Back to GetFilings.com
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, 1996
Commission file number 0-26844
RADISYS CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-0945232
(State or other jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification Number)
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. (X)
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at February 6, 1997: $195,680,352. 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 February 6, 1997: 7,391,556.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into
Document which Incorporated
------------------------------- ----------------------
Proxy Statement for 1997 Annual Part III
Meeting of Shareholders
1
RADISYS CORPORATION
FORM 10-K
TABLE OF CONTENTS
Part I
- ------
Item 1 Business 3
Item 2 Properties 9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 4(a) Executive Officers of the Registrant 9
Part II
- -------
Item 5 Market for the Registrant's Common Equity and Related
Shareholder Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 15
Part III
- --------
Item 10 Directors and Executive Officers of the Registrant 15
Item 11 Executive Compensation 15
Item 12 Security Ownership of Certain Beneficial Owners and
Management 15
Item 13 Certain Relationships and Related Transactions 15
Part IV
- -------
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 16
Signatures 30
2
PART I
ITEM 1. BUSINESS
RadiSys Corporation ( "RadiSys" or the "Company") is a significant independent
designer and manufacturer of embedded computer solutions used by original
equipment manufacturers ("OEMs") for products in the manufacturing automation,
telecommunications, medical devices, transportation, retail/office automation,
and the test and measurement industries. 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 architecture and are typically capable of
running PC-compatible operating systems and application software. The Company
offers a broad spectrum of solutions, including application-specific embedded
computer subsystems, board-level modules and chip-level products.
On April 29, 1996, the Company purchased substantially all of the assets of
Intel Corporation ("Intel") that were dedicated to the design, manufacture and
sale of all standard and custom Multibus I and Multibus II products ("Multibus")
(collectively the "Acquisition"). In addition, pursuant to the terms of the
Acquisition, Intel licensed Intel's iRMX real time operating software system
("iRMX") to the Company.
Embedded Computer Market
Embedded computers are a key segment of the broad electronics market and form
the backbone and control system for many types of today's electronics systems
requiring advanced capabilities for human interface, data analysis and system
communications and control. Embedded computers differ from general purpose
computers, such as PCs, in several key respects. First, embedded computers 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 blood analyzers, patient monitors, ultrasound machines, voice message
systems, local area network routers, cellular base stations, semiconductor
manufacturing equipment, electronics assembly equipment, metal grinding
equipment, anticollision systems, intelligent highway systems, locomotive motor
control devices, bar code scanners, point of sale terminals and automated teller
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 to seven or more
years.
The embedded computer market can be segmented by annual unit volume. At unit
volumes of above about 50,000 units per year, OEMs generally decide to produce
their own solutions. At low unit volumes of less than 500 units per year, where
customized requirements such as space, cost, functionality and power usually
cannot be met efficiently by OEMs, such OEMs typically use off-the-shelf catalog
bus/board products. In the intermediate segment (between 500 and 50,000 units
per year), unit volumes are sufficient to support a significant design effort
but are not large enough to take advantage of very high volume manufacturing
channels or to support custom semiconductor designs. Industry applications
contained within this intermediate segment of the market include manufacturing
automation equipment, telecommunications equipment, medical devices,
transportation systems, retail automation equipment and test and measurement
equipment. Based on industry sources, the Company believes sales of embedded
computer solutions into the intermediate segment of the embedded computer market
represented over two-thirds of dollar sales in the total embedded computer
market in 1996.
In recent years, the increasing complexity of electronics subsystems and
components, 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 solutions.
3
Strategy
The Company's objective is to be the leading supplier of embedded computer
solutions to major OEMs in the manufacturing automation, telecommunications,
medical devices, transportation systems, test and measurement, and retail/office
automation industries. The key elements of the Company's strategy to achieve
this objective are:
LEVERAGE INTEL X86 EXPERTISE IN EMBEDDED COMPUTER MARKET. RadiSys combines the
technical expertise of hundreds of man-years of Intel x86 architecture
experience with a close working relationship with Intel to design and
manufacture innovative Intel-based solutions for its OEM customers. The Company
intends to capitalize on the widespread acceptance of the Intel x86
architecture, the availability of powerful yet inexpensive software, and the
development of flexible I/O and peripheral devices to increase adoption of Intel
x86 architecture as the preferred solution of OEMs. Additionally, the Company
and Intel's Computer Enhancement Group are working together to develop and
market chip-level and board-level products for the embedded computer market in
order to facilitate the implementation of x86 designs into a broadening array of
new OEM end products.
FOCUS ON THE HIGH VOLUME OEM MARKET. The Company is targeting the segment of the
embedded computer market where product volumes typically range from 500 to
50,000 units annually. The Company believes this segment includes the largest
number of OEM products requiring embedded computer solutions, and that sales of
embedded computer solutions into this market segment represent over two-thirds
of the aggregate dollar volume of annual embedded computer product sales. The
Company also believes that the need for complex, customer-specific embedded
computers within this segment typically requires considerable design and
manufacturing expertise, which are the Company's core strengths and the
combination of which are frequently unavailable from traditional design and
manufacturing sources.
EXPAND LONG-TERM OEM SALES OPPORTUNITIES. The Company seeks to develop and
expand long-term relationships with OEMs where it acts as a "virtual division"
by developing a close working relationship in which the OEM views RadiSys as
playing an integral role in its product development processes. This approach
allows the OEM to outsource the design and manufacture of its embedded computer
solutions while continuing to control and coordinate this process. At the same
time, this approach provides RadiSys with the opportunity to achieve attractive
unit sales volumes for products with relatively long life cycles and also
provides RadiSys with access to new product opportunities.
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 products with a variety of physical form
factors and levels of integration, from application-specific embedded computer
subsystems to board-level modules to chip-level products. The Company also
offers a broad range of solutions from standard products to custom solutions and
maintains a large and expanding library of designs, containing specifications,
logic designs, firmware, device driver software, test specifications, and
manufacturing rules. The Company believes that its broad range of solutions is
critical to its ability to find the solution that best fits its customers'
technical and business needs.
CAPITALIZE ON MANUFACTURING EXPERTISE. The Company is ISO9001 certified and its
high quality manufacturing facility, its sophisticated control systems, and its
advanced test processes enable it to meet its customers' demands for highly
reliable and rugged products. By both designing and manufacturing embedded
computer solutions, the Company offers its customers a stable, long-term source
of supply, a single point of accountability, design expertise, and reduced
time-to-market.
Products
RadiSys designs and manufactures embedded computer solutions based on the Intel
x86 architecture to address the specific requirements of its OEM customers. A
typical solution combines the level of integration, degree of customization and
specified form factors and standards required to meet the customer's needs.
INTEGRATION. The level of integration of the Company's products ranges from
complete solutions in the form of application-specific embedded computer
subsystems to board-level modules to chip-level products. The Company provides
4
its customers with alternative solutions at each of these three levels based on
the customers' needs, and uses products developed at lower levels of integration
as components of more highly integrated designs.
Application-specific embedded computers are subsystems designed to function
without additional configuration by the OEM. These subsystems can be specific
integrated configurations of standard products, semi-custom products, or highly
integrated single-board-solutions. Application-specific embedded computers
generally range in price from $500 to $4,000. The Company has approximately 100
application-specific embedded computers in production.
Board-level modules are usually designed to be components of larger systems
employing standard modular bus structures. These modules consist of printed
circuit boards such as processor boards and I/O interfaces, backplanes
(interconnect boards), power supplies and mechanical packaging. Modules are
typically sold to OEM customers who have designed a complete system comprising
boards purchased from the Company along with other boards purchased from other
suppliers and still others designed in-house. Board-level products typically
range in price from about $300 to over $3,000. The Company has over 150 module
products in production supporting the Multibus I, Multibus II, VME architectures
as well as Baby AT and ATX form factor baseboards.
Chip-level products, like modules, are used as components for higher levels of
integration and as products for direct sale to customers who build their own
board-level solutions. RadiSys has introduced three companion chips, supporting
Intel's family of long-lived embedded processors. The RadiSys R300EX and R380EX
embedded system controllers support the Intel386 EX(TM) embedded processor,
which is a highly integrated version of the standard Intel386 developed
specifically for embedded design. The RadiSys R400EX is newly introduced and
supports the Intel486(TM) family of embedded processors, including SX, DX2, and
DX4 versions as well as Intel's ultra-low power 486. Intel continues to make
specific versions of the Intel 486 available to the embedded market because of
its wide acceptance in embedded designs. The Company's companion chips make
product designs with the Intel386 EX and the family of Intel 486 processors
easier, smaller, and less expensive by integrating design features essential to
embedded designers such as integrated real time clock, watch-dog-timer, IDE disk
controllers, serial ports, and chip selects, in addition to traditional
companion chip features such as memory control, I/O chip interfacing, and timing
control, all in a single integrated device.
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.
FORM FACTORS AND STANDARDS. The form factors and standards of the Company's
products represent a large set of product parameters that characterize specific
product and customer needs. The Company has expertise across a broad range of
form factors, microprocessors, software environments and communication standards
including, but not limited to, EMC, PC/104, ISA bus, PCI bus, PCMCIA, SBC, VME
bus, VXI bus and Multibus.
SOFTWARE. The Company announced in 1996 the formation of a new Embedded Software
Operation (ESO) which will focus on OEM software platforms specific to the
embedded market. ESO is focused on extending Microsoft Windows NT with real-time
capabilities. "Real-time" is the term typically used to describe those
applications on the upper end of embedded applications that require system
response times in the sub-millisecond range. The Company expects to release its
software product in late second quarter of 1997.
Sales and Marketing
The Company typically experiences long life cycles for products designed for its
OEM customers. RadiSys views the design process as an opportunity to build
long-term OEM customer relationships. 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
5
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 markets its products primarily in North America, Western Europe and
Japan. In 1996, the Company had only one customer whose sales exceeded 10% of
total revenues; Electrocom Automation accounted for 10.1% of 1996 sales. In
North America, products are sold principally by a direct sales force. The
Company has U.S. regional offices in Philadelphia and San Jose. Each region has
a regional sales manager, and four to six sales and applications engineers. The
field sales force is supported by approximately 24 factory-based applications
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 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 Europe, the Company sells its products
through wholly owned subsidiaries in the United Kingdom, RadiSys UK Ltd., and
RadiSys International and through approximately 23 distributors throughout
Europe. RadiSys has regional sales offices in Swindon, United Kingdom; Munich,
Germany; and Eindhoven, Netherlands. In 1994, 1995 and 1996, international sales
represented approximately 16%, 17% and 27%, respectively, of revenues.
Substantially all of the Company's international sales are denominated in U.S.
dollars
The Company has established distributor relationships with Anthem,
Arrow/Schweber Electronics, Pioneer-Standard Electronics, Inc., and Wyle
Electronics in North America and approximately 23 distributors in Europe to
market the Company's chip-level and Multibus 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, 1996 consisted of 74
engineers, 92% of whom hold degrees in a technology related field, and 37
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
products. For these projects, the Company's engineering staff works closely with
the customer and the customers generally 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 is engaged in research and development of additional chip-level
products designed to give the Company's board-level products additional
competitive advantages in terms of functionality, cost, reliability, reduced
time-to-market and increased product life longevity and to capitalize on the
Company's expertise in embedded computer system design by providing innovative
chips to meet the requirements of OEM customers.
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) 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 1994, 1995 and 1996, the Company
invested $2.1 million, $3.3 million and $8.2 million, respectively, on research
and development.
6
Manufacturing
The Company currently manufactures most of the board-level products it sells.
The Company builds its products in a highly automated ISO9001 certified
manufacturing plant at its headquarters in Hillsboro, Oregon. This plant
encompasses surface-mount technology ("SMT") board assembly, test, mechanical
assembly and shipping. ISO9001 certification is the international designation,
developed by the International Standards Organization, a pan-governmental
agency, for demonstrating that the Company's systems support the production of
high quality products.
The Company has three automated lines for SMT board assembly, which are based on
equipment purchased primarily from Universal Instruments. The first line is
optimized for higher mix, lower volume products. With a higher product mix, the
line can produce approximately 3,000 boards per month and is production worthy
of 0.5mm (19 mil) ultra-fine-pitch SMT. The second and third lines use a fully
inline, full vision stencil printer and other inline equipment, can produce
approximately 11,000 boards per month and are production worthy of 0.4mm (15
mil) ultra-fine-pitch SMT. The Company estimates that, as currently configured,
the three lines have sufficient capacity on multiple-shift operation to handle
planned demand well into 1997. Each of the lines is modular and thus readily
expandable by adding additional inline equipment.
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
bed-of-nails, in-circuit and functional test equipment. Most products also pass
through highly accelerated stress screening. The 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 throughole 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
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 Maxim Integrated Products,
Inc., Cirrus Logic, Inc. and Xilinx, Inc. as sole source suppliers for other
components, for some of which 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 product cost,
product quality, design effectiveness, time-to-market, 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, the Company often competes against its OEM customers'
ability to design and manufacture satisfactory embedded computer products
in-house. A customer may be capable of manufacturing an embedded computer
product at lower cost and with better quality control than the Company can, and
may wish to use underutilized internal design and manufacturing resources. On
the other hand, if the OEM customer wishes to rely on outside expertise, desires
quicker time-to-market, is lacking internal design and/or manufacturing
resources, and wishes to avoid certain issues of product stability, new
technologies, and redesign due to end-of-life components, the customer may opt
to purchase the Company's embedded computer solution.
7
Off-the-shelf product manufacturers comprise a second set of competitors,
although this product segment is highly fragmented by physical and electrical
form factor. 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, the Company competes against embedded computer systems that rely on
non-Intel-based architectures, including the Power PC architecture manufactured
by IBM and Motorola. Motorola's 68000 family of microprocessors has achieved
relative dominance of the embedded computer market for applications requiring a
VME bus form factor.
Backlog
As of December 31, 1996, the Company's backlog was approximately $33.6 million,
as compared to $13.9 million as of December 31, 1995. The Company believes the
increase in backlog is primarily due to increased sales which partly resulted
from the acquisition of Multibus and iRMX in April 1996. 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.
Intellectual Property
The Company has two Multibus patents, but 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 no pending claims against it alleging any possible infringement
of patents or other intellectual property rights of others.
Employees
As of December 31, 1996, the Company had 356 employees, of which 280 were
regular employees and 76 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.
Forward Looking Statements
Except for the historical statements and information, this Annual Report on Form
10-K contains and from time to time the Company may issue 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 from the
forward looking statements: business conditions and growth in the electronics
industry and general economies, both domestic and international; uncertainty of
market development; dependence on a limited number of OEM customers; dependence
on limited or sole source suppliers; dependence on the relationship with Intel;
dependence on Intel's support of the embedded computer market; lower than
expected customer orders; competitive factors, including increased competition,
new product offerings by competitors and price pressures; the availability of
parts and components at reasonable prices; changes in product mix; dependence on
proprietary technology; technological difficulties and resource constraints
encountered in developing new products; and product shipment interruptions due
to manufacturing difficulties. See Items 7 and 14 of this report. 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.
8
ITEM 2. PROPERTIES
The Company leases an aggregate of approximately 80,000 square feet of office
and manufacturing space in one building in Hillsboro, Oregon and 20,000 square
feet of office space in Beaverton, Oregon. The Company also leases five small
sales offices in the U.S. and one each in Swindon, United Kingdom, Yokohama,
Japan, Eindhoven, the Netherlands and Munich, Germany. Total lease costs of all
these facilities are approximately $1.1 million per year, plus certain building
operating expenses.
The Company is in the process of negotiating an agreement to lease an
engineering design center facility of approximately 50,000 square feet to be
located adjacent to the Company's headquarters and manufacturing facility in
Hillsboro, Oregon. This facility will be built to the Company's specifications
and is expected to be ready for occupancy in early 1998. In January 1997, the
Company purchased an additional parcel of land adjacent to its headquarters and
manufacturing facility for future expansion.
ITEM 3. LEGAL PROCEEDINGS
The Company and Dr. Glenford J. Myers have been named as defendant in Taylor vs.
RadiSys Corporation, et al., filed July 26, 1996, in the Circuit Court of the
State of Oregon, in Washington County. Mr. Taylor, a former employee officer of
the Company, alleges that he was wrongfully terminated by the Company in
violation of a contract of employment and in retaliation for reporting
internally alleged accounting discrepancies. In this lawsuit, the defendant is
claiming damages of not less than $2,000,000. Subsequent to the filing of this
lawsuit, the Securities and Exchange Commission asked the Company voluntarily to
provide certain information related to its financial statements and Mr. Taylor's
allegations, and the Company promptly complied with that request. The Company
believes there is no substance to these allegations and that the ultimate result
in this lawsuit will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4(a) EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 6, 1997, the names, ages and positions held by the directors and
executive officers of the Company were as follows:
Name Age Position with the Company
---- --- -------------------------
Dr. Glenford J. Myers 50 Chairman of the Board,
President and Chief Executive Officer
Ronald A. Dilbeck 43 Vice President and General Manager,
Integrated Products Division
Robert A. Patterson 44 Vice President of Marketing
John Sonneborn 39 Vice President of Manufacturing
Brian V. Turner 37 Vice President of Finance and
Administration, and Chief Financial Officer
Stephen J. Verleye 41 Vice President and General Manager, System
Products Division
John D. Watkins 48 Executive Vice President of Worldwide Sales
9
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, M.S. from Syracuse University and B.S.E.E.
from Clarkson College.
Ronald A. Dilbeck joined the Company in May 1996 as its Vice President and
General Manager, Integrated Products Division (IPD). From 1994 to 1996, Mr.
Dilbeck was President and Chief Executive Officer of nCUBE, Inc. From 1983 to
1994, he held various engineering management positions, the most recent being
Director of Integration Services. Mr. Dilbeck holds an M.S.E.E. from Washington
State University and B.S.E.E. and B.S. Mathematics from Oregon State University.
Robert A. Patterson joined the Company in April 1987 as its Vice President of
Marketing. Mr. Patterson left the Company in January 1992 to become Vice
President of Marketing of Star Semiconductor Corporation. From March 1994, to
September 1994, he was a marketing manager at Kulicke & Soffa Industries, Inc.
Mr. Patterson rejoined the Company in October 1994. From 1976 to 1987, Mr.
Patterson held various marketing roles at Intel. Mr. Patterson holds a B.S. and
M.S. from the University of Pennsylvania and M.B.A. from the Wharton School.
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.
Brian V. Turner joined the Company in October 1995 as its Vice President of
Finance. Mr. Turner was appointed Chief Financial Officer and Vice President of
Finance and Administration in December 1995. From 1982 to October 1995, Mr.
Turner held various positions with Price Waterhouse LLP. Mr. Turner is a
certified public accountant and holds a B.B.A. in Accounting and a B.A. in
Political Science from the University of Washington.
John D. Watkins joined the Company in December 1988 as the Chief Financial
Officer and Vice President of Finance and Administration. In September 1994, Mr.
Watkins was appointed to Executive Vice President and assumed responsibilities
for sales. From 1984 to 1988, Mr. Watkins was Chief Operating Officer of
Interconnect Technology, Inc., an electronics manufacturing company. Mr. Watkins
is a certified public accountant. Mr. Watkins holds a B.S. in Economics from
Portland State University.
Stephen J. Verleye joined the Company in September 1993 as Vice President of
Marketing, and subsequently served as the Company's Vice President of Business
Development. Mr. Verleye was appointed Vice President and General Manager,
System Products Division in May 1996. From 1986 to 1993, Mr. Verleye held
various marketing management roles at Sequent Computer Systems, Inc., the most
recent being Director of Product Marketing. From 1977 to 1986, Mr. Verleye held
various sales and marketing roles at Intel. Mr. Verleye holds a B.S.E.E. from
the University of Notre Dame.
10
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 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.
High Low
---- ---
1995
Fourth Quarter (from October 20, 1995) $15 $10 3/8
1996
First Quarter $18 1/2 $ 9
Second Quarter $37 $15
Third Quarter $51 1/8 $20
Fourth Quarter $74 1/2 $38 3/4
On February 6, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $42.
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 February 6, 1997, there were approximately 146 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.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data) Year Ended December 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Consolidated Statement of Operations Data:
Revenues $10,194 $15,351 $20,241 $35,025 $81,043
Gross profit 4,443 5,938 8,336 12,033 33,655
Income from operations 116 663 1,334 2,018 13,603
Net income 284 767 1,365 1,516 9,546
Net income per share 0.08 0.20 0.35 0.35 1.30
Weighted average shares outstanding 3,768 3,823 3,884 4,355 7,362
Consolidated Balance Sheet Data:
Working Capital $ 5,793 $ 6,804 $ 7,917 $31,808 $45,830
Total Assets 8,894 9,712 12,367 39,112 80,253
Long term obligations, excluding 884 648
current portion
Total shareholders' equity 7,317 8,126 9,649 34,819 56,778
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Total revenue was $81.0 million for 1996, compared to $35.0 million for 1995.
Net income was $9.5 million for 1996, an increase of 530% from $1.5 million for
1995. Revenues and net income increased primarily due to the purchase of
Multibus and iRMX from Intel in April 1996 and higher revenues from design wins
ramping into production during 1996. Net income for 1996 was also materially
affected by the increase in the Company's effective tax rate from 30.7% in 1995
to 35% in 1996.
Except for the historical statements and information, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains 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 from the forward looking statements: business
conditions and growth in the electronics industry and general economies, both
domestic and international; uncertainty of market development; dependence on a
limited number of OEM customers; dependence on limited or sole source suppliers;
dependence on the relationship with Intel; dependence on Intel's support of the
embedded computer market; lower than expected customer orders; competitive
factors, including increased competition, new product offerings by competitors
and price pressures; the availability of parts and components at reasonable
prices; changes in product mix; dependence on proprietary technology;
technological difficulties and resource constraints encountered in developing
new products; and product shipment interruptions due to manufacturing
difficulties. The forward looking statements contained in this MD&A regarding
industry trends, product development and introductions, and liquidity and future
business activities should be considered in light of these factors.
On April 29, 1996, the Company purchased substantially all of the assets of
Intel that were dedicated to the design, manufacture and sale of all standard
and custom Multibus I and Multibus II products ("Multibus") (collectively the
"Acquisition"). In addition, pursuant to the terms of the Acquisition, Intel
licensed Intel's iRMX real time operating software system ("iRMX") to the
Company. The Acquisition was accounted for using the purchase method. The
results of operations for Multibus 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, 1994, 1995 and 1996.
Year Ended December 31,
1994 1995 1996
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of sales 58.8 65.6 58.5
-------- -------- --------
Gross margin 41.2 34.4 41.5
Research and development 10.5 9.4 10.1
Selling, general and administrative 24.1 19.2 14.6
-------- -------- --------
Income from operations 6.6 5.8 16.8
Interest income, net 0.5 0.5 1.3
-------- -------- --------
Income before income tax provision 7.1 6.3 18.1
Income tax provision 0.3 2.0 6.3
-------- -------- --------
Net income 6.8% 4.3% 11.8%
======== ======== ========
Years Ended December 31, 1994, 1995, and 1996
Revenues. Revenues increased 131% to $81.0 million for 1996 from $35.0 million
for 1995. The increase in revenues in 1996 resulted primarily from the
acquisition of Multibus from Intel on April 29, 1996 and from volume increases
in OEM sales. Additionally, included within revenues for 1996 is $1.4 million of
royalty payments from Intel in connection with backlog retained by Intel
pursuant to the terms of the Acquisition.
Revenues increased 73% to $35.0 million for 1995 from $20.2 million for 1994.
The increase for 1995 was primarily the result of the onset of significant
custom OEM sales. This reflects historical trends in which the Company initially
focused its sales effort on standard board-level products offered through sales
representatives to a wide variety of customers who typically purchased in
relatively small unit volumes. In 1992, the Company began to focus significantly
more effort on selling to large and mid-sized OEMs by substantially increasing
its direct sales force. As a result of this change in focus, revenues increased
substantially.
12
However, because of the relatively long sales cycles associated with OEM
customers, increases in both absolute revenues and the percentage of revenues
represented by OEM sales have occurred gradually over time. For 1996, sales to
the Company's 25 largest customers constituted 73% of revenues, as compared to
80% and 70% for 1995 and 1994, respectively.
GROSS MARGIN. Gross margin for 1996 increased to 41.5% from 34.4% for 1995
primarily as a result of royalties received from Intel for backlog retained in
connection with the Multibus acquisition, component price decreasing faster than
price changes to the Company's customers, the mix of product sold through
distributors versus direct sales, and product mix for 1996 consisting of a
larger portion of higher margin products shipped relative to lower margin
products shipped. Additionally, included within cost of goods sold for 1996 is
$1.3 million of inventory valuation adjustments that resulted from purchase
accounting in connection with the Multibus acquisition. Gross margins are
expected to return to targeted levels in future periods, which are lower than
those achieved in 1996. Gross margin decreased to 34.4% for 1995 from 41.2% for
1994 primarily as a result of increased OEM sales.
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. Indirect manufacturing costs have steadily decreased from 1994
through 1996 as a result of increases in operating efficiencies associated with
higher unit production volumes.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 149% to
$8.2 million for 1996 from $3.3 million for 1995, primarily as a result of
increased investment in new product development and costs of enhancements to
existing products. Also included within research and development for 1996 is
$225,000 to expense in-process research and development acquired in connection
with the Multibus acquisition. The Company continues to invest in new design
wins for OEM customers and the dollar increases reflect steady increases in the
number of employees working in research and development.
Research and development expenses increased 55% to $3.3 million for 1995 from
$2.1 million for 1994. This increase reflected the Company's continued
investment in new product development and costs of enhancements to existing
products.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 76% to $11.8 million for 1996 from $6.7 million for 1995, and
38% to $6.7 million for 1995 from $4.9 million for 1994. Selling, general and
administrative expense have increased primarily as a result of increased
personnel, facilities, and travel, to support higher levels of sales since 1994
and to support the acquired Multibus operations in 1996. Selling, general and
administrative expenses have declined as a percentage of revenues to 14.6% for
1996, from 19.2% and 24.1% for 1995 and 1994, respectively, primarily as a
result of operating efficiencies achieved by spreading fixed costs over a larger
revenue base, offset partially by increases in costs required to expand
international operations.
INTEREST INCOME, NET. Interest income, net increased 537% to $1.1 million for
1996 from $0.2 million for 1995, and increased 81% for 1995 from $94,000 for
1994. The increases for 1996 and 1995 were primarily the result of interest
income earned from the net proceeds of the Company's initial public offering in
October 1995. These increases were partially offset in 1995 by increased
interest expense as a result of the Company entering into a long-term lease
agreement in the second quarter of 1995 to finance certain capital equipment,
and the Company drawing down on its line of credit agreement in the third
quarter of 1995.
INCOME TAX PROVISION. The income tax provisions for 1996, 1995 and 1994 reflect
effective income tax rates of 35%, 30.7%, and 4.4%, respectively. The increases
in the provision for income tax are primarily attributable to the exhaustion of
the majority of the Company's tax loss carryforwards in 1994 and the depletion
of tax credits in 1995.
13
Liquidity and Capital Resources
As of December 31, 1996, the Company had $24.6 million in cash and short-term
investment grade securities, which represents the Company's principal source of
liquidity. As of December 31, 1996, the Company had working capital of
approximately $45.8 million. The working capital balance increased primarily due
to cash generated from operations and the increase in accounts receivable and
inventories as a result of the acquisition of Multibus in April 1996.
Net cash provided by or (used for) operating activities was $10,622, $(2,961),
and $672 for 1996, 1995 and 1994, respectively. The increase in net cash
provided by operating activities in 1996 was largely attributable to enhanced
profitability offset by increases in accounts receivable of $13.4 million and in
inventories of $5.9 million. These increases were largely attributable to
expansion of the Company's operations, including the acquisition of Multibus in
April 1996.
Commencing September 30, 1996, the Company entered into a new $10.0 million line
of credit with a bank. Amounts outstanding under the line of credit will accrue
interest at an annual rate equal to the lender's prime rate. The Company has not
drawn any funds under this line of credit.
Capital expenditures were $7,240, $2,972, and $984 in 1996, 1995 and 1994,
respectively. These capital expenditures were primarily for the purchase of
leasehold improvements, manufacturing equipment, and plant modernization. The
Company moved to a new headquarters and manufacturing facility in October 1996.
In addition to certain tenant improvements and furniture and fixtures which will
be purchased in connection with this new facility, the Company purchased in
early 1996 two adjacent parcels of land and in early 1997 one adjacent parcel of
land for future expansion. Capital expenditures for the next 12 months,
including expenditures related to a second engineering building, are expected to
range from $4.0 million to $7.0 million.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
Independent Accountants' Report 16
Consolidated Statement of Operations for years ended
December 31, 1994, 1995 and 1996 17
Consolidated Balance Sheets at December 31, 1995 and 1996 18
Consolidated Statement of Changes in Shareholders' Equity
for years ended December 31, 1994, 1995 and 1996 19
Consolidated Statement of Cash Flows for years ended
December 31, 1994, 1995 and 1996 20
Notes to Consolidated Financial Statements 21
14
Quarterly Financial Data (Unaudited)
(In thousands, except per share amounts)
Year Ended December 31, 1995 Year Ended December 31, 1996
---------------------------- ----------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Revenues $6,673 $8,169 $9,540 $10,643 $11,065 $20,034 $22,459 $27,485
Gross profit 2,454 2,852 3,269 3,458 3,667 8,066 10,453 11,469
Income from operations 252 327 688 751 634 2,795 4,910 5,264
Net income 203 222 461 630 550 1,996 3,379 3,621
Net income per share 0.05 0.06 0.11 0.11 0.09 0.27 0.43 0.46
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
Stockholders to be held on May 20, 1997, 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
"Compliance with Section 16(a) 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.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards 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.
PRICE WATERHOUSE LLP
Portland, Oregon
January 27, 1997
16
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
1994 1995 1996
---- ---- ----
Revenues $ 20,241 $ 35,025 $ 81,043
Cost of sales 11,905 22,992 47,388
---------- ---------- ----------
Gross profit 8,336 12,033 33,655
Research and development 2,130 3,301 8,222
Selling, general and administrative 4,872 6,714 11,830
---------- ---------- ----------
Income from operations 1,334 2,018 13,603
Interest income, net 94 170 1,083
---------- ---------- ----------
Income before income tax provision 1,428 2,188 14,686
Income tax provision 63 672 5,140
---------- ---------- ----------
Net income $ 1,365 $ 1,516 $ 9,546
========== ========== ==========
Net income per share $ 0.35 $ 0.35 $ 1.30
========== ========== ==========
Weighted average number of common and common equivalent
shares outstanding 3,884 4,355 7,362
========== ========== ==========
The accompanying notes are an integral part of this statement.
17
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
December 31,
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 10,236 $ 24,626
Short term investments 10,922
Accounts receivable 6,869 20,265
Other receivables 139 3,396
Inventories 6,380 17,834
Other current assets 374 742
Deferred income taxes 297 1,794
--------------- -------------
Total current assets 35,217 68,657
Property and equipment 3,179 11,171
Other assets 716 425
--------------- -------------
Total assets $ 39,112 $ 80,253
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,790 $ 11,461
Income taxes payable 147 2,996
Accrued wages and bonuses 783 2,230
Accrued warranty costs 334 1,227
Accrued sales discounts 1,360
Other accrued liabilities 141 2,139
Notes payable 1,200
Current portion of capital lease obligation 214 214
--------------- -------------
Total current liabilities 3,409 22,827
--------------- -------------
Obligations under capital lease 884 648
--------------- -------------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 15,000,000 shares authorized
6,014,709 and 7,388,410 shares issued and 33,627 45,061
outstanding
Warrants 1,200
Cumulative translation adjustment (108) (329)
Retained earnings 1,300 10,846
--------------- -------------
Total shareholders' equity 34,819 56,778
--------------- -------------
Total liabilities and shareholders' equity $ 39,112 $ 80,253
=============== =============
The accompanying notes are an integral part of this statement.
18
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share amounts)
Page 1 of 2
Preferred Stock
Series A Series B Series C Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount Warrants
------ ------ ------ ------ ------ ------ ------ ------ --------
Balances, December 31, 1993 355,556 1,500 1,820,988 $ 4,917 2,159,504 $ 2,973 1,372,752 $ 322 $
Collection of note receivable
Shares issued pursuant to
benefit plans 111,328 156
Issuance of common stock 3,030 10
Repurchase of common stock (4,910) (13)
Net income for the year
------- ------ --------- ------ --------- ------ --------- ------ --------
Balances, December 31, 1994 355,556 1,500 1,820,988 4,917 2,159,504 2,973 1,482,200 475
Shares issued pursuant to
benefit plans 58,524 106
Issuance of common stock 2,175,000 23,656
Conversion of preferred stock (355,556) (1,500) (1,820,988) (4,917) (2,159,504) (2,973) 2,298,985 9,390
Translation adjustment
Net income for the year
------- ------ --------- ------ --------- ------ --------- ------ --------
Balances, December 31, 1995 0 0 0 0 0 0 6,014,709 33,627
Shares issued pursuant to 73,701 365
benefit plans
Tax effect of options exercised 569
Translation adjustment
Stock issued for acquisition 1,300,000 10,500
Warrants issued for acquisition 1,200
Net income for the year
------- ------ --------- ------ --------- ------ --------- ------ --------
Balances, December 31, 1996 0 $ 0 0 $ 0 0 $ 0 7,388,410 $45,061 $ 1,200
======= ====== ========= ====== ========= ====== ========= ======= ========
The accompanying notes are an integral part of this statement.
19a
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share amounts)
Page 2 of 2
Cumulative Retained
Notes translation (deficit)
receivable adjustment earnings Total
---------- ---------- -------- -----
Balances, December 31, 1993 $ (5) $ $ (1,581) $ 8,126
Collection of note receivable 5 5
Shares issued pursuant to
benefit plans 156
Issuance of common stock 10
Repurchase of common stock (13)
Net income for the year 1,365 1,365
---------- ---------- -------- ------
Balances, December 31, 1994 0 (216) 9,649
Shares issued pursuant to
benefit plans 106
Issuance of common stock 23,656
Conversion of preferred stock
Translation adjustment (108) (108)
Net income for the year 1,516 1,516
---------- ---------- -------- ------
Balances, December 31, 1995 0 (108) 1,300 34,819
Shares issued pursuant to 365
benefit plans
Tax effect of options exercised 569
Translation adjustment (221) (221)
Stock issued for acquisition 10,500
Warrants issued for acquisition 1,200
Net income for the year 9,546 9,546
---------- ---------- -------- ------
Balances, December 31, 1996 $ 0 $ (329) $ 10,846 $56,778
========== ========== ======== =======
The accompanying notes are an integral part of this statement.
19b
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
1994 1995 1996
---- ---- ----
Cash flows from operating activities:
Net income $ 1,365 $ 1,516 $ 9,546
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 893 1,435 2,286
Deferred income taxes (260) (37) (1,497)
Net changes in current assets and current liabilities:
Increase in accounts receivable (1,781) (3,053) (13,396)
Decrease in other receivables 1,543
Increase in inventories (520) (3,136) (5,857)
(Increase) decrease in other assets (157) (163) 87
Increase in accounts payable 607 252 9,671
Increase (decrease) in income tax payable 298 (151) 2,849
Increase in accrued wages and bonuses 137 218 1,447
Increase in accrued warranty costs 56 114 893
Increase in accrued sales discounts 1,360
Increase in other accrued liabilities 34 44 1,690
---------- ---------- ----------
Net cash provided by (used for) operating activities 672 (2,961) 10,622
---------- ---------- ----------
Cash flows from investing activities:
(Increase) decrease in short term investments (10,922) 10,922
Capital expenditures (984) (1,704) (7,240)
Capitalized software production costs (319) (626) (391)
---------- ---------- ----------
Net cash (used for) provided by investing activities (1,303) (13,252) 3,291
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from line of credit 1,700
Repayment of line of credit (1,700)
Issuance of common stock, net 153 23,762 934
Payments received on shareholder notes 5
Payments on capital lease obligation (170) (236)
---------- ---------- ----------
Net cash provided by financing activities 158 23,592 698
---------- ---------- ----------
Effect of exchange rate changes on cash (108) (221)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (473) 7,271 14,390
Cash and cash equivalents, beginning of period 3,438 2,965 10,236
---------- ---------- ----------
Cash and cash equivalents, end of period $ 2,965 $ 10,236 $ 24,626
========== ========== ==========
The accompanying notes are an integral part of this statement.
20
RADISYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
1. Significant Accounting Policies
Organization of the Company
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.
Principles of consolidation
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.
Cash and cash equivalents
Cash and cash equivalents include short-term investments with an original
maturity of less than three months.
Revenue recognition
The Company recognizes revenue from non-distributor product sales upon shipment.
For sales through distributors, the Company recognizes revenue upon shipment of
the Company's product from the distributor. The Company may grant certain sales
discounts to distributors. Such sales discounts are accrued at the time revenues
are recorded for distributor sales.
Accounts receivable
Trade accounts receivable are net of an allowance for doubtful accounts of $233
and $706 at December 31, 1995 and 1996, 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.
Inventories
Inventories are stated at the lower of cost or market. The Company uses the
first-in, first-out (FIFO) method to determine cost. Inventories consist of:
December 31,
--------------------------
1995 1996
---- ----
Raw materials $ 3,835 $ 12,555
Work in process 270 3,538
Finished goods 2,275 1,741
------------ ------------
$ 6,380 $ 17,834
============ ============
21
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 $110 and $529 at December 31, 1995, and 1996, respectively.
Property and Equipment
Property and equipment is recorded at cost and depreciated for financial
reporting purposes on a straight-line basis over estimated useful lives of three
to five years. Equipment under capital leases is amortized on a 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, 1996 totaled
$1,268 with accumulated amortization of $402.
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 $582 and $338 are
included in other assets at December 31, 1995 and 1996, respectively.
Amortization of software production costs in 1995 and 1996 aggregated $378 and
$452, respectively.
Cash flows
For purposes of the Consolidated Statement of Cash Flows, the Company made cash
payments for income taxes of $0, $547 and $3,205 for the years ended December
31, 1994, 1995 and 1996, respectively. The Company entered into capital leases
aggregating $1,268 during 1995. These capital expenditures and the related
financing have been excluded from the Consolidated Statement of Cash Flows.
Fair value of financial assets and liabilities
The Company estimates the fair value of its monetary assets and liabilities
based upon the existing interest rates related to such assets and liabilities
compared to the current market rates of interest for instruments of a similar
nature and degree of risk. The Company estimates that all of its monetary assets
and liabilities approximate fair value as of December 31, 1995 and 1996.
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 taken directly to a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
in income.
22
Certain risks and uncertainties
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.
Recapitalization
Effective August 22, 1995, the Company's shareholders approved a 1 for 3.3
reverse stock split. The reverse stock split, applied retroactively, reduced the
number of common shares issued and outstanding. All references in the
accompanying consolidated financial statements to the number of common shares,
per share amounts and options exercisable into common stock have been restated
to reflect the reverse stock split.
Net income per share
Net income per share is based on the weighted average number of shares of common
stock and common stock equivalents (stock options and warrants) outstanding
during the periods, computed using the treasury stock method for stock options
and warrants. In accordance with Staff Accounting Bulletin Number 83 of the
Securities and Exchange Commission, stock options granted at prices below the
proposed initial public offering price and shares of common stock issued during
the twelve-month period immediately preceding the initial public offering have
been considered outstanding for all periods using the treasury stock method and
the initial public offering price.
2. Income Taxes
The provision for income taxes consists of the following:
Year Ended December 31,
1994 1995 1996
---- ---- ----
Currently payable:
Federal $ 267 $ 532 $ 5,417
State 56 182 1,220
--------- --------- ---------
323 714 6,637
--------- --------- ---------
Deferred:
Federal 119 201 (1,180)
State 51 (14) (198)
--------- --------- ---------
170 187 (1,378)
--------- --------- ---------
Decrease in valuation allowance (430) (229) (119)
--------- --------- ---------
Total provision $ 63 $ 672 $ 5,140
========= ========= =========
The Company utilized $713, $10, and $15 in net operating loss carryforwards in
1994, 1995 and 1996, respectively.
23
The provision for income tax differs from the amount computed by applying the
statutory federal income tax rate to pretax income as a result of the following
differences:
Year Ended December 31,
1994 1995 1996
---- ---- ----
Statutory federal tax rate 34.0% 34.0% 35.0%
Increase (decrease) in rates resulting from:
State taxes 5.0 5.0 4.5
Deferred tax asset valuation allowance (36.1) (10.3) (0.8)
Other 1.5 2.0 (3.7)
----- ----- -----
Effective tax rate 4.4% 30.7% 35.0%
===== ===== =====
Deferred tax assets are comprised of the
following components:
December 31,
1995 1996
-------- --------
Warranty reserve $ 136 $ 491
Accrued expenses 810
Credit carryforwards 257
Other 23 493
-------- --------
Gross deferred tax asset 416 1,794
Deferred tax asset valuation allowance (119)
-------- --------
Net deferred tax asset $ 297 $ 1,794
======== ========
3. Property and Equipment
December 31,
1995 1996
---- ----
Land $ 33 $ 1,230
Manufacturing Equipment 3,654 8,472
Office Equipment 3,040 5,548
Leasehold Improvements 284 1,129
---------- -----------
7,011 16,379
Less: Accumulated Depreciation 3,832 5,208
========== ===========
$ 3,179 $ 11,171
========== ===========
4. Commitments and Contingencies
Line of Credit
Commencing September 30, 1996, the Company entered into a $10.0 million
unsecured line of credit, with an interest rate based upon the lower of the IBOR
plus 1.25 to 2.0% or the bank's prime rate. The line of credit expires on
September 30, 1997. The Company has not drawn any funds under this line of
credit.
24
Operating leases
The Company leases its facilities and office equipment under non-cancelable
operating leases which require minimum lease payments as follows at
December 31, 1996:
Year Ending Operating
December 31, leases
------------ ------
1997 $ 1,094
1998 1,042
1999 1,050
2000 1,044
2001 899
Thereafter 10,922
--------
$ 16,051
========
Rent expense related to these operating leases aggregated $342, $352 and $330 in
1994, 1995 and 1996, respectively.
During 1995, the Company entered into capital leases for certain manufacturing
equipment. The minimum payments under these leases are as follows:
Year Ending Capital
December 31, leases
------------ ------
1997 $ 289
1998 289
1999 289
2000 75
---------
942
Less: amount representing interest (80)
---------
Present value of lease payments 862
Less: portion due in the next year (214)
---------
Long-term portion of capital lease obligation $ 648
=========
Litigation
In July 1996, a former officer of the Company filed suit for wrongful
termination. This suit seeks damages of not less than $2,000,000. The Company
believes that there is no substance to this claim and does not believe this
claim will have a material adverse effect on the Company's financial position or
results of operations.
25
5. Export Sales and Major Customers
Export sales were $3,239, $6,061 and $22,072 in 1994, 1995 and 1996,
respectively. Such export sales were made to customers in the following
countries:
Year Ended December 31,
Country 1994 1995 1996
- ------- ---- ---- ----
Japan $ 960 $ 678 $ 2,542
The Netherlands 303 1,912 4,865
Sweden 1,361 395 3,600
Switzerland 517 2,534 3,678
Other 98 542 7,387
-------- -------- --------
Total $ 3,239 $ 6,061 $ 22,072
======== ======== ========
One customer accounted for 10.4% and 10.1% of 1995 and 1996 sales, while no
single customer accounted for more than 10 percent of 1994 sales.
6. Shareholders' Equity
Common stock
On October 20, 1995, the Company sold 2,175,000 shares of common stock in an
initial public offering. Net proceeds to the Company, after deducting
underwriting discounts and offering expenses, was approximately $23.7 million.
In connection with such offering, all outstanding shares of preferred stock and
preferred stock warrants were converted into 2,298,985 shares of common stock.
Stock option plan
During 1988 and 1995, the shareholders approved stock option plans. First time
options granted to new employees become exercisable one-third annually, with no
options exercisable in the first year following the grant date. Options granted
to existing employees are not exercisable until between the second and fourth
anniversary of the date of grant. 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, 1994, 1995 and 1996 was immaterial. The
table below summarizes the Company's stock option activity:
1994 1995 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- ---------- --------- --------
Beginning balance 260,914 1.68 177,796 2.45 359,321 7.71
Granted 89,030 3.30 247,307 9.98 515,052 34.00
Canceled (60,820) 2.36 (7,258) 2.80 (51,308) 12.30
Exercised (111,328) 1.40 (58,524) 1.81 (45,424) 3.91
======== ========= ========= ========== ========= ========
Ending Balance 177,796 2.45 359,321 7.71 777,641 26.08
======== ========= ========= ========== ========= ========
26
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
Weighted
Number of Weighted Average Remaining
Exercise Price Range Shares Average Price Contractual Life
----------------------------- ------------- -------------- ----------------
$0 - $13.50 356,517 $ 8.10 6.41
$14.50 - $25.50 112,250 $23.72 7.57
$26.00 - $44.50 128,200 $35.52 5.37
$45.50 - $58.50 180,574 $56.33 5.86
$68.88 100 $68.88 4.83
============= ============== ===============
777,641 $26.08 6.31
============= ============== ===============
Options exercisable at December 31, 1996 totaled 380,591 shares at a weighted
average exercise price of $11.75. Options available for grant at December 31,
1996 totaled 439,530 shares.
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 250,000 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 1995 and 1996, the Company issued 0 and 28,277
shares under the plan, respectively.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
The Company has elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25; however, as required by SFAS 123 the
Company has computed for pro forma disclosure purposes the value of options
granted during 1995 and 1996 using the Black-Scholes option pricing model. The
weighted average assumptions used for stock option grants for 1995 and 1996 were
a risk free interest rate of 5.5% and 6%, respectively, an expected dividend
yield of 0% and 0%, respectively, an expected life of 5 years and 4 years,
respectively, and an expected volatility of 0% and 50%, respectively. The
weighted average assumptions used for ESPP rights for 1996 was a risk free
interest rate of 5.7%, an expected dividend yield of 0%, an expected life of 1.5
years and an expected volatility of 50%. The weighted-average fair value of ESPP
rights granted in 1996 was $242.
Options were 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, 1995 and 1996, the total value of the options granted
was computed to be $612 and $9,205, 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 SFAS 123, the
Company's net income and pro forma net income per share would have been reported
as follows:
Year Ended Year Ended
December 31, 1995 December 31, 1996
------------------------------- --------------------------------
Net Income Earnings per Share Net Income Earnings per Share
---------- ------------------ ---------- ------------------
As Reported $1,516 $0.35 $9,546 $1.30
Pro Forma $1,510 $0.35 $8,533 $1.19
27
The effects of applying SFAS 123 for providing pro forma disclosure for 1995 and
1996 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.
7. Multibus Acquisition
On April 29, 1996, the Company purchased substantially all of the assets of
Intel Corporation ("Intel") that were dedicated to the design, manufacture and
sale of all standard and custom Multibus I and Multibus II products ("Multibus")
(collectively the "Acquisition"). In addition, pursuant to the terms of the
Acquisition, Intel licensed certain Intel software to the Company. The purchase
price consisted of 1,300,000 shares of the Company's common stock ("Common
Stock") and warrants to purchase an additional 300,000 shares of Common Stock
exercisable within 24 months at prices per share ranging from $13.50 to $15.00,
plus an aggregate of $1.2 million in cash to be paid in 1997.
The Acquisition was accounted for using the purchase method. The results of
operations for Multibus have been included in the financial statements since the
date of acquisition. The aggregate purchase price of $13.2 million (including
direct costs of acquisition) was allocated to purchased inventory, equipment and
in-process research and development. Included within cost of goods sold for 1996
is $1.3 million of inventory valuation adjustments that resulted from purchase
accounting and within research and development for 1996 is $225,000 to expense
in-process research and development acquired in connection with the Multibus
acquisition. The non cash portions have been excluded from the accompanying
Consolidated Statement of Cash Flows.
Included within other receivables is approximately $2.7 million related to
inventories to be delivered by Intel to the Company by March 1997 pursuant to
the Acquisition agreement. Included within accounts payable is approximately
$1.3 million related to inventories purchased from Intel.
The following unaudited pro forma information presents the results of operations
of the Company as if the Acquisition had occurred as of the beginning of the
respective periods, after giving effect to assumed increases in operating,
research and development, and general and administrative costs to operate the
business, depreciation of acquired fixed assets, expensing acquired in process
research and development, and adjustments to reflect the estimated impact on tax
expense of the Acquisition. The unaudited pro forma financial statements are not
necessarily indicative of what actual results would have been had the Multibus
acquisition occurred at the beginning of the respective periods.
Year Ended December 31,
1995 1996
---- ----
(unaudited)
Revenues $ 110,152 $ 101,387
Net Income $ 6,857 $ 11,216
Earnings $ 1.15 $ 1.42
per share
28
(a)(2) Financial Statement Schedule
- ------ ----------------------------
Page in Form 10-K
-----------------
Schedule II - Valuation and Qualifying Accounts 31
Report of Independent Accountants on Financial Statement
Schedule 32
(a)(3) Exhibits
- ------ --------
Exhibit
No. Description
- ------- -----------
+2.1 Asset Purchase Agreement between Radisys Corporation and Intel
Corporation, dated as of April 29, 1996. Incorporated by reference
as 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 as Exhibit 2.2 to the Company's
Current Report on Form 8-K dated April 29, 1996.
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").
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. Incorporated by reference to Exhibit 3.1
to the Form S-1.
*10.3 1996 Employee Stock Purchase Plan. Incorporated by reference to
Appendix A to the Company's Proxy Statement related to its annual
meeting held on May 28, 1996, which was filed with the Securities
and Exchange Commission on April 15, 1996.
*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 Sublease, dated July 13, 1992, between Sequent Computer Systems,
Inc., and the Registrant and Consent Agreement related thereto.
Incorporated by reference to Exhibit 10.6 to the Form S-1.
10.8 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.
10.9 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.
*10.10 Form of Indemnity Agreement. Incorporated by reference to
Exhibit 10.9 to the Form S-1.
10.11 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.
22.1 List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
+ 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, 1996.
(c) See (a)(3) above.
- --- -----------------
(d) See (a)(2) above.
- --- -----------------
29
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.
Dated: February 12, 1997 RADISYS CORPORATION
By: DR. GLENFORD J. MYERS
-------------------------------------
Dr. Glenford J. Myers
Chairman of the Board, President and
Chief Executive Officer
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 February 12, 1997.
Signature Title
- --------- -----
DR. GLENFORD J. MYERS Chairman of the Board,
- ------------------------- President and
Dr. Glenford J. Myers Chief Executive Officer
(Principal Executive Officer)
BRIAN V. TURNER Vice President of Finance and Administration and
- ------------------------- Chief Financial Officer
Brian V. Turner (Principal Financial and Accounting Officer)
Directors:
JAMES F. DALTON Director
- -------------------------
James F. Dalton
RICHARD J. FAUBERT Director
- -------------------------
Richard J. Faubert
C. SCOTT GIBSON Director
- -------------------------
C. Scott Gibson
DR. WILLIAM W. LATTIN Director
- -------------------------
Dr. William W. Lattin
JEAN CLAUDE PETERSCHMITT Director
- -------------------------
Jean Claude Peterschmitt
30
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Balance at
beginning Charged to Balance at
of costs and end of
period expenses Deductions period
-------- -------- -------- --------
Allowance for doubtful accounts:
December 31, 1994 $ 64,000 $ 72,000 $(18,000) $ 118,000
December 31, 1995 118,000 163,000 (48,000) 233,000
December 31, 1996 233,000 548,000 (75,000) 706,000
Warranty reserve:
December 31, 1994 164,000 158,000 (102,000) 220,000
December 31, 1995 220,000 466,000 (352,000) 334,000
December 31, 1996 334,000 1,154,000 (261,000) 1,227,000
Obsolescence reserve:
December 31, 1994 124,000 95,000 (33,000) 186,000
December 31, 1995 186,000 125,000 (201,000) 110,000
December 31, 1996 110,000 449,000 (30,000) 529,000
31
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
and Shareholders of
RadiSys Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 27, 1997, also included an audit of the Financial Statement
Schedule listed in Item 14(a) 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.
Price Waterhouse LLP
Portland, Oregon
January 27, 1997
32
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
+2.1 Asset Purchase Agreement between Radisys Corporation
and Intel Corporation, dated as of April 29, 1996.
Incorporated by reference as 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
as Exhibit 2.2 to the Company's Current Report on
Form 8-K dated April 29, 1996.
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").
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. Incorporated by reference
to Exhibit 3.1 to the Form S-1.
*10.3 1996 Employee Stock Purchase Plan. Incorporated by
reference to Appendix A to the Company's Proxy Statement
related to its annual meeting held on May 28, 1996, which
was filed with the Securities and Exchange Commission on
April 15, 1996.
*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 Sublease, dated July 13, 1992, between Sequent
Computer Systems, Inc., and the Registrant and
Consent Agreement related thereto. Incorporated by
reference to Exhibit 10.6 to the Form S-1.
10.8 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.
10.9 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.
*10.10 Form of Indemnity Agreement. Incorporated by
reference to Exhibit 10.9 to the Form S-1.
10.11 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.
22.1 List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
27.1 Financial Data Schedule
+ Confidential treatment of portions of this document has been granted.
* This Exhibit constitutes a management contract or compensatory plan or
arrangement.