<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-26844
------------------------
RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OREGON 93-0945232
(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
</TABLE>
5445 N.E. DAWSON CREEK DRIVE
HILLSBORO, OR 97124
(Address of principal executive offices, including zip code)
(503) 615-1100
(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 the
filing requirements for the past 90 days. Yes /X/ No / /
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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. / /
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 24, 2000: $778,614,968. For purposes of the calculation
executive officers, directors and holders of 10% or more of the outstanding
Common Stock are considered affiliates.
Number of shares of Common Stock outstanding as of March 24, 2000:
16,849,989.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART OF FORM 10-K INTO WHICH INCORPORATED
- --------------------------------------------- ---------------------------------------------
<S> <C>
Proxy Statement for 2000 Annual Meeting of
Shareholders Part III
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
RADISYS CORPORATION
FORM 10-K
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS
PART I
Item 1 Business.................................................... 3
Item 2 Properties.................................................. 8
Item 3 Legal Proceedings........................................... 8
Item 4 Submission of Matters to a Vote of Security Holders......... 8
Item 4(a) Executive Officers of the Registrant........................ 9
PART II
Item 5 Market for the Registrant's Common Equity and Related 11
Shareholder Matters.......................................
Item 6 Selected Financial Data..................................... 12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Item 8 Financial Statements and Supplementary Data................. 17
Item 9 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 34
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 34
Item 11 Executive Compensation...................................... 34
Item 12 Security Ownership of Certain Beneficial Owners and 34
Management................................................
Item 13 Certain Relationships and Related Transactions.............. 34
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on 35
Form 8-K..................................................
Signatures.......................................................................... 37
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
RadiSys Corporation ("RadiSys" or the "Company"), incorporated in 1987, is a
leader in computer based building blocks used by original equipment
manufacturers ("OEMs") for products in the telecommunications and networked
equipment markets (including industrial automation, medical devices, and
transaction terminals). Unlike general purpose computers, embedded computer
solutions are incorporated into systems and equipment to provide a single or a
limited number of critical system control functions and are generally integrated
into larger automated systems. RadiSys' embedded computers are based upon the
Intel x86, Intel IXP Architecture, and/or the Texas Instruments C6x DSP
architectures and are capable of running PC-compatible operating systems and
application software.
EMBEDDED COMPUTER MARKET
Embedded computer systems are a key segment of the broad electronics market
and form the backbone and control system for many types of today's electronic
systems requiring advanced capabilities for human interface, data analysis and
system communications and control. Embedded computers differ from
general-purpose computers, such as personal computers (PCs), in several key
respects. First, embedded computers or building blocks, both board level and
chassis systems, are closely integrated into larger systems, perform a single or
limited number of complex applications and adhere to specific requirements
regarding size, reliability and ability to withstand the demands of extreme
environmental conditions. Additionally, embedded computers are design-intensive
solutions that require substantial engineering know-how and a comprehensive
understanding of the specific end product into which they are to be
incorporated.
Embedded computer solutions are incorporated into a broad range of products,
including voice message systems, local area network routers, cellular base
stations, semiconductor manufacturing equipment, electronics assembly equipment,
blood analyzers, patient monitors, ultrasound machines, gaming equipment, point
of sale terminals and banking automation machines. Unlike PC products, which
have experienced and will likely continue to experience short product cycles, a
typical embedded computer solution has a relatively long product life, with most
designs lasting through the life cycles of the products into which they are
integrated, often three years or more. Life cycles can differ significantly
among industries and applications.
In recent years, the increasing complexity of electronic subsystems and
components, faster time-to-market requirements, together with a widespread trend
in many industries to rationalize internal manufacturing resources, has led to a
significant growth in the outsourcing of the design and manufacture of
electronics subsystems and components by major OEMs. As a result, the Company
believes there is a significant opportunity for independent manufacturers to
provide OEMs with cost-effective, reliable and high value-added embedded
computer system solutions.
STRATEGY
The Company's objective is to be the leader in embedded computer solutions
utilizing key technology building blocks for major OEM's in the
telecommunications and networked equipment industry. The key elements of the
Company's highly differentiated strategy are:
FOCUS ON PROVIDING A WIDE BREADTH OF BEST-IN-CLASS TECHNOLOGY BUILDING
BLOCKS. There are four key sets of building blocks in a generic
telecommunications system. The first building block is the Central Processing
Unit (CPU), which has been the heritage of RadiSys since incorporation in 1987.
The second building block is DSP (Digital Signal Processing). RadiSys acquired a
DSP company in 1997, Sonitech, which exclusively focuses on providing hardware,
software, and algorithms to support Texas Instruments' C6X DSP architecture. The
third building block is WAN (Wide Area Network) connectivity. RadiSys purchased
3
<PAGE>
a division of International Business Machines Corporation ("IBM") in March of
1999 that enabled the company to garner technology and expertise in T1/E1, X.25,
SS7, ATM, and Frame Relay. The fourth building block is systems packaging and
platform integration. Up until the Company's acquisition of Texas Micro, Inc. in
August of 1999, RadiSys was considered a custom Intel CPU board-level provider
solution. Texas Micro, Inc. brought subsystem integration capabilities, strong
telecommunications customer base and expertise in PCI bus architecture. In
December of 1999, RadiSys augmented the fourth building block by acquiring
another division of IBM called the Open Computing Platform (OCP) division. With
the acquisition of OCP, RadiSys now delivers highly integrated customized
systems with the OEM's logo and when requested, drop ships directly to the OEM's
customer. RadiSys believes that having all four building blocks and the ability
to integrate and test them is a key differentiation between the Company and the
competition in garnering additional design wins and sales, and also gaining
increased opportunities with current and new customers.
LEVERAGE INTEL ARCHITECTURE EXPERTISE. RadiSys combines the technical
expertise of hundreds of man-years of Intel architecture experience with a close
working relationship with Intel to design and manufacture innovative Intel-based
building blocks that can be sold individually or bundled into a variety of
levels of integrated solutions for its OEM customers. The Company intends to
continue to capitalize on the growing acceptance of the Intel X86 architecture
and the Intel IXA architecture as the preferred solution of OEMs, especially in
the telecommunications market. Additionally, the Company and Intel's Embedded
Architecture Division are working together to develop and market chip-level,
board-level, and system-level products for the embedded computer market in order
to facilitate the implementation of IA and IXA designs into a broadening array
of new OEM products.
PROVIDE BROAD SET OF TECHNICAL SOLUTIONS TO MEET CUSTOMER-SPECIFIC
NEEDS. The Company provides a high degree of design, product, and manufacturing
flexibility to address the needs of its customers for customized solutions in a
wide range of applications. The Company provides building blocks with a variety
of physical form factors and levels of integration, from fully integrated
systems, to application ready platforms, to CPU boards, to chip-level products.
The Company also offers a broad range of custom solutions and maintains a large
and expanding library of designs, containing specifications, logic designs,
firmware, device driver software, test and integration specifications, DSP
algorithms, WAN (Wide Area Network) connectivity, and manufacturing rules. The
Company believes that its extensive design expertise and large library of
solutions is critical to its ability to find the solution that best fits its
customers' technical and business needs.
PRODUCTS
RadiSys designs and manufactures a broad array of computer-based technology
building blocks based on the Intel architecture--from standard products to
products designed to address the specific requirements of its OEM customers.
These "perfect fit" solutions typically combine the level of integration, degree
of customization and specified form factors and standards required to meet the
customer's needs.
STANDARD PRODUCTS AND ARCHITECTURES. RadiSys provides a highly
differentiated set of horizontal and vertical technology building blocks.
RadiSys can deliver Intel CPU platforms, system platforms, wide-area networking
(WAN) and digital signal processing (DSP) technologies on two key architectures,
PCI and CompactPCI. The Company provides state-of-the-art Pentium, PII, PIII,
IXP and StrongArm Solutions. The Company provides both enterprise and carrier
class CompactPCI and PCI system enclosures and backplanes. In addition, the
Company has expertise in field-proven frame relay, SS7, ATM, E1/T1, X.25, IP and
other protocols and interfaces. The Company provides advanced Texas Instrument
(TI) C6x voice processing solutions hardware and algorithms.
TESTING AND INTEGRATION. The level of integration required by some OEMs in
the telecom industry has provided an opportunity for RadiSys to deliver its
broad range of solutions. RadiSys has the ability to test and integrate all of
its building blocks with other third party cards and software to provide a fully
4
<PAGE>
integrated system to the specifications of the OEM. This allows OEMs to source
all of these functions to RadiSys so they may focus on the key differentiation
they deliver to their marketplace. Fully integrated computer subsystems and
systems generally range in price from $1,000 to $15,000.
CUSTOMIZATION. The degree of customization of the Company's products ranges
from modifications of standard products to custom solutions comprised solely of
newly developed modules. The Company uses its extensive design experience and
large design library to create products with varying degrees of customization.
The Company believes that the degree of customization will tend to increase in
the future and provide a time-to-market advantage for our customers.
SALES AND MARKETING
RadiSys views the design process as an opportunity to build long-term OEM
customer relationships. The Company typically experiences long life cycles for
products designed for its OEM customers. RadiSys' objective of providing
embedded computer solutions utilizing key technology building blocks focuses the
Company's direct sales force on solving the OEM customer's needs. A typical
sales team consists of an account manager along with supporting engineering
expertise interacting with the OEM customer's technical staff to solve specific
requirements of application; form, fit and function; environment and mechanics.
The Company's value proposition to the customer is a faster time-to-market.
The Company markets its products primarily in North America, Western Europe,
Israel and Japan. In 1999, the Company had no customer whose sales were more
than 10% of total revenues; the top 25 customers accounted for approximately 65%
of 1999 sales. In North America, products are sold principally through a direct
sales force. The Company has U.S. sales offices in Oregon, Texas, California,
North Carolina, Nevada and Delaware. The direct sales force is supported by
approximately 60 factory-based application engineers, product marketing
personnel and sales support personnel. In addition, the Company's management
plays a key role in the Company's marketing and selling efforts.
In Europe, the Company sells its products through wholly owned subsidiaries
in the United Kingdom, RadiSys UK Ltd., and RadiSys International, Inc. and
through distributors in Europe. RadiSys has international regional sales offices
in The Netherlands, United Kingdom, Germany, Israel and France. In Japan, the
Company sells its products through a wholly-owned Japanese subsidiary, RadiSys
K.K., that markets the Company's products directly and through several
distributors in Japan. In 1999, 1998 and 1997, international sales represented
approximately 37%, 29% and 30%, respectively, of revenues. Much of the Company's
international sales are denominated in U.S. dollars.
The Company has established distributor relationships with Arrow/Schweber
Electronics, Pioneer-Standard Electronics, Inc., and Wyle Electronics in North
America and several distributors in Europe to market the Company's chip-level,
board-level and system-level products.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company believes its research, development and engineering expertise
represents an important competitive advantage. The Company's research,
development and engineering staff at December 31, 1999 consisted of
approximately 235 engineers and technicians.
Most of the Company's research, development and engineering efforts are
focused on joint projects with its OEM customers resulting in the development of
custom board-level and system-level products. For these projects, the Company's
engineering staff works closely with the customer and the customers often pay
the Company non-recurring engineering fees as certain milestones are attained.
From time to time, the Company also engages in joint research and development of
other products with certain of its customers and other parties. The Company's
research and development staffs are located in Hillsboro, Oregon; Houston,
Texas; Boca Raton, Florida; Newton, Massachusetts and Birmingham, United
Kingdom.
5
<PAGE>
In the initial phases of the relationship, considerable attention is given
to the establishment of communications links, such as electronic mail, to enable
the customer's and the Company's sales and engineering staffs to interact on a
real-time or rapid response basis. The Company believes that close and frequent
communication during the design process allows RadiSys to operate as a "virtual
division" within the customer's internal organization. RadiSys' in-depth
understanding of embedded computer technology and applications assists the
customer in resolving its overall product design issues while regular customer
feedback enables RadiSys to increase and continually refresh its understanding
of its customer's specific design requirements.
The Company typically retains the rights to any technology developed as a
part of the design process. In some cases, the Company agrees to share
technology rights, including manufacturing rights, with the customer, but
generally retains nonexclusive rights to use the technology.
The embedded computer market is subject to rapid technological development,
product innovation and competitive pressures. Consequently, the Company has
invested and will continue to invest resources in the research and development
of (i) technology building blocks such as embedded modules, platforms, chips and
low-level firmware, (ii) application-specific embedded computers for specific
customers and (iii) design processes and tools. In 1999, 1998 and 1997, the
Company invested $30.5 million, $22.2 million and $19.4 million, respectively,
on research and development.
MANUFACTURING
The Company currently manufactures the majority of the board-level and
system-level products it sells. Also, due to the addition of ARTIC and OCP from
IBM in 1999, the Company also employs several outside subcontractors to produce
board-level and system-level products including system integration services. The
Company builds its products in highly automated ISO9001 certified manufacturing
plants in Hillsboro, Oregon and Houston, Texas. These plants encompass
surface-mount technology ("SMT") board assembly, test, mechanical assembly and
system assembly and test. ISO9001 certification is the international
designation, developed by the International Organization of Standardization, a
pan-governmental agency, for demonstrating that the Company's systems support
the design and production of products of consistently high quality.
The Company's Hillsboro, Oregon plant has three automated lines for SMT
board assembly, which are based on equipment purchased primarily from Universal
Instruments. The Company's Houston, Texas plant has two automated lines for SMT
board assembly, which are based on Fuji equipment. The Company estimates that,
as currently configured, the plants have sufficient capacity on multiple-shift
operation to handle planned demand well into 2000. Each line is modular and thus
readily expandable by adding additional inline equipment. The Company plans to
transfer products between the two facilities in 2000 to optimize build and
configuration capability across the Company's products. The Company also has
relationships with outside subcontractors to perform additional production
capabilities.
Because the products into which embedded computers are integrated typically
have long life cycles, dynamic stress testing of embedded computer products must
be particularly exacting to ensure the reliability of such products. The Company
believes its test processes represent a significant competitive advantage in
this area. The Company uses a variety of commercial and proprietary test
processes including highly accelerated life testing, highly accelerated stress
screening, bed-of-nails, in-circuit and functional test equipment. The highly
accelerated stress screening process detects early lifetime failures by
subjecting products to a series of cycles of rapid temperature change, and
random mechanical vibration while the products are running a self-test program
and are being monitored. The Company has equipment to perform temperature,
humidity, and vibration analysis of products.
The Company relies on external suppliers for bare printed-circuit board
fabrication, machine-inserted through-hole circuit boards, semiconductor
components, mechanical assemblies, and semiconductor foundry services. Although
many of the raw materials and much of the equipment used in the Company's
6
<PAGE>
manufacturing operation are available from a number of alternate sources,
certain of these components are obtained from a single supplier or a limited
number of suppliers.
The Company is dependent on third parties for a continuing supply of the
components it uses in the manufacture of its products. For example, the Company
is dependent solely on Intel for the supply of microprocessors and other
components and depends on Toshiba America Inc., Epson Electronic America, Lucent
Technologies and Maxim Integrated Products, Inc. as sole source suppliers for
other components. For some of these components the Company would encounter
difficulty in locating alternative sources of supply.
The Company relies on a third party foundry to produce its core logic chip
product offerings. There is no assurance that the third party will be willing or
able to supply the Company with sufficient core logic chips to meet its needs in
the future or, if the party were not to meet the Company's needs, that the
Company could obtain satisfactory core logic chips from alternative sources in
sufficient quantities and at acceptable prices.
COMPETITION
The embedded computer industry is highly competitive and fragmented, and the
Company's competitors differ depending on product type, geographic market and
application type. The Company believes that, from a customer's perspective, the
main competitive factors in the embedded computer industry are time-to-market,
product cost, product quality, breadth of solution, and long-term stability of
both the product and the supplier.
Because many OEM customers view their embedded computer requirements from a
"make versus buy" perspective, RadiSys often competes against its OEM customers'
ability to design and manufacture satisfactory embedded computer products
in-house. However, the start of the sales cycle begins after the OEM has made a
conscious decision to outsource their building block needs. Establishing a
relationship with a set of key accounts and growing the number of RadiSys design
wins from existing customers, are the pieces of RadiSys' future strategy.
Off-the-shelf product manufacturers comprise a second set of competitors,
although this product segment is highly fragmented by physical and electrical
form factors. Electronics contract manufacturers form a third set of potential
competitors, although most have no specific product or application design
expertise and simply manufacture to a third party's design.
Finally, RadiSys competes against companies that provide individual pieces
of embedded system solutions, such as central processing units, digital signal
processors, and wide area networks. The competitors are different depending on
what building blocks are present in the competitive sales cycle. RadiSys
maintains a competitive advantage in being able to provide all four sets of
building blocks in both PCI and Compact PCI architectures.
BACKLOG
As of December 31, 1999, the Company's backlog was approximately
$59.7 million, as compared to $41.8 million as of December 31, 1998. The Company
includes in its backlog all purchase orders scheduled for delivery within
twelve months, although a majority of the backlog is typically scheduled for
delivery within 90 days.
7
<PAGE>
INTELLECTUAL PROPERTY
Seventeen U.S. patents have been issued to the Company. The Company has
pending one additional U.S. patent application and one foreign application
covering technology incorporated into its products; however, the Company relies
principally on trade secrets for protection of its intellectual property. The
Company believes, however, that its financial performance will depend much more
on the pace of its product development and its relationships with its customers
than upon such protection. The Company has from time to time been made aware of
others in the industry who assert exclusive rights to certain technologies,
usually in the form of an offer to license certain rights for a fee or
royalties. The Company's policy is to evaluate such claims on a case-by-case
basis. The Company may seek to enter into licensing agreements with companies
having or asserting rights to technologies if the Company concludes that such
licensing arrangements are necessary or desirable.
EMPLOYEES
As of December 31, 1999, the Company had 1,041 employees, of which 886 were
regular employees and 155 were agency temporary employees or contractors. The
Company is not subject to any collective bargaining agreement, has never been
subject to a work stoppage, and believes that its relations with employees are
good.
ITEM 2. PROPERTIES
In the U.S. the Company leases the following facilities, (all numbers
approximate): 137,000 square feet of office and manufacturing space in three
buildings in Hillsboro, Oregon; 19,000 square feet of office space in Beaverton,
Oregon; 13,000 square feet of office space in Newton, Massachusetts; 144,000
square feet of office and manufacturing space in Houston, Texas; and 24,000
square feet of office space in Delray Beach, Florida. The Company owns two
parcels of land adjacent to its Hillsboro facility, which are being held for
future expansion. The Company also leases four small sales offices in the U.S.
located in Ann Arbor, Michigan; Dallas, Texas; Newark, California; and Raleigh,
North Carolina. Internationally, the Company leases office space in the
following cities; Almere and Eindhoven, The Netherlands; Birmingham and Swindon,
United Kingdom; Cedex and Versailles, France; Neu-Isenburg, Munich and Stemwede,
Germany; Rehovot, Israel; and Tokyo, Japan. Total lease costs of all these
facilities are approximately $4.5 million per year, plus certain building
operating expenses.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material litigation currently pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
<PAGE>
ITEM 4(A) EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 27, 2000, the names, ages and positions held by executive
officers of the Company were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- -------- -------------------------
<S> <C> <C>
Dr. Glenford J. Myers....... 53 Chairman of the Board, President and Chief Executive
Officer
Stuart F. Cohen............. 40 Vice President of Marketing and Sales
Ronald A. Dilbeck........... 46 Vice President and General Manager, Computer Platform
Division
Douglas D. Goodyear......... 45 Vice President of Sales
Arif Kareem................. 47 Vice President and General Manager, Telecommunications
Division
Stephen Loughlin............ 49 Vice President of Finance and Administration and Chief
Financial Officer
John Sonneborn.............. 42 Vice President of Manufacturing & Chief Quality Officer
Diane M. Williams........... 46 Vice President of Human Resources
</TABLE>
Dr. Glenford J. Myers co-founded the Company in March 1987 and has served as
the Company's Chairman of the Board, President and Chief Executive Officer since
that time. From 1981 to 1987, he held various management positions with Intel,
including Manager of Microprocessor Product Line Architecture and Manager of the
Microprocessor Strategic Business Segment. While at Intel, Dr. Myers had primary
management responsibility for the feasibility and design of Intel's 386 and
80960 microprocessor chips, both of which became industry standards in their
respective application areas. From 1968 to 1981, Dr. Myers held various
engineering and management positions with IBM. Dr. Myers holds a Ph.D. from the
Polytechnic Institute of New York, an M.S. from Syracuse University and a
B.S.E.E. from Clarkson College.
Stuart F. Cohen joined the Company in January 1999 as its Vice President of
Marketing. From 1997 to 1998, Mr. Cohen was Vice President, Worldwide Marketing
for InFocus Systems, Inc., a company that develops and manufactures data/video
projectors. From 1981 to 1997, Mr. Cohen held various sales and marketing
management positions for IBM, an information technology company, the most recent
being Director of Worldwide Marketing, Networking Division. Mr. Cohen holds a
B.S. in Business Administration from the Arizona State University.
Ronald A. Dilbeck joined the Company in May 1996 as its Vice President and
General Manager, Automation and Control Division. In October 1998, Mr. Dilbeck
was given joint responsibility of the merged Automation Equipment Division. From
1994 to 1996, Mr. Dilbeck was President and Chief Executive Officer of nCUBE,
Inc., a company that builds interactive multimedia servers. From 1983 to 1994,
he held various engineering management positions with Sequent Computer Systems,
a manufacturer and provider of information technology solutions, the most recent
being Director of Integration Services. Mr. Dilbeck holds an M.S.E.E. from
Washington State University and a B.S.E.E. and a B.S. in Mathematics from Oregon
State University.
Douglas D. Goodyear joined the Company in October 1998 as its Senior Vice
President of Sales. From 1995 to 1998, Mr. Goodyear was Vice President,
Worldwide Sales of Actel Corporation, a semiconductor development company. From
1990 to 1995, Mr. Goodyear served as Vice President of North American Sales for
the Microelectronics Group of Sharp Electronics. Additionally, he has held
various sales and sales management positions with Hitachi, Advanced Micro
Devices, and Signetics Corp., a Philips company. Mr. Goodyear holds a B.S. in
both Computer Science and Industrial Management from the University of Nebraska.
Arif Kareem joined the Company in July 1997 as Vice President, Telecom
Business Unit, and was appointed Vice President and General Manager,
Telecommunications Division in October 1997. From
9
<PAGE>
1980 to 1997 Mr. Kareem held various engineering and marketing management roles
at Tektronix, Inc., an electronics manufacturing company, before serving as
General Manager of Tektronix's Telecom Product Line, and subsequently General
Manager of the Communications Test Business Unit. His most recent role at
Tektronix was as Director of Strategic Marketing for the Measurement Division.
Mr. Kareem holds a B.S.E.E. and an M.S.E.E. from Lehigh Universtiy, and an
M.B.A. from the University of Oregon.
Stephen Loughlin joined the Company in April 1999 as Vice President of
Finance and Administration and Chief Financial Officer. He spent the previous
nine years at Sequent Computer Systems, a manufacturer and provider of
information technology solutions, as Vice President and Controller. Prior to
that, he was with Wang Laboratories, Inc. as Director of Finance for
logistics/manufacturing and system manufacturing/distribution. Mr. Loughlin
earned a B.S. in accounting from Boston College.
John Sonneborn joined the Company in August 1996 as its Vice President of
Manufacturing. From 1981 to 1996, Mr. Sonneborn held various operations and
engineering positions at Tektronix, Inc., lastly as the Director of Quality for
the Measurement Business Division. Mr. Sonneborn holds a B.S. in Applied and
Engineering Physics from Cornell University.
Diane M. Williams joined the company in August 1998 as its Vice President of
Human Resources. From 1990 to 1998 Ms. Williams held various roles at Sequent
Computer Systems, Inc., most recently Vice President of Human Resources. Ms.
Williams also spent time at Compaq Computer Corporation where she was Manager of
Enterprise Sales Development. Prior to Compaq and Sequent, Ms. Williams held
various human resources management positions at Amdahl Computer Corporation and
First City Bancorporation of Texas. She holds a B.A. Degree from State
University of New York at Stony Brook and an M.Ed. from the University of
Houston.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock has been traded on the Nasdaq National Market
since the Company's initial public offering in 1995 under the symbol "RSYS". The
following table sets forth, for the periods indicated, the highest and lowest
closing sale prices for the Common Stock, as reported by the Nasdaq National
Market. The table gives effect to a three-for-two split of the shares of common
stock of the Company effective November 29, 1999 to shareholders of record at
the close of business on November 8, 1999.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1999
First Quarter............................................. $20.71 $14.89
Second Quarter............................................ $25.92 $13.92
Third Quarter............................................. $30.67 $24.42
Fourth Quarter............................................ $54.13 $26.00
1998
First Quarter............................................. $25.75 $14.42
Second Quarter............................................ $19.83 $11.83
Third Quarter............................................. $15.00 $ 7.58
Fourth Quarter............................................ $21.09 $ 8.00
</TABLE>
On March 24, 2000, the last reported sale price of the Common Stock on the
Nasdaq National Market was $60.25.
The Company has never paid any cash dividends on its Common Stock and does
not expect to declare cash dividends on the Common Stock in the foreseeable
future. The Company's current policy is to retain all of its earnings to finance
future growth.
As of March 24, 2000, there were approximately 613 holders of record of the
Company's Common Stock. The Company believes that the number of beneficial
owners is substantially greater than the number of record holders because a
large portion of the Company's outstanding Common Stock is held of record in
broker "street names" for the benefit of individual investors.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues................................ $251,090 $186,548 $191,814 $161,431 $147,945
Gross profit............................ 92,297 62,684 70,549 58,105 59,430
Income from operations.................. 16,604 8,569 21,165 6,399 7,816
Net income (loss)....................... 18,997 7,818 14,272 (141) 7,231
Net income (loss) per share (diluted)
*..................................... 1.11 0.48 0.88 (0.01) 0.64
Weighted average shares outstanding
(diluted) *........................... 17,110 16,129 16,212 15,712 11,311
Consolidated Balance Sheet Data:
Working capital......................... $ 68,863 $ 83,083 $ 78,744 $ 69,524 $ 65,503
Total assets............................ 187,563 131,727 130,200 116,677 96,578
Long term obligations, excluding current
portion............................... -- 88 399 648 884
Total shareholders' equity.............. 134,255 106,827 99,422 84,060 73,921
</TABLE>
Note: The selected financial data for the four years ended December 31, 1998 has
been restated to reflect the merger with Texas Micro, which was accounted
for as a pooling of interests.
* Reflects the three-for-two stock split on November 29, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (IN THOUSANDS)
ACQUISITIONS AND MERGERS
On December 28, 1999, the Company purchased certain assets of International
Business Machines Corporation's ("IBM") Open Computing Platform (OCP) operation
that focuses on providing highly-customized embedded system solutions to OEM's
primarily in the telecommunications market. The purchase price, including direct
acquisition costs and contingent consideration, was $14.1 million. Pursuant to
the terms of the agreement, the Company may be required to make additional
future payments in March of 2001, 2002, and 2003 based upon a formula tied to
the future OCP revenues. These potential additional future payments will be
accounted for as additional purchase price. The total consideration for the
Acquisition will not exceed $30.0 million. The acquisition was accounted for
using the purchase method. The results of operations for this acquisition have
been included in the financial statements since the date of acquisition.
On August 13, 1999, the Company completed its merger with Texas Micro, a
formerly publicly-traded embedded computer company headquartered in Houston,
Texas, by issuing approximately 2.8 million shares of the Company's stock for
all the outstanding common stock of Texas Micro. The merger was accounted for as
a pooling-of-interests under Accounting Principles Board Opinion No. 16, and
accordingly, the financial statements have been restated for all periods prior
to the merger to reflect the combined results of operations, financial position
and cash flows. In connection with the merger, the Company recorded a charge to
operating expenses of approximately $6.0 million for merger-related costs in the
third quarter of 1999.
On March 1, 1999, the Company purchased certain assets of IBM dedicated to
the design, manufacture and sale of IBM's ARTIC communications coprocessor
adapter hardware and software for wide area network and other telephony
applications. The purchase price, including direct acquisition costs, was
12
<PAGE>
$27.5 million. The acquisition was accounted for using the purchase method. The
results of operations for this acquisition have been included in the financial
statements since the date of acquisition.
On February 18, 1997, the Company purchased substantially all the assets of
Sonitech International, Inc., a provider of digital signal processing hardware
and software solutions for embedded applications. The purchase price included
the issuance of 84 shares of common stock and $1.0 million in cash
consideration. The acquisition was accounted for using the purchase method. The
results of operations for this acquisition have been included in the financial
statements since the date of acquisition.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
revenues for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 63.2 66.4 63.2
------ ------ ------
Gross margin................................................ 36.8 33.6 36.8
Research and development.................................... 12.1 11.9 10.1
Selling, general and administrative......................... 14.7 16.9 15.6
Goodwill and intangibles amortization....................... 1.0 .2 .1
Combination costs........................................... 2.4 -- --
------ ------ ------
Income from operations...................................... 6.6 4.6 11.0
Interest income, net........................................ .5 1.0 .8
Other income................................................ .7 .3 --
------ ------ ------
Income before income tax provision.......................... 7.8 5.9 11.8
Income tax provision........................................ .3 1.7 4.4
------ ------ ------
Net income.................................................. 7.5% 4.2% 7.4%
====== ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
REVENUES. Revenues increased 34.6% to $251.1 million for 1999 from $186.5
million for 1998. The increase in revenues in 1999 was due to growth within
existing product lines and movement into higher growth markets, primarily
telecommunications. In addition, the acquisition of ARTIC in March of 1999
resulted in increased revenues and the merger with Texas Micro in August of 1999
enhanced the Company's ability to grow.
Revenues decreased 2.7% to $186.5 million for 1998 from $191.8 million for
1997. The decrease in revenues in 1998 was primarily caused by customers
reducing orders precipitated by the effects of negative global economic
conditions in the electronics market.
GROSS MARGIN. Gross margin increased to 36.8% for 1999 from 33.6% for 1998
primarily as a result of the product mix consisting of a larger portion of
higher margin product relative to lower margin product shipped, which includes
products added as a result of the ARTIC acquisition on March 1, 1999.
Additionally, fixed manufacturing costs were lower relative to higher revenue
levels during 1998. The Company's strategic business model is to price its
products for new design wins at roughly 30-35% gross margins, because the
Company believes this gross margin level represents the best elasticity point to
maximize design wins and thus long term growth and profitability. As such, the
Company expects gross margins to decline gradually over time as new design wins
ramp into production. Typically, products ramp into production 6 to 12 months
after the design win.
13
<PAGE>
Gross margin decreased to 33.6% for 1998 from 36.8% for 1997 because of an
unfavorable mix of product compared to the prior year. In addition,
manufacturing costs stayed flat despite a drop in production.
The Company's gross margins are heavily influenced by its OEM sales
relationships. OEM sales are characterized by longer product life cycles and
generally lower gross margins that can vary throughout the product life cycle.
Gross margins are typically lower in the early stages of production for OEM
sales and have the potential to improve over time. The Company establishes gross
margin targets based on the nature of the sales it is pursuing and the desire to
establish new OEM relationships by pricing aggressively to achieve key sales.
However, many of the factors affecting gross margins, such as variances in unit
volumes and timing of orders and component cost, are difficult or impossible to
predict and can cause the Company to be subject to unplanned margin variances.
Gross margins on OEM sales are also particularly sensitive to changes in
customer mix because of both margin variances among individual products and the
relative importance of a single large sale on overall operating results. To
mitigate the effect of short-term margin variances, the Company may employ "step
pricing" techniques in which unit prices decline over the life of the product to
reflect anticipated production efficiencies and/or component cost reductions, or
various "cost sharing" or "cost plus" pricing techniques that serve to reduce
the margin risk to the Company.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 37.3%
to $30.5 million for 1999 from $22.2 million for 1998, primarily as a result of
increased investment in new product development and costs of enhancements to
existing products. The Company continues to invest in new design wins for OEM
customers and the dollar increases reflect increases in the number of employees
working in research and development including additions resulting from
acquisitions. Research and development expenses as a percentage of total revenue
remained relatively flat from 1998 to 1999.
Research and development expenses increased 14.7% to $22.2 million for 1998
from $19.4 million for 1997 as a result of investment in new products. Research
and development expenses increased as a percentage of total revenue by 1.8%
primarily as the result of lower revenue levels in 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses, exclusive of goodwill amortization, increased 16.7% to $36.8 million
for 1999 from $31.5 million for 1998. Selling, general and administrative
expenses decreased in 1999 as a percentage of revenues to 14.7%. The dollar
increase of $5.3 million is due to the selling effort to maintain high design
win activity. The 2.2% decrease as a percentage of total revenue is due to
increased efficiencies in managing expenses combined with higher revenue levels,
compared to 1998.
Selling, general and administrative expense increased 5.3% to $31.5 million
for 1998 from $29.9 million for 1997 primarily as a result of continued focus on
design win success despite a decrease in revenues.
GOODWILL AND INTANGIBLE AMORTIZATION. Amortization expense relates to
goodwill and intangibles recorded in connection with the Sonitech acquisition
(Q1 97 - $3.0 million) and the ARTIC acquisition (Q1 99 - $20.6 million).
Amortization periods range from five to fifteen years. Amortization expense
increased by $2.1 million over 1998 primarily as a result of the ARTIC
acquisition. Goodwill recorded for the OCP acquisition in late December 1999,
totals $13.0 million and will be amortized over five years beginning
January 2000.
COMBINATION COSTS. Combination costs for the year ended December 31, 1999
resulted from the Texas Micro merger on August 13, 1999. The Company recorded a
charge to operating expenses of approximately $6.0 million for merger-related
costs during the third quarter of 1999. Merger and related costs include
professional and filing fees of $3.3 million, human resource related expenses of
$1.5 million, contract termination costs of $.8 million and other miscellaneous
expenses totaling $.4 million.
14
<PAGE>
INTEREST INCOME, NET. Interest income, net decreased 37.8% to $1.2 million
for 1999 from $1.9 million in 1998 due to lower cash and cash equivalents levels
primarily a result of the funding of the ARTIC Business Unit acquisition on
March 1, 1999 and capital expenditures.
Interest income, net increased 28.8% to $1.9 million for 1998 from
$1.5 million for 1997, due to a higher cash equivalent balance held in 1998.
OTHER INCOME, NET. Other income increased by $1.4 million from 1998 due to
the recovery of amounts owed from a prior divestiture with General Automation.
The Company received the final consideration owed in connection with the prior
(1996) sale of Texas Micro's Sequoia Enterprise Systems business unit to General
Automation. Final consideration consisted of $1.5 million in cash, $750 in
notes, and 1,133 shares of General Automation common stock. The receipt of this
consideration resulted in a gain to the Company of $2.2 million in the third
quarter of 1999 and is reflected in other income.
INCOME TAX PROVISION. The income tax provision for 1999, 1998 and 1997
reflect effective income tax rates of 3.5%, 28.6% and 37.0%. The decrease in the
effective income tax rates for 1999 is attributed to the Texas Micro net
operating loss carryforwards recognized in the year. The Company has accounted
for certain changes in the federal income tax laws that were effective on June
25, 1999. The tax law change eliminated some restrictions on the utilization of
certain Texas Micro net operating loss carryforwards. Some of the Texas Micro
net operating loss carryforwards are now available to offset RadiSys taxable
income. The adjustment relating to this tax law change resulted in a decrease to
the tax provision for the quarter ended June 30, 1999 and an increase to net
income after tax of $5.2 million. The decrease in the effective tax rate for
1998 compared to 1997 is directly attributable to lower net income.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $15.7 million in cash and
equivalents. As of December 31, 1999, the Company had working capital of
approximately $68.9 million. The Company has a $20.0 million line of credit with
a bank which expires September, 2000. As of December 31, 1999, $13.9 million was
outstanding under this arrangement at an interest rate of 8.5%. Amounts
outstanding under the line of credit accrue interest at an annual rate equal to
the lower of the LIBOR plus 1.25% to 2.0% or lender's prime rate (8.5% at
December 31, 1999). There was no balance outstanding as of December 31, 1998.
Net cash provided by operating activities was $2.1 million, $20.6 million
and $5.5 million for 1999, 1998 and 1997, respectively. The decrease in net cash
provided by operating activities in 1999 was largely attributable to an increase
in accounts receivable over prior years. Cash and cash equivalents decreased
$28.1 million during the year ended December 31, 1999 primarily as a result of
the cash paid and assets purchased for the ARTIC and OCP acquisitions ($41.6
million), increases in accounts receivable ($25.0 million), inventories ($6.6
million), deferred income taxes ($8.1 million), capital expenditures
($8.5 million) and capitalized software production costs and other assets ($3.6
million), and gain on sale of assets ($2.2 million). These cash uses were offset
by cash and cash equivalent increases from short term borrowings ($13.9
million), net income ($19.0 million), depreciation and amortization
($9.6 million), accounts payable ($7.3 million), accrued income taxes
($2.5 million), accrued wages and bonuses ($2.4 million), and other accrued
liabilities ($2.0 million).
Capital expenditures were $8.5 million, $4.7 million and $4.3 million in
1999, 1998 and 1997, respectively. These capital expenditures were primarily for
the purchase of leasehold improvements, manufacturing equipment, plant
modernization, and the purchase and implementation of SAP financial
applications. Capital expenditures for 2000 are expected to range from
$8.0 million to $10.0 million, resulting in part from the Company's plan to
continue increasing its manufacturing capacities and investments in information
systems.
15
<PAGE>
The Company believes its existing cash and cash equivalents and cash from
operations will be sufficient to fund its operations for at least the next
12 months. Because the Company's capital requirements cannot be predicted with
certainty, there is no assurance that the Company will not require additional
financing prior to the expiration of 12 months.
YEAR 2000 ISSUES
The Company recognizes the importance to its operations of Year 2000 issues
and has worked to maintain the availability and integrity of its financial
systems and the reliability of its operational systems. Within the last
three years the Company has evaluated and upgraded or replaced the software
packages underlying the Company's financial systems, major manufacturing
systems, internal and external communication systems, and desktop systems, as
appropriate, to address Year 2000 readiness issues. The Company has also
performed an in-depth analysis of all of its products. In addition, the Company
has been in contact with all major external third party providers to assess
their Year 2000 readiness; this includes third parties who provide financial,
payroll, communications, component, and integration services to the Company.
The Company has completed its assessment of any Year 2000 difficulties to
date. Any difficulties as a result of Year 2000 have been corrected through
modifications of software and are considered to be insignificant in nature. The
Company has not experienced any significant Year 2000 issues arising from its
third party vendors to date and does not anticipate any such problems arising in
the future. In the event that problems do arise, the Company continues to
maintain a Year 2000 contingency plan.
The total cost associated with required modifications to become Year 2000
compliant has not been and is not expected to be material to the Company's
results of operations, liquidity and financial condition. The Company estimates
that it has incurred, and will incur, a total of approximately $0.5 million for
its Year 2000 readiness programs. These costs are a portion of ongoing Company
resources and are not separately identifiable.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Company invests its excess cash in debt instruments
of the U.S. Government and its agencies, and in high-quality corporate issuers.
The Company attempts to protect and preserve its invested funds by limiting
default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates and the Company
may suffer losses in principal if forced to sell securities which have declined
in market value due to changes in interest rates.
FOREIGN CURRENCY RISK. The Company pays the expenses of its international
operations in local currencies. The Company's international operations are
subject to risks typical of an international business, including, but not
limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors.
The Company is also exposed to foreign exchange rate fluctuations as they
relate to operating expenses as the financial results of foreign subsidiaries
are translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability. The effect of foreign exchange rate fluctuations
on the Company in 1999 was not material.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements and information in this Annual Report on Form 10-K and the
statements the Company's management may make, from time to time, regarding
future industry trends, the Company's expected revenues, earnings and
anticipated gross margins, the Company's future development and introduction of
products, and the Company's future liquidity, development, and business
activities, constitute forward looking statements that involve a number of risks
and uncertainties. The following are among the factors that could cause actual
results to differ materially: business conditions and growth in the
telecommunications and electronics industry and general economy, both domestic
and international; dependence on a limited number of OEM customers; dependence
on the relationship with Intel; lower than expected customer orders or
variations in customer order patterns due to changes in demand for customers'
products and customer and channel inventory levels; competitive factors,
including pricing pressures, technological developments and products offered by
competitors; availability of components and qualified personnel; technological
difficulties and resource constraints encountered in developing new products;
the timely flow of competitive new products and market acceptance of those
products; difficulties in successfully combining the operations of the Company
and Texas Micro. Inc., dependence on a limited number of suppliers; and risks
associated with foreign currency rate fluctuations and other international
operational risks. The forward-looking statements should be considered in light
of these factors. The forward looking statements contained in this Annual Report
on Form 10-K regarding industry trends, product development and introductions,
and liquidity and future business activities should be considered in light of
these factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $52,698 $61,351 $64,096 $72,945 $50,370 $43,390 $44,934 $47,854
Gross profit....................... 18,839 22,911 23,372 27,175 17,263 13,704 15,013 16,704
Income (loss) from operations...... 3,373 5,225 (144) 8,150 4,294 534 1,254 2,487
Net income......................... 2,917 9,342 945 5,793 3,238 717 1,443 2,420
Net income per share (basic)*...... 0.18 0.58 0.06 0.35 0.20 0.05 0.09 0.15
Net income per share (diluted)*.... 0.18 0.55 0.06 0.32 0.20 0.04 0.09 0.15
</TABLE>
Note: The selected financial data for the six quarters ended June 30, 1999 has
been restated to reflect the merger with Texas Micro, which was accounted
for as a pooling of interests.
* Reflects the three-for-two stock split on November 29, 1999.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
RadiSys Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity, and
of cash flows present fairly, in all material respects, the financial position
of RadiSys Corporation and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon
January 26, 2000
18
<PAGE>
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues.................................................... $251,090 $186,548 $191,814
Cost of sales............................................... 158,793 123,864 121,265
-------- -------- --------
Gross profit................................................ 92,297 62,684 70,549
Research and development.................................... 30,464 22,190 19,354
Selling, general and administrative......................... 36,798 31,526 29,949
Goodwill and intangibles amortization....................... 2,460 399 81
Combination costs........................................... 5,971 -- --
-------- -------- --------
Income from operations...................................... 16,604 8,569 21,165
Interest income, net........................................ 1,200 1,930 1,498
Other income................................................ 1,873 458 --
-------- -------- --------
Income before income tax provision.......................... 19,677 10,957 22,663
Income tax provision........................................ 680 3,139 8,391
-------- -------- --------
Net income.................................................. $ 18,997 $ 7,818 $ 14,272
======== ======== ========
Net income per share (basic)................................ $ 1.18 $ 0.49 $ 0.91
======== ======== ========
Net income per share (diluted).............................. $ 1.11 $ 0.48 $ 0.88
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
RADISYS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- ----------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 15,708 $ 43,792
Accounts receivable, net................................ 58,619 33,661
Inventories, net........................................ 41,374 27,382
Other current assets.................................... 1,747 2,255
Deferred income taxes................................... 4,723 805
-------- --------
Total current assets................................ 122,171 107,895
Property and equipment, net............................... 21,211 17,011
Goodwill and intangible assets, net....................... 34,177 3,188
Other assets.............................................. 10,004 3,633
-------- --------
Total assets........................................ $187,563 $131,727
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 19,878 $ 12,553
Short term borrowings................................... 13,931 --
Income taxes payable.................................... 3,527 1,052
Accrued wages and bonuses............................... 6,706 4,272
Accrued sales discounts................................. 1,258 748
Other accrued liabilities............................... 7,935 5,910
Current portion of capital lease obligation............. 73 277
-------- --------
Total current liabilities........................... 53,308 24,812
Non-current portion of capital lease obligation........... -- 88
-------- --------
Total liabilities................................... 53,308 24,900
-------- --------
Commitments and contingencies (Notes 6 and 12)
Shareholders' equity:
Common stock, no par value, 50,000 shares authorized,
16,489 and 15,839 shares issued and outstanding....... 141,030 132,368
Accumulated deficit..................................... (4,880) (23,877)
Accumulated other comprehensive loss:
Unrealized loss on securities available for sale...... (349) (568)
Cumulative translation adjustment..................... (1,546) (1,096)
-------- --------
Total shareholders' equity.......................... 134,255 106,827
-------- --------
Total liabilities and shareholders' equity.......... $187,563 $131,727
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE UNREALIZED
------------------- TRANSLATION GAIN/LOSS ON ACCUMULATED
SHARES AMOUNT WARRANTS ADJUSTMENT SECURITIES DEFICIT TOTAL
-------- -------- --------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996
(restated).................. 15,492 $129,037 $ 1,200 $ (210) $ -- $(45,967) $ 84,060
Exercise of warrants.......... 250 1,200 (1,200) -- -- -- --
Shares issued pursuant to
benefit plans............... 270 1,755 -- -- -- -- 1,755
Shares repurchased............ (330) (2,456) -- -- -- -- (2,456)
Tax effect of options
exercised................... -- 513 -- -- -- -- 513
Stock issued for
acquisition................. 126 2,409 -- -- -- -- 2,409
Translation adjustment........ -- -- -- (1,131) -- -- (1,131)
Net income for the year....... -- -- -- -- -- 14,272 14,272
------ -------- ------- ------- ----- -------- --------
Balances, December 31, 1997
(restated).................. 15,808 132,458 -- (1,341) -- (31,695) 99,422
Comprehensive income, year
ended 1997..................
Shares issued pursuant to
benefit plans............... 264 2,210 -- -- -- -- 2,210
Shares repurchased............ (233) (2,457) -- -- -- -- (2,457)
Tax effect of options
exercised................... -- 157 -- -- -- -- 157
Translation adjustment........ -- -- -- 245 -- -- 245
Unrealized loss on
securities.................. -- -- -- -- (568) -- (568)
Net income for the year....... -- -- -- -- -- 7,818 7,818
------ -------- ------- ------- ----- -------- --------
Balances, December 31, 1998
(restated).................. 15,839 132,368 -- (1,096) (568) (23,877) 106,827
Comprehensive income, year
ended 1998..................
Shares issued pursuant to
benefit plans............... 651 5,911 -- -- -- -- 5,911
Shares repurchased............ (1) (4) -- -- -- -- (4)
Tax effect of options
exercised................... -- 2,755 -- -- -- -- 2,755
Translation adjustment........ -- -- -- (450) -- -- (450)
Unrealized gain on
securities.................. -- -- -- -- 219 -- 219
Net income for the year....... -- -- -- -- -- 18,997 18,997
------ -------- ------- ------- ----- -------- --------
Balances, December 31, 1999... 16,489 $141,030 $ -- $(1,546) $(349) $ (4,880) $134,255
====== ======== ======= ======= ===== ======== ========
Comprehensive income, year
ended 1999..................
<CAPTION>
TOTAL
COMPREHENSIVE
INCOME
--------------
<S> <C>
Balances, December 31, 1996
(restated).................. $ --
Exercise of warrants..........
Shares issued pursuant to
benefit plans...............
Shares repurchased............
Tax effect of options
exercised...................
Stock issued for
acquisition.................
Translation adjustment........ (1,131)
Net income for the year....... 14,272
-------
Balances, December 31, 1997
(restated)..................
Comprehensive income, year
ended 1997.................. $13,141
=======
Shares issued pursuant to
benefit plans...............
Shares repurchased............
Tax effect of options
exercised...................
Translation adjustment........ 245
Unrealized loss on
securities.................. (568)
Net income for the year....... 7,818
-------
Balances, December 31, 1998
(restated)..................
Comprehensive income, year
ended 1998.................. $ 7,495
=======
Shares issued pursuant to
benefit plans...............
Shares repurchased............
Tax effect of options
exercised...................
Translation adjustment........ (450)
Unrealized gain on
securities.................. 219
Net income for the year....... 18,997
-------
Balances, December 31, 1999...
Comprehensive income, year
ended 1999.................. $18,766
=======
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE>
RADISYS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 18,997 $ 7,818 $ 14,272
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 9,635 4,257 4,347
Gain on sale of assets.................................. (2,157) -- --
Deferred income taxes................................... (8,111) (441) 1,543
Net changes in current assets and current liabilities:
Decrease (increase) in accounts receivable............ (24,958) 6,721 (7,683)
Decrease (increase) in inventories.................... (6,605) 6,063 (6,343)
Decrease (increase) in other current assets........... 508 1,830 265
Increase (decrease) in accounts payable............... 7,325 (3,246) 229
Increase (decrease) in income taxes payable........... 2,475 (1,558) (1,438)
Increase (decrease) in accrued wages and bonuses...... 2,434 (1,841) 569
Increase (decrease) in accrued sales discounts........ 510 3,061 (149)
Increase (decrease) in other accrued liabilities...... 2,025 (2,046) (154)
-------- -------- --------
Net cash provided by operating activities............... 2,078 20,618 5,458
-------- -------- --------
Cash flows from investing activities:
Business acquisitions..................................... (41,609) -- (1,060)
Capital expenditures...................................... (8,541) (4,696) (4,297)
Capitalized software production costs and other assets.... (3,582) (3,556) (1,539)
Collection of amounts owed from divestiture............... 1,500 1,240 --
-------- -------- --------
Net cash used for investing activities.................. (52,232) (7,012) (6,896)
-------- -------- --------
Cash flows from financing activities:
Short term borrowings..................................... 13,931 -- (2,532)
Issuance of common stock, net............................. 8,662 (90) (188)
Payments on capital lease obligation...................... (292) (248) (249)
Unrealized gain (loss) on securities available for sale... 219 (568) --
-------- -------- --------
Net cash provided by (used for) financing activities.... 22,520 (906) (2,969)
-------- -------- --------
Effect of exchange rate changes on cash..................... (450) 245 (1,131)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (28,084) 12,945 (5,538)
Cash and cash equivalents, beginning of year................ 43,792 30,847 36,385
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 15,708 $ 43,792 $ 30,847
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
RadiSys Corporation (the Company) was incorporated in March 1987 under the
laws of the State of Oregon for the purpose of developing, producing and
marketing computer system (hardware and software) products for embedded computer
applications in manufacturing automation, medical, transportation,
telecommunications and test equipment marketplaces. The accompanying
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation. See Note 11 regarding the merger with Texas Micro
Inc., and the restatement of the Company's financial statements.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates and judgements made by management of the Company include matters such
as collectibility of accounts receivable, realizability of inventories, rate of
product returns from customers and recoverability of capitalized software and
deferred tax assets.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in prior years to
conform to current year presentation. These changes had no impact on previously
reported results of operations or shareholders' equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments with original
maturities of less than three months.
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales upon shipment.
For sales through distributors, the Company estimates potential returns based
upon contractual limitations and historical return rates and defers revenue
recognition accordingly. The Company may grant certain sales discounts to
distributors. Such sales discounts are reflected as a reduction in the
associated revenue for distributor sales.
ACCOUNTS RECEIVABLE
Trade accounts receivable are net of an allowance for doubtful accounts of
$933 and $1,481 at December 31, 1999 and 1998, respectively. The Company's
customers are concentrated in the technology industry. Therefore, the Company's
operations and collection of its accounts receivable are directly associated
with the results of the technology industry.
23
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
first-in, first-out (FIFO) method to determine cost. The Company periodically
evaluates its inventory in terms of obsolete or slow-moving items. Inventories
are net of a reserve for obsolete and slow-moving items of $5,925 and $4,759 at
December 31, 1999, and 1998, respectively.
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires the Company to review the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If this review indicates that the carrying
amounts of long-lived assets will not be recoverable, as determined based on the
estimated undiscounted cash flows of the Company over the remaining amortization
period, the carrying amounts of the long-lived assets are reduced by the
estimated shortfall of cash flows.
INTANGIBLE ASSETS
The Company reviews certain identifiable intangible assets for impairment
whenever events or changes in circumstances indicate that the total amount of an
asset may not be recoverable. An impairment loss is recognized when estimated
discounted future cash flows expected to result from use of the asset and its
eventual disposition are less than its carrying amount.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated for financial
reporting purposes using the straight-line basis over estimated useful lives of
three to five years. Equipment under capital leases is amortized using the
straight-line basis over the shorter of the lease term or the economic life of
the underlying asset. Ordinary maintenance and repair expenditures are charged
to expense when incurred. Equipment recorded under capital leases at
December 31, 1999 totaled $1,268 with accumulated amortization of $1,163.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are expensed as incurred.
COMPUTER SOFTWARE PRODUCTION COSTS
Software production costs incurred subsequent to establishment of
technological feasibility, but before release to customers, are capitalized.
Upon general release of the product, cost capitalization is terminated and the
accumulated costs are amortized based on the greater of the proportion of
current revenues to total revenue estimates for the related product, or
straight-line amortization over the remaining estimated economic life of the
product not to exceed two years. Unamortized software production costs of $4,800
and $3,733 are included in Other assets at December 31, 1999 and 1998,
respectively. Amortization of software production costs in 1999, 1998 and 1997
aggregated $2,193, $1,020 and $722, respectively.
24
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company's general practice is to reinvest the earnings of its foreign
subsidiaries in those operations, unless it would be advantageous to the Company
to repatriate the foreign subsidiaries' retained earnings. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to "more likely than not" be realized in future tax returns. Tax law
and rate changes are reflected in income in the period such changes are enacted.
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The Company estimates the fair value of its monetary assets and liabilities
based upon comparative market values of instruments of a similar nature and
degree of risk. The Company estimates that the carrying amount of all of its
monetary assets and liabilities approximate fair value as of December 31, 1999
and 1998.
COMPREHENSIVE INCOME
The Company has adopted Financial Accounting Standards Board (FASB)
Statement No. 130, "Reporting Comprehensive Income" as of January 1, 1998. The
cumulative translation adjustment and unrealized loss on securities available
for sale represent the Company's Other Comprehensive Income items. The
cumulative translation adjustment consists of unrealized gains/losses recorded
in accordance with SFAS No. 52, "Foreign Currency Translation". The Company has
no intention of liquidating the assets of the foreign subsidiaries in the
foreseeable future.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and provides pro forma
disclosures of net income and net earnings per common share as if the fair value
method had been applied in measuring compensation expense. Equity instruments
are not issued to non-employees.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of international operations are translated into U.S.
dollars at current exchange rates. Income and expense accounts are translated
into U.S. dollars at average rates of exchange prevailing during the period.
Adjustments resulting from translating foreign functional currency financial
statements into U.S. dollars are recorded as a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
in income.
CASH FLOWS
The Company made cash payments for income taxes of $3,196, $3,711 and $7,815
for the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW STANDARD
In 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to its limited use of derivative instruments,
the adoption of FAS 133 will not have a significant effect on the Company's
results of operations or its financial position. FAS 137 delayed adoption of FAS
133 to fiscal years commencing after June 30, 2000.
2. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................. $30,986 $17,520
Work-in-progress.......................................... 2,465 3,728
Finished goods............................................ 7,923 6,134
------- -------
$41,374 $27,382
======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land...................................................... $ 1,391 $ 1,391
Manufacturing equipment................................... 17,950 14,591
Office equipment.......................................... 19,746 12,917
Leasehold improvements.................................... 4,835 5,835
------- -------
43,922 34,734
Less: accumulated depreciation............................ 22,711 17,723
------- -------
$21,211 $17,011
======= =======
</TABLE>
4. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets increased by $31.0 million, from
$3.2 million at December 31, 1998 to $34.2 million at December 31, 1999. This
increase is due to goodwill and intangibles recorded from the ARTIC and OCP
acquisitions (see Note 11) of $31.5 million (net of amortization), offset by
$.5 million of increases in other intangibles and amortization from the Sonitech
acquisition and other intangibles. Amortization periods range from five to
fifteen years.
26
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. SHORT TERM BORROWINGS
In September 1999, the Company renewed its unsecured line of credit and
increased the borrowing amount from $10 million to $20 million, with an interest
rate based upon the lower of the LIBOR plus 1.25% to 2.0% or the bank's prime
rate. The line of credit expires in September 2000. As of December 31, 1999,
$13,931 was outstanding under this arrangement at an interest rate of 8.5%.
There was no balance outstanding as of December 31, 1998.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities and certain office equipment and
automobiles under non-cancelable operating leases which require minimum lease
payments as follows at December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2000............................................... $ 4,437
2001............................................... 4,232
2002............................................... 3,918
2003............................................... 3,478
2004............................................... 3,548
Thereafter......................................... 14,264
-------
$33,877
=======
</TABLE>
Rent expense related to these operating leases aggregated $4,545, $3,677 and
$2,404 in 1999, 1998 and 1997, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $ 6,460 $1,679 $5,834
State............................................ 1,722 423 927
Foreign.......................................... 609 596 87
------- ------ ------
8,791 2,698 6,848
------- ------ ------
Deferred:
Federal.......................................... (2,553) 386 1,351
State............................................ (365) 55 192
------- ------ ------
(2,918) 441 1,543
------- ------ ------
Decrease in valuation allowance.................... (5,193) -- --
------- ------ ------
Total provision.................................. $ 680 $3,139 $8,391
======= ====== ======
</TABLE>
27
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
7. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory federal income tax rate to pretax income as a result of
the following differences:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal tax rate...................... 35.0% 35.0% 35.0%
Increase (decrease) in rates resulting from:
State taxes................................... 4.0 4.0 3.3
Goodwill benefit from acquisition............. (2.2) (5.1) (2.2)
Deferred tax asset valuation allowance........ (30.9) (6.0) 1.6
Other......................................... (2.4) 0.7 (0.7)
------- ------- -------
Effective tax rate.............................. 3.5% 28.6% 37.0%
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Capitalized software.................................... $ (1,664) $ (1,451)
Depreciation............................................ (711) (352)
-------- --------
Gross deferred tax liability............................ (2,375) (1,803)
Deferred revenue........................................ 98 219
Accrued warranty........................................ 636 198
Inventory differences................................... 3,208 1,681
Distributor price adjustments........................... 284 66
Merger costs............................................ 273 --
Allowance for doubtful accounts......................... 487 250
NOL carryforwards....................................... 16,049 15,761
Other................................................... 824 194
-------- --------
19,484 16,566
Less: valuation allowance............................... (10,568) (15,761)
-------- --------
Net deferred tax asset.................................. $ 8,916 $ 805
======== ========
</TABLE>
The Company's net deferred tax asset of $8,916 includes $4,723 classified as
current, with the remaining balance of $4,193 classified non-current. The
non-current portion is included in Other assets on the Consolidated Balance
Sheet and is a result of certain Texas Micro net operating loss carryforwards.
The Company's entire 1998 net deferred tax asset balance of $805 is current.
The Company accounted for certain changes in the federal income tax laws
that took effect on June 25, 1999. The tax law change made certain Texas Micro
net operating loss carryforwards available to offset RadiSys taxable income.
This portion of the pooling restatement increased net income of the Company by
$5.2 million for the year ended December 31, 1999.
28
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
8. SHAREHOLDERS' EQUITY
STOCK SPLIT
During the fourth quarter of 1999, the Company's Board of Directors approved
a three-for-two common stock split. Shareholders of record on November 8, 1999
(the record date) received three additional shares for every two shares held on
that date. The shares were distributed on November 29, 1999. All share numbers
in these consolidated financial statements and notes thereto for all periods
presented have been adjusted to reflect the three-for-two common stock split.
EPS RECONCILIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Weighted average shares (basic).................. 16,158 15,854 15,667
Effect of dilutive stock options................. 952 275 545
------- ------- -------
Weighted average shares (diluted)................ 17,110 16,129 16,212
======= ======= =======
</TABLE>
Options to purchase 269, 1,247, and 321 shares of common stock were
outstanding in 1999, 1998, and 1997, respectively, but were excluded in the
computation of diluted EPS as the options' exercise price was greater than the
average market price of the Company's common stock.
STOCK OPTION PLAN
During 1988 and 1995, the Company's shareholders approved stock option
plans. The 1988 plan expired in 1998 and no further shares authorized under that
plan are available for grant. In August, 1999 the Company completed its merger
with Texas Micro and, as a result, options outstanding to existing employees
under Texas Micro's option plans were converted into options to purchase RadiSys
shares, at the effective merger conversion rate of approximately 4.96 shares of
Texas Micro common stock to one share of RadiSys common stock. First time
options granted to new employees generally become exercisable one-third
annually, with no options exercisable in the first year following the grant
date. Options granted to existing employees generally have vesting periods
between two and four years. The difference between the fair market value of the
Company's common stock and the option exercise price at the date of grant, if
material, is recorded as compensation expense ratably over the vesting period of
the related options. Compensation expense related to the stock option plan for
the years ended December 31, 1999,
29
<PAGE>
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
8. SHAREHOLDERS' EQUITY (CONTINUED)
1998 and 1997 was insignificant. Options available for grant totaled 1,143
shares as of December 31, 1999. The table below summarizes the Company's stock
option activity:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance....................... 2,245 $12.68 1,760 $16.84 1,380 $16.22
Granted............................... 1,450 23.01 1,721 15.25 1,054 25.62
Canceled.............................. (366) 14.96 (1,111) 24.08 (567) 33.98
Exercised............................. (514) 9.44 (125) 5.28 (107) 4.51
----- ------ ------ ------ ----- ------
Ending balance.......................... 2,815 $18.29 2,245 $12.68 1,760 $16.84
===== ====== ====== ====== ===== ======
</TABLE>
The following table summarizes the information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
RANGE OF EXERCISE PRICES 12/31/1999 LIFE PRICE 12/31/1999 PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.32--$10.00.......................... 384 5.08 $ 8.33 238 $ 8.06
$10.08--$12.46......................... 543 4.22 $12.38 138 $12.28
$12.62--$18.92......................... 545 5.26 $16.25 172 $15.02
$19.00--$22.67......................... 510 5.50 $19.81 27 $21.54
$22.75--$26.33......................... 612 4.84 $25.76 156 $25.60
$26.42--$45.92......................... 221 5.41 $31.00 4 $34.07
----- ---- ------ --- ------
$1.32--$45.92.......................... 2,815 5.00 $18.29 735 $14.85
===== ===
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In December 1995, the Company established an Employee Stock Purchase Plan
(ESPP). Under the plan, the Company is authorized to sell up to 750 shares of
common stock in a series of eighteen month offerings. Substantially all
employees are eligible to receive rights under the plan. The purchase price is
the lesser of 85% of the fair market value of the common stock on date of grant
or on the purchase date. During 1999 and 1998, the Company issued 95 and 114
shares under the plan, respectively.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("FAS 123")
The Company has elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25; however, as required by FAS 123 the
Company has computed for pro forma disclosure purposes the value of options
granted during 1999, 1998 and 1997 using the Black-Scholes option pricing model.
The weighted average assumptions used for stock option grants for 1999, 1998 and
30
<PAGE>
8. SHAREHOLDERS' EQUITY (CONTINUED)
1997 were a risk free interest rate of 5.33%, 5.11%, and 5.4%, respectively, an
expected dividend yield of 0%, an expected life of 4 years, and an expected
volatility of 72%, 65%, and 50%, respectively. The weighted average assumptions
used for ESPP rights for 1999, 1998 and 1997 were a risk free interest rate of
5.17%, 5.0% and 5.3%, respectively, an expected dividend yield of 0%, an
expected life of 1.5 years, and an expected volatility of 65%, 62% and 50%,
respectively. The weighted-average fair value of ESPP rights granted in 1999,
1998 and 1997 were $2,060, $1,377, and $656, respectively.
Options are assumed to be exercised upon vesting for purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. For
the years ended December 31, 1999, 1998 and 1997, the total value of the options
granted was computed to be $19,151, $12,761 and $13,299, respectively, which
would be amortized on a straight line basis over the vesting period of the
options.
If the Company had accounted for these plans in accordance with FAS 123, the
Company's net income and pro forma net income per share would have been reported
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------- --------------------------------- ---------------------------------
EARNINGS PER SHARE EARNINGS PER SHARE EARNINGS PER SHARE
--------------------------------- --------------------------------- ---------------------------------
NET INCOME BASIC DILUTED NET INCOME BASIC DILUTED NET INCOME BASIC DILUTED
----------- -------- -------- ----------- -------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As Reported............. $18,997 $1.18 $1.11 $ 7,818 $ .49 $ .48 $14,272 $ .91 $ .88
Pro Forma............... $ 9,934 $ .61 $ .58 $ 2,886 $ .18 $ .18 $10,954 $ .70 $ .68
</TABLE>
The effects of applying FAS 123 for providing pro forma disclosure for 1999,
1998 and 1997 are not likely to be representative of the effects on reported net
income and earnings per share for future years since options vest over several
years and additional awards are made each year.
9. SEGMENT INFORMATION
The following is disclosure required for SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company is organized
primarily on the basis of embedded single board computers and other related
support operations. The operations not included in embedded single board
computers are immaterial for presentation.
The following reflects revenues and long-lived asset information by
geographic area:
<TABLE>
<CAPTION>
REVENUES LONG-LIVED ASSETS
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------ -------------------
COUNTRY 1999 1998 1997 1999 1998
- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States............... $158,091 $132,029 $134,403 $20,537 $16,374
Europe...................... 87,264 48,703 49,287 591 538
Asia Pacific--Japan......... 3,696 3,281 6,105 83 99
Other foreign............... 2,039 2,535 2,019 -- --
-------- -------- -------- ------- -------
Total..................... $251,090 $186,548 $191,814 $21,211 $17,011
======== ======== ======== ======= =======
</TABLE>
No single customer accounted for more than 10% of sales in 1999, 1998, or
1997.
10. GAIN ON SALE OF ASSETS
On September 30, 1999, the Company received the final consideration owed in
connection with the prior (1996) sale (by Texas Micro) of Texas Micro's Sequoia
Enterprise Systems business unit to General Automation, Inc. Final consideration
consisted of $1.5 million in cash, $750 in notes, and 1,133 shares of
31
<PAGE>
10. GAIN ON SALE OF ASSETS (CONTINUED)
General Automation common stock. The receipt of this consideration resulted in a
gain of $2.2 million and is reflected in Other income in the Consolidated
Statement of Operations.
11. ACQUISITIONS AND MERGERS
ARTIC BUSINESS UNIT ACQUISITION
On March 1, 1999, the Company purchased certain assets of International
Business Machines Corporation ("IBM") dedicated to the design, manufacture and
sale of IBM's ARTIC communications coprocessor adapter hardware and software for
wide area network and other telephony applications ("ARTIC"). The purchase price
aggregated $27.0 million in cash consideration. The acquisition of ARTIC was
accounted for using the purchase method. The results of operations for ARTIC
have been included in the financial statements since the date of acquisition.
The aggregate purchase price of $27.5 million included $.6 million of direct
costs of acquisition and was allocated to fixed assets ($.4 million),
inventories ($6.5 million), patents ($5.0 million) and the remainder to
goodwill.
OCP BUSINESS UNIT ACQUISITION
On December 28, 1999, the Company purchased certain assets of IBM's Open
Computing Platform (OCP) operation. OCP develops and sells integrated
computer-based solutions based on Intel architecture, primarily to OEM's of
telecommunications equipment. The purchase price consisted of an aggregate of
$13.9 million in cash consideration. Pursuant to the terms of the agreement, the
Company may be required to make additional future payments in March of 2001,
2002, and 2003 based upon a formula tied to the future OCP revenues. These
potential additional future payments will be accounted for as additional
purchase price. The total consideration for the Acquisition will not exceed
$30.0 million. The acquisition of OCP was accounted for using the purchase
method. The results of operations of OCP have been included in the financial
statements since the date of acquisition. The aggregate purchase price of $14.1
million included $.1 million direct costs of acquisition and $.1 million of
contingent consideration and was allocated to fixed assets ($.2 million),
inventories ($.9 million) and the remainder to goodwill.
UNAUDITED PRO FORMA DISCLOSURES OF ACQUISITIONS
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions described above had occurred as
of the beginning of 1999 and 1998, after giving effect to adjustments for
amortization of patents and goodwill, estimated reduction of interest income and
the estimated impact on the income tax provision. The unaudited pro forma
financial statements are not necessarily indicative of what actual results would
have been had the ARTIC and OCP acquisitions occurred at the beginning of the
respective periods. The unaudited pro forma information should be read in
conjunction with the Current Report of the Company on Form 8-K dated March 1,
1999 and December 28, 1999 for ARTIC and OCP, respectively, and the Current
Reports of the Company on Form 8-K/A filed April 22, 1999 and March 10, 2000,
respectively.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues................................................ $309,143 $289,575
Net income.............................................. $ 24,528 $ 17,759
Net income per share (basic)............................ $ 1.52 $ 1.12
Net income per share (diluted).......................... $ 1.43 $ 1.10
</TABLE>
32
<PAGE>
11. ACQUISITIONS AND MERGERS (CONTINUED)
MERGER WITH TEXAS MICRO AND RELATED CHARGES
On August 13, 1999, the Company completed a merger with Texas Micro Inc.
("Texas Micro"), a formerly publicly-traded embedded computer company
headquartered in Houston, Texas. As a result, the outstanding Texas Micro common
stock was converted into approximately 2.8 million shares of RadiSys common
stock, based on an exchange ratio of approximately 4.96 shares of Texas Micro
common stock for each share of RadiSys common stock. The merger was accounted
for as a pooling-of-interests under Accounting Principles Board Opinion No. 16,
and accordingly, financial statements presented for all periods have been
restated to reflect combined operations and financial position. All intercompany
transactions have been eliminated.
The following reconciles revenue and net income (loss) previously reported
to the restated information presented in the consolidated financial statements:
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------
JUNE 30, 1999 1998 1997
-------------- -------- --------
<S> <C> <C> <C>
Revenue:
Previously reported....................................... $ 70,395 $108,198 $125,442
Texas Micro............................................... 43,654 78,350 66,372
-------- -------- --------
Restated................................................ $114,049 $186,548 $191,814
======== ======== ========
Net income (loss):
Previously reported....................................... $ 4,448 $ 5,432 $ 15,425
Texas Micro............................................... 7,811 2,386 (1,153)
-------- -------- --------
Restated................................................ $ 12,259 $ 7,818 $ 14,272
======== ======== ========
</TABLE>
In connection with the merger, the Company recorded a charge to operating
expenses of approximately $6.0 million for merger-related costs during the third
quarter of 1999. Merger and related costs are comprised of the following:
<TABLE>
<CAPTION>
COMBINATION COSTS
RECORDED YEAR ENDING BALANCE ACCRUED
DECEMBER 31, 1999 DECEMBER 31, 1999
-------------------- ------------------
<S> <C> <C>
Professional and filing fees............................... $3,251 $ 200
Severance, retention, relocation & benefits alignment...... 1,538 875
Contract termination costs................................. 799 164
Marketing, information systems conversion, and other
miscellaneous costs...................................... 383 45
------ ------
Total...................................................... $5,971 $1,284
====== ======
</TABLE>
Accrued combination costs totaling $1.3 million at December 31, 1999 are
included in Other accrued liabilities in the Consolidated Balance Sheet.
12. LEGAL PROCEEDINGS
In the normal course of business the Company becomes involved in litigation.
The Company has no material litigation currently pending.
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file its definitive proxy statement for the Annual Meeting
of Shareholders to be held on May 16, 2000, pursuant to Regulation 14A of the
Securities Exchange Act of 1934 (the "Proxy Statement"), not later than
120 days after the end of the fiscal year covered by this Report, and certain
information included in the Proxy Statement is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors of the Company is included under
"Election of Directors" in the Company's Proxy Statement and is incorporated
herein by reference. Information with respect to executive officers of the
Company is included under Item 4(a) of Part I of this Report. Information with
respect to Section 16(a) of the Securities and Exchange Act is included under
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Exchange Act"
in the Company's Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is included under
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is included under "Security Ownership of Certain Beneficial
Owners and Management" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information with respect to certain relationships and related
transactions is included under "Certain Relationships and Related Transactions"
in the Company's Proxy Statement and is incorporated herein by reference.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Accountants' Report........................... 18
Consolidated Statement of Operations for the years ended
December 31, 1999, 1998 and 1997........................ 19
Consolidated Balance Sheet at December 31, 1999 and
1998.................................................... 20
Consolidated Statement of Changes in Shareholders' Equity
for the years ended
December 31, 1999, 1998 and 1997........................ 21
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................ 22
Notes to Consolidated Financial Statements................ 23
Schedule of Valuation and Qualifying Accounts............. 38
</TABLE>
<TABLE>
<CAPTION>
PAGE IN
(A)(2) FINANCIAL STATEMENT SCHEDULE FORM 10-K
- --------------------- ---------------------------- --------------
<S> <C> <C>
Schedule II--Valuation and Qualifying Accounts 38
Report of Independent Accountants on Financial Statement
Schedule 39
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(A)(3) EXHIBITS
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
+2.1 Asset Purchase Agreement between RadiSys Corporation and
Intel Corporation, dated as of April 29, 1996. Incorporated
by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated April 29, 1996.
2.2 List of omitted schedules to Asset Purchase Agreement
between RadiSys Corporation and Intel Corporation, dated as
of April 29, 1996. Incorporated by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K dated April 29,
1996.
2.3 Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of
March 1, 1999. Incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K dated March 1,
1999.
2.4 Agreement of Reorganization and Merger dated as of May 24,
1999, between the Company, Texas Micro Inc. and Tabor Merger
Corp. Incorporated by reference to Appendix A to the
Company's Joint Proxy Statement/Prospectus dated July 7,
1999, which is part of the Company's Registration Statement
on Form S-4 (No. 333-82401).
2.5 Asset Purchase Agreement between the Company and
International Business Machines Corporation, dated as of
December 17, 1999. Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated
December 28, 1999.
3.1 Second Restated Articles of Incorporation and Amendments
thereto. Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-95892) (the Form "S-1"), and by reference to
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
3.2 Restated Bylaws and amendments thereto. Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 See Article IV of Exhibit 3.1 and Article VI of
Exhibit 3.2.
*10.1 1988 Stock Option Plan, as amended. Incorporated by
reference to Exhibit 10.1 to the Form S-1.
*10.2 1995 Stock Incentive Plan, as amended.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
*10.3 1996 Employee Stock Purchase Plan, as amended.
*10.4 Form of Incentive Stock Option Agreement. Incorporated by
reference to Exhibit 10.3 to the Form S-1.
*10.5 Form of Non-Statutory Stock Option Agreement. Incorporated
by reference to Exhibit 10.4 to the Form S-1.
10.6 Lease between Registrant and Commercial Real Estate Company,
L.L.C. dated December 15, 1995. Incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
10.7 Master Equipment Lease No. 10551, dated as of March 2, 1995,
between U.S. Bancorp Leasing & Financial, as Lessor, and the
Registrant, as Lessee, including Schedules 10551.001,
10551.002 and 10551.003, dated March 2, 1995, March 29, 1995
and May 23, 1995, respectively. Incorporated by reference
to Exhibit 10.8 to the Form S-1.
10.8 Office Lease Agreement by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 11, 1992, as amended.
Incorporated by reference to Exhibit 10.31 to Sequoia
Systems Inc.'s Annual Report on Form 10-K for the year ended
June 30, 1995 (File no. 0-18238).
10.9 Fourth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro, Inc. dated July 31, 1995.
10.10 Fifth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated October 17, 1995.
10.11 Sixth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated April 28, 1997.
10.12 Seventh amendment to lease by and between Chevron U.S.A.
Inc. and Texas Micro Inc. dated November 12, 1997.
10.13 Eighth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 23, 1997. Incorporated
by reference to Exhibit 10.3 to Texas Micro Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
December 28, 1997 (File no. 0-18238).
10.14 Ninth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated February 24, 1998. Incorporated
by reference to Exhibit 10.1 to Texas Micro Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
March 29, 1998 (File no. 01-18238).
*10.15 Form of Indemnity Agreement. Incorporated by reference to
Exhibit 10.9 to the Form S-1.
10.16 Revolving line of credit agreement between the Company and
United States National Bank of Oregon dated September 12,
1996. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
10.16(a) Renewal of and increase in September 12, 1996 revolving line
of credit agreement between the Company and United States
National Bank of Oregon dated September 30, 1999.
Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999.
10.17 Dawson Creek II lease, dated March 21, 1997, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997.
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule
27.2 Financial Data Schedule, 1998 restated.
</TABLE>
- ------------------------
+ Confidential treatment of portions of this document has been granted.
* This Exhibit constitutes a management contract or compensatory plan or
arrangement
(B) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 1999.
(C) SEE (A)(3) ABOVE.
(D) SEE (A)(2) ABOVE.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Dated: March 28, 2000 RADISYS CORPORATION
By: /s/ DR. GLENFORD J. MYERS
-----------------------------------------
Dr. Glenford J. Myers
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
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 indicated on March 28, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DR. GLENFORD J. MYERS Chairman of the Board, President and Chief
------------------------------------------- Executive Officer (Principal Executive
Dr. Glenford J. Myers Officer)
/s/ STEPHEN LOUGHLIN Vice President of Finance and Administration
------------------------------------------- and Chief Financial Officer (Principal
Stephen Loughlin Financial and Accounting Officer)
Directors:
/s/ JAMES F. DALTON*
------------------------------------------- Director
James F. Dalton
/s/ RICHARD J. FAUBERT*
------------------------------------------- Director
Richard J. Faubert
/s/ C. SCOTT GIBSON*
------------------------------------------- Director
C. Scott Gibson
/s/ DR. WILLIAM W. LATTIN*
------------------------------------------- Director
Dr. William W. Lattin
/s/ JEAN-CLAUDE PETERSCHMITT*
------------------------------------------- Director
Jean-Claude Peterschmitt
/s/ JEAN-PIERRE D. PATKAY*
------------------------------------------- Director
Jean-Pierre D. Patkay
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By /s/ DR. GLENFORD J. MYERS
--------------------------------------
Dr. Glenford J. Myers, as attorney-in-fact
</TABLE>
37
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS--
Year ended:
December 31, 1999............................. $1,481 $ 1,773 $ (2,321) $ 933
December 31, 1998............................. 1,485 3,065 (3,069) 1,481
December 31, 1997............................. 1,733 2,077 (2,325) 1,485
WARRANTY RESERVE--
Year ended:
December 31, 1999............................. $1,202 $ 2,423 $ (2,034) $1,591
December 31, 1998............................. 732 3,163 (2,693) 1,202
December 31, 1997............................. 1,766 1,913 (2,947) 732
OBSOLESCENCE RESERVE--
Year ended:
December 31, 1999............................. $4,759 $14,314 $(13,148) $5,925
December 31, 1998............................. 3,583 14,511 (13,335) 4,759
December 31, 1997............................. 3,098 12,019 (11,534) 3,583
</TABLE>
38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
RadiSys Corporation
Our audits of the consolidated financial statements referred to in our
report dated January 26, 2000 appearing in the 1999 Annual Report to
Shareholders of RadiSys Corporation and subsidiaries (which report and
consolidated financial statements are incorporated in this Annual Report on
Form 10-K) also included an audit of the financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Portland, Oregon
January 26, 2000
39
<PAGE>
<TABLE>
<S> <C> <C>
(A)(3) EXHIBITS
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
+2.1 Asset Purchase Agreement between RadiSys Corporation and
Intel Corporation, dated as of April 29, 1996. Incorporated
by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated April 29, 1996.
2.2 List of omitted schedules to Asset Purchase Agreement
between RadiSys Corporation and Intel Corporation, dated as
of April 29, 1996. Incorporated by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K dated April 29,
1996.
2.3 Asset Purchase Agreement between RadiSys Corporation and
International Business Machines Corporation, dated as of
March 1, 1999. Incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K dated March 1,
1999.
2.4 Agreement of Reorganization and Merger dated as of May 24,
1999, between the Company, Texas Micro Inc. and Tabor Merger
Corp. Incorporated by reference to Appendix A to the
Company's Joint Proxy Statement/Prospectus dated July 7,
1999, which is part of the Company's Registration Statement
on Form S-4 (No. 333-82401).
2.5 Asset Purchase Agreement between the Company and
International Business Machines Corporation, dated as of
December 17, 1999. Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated
December 28, 1999.
3.1 Second Restated Articles of Incorporation and Amendments
thereto. Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-95892) (the Form "S-1"), and by reference to
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
3.2 Restated Bylaws and amendments thereto. Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 See Article IV of Exhibit 3.1 and Article VI of
Exhibit 3.2.
*10.1 1988 Stock Option Plan, as amended. Incorporated by
reference to Exhibit 10.1 to the Form S-1.
*10.2 1995 Stock Incentive Plan, as amended.
*10.3 1996 Employee Stock Purchase Plan, as amended.
*10.4 Form of Incentive Stock Option Agreement. Incorporated by
reference to Exhibit 10.3 to the Form S-1.
*10.5 Form of Non-Statutory Stock Option Agreement. Incorporated
by reference to Exhibit 10.4 to the Form S-1.
10.6 Lease between Registrant and Commercial Real Estate Company,
L.L.C. dated December 15, 1995. Incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
10.7 Master Equipment Lease No. 10551, dated as of March 2, 1995,
between U.S. Bancorp Leasing & Financial, as Lessor, and the
Registrant, as Lessee, including Schedules 10551.001,
10551.002 and 10551.003, dated March 2, 1995, March 29, 1995
and May 23, 1995, respectively. Incorporated by reference
to Exhibit 10.8 to the Form S-1.
10.8 Office Lease Agreement by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 11, 1992, as amended.
Incorporated by reference to Exhibit 10.31 to Sequoia
Systems Inc.'s Annual Report on Form 10-K for the year ended
June 30, 1995 (File no. 0-18238).
10.9 Fourth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro, Inc. dated July 31, 1995.
10.10 Fifth amendment to lease by and between Chevron U.S.A. Inc
and Texax Micro Inc. dated October 17, 1995.
10.11 Sixth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated April 28, 1997.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.12 Seventh amendment to lease by and between Chevron U.S.A.
Inc. and Texas Micro Inc. dated November 12, 1997.
10.13 Eighth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated December 23, 1997. Incorporated
by reference to Exhibit 10.3 to Texas Micro Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
December 28, 1997 (File no. 0-18238).
10.14 Ninth amendment to lease by and between Chevron U.S.A. Inc.
and Texas Micro Inc. dated February 24, 1998. Incorporated
by reference to Exhibit 10.1 to Texas Micro Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
March 29, 1998 (File no. 01-18238).
*10.15 Form of Indemnity Agreement. Incorporated by reference to
Exhibit 10.9 to the Form S-1.
10.16 Revolving line of credit agreement between the Company and
United States National Bank of Oregon dated September 12,
1996. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
10.16(a) Renewal of and increase in September 12, 1996 revolving line
of credit agreement between the Company and United States
National Bank of Oregon dated September 30, 1999.
Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999.
10.17 Dawson Creek II lease, dated March 21, 1997, incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997.
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney
27.1 Financial Data Schedule
27.2 Financial Data Schedule, 1998 restated.
</TABLE>
- ------------------------
+ Confidential treatment of portions of this document has been granted.
* This Exhibit constitutes a management contract or compensatory plan or
arrangement
41
<PAGE>
RADISYS CORPORATION
1995 STOCK INCENTIVE PLAN
(As Amended Through February 25, 2000)
1. PURPOSE. The purpose of this Stock Incentive Plan (the "Plan") is
to enable RadiSys Corporation (the "Company") to attract and retain the
services of (1) selected employees, officers and directors of the Company or
of any subsidiary of the Company and (2) selected nonemployee agents,
consultants, advisors, persons involved in the sale or distribution of the
Company's products and independent contractors of the Company or any
subsidiary.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided
below and in paragraph 13, the shares to be offered under the Plan shall
consist of Common Stock of the Company, and the total number of shares of
Common Stock that may be issued under the Plan shall not exceed 4,125,000*
shares. The shares issued under the Plan may be authorized and unissued
shares or reacquired shares. If an option, stock appreciation right or
performance unit granted under the Plan expires, terminates or is canceled,
the unissued shares subject to such option, stock appreciation right or
performance unit shall again be available under the Plan. If shares sold or
awarded as a bonus under the Plan are forfeited to the Company or repurchased
by the Company, the number of shares forfeited or repurchased shall again be
available under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective as of
August 7, 1995. No option, stock appreciation right or performance unit
granted under the Plan to an officer who is subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (an "Officer") or a director, and
no incentive stock option, shall become exercisable, however, until the Plan
is approved by the affirmative vote of the holders of a majority of the
shares of Common Stock represented at a shareholders meeting at which a
quorum is present and any such awards under the Plan prior to such approval
shall be conditioned on and subject to such approval. Subject to this
limitation, options, stock appreciation rights and performance units may be
granted and shares may be awarded as bonuses or sold under the Plan at any
time after the effective date and before termination of the Plan.
(b) DURATION. The Plan shall continue in effect until all
shares available for issuance under the Plan have been issued and all
restrictions on such shares have lapsed. The Board of Directors may suspend
or terminate the Plan at any time except with respect to
- ------------------
* Adjusted to reflect a 3-for-2 stock split of the shares of
Common Stock, without par value, of the Company, effected in
the form of a 50% share dividend in accordance with ORS
60.154, declared by the Board of Directors on October 19,
1999, and paid on November 29, 1999 to shareholders of record
at the close of business on November 8, 1999.
<PAGE>
options, performance units and shares subject to restrictions then
outstanding under the Plan. Termination shall not affect any outstanding
options, any right of the Company to repurchase shares or the forfeitability
of shares issued under the Plan.
4. ADMINISTRATION.
(a) BOARD OF DIRECTORS. The Plan shall be administered by
the Board of Directors of the Company, which shall determine and designate
from time to time the individuals to whom awards shall be made, the amount of
the awards and the other terms and conditions of the awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt
and amend rules and regulations relating to administration of the Plan,
advance the lapse of any waiting period, accelerate any exercise date, waive
or modify any restriction applicable to shares (except those restrictions
imposed by law) and make all other determinations in the judgment of the
Board of Directors necessary or desirable for the administration of the Plan.
The interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive. The Board
of Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the manner and to
the extent it shall deem expedient to carry the Plan into effect, and it
shall be the sole and final judge of such expediency.
(b) COMMITTEE. The Board of Directors may delegate to a
committee of the Board of Directors or specified officers of the Company, or
both (the "Committee") any or all authority for administration of the Plan.
If authority is delegated to a Committee, all references to the Board of
Directors in the Plan shall mean and relate to the Committee except (i) as
otherwise provided by the Board of Directors, (ii) that only the Board of
Directors may amend or terminate the Plan as provided in paragraphs 3 and 15
and (iii) that a Committee including officers of the Company shall not be
permitted to grant options to persons who are officers of the Company. If
awards are to be made under the Plan to Officers or directors, authority for
selection of Officers and directors for participation and decisions
concerning the timing, pricing and amount of a grant or award, if not
determined under a formula meeting the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, shall be delegated to a
committee consisting of two or more disinterested directors.
5. TYPES OF AWARDS; ELIGIBILITY. The Board of Directors may, from
time to time, take the following action, separately or in combination, under
the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), as provided in
paragraphs 6(a) and 6(b); (ii) grant options other than Incentive Stock
Options ("Non-Statutory Stock Options") as provided in paragraphs 6(a) and
6(c); (iii) award stock bonuses as provided in paragraph 7; (iv) sell shares
subject to restrictions as provided in paragraph 8; (v) grant stock
appreciation rights as provided in paragraph 9; (vi) grant cash bonus rights
as provided in paragraph 10; (vii) grant performance units as provided in
paragraph 11 and (viii) grant foreign qualified awards as provided in
paragraph 12. Any such awards may be made to employees, including employees
who are officers or
2
<PAGE>
directors, and to other individuals described in paragraph 1 who the Board of
Directors believes have made or will make an important contribution to the
Company or any subsidiary of the Company; provided, however, that only
employees of the Company shall be eligible to receive Incentive Stock Options
under the Plan. The Board of Directors shall select the individuals to whom
awards shall be made and shall specify the action taken with respect to each
individual to whom an award is made. At the discretion of the Board of
Directors, an individual may be given an election to surrender an award in
exchange for the grant of a new award. No employee may be granted options or
stock appreciation rights under the Plan for more than an aggregate of
450,000 shares of Common Stock in connection with the hiring of the employee
or 100,000 shares of Common Stock in any calendar year otherwise.
6. OPTION GRANTS.
(a) GENERAL RULES RELATING TO OPTIONS.
(i) TERMS OF GRANT. The Board of Directors may grant
options under the Plan. With respect to each option grant, the Board of
Directors shall determine the number of shares subject to the option,
the option price, the period of the option, the time or times at which
the option may be exercised and whether the option is an Incentive
Stock Option or a Non-Statutory Stock Option. At the time of the grant
of an option or at any time thereafter, the Board of Directors may
provide that an optionee who exercised an option with Common Stock of
the Company shall automatically receive a new option to purchase
additional shares equal to the number of shares surrendered and may
specify the terms and conditions of such new options.
(ii) EXERCISE OF OPTIONS. Except as provided in
paragraph 6(a)(iv) or as determined by the Board of Directors, no
option granted under the Plan may be exercised unless at the time of
such exercise the optionee is employed by or in the service of the
Company or any subsidiary of the Company and shall have been so
employed or provided such service continuously since the date such
option was granted. Absence on leave or on account of illness or
disability under rules established by the Board of Directors shall not,
however, be deemed an interruption of employment or service for this
purpose. Unless otherwise determined by the Board of Directors, vesting
of options shall not continue during an absence on leave (including an
extended illness) or on account of disability. Except as provided in
paragraphs 6(a)(iv) and 13, options granted under the Plan may be
exercised from time to time over the period stated in each option in
such amounts and at such times as shall be prescribed by the Board of
Directors, provided that options shall not be exercised for fractional
shares. Unless otherwise determined by the Board of Directors, if the
optionee does not exercise an option in any one year with respect to
the full number of shares to which the optionee is entitled in that
year, the optionee's rights shall be cumulative and the optionee may
purchase those shares in any subsequent year during the term of the
option. Unless otherwise determined by the Board of Directors, if an
Officer exercises
3
<PAGE>
an option within six months of the grant of the option, the shares
acquired upon exercise of the option may not be sold until six months
after the date of grant of the option.
(iii) NONTRANSFERABILITY. Each Incentive Stock Option
and, unless otherwise determined by the Board of Directors with respect
to an option granted to a person who is neither an Officer nor a
director of the Company, each other option granted under the Plan by
its terms shall be nonassignable and nontransferable by the optionee,
either voluntarily or by operation of law, except by will or by the
laws of descent and distribution of the state or country of the
optionee's domicile at the time of death, and shall be exercisable
during the optionee's lifetime only by the optionee.
(iv) TERMINATION OF EMPLOYMENT OR SERVICE.
(A) GENERAL RULE. Unless otherwise
determined by the Board of Directors, in the event the
employment or service of the optionee with the Company or a
subsidiary terminates for any reason other than because of
physical disability or death as provided in subparagraphs
6(a)(iv)(B) and (C), the option may be exercised at any time
prior to the expiration date of the option or the expiration
of 30 days after the date of such termination, whichever is
the shorter period, but only if and to the extent the optionee
was entitled to exercise the option at the date of such
termination.
(B) TERMINATION BECAUSE OF TOTAL DISABILITY.
Unless otherwise determined by the Board of Directors, in the
event of the termination of employment or service because of
total disability, the option may be exercised at any time
prior to the expiration date of the option or the expiration
of 12 months after the date of such termination, whichever is
the shorter period, but only if and to the extent the optionee
was entitled to exercise the option at the date of such
termination. The term "total disability" means a medically
determinable mental or physical impairment which is expected
to result in death or which has lasted or is expected to last
for a continuous period of 12 months or more and which causes
the optionee to be unable, in the opinion of the Company and
two independent physicians, to perform his or her duties as an
employee, director, officer or consultant of the Company and
to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have
furnished their opinion of total disability to the Company.
(C) TERMINATION BECAUSE OF DEATH. Unless
otherwise determined by the Board of Directors, in the event
of the death of an optionee while employed by or providing
service to the Company or a subsidiary, the option may be
exercised at any time prior to the expiration date of the
option or
4
<PAGE>
the expiration of 12 months after the date of death,
whichever is the shorter period, but only if and to the extent
the optionee was entitled to exercise the option at the date
of death and only by the person or persons to whom such
optionee's rights under the option shall pass by the
optionee's will or by the laws of descent and distribution of
the state or country of domicile at the time of death.
(D) AMENDMENT OF EXERCISE PERIOD APPLICABLE
TO TERMINATION. The Board of Directors, at the time of grant
or, with respect to an option that is not an Incentive Stock
Option, at any time thereafter, may extend the 30-day and
12-month exercise periods any length of time not longer than
the original expiration date of the option, and may increase
the portion of an option that is exercisable, subject to such
terms and conditions as the Board of Directors may determine.
(E) FAILURE TO EXERCISE OPTION. To the
extent that the option of any deceased optionee or of any
optionee whose employment or service terminates is not
exercised within the applicable period, all further rights to
purchase shares pursuant to such option shall cease and
terminate.
(v) PURCHASE OF SHARES. Unless the Board of Directors
determines otherwise, shares may be acquired pursuant to an option
granted under the Plan only upon receipt by the Company of notice in
writing from the optionee of the optionee's intention to exercise,
specifying the number of shares as to which the optionee desires to
exercise the option and the date on which the optionee desires to
complete the transaction, and if required in order to comply with the
Securities Act of 1933, as amended, containing a representation that it
is the optionee's present intention to acquire the shares for
investment and not with a view to distribution. Unless the Board of
Directors determines otherwise, on or before the date specified for
completion of the purchase of shares pursuant to an option, the
optionee must have paid the Company the full purchase price of such
shares in cash (including, with the consent of the Board of Directors,
cash that may be the proceeds of a loan from the Company (provided
that, with respect to an Incentive Stock Option, such loan is approved
at the time of option grant)) or, with the consent of the Board of
Directors (which, in the case of an Incentive Stock Option, shall be
given only at the time of option grant), in whole or in part, in Common
Stock of the Company valued at fair market value*, restricted stock,
performance units or other contingent awards denominated in either
stock or cash,
- ------------------
* The Board of Directors has consented to the use of Common Stock
in payment of the purchase price, at a fair market value equal to
the closing price of the Common Stock as reported in THE WALL
STREET JOURNAL on the last trading day preceding the date the
option is exercised.
5
<PAGE>
promissory notes and other forms of consideration. The fair market
value of Common Stock provided in payment of the purchase price shall
be determined by the Board of Directors. If the Common Stock of the
Company is not publicly traded on the date the option is exercised,
the Board of Directors may consider any valuation methods it deems
appropriate and may, but is not required to, obtain one or more
independent appraisals of the Company. If the Common Stock of the
Company is publicly traded on the date the option is exercised, the
fair market value of Common Stock provided in payment of the purchase
price shall be the closing price of the Common Stock as reported in THE
WALL STREET JOURNAL on the last trading day preceding the date the
option is exercised, or such other reported value of the Common Stock
as shall be specified by the Board of Directors. No shares shall be
issued until full payment for the shares has been made. With the
consent of the Board of Directors (which, in the case of an Incentive
Stock Option, shall be given only at the time of option grant), an
optionee may request the Company to apply automatically the shares to
be received upon the exercise of a portion of a stock option (even
though stock certificates have not yet been issued) to satisfy the
purchase price for additional portions of the option. Each optionee who
has exercised an option shall immediately upon notification of the
amount due, if any, pay to the Company in cash amounts necessary to
satisfy any applicable federal, state and local tax withholding
requirements. If additional withholding is or becomes required beyond
any amount deposited before delivery of the certificates, the optionee
shall pay such amount to the Company on demand. If the optionee fails
to pay the amount demanded, the Company may withhold that amount from
other amounts payable by the Company to the optionee, including salary,
subject to applicable law. With the consent of the Board of Directors
(which in the case of an Incentive Stock Option, shall be given only at
the time of option grant), an optionee may satisfy this obligation, in
whole or in part, by having the Company withhold from the shares to be
issued upon the exercise that number of shares that would satisfy the
withholding amount due or by delivering to the Company Common Stock to
satisfy the withholding amount. Upon the exercise of an option, the
number of shares reserved for issuance under the Plan shall be reduced
by the number of shares issued upon exercise of the option.
(b) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be
subject to the following additional terms and conditions:
(i) LIMITATION ON AMOUNT OF GRANTS. No employee may
be granted Incentive Stock Options under the Plan if the aggregate fair
market value, on the date of grant, of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
that employee during any calendar year under the Plan and under all
incentive stock option plans (within the meaning of Section 422 of the
Code) of the Company or any parent or subsidiary of the Company exceeds
$100,000.
6
<PAGE>
(ii) LIMITATIONS ON GRANTS TO 10 PERCENT
SHAREHOLDERS. An Incentive Stock Option may be granted under the Plan
to an employee possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or of any parent or
subsidiary of the Company only if the option price is at least 110
percent of the fair market value, as described in paragraph 6(b)(iv),
of the Common Stock subject to the option on the date it is granted and
the option by its terms is not exercisable after the expiration of five
years from the date it is granted.
(iii) DURATION OF OPTIONS. Subject to paragraphs
6(a)(ii) and 6(b)(ii), Incentive Stock Options granted under the Plan
shall continue in effect for the period fixed by the Board of
Directors, except that no Incentive Stock Option shall be exercisable
after the expiration of 10 years from the date it is granted.
(iv) OPTION PRICE. The option price per share shall
be determined by the Board of Directors at the time of grant. Except as
provided in paragraph 6(b)(ii), the option price shall not be less than
100 percent of the fair market value of the Common Stock covered by the
Incentive Stock Option at the date the option is granted. The fair
market value shall be determined by the Board of Directors. If the
Common Stock of the Company is not publicly traded on the date the
option is granted, the Board of Directors may consider any valuation
methods it deems appropriate and may, but is not required to, obtain
one or more independent appraisals of the Company. If the Common Stock
of the Company is publicly traded on the date the option is exercised,
the fair market value shall be deemed to be the closing price of the
Common Stock as reported in THE WALL STREET JOURNAL on the day
preceding the date the option is granted, or, if there has been no sale
on that date, on the last preceding date on which a sale occurred or
such other value of the Common Stock as shall be specified by the Board
of Directors.
(v) LIMITATION ON TIME OF GRANT. No Incentive Stock
Option shall be granted on or after the tenth anniversary of the
effective date of the Plan.
(vi) CONVERSION OF INCENTIVE STOCK OPTIONS. The Board
of Directors may at any time without the consent of the optionee
convert an Incentive Stock Option to a Non-Statutory Stock Option.
(c) NON-STATUTORY STOCK OPTIONS. Non-Statutory Stock Options
shall be subject to the following terms and conditions in addition to
those set forth in paragraph 6(a) above:
(i) OPTION PRICE. The option price for Non-Statutory
Stock Options shall be determined by the Board of Directors at the time
of grant and may be any amount determined by the Board of Directors.
7
<PAGE>
(ii) DURATION OF OPTIONS. Non-Statutory Stock Options
granted under the Plan shall continue in effect for the period fixed by
the Board of Directors.
7. STOCK BONUSES. The Board of Directors may award shares under the
Plan as stock bonuses. Shares awarded as a bonus shall be subject to the
terms, conditions, and restrictions determined by the Board of Directors. The
restrictions may include restrictions concerning transferability and
forfeiture of the shares awarded, together with such other restrictions as
may be determined by the Board of Directors. If shares are subject to
forfeiture, all dividends or other distributions paid by the Company with
respect to the shares shall be retained by the Company until the shares are
no longer subject to forfeiture, at which time all accumulated amounts shall
be paid to the recipient. The Board of Directors may require the recipient to
sign an agreement as a condition of the award, but may not require the
recipient to pay any monetary consideration other than amounts necessary to
satisfy tax withholding requirements. The agreement may contain any terms,
conditions, restrictions, representations and warranties required by the
Board of Directors. The certificates representing the shares awarded shall
bear any legends required by the Board of Directors. Unless otherwise
determined by the Board of Directors, shares awarded as a stock bonus to an
Officer may not be sold until six months after the date of the award. The
Company may require any recipient of a stock bonus to pay to the Company in
cash upon demand amounts necessary to satisfy any applicable federal, state
or local tax withholding requirements. If the recipient fails to pay the
amount demanded, the Company may withhold that amount from other amounts
payable by the Company to the recipient, including salary or fees for
services, subject to applicable law. With the consent of the Board of
Directors, a recipient may deliver Common Stock to the Company to satisfy
this withholding obligation. Upon the issuance of a stock bonus, the number
of shares reserved for issuance under the Plan shall be reduced by the number
of shares issued.
8. RESTRICTED STOCK. The Board of Directors may issue shares under
the Plan for such consideration (including promissory notes and services) as
determined by the Board of Directors. Shares issued under the Plan shall be
subject to the terms, conditions and restrictions determined by the Board of
Directors. The restrictions may include restrictions concerning
transferability, repurchase by the Company and forfeiture of the shares
issued, together with such other restrictions as may be determined by the
Board of Directors. If shares are subject to forfeiture or repurchase by the
Company, all dividends or other distributions paid by the Company with
respect to the shares shall be retained by the Company until the shares are
no longer subject to forfeiture or repurchase, at which time all accumulated
amounts shall be paid to the recipient. All Common Stock issued pursuant to
this paragraph 8 shall be subject to a purchase agreement, which shall be
executed by the Company and the prospective recipient of the shares prior to
the delivery of certificates representing such shares to the recipient. The
purchase agreement may contain any terms, conditions, restrictions,
representations and warranties required by the Board of Directors. The
certificates representing the shares shall bear any legends required by the
Board of Directors. Unless otherwise determined by the Board of Directors,
shares issued under this paragraph 8 to an
8
<PAGE>
Officer may not be sold until six months after the shares are issued. The
Company may require any purchaser of restricted stock to pay to the Company
in cash upon demand amounts necessary to satisfy any applicable federal,
state or local tax withholding requirements. If the purchaser fails to pay
the amount demanded, the Company may withhold that amount from other amounts
payable by the Company to the purchaser, including salary, subject to
applicable law. With the consent of the Board of Directors, a purchaser may
deliver Common Stock to the Company to satisfy this withholding obligation.
Upon the issuance of restricted stock, the number of shares reserved for
issuance under the Plan shall be reduced by the number of shares issued.
9. STOCK APPRECIATION RIGHTS.
(a) GRANT. Stock appreciation rights may be granted under the
Plan by the Board of Directors, subject to such rules, terms, and conditions as
the Board of Directors prescribes.
(b) EXERCISE.
(i) Each stock appreciation right shall entitle the
holder, upon exercise, to receive from the Company in exchange therefor
an amount equal in value to the excess of the fair market value on the
date of exercise of one share of Common Stock of the Company over its
fair market value on the date of grant (or, in the case of a stock
appreciation right granted in connection with an option, the excess of
the fair market value of one share of Common Stock of the Company over
the option price per share under the option to which the stock
appreciation right relates), multiplied by the number of shares covered
by the stock appreciation right or the option, or portion thereof, that
is surrendered. No stock appreciation right shall be exercisable at a
time that the amount determined under this subparagraph is negative.
Payment by the Company upon exercise of a stock appreciation right may
be made in Common Stock valued at fair market value, in cash, or partly
in Common Stock and partly in cash, all as determined by the Board of
Directors.
(ii) A stock appreciation right shall be exercisable
only at the time or times established by the Board of Directors. If a
stock appreciation right is granted in connection with an option, the
following rules shall apply: (1) the stock appreciation right shall be
exercisable only to the extent and on the same conditions that the
related option could be exercised; (2) the stock appreciation rights
shall be exercisable only when the fair market value of the stock
exceeds the option price of the related option; (3) the stock
appreciation right shall be for no more than 100 percent of the excess
of the fair market value of the stock at the time of exercise over the
option price; (4) upon exercise of the stock appreciation right, the
option or portion thereof to which the stock appreciation right relates
terminates; and (5) upon exercise of the option, the related stock
appreciation right or portion thereof terminates. Unless otherwise
determined by
9
<PAGE>
the Board of Directors, no stock appreciation right granted to an
Officer or director may be exercised during the first six months
following the date it is granted.
(iii) The Board of Directors may withdraw any stock
appreciation right granted under the Plan at any time and may impose
any conditions upon the exercise of a stock appreciation right or adopt
rules and regulations from time to time affecting the rights of holders
of stock appreciation rights. Such rules and regulations may govern the
right to exercise stock appreciation rights granted prior to adoption
or amendment of such rules and regulations as well as stock
appreciation rights granted thereafter.
(iv) For purposes of this paragraph 9, the fair
market value of the Common Stock shall be determined as of the date the
stock appreciation right is exercised, under the methods set forth in
paragraph 6(b)(iv).
(v) No fractional shares shall be issued upon
exercise of a stock appreciation right. In lieu thereof, cash may be
paid in an amount equal to the value of the fraction or, if the Board
of Directors shall determine, the number of shares may be rounded
downward to the next whole share.
(vi) Each stock appreciation right granted in
connection with an Incentive Stock Option, and unless otherwise
determined by the Board of Directors with respect to a stock
appreciation right granted to a person who is neither an Officer nor a
director of the Company, each other stock appreciation right granted
under the Plan by its terms shall be nonassignable and nontransferable
by the holder, either voluntarily or by operation of law, except by
will or by the laws of descent and distribution of the state or country
of the holder's domicile at the time of death, and each stock
appreciation right by its terms shall be exercisable during the
holder's lifetime only by the holder.
(vii) Each participant who has exercised a stock
appreciation right shall, upon notification of the amount due, pay to
the Company in cash amounts necessary to satisfy any applicable
federal, state and local tax withholding requirements. If the
participant fails to pay the amount demanded, the Company may withhold
that amount from other amounts payable by the Company to the
participant including salary, subject to applicable law. With the
consent of the Board of Directors a participant may satisfy this
obligation, in whole or in part, by having the Company withhold from
any shares to be issued upon the exercise that number of shares that
would satisfy the withholding amount due or by delivering Common Stock
to the Company to satisfy the withholding amount.
(viii) Upon the exercise of a stock appreciation
right for shares, the number of shares reserved for issuance under the
Plan shall be reduced by the number
10
<PAGE>
of shares issued. Cash payments of stock appreciation rights shall
not reduce the number of shares of Common Stock reserved for issuance
under the Plan.
10. CASH BONUS RIGHTS.
(a) GRANT. The Board of Directors may grant cash bonus
rights under the Plan in connection with (i) options granted or previously
granted, (ii) stock appreciation rights granted or previously granted, (iii)
stock bonuses awarded or previously awarded and (iv) shares sold or
previously sold under the Plan. Cash bonus rights will be subject to rules,
terms and conditions as the Board of Directors may prescribe. Unless
otherwise determined by the Board of Directors with respect to a cash bonus
right granted to a person who is neither an Officer nor a director of the
Company, each cash bonus right granted under the Plan by its terms shall be
nonassignable and nontransferable by the holder, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the holder's domicile at the time of death. The
payment of a cash bonus shall not reduce the number of shares of Common Stock
reserved for issuance under the Plan.
(b) CASH BONUS RIGHTS IN CONNECTION WITH OPTIONS. A cash
bonus right granted in connection with an option will entitle an optionee to
a cash bonus when the related option is exercised (or terminates in
connection with the exercise of a stock appreciation right related to the
option) in whole or in part if, in the sole discretion of the Board of
Directors, the bonus right will result in a tax deduction that the Company
has sufficient taxable income to use. If an optionee purchases shares upon
exercise of an option and does not exercise a related stock appreciation
right, the amount of the bonus, if any, shall be determined by multiplying
the excess of the total fair market value of the shares to be acquired upon
the exercise over the total option price for the shares by the applicable
bonus percentage. If the optionee exercises a related stock appreciation
right in connection with the termination of an option, the amount of the
bonus, if any, shall be determined by multiplying the total fair market value
of the shares and cash received pursuant to the exercise of the stock
appreciation right by the applicable bonus percentage. The bonus percentage
applicable to a bonus right, including a previously granted bonus right, may
be changed from time to time at the sole discretion of the Board of Directors
but shall in no event exceed 75 percent.
(c) CASH BONUS RIGHTS IN CONNECTION WITH STOCK BONUS. A
cash bonus right granted in connection with a stock bonus will entitle the
recipient to a cash bonus payable when the stock bonus is awarded or
restrictions, if any, to which the stock is subject lapse. If bonus stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the cash bonus right granted in connection with the
stock bonus shall terminate and may not be exercised. The amount and timing
of payment of a cash bonus shall be determined by the Board of Directors.
(d) CASH BONUS RIGHTS IN CONNECTION WITH STOCK PURCHASES. A
cash bonus right granted in connection with the purchase of stock pursuant to
paragraph 8 will entitle
11
<PAGE>
the recipient to a cash bonus when the shares are purchased or restrictions,
if any, to which the stock is subject lapse. Any cash bonus right granted in
connection with shares purchased pursuant to paragraph 8 shall terminate and
may not be exercised in the event the shares are repurchased by the Company
or forfeited by the holder pursuant to applicable restrictions. The amount of
any cash bonus to be awarded and timing of payment of a cash bonus shall be
determined by the Board of Directors.
(e) TAXES. The Company shall withhold from any cash bonus
paid pursuant to paragraph 10 the amount necessary to satisfy any applicable
federal, state and local withholding requirements.
11. PERFORMANCE UNITS. The Board of Directors may grant performance
units consisting of monetary units which may be earned in whole or in part if
the Company achieves certain goals established by the Board of Directors over
a designated period of time, but not in any event more than 10 years. The
goals established by the Board of Directors may include earnings per share,
return on shareholders' equity, return on invested capital, and such other
goals as may be established by the Board of Directors. In the event that the
minimum performance goal established by the Board of Directors is not
achieved at the conclusion of a period, no payment shall be made to the
participants. In the event the maximum corporate goal is achieved, 100
percent of the monetary value of the performance units shall be paid to or
vested in the participants. Partial achievement of the maximum goal may
result in a payment or vesting corresponding to the degree of achievement as
determined by the Board of Directors. Payment of an award earned may be in
cash or in Common Stock or in a combination of both, and may be made when
earned, or vested and deferred, as the Board of Directors determines.
Deferred awards shall earn interest on the terms and at a rate determined by
the Board of Directors. Unless otherwise determined by the Board of Directors
with respect to a performance unit granted to a person who is neither an
Officer nor a director of the Company, each performance unit granted under
the Plan by its terms shall be nonassignable and nontransferable by the
holder, either voluntarily or by operation of law, except by will or by the
laws of descent and distribution of the state or country of the holder's
domicile at the time of death. Each participant who has been awarded a
performance unit shall, upon notification of the amount due, pay to the
Company in cash amounts necessary to satisfy any applicable federal, state
and local tax withholding requirements. If the participant fails to pay the
amount demanded, the Company may withhold that amount from other amounts
payable by the Company to the participant, including salary or fees for
services, subject to applicable law. With the consent of the Board of
Directors a participant may satisfy this obligation, in whole or in part, by
having the Company withhold from any shares to be issued that number of
shares that would satisfy the withholding amount due or by delivering Common
Stock to the Company to satisfy the withholding amount. The payment of a
performance unit in cash shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan. The number of shares reserved for
issuance under the Plan shall be reduced by the number of shares issued upon
payment of an award.
12
<PAGE>
12. FOREIGN QUALIFIED GRANTS. Awards under the Plan may be granted
to such officers and employees of the Company and its subsidiaries and such
other persons described in paragraph 1 residing in foreign jurisdictions as
the Board of Directors may determine from time to time. The Board of
Directors may adopt such supplements to the Plan as may be necessary to
comply with the applicable laws of such foreign jurisdictions and to afford
participants favorable treatment under such laws; provided, however, that no
award shall be granted under any such supplement with terms which are more
beneficial to the participants than the terms permitted by the Plan.
13. CHANGES IN CAPITAL STRUCTURE.
(a) STOCK SPLITS; STOCK DIVIDENDS. If the outstanding
Common Stock of the Company is hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any stock split, combination of shares
or dividend payable in shares, recapitalization or reclassification
appropriate adjustment shall be made by the Board of Directors in the number
and kind of shares available for grants under the Plan. In addition, the
Board of Directors shall make appropriate adjustment in the number and kind
of shares as to which outstanding options, or portions thereof then
unexercised, shall be exercisable, so that the optionee's proportionate
interest before and after the occurrence of the event is maintained.
Notwithstanding the foregoing, the Board of Directors shall have no
obligation to effect any adjustment that would or might result in the
issuance of fractional shares, and any fractional shares resulting from any
adjustment may be disregarded or provided for in any manner determined by the
Board of Directors. Any such adjustments made by the Board of Directors shall
be conclusive.
(b) MERGERS, REORGANIZATIONS, ETC. In the event of a
merger, consolidation, plan of exchange, acquisition of property or stock,
separation, reorganization or liquidation to which the Company or a
subsidiary is a party or a sale of all or substantially all of the Company's
assets (each, a "Transaction"), the Board of Directors shall, in its sole
discretion and to the extent possible under the structure of the Transaction,
select one of the following alternatives for treating outstanding options
under the Plan:
(i) Outstanding options shall remain in effect in
accordance with their terms.
(ii) Outstanding options shall be converted into
options to purchase stock in the corporation that is the surviving or
acquiring corporation in the Transaction. The amount, type of
securities subject thereto and exercise price of the converted options
shall be determined by the Board of Directors of the Company, taking
into account the relative values of the companies involved in the
Transaction and the exchange rate, if any, used in determining shares
of the surviving corporation to be issued to holders of shares of the
Company. Unless otherwise determined by the Board
13
<PAGE>
of Directors, the converted options shall be vested only to the extent
that the vesting requirements relating to options granted hereunder
have been satisfied.
(iii) The Board of Directors shall provide a 30-day
period prior to the consummation of the Transaction during which
outstanding options may be exercised to the extent then exercisable,
and upon the expiration of such 30-day period, all unexercised options
shall immediately terminate. The Board of Directors may, in its sole
discretion, accelerate the exercisability of options so that they are
exercisable in full during such 30-day period.
(c) DISSOLUTION OF THE COMPANY. In the event of the
dissolution of the Company, options shall be treated in accordance with
paragraph 13(b)(iii).
(d) RIGHTS ISSUED BY ANOTHER CORPORATION. The Board of
Directors may also grant options, stock appreciation rights, performance units,
stock bonuses and cash bonuses and issue restricted stock under the Plan having
terms, conditions and provisions that vary from those specified in this Plan
provided that any such awards are granted in substitution for, or in connection
with the assumption of, existing options, stock appreciation rights, stock
bonuses, cash bonuses, restricted stock and performance units granted, awarded
or issued by another corporation and assumed or otherwise agreed to be provided
for by the Company pursuant to or by reason of a Transaction.
14. AMENDMENT OF PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in such respects as it shall deem
advisable because of changes in the law while the Plan is in effect or for any
other reason, except that without the approval of the shareholders of the
Company, the Board of Directors may not increase the number of shares authorized
to be issued under paragraph 2 of the Plan (except for adjustments permitted
under paragraph 13(a) of the Plan). Except as provided in paragraphs 6(a)(iv),
9, 10 and 13, however, no change in an award already granted shall be made
without the written consent of the holder of such award.
15. APPROVALS. The obligations of the Company under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter. The Company will use its best efforts to take steps
required by state or federal law or applicable regulations, including rules and
regulations of the Securities and Exchange Commission and any stock exchange on
which the Company's shares may then be listed, in connection with the grants
under the Plan. The foregoing notwithstanding, the Company shall not be
obligated to issue or deliver Common Stock under the Plan if such issuance or
delivery would violate applicable state or federal securities laws.
16. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or any award
pursuant to the Plan shall (i) confer upon any employee any right to be
continued in the employment of the Company or any subsidiary or interfere in any
way with the right of the Company or any
14
<PAGE>
subsidiary by whom such employee is employed to terminate such employee's
employment at any time, for any reason, with or without cause, or to decrease
such employee's compensation or benefits, or (ii) confer upon any person
engaged by the Company any right to be retained or employed by the Company or
to the continuation, extension, renewal, or modification of any compensation,
contract, or arrangement with or by the Company.
17. RIGHTS AS A SHAREHOLDER. The recipient of any award under the
Plan shall have no rights as a shareholder with respect to any Common Stock
until the date of issue to the recipient of a stock certificate for such
shares. Except as otherwise expressly provided in the Plan, no adjustment
shall be made for dividends or other rights for which the record date occurs
prior to the date such stock certificate is issued.
18. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
(a) INITIAL BOARD GRANTS. Each person who becomes a
Non-Employee Director after the Plan is adopted shall be automatically
granted an option to purchase 15,000 shares of Common Stock when he or she
becomes a Non-Employee Director, so long as such person has not previously
served as a director of the Company. A "Non-Employee Director" is a director
who is not an employee of the Company or any of its subsidiaries, but does
not include such a director whose employer prohibits such director from
receiving any grant of an option to purchase shares of Common Stock of the
Company.
(b) ADDITIONAL GRANTS. Each Non-Employee Director shall be
automatically granted an option to purchase additional shares of Common Stock
in each calendar year subsequent to the year in which such Non-Employee
Director was granted an option pursuant to paragraph 18(a), such option to be
granted as of the date of the Company's annual meeting of shareholders held
in such calendar year, provided that the Non-Employee Director continues to
serve in such capacity as of such date. The number of shares subject to each
additional grant shall be 5,000 shares for each Non-Employee Director.
(c) EXERCISE PRICE. The exercise price of all options
granted pursuant to this paragraph 18 shall be equal to 100 percent of the
fair market value of the Common Stock determined pursuant to paragraph
6(b)(iv).
(d) TERM OF OPTION. The term of each option granted
pursuant to this paragraph 18 shall be 10 years from the date of grant.
(e) EXERCISABILITY. Until an option expires or is
terminated and except as provided in paragraphs 18(g) and 13, an option
granted under this paragraph 18 shall be exercisable in full on the date one
year following the grant of the option.
(f) TERMINATION AS A DIRECTOR. If an optionee ceases to be
a director of the Company for any reason, including death, the option may be
exercised at any time prior to the
15
<PAGE>
expiration date of the option or the expiration of 30 days (or 12 months in
the event of death) after the last day the optionee served as a director,
whichever is the shorter period, but only if and to the extent the optionee
was entitled to exercise the option as of the last day the optionee served as
a director.
(g) NONTRANSFERABILITY. Each option by its terms shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution
of the state or country of the optionee's domicile at the time of death, and
each option by its terms shall be exercisable during the optionee's lifetime
only by the optionee.
(h) EXERCISE OF OPTIONS. Options may be exercised upon
payment of cash or shares of Common Stock of the Company in accordance with
paragraph 6(a)(v).
Adopted: August 7, 1995.
Amended: May 20, 1997 (to increase shares in paragraph 2 to 1,500,000).
Amended: May 18, 1999 (to increase shares in paragraph 2 to 2,250,000 and to
increase individual limits in paragraph 5 to 450,000 and 100,000 shares).
Amended: August 12, 1999 (to increase shares in paragraph 2 to 2,750,000).
Amended: February 25, 2000 (amendments to paragraphs 6(a)(iii), 6(a)(v) and 14).
16
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
I. PURPOSE OF PLAN
As a means by which Employees may share in the Company's growth and
success, RadiSys Corporation (the "Company") believes that ownership of
shares of its Common Stock by its Employees is desirable. To this end,
and as an incentive to better performance and improved profits, the
Company has established the RadiSys Corporation 1996 Employee Stock
Purchase Plan (the "Plan").
The Company intends that the Plan will constitute an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
II. DEFINITIONS
Terms that are capitalized within this document shall have the meanings
as set forth in Exhibit A, unless otherwise specified within the text.
III. EMPLOYEE PARTICIPATION
PARTICIPATION
Subject to the provisions of this Section III, an Employee may elect to
participate in the Plan effective as of any Enrollment Date by
completing and filing a Payroll Deduction Authorization Form as
provided in Section IV. As of each Enrollment Date, the Company hereby
grants a right to purchase Shares under the terms of the Plan to each
eligible Employee who has elected to participate in the Offering
commencing on that Enrollment Date.
REQUIREMENTS FOR PARTICIPATION
A person shall become eligible to participate in the Plan on the first
Enrollment Date on which that person meets the following requirements:
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
1
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
a) The person is an Employee, and
b) The person's customary period of Employment is more than
twenty (20) hours per week.
Any eligible Employee may enroll in the Plan as of the Enrollment Date
of any Offering by filing timely written notice of such participation,
subject to the following provisions:
(i) In order to enroll in the Plan initially, an eligible Employee
must complete, sign and submit to the Company the following
forms:
(A) PAYROLL DEDUCTION AUTHORIZATION FORM Must be received
by the Company at least fifteen (15) days prior to
the Enrollment Date of an Offering to be effective
for that Offering.
(B) ESPP NEW ACCOUNT FORM This form must accompany the
Payroll Deduction Authorization Form submitted for
enrollment in the Plan. An ESPP New Account Form must
be received by the Company at least fifteen (15) days
prior to the Enrollment Date of an Offering to be
effective for that Offering.
(ii) A Participant in an ongoing Offering may elect as of any
Enrollment Date to enroll in the new Offering commencing on
that Enrollment Date by filing a Payroll Deduction
Authorization Form making such election prior to 4:00 p.m.
Pacific Time on the Enrollment Date. An election by a current
Participant to enroll in a new Offering shall constitute a
withdrawal, effective as of such Enrollment Date, from the
ongoing Offering and simultaneous reenrollment in the new
Offering. A reenrollment shall not affect the purchase of
Shares under the ongoing Offering occurring on the Purchase
Date immediately preceding the Enrollment Date. A Participant
may make an ongoing election to reenroll on any Enrollment
Date as of which the fair market value of the Shares for
purposes of Section VI is less than it was as of the
Enrollment Date for the Offering in which the Participant is
currently participating. Unless otherwise specified by the
Participant, any such ongoing reenrollment election shall be
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
2
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
subject to revocation; provided, however, that to be effective
to prevent reenrollment on any Enrollment Date, such
revocation must be received by the Company prior to 4:00 p.m.
Pacific Time on the Enrollment Date.
(iii) Absent withdrawal from the Plan pursuant to Section VII, a
Participant will automatically be re-enrolled in the Offering
commencing on the Enrollment Date immediately following the
expiration of the Offering of which that person is then a
Participant.
A Participant shall become ineligible to participate in the Plan and
shall cease to be a Participant when the Participant ceases to meet the
eligibility requirements as defined above.
LIMITATIONS ON PARTICIPATION
No Employee may obtain a right to purchase Shares under the Plan if,
immediately after the right is granted, the Employee owns or is deemed
to own Shares possessing five percent (5%) or more of the combined
voting power or value of all classes of stock of the Company or any
parent or subsidiary of the Company. For purposes of determining share
ownership, the rules of Section 424(d) of the Code shall apply and
Shares that the Employee may purchase under any options or rights to
purchase, whether or not Vested, shall be treated as Shares owned by
the Employee.
No Employee may obtain a right to purchase Shares under the Plan that
permits the Employee's rights to purchase Shares under the Plan and any
other employee stock purchase plan within the meaning of Section 423 of
the Code of the Company or any parent or subsidiary of the Company to
accrue at a rate which exceeds $25,000 in fair market value of Shares
(determined as of the Enrollment Date) for each calendar year of the
Offering. This section shall be interpreted to permit an Employee to
purchase the maximum number of Shares permitted under Section 423(b)(8)
of the Code and regulations and interpretations adopted thereunder.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
3
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
The maximum number of Shares that an Employee may purchase in an
Offering shall not exceed 10,000 shares, no more than one-third of
which may be purchased on any Purchase Date with respect to that
Offering.
VOLUNTARY PARTICIPATION
Participation in the Plan shall be strictly voluntary.
IV. PAYROLL DEDUCTIONS
PAYROLL DEDUCTION AUTHORIZATION
An Employee may contribute to the Plan only by means of payroll
deductions. A Payroll Deduction Authorization Form must be filed with
the Company's stock administrator at least fifteen (15) days prior to
the Enrollment Date as of which the payroll deductions are to take
effect.
AMOUNT OF DEDUCTIONS
A Participant may specify that the person desires to make contributions
to the Plan at a rate not less than 1% and not more than 10% of the
Compensation paid to the Participant during each pay period in the
Offering, or other such minimum or maximum percentages as the Plan
Administrator shall establish from time to time. Such specification
shall apply during any period of continuous participation in the Plan,
unless otherwise modified or terminated as provided in this Section IV
or as otherwise provided in the Plan. If a payroll deduction cannot be
made in whole or in part because the Participant's pay for the period
in question is insufficient to fund the deduction after having first
withheld all other amounts deductible from that person's pay, the
amount that was not withheld cannot be made up by the Participant nor
will it be withheld from subsequent pay checks.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
4
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
COMMENCEMENT OF DEDUCTIONS
Payroll deductions for a Participant shall commence on the Enrollment
Date of the Offering for which that person's Payroll Deduction
Authorization Form is effective and shall continue indefinitely, unless
modified or terminated as provided in this Section IV or as otherwise
provided in the Plan.
ACCOUNTS
All payroll deductions made for a Participant shall be credited to his
or her Account under the Plan. Following each Purchase Date, the Plan
Administrator shall promptly deliver a report to each Participant
setting forth the aggregate payroll deductions credited to such
Participant's Account during the preceding six months and the number of
Shares purchased and delivered to the Custodian for deposit into the
Participant's Custodial Account.
MODIFICATION OF AUTHORIZED DEDUCTIONS
A Participant may, prior to the commencement of each Offering in which
that person will be a Participant, and not more than three times during
each Offering, increase or decrease the amount of that person's payroll
deduction effective for all applicable payroll periods, by completing
an amended Payroll Deduction Authorization Form and filing it with the
Company's stock administrator in accordance with this Section IV.
A Participant may at any time discontinue the Participant's payroll
deductions, without withdrawing from the Plan, by completing an amended
Payroll Deduction Authorization Form and filing it with the Company's
stock administrator. Previous payroll deductions will then be retained
in the Participant's Account for application to purchase Shares on the
next Purchase Date, after which the Participant's participation in the
Offering and in the Plan will terminate unless the participant has
timely filed another Payroll Deduction Authorization Form to resume
payroll deductions.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
5
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
For purposes of the above, an amended Payroll Deduction Authorization
form shall be effective for a specific pay period when filed 15 days
prior to the last day of such payroll period.
V. CUSTODY OF SHARES
DELIVERY AND CUSTODY OF SHARES
Shares purchased pursuant to the Plan shall be delivered to and held by
the Custodian.
CUSTODIAL ACCOUNT
As soon as practicable after each Purchase Date, the Company shall
deliver to the Custodian the full Shares purchased for each
Participant's Account. The Shares will be held in a Custodial Account
specifically established for this purpose. An Employee must open a
Custodial Account with the Custodian in order to be eligible to
purchase Shares under the Plan. In order to open a Custodial Account,
the Participant must complete an ESPP New Account Form and file it with
the stock administrator no later than fifteen (15) days prior to the
Enrollment Date of the Offering as of which the enrollment is to take
effect; provided, however, that an ESPP New Account Form that effects a
change in the status of the Custodial Account may be filed at any time
during participation in the Plan.
TRANSFER OF SHARES
Upon receipt of appropriate instructions from a Participant on forms
provided for that purpose, the Custodian will transfer into the
Participant's own name all or part of the Shares held in the
Participant's Custodial Account and deliver such Shares to the
Participant.
STATEMENTS
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
6
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
The Custodian will deliver to each Participant a semi-annual statement
showing the activity of the Participant's Custodial Account and the
balance as to both Shares and cash. Participants will be furnished such
other reports and statements, and at such intervals, as the Custodian
and Plan Administrator shall determine from time to time.
VI. PURCHASE OF SHARES
PURCHASE OF SHARES
Subject to the limitations of Section VII, on each Purchase Date in an
Offering, the Company shall apply the amount credited to each
Participant's Account to the purchase of as many full Shares that may
be purchased with such amount at the price set forth in this Section
VI, and shall promptly deliver such Shares to the Custodian for deposit
into the Participant's Custodial Account. Payment for Shares purchased
under the Plan will be made only through payroll withholding deductions
in accordance with Section IV.
PRICE
The price of Shares to be purchased on any Purchase Date shall be the
lower of:
(a) Eighty-five percent (85%) of the fair market value of
the Shares on the Enrollment Date of the Offering; or
(b) Eighty-five percent (85%) of the fair market value of
the Shares on the Purchase Date.
FAIR MARKET VALUE
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
7
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
The fair market value of the Shares on any date shall be equal to the
closing trade price of such shares on the Valuation Date, as reported
on the NASDAQ National Market System or such other quotation system
that supersedes it.
UNUSED CONTRIBUTIONS
Any amount credited to a Participant's Account and remaining therein
immediately after a Purchase Date because it was less than the amount
required to purchase a full Share shall be carried forward in such
Participant's Account for application on the next succeeding Purchase
Date.
VII. TERMINATION AND WITHDRAWAL
TERMINATION OF EMPLOYMENT
Upon termination of a Participant's Employment for any reason other
than death, the payroll deductions credited to such Participant's
Account shall be returned to the Participant. A Participant shall have
no right to accrue Shares upon termination of the person's Employment.
TERMINATION UPON DEATH
Upon termination of the Participant's Employment because of that
person's death, the payroll deductions credited to that person's
Account shall be used to purchase Shares as provided in Section VI on
the next Purchase Date. Any Shares purchased and any remaining balance
shall be transferred to the deceased Participant's Beneficiary, or if
none, to that person's estate.
DESIGNATION OF BENEFICIARY
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
8
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
Each Participant may designate, revoke, and redesignate Beneficiaries.
All changes to designation of Beneficiary shall be in writing and will
be effective upon delivery to the Plan Administrator.
WITHDRAWAL
A Participant may withdraw the entire amount credited to that
individual's Account under the Plan and thereby terminate participation
in the current Offering at any time by giving written notice to the
Company, but in no case may a Participant withdraw accounts within the
15 days immediately preceding a Purchase Date for the Offering. Any
amount withdrawn shall be paid to the Participant promptly after
receipt of proper notice of withdrawal and no further payroll
deductions shall be made from the person's Compensation unless a
Payroll Deduction Authorization Form directing further deductions is or
has been submitted.
STATUS OF CUSTODIAL ACCOUNT
Upon termination of a Participant's Employment for any reason other
than death, the Participant may,
(a) Elect to retain with the Custodian the Shares held in
the Participant's Custodial Account. The Participant will bear
the cost of any annual fees resulting from maintaining such an
account.
(b) Request issuance of the Shares held in the Participant's
Custodial Account by submitting to the Custodian the
appropriate forms provided for that purpose.
Upon termination of a Participant's Employment as a result of death,
any Shares held by the Custodian for the Participant's Account shall be
transferred to the person(s) entitled thereto under the laws of the
state of domicile of the Participant upon a proper showing of
authority.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
9
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
VIII. SHARES PURCHASED UNDER THE PLAN
SOURCE AND LIMITATION OF SHARES
The Company has reserved for sale under the Plan 750,000* shares of
common stock, subject to adjustment upon changes in capitalization of
the Company as provided in Section X. Shares sold under the Plan may be
newly issued Shares or Shares reacquired in private transactions or
open market purchases, but all Shares sold under the Plan regardless of
source shall be counted against the 750,000* Share limitation.
If there is an insufficient number of Shares to permit the full
exercise of all existing rights to purchase Shares, or if the legal
obligations of the Company prohibit the issuance of all Shares
purchasable upon the full exercise of such rights, the Plan
Administrator shall make a pro rata allocation of the Shares remaining
available in as nearly a uniform and equitable manner as possible,
based pro rata on the aggregate amounts then credited to each
Participant's Account. In such event, payroll deductions to be made
shall be reduced accordingly and the Plan Administrator shall give
written notice of such reduction to each Participant affected thereby.
Any amount remaining in a Participant's Account immediately after all
available Shares have been purchased will be promptly remitted to such
Participant. Determination by the Plan Administrator in this regard
shall be final, binding and conclusive on all persons. No deductions
shall be permitted under the Plan at any time when no Shares are
available.
- ----------------------------
* Adjusted to reflect a 3-for-2 split of the share of Common Stock,
without par value, of the Company, effected in the form of a 50% share dividend
in accordance with ORS 60.154, declared by the Board of Directors on October 19,
1999, and paid on November 29, 1999 to shareholders of record at the close of
business on November 8, 1999.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
10
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
DELIVERY OF SHARES
As promptly as practicable after each Purchase Date, the Company shall
deliver to the Custodian the full Shares purchased for each
Participant's Account.
INTEREST IN SHARES
The rights to purchase Shares granted pursuant to this Plan will in all
respects be subject to the terms and conditions of the Plan, as
interpreted by the Plan Administrator from time to time. The
Participant shall have no interest in Shares purchasable under the Plan
until payment for the Shares has been completed at the close of
business on the relevant Purchase Date. The Plan provides only an
unfunded, unsecured promise by the Company to pay money or property in
the future. Except with respect to the Shares purchased on a Purchase
Date, an Employee choosing to participate in the Plan shall have no
greater rights than an unsecured creditor of the Company. After the
purchase of Shares, the Participant shall be entitled to all rights of
a stockholder of the Company.
IX. ADMINISTRATION
PLAN ADMINISTRATOR
At the discretion of the Board of Directors, the Plan shall be
administered by the Board of Directors or by a Committee appointed by
the Board of Directors. Each member of the Committee shall be either a
director, an officer or an Employee of the Company. Each member shall
serve for a term commencing on a date specified by the Board of
Directors and continuing until that person dies, resigns or is removed
by the Board of Directors.
POWERS
The Plan Administrator shall be vested with full authority to make,
administer and interpret the rules and regulations as it deems
necessary to administer the Plan. Any determination, decision or act of
the Plan Administrator with respect to any action in
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
11
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
connection with the construction, interpretation, administration or
application of the Plan shall be final, binding and conclusive upon all
Participants and any and all other persons claiming under or through
any Participant. The provisions of the Plan shall be construed in a
manner consistent with the requirements of Section 423 of the Code.
X. CHANGES IN CAPITALIZATION, MERGER, ETC.
RIGHTS OF THE COMPANY
The grant of a right to purchase Shares pursuant to this Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or other changes in its
capital or business structure or to merge, consolidate or dissolve,
liquidate or transfer all or any part of its divisions, subsidiaries,
business or assets.
RECAPITALIZATION
Subject to any required action by stockholders, the number of Shares
covered by the Plan as provided in Section VIII and the price per Share
shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of the Company resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend or any other
increase or decrease in the number of such Shares effected without
receipt or payment of consideration by the Company.
CONSOLIDATION OR MERGER
In the event of the consolidation or merger of the Company with or into
any other business entity, or sale by the Company of substantially all
of its assets, the successor may at its discretion continue the Plan by
adopting the same by resolution of its Board of Directors or agreement
of its partners or proprietors. If, within 90 days after the effective
date of a consolidation, merger, or sale of assets, the successor
corporation, partnership or proprietorship does not adopt the Plan, the
Plan shall be terminated in accordance with Section XIII.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
12
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
XI. TERMINATION OF EMPLOYMENT
VACATION, LEAVE OR LAYOFF
A person's Employment shall not terminate on account of an authorized
leave of absence, sick leave or vacation, or on account of a military
leave described in this Section XI, or a direct transfer between
Employers, provided such leave does not exceed 90 days or, if longer,
so long as the person's right to reemployment is guaranteed by statute
or by contract. Failure to return to work upon expiration of any leave
of absence, sick leave or vacation shall be considered a resignation
effective as of the expiration of such leave of absence, sick leave or
vacation.
MILITARY LEAVE
Any Employee who leaves the Employer directly to perform services in
the Armed Forces of the United States or in the United States Public
Health Service under conditions entitling the Employee to reemployment
rights provided by the laws of the United States, shall be on military
leave. An Employee's military leave shall expire if the Employee
voluntarily resigns from the Employer during the leave or if that
person fails to make an application for reemployment within a period
specified by such law for preservation of employment rights. In such
event, the individual's Employment shall terminate by resignation on
the day the military leave expires.
XII. STOCKHOLDER APPROVAL AND RULINGS
The Plan is expressly made subject to (a) the approval of the Plan
within twelve (12) months after the Plan is adopted by the stockholders
of the Company and (b) at the Company's election, to the receipt by the
Company from the Internal Revenue Service of a ruling in scope and
content satisfactory to counsel to the Company, affirming qualification
of the Plan within the meaning of Section 423 of the Code. If the Plan
is not so approved by the stockholders within 12 months after the date
the Plan is adopted
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
13
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
and if, at the election of the Company a ruling from the Internal
Revenue Service is sought but not received on or before one year after
this Plan's adoption by the Board of Directors, this Plan shall not
come into effect. In that case, the Account of each Participant shall
forthwith be paid to the Participant.
XIII. MISCELLANEOUS PROVISIONS
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors of the Company may at any time amend the Plan.
Except as otherwise provided herein, no amendment may adversely affect
or change any right to purchase Shares without prior approval of the
stockholders of the Company if the amendment would:
(i) Permit the sale of more Shares than are authorized under
Section VIII;
(ii) Permit the sale of Shares to employees of entities which are
not Employers;
(iii) Materially increase the benefits accruing to Participants
under the Plan; or
(iv) Materially modify the requirements as to eligibility for
participation in the Plan.
The Plan is intended to be a permanent program, but the Company
reserves the right to declare the Plan terminated at any time. Upon
such termination, amounts credited to the Accounts of the Participants
with respect to whom the Plan has been terminated shall be returned to
such Participants.
NON-TRANSFERABILITY
Neither payroll deductions credited to a Participant's Account nor any
rights with regard to the purchase of Shares under the Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by
the Participant except as provided in Section VII, and any attempted
assignment, transfer, pledge, or other disposition shall be null and
void. The Company may treat any such act as an election to withdraw
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
14
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
funds in accordance with Section VII. A Participant's rights to
purchase Shares under the Plan are exercisable during the Participant's
lifetime only by the Participant.
USE OF FUNDS
All payroll deductions received or held by the Company under the Plan
may be used by the Company for any corporate purposes and the Company
shall not be obligated to segregate the payroll deductions.
EXPENSES
All expenses of administering the Plan shall be borne by the Company.
The Company will not pay expenses, commissions or taxes incurred in
connection with sales of Shares by the Custodian at the request of a
Participant. Expenses to be paid by a Participant will be deducted from
the proceeds of sale prior to remittance.
TAX WITHHOLDING
Each Participant who has purchased Shares under the Plan shall
immediately upon notification of the amount due, if any, pay to the
Employer in cash amounts necessary to satisfy any applicable federal,
state and local tax withholding determined by the Employer to be
required. If the Employer determines that additional withholding is
required beyond any amounts deposited at the time of purchase, the
Participant shall pay such amount to the Employer on demand. If the
Participant fails to pay the amount demanded, the Employer may withhold
that amount from other amounts payable by the Employer to the
Participant, including salary, subject to applicable law.
NO INTEREST
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
15
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
No Participant shall be entitled, at any time, to any payment or credit
for interest with respect to or on the payroll deductions contemplated
herein, or on any other assets held hereunder for the Participant's
Account.
REGISTRATION AND QUALIFICATION OF SHARES
The offering of Shares hereunder shall be subject to the effecting by
the Company of any registration or qualification of the Shares under
any federal or state law or the obtaining of the consent or approval of
any governmental regulatory body which the Company shall determine, in
its sole discretion, is necessary or desirable as a condition to, or in
connection with, the offering or the issue or purchase of the Shares
covered thereby. The Company shall make every reasonable effort to
effect such registration or qualification or to obtain such consent or
approval.
RESPONSIBILITY AND INDEMNITY
Neither the Company, its Board of Directors, the Custodian, nor any
member, officer, agent or employee of any of them, shall be liable to
any Participant under the Plan for any mistake of judgment or for any
omission or wrongful act unless resulting from gross negligence,
willful misconduct or intentional misfeasance. The Company will
indemnify and save harmless its Board of Directors, the Custodian and
any such member, officer, agent or employee against any claim, loss,
liability or expense arising out of the Plan, except such as may result
from the gross negligence, willful misconduct or intentional
misfeasance of such entity or person.
PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is strictly a voluntary undertaking on the part of the
Employer and shall not constitute a contract between the Employer and
any Employee, or consideration for or an inducement or a condition of
employment of an Employee. Except as otherwise required by law, or any
applicable collective bargaining agreement, nothing contained in the
Plan shall give any Employee the right to be retained in the service of
the
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
16
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
Employer or to interfere with or restrict the right of the Employer,
which is hereby expressly reserved, to discharge or retire any
Employee at any time, with or without cause and with or without
notice. Except as otherwise required by law, inclusion under the Plan
will not give any Employee any right or claim to any benefit hereunder
except to the extent such right has specifically become fixed under the
terms of the Plan. The doctrine of substantial performance shall have
no application to any Employee, Participant, or Beneficiary. Each
condition and provision, including numerical items, has been carefully
considered and constitutes the minimum limit on performance which will
give rise to the applicable right.
SERVICE OF PROCESS
The Secretary of the Company is hereby designated agent for service or
legal process on the Plan.
NOTICE
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly
given when received by the Plan Administrator. Any notice required by
the Plan to be received by the Company prior to an Enrollment Date,
payroll period or other specified date, and received by the Plan
Administrator subsequent to such date shall be effective on the next
occurring Enrollment Date, payroll period or other specified date to
which such notice applies.
GOVERNING LAW
The Plan shall be interpreted, administered and enforced in accordance
with the Code, and the rights of Participants, former Participants,
Beneficiaries and all other persons shall be determined in accordance
with it. To the extent state law is applicable, the laws of the State
of Oregon shall apply.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
17
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
REFERENCES
Unless the context clearly indicates to the contrary, reference to a
Plan provision, statute, regulation or document shall be construed as
referring to any subsequently enacted, adopted or executed counterpart.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
18
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
EXHIBIT A
DEFINITIONS
ACCOUNT shall mean each separate account maintained for a Participant
under the Plan collectively or singly as the context requires.
Each Account shall be credited with a Participant's
contributions, and shall be charged for the purchase of
Shares. A Participant shall be fully vested in the cash
contributions to that person's Account at all times. The Plan
Administrator may create special types of Accounts for
administrative reasons, even though the Accounts are not
expressly authorized by the Plan.
BENEFICIARY shall mean a person or entity entitled under Section VII of
the Plan to receive Shares purchased by, and any remaining
balance in, a Participant's Account on the Participant's
death.
BOARD OF shall mean the Board of Directors of the Company.
DIRECTORS
CODE shall mean the Internal Revenue Code of 1986, as amended, or
the corresponding provisions of any future tax code.
COMMITTEE shall mean the Committee appointed by the Board of Directors
in accordance with Section IX of the Plan.
COMPENSATION shall mean the total cash compensation (except as otherwise
set forth below), before tax withholding, paid to an Employee
in the period in question for services rendered to the
Employer by the Employee. Compensation shall include the
earnings waived by an Employee pursuant to a salary reduction
arrangement under any cash or deferred or cafeteria plan that
is maintained by the Employer and that is intended to be
qualified under Section 401(k) or 125 of the Code. An
Employee's Compensation shall not include severance pay,
hiring or relocation bonuses, or pay in lieu of vacations or
sick leave.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
19
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
COMMON STOCK shall mean the common stock of the Company.
COMPANY shall mean RadiSys Corporation, an Oregon Corporation.
CUSTODIAN shall mean the investment or financial firm appointed by the
Plan Administrator to hold all Shares pursuant to the Plan.
CUSTODIAL shall mean the account maintained by the Custodian for a
Participant ACCOUNT under the Plan.
DISABILITY shall refer to a mental or physical impairment which is
expected to result in death or which has lasted or is expected
to last for a continuous period of twelve (12) months or more
and which causes the Employee to be unable, in the opinion of
the Company and two independent physicians, to perform his or
her duties as an Employee of the Company. Disability shall be
deemed to have occurred on the first day after the Company and
two independent physicians have furnished their opinion of
Disability to the Plan Administrator.
EMPLOYEE shall mean an individual who renders services to the Employer
pursuant to a regular-status employment relationship with such
Employer. A person rendering services to an Employer
purportedly as an independent consultant or contractor shall
not be an Employee for purposes of the Plan.
EMPLOYER shall mean, collectively, the Company and its Subsidiaries or
any successor entity that continues the Plan. All Employees of
entities which constitute the Employer shall be treated as
employed by a single company for all purposes of the Plan.
EMPLOYMENT shall mean the period during which an individual is an
Employee. Employment shall commence on the day the individual
first performs services for the Employer as an Employee and
shall terminate on the day such services cease, except as
determined under Section XI.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
20
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
ENROLLMENT shall mean the first day of each Offering.
DATE
ESPP NEW shall mean the form provided by the Company on which a
ACCOUNT FORM Participant shall elect to open an Account with the Custodian
and authorize delivery to the Custodian of all Shares issued
for the Participant's Account.
OFFERING shall mean any one of the separate overlapping eighteen (18)
month periods commencing on February 15 and August 15 of each
calendar year under the Plan other than calendar year 1999; in
calendar year 1999, the first Offering shall be a period
commencing on June 12, 1999 and ending on August 15, 2000, and
the second Offering shall be the eighteen (18) month period
commencing on August 15, 1999. The first Offering will
commence on February 15, 1996.
PARTICIPANT shall mean any Employee who is participating in any Offering
under the Plan pursuant to Section III.
PAYROLL shall mean the form provided by the Company on which a
DEDUCTION Participant shall elect to participate in the Plan and the
AUTHORIZATION Offering under the Plan and designate the percentage of that
FORM individual's Compensation to be contributed to that
individual's Account through payroll deductions.
PLAN shall mean this document.
PLAN shall mean the Board of Directors or the Committee, whichever
ADMINISTRATOR shall be administering the Plan from time to time in the
discretion of the Board of Directors, as described in Section
IX.
PURCHASE DATE shall mean the last day of the sixth, twelfth and eighteenth
one-month periods of the Offering, except for the Offering
beginning on June 12, 1999, in which Offering the Purchase
Dates shall be August 14, 1999, February 14, 2000 and August
14, 2000. For all other Offerings, since the Enrollment Dates
occur on February 15 and August 15 of each year beginning with
February 15, 1996, Purchase Dates shall occur on
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
21
<PAGE>
RADISYS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended through February 25, 2000)
February 14 and August 14 of each year beginning with
August 14, 1996.
RETIREMENT shall mean a Participant's termination of Employment on or
after attaining the age of 65 or after the Plan Administrator
has determined that the individual has suffered a Disability.
SHARE shall mean one share of Common Stock.
SUBSIDIARIES shall mean any corporation in which at least eighty percent
(80%) or more of the total combined voting power of all
classes of stock are owned directly or indirectly by RadiSys
Corporation.
VALUATION shall mean the date upon which the fair market value of Shares
DATE is to be determined for purposes of setting the price of
Shares under Section VI (that is, the Enrollment Date or the
applicable Purchase Date). If the Enrollment Date or the
Purchase Date is not a date on which the fair market value may
be determined in accordance with Section VI, the Valuation
Date shall be the first day prior to the Enrollment Date or
the Purchase Date, as applicable, for which such fair market
value may be determined.
VESTED shall mean non-forfeitable.
Initial Adoption: December 5, 1995 Last amended: February 25, 2000
(Articles VII, XI and XIII)
22
<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS
MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), made effective the 31st day
of July, 1995.
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, as amended effective February 24, 1993, and
October 28, 1993, and July 10, 1995, for certain leased space situated in the
Building known as 5959 Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same meaning in this Amendment.
3. Article 1, Section 1.01 of the Lease is amended to include within the
Premises approximately 283 square feet of Net Rentable Area located in
the Northwest Quadrant of the first floor of the Building (the
"Northwest Quadrant Space") as shown on Exhibit 1 attached hereto. The
Premises shall also be increased to include 1,754 square feet of Net
Rentable Area located in the Basement of the Building (the "Additional
Basement Space") as shown on Exhibit 2 hereto.
4. The Base Rent is $8.50 per square foot of Net Rentable Area per annum
for the Northwest Quadrant Space and $4.50 per square foot of Net
Rentable Area per annum for the Additional Basement Space.
5. Tenant will take the Northwest Quadrant Space and Additional Basement
Space "AS IS".
<PAGE>
Made as of the date first written above.
LANDLORD TENANT
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By GARY SCHUMAN By MICHAEL STEWART
--------------------------------- -----------------------------
Its Lease Manager Its President and CEO
-------------------------------- ----------------------------
2
<PAGE>
EXHIBIT 1
[Map of First Floor of Facility]
<PAGE>
EXHIBIT 2
[Map of Basement of Facility]
<PAGE>
FIFTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS
MICRO-SYSTEMS, INC., a Texas corporation ("Tenant"), made effective the 17th day
of October, 1995.
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, as amended effective February 24, 1993, and
October 28, 1993, and July 10, 1995, and July 17, 1995 for certain leased space
situated in the Building known as 5959 Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same meaning in this Amendment.
3. Tenant's preferential right to lease the two South Quadrants on the
second level of the Building, as provided for in the Third Amendment
to the Lease, dated July 10, 1995, is hereby extinguished and shall no
longer exist.
Made as of the date first written above.
LANDLORD TENANT
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By GARY SCHUMAN By MICHAEL STEWART
------------------------------- --------------------------------
Its Lease Manager Its President
------------------------------ -------------------------------
<PAGE>
SIXTH AMENDMENT TO LEASE
THIS SIXTH AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO
INC., a Delaware corporation, successor in interest to TEXAS MICRO-SYSTEMS,
INC., a Texas corporation ("Tenant"), made effective the 28th day of April,
1997.
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, as amended effective February 24, 1993, and
October 28, 1993, and July 10, 1995, and July 31, 1995, and October 17, 1995 for
certain leased space situated in the Building known as 5959 Corporate Drive,
Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same meaning in this Amendment.
3. Tenant's preferential right to lease the Northeast Quadrant on the
first floor of the Building, as provided for in Section 26.03 of the
Lease, is hereby extinguished and shall no longer exist.
Made as of the date first written above.
LANDLORD TENANT
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By GARY SCHUMAN By MICHAEL STEWART
----------------------------- --------------------------------
Its Lease Manager Its President and CEO
---------------------------- -------------------------------
<PAGE>
SEVENTH AMENDMENT TO LEASE
THIS SEVENTH AMENDMENT TO LEASE (this "Seventh Amendment") is made by and
between CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS
MICRO INC., a Delaware corporation ("Tenant"), effective the 12th day of
November, 1997.
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, and as amended effective February 24, 1993,
and October 28, 1993, and July 10, 1995, and July 31, 1995, and October 17, 1995
and April 28, 1997 for certain leased space situated in the Building known as
5959 Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same definition in this Amendment.
3. Effective November 12, 1997, Article 1, Section 1.01 of the Lease is
amended to include within the Premises approximately 8,349 square feet
of Net Rentable Area located in the Basement of the Building (the
"Additional Basement Space") as shown on Exhibit A attached hereto and
incorporated herein.
4. The Base Rent is $4.00 per square foot of Net Rentable Area per annum
through November 30, 1998 for the Additional Basement Space. Effective
December 1, 1998 the Base Rent will increase to $4.50 per square foot
of Net Rentable Area per annum.
5. Tenant will take the Additional Basement Space on an "AS IS" basis,
agreeing that it is to be used for storage purposes only, and that no
air-conditioning is to be provided to such Additional Basement Space.
Landlord reserves the right to substitute for the Additional Basement
Space an equally sized area of space in the Building (+/- 20%),
effective thirty (30) days from Landlord's written notice thereof to
Tenant. Any reasonable costs associated with the movement of
furniture, equipment or other material then in storage due to such
relocation shall be borne by
<PAGE>
Landlord, but in no event will Landlord bear responsibility for said
relocation costs in excess of $2,000.00.
6. Effective December 1, 1998, Tenant may cancel this Seventh Amendment,
upon advance written notice delivered to Landlord no later than
September 30, 1998.
Made as of the date first written above.
LANDLORD TENANT
CHEVRON U.S.A. INC. TEXAS MICRO-SYSTEMS, INC.
By GARY SCHUMAN By MICHAEL STEWART
----------------------------- --------------------------------
Its Lease Manager Its CEO
---------------------------- -------------------------------
2
<PAGE>
EXHIBIT A
[Map of Lower Level of Facility]
3
<PAGE>
EXHIBIT 21.1
RADISYS CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- ------------------------------------------------------------ ---------------
<S> <C>
RadiSys B.V. Netherlands
RadiSys GmbH Germany
RadiSys International, Inc. Oregon
RadiSys International Sales Corporation Barbados
RadiSys Ireland Limited Ireland
RadiSys Technology (Ireland) Limited Ireland
RadiSys Israel Ltd. Israel
RadiSys KK Japan
RadiSys SARL France
RadiSys UK Limited United Kingdom
Texas Microsystems United Kingdom Limited (inactive) United Kingdom
RadiSys CPD, Inc. (formerly known as Texas Micro, Inc.) Delaware
RadiSys Communication Platforms, Inc. (formerly known as
Texas Microsystems, Inc.) Delaware
Sequoia Holdings, Inc. Delaware
Sequoia Systems Japan Co., Ltd. (inactive) Japan
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-80577, No. 33-00514, No. 333-46473, No.
333-80087, No. 333-80089 and No. 333-85093) of RadiSys Corporation and
subsidiaries of our report dated January 26, 2000 relating to the consolidated
financial statements, which appears in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 26, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Portland, Oregon
March 27, 2000
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 27, 2000.
JAMES F. DALTON
-------------------------------------
(Signature)
JAMES F. DALTON
-------------------------------------
(Type or Print Name)
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 29, 2000.
RICHARD J. FAUBERT
-------------------------------------
(Signature)
RICHARD J. FAUBERT
-------------------------------------
(Type or Print Name)
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 28, 2000.
C. SCOTT GIBSON
-------------------------------------
(Signature)
C. SCOTT GIBSON
-------------------------------------
(Type or Print Name)
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 26, 2000.
DR. WILLIAM W. LATTIN
-------------------------------------
(Signature)
DR. WILLIAM W. LATTIN
-------------------------------------
(Type or Print Name)
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 27, 2000.
JEAN-CLAUDE PETERSCHMITT
-------------------------------------
(Signature)
JEAN-CLAUDE PETERSCHMITT
-------------------------------------
(Type or Print Name)
<PAGE>
POWER OF ATTORNEY
(RadiSys Form 10-K)
The undersigned constitutes and appoints GLENFORD J. MYERS and
STEPHEN F. LOUGHLIN, and each of them, as the undersigned's true and lawful
attorneys and agents, with full power of substitution and resubstitution for
the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign the RadiSys Corporation Annual Report on Form 10-K
for the year ended December 31, 1999 and any and all amendments thereto, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys and agents, and each of them, full power and authority to
do any and all acts and things necessary or advisable to be done, as fully
and to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys and agents or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Dated: March 24, 2000.
JEAN-PIERRE D. PATKAY
-------------------------------------
(Signature)
JEAN-PIERRE D. PATKAY
-------------------------------------
(Type or Print Name)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,708
<SECURITIES> 0
<RECEIVABLES> 58,619
<ALLOWANCES> 933
<INVENTORY> 41,374
<CURRENT-ASSETS> 122,171
<PP&E> 21,211
<DEPRECIATION> 22,711
<TOTAL-ASSETS> 187,563
<CURRENT-LIABILITIES> 53,308
<BONDS> 0
0
0
<COMMON> 141,030
<OTHER-SE> (6,775)
<TOTAL-LIABILITY-AND-EQUITY> 187,563
<SALES> 251,090
<TOTAL-REVENUES> 251,090
<CGS> 158,793
<TOTAL-COSTS> 75,693
<OTHER-EXPENSES> 1,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 19,997
<INCOME-TAX> 680
<INCOME-CONTINUING> 18,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,997
<EPS-BASIC> 1.18<F1>
<EPS-DILUTED> 1.11<F1>
<FN>
<F1>The Company announced a three-for-two stock split in the fourth quarter
of 1999. Shareholders on record on November 8, 1999 received three
additional shares for every two shares held on that date. The shares were
distributed on November 29, 1999.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 43,792
<SECURITIES> 0
<RECEIVABLES> 33,661
<ALLOWANCES> 1,481
<INVENTORY> 27,382
<CURRENT-ASSETS> 107,895
<PP&E> 17,011
<DEPRECIATION> 17,723
<TOTAL-ASSETS> 131,727
<CURRENT-LIABILITIES> 24,812
<BONDS> 0
0
0
<COMMON> 132,368
<OTHER-SE> 25,541
<TOTAL-LIABILITY-AND-EQUITY> 131,727
<SALES> 186,548
<TOTAL-REVENUES> 186,548
<CGS> 123,864
<TOTAL-COSTS> 54,115
<OTHER-EXPENSES> 458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,930
<INCOME-PRETAX> 10,957
<INCOME-TAX> 3,139
<INCOME-CONTINUING> 7,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,818
<EPS-BASIC> 0.49<F1>
<EPS-DILUTED> 0.48<F1>
<FN>
<F1>The Company announced a three-for-two stock split in the fourth
quarter of 1999. Shareholders of record on November 8, 1999 received
three additional shares for every two shares held on that date. The
shares were distributed on November 29, 1999.
</FN>
<FN>
Note: the 1998 Financial Data Schedule has been restated to reflect
the merger with Texas Micro, Inc. on August 13, 1999. The merger
was accounted for as a pooling-of-interests under Accounting
Principles Board Opinion No. 16.
</FN>
</TABLE>
