Product Marketing. From April 1982 to March
1989, Mr. Berger held numerous executive positions involving sales,
marketing, business development and finance for Apple.
MR. BOICH has been a director of the Company since its inception in May
1986 and was the Chairman of the Board of Directors from April 1991 until
March 1994. Mr. Boich has been President and Chief Executive Officer of
Rendition, Inc., a developer of graphics chips, since March 1994. Mr. Boich
served as the Company's President and Chief Executive Officer from its
inception until April 1991 and again assumed these positions from September
1992 through February 1993. From July 1985 to April 1986, Mr. Boich worked
as an independent data communications consultant. From March 1982 to July
1985, Mr. Boich was employed by Apple, where he was part of the original
Macintosh development team and was responsible for applications software
acquisitions and promoting third-party software development for the Macintosh.
MR. 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 in Santa Clara, a multinational
manufacturer of electronic equipment, directing product marketing and
planning.
MR. KIRBY has been a principal and Executive Vice President of KH
Consulting Group since 1986. Mr. Kirby is responsible for this firm's
reorganization and financial restructuring practice. In this capacity, Mr.
Kirby has represented various debtors, secured parties, trade creditors and
corporate buyers and frequently assumes a management role in the client.
Since early 1991, Mr. Kirby has been President and CEO of Cabrillo Crane &
Rigging, Inc., a wholly owned subsidiary of Wells Fargo Bank. From 1992
until 1994, Mr. Kirby was Vice President and CFO of Everex Systems, Inc.
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<PAGE>
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing a similar function.
Messrs. Kirby and Berger are currently the members of the Audit
Committee. (Mr. Berger replaced Carl Carlson in October 1997 upon Mr.
Carlson's resignation from the Board of Directors. Mr. Kirby replaced Mr.
Boich on this committee at the same time.) The Audit Committee meets with
the Company's independent auditors concerning the scope of their annual
audit, the findings of the auditors with respect to the Company's accounting
systems and controls, and other matters relating to the preparation of the
Company's audited financial statements.
Messrs. Boich and Berger are currently the members of the Company's
Compensation Committee. (Mr. Berger replaced Carl Carlson in October 1997
upon Mr. Carlson's resignation from the board of directors.) The
Compensation Committee considers all matters of executive compensation and
makes recommendations to the Board regarding the compensation of the
Company's executive officers and the establishment of employee benefit plans
generally. The Compensation Committee also administers the Company's stock
option plans and makes stock option awards to executive officers.
During the year ended September 30, 1997, the Board met six times, the
Audit Committee met four times, and the Compensation Committee met once.
None of the nominees for director attended fewer than 75% of the aggregate
total number of meetings of the Board of Directors (held during the period
for which he was a director) and the total number of meetings held by all
committees of the Board of Directors on which he served (held during the
period that he served).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None
COMPENSATION OF DIRECTORS
Board members are reimbursed for expenses incurred in attending meetings.
The 1994 Directors Stock Option Plan (the "1994 Directors Plan") was
adopted by the Company's Board on December 14, 1994 and approved by the
Company's shareholders on February 15, 1995. A total of 190,000 shares of
the Company's Common Stock have been reserved for issuance under the 1994
Directors Plan (consisting of 100,000 shares allocated to the 1994 Directors
Plan at the time of its adoption by the Board plus 90,000 shares that were
authorized for issuance, but not issued or subject to outstanding options,
under the Company's 1990 Directors' Stock Option Plan (the "Prior Directors
Plan") as of September 30, 1997). In addition, shares of the Company's
Common Stock issuable upon exercise of outstanding stock options granted
under the Prior Directors Plan that expire or become unexercisable for any
reason after September 30, 1997 will be available for issuance under the 1994
Directors Plan. A total of 10,000 options are outstanding under the Prior
Directors Plan. Upon the lapse of these options, the shares of Common Stock
reserved for them will be transferred to the 1994 Directors Plan.
The 1994 Directors Plan provides for the grant of 10,000 nonqualified
stock options ("NQSOs") to non-employee members of the Board upon appointment
to the Board and annual grants of 2,500 NQSOs on each anniversary of a
director's initial grant under either the Prior Directors Plan or the 1994
Directors Plan, provided the Director continues to serve on the Board at such
time. In addition, each director who received a grant to purchase 1,250
shares under the Prior Directors Plan after August 30, 1994 and before
February 15, 1995 was eligible to receive a one time grant under the 1994
Directors Plan to purchase 1,250 shares of the Company's Common Stock.
Although options granted prior to termination of the Prior Directors Plan
remain outstanding in accordance with their terms, no further options may be
granted under the Prior Directors Plan. During fiscal 1997, Mr. Boich
received an option to purchase 2,500 shares of Common Stock at an exercise
price of $0.34 per share; and Mr. Cravens and Mr. Kirby each received an
option to purchase 10,000 shares of Common Stock at an exercise price of
$0.41 per share.
All director stock options were granted with an exercise price equal to
the market price of the Company's Common Stock on the date of grant.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The provisions of Section 317 of the California Corporations Code,
Article V of the Company's Articles of Incorporation and Article VI of the
Company's Bylaws provide for indemnification to the fullest extent permitted
by law for expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in connection with any proceeding arising by reason
of the fact that any person is or was a director, officer or employee of the
Company. In addition, Article IV of the Company's Articles of Incorporation
provides that the liability of the Company's directors shall be eliminated to
the fullest extent permissible under the California Law.
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<PAGE>
The Company has entered into Indemnity Agreements with each of its
current directors to give such directors additional contractual assurances
regarding the scope of the indemnification and liability limitations set
forth in the Company's Articles of Incorporation and Bylaws.
The Company currently carries a director and officer liability insurance
policy with a per claim and annual aggregate coverage limit of $7.5 million.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO 1995 STOCK OPTION PLAN
The Board of Directors has approved, and has voted to recommend to the
shareholders that they approve, an amendment to the Company's 1995 Stock
Option Plan (the "1995 Plan") to increase the number of shares of Common
Stock that may be issued upon the exercise of options provided under the 1995
Plan by 2,700,000 shares from 4,864,598 shares to 7,564,598 shares. The
Board of Directors believes that its existing stock option plan has played,
and will continue to play, a major role in enabling the Company to attract
and/or retain certain officers, directors and other key employees. Options
granted to such individuals provide them with long-term incentives that are
consistent with the Company's compensation policy of providing compensation
that is closely related to the performance of the Company. As of the date of
this Proxy Statement, 4,674,624 of the options available for grant under the
1995 Plan had been granted. To allow the Company to continue to obtain the
benefit of incentives available under the 1995 Plan, the Company's Board of
Directors has adopted and recommended for submission to the shareholders for
their ratification a proposal to increase the number of shares that may be
issued upon the exercise of options granted under the 1995 Plan.
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
The following is a summary of the 1995 Plan, as amended.
HISTORY. The 1995 Plan was adopted by the Company's Board on December 20,
1995, was ratified by the Company's shareholders on February 21, 1996 and was
amended by the Company's Board as of December 18, 1996 and December 8, 1997.
PURPOSE. The purpose of the 1995 Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company by offering them an
opportunity to participate in the Company's future performance.
PLAN ADMINISTRATION. The 1995 Plan is administered by the Board or by a
committee of at least two directors appointed by the Board. The committee
consists of "outside" directors as that term is defined pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended the ("Code").
References herein to the "Board" mean the committee appointed by the Board
unless clearly indicated to the contrary.
Except as otherwise limited by the 1995 Plan, the Board determines the
optionees, the number of shares subject to each option, the exercise prices,
the exercise periods, the vesting schedules and the dates of grants. The
Board has granted to the Company's CEO the authority to grant options to all
eligible persons other than executive officers. Each option granted pursuant
to the 1995 Plan is evidenced by a Stock Option Grant (the "Grant") issued by
the Company and a Stock Option Exercise Notice (the "Exercise Notice")
completed at the time of option exercise.
The Board has the authority to construe and interpret any provision of
the 1995 Plan, and such interpretations are binding on the Company and the
employees. The Board does not receive any compensation for administering the
1995 Plan.
ELIGIBILITY. All officers, directors, employees, independent
contractors, advisors and consultants of the Company or any parent,
subsidiary or affiliate of the Company are eligible to receive option grants
under the 1995 Plan (provided that, in the case of independent contractors,
advisors and consultants, such persons render bona fide services to the
Company). As of December 31, 1997, there were approximately 75 persons
eligible to receive awards of stock options under the 1995 Plan. No "Named
Executive Officer" as that term is defined under Item 402(a)(3) of Regulation
S-K promulgated under the Securities Act of 1933, as amended (the "Securities
Act") and the Exchange Act is eligible to receive more than 2,000,000 shares
of Common Stock at any time during the term of the 1995 Plan.
TYPE OF OPTION. Both incentive stock options ("ISOs") as defined in
Section 422 of the Code and non qualified stock options ("NQSOs") may be
granted under the 1995 Plan. The 1995 Plan limits the aggregate fair
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<PAGE>
market value (determined as of the time the option is granted) of the shares
with respect to which ISOs are exercisable for the first time by the optionee
during any calendar year to not more than $100,000. There is no similar
limit on NQSOs granted under the 1995 Plan.
TERMS OF THE OPTIONS.
- VESTING. Options under the 1995 Plan generally become exercisable or vest
on a monthly basis over a fifty-month period.
- EXPIRATION DATE. Options granted under the 1995 Plan may be exercisable
for up to ten years after the option grant date, except that an ISO
granted to a person owning ten percent or more of the total combined
voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company (a "Ten Percent Shareholder") must be exercised
within five years of the option grant date.
- EXERCISE PRICE. Each Grant states the exercise price of the option. The
exercise price of an option granted under the 1995 Plan must be equal to
the fair market value per share of the Company's Common Stock on the date
of grant, except that NQSOs may be granted with an exercise price equal to
or greater than 85% of the fair market value of the Company's Common Stock
on the date of grant. The exercise price of an option granted to a Ten
Percent Shareholder must be at least equal to 110% of the fair market
value per share on the date of the grant. The Board determines such fair
market value on the date of grant based upon the closing price of the
Company's Common Stock on the Nasdaq National Market on the date of grant.
- OPTION EXERCISE AND PAYMENT ALTERNATIVES. To exercise an option, the
optionee must deliver to the Company an executed Exercise Notice and full
payment for the shares being purchased. Payment may be made: (i) in
cash; (ii) by surrender of fully paid shares of the Company's Common
Stock; (iii) where permitted by applicable law and approved by the Board,
by tender of a full recourse promissory note having such terms as
determined by the Board; (iv) by waiver of compensation due or accrued to
an optionee for services rendered; (v) by cancellation of indebtedness of
the Company to the optionee; (vi) through a "same day sale"; (vii) through
a "margin commitment"; or (viii) through any combination of the foregoing
where approved by the Board.
- NONTRANSFERABILITY OF OPTIONS. Options granted under the 1995 Plan may
not be transferred by the optionee other than by will or by the laws of
descent and distribution. During the lifetime of an optionee, options may
be exercised only by the optionee or his or her legal representative.
- TERMINATION OF EMPLOYMENT. If an optionee's employment or other
association with the Company is terminated for any reason other than death
or disability, any outstanding option, to the extent that it was
exercisable on the date of such termination, may be exercised by the
optionee within thirty days after such termination, but in no event later
than the expiration of the option. If an optionee's association with the
Company is terminated because of the optionee's death or disability within
the meaning of Section 22(e)(3) of the Code, any outstanding option, to
the extent that it was exercisable on the date of such termination, may be
exercised by the optionee, (or optionee's legal representative or
authorized assignee) within twelve months after such termination, but in
no event later than the expiration of the option. Neither the 1995 Plan
nor any Grant impose any obligation on the Company to continue an
optionee's employment or other association with the Company.
- MODIFICATION AND ADJUSTMENT OF OPTIONS. If the number of outstanding
shares of Common Stock of the Company is changed by a stock dividend,
stock split, reverse stock split, combination, reclassification or similar
change in the capital structure of the Company without consideration, the
number of shares of Common Stock available for option grants under the
1995 Plan and the number of shares and the exercise price per share for
each outstanding option will be proportionately adjusted, subject to any
required action by the Board or shareholders of the Company.
- CHANGE IN CONTROL. In the event of an event in which the Company is not
the surviving corporation (or a merger in which the Company is the
surviving corporation but after which the shareholders of the Company
immediately prior to the merger cease to own their shares in the Company)
and the successor corporation does not assume the options or substitute
equivalent options, the outstanding options under the 1995 Plan will
expire upon the consummation of such event at such times and on such
conditions as the Board determines.
- AMENDMENTS AND TERMINATION. The Board may amend or terminate the 1995
Plan at any time and in any respect, including modifying the form of the
Grant or the Exercise Notice, except that no amendment of the 1995 Plan
may adversely affect any outstanding option or unexercised portion thereof
without the optionee's
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<PAGE>
written consent. The 1995 Plan will continue in effect until December
2005, subject to earlier termination by the Board of Directors.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
1995 PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE
ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE 1995 PLAN.
- INCENTIVE STOCK OPTIONS. A participant will recognize no income upon
grant of an ISO and incur no tax on its exercise (unless the participant
is subject to the alternative minimum tax ("AMT")). If the participant
holds the stock acquired upon exercise of an ISO (the "ISO Shares") for
more than one year after the date the option was exercised and for more
than two years after the date the option was granted, the participant
generally will realize long-term capital gain or loss (rather than
ordinary income or loss) upon disposition of the ISO Shares. This gain or
loss will be equal to the difference between the amount realized upon such
disposition and the amount paid for the ISO Shares.
- If the participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), the gain
realized upon such disposition, up to the difference between the fair
market value of the ISO Shares on the date of exercise (or, if less, the
amount realized on a sale of such shares) and the option exercise price,
will be treated as ordinary income. Any additional gain will be long-term
or short-term capital gain, depending on the amount of time the ISO Shares
were held by the participant.
- ALTERNATIVE MINIMUM TAX. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the AMT. The AMT (imposed to the
extent it exceeds the taxpayer's regular tax) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000). Alternative
minimum taxable income is determined by adjusting regular taxable income
for certain items, increasing the income by certain tax preference items
(including the difference between the fair market value of the ISO Shares
on the date of exercise and the exercise price) and reducing this amount
by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise
of the ISO, there is no AMT adjustment with respect to those ISO Shares.
Also, upon a sale of ISO Shares that is not a disqualifying disposition,
alternative minimum taxable income is reduced in the year of sale by the
excess of the fair market value of the ISO Shares at exercise over the
amount paid for the ISO Shares.
- NONSTATUTORY STOCK OPTIONS. A participant will not recognize any taxable
income at the time a NQSO is granted. However, upon exercise of a NQSO,
the participant must include in income as compensation an amount equal to
the difference between the fair market value of the shares on the date of
exercise (or, in the case of exercise for stock subject to a substantial
risk of forfeiture, at the time such forfeiture restriction lapses) and
the participant's exercise price. In the case of stock subject to a
substantial risk of forfeiture, if the optionee makes an 83(b) election,
the included amount must be based on the difference between the fair
market value on the date of exercise and the option exercise price. The
included amount must be treated as ordinary income by the participant and
may be subject to withholding by the Company (either by payment in cash or
withholding out of the participant's salary). Upon resale of the shares
by the participant, any subsequent appreciation or depreciation in the
value of shares will be treated as capital gain or loss.
- OMNIBUS BUDGET RECONCILIATION ACT OF 1993. The Omnibus Budget
Reconciliation Act of 1993 provides that the maximum tax rate applicable
to ordinary income is 39.6%. Long-term capital gain will be taxed at a
maximum of 28%. For this purpose, in order to receive long-term capital
gain treatment, the stock must be held for more than one year. Capital
gains may be offset by capital losses and up to $3,000 of capital losses
may be offset annually against ordinary income.
- TAX TREATMENT OF THE COMPANY. The Company generally will be entitled to a
deduction in connection with the exercise of a NQSO by a participant to
the extent that the participant recognizes ordinary income. The Company
will be entitled to a deduction in connection with the disposition of ISO
Shares only to the extent that the participant recognizes ordinary income
on a disqualifying disposition of the ISO Shares.
-6-
<PAGE>
ERISA. The 1995 Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
The approval of the amendment to the 1995 Plan requires the affirmative
vote of the holders of a majority of the shares of Common Stock represented
in person or by proxy at the Meeting. Abstentions will be counted toward the
number of shares represented and voted at the Meeting. Broker non-votes will
be disregarded.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE 1995 STOCK OPTION PLAN.
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION TO EFFECTUATE A
REVERSE STOCK SPLIT
Upon the closing of the Company's debt to equity conversion in September
1996, the number of outstanding shares of Common Stock increased from
18,203,598 to 54,497,796. Since these additional shares were registered in
November 1996, the trading price per share of Common Stock has declined and
has remained below one dollar per share. Effective February 1998, the Nasdaq
Small Cap Stock Market will require that a minimum share price of one dollar
be maintained in order to remain listed. The price per share of the
Company's Common Stock has not exceeded one dollar since November 1996 and is
not expected to meet this minimum prior to the effective date of this rule
change, unless a reverse stock split is effected. The Board of Directors
recommends that the number of outstanding shares of Common Stock of the
Company be significantly reduced through a reverse stock split primarily in
order to satisfy Nasdaq listing requirements. If the Company's Common Stock
were delisted, any trading would be conducted in the over-the counter market
in what are commonly referred to as the "pink sheets" and, as a result,
investors may find it more difficult to dispose of, or to obtain accurate
quotations as to the value of, the Company's Common Stock. Morevoer, there
could be no assurance that the Company would thereafter meet the requirements
for initial inclusion on Nasdaq, particularly the requirement that the price
per share be at least $4.00. There can be no assurance, however, that the
stock price will equal or exceed one dollar on or after the effective date of
the reverse split.
If the shareholders approve this Proposal and the Board of Directors
elects to effectuate the reverse stock split, the Board of Directors will
have the discretion to establish the specific ratio of the reverse split. As
of the date of this proxy solicitation, the Board of Directors believes that
the ratio will be one to seven, that is, every seven outstanding shares of
Common Stock will become one share. Such a reverse split would not reduce
the number of currently authorized shares from 100 million. The Board of
Directors has the discretion to adjust this ratio in either direction. A
reverse stock split of more than one to eleven (eleven shares becoming one
share) is not expected, however. The Company views the desirable range of
outstanding shares subsequent to the reverse stock split to be within a range
of 5 million to 20 million. Factors that will affect the actual ratio for
the reverse stock split (and whether or not to implement the reverse split)
include: overall stock market and price per share trends of the Company's
Common Stock, business and regulatory developments and actual and projected
earnings. The following chart illustraties the likely approximate number of
shares outstanding if this proposal is approved (based on 55,092,198 shares
of Common Stock outstanding on the Record Date):
Ratio Approximate # of Outstanding Shares
Current (1:1) 55,000,000 (rounded down from 55,092,198)
1:2 27,500,000
1:3 18,333,333
1:4 13,750,000
1:5 11,000,000
1:6 9,166,666
1:7 7,857,142
1:8 6,875,000
1:9 6,111,111
1:10 5,500,000
1:11 5,000,000
The Board of Directors may also select any ratio within the foregoing
range, such as 1:5.5. No fractional shares will be issued. Instead, all
fractional shares will be rounded down and the Company will pay the affected
shareholder
-7-
<PAGE>
the fair market value of such fractional share, as reasonably determined by
the Board of Directors. The reverse stock split will be effected through an
amendment to the Company's Articles of Incorporation. Specifically,
Paragraph (C) will be added to Article III:
" (C) All outstanding shares of Common Stock of this corporation on ___
(the effective date) are divided by ____ (the second number in the range of
ratios listed above as determined by the Board of Directors) and any
fractional shares resulting from such division will be cancelled and each
shareholder will receive an amount of cash equal to the fair market value ot
the Common Stock on the effective date of the reverse stock split. The fair
market value of a share of Common Stock shall be a number reasonably
determined by the Board of Directors, which may be expressed in a formulary
fashion, e.g., the average closing price for a share on the Nasdaq SmallCap
Market for the ten trading days following Nasdaq's implementation of the
reverse stock split."
The effective date of the reverse split will be the date on which
California's Secretary of State approves such amendment to the Articles of
Incorporation.
There may be other incidental benefits of the reverse split if the
expected increase in price per share occurs. For example, a broader market
for the shares may result as the Company's Common Stock may qualify for
trading with additional brokerage houses and institutional investors. It may
also be easier for the Company to qualify its securites for secondary trading
under various states' "blue sky laws". If the number of shares is reduced
too much, however, liquidity could be adversely affected as there will be a
smaller number of shares outstanding with less of a public float, which could
make it more difficult to dispose of shares of the Company's Common Stock.
There can be no assurance that any of these expected benefits will occur.
There are no "dissenters' rights" associated with the reverse split.
The Company does not expect any significant adverse federal income tax
consequences associated with the reverse split. For example, the transaction
should be treated as a reorganization under Section 368(a)(1)(E)(5) of the
Internal Revenue Code of 1986, as amended, and the applicable Treasury
Regulations, judicial authority and current administrative rulings and
practices in effect on the date of this proxy statement. For example, a
shareholder's basis in the shares will be the same (i.e., no gain or loss
recognized) and the holding period will continue. Where the Company
purchases fractional or other shares of shareholders, such transaction will
have the typical federal income tax consequences associated with the purchase
and sale of stock by an issuer.
Assuming that the shareholders approve the reverse split and that the
Board of Directors elects to implement this proposal, shareholders will be
required to exchange their old certificates for new certificates in the
appropriate denominations. This exchange will be handled by the Company's
transfer agent. Shareholders will not be required to pay a fee for such
services, rather such expenses will be borne by the Company. Shareholders
should not submit certificates until requested to do so, in writing by the
Company's transfer agent.
In connection with this exchange of certificates process between the
shareholders and transfer agent, the Company may elect to implement an
odd-lot repurchase program to repurchase on a first come, first serve basis
the shares of shareholders holding fewer than one hundred shares post split,
who elect to participate in this voluntary odd lot buy back program. The
Company anticipates that such program will significantly reduce shareholder
communication expenses in the future. The Board of Directors will ascertain
the amount of any funds to be made available for such program, which in any
event will not exceed $100,000, less the amount expended to repurchase
fractional shares created by the reverse stock split.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 3.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed Ernst & Young LLP as its independent auditors
to perform the audit of the Company's financial statements for the 1998
fiscal year and the shareholders are being asked to ratify such appointment.
Ernst & Young LLP has audited the Company's financial statements since the
Company's inception. Representatives of Ernst & Young LLP will be present at
the Meeting, will be given an opportunity to make a statement at the Meeting
if they desire to do so and will be available to respond to questions.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL NO. 4.
-8-
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
September 30, 1997, for (i) each shareholder who is known by the Company to
be the beneficial owner of more than 5% of the Company's Common Stock; (ii)
the Named Executive Officers (defined below), (iii) each of the Company's
directors, and (iv) all current directors and executive officers of the
Company as a group. Shares of Common Stock beneficially owned include
securities that can be acquired by such person within 60 days of September
30, 1997 upon the exercise of stock options or warrants or upon conversion of
convertible securities.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership (1) of Class
------------------------ ------------------------ --------
<S> <C> <C>
Carl Carlson (Mitsubishi) (2) 4,049,901 7.35%
Charles W. Berger (3) 842,916 1.53%
Mark Housley (6) 520,000 *
Michael D. Boich (4) 161,176 *
Gregory M. Millar (5) 69,671 *
Cherrie Fosco (7) 50,968 *
All current executive officers and 2,129,731 3.86%
directors as a group (10 persons) (8)
</TABLE>
* Less than one percent.
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Represents shares held by Mitsubishi Electronics Corporation. Includes
50,000 shares of Common Stock issuable upon exercise of warrants by
Mitsubishi. Mr. Carlson, a Director of the Company until October 1997,
currently holds the position of Assistant Vice President-Credit at
Mitsubishi Electronics Corporation, and exercised voting control over
such shares. Mitsubishi Electronics Corporation's address is 5665 Plaza
Drive, Cypress, CA 90630. Mitsubishi sold all of its holdings in the
Company in December 1997.
(3) Represents 150 shares held by Mr. Berger as beneficial owner for his
children, and 842,766 shares subject to options exercisable within 60
days of September 30, 1997. Mr. Berger served as the Chief Executive
Officer of the Company until July 1997.
(4) Represents 151,801 shares held by Mr. Boich, and 9,375 shares subject to
an option exercisable within 60 days of September 30, 1997.
(5) Represents shares subject to options exercisable within 60 days of
September 30, 1997.
(6) Represents shares subject to options exercisable within 60 days of
September 30, 1997.
(7) Represents shares subject to options exercisable within 60 days of
September 30, 1997.
(8) Includes the shares described in all footnotes above relating to directors
and executive officers, and a total of 485,000 shares subject to options
held by two executive officers exercisable within 60 days of September 30,
1997.
- 9 -
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered in all capacities to the
Company during each of the fiscal years ended September 30, 1995, 1996 and
1997 by (i) the Company's Chief Executive Officer and (ii) the Company's
former Chief Executive Officer who resigned in July 1997 and two additional
individuals for whom disclosure would have been provided but for the fact
that such individuals were not serving as executive officers as of September
30, 1997 (collectively, the "Named Executive Officers"). No other executive
officer of the Company who held office at September 30, 1997, met the
definition of "most highly compensated executive officer" within the meaning
of the SEC's executive compensation disclosure rules. However, Hank Morgan,
the Company's Senior Vice President and Chief Finacial Officer, and Steve
Petracca, Senior Vice President of the Company, would have been included as
Named Executive Officers disclosures had they worked more than a partial
year.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------------------- ------------
Securities
Name and Annual Fiscal Annual Other Annual Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation($) Options(#)(1) Compensation($)(2)
- ------------------ ---- --------- -------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Mark Housley (3) 1997 179,886 25,000 - 1,000,000 1,000
President, CEO and 1996 - - - - -
Chairman (current) 1995 - - - -
Charles W. Berger (4) 1997 248,500 327,450 77,459 (5) 1,000,000 1,000
President, and CEO 1996 275,000 350,000 77,459 (5) 50,000 35,600 (6)
Chairman of the Board 1995 275,000 48,700 77,459 (5) 62,500 35,600 (6)
of Directors (former)
Gregory M. Millar (7) 1997 218,423 - - - 1,000
Vice President, 1996 180,000 45,000 - 22,250 1,000
and Chief Technology 1995 180,000 167,700 (8) 40,250 1,000
Officer (resigned)
Cherrie Fosco (9) 1997 165,770 65,000 - 450,000 1,000
Vice President, 1996 132,500 49,937 - 17,500 1,000
Finance (resigned) 1995 120,148 25,158 - 10,000 1,000
</TABLE>
(1) Options granted in fiscal 1995 and 1996 were repriced in January 1997.
(2) Includes matching payments made by the Company under the Company's 401(k)
Plan.
(3) Mr. Housley became President and C.E.O. in August 1997.
(4) Mr. Berger resigned as President and C.E.O. in July 1997.
(5) Consists of a bonus payment to Mr. Berger to pay for outstanding mortgage
interest on his home.
(6) Includes principal and interest forgiven on a $100,000 loan to Mr.
Berger, which was forgiven over the three years prior to fiscal 1997.
(7) Mr. Millar resigned in August 1997.
(8) Includes a one-time special performance bonus of $155,000.
(9) Ms. Fosco resigned in March 1997.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth further information regarding individual
grants of stock options pursuant to the Company's 1995 Stock Option Plan during
fiscal 1997 to each of the Named Executive Officers. In accordance with
- 10 -
<PAGE>
the rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at
the end of their respective ten-year terms based on assumed annualized rates
of compound stock appreciation of 5% and 10% from the dates the options were
granted to the end of the respective option terms. Actual gains, if any, on
option exercises are dependent on the future performance of the Company's
Common Stock and overall market conditions. There can be no assurance that
the potential realizable values shown in this table will be achieved.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Potential Realizable Value
Number of at Assumed Annual Rates
Securities of Stock Price
Underlying % of Total Appreciation for Option
Options Options Granted Terms ($)(1)
Granted to Employees in Exercise Expiration ---------------------------
Name (#) Fiscal Year Price ($/sh) Date 5% 10%
- ------------------------- ---------- ----------- ------------ --------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Mark Housley 1,000,000 (2) 14.16% $0.53 2/25/07 $255,504 $647,498
Charles W. Berger 1,000,000 (2) 14.16% 0.41 2/25/07 255,504 647,498
Gregory M. Millar 0 0 N/A N/A 0 0
Cherrie Fosco 450,000 (2) 6.37% 0.41 2/25/07 114,977 291,374
</TABLE>
(1) The potential realizable value is calculated based on the term of the
option at its time of grant, compounded annually. It is calculated by
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually for the entire term of the
option and that the option is exercised and sold on the last day of its
term for the appreciated stock price. The assumed rates of appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices. Actual gains, if any, on option exercises are dependent on future
performance of the Company's Common Stock and overall market conditions.
There can be no assurance that the potential realizable values shown in
this table will be achieved.
(2) These stock options were granted with an exercise price equal to the
closing fair market value of the Company's Common Stock on the date of
grant. These options become exercisable at the rate of 4% per month of the
total shares beginning in October 1996. These options lapse within 30 days
after the termination of the applicable employment, director and consulting
relationships with the Company.
- 11 -
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table shows the number of shares of Common Stock represented
by outstanding stock options held by each Named Executive Officer as of
September 30, 1997 and the value of such options based on the last sales price
of the Company's Common Stock on September 26, 1997 (the last trading day prior
to the end of fiscal 1997), which was $0.7188. (The sales price of the
Company's Common Stock on December 31, 1997 was: $.344.)
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-end (#) at Fiscal Year-end ($)
------------------------------ ----------------------
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ---------------- ------------ ------------- -------------
<C> <C> <C> <C> <C>
Mark Housley 440,000/560,000 137,489/174,986
Charles W. Berger 756,933/605,417 236,523/189,178
Gregory Millar 69,671/ 0 50,076/ 0
Charrie Fosco 292,153 87,017 223/92,624 70/60,190
</TABLE>
The following table sets forth information with respect to the
participation by the Company's current and former executive officers in all
option repricing programs implemented by the Company during the last ten fiscal
years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Length of
Original
Number of Market Option Term
Securities Value of Exercise Remaining at
Underlying Stock at Price at New Date of
Options Time of Time of Exercise Repricing or
Name Date Repriced Repricing Repricing Price Amendment
<S> <C> <C> <C> <C> <C> <C>
Michael D. Boich 12/18/92 2,729.50 $10.0000 $16.5000 $10.0000 108 months
Richard A. Heddleson 08/08/91 12,500.00 10.2500 12.0000 10.2500 106
08/08/91 12,500.00 10.2500 14.0000 10.2500 117
Stephen L. Bartlett 08/08/91 12,500.00 10.2500 14.0000 10.2500 117
12/18/92 2,029.50 10.0000 16.5000 10.0000 108
Dirk H. Eastman 12/18/92 1,542.00 10.0000 16.5000 10.0000 108
David G. Pine 08/08/91 5,000.00 10.2500 13.2000 10.2500 107
12/13/95 5,000.00 2.3750 10.2500 2.3750 55
12/13/95 5,800.00 2.3750 9.2500 2.3750 81
12/13/95 1,148.50 2.3750 9.7500 2.3750 84
12/13/95 7,500.00 2.3750 8.1250 2.3750 90
12/13/95 10,000.00 2.3750 8.5000 2.3750 93
12/13/95 1,250.00 2.3750 12.0000 2.3750 114
12/13/95 500.00 2.3750 9.6250 2.3750 116
12/13/95 10,000.00 2.3750 8.0000 2.3750 116
Barry J. Folsom 08/08/91 125,000.00 10.2500 11.3500 10.2500 116
</TABLE>
- 12 -
<PAGE>
TEN-YEAR OPTION REPRICINGS (Cont'd)
<TABLE>
<CAPTION>
Length of
Original
Number of Market Option Term
Securities Value of Exercise Remaining at
Underlying Stock at Price at New Date of
Options Time of Time of Exercise Repricing or
Name Date Repriced Repricing Repricing Price Amendment
<S> <C> <C> <C> <C> <C> <C>
Gregory M. Millar 12/13/95 5,000.00 $ 2.3750 $10.0000 $ 2.3750 61 months
08/08/91 20,000.00 10.2500 10.7500 10.2500 119
12/13/95 20,000.00 2.3750 10.2500 2.3750 67
12/18/92 1,771.00 10.0000 16.5000 10.0000 108
12/13/95 1,771.00 2.3750 10.0000 2.3750 72
12/13/95 12,500.00 2.3750 21.0000 10.0000 74
12/13/95 12,500.00 2.3750 10.0000 2.3750 84
12/13/95 1,823.00 2.3750 9.7500 2.3750 84
12/13/95 250.00 2.3750 14.7500 2.3750 97
12/13/95 250.00 2.3750 10.3750 2.3750 111
1/14/97 5,000 $0.4688 2.375 $0.4688 0
1/14/97 20,000 $0.4688 2.375 $0.4688 0
1/14/97 12,500 $0.4688 2.375 $0.4688 0
1/14/97 1,771 $0.4688 2.375 $0.4688 0
1/14/97 40,000 $0.4688 2.375 $0.4688 30
1/14/97 250 $0.4688 2.375 $0.4688 0
1/14/97 250 $0.4688 2.375 $0.4688 0
1/14/97 2,500 $0.4688 2.375 $0.4688 0
1/14/97 20,000 $0.4688 2.375 $0.4688 23
Richard S. Stolz 12/18/92 50,000.00 10.0000 21.0000 10.0000 110
12/18/92 987.50 10.0000 16.5000 10.0000 110
Matthew T. Medeiros 12/13/95 50,000.00 2.3750 8.1250 2.3750 90
12/13/95 893.50 2.3750 9.7600 2.3750 90
12/13/95 12,500.00 2.3750 8.5000 2.3750 93
12/13/95 25,000.00 2.3750 9.1250 2.3750 105
Charles W. Berger 1/14/97 249,850 $0.4688 7.75 $0.4688 0
1/14/97 62,500 $0.4688 10.56 $0.4688 30
1/14/97 50,000 $0.4688 2.375 $0.4688 23
Cherrie Fosco 1/14/97 7,500 $0.4688 2.375 $0.4688 15
1/14/97 5,000 $0.4688 2.375 $0.4688 30
1/14/97 5,000 $0.4688 2.375 $0.4688 34
1/14/97 2,500 $0.4688 2.375 $0.4688 0
1/14/97 15,000 $0.4688 2.375 $0.4688 23
Mary Godwin 1/14/97 10,000 $0.4688 2.375 $0.4688 8
1/14/97 7,500 $0.4688 2.375 $0.4688 20
1/14/97 3,500 $0.4688 2.375 $0.4688 27
1/14/97 10,000 $0.4688 2.375 $0.4688 34
1/14/97 2,500 $0.4688 2.375 $0.4688 0
</TABLE>
- 13 -
<PAGE>
EMPLOYMENT AGREEMENTS
The Company and Mr. Berger entered into an employment agreement dated
February 26, 1993, as amended on September 17, 1993, that provides for his at
will employment until such time as either the Company or Mr. Berger terminates
the employment agreement with or without cause. The employment agreement
provides for a sign-on bonus of $25,000, an initial annual base salary of
$225,000, which was increased to $275,000 per annum in 1995 and provides for an
annual performance bonus per a plan adjusted from time to time by the
Compensation Committee. Mr. Berger was also granted a stock option to purchase
250,000 shares of the Company's Common Stock at an exercise price of $7.75 per
share, the fair market value on the date of grant and the Company loaned him
$100,000. Mr. Berger terminated his employment with the Company in July 1997.
See "Certain Transactions."
The Company and Mark Housley, the Company's Chairman, CEO and President,
entered into an employment relationship by letter dated December 20, 1996 that
provides for at will employment until either party terminates the relationship
with or without cause. Initial base compensation is $200,000 per year with a
target bonus of up to $100,000, unless increased by the Compensation Committee
of the Board. Mr. Housley was also granted an option to purchase 1,000,000
shares of the Company's Common Stock at an exercise price of $0.531 per share,
the fair market value on the date of grant.
BOARD OF DIRECTORS AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
THIS SECTION IS NOT "SOLICITING MATERIAL," IS NOT DEEMED FILED WITH THE
SEC AND IS NOT TO BE INCORPORATED BY REFERENCE IN ANY FILING OF THE COMPANY
UNDER THE SECURITIES ACT OR THE EXCHANGE ACT WHETHER MADE BEFORE OR AFTER THE
DATE HEREOF AND IRRESPECTIVE OF ANY GENERAL INCORPORATION LANGUAGE CONTAINED
IN ANY SUCH FILING.
During the 1997 fiscal year, final decisions regarding executive
compensation were made by the Compensation Committee (the "Committee"). The
Committee currently consists of Messrs. Boich and Berger. Mr. Berger became a
member of the Committee in December 1997, replacing Carl Carlson, who resigned
in October 1997. The Board is currently composed of four independent non-
employee directors and one employee director. Although Mr. Housley is a member
of the Board, he does not participate in deliberations that relate to his own
compensation.
GENERAL COMPENSATION POLICY
The Committee establishes the general compensation policies for the
Company's executive officers and typically reviews base salary levels, option
levels and target bonuses for the executive officers of the Company. The Board
has delegated to the Committee the authority to grant stock options to the
Company's executive officers and has delegated to the Company's Chief Executive
Officer ("CEO") the authority to grant stock options to employees other than
executive officers.
When establishing salaries, bonus levels and stock option awards for
executive officers, the Committee considers: (1) the Company's financial
performance during the past year and recent quarters, (2) the individual's
performance during the past year and recent quarters, and (3) the salaries of
executive officers in similar positions in companies of comparable size within
the computer industry. With respect to executive officers other than the CEO,
the Committee places considerable weight upon the recommendation of the CEO.
The method for determining compensation varies from case to case based on a
discretionary and subjective determination of what is appropriate at the time.
In general, for fiscal 1997 the Company's debt and expense reduction was given
greater consideration in determining compensation than the other factors
referred to above.
The Company's Human Resources Department assists the Committee by making
available executive compensation sample data for similar companies within the
computer industry. The companies included in the sample data included
companies present in the NASDAQ (US) Index and the Hambrecht & Quist Technology
Index (used for purposes of the returns data presented in the "Performance
Graph" below), but the sample was not intended to correlate with either of
these indices. The Committee assessed this data in reviewing executive officer
salaries. For the 1997 fiscal year, base salaries have been set somewhat below
market, while targeted bonuses have been set above market in order to emphasize
Company performance.
- 14 -
<PAGE>
The Committee believes that the compensation of the Company's executive
officers also should be significantly influenced by the Company's performance.
Accordingly the Company's practice has been to make additional compensation in
the form of bonuses and options available for each executive contingent upon
corporate performance. Specifically, corporate performance determines bonus
payments made to executive officers as bonuses are based on achieving corporate
financial objectives. Additional bonuses may also be granted in recognition of
outstanding individual performance. In each case, targeted bonuses are
established by the Committee in its discretion.
Significant stock options are granted to the Company's executives in order
to provide appropriate long term financial incentives and to align the
interests of the executives with the shareholders. The Committee does not set
specific target levels for options granted to Named Executive Officers or for
the CEO. Initial option grants are awarded to executives when they first join
the Company. Initial option grants are normally larger than subsequent option
grants in order to incent the executive to join the Company by participating in
the Company's long term success. Subsequent option grants are awarded from
time to time depending on the executive's particular circumstances such as a
significant change in responsibilities, superior performance, or the number of
unvested options then held by the executive. The number of stock option awards
is based on a discretionary and subjective determination by the Committee based
on the foregoing factors and does not necessarily take into account options
granted by comparably sized peer companies. The relative importance of these
factors varies from case to case based on a discretionary and subjective
determination by the Committee of what is appropriate at the time. In fiscal
1997, the primary factor considered in granting options to executive officers
was contribution to debt and expense reduction as well as contribution to
shifting the Company's primary business focus.
FISCAL YEAR 1997 EXECUTIVE COMPENSATION
For the 1997 fiscal year, the Committee and the CEO reviewed data
collected by Radford Associates in evaluating base salaries for executive
officers. Base salaries for the Company's executives for the 1997 fiscal year
were determined based upon these surveys, the compensation policies described
above and the CEO's recommendations.
The Company's executive officer bonus plan for the 1997 fiscal year (the
"1997 Executive Plan") provided for a target bonus of fifty percent of base
Fsalary for vice presidents with payments to be made semi-annually. Fifty
percent of the target bonus was based on the Company's attainment of revenue
goals and percent of target bonus was based on the Company's attainment of
operating income goals. Bonus payments were contingent on achieving at least
eighty percent of these financial goals. In the event the Company exceeded its
financial goals, payments would exceed target amounts.
The Company establishes its financial goals in conjunction with its normal
fiscal year planning process. The specific financial goals established by the
Company are confidential commercial and business information. Based on the
Company's financial goals, a bonus pool was established on a semi-annual basis.
The size of the semi-annual bonus pool was dependent on whether or not the
Company achieved at least eighty percent of its financial goals.
None of these goals were met in fiscal 1997 and as result no performance
bonuses were paid to executive officers.
In the last fiscal year, the Company granted incremental stock options to
two executives. See "Stock Option Grants in the Last Fiscal Year" above.
CEO COMPENSATION
Mr. Housley was hired by the Company pursuant to an Employment Agreement
in December 1996 that provides for a base salary of $200,000. Pursuant to his
Employment Agreement, Mr. Housley's target bonus for the 1997 fiscal year was
$100,000, to be paid in semi-annual installments, with a minimum of $25,000.
Only the minimum was paid in light of the Company's inability to achieve its
targeted revenue and income goals. Mr. Housley was also granted a stock option
to purchase one million shares of the Company's Common Stock at an exercise
price of $0.531 per share, the fair market value on the date of grant.
In January 1997, the Committee authorized the repricing of stock options
held by the Company's employees and executive officers (including the CEO)
after determining that decreases in the fair market value of the Company's
Common Stock was adversely affecting the Company's ability to retain and
motivate the Company's employees and executives. Under the repricing program,
four executive officers holding stock options to purchase a total of 533,121
shares of Common Stock with exercise prices ranging from $2.37 to $10.56 per
share were repriced to $0.47 per share, which equaled the fair market value of
the Company's Common Stock on that date of the repricing, provided that the
officer accept a six month prohibition on exercising any such options. The six
month
- 15 -
<PAGE>
exercise prohibition was designed to provide a significant incentive for the
Company's executive officers to remain with the Company as it attempted to
implement plans to improve its financial performance.
Compensation for skilled engineers and other key employees in the computer
hardware industry is intense and the use of significant stock options for
retention and motivation of such personnel is widespread in the high technology
industries. The Committee believes that stock options are a critical component
of the compensation offered by the Company to promote long-term retention of
key employees, motivate high levels of performance and recognize employee
contributions in the success of the Company. The market price of the Company's
Common Stock decreased from a high of $2.8125 in fiscal 1996 to a low of
$0.1875 in the third quarter of fiscal 1997. In light of this substantial
decline in the market price, the Committee believed that the large numbers of
outstanding stock options with an exercise price significantly in excess of the
actual market price were no longer an effective tool to encourage employee
retention or to motivate high levels of performance. As a result, the Stock
Option Committee approved the option repricing program.
The Committee considered several alternatives to the repricing of stock
options:
(i) Permitting the equity incentives to remain with little actual
financial incentive value was unacceptable in light of the reduced cash
compensation and the intensive recruiting of the employees.
(ii) Likewise, the Committee decided against any significant increases in
cash compensation to employees due to both the negative impact such an action
would have on the Company's earnings and the Committee's "pay for performance"
compensation policy.
COMPLIANCE WITH SECTION 162 OF THE INTERNAL REVENUE CODE OF 1986 AND
SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code, Section 162(m) limits deductions for certain executive
compensation in excess of $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and payments
are contingent on shareholder approval of the compensation arrangement. The
Company believes that it is in the best interests of its shareholders to
structure its compensation plans to achieve maximum deductibility under Section
162(m) with minimal sacrifices in flexibility and corporate objectives.
The Company will comply with the requirements of Section 162(m) of the
Code for all cash-based compensation and stock option grants made during the
1996 fiscal year. The Company is submitting to shareholders at its 1997 Annual
Meeting a proposal to amend the 1995 Stock Option Plan which is in compliance
with Section 162(m).
With respect to non-equity compensation arrangements, the Committee has
reviewed the terms of those arrangements most likely to be subject to Section
162(m) and believes that at this time no changes are necessary. The Committee
will continue to monitor this situation and will take appropriate action if and
when it is warranted. Since corporate objectives may not always be consistent
with the requirements for full deductibility, it is conceivable that the
Company may enter into compensation arrangements in the future under which
payments are not deductible under Section 162(m); deductibility will not be the
sole factor used by the Committee in ascertaining appropriate levels or modes
of compensation.
Section 16(a) of the Securities Exchange Act of 1934 (as amended)
requires that the Company's officers, directors and ten percent or greater
shareholders file reports of changes in ownership of the Company's securities
with the SEC. To the Company's knowledge, all such required reports were
timely filed for fiscal year 1997.
BOARD OF DIRECTORS COMPENSATION COMMITTEE
Charles W. Berger Michael D. Boich
Michael D. Boich Charles W. Berger
Mark Housley
Jack Kirby
- 16 -
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires a comparison on an indexed
basis of cumulative total shareholder return for the Company, a relevant broad
equity market index and a published industry or line-of-business index.
Cumulative total shareholder return represents share value appreciation
assuming the investment of $100 in the Common Stock of the Company and each of
the other indexes in July 1990, and reinvestment of all dividends. The Common
Stock of the Company is traded on the Nasdaq SmallCap Market. Set forth below
is a graph comparing cumulative total shareholder return on the Company's
Common Stock, the NASDAQ(US) Index and the Hambrecht & Quist Technology Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG RADIUS INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
9/92 9/93 9/94 9/95 9/96 9/97
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RADIUS INC. $100 $ 81 $ 86 $ 71 $ 18 $ 7
NASDAQ STOCK MARKET (U.S.) 100 131 132 182 216 297
HAMBRECHT & QUIST TECHNOLOGY 100 132 151 264 290 432
</TABLE>
- ---------------------
* $100 INVESTED ON 9/30/92 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING SEPTEMBER 30.
THIS SECTION IS NOT "SOLICITING MATERIAL," IS NOT DEEMED FILED WITH THE
SEC AND IS NOT TO BE INCORPORATED BY REFERENCE IN ANY FILING OF THE COMPANY
UNDER THE SECURITIES ACT OR THE EXCHANGE ACT WHETHER MADE BEFORE OR AFTER THE
DATE HEREOF AND IRRESPECTIVE OF ANY GENERAL INCORPORATION LANGUAGE CONTAINED IN
ANY SUCH FILING.
- 17 -
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements the officer or
director may be required to pay in actions or proceedings which the officer or
director is or may be made a party by reason of the officer's or director's
position with the Company, and otherwise to the full extent permitted under
California law and the Company's By-laws.
Mitsubishi Electronics America Corp. ("Mitsubishi" or "Mitsubishi
Electronics"), a siginficant shareholder in the Company until December 1997, has
been a significant supplier of the Company. Mr. Carlson, an executive with
Mitsubishi Electronics, became a director of the Company in September 1996 and
resigned in October 1997. Purchases from Mitsubishi for the 1997 fiscal year
were approximately $13.1 million.
As of October 13, 1996, the Company granted Mitsubishi Electronics a
warrant to purchase 50,000 shares of Common Stock at an exercise price of $1.00
per share in consideration of the extension of open credit terms to the Company.
The warrants are exercisable for a four year period.
Mitsubishi was granted a security interest of up to $4.4 million in the
technology and intellectual property utilized in the Company's PressView
products in order to secure the Company's payment obligations with respect to
the manufacturing of the Company's PressView products.
IBM Credit Corporation ("IBM Credit") has been the Company's primary
secured lender since February 1995. The Company has granted to IBM Credit a
security interest in substantially all of its assets. For the current fiscal
year and the 1996 fiscal year, interest payments to IBM Credit were
approximately $2.9 million and $3.9 million respectively.
In June 1996, the Company granted IBM Credit an option to purchase 10% of
the shares of Series B Preferred Stock of Splash Technology Holdings, Inc. owned
by the Company at a purchase price of $0.01 per share. This option represents
an option to purchase 10% of the shares of Common Stock of Splash Technology
Holdings, Inc. originally owned by the Company.
In September 1996, the Company issued to IBM Credit 750,000 shares of its
Series A Convertible Preferred Stock and warrants to purchase 600,000 shares of
Common Stock at an exercise price of $1.00 per share in satisfaction of
$3.0 million of indebtedness, as well as in consideration of restructuring the
terms of the Company's remaining $23.4 million indebtedness to IBM Credit and
for an additional advance of $470,000. At the same time, IBM Credit
restructured the terms of the remaining approximately $23.4 million
indebtedness into a working line of credit and a term loan. In September 1997,
the Company redeemed all of the Preferred Stock for $3.4 million and retired
the term loan of $21.9. As of September 30, 1997, approximately $4.6 million
remained due under the working capital line of credit with IBM Credit.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal shareholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
- 18 -
<PAGE>
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders intended to be included in the Company's Proxy
Statement and form of proxy relating to the Company's 1999 Annual Meeting of
Shareholders must be received at the Company's principal executive office by
September 12, 1998.
OTHER BUSINESS
The Board does not presently intend to present matters other than the
foregoing for action by the shareholders at the Meeting, and, so far as is
known to the Board, no matters are to be brought before the Meeting except as
specified in the notice of the Meeting. As to any business that may properly
come before the Meeting, however, it is intended that proxies, in the form
accompanying this Proxy Statement, will be voted in the respect thereof in
accordance with the judgment of the persons voting such proxies.
By Order of the Board of Directors
Mark Housley
Chairman and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PRIOR TO THE MEETING IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
- 19 -
<PAGE>
APPENDIX A
RADIUS INC.
ADDITIONAL INFORMATION FOR SHAREHOLDERS
CONTENTS PAGE
Business of the Company
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Financial Statements
Market for Radius Inc.'s Common Equity and Related
Shareholder Matters
Executive Officers and Directors
Form 10K
[remaining sections to be inserted after 10-K is finalized]
BUSINESS OF THE COMPANY
The Company's executive offices are located at 215 Moffett Park Drive,
Sunnyvale, CA 94089, and its telephone number is (408) 541-6100.
MARKET FOR RADIUS INC.'S COMMON EQUITY
AND RELATED MATTERS
EXECUTIVE OFFICERS AND DIRECTORS
NAME POSITION
---- --------
Mark Housley Chairman of the Board of Directors and Chief
Executive Officer
Henry V. Morgan Chief Financial Officer
Steven Petracca Senior Vice President
Charles W. Berger Director (President and CEO of Imgis, Inc.)
Michael D. Boich Director (President and CEO of Rendition, Inc.)
John C. Kirby Director
A-1
<PAGE>
FORM 10K
The Company will provide without charge to any shareholder upon request a
copy of the Company's Annual Report of Form 10K. Such written request should
be made to:
Radius Inc.
Investor Relations
215 Moffett Park Drive
Sunnyvale, California 94089
A-2
<PAGE>
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 11, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS
The undersigned hereby appoints Mark Housley and Hank Morgan, or either of
them, each with power of substitution, to represent the undersigned at the
Annual Meeting of Shareholders of Radius Inc. (the "Company") to be held at
215 Moffett Park Drive, Sunnyvale, California 94089 on February 11, 1998, at
11:00 a.m., P.D.T., and any adjournment or postponement thereof, and to vote
the number of shares the undersigned would be entitled to vote if personally
present at the meeting on the following matters:
SEE REVERSE SIDE
RADIUS INC.
<PAGE>
1. Election of Directors
Nominees: Charles W. Berger, Michael D. Boich,
Mark Housley and John C. Kirby
for all nominees
for all nominees, except the following nominees:
withhold authority for all nominees
- ------------------------------------------------------------------------------
2. AMENDMENT TO 1995 STOCK OPTION PLAN
FOR
AGAINST
ABSTAIN
- ------------------------------------------------------------------------------
3. APPROVAL OF AMENDMENT TO COMPANY'S ARTICLES OF INCORPORATION TO
EFFECTUATE A REVERSE STOCK SPLIT
FOR
AGAINST
ABSTAIN
- ------------------------------------------------------------------------------
4. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS
FOR
AGAINST
ABSTAIN
- ------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR all of the nominees and FOR each
of the Proposals.
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS
PROXY WILL BE VOTED FOR the nominees listed and FOR each of THE PROPOSALS.
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
postponement thereof to the extent authorized by Rule 14a-4(c) promulgated by
the Securities and Exchange Commission.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
Dated:_______________________________, 1998
___________________________________________
Signature(s)
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares are held of record in the names of two or more persons or in the name
of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by
a corporation, the proxy should be executed by the president or vice
president and the secretary or assistant secretary. Executors,
administrators or other fiduciaries who execute the above proxy for a
deceased shareholder should give their full title. Please date the proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
