<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FLIR SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OREGON 3812 93-0708501
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
16505 S.W. 72ND AVENUE
PORTLAND, OREGON 97224
(503) 684-3731
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT P. DALTRY, CHIEF EXECUTIVE OFFICER
FLIR SYSTEMS, INC.
16505 S.W. 72ND AVENUE
PORTLAND, OREGON 97224
(503) 684-3731
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------
COPIES TO:
GREGORY E. STRUXNESS, ESQ. KENNETH R. LAMB, ESQ.
ATER WYNNE HEWITT DODSON & SKERRITT, GIBSON, DUNN & CRUTCHER LLP
LLP ONE MONTGOMERY STREET
222 S.W. COLUMBIA, SUITE 1800 SAN FRANCISCO, CA 94104
PORTLAND, OR 97201 (415) 393-8200
(503) 226-1191
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,770,500 $19.44 $53,858,520 $15,888
</TABLE>
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(1) Includes 361,370 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the among of the
registration fee. The estimate is made pursuant to Rule 457(c) under the
Securities Act of 1933.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 29, 1998
PROSPECTUS
2,409,130 SHARES
[LOGO OF FLIR SYSTEMS, INC.]
COMMON STOCK
Of the 2,409,130 shares of Common Stock offered hereby, 1,638,630 shares are
being sold by the Company and 770,500 shares are being sold by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol FLIR. On May 27, 1998, the last reported sale price for the Common Stock
was $19.44 per share. See "Price Range of Common Stock."
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total(3)................. $ $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $550,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 361,370 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively.
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC CREST SECURITIES INC.
, 1998
<PAGE>
[INSIDE COVER GRAPHICS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Prospectus. The Common Stock offered hereby
involves a high degree of risk. See "Risk Factors."
THE COMPANY
FLIR Systems, Inc. (the "Company") is a world leader in the design,
manufacture and marketing of thermal imaging and broadcast camera systems for a
wide variety of applications in the commercial and government markets. The
Company's thermal imaging systems use advanced technologies that detect
infrared radiation, or heat, enabling the operator to measure minute
temperature differences and to see objects in daylight or total darkness and
through obscurants such as smoke, haze and most types of fog. The Company's
state-of-the-art products come in a variety of configurations such as handheld
or ground based systems, or can be mounted on ships, helicopters or fixed-wing
aircraft. The Company has also developed innovative new products utilizing
advanced "uncooled" thermal imaging technology, which allows for less
expensive, smaller, lighter, solid state systems that require less power to
operate.
The Company's business is organized around two principal markets, commercial
and government. The commercial market is comprised of a broad range of thermal
imaging applications including condition monitoring, research and development,
manufacturing process control and airborne observation and broadcast. The
government market is comprised of a broad range of thermal imaging applications
including search and rescue, federal drug interdiction, surveillance and
reconnaissance, navigation safety, border and maritime patrol, environmental
monitoring, and ground based security. Historically, a majority of the
Company's revenue has been derived primarily from government sales. However,
the Company is shifting its product mix in favor of commercial applications,
which accounted for 47.2% and 64.2%, respectively, of the Company's revenue for
the year ended December 31, 1997 and the three months ended March 31, 1998.
The Company's objective is to strengthen its position as a leading provider
of thermal imaging and broadcast camera systems hardware and software by
providing high value imaging products with improved system capability and
performance, while building upon its price performance leadership and
reputation for quality, service and reliability. The Company's customer-focused
approach to product development enables it to better identify and understand
customer applications and develop products to meet new market opportunities.
For example, the Company intends to develop and aggressively market new
products incorporating uncooled thermal imaging technology for major markets
where price performance benefits were previously unavailable. In addition, the
Company intends to expand its image analysis software tools to further enhance
the Company's competitive position in the thermal imaging market, while
providing products tailored to meet individual customer requirements. The
Company also intends to leverage its extensive, worldwide, multi-channel sales
and marketing network to further penetrate existing markets and reach
undeveloped markets around the world.
The Company has grown and intends to continue to grow internally as well as
through the acquision of complementary businesses, product lines or
technologies. For example, in December 1997 the Company acquired AGEMA Infrared
Systems AB, a Swedish corporation, and certain of its affiliates ("AGEMA").
AGEMA is the world leader in the design, manufacture and marketing of handheld
infrared cameras for detecting and measuring temperature differences for a wide
variety of commercial and research applications. This acquisition increased the
Company's worldwide commercial thermal imaging market share, enabled the
Company to expand its product development efforts through the elimination of
duplicative research and development programs, created an extensive
international sales and marketing organization and allowed the Company to more
efficiently focus its manufacturing operations. The Company believes that
selective acquisitions will continue to provide an opportunity to broaden its
technology and product offerings, expand its market presence and enter into new
markets.
The Company was incorporated in Oregon in 1978 and maintains its executive
offices at 16505 S.W. 72nd Avenue, Portland, Oregon 97224. Its telephone number
is 503-684-3731. ThermoVision is a registered trademark of the Company, and the
Company believes that all of its product names are trademarks of the Company.
This Prospectus also includes names and marks of companies other than the
Company.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,638,630 shares
Common Stock offered by the Selling 770,500 shares
Shareholders................................
Common Stock to be outstanding after the 11,513,795 shares (1)
Offering....................................
Use of proceeds.............................. For the repayment of certain
indebtedness, including
indebtedness to a related party.
Nasdaq National Market Symbol................ FLIR
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Government............. $31,051 $35,805 $33,575 $42,958 $ 48,483 $ 8,403 $ 9,914
Commercial............. 9,082 13,172 16,550 23,059 43,288 7,418 17,785
------- ------- ------- ------- -------- ------- -------
Total revenue......... 40,133 48,977 50,125 66,017 91,771 15,821 27,699
Gross profit............ 21,030 25,164 27,401 35,602 33,264 (2) 8,292 15,199
Earnings (loss) from
operations............. 3,628 5,223 4,959 7,118 (41,551)(2) 429 1,097
Net earnings (loss)..... $ 3,191 $ 5,186 $ 3,867 $ 5,092 $(30,588)(2) $ 91 $ 290
Net earnings (loss) per
share (3)..............
Basic.................. $ 0.70 $ 1.01 $ 0.74 $ 0.95 $ (5.23) $ 0.02 $ 0.03
Diluted................ $ 0.66 $ 0.95 $ 0.70 $ 0.91 $ (5.23) $ 0.02 $ 0.03
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 25,892 $ 55,441
Total assets........................................... 150,979 150,979
Short-term debt, including payable to related party.... 42,164 12,615
Long-term debt, excluding current portion.............. 1,537 1,537
Shareholders' equity................................... 75,716 105,265
</TABLE>
- --------------------
(1) Based upon shares outstanding on March 31, 1998. Excludes (i) 1,313,832
shares of Common Stock reserved for issuance upon exercise of stock options
outstanding as of March 31, 1998 at a weighted average exercise price of
$13.16, and (ii) 2,187,741 shares of Common Stock reserved for future
issuance under the Company's stock plans. See Notes 12 and 13 of Notes to
the Consolidated Financial Statements.
(2) In connection with the acquisition of AGEMA, which was effective on
December 1, 1997, the Company recorded a one-time charge of $52.5 million.
The write-off consisted of $36.4 million of in-process research and
development and acquisition-related costs, which were included as a
separate line in operating expenses, and $16.1 million of inventories due
to the creation of duplicative product lines, which was included in cost of
goods sold. Excluding the one-time charge, net earnings and earnings per
diluted share for the year ended December 31, 1997, would have been $6.9
million or $1.10 per diluted share.
(3) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used in computing net earnings
(loss) per share.
(4) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of 1,638,630 shares of Common Stock offered by the Company hereby
at an assumed public offering price of $19.44 per share. See "Use of
Proceeds" and "Capitalization."
--------------------
Except as otherwise noted, all information in this Prospectus (i) gives
effect to the acquisition of AGEMA on December 1, 1997 and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." Unless
the context otherwise requires, all references to the "Company" herein include
the Company and its subsidiaries, including AGEMA.
4
<PAGE>
RISK FACTORS
This Prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are
based on current expectations, estimates and projections about the Company's
business, management's beliefs and assumptions made by management. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements due to numerous factors, including, but not limited
to, those discussed in this section, in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this
Prospectus, as well as by general industry and market conditions and growth
rates, and general domestic and international economic conditions. The
following risk factors should be considered carefully in addition to the other
information in this Prospectus before purchasing the shares of Common Stock
offered hereby.
Fluctuations in Quarterly Results; Seasonality. The Company's quarterly
results have in the past varied significantly and may vary significantly in
the future as a result of a number of factors, including the timing of
significant orders from and shipments to customers, the timing and market
acceptance of new products or technological advances by the Company or its
competitors, the Company's success in developing, introducing and shipping new
products, the mix of distribution channels through which the Company's
products are sold, changes in pricing policies by the Company or its
competitors, the timing and amount of any inventory write downs, the ability
of the Company to obtain sufficient supplies of sole or limited source
components for the Company's products, foreign currency fluctuations, costs
associated with the acquisition of other businesses, product lines or
technologies, the ability of the Company to integrate acquired businesses,
product lines or technologies and general economic conditions, both
domestically and internationally. The Company also experiences fluctuations in
orders and sales due to seasonal fluctuations and customer sales cycles.
Revenue in the fourth quarter of each year generally has been significantly
higher than any other quarter in that year, and the first, and in some cases,
the second quarter of the following year, due to the seasonal pattern of
contracting by the U.S. and certain foreign governments, the frequent
requirement by international customers to take delivery of equipment prior to
the end of December due to funding considerations, and the tendency of
commercial enterprises to fully utilize yearly capital budgets prior to
expiration. Historically, a significant portion of the Company's quarterly
sales have occurred in the last month of each quarter, with sales frequently
concentrated in the last week or days of the quarter. Such events are likely
to continue to result in substantial fluctuations in the Company's quarterly
results in the future. As a result of such quarterly fluctuations in operating
results, the Company believes that quarter-to-quarter comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indicators of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
Development and Market Acceptance of New Products. The Company's future
success and growth will substantially depend upon the Company's ability to
continue to improve and market its existing products and to develop and
introduce new products and technologies to meet changing customer requirements
and to successfully serve broader industry segments. The Company's near-term
success will depend upon market acceptance of the Company's products
incorporating uncooled detector technology, particularly the recently
introduced AGEMA 570, which is expected to account for a substantial portion
of the Company's revenue. The Company's success will also depend upon market
acceptance of, and the Company's ability to deliver and support, the
UltraMedia-RS and the ULTRA 6000, each of which was introduced in 1997. The
Company is currently devoting significant resources toward the enhancement of
its existing products. There can be no assurance that the Company will
successfully complete the enhancement of these products in a timely fashion or
that the Company's current or future products will gain or maintain market
acceptance. Any failure to complete the enhancement of these products or the
failure of the Company's current or future products to gain or maintain market
acceptance could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products."
5
<PAGE>
Risks Associated with Technological Change. The thermal imaging industry is
characterized by rapid technological change, with new generations of thermal
imaging products being introduced periodically and with ongoing evolutionary
improvements. Historically, the Company has derived substantially all of its
revenue from thermal imaging systems based on cooled detector technology, and
the Company expects that its dependence on the sale of thermal imaging systems
based on this technology will continue for the foreseeable future. The
introduction or market acceptance of competing technology that renders the
cooled detector technology used by the Company obsolete or less desirable
would have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has recently introduced the
AGEMA 570 and the ThermoVision, which employ new uncooled detector technology
that enables the Company to produce smaller, lighter, solid state thermal
imaging systems at a much lower cost. The Company intends to devote
significant resources to the development of other products incorporating this
new technology. The introduction of products incorporating the new uncooled
detector technology will require the Company to commit significant resources
to manage the transition from previous generation products in order to
minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure that adequate supplies of new products
can be delivered to meet customer demand. Delays in the introduction or
shipment of new or enhanced products, the inability of the Company to timely
develop and introduce such new products, the failure of such products to gain
significant market acceptance or problems associated with new product
transitions, or the introduction by competitors of new technologies in the
thermal imaging industry could have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence Upon Suppliers; Product Delays. The Company relies on a number of
sole source and limited source suppliers to provide certain key components for
its products. In particular, the Company, through its subsidiary, AGEMA, has
entered into a supply contract with Lockheed Martin Corporation IR Imaging
Systems ("Lockheed Martin") for the supply of uncooled detectors for
integration into the AGEMA line of products. Lockheed Martin is currently the
only producer of uncooled detectors capable of being used in radiometric
applications that is manufacturing such detectors in volume. Subject to
certain exceptions, the contract provides AGEMA with the exclusive right to
purchase uncooled detectors for use in the commercial thermography market and
a limited, nonexclusive right to purchase uncooled detectors for use in the
government market. Under the contract, AGEMA has the corresponding obligation
to purchase uncooled detectors solely from Lockheed Martin. Currently, the
AGEMA 570 and the ThermoVision are the only products of the Company that use
uncooled detectors supplied by Lockheed Martin. However, the Company intends
in the future to use uncooled detectors supplied by Lockheed Martin in other
handheld products or ground based security products, such as the AGEMA 1000.
While the contract provides for the delivery of a fixed number of uncooled
detectors on a monthly basis, the delivery schedule may be increased or
decreased by AGEMA within certain limits. Based on current and anticipated
production levels and supply requirements, the Company expects that the
contract will continue through the fourth quarter of 1999 or the first quarter
of 2000.
The Company has in the past, and may in the future, experience delays in
receiving adequate supplies of sole and limited source components. If Lockheed
Martin or any other significant sole or limited source supplier were to become
unable or unwilling to continue to provide critical components in required
volumes, the Company's ability to manufacture products incorporating such
components would be disrupted unless the Company could identify and qualify
acceptable replacement components or redesign such products with different
components. No assurance can be given that additional sources would be
available to the Company or that product redesign would be feasible on a
timely basis or at acceptable costs. Specifically, no assurance can be given
that, upon expiration of the current supply contract with Lockheed Martin, the
Company will be able to successfully negotiate a new contract with Lockheed
Martin for the supply of uncooled detectors on an exclusive basis or at all,
or that the Company will be able to identify another source of uncooled
detectors. A substantial amount of the Company's revenue is expected to be
derived from the sale of the AGEMA 570. Accordingly, any failure of the
Company to renew the contract or identify another source of uncooled detectors
would have a material adverse effect on the Company's business, financial
condition and results of
6
<PAGE>
operations. Further, any extended interruption in the supply of sole or
limited source components would have a material adverse effect on the
Company's business, financial condition and results of operations.
Competition. Competition in the market for thermal imaging equipment is
significant. The Company believes that the principal competitive factors in
its market are performance, cost, customer service, product reputation and
effective marketing and sales efforts. In addition, the Company believes that
the speed with which companies can identify new applications for thermal
imaging, develop products to meet those needs and supply commercial quantities
to the market are important competitive factors. The Company's competitors are
different in each market segment. Many of the Company's competitors have
substantially greater financial, technical and marketing resources than the
Company. In addition, the Company's products compete indirectly with numerous
other products, such as image intensifiers and low-light cameras, for limited
military and governmental funds. As the markets for the Company's products
expand, the Company expects that additional competition will emerge and that
existing competitors may commit more resources to the markets addressed by the
Company. To remain competitive, the Company must continue to invest in and
focus upon research and development and product innovation. There can be no
assurance that the Company will be successful in such efforts. No assurance
can be given that the Company will be able to compete effectively in the
future. See "Business--Competition."
Dependence Upon Key Personnel. The Company's success depends in part upon
the continued service of its senior management. The Company's success is also
dependent upon its ability to attract and retain qualified technical and sales
personnel. Significant competition exists for such personnel and there can be
no assurance that the Company can retain its key technical and sales personnel
or that it will be able to attract, assimilate and retain such other highly
qualified technical and sales personnel as may be required in the future.
There can be no assurance that employees will not leave the Company and
subsequently compete against the Company. The Company does not maintain key
man life insurance on any of its employees. If the Company is unable to
attract and retain key personnel, its business, financial condition and
results of operations could be adversely affected. See "Management."
Risks of Government Business. A substantial portion of the Company's revenue
is derived from sales to agencies of the U.S. Government. For the year ended
December 31, 1997, no sales to a single agency of the U.S. Government
accounted for more than 10% of the Company's revenue, but aggregate sales to
the U.S. Government and its agencies accounted for 21% of the Company's
revenue. Although the agencies of the U.S. Government to which the Company
sells its products may change from year to year, the Company's business will
continue to be substantially dependent upon purchases by the U.S. Government.
The Company's sales to the U.S. or foreign governments could be adversely
impacted by governmental spending cuts, general budgetary constraints, and
complex and competitive governmental procurement processes. While most of the
Company's sales are not made for defense applications, reductions in the
defense budgets of the U.S. and foreign governments could adversely affect the
ability of these customers to buy the Company's products for both public
safety and defense applications. Moreover, a significant reduction in
purchases of thermal imaging systems for defense applications could result in
certain of the Company's competitors committing more attention and resources
to non-defense applications, thereby exposing the Company to greater
competitive pressures in its primary markets. Further, the competitive bid
process for many governmental contracts may result in sales with lower gross
margins, which may adversely affect gross profit percentages. A significant
decline in the Company's sales to U.S. or foreign governments for any reason
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Collection of Accounts Receivable. The Company generally experiences high
receivables due to long payment cycles for U.S. Government and international
sales and long payment terms for certain customers. In addition, because of
the high unit prices of the Company's products, receivables due from
individual customers may be substantial at any given time and the
uncollectibility of a single large receivable could adversely impact the
Company's liquidity. The Company's receivables levels relative to its cash
from operations may result from time to time in liquidity deficiencies, which
may necessitate increased levels of financing by the Company. The Company's
accounts receivable at March 31, 1998 amounted to $47.6 million.
7
<PAGE>
Although the Company has established reserves for uncollectable accounts, if
such reserves prove to be inadequate because of the uncollectibility of one or
more large receivables, the Company's business, financial condition and
results of operations could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Customer Concentration. Although the Company does not typically have
continuing customers (other than the U.S. Government in the aggregate) whose
purchases constitute more than 10% of annual revenue, the Company may from
time to time have purchase commitments from customers which, if completed
within a given year, would constitute more than 10% of revenue in that year.
The loss of any such customer or the failure of any such customer to complete
such purchases could have a material adverse effect on the Company's business,
financial condition and results of operations.
International Sales and Operations. Sales to customers outside of the United
States accounted for approximately 46%, 32% and 47% of the Company's revenue
in 1995, 1996 and 1997, respectively, and approximately 46% of the Company's
revenue for the three months ended March 31, 1998. The Company anticipates
that international sales will continue to account for a significant portion of
revenue, particularly as a result of the AGEMA acquisition. Historically,
currency fluctuations have had little impact on revenue realization. However,
since the Company seeks to reduce its exposure to currency fluctuations by
denominating the majority of its international sales in U.S. dollars, a
decrease in the value of foreign currencies relative to the U.S. dollar could
make the Company's products less price-competitive. With the recent
acquisition of AGEMA contributing a significant volume of sales denominated in
foreign currencies, the Company has increased exposure to foreign exchange
fluctuations and changing dynamics of foreign competitiveness based on
variations in the value of the U.S. dollar relative to other currencies. The
Company typically experiences longer payment cycles on its international
sales, which can have an adverse impact upon the Company's liquidity. In
addition, a substantial portion of the Company's operations are conducted
outside the United States, particularly in Sweden. International sales and
operations may be subject to risks such as the imposition of governmental
controls, export license requirements, restrictions on the export of critical
technology, political and economic instability, trade restrictions, labor
union activities, changes in tariffs and taxes, difficulties in staffing and
managing international operations, and general economic conditions. No
assurance can be given that these factors will not have a material adverse
effect on the Company's future international sales and operations and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Management of Growth. The Company's rapid growth has placed, and is expected
to continue to place, a significant strain on the Company's managerial,
operational, financial and other resources. As of March 31, 1998, the Company
had grown to 650 employees. The Company expects that continued hiring of new
personnel will be required to support its business. The Company's future
success will depend, in part, upon its ability to manage its growth
effectively, which will require that the Company continue to implement and
improve its operational, administrative and financial and accounting systems
and controls and to expand, train and manage its employee base. The Company
has begun installation of a new Company-wide enterprise resource planning
hardware and software system. However, no assurance can be given that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to achieve
the rapid execution necessary to exploit the markets for the Company's
products. If the Company is unable to manage growth effectively, the Company's
business, financial condition and results of operations may be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated with Recent Acquisition; Potential Future Acquisitions. In
December 1997, the Company completed the acquisition of AGEMA, the operations
of which are conducted principally in Sweden. The integration of acquired
businesses, product lines and technologies is typically difficult, time
consuming and subject to a number of inherent risks. The integration of
product lines (including AGEMA's) requires the
8
<PAGE>
coordination of the research and development, manufacturing, sales, marketing
and service efforts between the acquired businesses. The diversion of the
attention of management and any difficulties encountered in the transition
process could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the process of
assimilating and managing acquisitions can cause the interruption of, or a
loss of momentum in, the existing activities of the Company's business, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In the case of the AGEMA acquisition, the
difficulties of assimilation may be increased by the need to coordinate
geographically separate organizations, integrate personnel with disparate
business backgrounds and languages and combine two different corporate
cultures. Because the AGEMA acquisition occurred so recently, the Company has
had limited experience managing the operations of AGEMA. Future acquisitions
by the Company may result in the diversion of management's attention from the
day-to-day operations of the Company's business and may include numerous other
risks, including difficulties in the integration of the operations, products
and personnel of the acquired companies. Future acquisitions by the Company
have the potential to result in dilutive issuances of equity securities, the
incurrence of debt and amortization expenses related to goodwill and other
intangible assets. While there are currently no such acquisitions planned or
being negotiated, Company management frequently evaluates the strategic
opportunities available to it and may in the near or long term pursue
acquisitions of complementary businesses, product lines or technologies. See
"Business--Strategy." As a result of the foregoing, no assurance can be given
that the Company will realize the anticipated benefits of any acquisition or
that any such acquisition will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Proprietary Technology. The Company's ability to compete
successfully and achieve future revenue growth will depend in part on its
ability to protect its proprietary technology and operate without infringing
the rights of others. The Company relies on a combination of patent, trademark
and trade secret laws, confidentiality agreements and contractual provisions
to protect its proprietary rights. However, the Company believes that its
historical success has been primarily a function of its non-proprietary
competitive advantages such as the skill and experience of its employees, its
worldwide, multichannel sales, distribution and servicing network and its name
recognition and quality products. Although the Company currently holds United
States patents covering certain aspects of its technologies, there can be no
assurance that the Company will obtain additional patents or trademarks on its
technology, products and trade names or that its patents or trademarks will be
sufficiently broad to protect the Company's proprietary rights and will not be
challenged or circumvented by competitors. Likewise, there can be no assurance
that measures that the Company takes to protect its proprietary rights will be
adequate to deter their misappropriation or disclosure. Moreover, because
intellectual property does not necessarily represent a barrier to entry into
the thermal imaging industry, there can be no assurance that the Company's
non-proprietary know-how will continue to provide it with a competitive
advantage or that competitors will not develop know-how equal or superior to
that of the Company. Any failure by the Company to meaningfully protect its
intellectual property could have a material adverse effect on the Company's
business, financial condition and results of operations.
Concentration of Ownership. Following the offering, Spectra-Physics AB and
its affiliates ("Spectra") will beneficially own approximately 36% of the
outstanding shares of Common Stock. In addition, three members of the
Company's Board of Directors are designees of Spectra. The Company is
obligated to use its reasonable best efforts to cause the number of Spectra
designees on the Company's Board to be maintained at three so long as Spectra
owns 30% or more of the outstanding shares of Common Stock. The number of
Spectra designees on the Company's Board will be reduced if Spectra's
ownership of Common Stock is reduced below that level. By virtue of its stock
ownership position and Board representation, Spectra and its affiliates will
be able to significantly influence the direction and policies of the Company,
the election of the Company's Board of Directors and the outcome of any other
matter requiring shareholder approval, including any merger, consolidation,
sale of substantially all of the assets of the Company or other change of
control transaction. There is no cumulative voting in the election of
directors. See "Principal and Selling Shareholders."
9
<PAGE>
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 11,513,795 shares of Common Stock, of which
7,140,246 shares will be freely tradeable without restriction. Approximately
211,549 shares will become eligible for sale in the public market beginning 90
days after the date of this Prospectus upon expiration of resale restrictions
contained in agreements between the holders of the shares and the
Underwriters. In addition, the 4,162,000 shares of Common Stock owned by
Spectra will become eligible for sale in the public market on December 2,
1998, the date when resale restrictions contained in an agreement between
Spectra and the Underwriters expire and such shares become eligible for sale
pursuant to Rule 144 under the Securities Act. Spectra also has certain
registration rights that will allow it to cause the Company to register for
resale all or a portion of the Common Stock owned by it at any time after
December 1, 1998. The Company has reserved 3,501,573 shares of Common Stock
for issuance pursuant to the Company's stock option plans. Of this amount,
1,313,832 shares were subject to outstanding options as of March 31, 1998.
Future sales of a substantial number of shares of Common Stock in the public
market or the prospect of such sales could adversely effect the market price
for the Common Stock. See "Underwriting."
Product Defects; Product Liability. In the event that any of the Company's
products prove defective, the Company may be required to redesign or recall
products or pay damages. While the Company has not had a recall to date, a
redesign or recall could cause the Company to incur significant expenses,
disrupt sales and adversely affect the reputation of the Company and its
products, any one or a combination of which could have a material adverse
affect on the Company's business, financial condition and results of
operations. The manufacturing and marketing of the Company's products involve
an inherent risk of product liability. The Company has not experienced any
product liability claims, but no assurance can be given that it will not
experience such claims in the future. Although the Company maintains product
liability insurance, there can be no assurance that such coverage will be
adequate or that such coverage will continue to be available on terms
acceptable to the Company.
Anti-Takeover Provisions. Certain provisions of the Company's Articles of
Incorporation and Bylaws and the Oregon Business Corporation Act (the "OBCA")
will have the effect of making it more difficult for a third-party to acquire,
or discouraging a third-party from attempting to acquire, control of the
Company through either a tender offer or a proxy contest for the election of
directors. The Company's Articles of Incorporation contain provisions that (i)
classify the Board of Directors into three classes, each of which serves for a
three-year term with one class elected each year, (ii) provide that directors
may be removed by shareholders only for cause and only upon the vote of 75% of
the outstanding shares of Common Stock, and (iii) permit the Board of
Directors to issue Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers and all other rights
and preferences of any such series, without any further vote or action by the
shareholders of the Company. These provisions, together with certain
provisions of the OBCA, may have the effect of lengthening the time required
for a person to acquire control of the Company through a proxy contest or the
election of a majority of the Board of Directors and may deter any potential
unfriendly offers or other efforts to obtain control of the Company, thereby
depriving the Company's shareholders of opportunities to realize a premium for
their Common Stock and could make removal of incumbent directors more
difficult.
Possible Volatility of Stock Price. The market price of the Common Stock
could be subject to significant fluctuations in response to variations in
quarterly operating results and other factors, including, for example, new
product announcements or changes in product prices by the Company or its
competitors, technological innovations and military or government budget
developments in the United States and other countries. Due to the foregoing
and other factors, it is possible that in future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Common Stock would likely be
adversely affected. In addition, the stock market, which has recently been at
or near historic highs, has experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many technology companies and that often have been unrelated to
the operating performance of such companies. In the past, following periods of
volatility in the market price of a company's securities, security class
action litigation has often been instituted against such a company. Such
10
<PAGE>
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st Century dates from 20th Century dates. As a result, computer systems and
software used by many companies, including customers and suppliers of the
Company, may need to be upgraded to comply with such "Year 2000" requirements.
The internal manufacturing systems acquired by the Company in connection with
its acquisition of AGEMA are not Year 2000 compliant. The Company has begun
installation of new enterprise software and hardware that will correct this
deficiency. However, there can be no assurance that the solution will be
adequately implemented in a timely manner or that the implementation process
will not adversely affect the Company's business, financial condition and
results of operations. The Company is also taking steps to confirm that the
systems of its suppliers are Year 2000 compliant and to determine whether the
failure of such compliance would have a material adverse effect on the
Company's business, financial condition and results of operations. Failure to
provide Year 2000 compliant business solutions to the Company's customers
could also have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, the Company believes that
the purchasing patterns of customers and potential customers may be affected
by Year 2000 issues as companies expend significant resources to correct or
patch their current software systems for Year 2000 compliance. These
expenditures may result in a reduction in funds available to purchase products
and services such as those offered by the Company, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,638,630 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $19.44 per shares are estimated to be $29,549,000 ($36,187,000, if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the net proceeds from this offering: (i) to repay in full a payable to
a related party, which had an outstanding balance of $5,031,000 at March 31,
1998, and (ii) to repay outstanding indebtedness under one of the Company's
lines of credit (the "Line of Credit") incurred to finance the Company's
working capital, which had an outstanding balance of $28,525,000 at March 31,
1998. The payable to a related party, which represents indebtedness of AGEMA
to Spectra that was assumed by the Company in connection with the Company's
acquisition of AGEMA, bears interest at a rate of 5.95% and is due in full on
June 30, 1998. The Line of Credit currently bears interest at a rate of 7.4%
and is up for renewal on August 1, 1998. Pending the application of the net
proceeds as described above, the net proceeds from this offering will be
invested in short-term interest-bearing, investment grade securities. The
Company will not receive any part of the proceeds from the sale of shares by
the Selling Shareholders.
The repayment of currently outstanding indebtedness will generate additional
borrowing capacity which may be used by the Company for strategic acquisitions
of other businesses, product lines and technologies that are complementary to
those of the Company. No such acquisitions are planned or being negotiated as
of the date of this Prospectus, and no portion of the net proceeds or
additional borrowing capacity has been allocated for any specific acquisition.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol FLIR. The following table sets forth, for the periods indicated, the
high and low sale price for the Company's Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year Ended December 31, 1996
First Quarter............................................. $14.38 $10.00
Second Quarter............................................ 16.25 10.50
Third Quarter............................................. 15.25 11.75
Fourth Quarter............................................ 14.50 12.75
Year Ended December 31, 1997
First Quarter............................................. 17.75 13.25
Second Quarter............................................ 17.75 14.75
Third Quarter............................................. 22.00 15.75
Fourth Quarter............................................ 22.00 17.50
Year Ending December 31, 1998
First Quarter............................................. 20.63 16.75
Second Quarter (through 5/27/98).......................... 21.75 19.00
</TABLE>
On May 27, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $19.44 per share. As of March 31, 1998, there were
approximately 400 holders of record of the Common Stock and 9,875,165 shares
then outstanding.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects that it will retain its future earnings for use
in the operation and expansion of its business and does not anticipate
declaring or paying any cash dividends on its Common Stock in the foreseeable
future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual short-term debt and capitalization
of the Company at March 31, 1998 and as adjusted to give effect to the receipt
of the estimated net proceeds from the sale of the 1,638,630 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$19.44 per share. This table should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including payable to related party...... $ 42,164 $ 12,615
======== ========
Long-term debt........................................... 1,537 1,537
-------- --------
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued.......................... -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 9,875,165 shares issued and outstanding;
11,513,795 shares issued and outstanding, as adjusted
(1)................................................... 99 115
Additional paid-in capital............................. 99,129 128,662
Accumulated deficit.................................... (22,041) (22,041)
Cumulative foreign translation adjustment.............. (1,471) (1,471)
-------- --------
Total shareholders' equity........................... 75,716 105,265
-------- --------
Total capitalization................................ $ 77,253 $106,802
======== ========
</TABLE>
- ---------------------
(1) Excludes (i) 1,313,832 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding as of March 31, 1998 at a weighted
average exercise price of $13.16, and (ii) 2,187,741 shares of Common
Stock reserved for future issuance under the Company's stock plans. See
Notes 12 and 13 of Notes to the Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere herein. The consolidated statement of operations data for
the years ended December 31, 1995, 1996 and 1997 and the consolidated balance
sheet data as of December 31, 1996 and 1997 are derived from the consolidated
financial statements of the Company, which financial statements have been
audited by Price Waterhouse LLP, independent accountants, and are included
elsewhere in this Prospectus. The consolidated statement of operations data
for years ended December 31, 1993 and 1994 and the consolidated balance sheet
data as of December 31, 1993, 1994 and 1995 are derived from financial
statements of the Company audited by Price Waterhouse LLP that are not
included herein. The balance sheet data as of March 31, 1998 and the statement
of operations data for the three months ended March 31, 1997 and 1998 are
derived from unaudited financial statements included elsewhere herein. The
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue:
Government............. $31,051 $35,805 $33,575 $42,958 $ 48,483 $ 8,403 $ 9,914
Commercial............. 9,082 13,172 16,550 23,059 43,288 7,418 17,785
------- ------- ------- ------- -------- ------- --------
Total revenue.......... 40,133 48,977 50,125 66,017 91,771 15,821 27,699
Cost of goods sold...... 19,103 23,813 22,724 30,415 58,507 (1) 7,529 12,500
------- ------- ------- ------- -------- ------- --------
Gross profit........... 21,030 25,164 27,401 35,602 33,264 8,292 15,199
Operating expenses:
Research and
development........... 7,044 7,588 7,786 9,485 11,814 2,776 5,284
Selling and other
operating costs....... 10,358 12,353 14,656 18,999 26,551 5,087 8,818
Combination costs...... -- -- -- -- 36,450 (1) -- --
------- ------- ------- ------- -------- ------- --------
Total operating
expenses.............. 17,402 19,941 22,442 28,484 74,815 7,863 14,102
Earnings (loss) from op-
erations............... 3,628 5,223 4,959 7,118 (41,551)(1) 429 1,097
Interest income......... 138 705 226 44 182 6 286
Interest expense and
other.................. (170) (172) (795) (819) (2,103) (312) (972)
------- ------- ------- ------- -------- ------- --------
Earnings (loss) before
income taxes........... 3,596 5,756 4,390 6,343 (43,472) 123 411
Income tax provision
(benefit).............. 405 570 523 1,251 (12,884) 32 121
------- ------- ------- ------- -------- ------- --------
Net earnings (loss)..... $ 3,191 $ 5,186 $ 3,867 $ 5,092 $(30,588) $ 91 $ 290
======= ======= ======= ======= ======== ======= ========
Net earnings (loss) per
share(2):
Basic.................. $ 0.70 $ 1.01 $ 0.74 $ 0.95 $ (5.23) $ 0.02 $ 0.03
======= ======= ======= ======= ======== ======= ========
Diluted................ $ 0.66 $ 0.95 $ 0.70 $ 0.91 $ (5.23) $ 0.02 $ 0.03
======= ======= ======= ======= ======== ======= ========
Weighted average shares
outstanding(2):
Basic.................. 4,537 5,149 5,246 5,361 5,843 5,424 9,799
======= ======= ======= ======= ======== ======= ========
Diluted................ 4,828 5,436 5,523 5,624 5,843 5,748 10,222
======= ======= ======= ======= ======== ======= ========
<CAPTION>
DECEMBER 31,
-------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $31,610 $35,573 $37,884 $44,190 $ 26,567 $ 25,892
Total assets............ 40,385 49,269 56,918 75,104 153,857 150,979
Short-term debt,
including payable to
related parties........ 642 761 2,764 7,870 38,059 42,164
Long-term debt,
excluding current
portion................ 1,167 1,209 1,175 5,173 1,679 1,537
Total shareholders'
equity................. 33,046 39,162 43,470 49,971 75,189 75,716
</TABLE>
- ---------------------
(1) In connection with the acquisition of AGEMA, which was effective on
December 1, 1997, the Company recorded a one-time charge of $52.5 million.
The write-off consisted of $36.4 million of in-process research and
development and acquisition-related costs, which were included as a
separate line in operating expenses, and $16.1 million of inventories due
to the creation of duplicative product lines, which was included in cost
of goods sold.
(2) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used in computing net earnings
(loss) per common share.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
OVERVIEW
FLIR Systems, Inc., founded in 1978, is a world leader in the design,
manufacture and marketing of thermal imaging and broadcast camera systems for
a wide variety of commercial and government applications, including condition
monitoring, research and development, manufacturing process control, airborne
observation and broadcast, search and rescue, federal drug interdiction,
surveillance and reconnaissance, navigation safety, border and maritime
patrol, environmental monitoring and ground based security.
The Company's business is organized around two principal markets, commercial
and government. Historically, a majority of the Company's revenue has been
derived primarily from government sales, which accounted for 52.8% and 35.8%,
respectively, of the Company's revenue for the year ended December 31, 1997
and the three months ended March 31, 1998. However, the Company is shifting
its product mix in favor of commercial applications, which accounted for 47.2%
and 64.2%, respectively, of the Company's revenue for the year ended December
31, 1997 and the three months ended March 31, 1998. The Company seeks to
enhance its state-of-the-art products within existing commercial and
government markets, as well as develop products for new market opportunities
that use advanced thermal imaging technology such as new uncooled detector
technology that operates at room temperature, allowing for less expensive,
smaller, lighter systems, requiring less power to operate. Additionally, the
Company has developed higher margin software analysis tools that enhance the
capability and customization of these applications. As hardware prices
decline, the sophistication of imaging analysis software and the incremental
functionality provided by such analysis tools are expected to become a more
critical component of customers' purchasing decisions.
In December 1997, the Company acquired AGEMA, headquartered in Stockholm,
Sweden, the world leader in the design, manufacture and marketing of handheld
infrared cameras for detecting and measuring temperature differences for a
wide variety of commercial and research applications. This acquisition
increased the Company's worldwide commercial thermal imaging market share,
enabled the Company to expand its product development efforts through the
elimination of duplicative research and development programs, created an
extensive international sales and marketing organization and allowed the
Company to more efficiently focus its manufacturing operations. AGEMA reported
revenue of $52.4 million for the year ended December 31, 1997. However, as the
acquisition was accounted for as a purchase, the Company's Consolidated
Statement of Operations only include AGEMA's results for the month of December
1997.
The acquisition, which was effective on December 1, 1997, was accomplished
through the issuance of 4,162,000 shares of Common Stock, valued at $54.1
million, to Spectra, AGEMA's parent company, in exchange for all the
outstanding shares of AGEMA stock. In conjunction with the acquisition, during
the quarter ended December 31, 1997, the Company recognized a one-time charge
of $52.5 million. The write-off consisted of $36.4 million of in-process
research and development and acquisition-related costs, which were included as
a separate line item in operating expenses, and $16.1 million of inventories
due to the creation of
16
<PAGE>
duplicative product lines, which were included in cost of goods sold. In
addition, the Company expects to amortize a total of approximately $17.7
million in intangible assets over periods ranging from 15 to 17 years. The
Company has divided production responsibilities between its primary
facilities, with handheld and ground based products manufactured in Stockholm
and government and airborne observation and broadcast products manufactured in
Portland.
Sales to customers outside of the United States accounted for approximately
46%, 32% and 47% of the Company's revenue in 1995, 1996 and 1997,
respectively, and approximately 46% of the Company's revenue for the three
months ended March 31, 1998. The Company anticipates that international sales
will continue to account for a significant portion of revenue, particularly as
a result of the AGEMA acquisition. Historically, currency fluctuations have
had little impact on revenue realization. However, since the Company seeks to
reduce its exposure to currency fluctuations by denominating the majority of
its international sales in U.S. dollars, a decrease in the value of foreign
currencies relative to the U.S. dollar could make the Company's products less
price-competitive. With the recent acquisition of AGEMA contributing a
significant volume of sales denominated in foreign currencies, the Company has
increased exposure to foreign exchange fluctuations and changing dynamics of
foreign competitiveness based on variations in the value of the U.S. dollar
relative to other currencies. The Company typically experiences longer payment
cycles on its international sales, which can have an adverse impact upon the
Company's liquidity. In addition, a substantial portion of the Company's
operations are conducted outside the United States, particularly in Sweden.
International sales and operations may be subject to risks such as the
imposition of governmental controls, export license requirements, restrictions
on the export of critical technology, political and economic instability,
trade restrictions, labor union activities, changes in tariffs and taxes,
difficulties in staffing and managing international operations, and general
economic conditions.
The Company experiences fluctuations in orders and sales due to seasonal
fluctuations and customer sales cycles. Revenue in the fourth quarter of each
year generally has been significantly higher than any other quarter in that
year and the first, and in some cases, the second quarter of the following
year, due to the seasonal pattern of contracting by the U.S. and certain
foreign governments, the frequent requirement by international customers to
take delivery of equipment prior to the end of December due to funding
considerations, and the tendency of commercial enterprises to fully utilize
yearly capital budgets prior to expiration. Historically, a significant
portion of the Company's quarterly sales have occurred in the last month of
each quarter, with sales frequently concentrated in the last week or days of
the quarter. Such events are likely to continue to result in substantial
fluctuations in quarterly results in the future. As a result of such quarterly
fluctuations in operating results, the Company believes that quarter-to-
quarter comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indicators of future performance.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated statement of operations data expressed as a percentage of
revenue:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
---------------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- -------------
1995 1996 1997 1997 1998
------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
Government............................. 67.0% 65.1% 52.8% 53.1% 35.8%
Commercial............................. 33.0 34.9 47.2 46.9 64.2
------ ------ -------- ------ ------
Total revenue......................... 100.0 100.0 100.0 100.0 100.0
Cost of goods sold...................... 45.3 46.1 63.8 (1) 47.6 45.1
------ ------ -------- ------ ------
Gross profit.......................... 54.7 53.9 36.2 (1) 52.4 54.9
Operating expenses:
Research and development............... 15.5 14.4 12.9 17.5 19.1
Selling and other operating costs...... 29.3 28.8 28.9 32.2 31.8
Combination costs...................... -- -- 39.7 -- --
------ ------ -------- ------ ------
Total operating expenses.............. 44.8 43.2 81.5 49.7 50.9
Earnings (loss) from operations....... 9.9 10.7 (45.3) (1) 2.7 4.0
Interest income......................... 0.5 0.1 0.2 -- 1.0
Interest expense and other.............. (1.6) (1.2) (2.3) (1.9) (3.5)
------ ------ -------- ------ ------
Earnings (loss) before income taxes... 8.8 9.6 (47.4) 0.8 1.5
Income tax provision (benefit).......... 1.0 1.9 (14.0) 0.2 0.4
------ ------ -------- ------ ------
Net earnings (loss)..................... 7.8% 7.7% (33.4)%(1) 0.6% 1.1%
====== ====== ======== ====== ======
</TABLE>
- ---------------------
(1) Excluding the one-time charge of $52.5 million in connection with the
acquisition of AGEMA, cost of goods sold, gross profit, earnings (loss)
from operations and net earnings (loss) in 1997 would have been 46.2%,
53.8%, 12.0% and 7.5%, respectively.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Revenue. The Company's revenue for the three months ended March 31, 1998
increased 75.1%, from $15.8 million in the first quarter of 1997 to $27.7
million in the first quarter of 1998. Commercial revenue continued to show
significant growth increasing 139.8% from $7.4 million in the first quarter of
1997 to $17.8 million in the first quarter of 1998. The inclusion of revenue
from AGEMA and increased sales of airborne observation and broadcast systems
were the principal contributors to the growth in commercial revenue. Revenue
from the sale of systems to the government market increased 18.0%, from $8.4
million in the first quarter of 1997 to $9.9 million in the first quarter of
1998. This growth was primarily due to the inclusion of revenue from the sales
of the AGEMA 1000, a ground based surveillance infrared imager.
As a result of the acquisition of AGEMA in December of 1997, sales of the
Company's commercial products accounted for the majority of the Company's
total revenue. As a percentage of total revenue for the quarter ended March
31, 1998, revenue from the sale of imaging systems to the government market
constituted 35.8% and revenue from the sale of commercial imaging systems
constituted 64.2%, compared to 53.1% for the government market and 46.9% for
the commercial market for the first quarter of 1997.
18
<PAGE>
Revenue from sales outside the United States increased as a percentage of
total revenue from approximately 34.2% to approximately 45.8% for the quarters
ended March 31, 1997 and 1998, respectively. This increase was principally due
to increased deliveries of commercial products in Europe as a result of the
AGEMA acquisition.
Gross profit. Gross profit as a percentage of revenue increased slightly
from 52.4% in the first quarter of 1997 to 54.9% in the first quarter of 1998.
The increase in gross profit as a percentage of revenue was principally
attributable to the higher proportion of total revenue derived from the sale
of commercial products which, as a result of the favorable cost structure of
the AGEMA commercial products, now generally exceed those margins experienced
from the sale of imaging systems to the government market.
Research and development. Research and development expense as a percentage
of revenue increased from 17.5% to 19.1% for the three months ended March 31,
1997 and 1998, respectively. In absolute dollar terms, research and
development expense increased from $2.8 million in the first quarter of 1997
to $5.3 million in the first quarter of 1998, primarily due to the inclusion
of research and development expenses of AGEMA, increased engineering efforts
related to the introduction of the ULTRA 6000 as well as on-going new product
development and existing product enhancements. The overall level of research
and development expense reflects the continued emphasis on product development
and new product introductions. Due to the timing of revenue during the year,
research and development expense as a percentage of revenue is typically
higher in the first quarter than on a full year basis.
Selling and other operating costs. Selling and other operating costs as a
percentage of revenue decreased slightly from 32.2% in the first quarter of
1997 to 31.8% in the first quarter of 1998. In absolute dollar terms, selling
and other operating costs increased from $5.1 million to $8.8 million for the
quarters ended March 31, 1997 and 1998, respectively. The increase in absolute
dollar terms was due to the inclusion of AGEMA's operations, costs associated
with increased revenue during the quarter (primarily commissions), costs
related to increased personnel and the inclusion of amortization of the
patents and the excess of the purchase price over net assets acquired related
to the acquisition of AGEMA. Such amortization amounted to $288,000 for the
quarter ended March 31, 1998.
Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations,
transaction gains and losses and miscellaneous bank charges. The increase from
$312,000 in the first quarter of 1997 to $972,000 for the quarter ended March
31, 1998 was primarily due to increased short-term debt as a result of
increased working capital needs during the quarter.
Income taxes. The provision for income taxes for the quarter ended March 31,
1998 resulted in an effective tax rate of 29.4% compared to 26.0% for the
quarter ended March 31, 1997. The increase in the effective tax rate was
primarily due to limitations on the timing and recognition of the Company's
net operating loss carryforwards and tax credits. The effective tax rate
remained substantially below statutory rates due to utilization of net
operating loss carryforwards, various tax credits and benefits from the
favorable tax treatment of international revenue.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenue. Revenue increased 39.0%, from $66.0 million in 1996 to $91.8
million in 1997. Revenue from the sale of thermal imaging systems to the
government market increased 12.9%, from $43.0 million in 1996 to $48.5 million
in 1997. This increase was primarily attributable to continued robust sales of
the SAFIRE thermal imaging system and increased deliveries to international
customers, which typically have a higher sales price than domestic orders.
Additionally, revenue from the sale of products manufactured by the Company's
United Kingdom subsidiary increased during 1997. Commercial revenue increased
87.7%, from $23.1 million in 1996 to $43.3 million in 1997. This improvement
was principally attributable to increased sales of the UltraMedia, the
Company's airborne camera system for the airborne observation and broadcast
market segment, which aggregated $12.2 million in 1997 compared to $6.3
million in 1996, further production and
19
<PAGE>
deliveries of the Company's handheld imaging systems, which aggregated $10.9
million in 1997 compared to $4.7 million in 1996, higher international sales,
and the one month contribution from AGEMA's operations which aggregated $9.4
million.
Revenue increased 31.7%, from $50.1 million in 1995 to $66.0 million in
1996. Revenue in 1996 from the sale of thermal imaging systems to the
government market increased 27.9%, from $33.6 million in 1995 to $43.0 million
in 1996. This increase was primarily due to increased sales of the SAFIRE
thermal imaging system, principally to the U.S. Marine Corps and the U.S. Air
Force. Commercial revenue increased 39.3%, from $16.6 million in 1995 to $23.1
million in 1996. This improvement was principally attributable to the
inclusion of revenue from sales of the Company's airborne observation and
broadcast products, primarily the UltraMedia which was introduced in April
1996.
The Company has continued to benefit from its significant investment in
developing worldwide sales and distribution channels. The majority of the
Company's revenue outside the United States is from Europe. International
revenue increased from $21.2 million in 1996 to $43.3 million in 1997 and
accounted for approximately 47.2% of the Company's revenue in 1997, an
increase from the 32.0% experienced in 1996 and the 46.0% experienced in 1995.
The increase in absolute dollars and as a percentage of revenue in 1997 was
primarily due to increased shipments under the terms of existing international
contracts, decreased shipments to U.S. government customers, principally the
U.S. Marine Corps, and the inclusion of one month of AGEMA revenue which was
primarily international.
Gross profit. As a percentage of revenue, gross profit decreased from 53.9%
in 1996 to 36.2% in 1997, primarily due to the $16.1 million write-off of
duplicative inventories related to the AGEMA acquisition which were included
in cost of goods sold in 1997. Exclusive of this write-off, gross margin
remained relatively consistent at 53.8% for 1997 compared to 53.9% in 1996.
The gross margin remained relatively consistent due to an increase in higher
margin international sales and a decrease in sales to the U.S. Government
which aggregated $19.0 million in 1997 compared to $26.5 million in 1996 and
which typically have lower margins than other sales to the government market.
This increase was mitigated by the increased proportion of sales of certain of
the Company's commercial products which had slightly lower margins than
government products. Gross profit decreased as a percentage of revenue from
54.7% in 1995 to 53.9% in 1996, primarily due to the lower percentage of
higher margin international sales in 1996 and increased sales to the U.S.
Government.
Research and development. Research and development expense increased 24.6%,
from $9.5 million in 1996 to $11.8 million in 1997, and increased 21.8%, from
$7.8 million in 1995 to $9.5 million in 1996. As a percentage of revenue,
research and development expense decreased from 14.4% in 1996 to 12.9% in 1997
and decreased from 15.5% in 1995 to 14.4% in 1996. The increase in research
and development expense, in absolute dollar terms, was attributable to
increased research and development activities related to the introduction of
the UltraMedia-RS, the ULTRA 6000 and the Tracer, as well as to on-going
product enhancements. Further impacting research and development expense was
the reclassification of development costs directly associated with engineering
revenue as cost of goods sold rather than research and development expenses.
Such costs amounted to $800,000, $200,000 and $425,000 in 1997, 1996 and 1995,
respectively. Without these reclassifications, research and development
expense as a percentage of revenue would have been 13.7%, 14.7% and 16.4% in
1997, 1996 and 1995, respectively, reflecting the fact that a large percentage
of research and development expense is fixed in nature.
Selling and other operating costs. Selling and other operating costs
increased 39.7%, from $19.0 million in 1996 to $26.6 million in 1997, and
increased 29.6%, from $14.7 million in 1995 to $19.0 million in 1996. Selling
and other operating costs as a percentage of revenue remained relatively
consistent at 28.8% in 1996 and 28.9% in 1997, and decreased slightly from
29.3% in 1995 to 28.8% in 1996. This increase, in absolute dollar terms, was
primarily due to costs associated with increased revenue, particularly the
increase in international sales, expenses related to the expanded operations
of the Company's United Kingdom facility and to increased personnel. Further,
the Company has continued to expand and strengthen the direct sales and
marketing staff.
20
<PAGE>
Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations and
miscellaneous bank charges and expenses. The increase from $819,000 in 1996 to
$2.1 million in 1997 was primarily due to increased short-term and long-term
debt as a result of increased working capital needs discussed below. The
increase from $795,000 in 1995 ($195,000 exclusive of the one-time costs
associated with the acquisition of Optimas Corporation ("Optimas," now known
as FSI Automation, Inc.) to $819,000 in 1996 was due to the one-time costs
associated with the acquisition of Optimas. Such acquisition expenses
aggregated approximately $600,000.
Income taxes. The Company's effective income tax rates for 1997, 1996 and
1995 were 29.6%, 19.7% and 11.9%, respectively. The effective tax rates were
substantially below the statutory rate as the Company was able to realize the
benefits of a portion of its net operating loss carryforwards and existing tax
credits. Additionally, the Company recognized a net deferred tax asset of
$14.7 million, $400,000 and $950,000 in 1997, 1996 and 1995, respectively,
under the recognition criteria of Statement of Financial Accounting Standards
No. 109 (SFAS 109), "Accounting for Income Taxes." The $14.7 million deferred
tax asset recognized in 1997 relates primarily to the $52.5 million write-off
in conjunction with the AGEMA acquisition. The current portion of income tax
expense consists of state, federal and foreign income taxes, as the
utilization of net operating loss carryforwards and existing tax credits was
limited.
At December 31, 1997, the Company had net operating loss carryforwards
aggregating $9.3 million, which expire in the years 2005 through 2012.
Utilization of the Company's acquired net operating loss carryforwards from
Optimas is limited to future earnings of Optimas and further limited to
approximately $350,000 per year, as Optimas experienced a cumulative change in
ownership of more than 50% within a three-year period. Additionally, the
Company has various tax credits available aggregating $1.3 million which
expire in the years 1999 through 2012.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the nine quarters ended March 31, 1998, as well as such
data expressed as a percentage of the Company's total revenue for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information when read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Government............. $ 6,479 $ 9,991 $11,913 $14,575 $ 8,403 $10,976 $12,946 $ 16,158 $ 9,914
Commercial............. 4,757 5,138 6,025 7,139 7,418 8,963 10,969 15,938 17,785
------- ------- ------- ------- ------- ------- ------- -------- -------
Total revenue.......... 11,236 15,129 17,938 21,714 15,821 19,939 23,915 32,096 27,699
Cost of goods sold...... 5,244 7,386 8,312 9,473 7,529 8,995 11,130 30,853 (1) 12,500
------- ------- ------- ------- ------- ------- ------- -------- -------
Gross profit........... 5,992 7,743 9,626 12,241 8,292 10,944 12,785 1,243 15,199
Operating expenses:
Research and
development........... 2,117 2,166 2,272 2,930 2,776 2,569 3,187 3,282 5,284
Selling and other
operating costs....... 3,736 4,039 4,390 6,834 5,087 5,872 5,930 9,662 8,818
Combination costs...... -- -- -- -- -- -- -- 36,450 (1) --
------- ------- ------- ------- ------- ------- ------- -------- -------
Total operating
expenses.............. 5,853 6,205 6,662 9,764 7,863 8,441 9,117 49,394 14,102
Earnings (loss) from
operations............. 139 1,538 2,964 2,477 429 2,503 3,668 (48,151)(1) 1,097
Interest income......... 29 -- 8 7 6 14 32 130 286
Interest expense and
other.................. (96) (129) (259) (335) (312) (560) (533) (698) (972)
------- ------- ------- ------- ------- ------- ------- -------- -------
Earnings (loss) before
income taxes........... 72 1,409 2,713 2,149 123 1,957 3,167 (48,719) 411
Income tax provision
(benefit).............. 16 303 592 340 32 507 730 (14,153) 121
------- ------- ------- ------- ------- ------- ------- -------- -------
Net earnings (loss)..... $ 56 $ 1,106 $ 2,121 $ 1,809 $ 91 $ 1,450 $ 2,437 $(34,566) $ 290
======= ======= ======= ======= ======= ======= ======= ======== =======
Net earnings (loss) per
share:
Basic.................. $ 0.01 $ 0.21 $ 0.40 $ 0.34 $ 0.02 $ 0.26 $ 0.44 $ (4.96) $ 0.03
======= ======= ======= ======= ======= ======= ======= ======== =======
Diluted................ $ 0.01 $ 0.20 $ 0.38 $ 0.32 $ 0.02 $ 0.25 $ 0.41 $ (4.96) $ 0.03
======= ======= ======= ======= ======= ======= ======= ======== =======
Weighted average shares
outstanding:
Basic.................. 5,299 5,325 5,336 5,379 5,424 5,489 5,542 6,969 9,799
======= ======= ======= ======= ======= ======= ======= ======== =======
Diluted................ 5,515 5,602 5,620 5,657 5,748 5,842 5,980 6,969 10,222
======= ======= ======= ======= ======= ======= ======= ======== =======
<CAPTION>
PERCENTAGE OF REVENUE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Government............. 57.7% 66.0% 66.4% 67.1% 53.1% 55.0% 54.1% 50.3% 35.8%
Commercial............. 42.3 34.0 33.6 32.9 46.9 45.0 45.9 49.7 64.2
------- ------- ------- ------- ------- ------- ------- -------- -------
Total revenue.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold...... 46.7 48.8 46.3 43.6 47.6 45.1 46.5 96.1 (1) 45.1
------- ------- ------- ------- ------- ------- ------- -------- -------
Gross profit........... 53.3 51.2 53.7 56.4 52.4 54.9 53.5 3.9 54.9
Operating expenses:
Research and
development........... 18.8 14.3 12.7 13.5 17.5 12.9 13.3 10.2 19.1
Selling and other
operating costs....... 33.3 26.7 24.5 31.5 32.2 29.4 24.8 30.1 31.8
Combination costs...... -- -- -- -- -- -- -- 113.6 (1) --
------- ------- ------- ------- ------- ------- ------- -------- -------
Total operating
expenses.............. 52.1 41.0 37.2 45.0 49.7 42.3 38.1 153.9 50.9
Earnings (loss) from
operations............. 1.2 10.2 16.5 11.4 2.7 12.6 15.4 (150.0)(1) 4.0
Interest income......... 0.3 -- -- -- -- -- 0.1 0.4 1.0
Interest expense and
other.................. (0.9) (0.9) (1.4) (1.5) (1.9) (2.8) (2.2) (2.2) (3.5)
------- ------- ------- ------- ------- ------- ------- -------- -------
Earnings (loss) before
income taxes........... 0.6 9.3 15.1 9.9 0.8 9.8 13.3 (151.8) 1.5
Income tax provision
(benefit).............. 0.1 2.0 3.3 1.6 0.2 2.5 3.1 (44.1) 0.4
------- ------- ------- ------- ------- ------- ------- -------- -------
Net earnings (loss)..... 0.5% 7.3% 11.8% 8.3% 0.6% 7.3% 10.2 (107.7)% 1.1%
======= ======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
- ---------------------
(1) In connection with the acquisition of AGEMA, which was effective December
1, 1997, the Company recorded a one-time charge of $52.5 million. The
write-off consisted of $36.4 million of in-process research and
development and acquisition-related costs, which were included as a
separate line in operating expenses, and $16.1 million of inventories due
to the creation of duplicative product lines, which was included in cost
of goods sold. Excluding the one-time charge, net earnings and earnings
per diluted share for the quarter ended December 31, 1997, would have been
$2.9 million or $0.39 per diluted share.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had notes payable net of cash on hand of
$26.7 million compared with $20.7 million at December 31, 1997. The increase
in notes payable during the three months ended March 31, 1998, was principally
caused by increased inventories and payment of accrued payroll and other
liabilities, primarily incentive bonuses to employees and commissions to
representatives.
Accounts receivable decreased from $55.5 million at December 31, 1997 to
$47.6 million at March 31, 1998. The decrease in receivables was primarily due
to the increased percentage of total receivables that represent sales to
commercial customers which typically have a shorter collection cycle than
sales to government customers.
Inventories increased from $34.7 million at December 31, 1997 to $38.5
million at March 31, 1998. The increase in inventories was primarily
attributable to the higher volume production requirements for the AGEMA 570
and AGEMA 1000 products.
The Company's investing activities have consisted primarily of the
expenditures for fixed assets, which totaled $2.7 million compared to $1.4
million for the quarters ended March 31, 1998 and 1997, respectively. The
Company has budgeted approximately $3.0 million related to the replacement of
the Company's enterprise resource planning system to integrate worldwide
operations and address Year 2000 compliance issues.
The Company has available a $30.0 million line of credit which bears
interest at IBOR plus 1.75% (7.4% at March 31, 1998) secured by all the
Company's assets. The Company also has a note payable to the same bank which
aggregated $4.3 million at March 31, 1998 and is payable in monthly
installments of $123,000 at an interest rate of 7.4%. The loan agreement
governing the line of credit and note payable requires the Company to maintain
certain financial ratios and restricts the Company from taking certain
significant actions, including incurring additional debt or making
acquisitions, without the consent of the bank. The line of credit is up for
renewal and the note payable is due on August 1, 1998. Additionally, the
Company, through one of its subsidiaries, has a 40,000,000 Swedish Krona
(approximately $5.0 million) line of credit which bore interest at 4.7% at
March 31, 1998. At March 31, 1998, the Company had $32.2 million outstanding
under the lines of credit.
The use of cash by operating activities in the first quarter is consistent
with prior years and is primarily due to the increases in inventories and the
decrease in accrued liabilities discussed above. The Company believes that its
existing cash and available credit facilities and proceeds from this offering
together with continuing efforts to expedite the collection of accounts
receivable and management of inventory levels will be sufficient to meet its
cash requirements for the foreseeable future.
23
<PAGE>
BUSINESS
The Company is a world leader in the design, manufacture and marketing of
thermal imaging and broadcast camera systems for a wide variety of
applications in the commercial and government markets. The Company's thermal
imaging systems use advanced infrared technologies that detect infrared
radiation, or heat, enabling the operator to measure minute temperature
differences and to see objects in daylight or total darkness and through
obscurants such as smoke, haze and most types of fog. The Company's products
can also incorporate visible light cameras, proprietary image analysis
software and gyrostabilized gimbal technology. The Company's products come in
a variety of configurations such as handheld or ground based systems, or can
be mounted on ships, helicopters or fixed-wing aircraft. The Company's
products provide state-of-the-art imaging technology coupled with competitive
price performance characteristics for existing commercial and government
applications including condition monitoring, research and development,
manufacturing process control, airborne observation and broadcast, search and
rescue, federal drug interdiction, surveillance and reconnaissance, navigation
safety, border and maritime patrol, environmental monitoring and ground based
security. The Company has also developed innovative new products utilizing
advanced uncooled thermal imaging technology, which allows for less expensive,
smaller, lighter, solid state systems that require less power to operate. In
addition, the Company's product configurations and image analysis software
tools increase the Company's ability to provide products tailored to meet
individual customer requirements.
INDUSTRY OVERVIEW
BACKGROUND
Infrared radiation is light that is not visible because its wavelength is
too long to be detected by the human eye. Unlike visible light, infrared
radiation is emitted directly by all objects and materials. Thermal imaging
systems are used to detect infrared radiation and convert it into an
electronic signal, which is then processed and formatted into a video signal
and displayed on a monitor. These systems are distinguished from one another
by their capability to detect and resolve infrared radiation, the clarity of
the image displayed, detection range, system reliability, acquisition cost and
adaptability to a variety of customer requirements. Thermal imaging systems,
unlike night vision goggles, enable the operator to see objects in total
darkness and through obscurants such as smoke, haze and most types of fog.
Advanced thermal imaging systems can also detect and measure minute
temperature differences, a critical tool for a variety of applications.
Early applications of thermal imaging technology primarily involved the use
of expensive high-resolution systems in military combat applications such as
weapons targeting, where performance factors were far more important in the
procurement decision than system acquisition cost. A simpler form of the
technology was also employed in limited commercial applications such as
detection of heat loss from buildings or houses, where system price was more
important than sophisticated performance. Consequently, a large group of
potential users in both the commercial and government markets did not use
thermal imaging technology since available systems either failed to meet their
performance requirements or were too expensive.
An infrared detector, which absorbs infrared radiation and converts it into
an electronic signal, is a primary component of thermal imagining systems.
Until recently, thermal imaging systems incorporated infrared detectors which
needed to be cooled to near absolute zero in order to operate. The cryogenic
"coolers" needed for cooling such detectors are expensive components that
require greater power consumption and add to the weight, size and overall
complexity of the system. Thermal imaging systems that use new "uncooled"
detector technology do not require these cooling components but instead
operate at room temperature. This feature allows for less expensive, smaller,
lighter, solid state systems requiring less power to operate, which in turn
are expected to increase the demand for such systems in existing market
segments and create demand in new market segments, such as fire fighting and
machine vision (a new manufacturing process control application incorporating
real-time, fully automated process control solutions). Despite the advantages
of uncooled technology, cooled systems should continue to play a significant
role in the government markets due to their longer range performance
capabilities. Additionally, as hardware prices decline, the sophistication of
imaging analysis software and the incremental functionality provided by such
analysis tools are expected to become a more critical component of customers'
purchasing decisions.
24
<PAGE>
MARKETS
Applications for thermal imaging technology are found in both the commercial
and government markets, as described below.
COMMERCIAL MARKET. The commercial market is comprised of a broad range of
thermal imaging applications including condition monitoring, research and
development, manufacturing process control and airborne observation and
broadcast. This market has evolved from the use of simple heat sensing devices
to sophisticated radiometric (temperature measuring) instruments that use a
variety of accessories and extensive image analysis software. The increasing
emphasis on improving manufacturing productivity and product quality,
underscored by the growing importance of quality assurance programs such as
International Standards Organization (ISO) 9000 and the increasing complexity
of manufacturing processes, has expanded the commercial market. The
introduction of uncooled thermal imaging technology has created opportunities
to further penetrate existing markets as well as to create demand in new
markets that can benefit from the enhanced price and performance
characteristics of such technology. The growth of the commercial market has
also been driven by increased demand resulting from improvements in hardware
functionality, enhanced image analysis software performance and declining
hardware prices.
The commercial market is comprised of the following market segments:
Condition Monitoring. Thermal imaging systems are used in condition
monitoring applications to improve productivity by detecting the location of
equipment faults so they can be corrected before leading to catastrophic
failures or major equipment damage, thereby enabling companies to
significantly reduce operating expenses by lowering repair costs and reducing
downtime. Additionally, improved functionality of image analysis software,
longer battery operation and simplicity of system operation are critical
factors for these applications. Specific condition monitoring applications
include locating and repairing defective power transmission components or
electrical connections, predicting the end of life of bearings in rotating
machinery, evaluating the integrity or amount of insulation in a building or
container and locating roof leaks and related damage.
Research and Development. Thermal imaging, due to its non-destructive
analysis capability, is a useful tool in a wide variety of research and
development applications. Because many component and product designs involve
the use or control of heat, thermal imaging can be effectively used in the
research and design of the component or product. For example, thermal imaging
is used in laser design to determine the power distribution of the beam, in
the development of diesel engines using ceramic-coated pistons to determine
proper adhesion of the ceramic to the metal piston and in the design of rubber
tires to evaluate uniform heat distribution. Research and development
applications typically require very high performance systems with extensive
software capabilities and tools to analyze the thermal image.
Manufacturing Process Control. The ability to determine whether a
manufacturing process will produce acceptable results at the earliest point in
the production cycle is critical to quality assurance and cost reduction.
Thermal imaging and image analysis allow for the monitoring and control of
heat, which is used in virtually all industrial processes. Similarly, thermal
imaging systems can identify moisture and contaminants and help identify the
thickness of material as well as the integrity of the bonding of composite
materials. Thermal imaging applications for manufacturing process control are
varied and extensive, including monitoring the quality of metal, plastic and
glass cast parts, which are highly dependent upon the temperature distribution
in the mold, monitoring the quality of paper, which is dependent upon proper
and even moisture distribution during the drying process, and monitoring the
quality of products such as rubber gloves, which can be thermally examined to
locate abnormally warm or cool spots, indicating non-uniform thickness that
may result in a quality defect.
Airborne Observation and Broadcast. The use of airborne observation and
broadcast systems is becoming a standard tool for television stations and
broadcast networks. This technology is also used by law enforcement agencies
around the world for surveillance, suspect search and apprehension and officer
support.
25
<PAGE>
This market segment typically requires either very high performance daylight
cameras or dual imaging systems with both visible light and thermal imaging
capabilities, in addition to state-of-the-art stabilization, the ability to
provide jitter-free images from great distances, and the ability to downlink
the information from the aircraft to the production studio or command center
on a real-time basis. The Company expects that this market segment will
continue to grow as more television stations and broadcast networks use
helicopters and other aircraft to provide real-time reporting of news and
sporting events. Furthermore, such applications should increase as system size
and weight continue to decline, enabling the use of such systems on small and
weight restricted helicopters. In addition, law enforcement agencies have
established thermal imaging as a primary support tool and should continue to
take advantage of system price performance improvements.
New Commercial Market Opportunities. In addition to existing market
segments, new market segments for thermal imaging are developing due to the
availability, cost effectiveness and enhanced performance characteristics of
uncooled thermal imaging technology. Machine vision and fire fighting are
near-term market opportunities, while landing guidance, maritime navigation,
security and handheld law enforcement support represent future growth
opportunities. As system prices decline, uncooled thermal imaging technology
will provide cost effective solutions for a wide variety of new commercial
applications.
GOVERNMENT MARKET. The government market is comprised of a broad range of
thermal imaging applications including search and rescue, federal drug
interdiction, surveillance and reconnaissance, navigation safety, border and
maritime patrol, environmental monitoring, and ground based security. Although
the majority of government applications require the use of cooled technology,
uncooled thermal imaging systems can be used for ground based security,
handheld observation and mine detection applications. Customers in the
government market demand competitively priced systems that can be mounted on a
variety of helicopters, fixed-wing aircraft and ships, operate in different
climatic conditions and perform a variety of tasks requiring high image
resolution quality and substantial image stabilization.
The government market is comprised of the following market segments:
Search and Rescue. Thermal imaging systems are used in traditional search
and rescue missions to rescue individuals in danger or distress on boats or in
vehicles, to provide offshore oil platform safety and to provide emergency or
disaster response support for missing persons or accident victims.
Federal Drug Interdiction. Thermal imaging systems enable government
agencies to expand their drug interdiction and support activities by allowing
greater surveillance and detection capabilities.
Surveillance and Reconnaissance. Thermal imaging systems are used in
surveillance and reconnaissance applications for the precise positioning of
objects from substantial distances and for enhanced situation awareness,
particularly at night or in conditions of reduced or obscured visibility.
Navigation Safety. Thermal imaging systems are used in navigation safety
applications to improve missions by enabling crews piloting helicopters,
fixed-wing aircraft and ships, to see terrain and objects and to detect and
avoid obstacles at night and in conditions when visibility is limited due to
smoke, haze or fog.
Border and Maritime Patrol. Thermal imaging systems are used in airborne
operations for border and maritime surveillance, particularly at night, to
maintain the territorial integrity of borders and coastal waters, to monitor
national fishing boundaries and to prevent smuggling.
Environmental Monitoring. Thermal imaging systems are used in environmental
monitoring applications including forest fire detection and suppression, oil
spill detection and monitoring and wildlife management.
Ground Based Security. Thermal imaging systems are used for ground based
surveillance and perimeter security of government and military installations,
particularly at night.
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COMPANY SOLUTION
The Company is a world leader in the design, manufacture and marketing of
thermal imaging and broadcast camera systems for a wide variety of commercial
and government applications including condition monitoring, research and
development, manufacturing process control, airborne observation and
broadcast, search and rescue, federal drug interdiction, surveillance and
reconnaissance, navigation safety, border and maritime patrol, environmental
monitoring and ground based security. The Company's products come in a variety
of configurations such as handheld or ground based systems, or can be mounted
on ships, helicopters or fixed-wing aircraft. The Company's products provide
state-of-the-art imaging technology coupled with competitive price performance
characteristics for existing commercial and government applications. The
Company has also developed innovative products for new market opportunities
utilizing advanced uncooled thermal imaging technology. This new technology
allows for less expensive, smaller, lighter, solid state systems, that require
less power to operate. In addition, the Company's product configurations and
software analysis tools increase the Company's ability to provide products
tailored to meet individual customer requirements.
COMPANY STRATEGY
The Company's objective is to strengthen its position as the leading
provider of thermal imaging hardware and software to the commercial and
government markets. Key elements of the Company's strategy to achieve this
objective include:
Drive Demand Through Price Performance Leadership. The Company is committed
to providing high value imaging products with improved system capability and
performance. The Company is rapidly incorporating new uncooled thermal imaging
technology in its products, which enables the Company to provide smaller,
lighter, solid state systems at a much lower cost. The Company intends to
expand market share by aggressively marketing the performance advantages of
its recently introduced products that incorporate this uncooled thermal
imaging technology and by focusing its development efforts on new products
utilizing such technology.
Expand Penetration in Core Markets. The Company is a global market leader
that provides a complete range of thermal imaging systems, image analysis
software and visible light camera systems for the commercial and government
markets and intends to continue to expand its market share in both markets.
The Company intends to continue introducing and providing cost effective
systems that utilize state-of-the-art technology while building upon its
reputation for quality, service and reliability to further penetrate its core
markets. In addition, the Company's extensive installed customer base provides
upgrade opportunities through technology and product advances.
Target New Market Applications. The Company intends to develop and
aggressively market new products incorporating uncooled thermal imaging
technology for major markets where price performance benefits were previously
unavailable. By maintaining a customer-focused approach to its product
development efforts, the Company is able to better identify and understand
broad customer applications and develop products to meet these new market
opportunities. For example, the Company is currently seeking to apply its
technology to fire fighting and machine vision applications. In the future,
the Company intends to develop systems for landing guidance, maritime
navigation and mine detection.
Leverage Global Sales and Marketing Organization. The Company, with eight
strategic locations around the world, has developed an extensive, worldwide,
multi-channel sales and marketing network consisting of direct sales staff and
independent representatives and distributors in over 50 countries. The Company
believes its experience in the complexities associated with the sales and
marketing of its products to distinct government and commercial markets
through multiple channels around the world provides it with a competitive
advantage. The Company's expertise includes an understanding of export
regulations, establishing and operating sales and service centers throughout
the world, and successfully understanding and addressing
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<PAGE>
cultural differences. The Company also provides comprehensive training to its
sales force, representatives, distributors and customers about its technology
and the operation of its products. The Company intends to expand its
international sales and marketing network to further penetrate existing
markets and reach undeveloped markets around the world.
Expand Software Applications. The Company intends to continue to increase
the software content of its products as image analysis and application
specific software become an increasingly important capability and competitive
distinction among thermal imaging products. For example, with the expanded
application of thermal imaging technology in machine vision and manufacturing
process control applications, the Company believes it will be well positioned
to take advantage of its pattern recognition and gauging image analysis
software to solve critical customer problems in commercial applications such
as automobile manufacturing, electronics design and food processing.
Pursue Strategic Acquisitions. The Company frequently evaluates strategic
acquisition opportunities that could enhance the Company's existing product
offerings or provide an avenue for developing new complementary businesses,
product lines or technologies. The Company has grown and intends to continue
to grow internally as well as through the acquisition of complementary
businesses, product lines or technologies. For example, in December 1997, the
Company acquired AGEMA, the world leader in the design, manufacture and
marketing of handheld infrared cameras that detect and measure temperature
differences for a wide variety of commercial and research applications. This
acquisition increased the Company's worldwide commercial thermal imaging
market share, enabled the Company to enhance its product development efforts
through the elimination of duplicative research and development programs,
created an extensive international sales and marketing organization and
allowed the Company to more efficiently focus its manufacturing operations.
The Company believes that selective acquisitions will continue to provide the
Company with opportunities to broaden its technology and product offerings,
expand its market presence and enter into new markets.
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TECHNOLOGY
The Company uses its expertise in diverse technologies and engineering
capabilities to develop and produce sophisticated thermal imaging systems. The
following table graphically describes the engineering disciplines and
manufacturing processes that are integrated by the Company to produce cost-
effective products and shorten the product development cycle.
LOGO
System Design and Radiometry. The Company believes that its extensive system
integration experience allows it to effectively combine a wide variety of
engineering disciplines necessary to design and manufacture thermal imaging
systems. The Company also possesses the specialized system design knowledge
required to produce thermal imaging systems that can accurately measure
temperature, which is a critical tool for many commercial applications.
Software Development. The Company utilizes both internal and external sources
to develop the software capabilities necessary to produce complex yet user-
friendly thermal imaging systems. The Company has developed Windows-based image
analysis software applications that solve a variety of manufacturing process
and quality control problems. The Company also has the expertise necessary to
develop embedded software control systems, communications software and testing
programs for its thermal imaging systems.
Optical Design and Fabrication. The Company designs and manufactures many of
the sophisticated optics that are required to gather and transmit detected
thermal images with minimum distortion, allowing it to significantly shorten
the product development cycle and avoid costs and delays associated with
reliance on third-party optics sources.
Electronic Design. The Company designs signal processing circuits that
interface directly with the detector arrays to convert detected infrared
radiation into electronic signals and designs the electronic image processing
that is necessary to convert the electronic signals into standard video format.
Advances in microprocessors, electric miniaturization and image processing have
made significant contributions to the performance and utility of the Company's
thermal imaging systems.
Mechanical Engineering. The Company's design and production of thermal
imaging systems involves highly sophisticated mechanical engineering
techniques. It is critical that the design and assembly of the supporting
structures for system components such as detector arrays, coolers, scanners and
optics meet high-precision mechanical tolerances.
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Similarly, the gyrostabilized gimbal assembly for the SAFIRE, Star SAFIRE,
ULTRA 6000, UltraMedia, and UltraMedia-RS requires expertise in electro-
mechanical control, gyroscopes and specialized stabilization controls.
PRODUCTS
The Company serves the commercial and government thermal imaging markets
with a variety of state-of-the-art products. Of the Company's commercial
products, handheld products typically range in price from approximately
$30,000 to $80,000, software image analysis products are typically priced at
approximately $5,000 and airborne observation and broadcast products typically
range in price from approximately $180,000 to $350,000. The Company's
government products typically range in price from approximately $80,000 to
$500,000. The Company's principal products are listed in the table below and
described in greater detail in the following pages.
COMMERCIAL PRODUCTS
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
PRODUCT NAME DESCRIPTION AND APPLICATION
- ------------------------------------------------------------------------------------
<S> <C>
ThermoVision Uncooled radiometric camera used for manufacturing process control
and machine vision applications
- ------------------------------------------------------------------------------------
AGEMA 570 Handheld uncooled radiometric camera used for condition monitoring,
research and development and manufacturing process control
applications
- ------------------------------------------------------------------------------------
Tracer Windows-based real-time Pentium digital recording system used for
research and development and manufacturing process control
applications
- ------------------------------------------------------------------------------------
AGEMA 550 Handheld radiometric camera used for condition monitoring and
manufacturing process control applications
- ------------------------------------------------------------------------------------
AGEMA 900 Handheld radiometric camera used for research and development
applications
- ------------------------------------------------------------------------------------
Xcaliper High precision software product used for certain manufacturing
process control and machine vision applications
- ------------------------------------------------------------------------------------
IRwin Report Windows-based software package used for review, analysis and
processing of captured images
- ------------------------------------------------------------------------------------
ULTRA 6000 High resolution thermal imaging system with a color video camera
system used for search and rescue, federal drug interdiction,
surveillance and reconnaissance, navigation safety, border and
maritime patrol, and environmental monitoring applications
- ------------------------------------------------------------------------------------
UltraMedia-RS Compact high resolution gyrostabilized broadcast camera system used
for real-time news and sports coverage applications
- ------------------------------------------------------------------------------------
UltraMedia High resolution gyrostabilized broadcast camera system used for
real-time news and sports coverage and for surveillance and
reconnaisance, federal drug interdiction and border and maritime
patrol applications
- -------------------------------------------------------------------------------
GOVERNMENT PRODUCTS
- -------------------------------------------------------------------------------
<CAPTION>
PRODUCT NAME DESCRIPTION AND APPLICATION
- ------------------------------------------------------------------------------------
<S> <C>
Star SAFIRE* Focal plane array, high resolution thermal imaging system used for
search and rescue, surveillance and reconnaissance, navigation
safety, border and maritime patrol and environmental monitoring
applications
- ------------------------------------------------------------------------------------
SAFIRE High resolution thermal imaging system used for search and rescue,
surveillance and reconnaissance, navigation safety, border and
maritime patrol and environmental monitoring applications
- ------------------------------------------------------------------------------------
AGEMA 1000 Fixed or tripod mounted thermal imaging system used for ground
based security
</TABLE>
- -------------------------------------------------------------------------------
* First shipment expected in June of 1998.
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<PAGE>
COMMERCIAL PRODUCTS. The Company offers a range of state-of-the-art thermal
imaging products for a variety of applications including condition monitoring,
research and development, and manufacturing process control, in addition to
airborne observation and broadcast. The Company has penetrated the commercial
market by developing customized products with increased flexibility and
features, in addition to software analysis tools.
The Company's handheld commercial thermal imaging systems incorporate a
thermal imaging detector housed in a compact self-contained unit, a video
display or viewfinder, an embedded processor and various imaging analysis
software packages. A viewfinder much like that of a home video camera is a
standard feature in most models. The thermal image can also be displayed on an
independent video display. The systems also include a PC-based processor that
allows accurate measurement of minute temperature differences and extensive
real-time and post-processing of the acquired image. Most of the Company's
airborne and observation broadcast camera systems incorporate industry
standard visible light broadcast cameras rather than thermal imaging cameras.
The Company also manufactures dual imaging systems, including both visible
light and thermal imaging cameras. The product is typically mounted to an
aircraft, primarily a helicopter, and operated by the use of a hand
controller, which remotely directs the stabilized turret. The broadcast camera
inside the turret provides the video output that is then either recorded on a
video recorder or downlinked to a production studio for live broadcast.
ThermoVision. The ThermoVision, introduced in early 1998, is an uncooled
thermal imaging camera for manufacturing process control and machine vision
applications. Operating as a remote controlled "smart" sensor in supervised
operation or integrated into a complete control system, the ThermoVision
transmits data on a continuous real-time basis at 60 frames a second. Using
built-in intelligence, the ThermoVision can process multiple areas of
interest, trigger alarms or transmit control data. A variety of flexible,
high-speed and reliable digital cable, fiber-optic and wireless transmission
media allow for flexible system integration with controllers, computers and
vision systems. Examples of ThermoVision applications include monitoring the
manufacture of metal, plastic or glass cast parts and automatically making
necessary adjustments in the manufacturing line on a real-time basis to ensure
consistent product quality.
AGEMA 570. The AGEMA 570, introduced in December 1997, was developed to meet
the need for a high performance lightweight cost-effective portable thermal
imager and is the world's first commercially available handheld radiometric
thermal imaging system incorporating state-of-the-art uncooled detector
technology, solid state in electronic design with instant-on performance. The
detector used in the AGEMA 570 provides for accurate temperature measurement
of objects from -20(degrees)C to +2000(degrees)C. The imager is enclosed in a
single lightweight package weighing less than five pounds which facilitates
one-hand, point and shoot operation. Image optimization is automatic and menu
and data displays appear in any of 14 languages. The AGEMA 570 has
applications across all commercial radiometric market segments. Examples of
AGEMA 570 applications include locating and repairing defective power
transmission components or electrical connections, predicting the end of life
of bearings in rotating machinery, evaluating the integrity or amount of
insulation in a building or container and locating roof leaks and related
damage.
Tracer. The Tracer, introduced in the first quarter of 1997, is the first
industrial imaging system capable of recording and analyzing long thermal
event sequences at real-time frame rates on a Windows-based PC. The Tracer
combines a high-resolution thermal imaging camera, such as the AGEMA 550 and
570, with a Pentium PC, digital recording system and Windows-based image
analysis software for research and development applications such as in laser
design to determine the power distribution of the beam or in the development
of diesel engines using ceramic-coated pistons to determine proper adhesion of
the ceramic to the metal piston.
AGEMA 550. The AGEMA 550, introduced by AGEMA in the fourth quarter of 1996,
is a handheld infrared camera developed for condition monitoring applications.
The AGEMA 550 uses a stirling cooled PtSi focal plane array and, in its
standard version, is calibrated for temperature measurements up to
1500(degrees)C. The
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<PAGE>
AGEMA 550 has built-in digital recording and is available with various lenses,
for different fields of views, as well as filters and other accessories.
Examples of AGEMA 550 applications include monitoring the quality of products
such as paper, which depends upon proper and even moisture distribution during
the drying process, and rubber gloves, which can be thermally examined to
locate abnormally warm or cool spots, indicating nonuniform thickness that may
result in a quality defect.
AGEMA 900. The AGEMA 900, first introduced by AGEMA in 1992, is a high
resolution, handheld thermal imaging system available in both short and long
wave versions. The AGEMA 900, with its wide range of lenses, filters and other
accessories is ideally suited for the research and development market for
applications such as evaluating the uniformity of heat distribution in the
design of rubber tires.
Xcaliper. Xcaliper image analysis software, introduced in the second quarter
of 1995, is a high precision software product addressing certain industrial
machine vision tasks such as gauging, part-presence or absence, edge detection
and part alignment. Xcaliper software combines high speed with easy
development using Visual Basic programming. It also contains pattern
recognition software algorithims, which can perform high speed part
orientation and inspection tasks, such as the evaluation of a test sheet from
laser printers to ensure the precise alignment of thousands of tiny dots of
ink and the minimization of ink scatter.
IRwin Report. IRwin Report software, the latest release of which was
introduced by AGEMA in 1996, allows for review, analysis and processing of
captured images and data. IRwin software is a Windows-based program that is
easy to use and affordable. IRwin software is typically packaged with the
AGEMA 500 and 570, though it is capable of operating with data gathered from
other imaging products as well.
ULTRA 6000. The ULTRA 6000, first introduced in the third quarter of 1997,
is a compact, lightweight, 5-axis gyrostabilized high performance dual imaging
system that combines advanced focal plane array thermal imaging technology
with a visible light color camera to provide stable high resolution imaging
capability. The ULTRA 6000 standard features include user-selected fields of
view, electronic zoom, freeze frame, and up to 15:1 magnification with the
visible light camera. These images can be recorded directly to videotape or
transmitted live to ground centers using an optional microwave downlink.
Examples of ULTRA 6000 applications include the detection and apprehension of
suspects, and the monitoring of vehicle chases by law enforcement agencies.
UltraMedia-RS. The UltraMedia-RS, introduced in the first quarter of 1997,
combines many of the features of the larger UltraMedia system in a compact 35-
pound configuration that delivers a maximum of 40:1 magnification. The
UltraMedia-RS allows small and weight restricted aircraft to gather high
quality video footage from long distances.
UltraMedia. The UltraMedia, introduced in the first quarter of 1996, is a
compact daylight broadcast system that delivers a maximum of 72:1
magnification in a lightweight, 5-axis gyrostabilized package that is ideally
suited for airborne broadcast teams. It was developed to meet the needs of
television stations and entertainment networks to cover live news and sporting
events. The UltraMedia is also used by law enforcement agencies around the
world for surveillance, suspect search and apprehension, and officer support.
GOVERNMENT PRODUCTS. The Company offers a range of state-of-the-art products
to government agencies. To meet the needs of those customers, the Company
provides a range of products consisting of a thermal imaging system enclosed
in a gyrostabilized gimbal which is typically mounted to an aircraft or ship.
A thermal imaging system for the government market typically consists of a
turret, an electronics module, a hand control unit and a video display
monitor. The infrared sensor incorporates most critical components of the
system including a detector assembly, closed cycle cooler, scanner (depending
on detector technology utilized), optics and electronics. The hand control
unit is used to remotely direct the turret.
Star SAFIRE. The Company's newest product for the government market, with
first deliveries expected in June 1998, is the Star SAFIRE, a 3-axis
gyrostabilized, 360(degrees) field of view thermal imaging system
incorporating third generation focal plane array detector technology. Using
three fields of view, the system
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<PAGE>
provides extended detection range capability and visually advanced imagery.
The system permits multiple optical payloads in addition to the infrared
detector, including a TV camera with a zoom lens for daylight operations,
laser rangefinder, laser illuminator or laser designator. Examples of Star
SAFIRE applications include the detection of vehicles, ships or planes
transporting illegal narcotics, and search and rescue for individuals in
danger or distress.
SAFIRE. The SAFIRE system, first introduced in the second quarter of 1992,
is a digital system with an advanced detector design that provides a range of
features designed to satisfy the most demanding government and military
customer requirements. The unit's 3-axis gyrostabilized gimbal configuration
has been certified to operate at airspeeds in excess of 400 knots, ensuring
that the SAFIRE can operate and produce, a stable, high resolution image when
mounted on most aircraft designed for subsonic operations. The SAFIRE has a
digital microprocessor, which permits optional features such as autotracking,
autoscanning, laser illumination, laser rangefinder, use of a TV camera,
navigation interfaces, digital image filters and freeze frame. Examples of
SAFIRE applications include navigation assistance at night and in adverse
weather for medical evacuation helicopters and the detection of illegal
immigration.
AGEMA 1000. The ground-based AGEMA 1000, first introduced by AGEMA in 1992,
is a fixed or tripod mounted thermal imaging system that can detect small
objects up to several kilometers away under extreme environmental conditions,
day or night. Highly reliable and ready for 24-hour operation, these compact
and versatile thermal imaging systems switch dual lenses at a touch of a
button, optimize images automatically and offer remote control software. The
AGEMA 1000 can also be integrated into a gimbal for airborne applications.
Examples of AGEMA 1000 applications include perimeter security of military
bases and sensitive governmental installations or buildings.
33
<PAGE>
CUSTOMERS
The primary customers for the Company's products include domestic and foreign
government agencies, OEMs, commercial manufacturers, research and development
facilities, universities, utility companies, television stations and broadcast
networks and various commercial enterprises. The following table lists by
application a sample of customers and OEM's that have purchased one or more of
the Company's systems, either directly or through one of the Company's OEM
customers or other third parties within the past three years.
COMMERCIAL CUSTOMERS
- --------------------------------------------------------------------------------
CONDITION MONITORING
Amoco Corporation E.I. Dupont de Nemours PEMEX (Mexico)
British Petroleum Co., and Co. (Dupont) U.S. Steel
P.L.C. Ford Motor Company
Consolidated Edison, Marathon Oil Co.
Inc.
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT
Alenia Aerospazio Hercules Aerospace Motorola, Inc.
(Italy) Company National Renewable
AT&T Laboratories Homelite Inc. Energy Laboratory
General Motors Intel Corporation Sandia Laboratory
Corporation
- --------------------------------------------------------------------------------
MANUFACTURING PROCESS CONTROL
Digital Equipment Hewlett Packard Intel Corporation
Corporation Company Silicon Graphics, Inc.
Dupont Hughes Aircraft
Company
- --------------------------------------------------------------------------------
AIRBORNE OBSERVATION AND BROADCAST
WCVB-TV (Ch. 5), WCBS-TV (Ch. 2), New Fort Worth Police
Boston York Department
WHDH-TV (Ch. 7), KATU-TV (Ch. 2), Japanese National
Boston Portland, OR Police Agency
TV Globo, Brazil KOIN-TV (Ch. 6), Los Angeles County
WGN-TV (Ch. 9), Portland, OR Sheriff
Chicago KGW-TV (Ch. 8), Maryland State Police
KCOP-TV (Ch. 13), Los Portland, OR New York City Police
Angeles KGO-TV (Ch. 7), San Sao Paolo Police
KMEX-TV (Ch.34), Los Francisco Texas Department of
Angeles KPIX-TV (Ch. 5), San Public Safety
KNBC-TV, (Ch. 4), Los Francisco
Angeles KRON-TV (Ch. 4), San
WABC-TV (Ch.7), New Francisco
York KING-TV (Ch. 5),
WNYW-TV (Ch. 5), New Seattle
York KOMO-TV (Ch. 4),
Seattle
GOVERNMENT CUSTOMERS
- --------------------------------------------------------------------------------
SEARCH AND RESCUE
Bristow Helicopter Irish Coast Guard Royal Norwegian Air
(U.K.) Japanese Maritime Force
Helikopter Services Safety Agency U.S. Air Force Reserve
(Norway)
- --------------------------------------------------------------------------------
FEDERAL DRUG INTERDICTION
Bell Helicopter U.S. Army National U.S. Park Police
McDonnell Douglas Guard
Helicopter Company U.S. Drug Enforcement
Agency
- --------------------------------------------------------------------------------
SURVEILLANCE AND RECONNAISSANCE
Canadian Department of Raytheon Company U.S. Navy
National Defense Sikorsky Aircraft
Danish Air Force Corp.
- --------------------------------------------------------------------------------
NAVIGATION SAFETY
U.S. Army U.S. Marine Corps
- --------------------------------------------------------------------------------
BORDER AND MARITIME PATROL
Augusta S.P.A. (Italy) Royal Danish Navy U.S. Customs
Raytheon Company U.S. Border Patrol
- --------------------------------------------------------------------------------
ENVIRONMENTAL MONITORING
Atlantic Richfield U.S. Coast Guard U.S. Department of
Company Energy
- --------------------------------------------------------------------------------
GROUND BASED SECURITY
U.S. Air Force White Sands Missile
Range
34
<PAGE>
SALES, DISTRIBUTION AND CUSTOMER SERVICE
As a result of the combination with AGEMA, the Company believes that its
sales and marketing organization is the largest in the industry and
effectively covers the world with its combination of direct sales, independent
representatives and distributors, application engineers and service centers.
The process of selling and marketing the Company's products involves extensive
product promotion, technical selling and after-sales support. The Company's
commercial and government products are highly technical and have distinct
characteristics and functionality. The Company's sales and service personnel
undergo a comprehensive training program to educate them as to the technical
aspects of the products as well as familiarize them with individual customer
requirements. The Company's ongoing training programs are continuously updated
for changes in technology and competition.
The Company has distinct sales channels for commercial, airborne observation
and broadcast and government customers. The Company sells its commercial
thermal imaging products worldwide through a direct sales staff of more than
70 people and a network of 90 distributors (many with multiple offices) and
representatives, each with an exclusive right to sell the Company's products
in a defined geographic area. This network is managed by 15 regional sales
managers employed by the Company. The Company sells its airborne observation
and broadcast products through a seven person direct sales staff. The Company
sells its government products in the United States through a 23 person direct
sales staff, and internationally, through a nine person direct sales staff and
50 independent representatives and distributors covering all major markets
worldwide. The Company has a technical and customer support staff comprised of
21 people in the United States and Europe who provide application development,
technical training, operational assistance installation design and support,
and software assistance to direct and indirect sales personnel as well as to
customers. Additionally, the Company maintains service facilities at its
factories in Portland, Oregon, Stockholm, Sweden and West Malling, U.K. and at
its subsidiaries in Secaucus, New Jersey, Frankfurt, Germany, Toronto, Canada,
Paris, France and Milan, Italy. At each of the subsidiaries the Company has
made the investment necessary to perform the complex calibrations required to
service commercial thermal imaging systems. The Company employs 32 people
worldwide in its service organizations. The Company also maintains limited
service capability in three additional foreign locations under the direction
of its independent representatives or distributors. Product marketing by the
Company involves Internet promotion, advertising, direct mail, press tours,
technical articles for publications and participation in approximately 100
trade shows per year.
BACKLOG
The Company believes that backlog should not be considered indicative of
revenue for any future periods because the Company's sales to commercial
customers are generally made pursuant to purchase orders rather than long term
contracts and, accordingly, the backlog at any given time is for immediate
shipments. In addition, the backlog for the government business is heavily
dependent upon the timing of receipt of government contracts which may have
multiple year delivery schedules. Furthermore, delivery schedules are
frequently revised to accommodate changes in customer needs. Although orders
received by the Company are generally subject to cancellation, in the case of
most orders included in backlog, the customer is obligated to pay certain
costs and/or penalties for cancellation.
The Company's backlog as of March 31, 1997 and March 31, 1998 was $16.5
million and $24.7 million, respectively. Backlog includes units for which a
customer has specified delivery within 12 months. Further, backlog at March
31, 1997 does not include the backlog of AGEMA, as the acquisition of AGEMA
was not effective until December 1, 1997.
MANUFACTURING
The Company manufactures many of the critical components of its products,
including gimbals, optics, certain detectors and high speed motors, allowing
the Company to minimize lead times, facilitate prompt delivery of its
products, control costs and ensure that these components satisfy its quality
standards. The
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<PAGE>
Company purchases other parts pre-assembled, including detectors, coolers,
circuit boards, cables and wiring harnesses. The Company purchases certain
components from sole or limited source suppliers. In particular, the Company,
through its subsidiary, AGEMA, has entered into a supply contract with
Lockheed Martin for the supply of uncooled detectors for integration into the
AGEMA line of products. Lockheed Martin is currently the only producer of
uncooled detectors capable of being used in radiometric applications that is
manufacturing such detectors in volume. Subject to certain exceptions, the
contract provides AGEMA with the exclusive right to purchase uncooled
detectors for use in the commercial thermography market and a limited,
nonexclusive right to purchase uncooled detectors for use in the government
market. Under the contract, AGEMA has the corresponding obligation to purchase
uncooled detectors solely from Lockheed Martin. Currently, the AGEMA 570 and
the ThermoVision are the only products of the Company that use uncooled
detectors supplied by Lockheed Martin. However, the Company intends in the
future to use uncooled detectors supplied by Lockheed Martin in other handheld
products or ground based security products, such as the AGEMA 1000. While the
contract provides for the delivery of a fixed number of uncooled detectors on
a monthly basis, the delivery schedule may be increased or decreased by AGEMA
within certain limits. Based on current and anticipated production levels and
supply requirements, the Company expects that the contract will continue
through the fourth quarter of 1999 or the first quarter of 2000.
The Company has in the past, and may in the future, experience delays in
receiving adequate supplies of sole and limited source components. If Lockheed
Martin or any other significant sole or limited source supplier were to become
unable or unwilling to continue to provide critical components in required
volumes, the Company's ability to manufacture products incorporating such
components would be disrupted unless the Company could identify and qualify
acceptable replacement components or redesign such products with different
components. No assurance can be given that additional sources would be
available to the Company or that product redesign would be feasible on a
timely basis or at acceptable costs. Specifically, no assurance can be given
that, upon expiration of the current supply contract with Lockheed Martin, the
Company will be able to successfully negotiate a new contract with Lockheed
Martin for the supply of uncooled detectors on an exclusive basis or at all,
or that the Company will be able to identify another source of uncooled
detectors. A substantial amount of the Company's revenue is expected to be
derived from the sale of the AGEMA 570. Accordingly, any failure of the
Company to renew the contract or identify another source of uncooled detectors
would have a material adverse effect on the Company's business, financial
condition and results of operations. Further, any extended interruption in the
supply of sole or limited source components would have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company's manufacturing operations are, from time to time, audited by
certain of its OEM customers, which include several major aircraft
manufacturers, and have been certified as meeting their quality standards. The
Company's facilities in Stockholm, Sweden and West Malling, U.K. are ISO 9000
certified.
COMPETITION
Competition in the market for thermal imaging equipment is significant. The
Company believes that the principal competitive factors in its market are
performance, cost, customer service, product reputation and effective
marketing and sales efforts. In addition, the Company believes that the speed
with which companies can identify new applications for thermal imaging,
develop products to meet those needs and supply commercial quantities to the
market are important competitive factors. The Company's competitors are
different in each market segment. In the commercial market, the Company's
principal competitors are Inframetrics, Inc., Raytheon Company, Cincinnati
Electronics Corp., Nippon Avionics Co., Ltd., Wescam Ltd. and Media
Cybernetics Image Analysis. In the government market, the Company competes
with Inframetrics, General Electric Company, p.l.c., Wescam Ltd., Lockheed
Martin Corp., The Boeing Company, Daimler-Benz Aerospace AG and Thompson-CSF.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources than the Company. In addition, the Company's
products compete indirectly with numerous other products, such as image
intensifiers and low-light cameras, for limited military and governmental
funds. As the markets for the Company's products expand, the Company expects
that additional competition will emerge and that existing competitors may
commit more resources to the markets
36
<PAGE>
addressed by the Company. No assurance can be given that the Company will be
able to compete effectively in the future. To remain competitive, the Company
must continue to invest in and focus upon research and development and product
innovation. There can be no assurance that the Company will be successful in
such efforts.
PROPRIETARY RIGHTS
The Company's ability to compete successfully and achieve future revenue
growth will depend in part on its ability to protect its proprietary
technology and operate without infringing the rights of others. The Company
relies on a combination of patent, trademark and trade secret laws,
confidentiality agreements and contractual provisions to protect its
proprietary rights. However, the Company believes that its historical success
has been primarily a function of its non-proprietary competitive advantages
such as the skill and experience of its employees, its worldwide, multichannel
sales, distribution and servicing network and its name recognition and quality
products. Although the Company currently holds United States patents covering
certain aspects of its technologies, there can be no assurance that the
Company will obtain additional patents or trademarks on its technology,
products and trade names or that its patents or trademarks will be
sufficiently broad to protect the Company's proprietary rights and will not be
challenged or circumvented by competitors. Likewise, there can be no assurance
that measures that the Company takes to protect its proprietary rights will be
adequate to deter their misappropriation or disclosure. Moreover, because
intellectual property does not necessarily represent a barrier to entry into
the thermal imaging industry, there can be no assurance that the Company's
non-proprietary know-how will continue to provide it with a competitive
advantage or that competitors will not develop know-how equal or superior to
that of the Company. Any failure by the Company to meaningfully protect its
intellectual property could have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of March 31, 1998, the Company had 650 employees of whom 72 were in
administration, 184 were in engineering, 10 were in quality assurance, 198
were in manufacturing, assembly and testing and 186 were in marketing and
sales. The Company has been successful in attracting and retaining highly
skilled technical, marketing and management personnel to date. None of the
Company's employees in the United States is represented by a union or other
bargaining group. Employees in Sweden and Italy are represented by unions. The
Company believes its relationships with its employees and unions are good.
PROPERTIES
The Company leases its facilities under various operating leases that expire
in 1998 through 2003. The leases require fixed monthly payments over their
terms. The Company believes that it will be able to extend any lease expiring
in 1998 on commercially acceptable terms or find suitable replacement
facilities. The following summarizes the primary facilities leased by the
Company:
<TABLE>
<CAPTION>
LEASE
LOCATION EXPIRATION DATE SQUARE FEET
-------- --------------- -----------
<S> <C> <C>
Portland, Oregon.............................. 2000 85,000
Stockholm, Sweden............................. 2001 63,000
West Malling, United Kingdom.................. 2000 12,500
Bothell, Washington........................... 2000 9,600
Secaucus, New Jersey.......................... 2003 8,000
Leighton Buzzard, United Kingdom.............. 1999 4,500
Toronto, Canada............................... 1998 4,200
Paris, France................................. 1998 2,900
Frankfurt, Germany............................ 1998 2,200
Milan, Italy.................................. 1998 2,200
</TABLE>
37
<PAGE>
LEGAL PROCEEDINGS
In the normal course of business, the Company is from time to time involved
in certain litigation. In August 1996 the Equal Employment Opportunity
Commission (the "EEOC") and a former employee of AGEMA filed an action against
a subsidiary of AGEMA and the former president of such subsidiary in United
States District Court for the District of New Jersey alleging that the former
president sexually harassed the employee and other female employees while he
was president. The complaint seeks monetary damages under federal and state
laws. On May 6, 1998, the court granted the defendants' motion to dismiss the
state law claims on the grounds that they are time-barred. While AGEMA is
vigorously defending against the action, there can be no assurance that this
defense will be successful. In connection with the acquisition of AGEMA,
Spectra agreed to indemnify the Company for all liabilities related to this
litigation in excess of $90,000. The Company is not currently the subject of
or a party to any other material legal proceedings.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert P. Daltry........ 54 Chairman of the Board of Directors and Chief Executive Officer
Leif Bergstrom.......... 59 Vice Chairman of the Board of Directors
J. Kenneth Stringer
III.................... 45 President, Chief Operating Officer and Director
Arne Almerfors.......... 52 Executive Vice President
James A. Fitzhenry...... 42 Vice President, General Counsel and Secretary
Dr. J. Richard Kerr..... 60 Vice President, Advanced Technology Business Development
William N. Martin....... 42 Vice President, Sales
Steven R. Palmquist..... 47 Vice President, Operations
J. Mark Samper.......... 37 Vice President, Finance and Chief Financial Officer
David Smith............. 38 Vice President, International Sales
Patrick L. Edsell....... 49 Director
John C. Hart............ 64 Director
Egon Linderoth.......... 61 Director
W. Allen Reed........... 50 Director
Lars Spongberg.......... 53 Director
Ronald L. Turner........ 51 Director
</TABLE>
Robert P. Daltry joined the Company in 1987 as President and Chief Executive
Officer and a member of the Board of Directors. He was elected Chairman of the
Board of Directors in April 1993. From 1984 to 1987, Mr. Daltry was employed
by Lear Siegler, Inc., an aerospace company, where he served as Vice President
of Marketing for the Instrument and Avionics Systems Division. From 1981 to
1984, Mr. Daltry served as Regional Manager for Singer-Kearfott, an aerospace
company. Mr. Daltry holds a B.A. in Accounting from Grove City College and is
a graduate of the U.S. Army Command and General Staff College.
Leif Bergstrom joined the Company in December 1997 in connection with the
Company's acquisition of AGEMA, and currently serves as Vice Chairman of the
Board. Prior to the acquisition of AGEMA, from 1995 to 1997, Mr. Bergstrom
served as President of the Industrial Measurement Group of Spectra-Physics AB,
the former parent company of AGEMA. From 1984 to 1995, he was President and
Chief Executive Officer of AGEMA. Mr. Bergstrom currently serves on the Boards
of Directors of Nobel Elektronik AB, BLH Electronics, Inc. and the Institute
for Optical Research. Mr. Bergstrom received a M.Sc. in Electronic Engineering
from The Royal Institute of Technology in Stockholm and received an MBA from
the Stockholm School of Economics.
J. Kenneth Stringer III joined the Company in 1984 as Vice President of
Finance and Chief Financial Officer and was appointed Executive Vice President
in 1990. Mr. Stringer was elected to the Board of Directors in April 1993. In
April 1995, Mr. Stringer was appointed President and Chief Operating Officer.
Prior to joining the Company, Mr. Stringer spent six years with Evans Products
Company, Portland, Oregon, as Director of Financial Reporting. Mr. Stringer
received his B.S. degree from the University of Oregon.
Arne Almerfors joined the Company in December 1997 in connection with the
Company's acquisition of AGEMA, and currently serves as Executive Vice
President. From 1995 to 1997, Mr. Almerfors was President and Chief Executive
Officer AGEMA. He also served as President and Chief Executive Officer of CE
Johansson AB, a manufacturer of coordinate measuring devices, from 1989 to
1995. Mr. Almerfors received a Masters in Political Science in addition to
post graduate courses in corporate finance and accounting from the University
of Stockholm.
39
<PAGE>
James A. Fitzhenry joined the Company in 1993 as Corporate Counsel and
Director of Administration, and was appointed Vice President of Corporate
Operations, General Counsel and Secretary in 1995. From 1990 to 1993, Mr.
Fitzhenry served in the White House during the Bush Administration in the
Office of Policy Development and the Office of Cabinet Affairs. Previously, he
served as legal counsel and legislative director to Senator Mark O. Hatfield
(R-Ore.) and practiced law in Portland, Oregon. Mr. Fitzhenry received his
B.A. from the University of Oregon and received his J.D. and Masters of
Management degrees from Willamette University.
Dr. J. Richard Kerr joined the Company in 1987 as Vice President for
Engineering and Product Development. In 1995, Dr. Kerr was appointed Vice
President of Advanced Development. Previously he acted as a consultant with
several venture capital firms and start-up high technology businesses for four
years. He was Vice President for Marketing of Flight Dynamics, an aviation
electronics company, from 1979 to 1984. Dr. Kerr also served as President,
Vice President and Professor of the Oregon Graduate Center. Dr. Kerr received
his Ph.D., M.S. and B.S. in Electrical Engineering from Stanford University.
William N. Martin joined the Company in 1994 as Director of Sales and was
appointed Vice President, Sales for the Company in 1995. Prior to joining the
Company, Mr. Martin was employed by AGEMA Infrared Systems, Inc., where he
initially served as Western Regional Sales Manager and then National Sales
Manager. Prior to joining AGEMA, Mr. Martin served as Regional Manager for
Hughes Aircraft Company. Mr. Martin who is an instrument multi-engine
commercial pilot, attended Wichita State University, majoring in speech and
communications.
Steven R. Palmquist joined the Company in January of 1997 as Vice President
of Engineering and was named Vice President of Operations in January 1998.
Since 1988, Mr. Palmquist has held several management positions with
Tektronix, Inc., including Product Definition and Development Manager,
Business Unit Manager for the Color Printer Division, and Vice President of
Engineering. From 1983 to 1988 he was the founder, President and Chief
Executive Officer of Integrated Measurement Systems, Inc. Mr. Palmquist
received a B.S. in Electrical Engineering from Washington State University and
a M.S. in Electrical Engineering from the University of Illinois.
J. Mark Samper joined the Company in 1990 as Corporate Controller and was
appointed Vice President of Finance and Chief Financial Officer in March 1995.
Prior to joining the Company, Mr. Samper spent six years with Price Waterhouse
where he served as an Audit Manager. Mr. Samper received his B.S. degree from
Oregon State University, with a major in accounting. He is a Certified Public
Accountant.
David Smith joined the Company in December of 1997 in connection with the
Company's acquisition of AGEMA and currently serves as Vice President of
International Sales. Since 1996, Mr. Smith has served as President of AGEMA
Infrared Systems, Inc., the U.S. subsidiary of AGEMA. From 1993 to 1996, Mr.
Smith served as the UK Sales Director for AGEMA Infrared Systems, Ltd., the
British subsidiary of AGEMA. Mr. Smith received his national diploma from
Wetford Technical College, England and his engineering degree from the
Hatfield Polytechnical Institute, England.
Patrick L. Edsell was elected to the Board of Directors in December 1997 in
connection with the Company's acquisition of AGEMA. Mr. Edsell is currently
Chairman of the Board, President and Chief Executive Officer of Spectra-
Physics Lasers, Inc., formerly a U.S. subsidiary of Spectra-Physics AB, and
has served in that capacity since 1990. Mr. Edsell also served as Vice
President of Finance and Chief Financial Officer of Spectra-Physics AB from
1984 to 1991. A graduate of the U.S. Air Force Academy with a B.S. in
Economics, Mr. Edsell received an M.A. in Economics from Ohio State University
and an MBA from the University of New Mexico.
John C. Hart has served as a Director of the Company since February 1987 and
as Chairman of the Board of Directors from 1987 to April 1993. From 1982 until
his retirement in 1993, Mr. Hart served as Vice President of Finance,
Treasurer and a member of the Board of Directors of Louisiana-Pacific
Corporation.
40
<PAGE>
Egon Linderoth was elected to the Board of Directors in December 1997 in
connection with the Company's acquisition of AGEMA. Mr. Linderoth is President
of Ostermans Aero AB, an aerospace company in Sweden. Prior to joining
Ostermans, Mr. Linderoth served as President and Chief Executive Officer of
Celsius Industries AB from 1995 to 1996, and President and Chief Executive
Officer of Bofors AB from 1992 to 1995. Mr. Linderoth currently serves on the
Board of Directors of Spectra-Physics AB, the Swedish Industrial Development
Fund, Faufoss AS, Karlskoga Invest AB and is a member of the Swedish Royal
Academy of War Science. Mr. Linderoth received his Baccalaureate in 1958 and
an MBA from the Stockholm School of Economics.
W. Allen Reed has served as a Director of the Company since April 1992. Mr.
Reed is President of General Motors Investment Management Corporation. From
1991 to 1994, Mr. Reed was Vice President and Treasurer of GM Hughes
Electronics Corporation and Hughes Aircraft Company ("Hughes"). From 1984 to
1991, Mr. Reed was President of the Hughes Investment Management Company, a
wholly-owned subsidiary of Hughes. Mr. Reed serves on the Boards of Directors
of General Motors Acceptance Corporation, GMACI Holdings, Inc., Taubman
Centers, Inc. and WEBS Fund, Inc. Mr. Reed also serves as Chairman of the
Investment Advisory Committee for the Howard Hughes Medical Institute and is
Vice Chairman of the Committee on Investment of Employee Benefit Assets
(CIEBA) of the Financial Executives Institute (FEI). Mr. Reed received his BAA
degree from the Auburn University School of Engineering and an MBA from the
Georgia State University School of Business. He also holds the designation of
Chartered Financial Analyst.
Lars Spongberg was elected to the Board of Directors in December 1997 in
connection with the Company's acquisition of AGEMA. Since 1996, Mr. Spongberg
has served as President of Spectra-Physics AB, the former parent company of
AGEMA, and a member of the Board of Directors since April 1997. From 1995 to
1996, he was Senior Vice President of Autoliv AB, an automotive parts
manufacturer, and was previously President of Svenska Handelsbaken, a
commercial bank, from 1993 to 1995.
Ronald L. Turner was elected to the Board of Directors in 1993. In April
1998, Mr. Turner was named President and Chief Operating Officer of Ceridian
corporation. He served as Executive Vice President of Ceridian Corporation
from April 1997 to April 1998. From 1993 to 1995, Mr. Turner served as
President and Chief Executive Officer of Computing Devices International, an
aerospace company, which is a division of Ceridian Corporation. From 1987 to
1993, Mr. Turner was President and Chief Executive Officer of GEC-Marconi
Electronic Systems Corporation, a defense electronics company. Prior to 1987,
Mr. Turner worked for Martin Marietta Corporation for 14 years in a variety of
executive positions. Mr. Turner serves on the Board of Directors of BTG, Inc.,
is Chairman of the Government Electronics and Information Association and on
the Board of Directors and Executive Committee of the Electronics Industry
Association. He is a past President and a member of the Board of Governors of
the Massachusetts Institute of Technology Society of Sloan Fellows as well as
a past member of the Board of Directors of Aerospace Industries Association,
Inc. and the American Electronics Association.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1998 as to (i) each person known
by the Company to own beneficially more than five percent of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) the Company's
Chief Executive Officer and each of the four most highly compensated executive
officers of the Company, (iv) all officers and directors of the Company as a
group and (v) each of the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
----------------------- SHARES BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Spectra-Physics AB................. 4,162,000 42.2% -- 4,162,000 36.1%
Sturgaten 32
Box S226, S-102 45
Stockholm, Sweden
Hughes Electronics Corp.(2)........ 760,500 7.7 760,500 -- --
200 North Sepulveda Blvd.
El Segundo, CA 90245
Fidelity Investments(3)............ 700,200 7.1 -- 700,200 6.1
82 Devonshire Street
Boston, MA 02109
Leif Bergstrom..................... 3,000 * -- 3,000 *
Robert P. Daltry................... 253,128 2.5 7,000 246,128 2.1
Patrick L. Edsell(4)............... 6,000 * -- 6,000 *
John C. Hart....................... 33,000 * -- 33,000 *
Egon Linderoth(5).................. 6,000 * -- 6,000 *
W. Allen Reed(6)................... 33,000 * -- 33,000 *
Lars Spongberg(7).................. 6,000 * -- 6,000 *
J. Kenneth Stringer III............ 140,010 1.4 3,000 137,010 1.2
Ronald L. Turner................... 33,000 * -- 33,000 *
James A. Fitzhenry................. 9,499 * -- 9,499 *
William N. Martin.................. 10,000 * -- 10,000 *
Steven R. Palmquist................ 10,000 * -- 10,000 *
Directors and Executive Officers as
a group (16 persons)(8)............ 588,331 5.7% 10,000 578,331 4.9%
</TABLE>
- ---------------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option. Applicable
percentage of ownership is based on 9,875,165 shares of Common Stock
outstanding as of March 31, 1998. Beneficial ownership is determined in
accordance with rules of the Securities and Exchange Commission, and
includes voting power and investment power with respect to shares. Shares
issuable upon the exercise of outstanding stock options that are currently
exercisable or become exercisable within 60 days from March 31, 1998 are
considered outstanding for the purpose of calculating the percentage of
Common Stock owned by such person, but not for the purpose of calculating
the percentage of Common Stock owned by any other person. The number of
shares that are issuable upon the exercise of options that are currently
exercisable or exercisable within 60 days of March 31, 1998 is as follows:
Mr. Daltry--129,000; Mr. Hart--33,000; Mr. Reed--33,000; Mr. Stringer--
77,850; Mr. Turner--33,000; Mr. Bergstrom--0; Mr. Edsell--6,000; Mr.
Linderoth--6,000; Mr. Spongberg--6,000; Mr. Martin--1,667; Mr. Fitzhenry--
1,666; Mr. Palmquist--5,000; and all officers and directors as a group--
366,682.
(2) This information as to beneficial ownership is based on a Schedule 13G
filed by General Motors Corporation ("GM"), Hughes Electronics Corporation
("HEC") and Hughes Aircraft Company ("Hughes") with the Securities and
Exchange Commission on February 7, 1994. During that time,
42
<PAGE>
Hughes was a wholly owned subsidiary of HEC, which is a wholly owned
subsidiary of GM. HEC has its principal executive offices located at 200
No. Sepulveda Boulevard, El Segundo, California 90245 and GM has its
principal executive offices located at 100 Renaissance Center, Detroit,
Michigan 48243. The Schedule 13G states that as of December 31, 1993 Hughes
was the beneficial owner of 760,500 shares of Common Stock as to which it
had sole voting and dispositive power and that GM and HEC had shared voting
and dispositive power with respect to such shares. On January 2, 1996,
Hughes changed its name to HE Holdings, Inc. ("HEH"). On December 16, 1997,
HEH, HEC and GM entered into a Master Separation Agreement ("MSA") whereby
HEH spun off as an independent publicly owned company comprised of the HEC
Defense Business, and pursuant to which Raytheon Company ("Raytheon")
combined with HEH through the merger of Raytheon with and into HEH, and
then changed its name to Raytheon Company. As a part of the MSA, HEH (now
Raytheon Company) transferred beneficial ownership of 760,500 shares of
Common Stock to HEC.
(3) This information as to beneficial ownership is based on a Schedule 13G
filed by Fidelity Investments with the Securities and Exchange Commission
on February 10, 1998. The Schedule 13G states that as of December 31,
1997, Fidelity Investments was the beneficial owner of 700,200 shares of
Common Stock as to which it had sole dispositive power, including 169,000
shares of Common Stock as to which it had sole voting power. On May 8,
1998, Fidelity Investments filed a Schedule 13G with the Securities and
Exchange Commission reporting that as of April 30, 1998, it was the
beneficial owner of 635,300 shares of Common Stock as to which it had sole
dispositive power, including 164,100 shares of Common Stock as to which it
had sole voting power.
(4) Mr. Edsell is President of Spectra-Physics Lasers, Inc., formerly a U.S.
subsidiary of Spectra-Physics AB, and serves on the Company's Board of
Directors as a designee of Spectra-Physics AB. Mr. Edsell disclaims
beneficial ownership of the 4,162,000 shares of Common Stock beneficially
owned by Spectra-Physics AB.
(5) Mr. Linderoth serves on the Company's Board of Directors as a designee of
Spectra-Physics AB. Mr. Linderoth disclaims beneficial ownership of the
4,162,000 shares of Common Stock beneficially owned by Spectra-Physics AB.
(6) Mr. Reed is President of General Motors Investment Management Corporation.
Mr. Reed disclaims beneficial ownership of the 760,500 shares of Common
Stock beneficially owned by HEC.
(7) Mr. Spongberg is President of Spectra-Physics AB and serves on the
Company's Board of Directors as a designee of Spectra-Physics AB. Mr.
Spongberg disclaims beneficial ownership of the 4,162,000 shares of Common
Stock beneficially owned by Spectra-Physics AB.
(8) Does not include the 4,162,000 shares of Common Stock beneficially owned
by Spectra-Physics AB, as to which all directors and executive officers
disclaim beneficial ownership.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Hambrecht
& Quist LLC, BancAmerica Robertson Stephens, Prudential Securities
Incorporated and Pacific Crest Securities Inc. (the "Underwriters") have
severally agreed to purchase from the Company and the Selling Shareholders the
following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
BancAmerica Robertson Stephens..................................
Prudential Securities Incorporated..............................
Pacific Crest Securities Inc....................................
---------
Total........................................................... 2,409,130
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and the Selling
Shareholders, their counsel and the independent auditors. The nature of the
Underwriters' obligation is such that they are committed to purchase all
shares of Common Stock offered hereby if any such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
offering of the shares, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 361,370
additional shares of Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table bears to the total number of shares of Common Stock offered
hereby. The Company will be obligated, pursuant to the option, to sell such
shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, the Selling Shareholders, and the executive officers and
directors and certain employees of the Company have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for or
any rights to purchase or acquire Common Stock, or enter into any swap or
similar arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of Common Stock, whether any such transaction
44
<PAGE>
described above is to be settled by delivery of such Common Stock or such
other securities, in cash or otherwise, during the 90 day period following the
date of this Prospectus, other than (a) the sale by the Company and the
Selling Shareholders of the shares of Common Stock to be purchased by the
Underwriters pursuant to the Underwriting Agreement, and (b) the issuance by
the Company of shares of Common Stock upon exercise of options granted
pursuant to the Company's stock incentive plans as outstanding or reserved for
issuance on the date of this Prospectus. Spectra has agreed to the same
restrictions for the period following the date of this Prospectus through
December 1, 1998.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Common Stock during the "cooling off" period
immediately preceding the commencement of sales in this offering. The
Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters, selling group members (if any) or their respective affiliates
intend to engage in passive market making in the Common Stock during the
"cooling off" period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids or effecting syndicate
covering transactions. A stabilizing bid means the placing of any bid or
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Common Stock. A syndicated covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the
offering. Such transactions may be effected on the Nasdaq National Market, in
the over-the-counter market, or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
Bank of America, an affiliate of BancAmerica Robertson Stephens, makes
available to the Company a $30.0 million dollar line of credit and a term loan
with an outstanding balance of approximately $4.3 million at March 31, 1998.
The Company intends to use the majority of the net proceeds from the offering
to pay down the amount outstanding under the line of credit.
EXPERTS
The Consolidated Financial Statements of FLIR Systems, Inc. as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting. The AGEMA
financial statements incorporated in this Prospectus by reference to the
Company's definitive proxy statement dated November 10, 1997, have been so
incorporated in reliance on the report of Ohrlings Coopers & Lybrand AB,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland,
Oregon. Certain legal matters in connection with the offering will be passed
upon for the Underwriters by Gibson, Dunn & Crutcher LLP, San Francisco,
California.
45
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied at the public reference facilities of the Commission
located at Room 1024, Judiciary Plaza, at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission, at 450 Fifth Street, Judiciary Plaza, N.W., Washington, D.C. 20549
at prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. The address of the site is http://www.sec.gov. The Company's
Common Stock is quoted on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company can also be inspected
at the National Association of Securities Dealers, Inc., 1735 K Street N.W.,
Washington, D.C. 20002.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement,
including all exhibits thereto, may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by
the Commission, or may be examined without charge at the offices of the
Commission described above.
INFORMATION INCORPORATED BY REFERENCE
The following documents, or portions thereof, previously filed by the
Company with the Commission pursuant to the Exchange Act are incorporated
herein by reference in this Prospectus: (i) Annual Report on Form 10-K for the
year ended December 31, 1997; (ii) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998; (iii) Amendment to Quarterly Report on Form 10-
Q/A for the quarter ended March 31, 1998; (iv) the description of the
Company's Common Stock contained in its Registration Statement on Form 8-A
which became effective on June 18, 1993; and (v) pages 26 to 32 and F-22 to F-
43 of the Proxy Statement dated November 10, 1997 filed on November 12, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of securities contemplated hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing of such documents.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference therein). Requests for such copies should be
directed to: Investor Relations, FLIR Systems, Inc., 16505 S.W. 72nd Avenue,
Portland, Oregon 97224, telephone number (503) 684-3731.
46
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
47
<PAGE>
FLIR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
STATEMENT ----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants.................. F-2
Consolidated Statement of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998
........................................................................ F-3
Consolidated Balance Sheet as of December 31, 1996 and 1997 and March 31,
1998.................................................................... F-4
Consolidated Statement of Shareholders' Equity for the Years Ended Decem-
ber 31, 1995, 1996 and 1997 and the Three Months Ended March 31, 1998... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March 31, 1997 and 1998.. F-6
Notes to the Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of FLIR Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of FLIR
Systems, Inc. and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, 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
March 9, 1998
F-2
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Government...................... $33,575 $42,958 $ 48,483 $ 8,403 $ 9,914
Commercial...................... 16,550 23,059 43,288 7,418 17,785
------- ------- -------- ------- -------
Total revenue................ 50,125 66,017 91,771 15,821 27,699
Cost of goods sold............... 22,724 30,415 58,507 7,529 12,500
Research and development......... 7,786 9,485 11,814 2,776 5,284
Selling and other operating
costs........................... 14,656 18,999 26,551 5,087 8,818
Combination costs................ -- -- 36,450 -- --
------- ------- -------- ------- -------
45,166 58,899 133,322 15,392 26,602
Earnings (loss) from opera-
tions........................ 4,959 7,118 (41,551) 429 1,097
Interest income.................. 226 44 182 6 286
Interest expense and other....... (795) (819) (2,103) (312) (972)
------- ------- -------- ------- -------
Earnings (loss) before income
taxes........................ 4,390 6,343 (43,472) 123 411
Income tax provision (benefit)... 523 1,251 (12,884) 32 121
------- ------- -------- ------- -------
Net earnings (loss).............. $ 3,867 $ 5,092 $(30,588) $ 91 $ 290
======= ======= ======== ======= =======
Net earnings (loss) per share:
Basic........................... $ 0.74 $ 0.95 $ (5.23) $ 0.02 $ 0.03
======= ======= ======== ======= =======
Diluted......................... $ 0.70 $ 0.91 $ (5.23) $ 0.02 $ 0.03
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 775 $ 5,884 $ 5,425
Accounts receivable, net....................... 28,311 55,463 47,567
Inventories.................................... 33,513 34,724 38,542
Prepaid expenses............................... 1,551 3,516 4,129
------- -------- --------
Total current assets........................ 64,150 99,587 95,663
Property and equipment, net..................... 7,137 18,423 19,712
Software development costs, net................. 799 1,043 1,131
Deferred income taxes, net...................... 2,200 16,873 16,880
Intangible assets, net.......................... -- 14,013 13,760
Other assets.................................... 818 3,918 3,833
------- -------- --------
$75,104 $153,857 $150,979
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.................................. $ 6,365 $ 26,558 $ 32,157
Accounts payable............................... 7,628 15,493 14,653
Accounts payable to related parties............ 128 6,228 5,031
Accrued payroll and other liabilities.......... 3,389 19,105 12,112
Accrued income taxes........................... 1,073 363 842
Current portion of long-term debt.............. 1,377 5,273 4,976
------- -------- --------
Total current liabilities................... 19,960 73,020 69,771
Long-term debt.................................. 5,173 1,679 1,537
Pension liability............................... -- 3,969 3,955
Commitments and contingencies................... -- -- --
Shareholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; no shares issued at Decem-
ber 31, 1996, 1997 and March 31, 1998......... -- -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 5,387,483, 9,756,458 and
9,875,165 shares issued at December 31, 1996,
1997 and March 31, 1998, respectively......... 54 98 99
Additional paid-in capital..................... 41,833 97,684 99,129
Retained earnings (accumulated deficit)........ 8,257 (22,331) (22,041)
Cumulative foreign translation adjustment...... (173) (262) (1,471)
------- -------- --------
Total shareholders' equity.................... 49,971 75,189 75,716
------- -------- --------
$75,104 $153,857 $150,979
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED FOREIGN
-------------------- -------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
---------- --------- ---------- --------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.01 $ 0.01
Authorized.............. 10,000,000 par value 30,000,000 par value
========== ========= ========== =========
Balance, December 31,
1994................... -- $ -- 5,187,804 $ 52 $39,812 $ (702) $ -- $ 39,162
Net earnings for the
year.................. -- -- -- -- -- 3,867 -- 3,867
Common stock options
exercised............. -- -- 79,275 1 363 -- -- 364
Common shares issued... -- -- 16,286 -- 77 -- -- 77
---------- --------- ---------- --------- ------- -------- ------- --------
Balance, December 31,
1995................... -- -- 5,283,365 53 40,252 3,165 -- 43,470
Net earnings for the
year.................. -- -- -- -- -- 5,092 -- 5,092
Common stock options
exercised............. -- -- 70,788 1 587 -- -- 588
Common shares issued
pursuant to stock
option plans.......... -- -- 33,330 -- 398 -- -- 398
Income tax benefit from
stock options
exercised............. -- -- -- -- 596 -- -- 596
Foreign translation
adjustment............ -- -- -- -- -- -- (173) (173)
---------- --------- ---------- --------- ------- -------- ------- --------
Balance, December 31,
1996................... -- -- 5,387,483 54 41,833 8,257 (173) 49,971
Net loss for the year.. -- -- -- -- -- (30,588) -- (30,588)
Common stock options
exercised............. -- -- 206,975 2 1,460 -- -- 1,462
Common stock issued for
acquisitions.......... -- -- 4,162,000 42 54,064 -- -- 54,106
Income tax benefit from
stock options
exercised............. -- -- -- -- 327 -- -- 327
Foreign translation
adjustment............ -- -- -- -- -- -- (89) (89)
---------- --------- ---------- --------- ------- -------- ------- --------
Balance, December 31,
1997................... -- -- 9,756,458 98 97,684 (22,331) (262) 75,189
Net earnings for the
period................ -- -- -- -- -- 290 -- 290
Common stock options
exercised............. -- -- 61,207 1 474 -- -- 475
Common shares issued
pursuant to stock
option plans.......... -- -- 57,500 -- 971 -- -- 971
Foreign translation
adjustment............ -- -- -- -- -- -- (1,209) (1,209)
---------- --------- ---------- --------- ------- -------- ------- --------
Balance, March 31, 1998
(unaudited)............ -- $ -- 9,875,165 $ 99 $99,129 $(22,041) $(1,471) $ 75,716
========== ========= ========== ========= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash (used) provided by operating
activities:
Net earnings (loss)............. $ 3,867 $ 5,092 $(30,588) $ 91 $ 290
Income charges not affecting
cash:
In-process research and devel-
opment write-off.............. -- -- 33,600 -- --
Depreciation................... 1,854 1,972 2,689 559 1,291
Amortization................... 506 481 680 139 514
Disposal and write-offs of
property and equipment........ 104 239 333 35 24
Deferred income taxes.......... (950) (400) (13,796) -- (7)
Changes in certain working
capital components, net of
effects of acquisition:
(Increase) decrease in accounts
receivable..................... (3,847) (3,413) (18,210) (4,637) 7,896
(Increase) decrease in invento-
ries........................... (6,762) (9,847) 8,966 (469) (3,818)
(Increase) decrease in prepaid
expenses....................... (106) (1,112) (35) 95 (613)
Decrease (increase) in other as-
sets........................... 109 (329) 609 (7) 32
Increase (decrease) in accounts
payable........................ 1,843 2,151 4,981 361 (840)
(Decrease) increase in accounts
payable to related parties..... (51) (145) 976 464 (1,197)
(Decrease) increase in accrued
payroll and other liabilities.. (604) (58) 4,446 (743) (6,993)
Increase (decrease) in accrued
income taxes................... 133 488 (767) 28 479
------- ------- -------- ------- -------
Cash used by operating activi-
ties............................ (3,904) (4,881) (6,116) (4,084) (2,942)
------- ------- -------- ------- -------
Cash used by investing activi-
ties:
Additions to property and
equipment..................... (2,987) (5,526) (10,843) (1,386) (2,708)
Net cash acquired from AGEMA... -- -- 805 -- --
Software development costs..... (599) (630) (703) (181) (192)
------- ------- -------- ------- -------
Cash used by investing activi-
ties............................ (3,586) (6,156) (10,741) (1,567) (2,900)
------- ------- -------- ------- -------
Cash provided by financing activ-
ities:
Net increase in notes payable.. 2,056 4,309 19,971 4,990 5,599
Proceeds from long-term debt... 572 5,817 995 -- --
Repayments of long-term debt
including current portion..... (608) (877) (593) (323) (439)
Reduction of pension liabili-
ty............................ -- -- (107) -- (14)
Common stock issued............ 77 -- -- -- --
Proceeds from exercise of stock
options and shares issued
pursuant to incentive stock
option plans, including tax
benefit....................... 364 1,582 1,789 480 1,446
------- ------- -------- ------- -------
Cash provided by financing activ-
ities........................... 2,461 10,831 22,055 5,147 6,592
------- ------- -------- ------- -------
Effect of exchange rate changes
on cash......................... -- (173) (89) (5) (1,209)
------- ------- -------- ------- -------
Net (decrease) increase in cash.. (5,029) (379) 5,109 (509) (459)
Cash and cash equivalents, begin-
ning of period.................. 6,183 1,154 775 775 5,884
------- ------- -------- ------- -------
Cash and cash equivalents, end of
period.......................... $ 1,154 $ 775 $ 5,884 $ 266 $ 5,425
======= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
The Company is a world leader in the design, manufacture and marketing of
thermal imaging and broadcast camera systems for a wide variety of
applications in the commercial and government markets. The Company's thermal
imaging systems use advanced infrared technologies that detect infrared
radiation, or heat, enabling the operator to measure minute temperature
differences and to see objects in daylight or total darkness and through
obscurants such as smoke, haze and most types of fog. The Company's products
can also incorporate visible light cameras, proprietary image analysis
software and gyrostabilized gimbal technology. The Company's products come in
a variety of configurations such as handheld or ground based systems, or can
be mounted on ships, helicopters or fixed-wing aircraft. The Company's
products provide state-of-the-art imaging technology coupled with competitive
price performance characteristics for existing commercial and government
applications including condition monitoring, research and development,
manufacturing process control, airborne observation and broadcast, search and
rescue, federal drug interdiction, surveillance and reconnaissance, navigation
safety, border and maritime patrol, environmental monitoring and ground based
security. The Company has also developed innovative new products utilizing
advanced uncooled thermal imaging technology, which allows for less expensive,
smaller, lighter, solid state systems that require less power to operate. In
addition, the Company's product configurations and image analysis software
tools increase the Company's ability to provide products tailored to meet
individual customer requirements.
The accompanying consolidated financial statements as of and for the three
months ended March 31, 1997 and 1998 are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these statements have been
prepared on the same basis as the audited consolidated financial statements
and include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the consolidated financial position and
results of operations for the interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto for the year ended
December 31, 1997.
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.
Recognition of revenue
Revenue is recognized when products are shipped or when services are
performed, except for certain long-term contracts, which are recorded on the
percentage-of-completion method. The percentage-of-completion method is used
for research and development contracts and for production contracts that
require significant amounts of initial engineering and development costs. The
percentage-of-completion is determined by relating the actual costs incurred
to date to the total costs to complete the respective contract.
Foreign currency translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. Assets
and liabilities of these subsidiaries are translated at the rates of exchange
at the balance sheet date. Income and expense items are translated at the
average monthly rates of exchange. The resultant translation adjustments are
included in the cumulative foreign translation adjustment,
F-7
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
a separate component of shareholders' equity. Gains and losses from foreign
currency transactions of these subsidiaries are included in net earnings.
Cash and cash equivalents
The Company considers short-term investments which are highly liquid,
readily convertible into cash and have original maturities of less than three
months to be cash equivalents for purposes of the statement of cash flows. The
Company generally invests its excess cash in investment grade, short-term
commercial paper which is held to maturity. At December 31, 1997, the Company
did not hold any short-term investments.
Inventories
Inventories are stated at the lower of average cost or market.
Property and equipment
Property and equipment are stated at cost and are depreciated using a
straight-line methodology over their estimated useful lives. Such lives range
from two to ten years.
Repairs and maintenance are charged to operations as incurred.
Software development costs
The Company capitalizes software development costs when a project reaches
technological feasibility and ceases capitalization once the related product
is ready for release. Research and development costs related to software
development that has not reached technological feasibility are expensed as
incurred. Software development costs are amortized at the greater of (a) the
ratio of number of units shipped to the current and anticipated future units
to be shipped or (b) the straight-line method over the remaining estimated
economic life of the product. Generally, the estimated economic life is three
years.
Income taxes
The Company utilizes the liability method as set forth in Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes" (see Note 3).
Earnings per share
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the periods,
computed using the treasury stock method for stock options. In 1997, the
Company adopted Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
The following table sets forth the reconciliation of the denominator
utilized in the computation of basic and diluted earnings (loss) per share (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1995 1996 1997 1997 1998
----- ----- ----- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding................................ 5,246 5,361 5,843 5,424 9,799
Assumed exercise of stock options net of
shares assumed reacquired under the
treasury stock method...................... 277 263 -- 324 423
----- ----- ----- ------- --------
Diluted shares outstanding.................. 5,523 5,624 5,843 5,748 10,222
===== ===== ===== ======= ========
</TABLE>
The effect of stock options in 1997 of 388,000 shares was excluded for
purposes of diluted earnings per share since the effect would have been anti-
dilutive.
Reclassifications
Certain reclassifications have been made to prior years' data to conform
with the current year's presentation. These reclassifications had no impact on
previously reported results of operations or shareholders' equity.
F-8
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statement of cash flows
Cash paid for interest and income taxes amounted to the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------ -------------
1995 1996 1997 1997 1998
------ ---- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest..................................... $ 133 $782 $1,508 $ 262 $ 883
Taxes........................................ 1,340 763 1,549 4 148
</TABLE>
The non-cash portion of the AGEMA acquisition was excluded from the
statement of cash flows. (See Note 17).
Fair value of financial assets and liabilities
The Company estimates the fair value of its monetary assets and liabilities
based upon comparison of such assets and liabilities to the current market
values for instruments of a similar nature and degree of risk. The Company
estimates that the recorded value of all of its monetary assets and
liabilities approximates fair value as of December 31, 1997, except for the
patent note described in Note 9. Interest has been imputed on the patent note
at 14% which exceeds the current market rate for this type of note. Therefore,
the fair value of this note is estimated to be approximately $16,000 in excess
of its recorded value at December 31, 1997.
Stock-based compensation
The Company adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation", effective January 1, 1996. SFAS 123 allows companies to choose
whether to account for stock-based compensation under the method prescribed in
Accounting Principles Board Opinion No. 25 (APB 25) or use the fair value
method described in SFAS 123. The Company elected to continue to follow the
provisions of APB 25 (see Note 13).
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. Concentration of credit
risk with respect to trade receivables is limited because a relatively large
number of geographically diverse customers make up the Company's customer
base, thus diversifying the trade credit risk. The Company controls credit
risk through credit approvals, credit limits and monitoring procedures. The
Company performs in-depth credit evaluations for all new customers and
requires letters of credit, bank guarantees and advanced payments, if deemed
necessary.
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 revenue and expenses during the
reporting period. Significant estimates and judgments made by management of
the Company include matters such as collectibility of accounts receivable,
realizability of inventories and recoverability of capitalized software and
deferred tax assets. Actual results could differ from those estimates.
F-9
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recent accounting pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131 (SFAS 131), "Disclosure about
Segments of an Enterprise and Related Information." This requires certain
additional disclosures about the Company's operations and historical
operations. The Company plans to adopt SFAS 131 in 1998, however, management
believes that the impact of adoption will not have a significant effect on the
Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Company has adopted this standard as of
January 1, 1998. Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
1997 1998
---- -------
(UNAUDITED)
<S> <C> <C>
Net Income...................................................... $91 $ 290
Cumulative foreign translation adjustment....................... (5) (1,209)
--- -------
Total comprehensive income (loss)............................... $86 $ (919)
=== =======
</TABLE>
The cumulative foreign translation adjustment represents the Company's only
other comprehensive income item. Cumulative foreign translation adjustment
represents unrealized gains/losses in the translation of the financial
statements of the Company's subsidiaries 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.
NOTE 2--OTHER OPERATING COSTS:
Selling and other operating costs consist of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Representative commissions.............. $ 2,390 $ 1,587 $ 3,371 $ 478 $1,375
Allowance for doubtful accounts......... 55 1,260 839 -- 11
Other selling, general and administra-
tive expenses.......................... 12,211 16,152 22,341 4,609 7,432
------- ------- ------- ------ ------
$14,656 $18,999 $26,551 $5,087 $8,818
======= ======= ======= ====== ======
</TABLE>
NOTE 3--INCOME TAXES:
SFAS 109 requires the Company to recognize deferred tax liabilities and
assets for the expected future tax consequences of events and basis
differences that have been recognized in the Company's financial statements
and tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amount and the tax basis of assets and liabilities using the enacted tax rates
in effect in the years in which the differences are expected to reverse.
F-10
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Current tax expense:
Federal......................................... $ 1,210 $ 1,361 $ 377
State........................................... 263 290 --
Foreign......................................... -- -- 538
------- ------- ---------
1,473 1,651 915
------- ------- ---------
Deferred tax (benefit) expense:
Federal......................................... (146) 675 (16,566)
State........................................... (15) 144 (1,817)
Foreign......................................... -- -- 478
------- ------- ---------
(161) 819 (17,905)
------- ------- ---------
(Decrease) increase in valuation allowance........ (789) (1,219) 4,106
------- ------- ---------
Total provision (benefit)......................... $ 523 $ 1,251 $ (12,884)
======= ======= =========
</TABLE>
Deferred tax assets are composed of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Allowance for doubtful accounts............................... $ 679 $ 759
Warranty reserve.............................................. 347 392
Inventory basis differences................................... 665 2,841
Accrued liabilities........................................... 324 1,841
Acquired in-process research and development.................. -- 12,768
Depreciation.................................................. 75 (196)
Software development costs.................................... (325) (396)
Net operating loss carryforwards.............................. 1,870 3,358
Credit carryforwards.......................................... 771 1,334
Other......................................................... 577 1,061
------- -------
Gross deferred tax asset...................................... 4,983 23,762
Deferred tax asset valuation allowance........................ (2,783) (6,889)
------- -------
$ 2,200 $16,873
======= =======
</TABLE>
F-11
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from the amount of tax determined by
applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Statutory federal tax rate........................... 34.0% 34.0% (34.0)%
Increase (decrease) in rates resulting from:
State taxes.......................................... 6.0 4.5 (4.2)
Utilization of net operating loss carryforwards...... (15.0) -- --
Foreign sales corporation benefit.................... (7.6) (3.2) (2.7)
Utilization of research and development credits...... (0.8) (11.3) --
(Decrease) increase in valuation allowance........... (21.6) (6.3) 9.5
Alternative minimum tax.............................. 16.1 -- --
Other................................................ 0.8 2.0 1.8
----- ----- -----
Effective tax rate................................... 11.9% 19.7% (29.6)%
===== ===== =====
</TABLE>
As of December 31, 1997, the Company's net operating loss carryforwards
aggregated $9,267,000 and expire in the years 2005 through 2012. Utilization
of the Company's acquired net operating loss carryforwards from Optimas is
limited to future earnings of Optimas and are further limited to approximately
$350,000 per year, as Optimas has experienced a cumulative change in ownership
of more than 50% within a three-year period. In addition, the Company has
various tax credits available aggregating $1,334,000 at December 31, 1997,
which expire in the years 1999 through 2012.
NOTE 4--ACCOUNTS RECEIVABLE:
Accounts receivable are net of an allowance for doubtful accounts of
$1,671,000 and $2,483,000 at December 31, 1996 and 1997, respectively.
NOTE 5--INVENTORIES:
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw material and subassemblies............. $23,855 $26,631 $27,427
Work-in-progress........................... 8,171 9,995 10,688
Finished goods............................. 1,494 894 3,198
------- ------- -------
33,520 37,520 41,313
Less--progress payments received from cus-
tomers.................................... (7) (2,796) (2,771)
------- ------- -------
$33,513 $34,724 $38,542
======= ======= =======
</TABLE>
F-12
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment...................... $ 8,445 $20,099 $ 22,124
Office equipment and other................... 5,382 7,632 8,136
------- ------- --------
13,827 27,731 30,260
Less--accumulated depreciation............... (6,690) (9,308) (10,548)
------- ------- --------
$ 7,137 $18,423 $ 19,712
======= ======= ========
</TABLE>
Property and equipment include the cost of equipment held by the Company
under capital lease agreements. Such cost and related accumulated depreciation
aggregated $2,724,000 and $1,336,000, respectively, at December 31, 1996 and
$3,674,000 and $1,939,000, respectively, at December 31, 1997.
NOTE 7--SOFTWARE DEVELOPMENT COSTS:
Software development costs are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Software development costs.................... $1,533 $ 2,236 $ 2,428
Less--accumulated amortization................ (734) (1,193) (1,297)
------ ------- -------
$ 799 $ 1,043 $ 1,131
====== ======= =======
</TABLE>
Amortization of capitalized software costs aggregated $393,000, $300,000 and
$459,000, for the years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 8--NOTES PAYABLE:
The Company has a $30,000,000 line of credit bearing interest at the IBOR
plus 1.75% (7.75% and 7.38% at December 31, 1997 and March 31, 1998,
respectively) secured by all assets of the Company. This line of credit is up
for renewal on August 1, 1998. Additionally, the Company, through one of its
subsidiaries, has a 40,000,000 Swedish Krona (approximately $5,001,000) line
of credit at 4.70% at December 31, 1997 and March 31, 1998. At December 31,
1996, 1997 and March 31, 1998, the Company had $6,365,000, $26,558,000 and
$32,157,000, respectively, outstanding against these lines.
F-13
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--LONG-TERM DEBT:
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable--patent.......................... $ 294 $ 206 $ 206
Note payable to bank; 7.38% interest rate.
Payable in monthly installments of $123, due
August 1, 1998, secured by all assets of the
Company...................................... 4,663 4,609 4,324
Capital leases................................ 1,593 2,137 1,983
------ ------ ------
6,550 6,952 6,513
Less--current portion......................... (1,377) (5,273) (4,976)
------ ------ ------
$5,173 $1,679 $1,537
====== ====== ======
</TABLE>
The patent note calls for annual payments through 1999 of $70,000 plus an
adjustment for changes in the Consumer Price Index. Because the note did not
include a stated interest rate, interest has been imputed at a rate of 14%.
The Consumer Price Index was estimated assuming an average increase of 5% per
year. Payments of $112,000, $115,000 and $116,000, were made in the years
ended December 31, 1995, 1996 and 1997, respectively. The related patent was
capitalized based on the present value at inception of the patent note of
$683,000. The patent was fully amortized as of December 31, 1990.
NOTE 10--PENSION PLANS:
As a result of the AGEMA acquisition (See Note 17), the Company now offers
most of its employees outside the United States participation in defined
benefit pension plans.
A summary of the components of the net periodic pension expense for the
defined benefit plan for employees in Sweden was as follows (in thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Service costs benefit earned during December 1997.................... $--
Interest cost on projected benefit obligation........................ 17
Amortization of actuarial gain....................................... --
Amortization of remaining transition obligation...................... (3)
---
Net pension costs.................................................... $14
===
</TABLE>
A summary of the funded status of the pension plan in Sweden and the net
pension liability is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Accumulated vested benefit obligations........................ $3,421
------
Projected benefit obligation.................................. 3,421
Plan assets at fair value..................................... --
------
Projected benefit obligation in excess of plan assets......... 3,421
Unrecognized actuarial gain................................... 90
Unrecognized transition obligation............................ 458
------
Pension liability............................................. $3,969
======
</TABLE>
F-14
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used for the defined benefit pension plans were as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Weighted average discount rate....................................... 6.00%
Rates of increase in compensation levels............................. 3.00%
Inflation rate....................................................... 2.00%
</TABLE>
NOTE 11--COMMITMENTS AND CONTINGENCIES:
The Company leases its primary facilities under various operating leases
which expire in 1998 through 2003. Total rent expense for the years ended
December 31, 1995, 1996 and 1997 amounted to $871,000, $1,471,000 and
$1,940,000, respectively.
Minimum rental payments required under all non-cancelable leases for
equipment and facilities at December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998.................................................... $ 732 $2,520
1999.................................................... 610 2,302
2000.................................................... 499 1,937
2001.................................................... 427 892
2002.................................................... 197 37
------ ------
Total minimum lease payments............................ 2,465 $7,688
======
Less amount representing interest....................... (328)
------
Present value of lease payments......................... $2,137
======
</TABLE>
The Company has a 401(k) Savings and Retirement Plan (the "Plan") to provide
for voluntary salary deferral contributions on a pre-tax basis for employees
within the United States in accordance with Section 401(k) of the Internal
Revenue Code of 1986, as amended. The Plan allows for contributions by the
Company. The Company recorded matching contributions of $0, $533,000 and
$511,000, for the years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 12--CAPITAL STOCK:
In 1996, the Company increased the number of shares of common stock reserved
for future issuance pursuant to its incentive stock plans to 2,769,400. Under
the plans, restricted stock, incentive stock options or non-qualified stock
options may be granted to employees, consultants or non-employee directors of
the Company with an exercise price of not less than the fair market value of
the stock on the date of grant. Options granted pursuant to the plans expire
ten years from date of grant and the plan terminates in 2003.
Under the 1992 incentive stock plan, 430,000 shares of common stock were
reserved for restricted stock awards. Shares awarded are earned ratably over
the term of the restricted stock agreement, based upon achievement of
specified performance goals. Shares granted in 1996 and 1997 aggregated
100,000 and 115,000 shares, respectively. Of the shares granted, 33,330 and
115,000 shares were earned in 1996 and 1997, respectively, based upon
achievement of specified performance goals. Shares granted which are not
issued lapse and cease to be subject to the award. Compensation expense
related to these awards, in the amounts of $398,000 and $1,747,000 was
recorded in 1996 and 1997, respectively, and is included in selling and other
operating costs. At December 31, 1997 and March 31, 1998, there were 215,000
shares available for future awards.
F-15
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--STOCK OPTIONS:
The Company has elected to account for its stock based compensation under
APB 25; however, as required by SFAS 123, the Company has computed for pro
forma disclosure purposes the value of options granted during 1995, 1996 and
1997 using the Black-Scholes option pricing model. The weighted average
assumptions used for stock option grants for 1995, 1996 and 1997 were a risk-
free interest rate of 7.7%, 5.2% and 6.0%, respectively, an expected dividend
yield of 0%, 0% and 0%, respectively, an expected life of three years, and an
expected volatility of 23.9%, 22.7% and 40.2%, respectively.
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, 1996 and 1997, the total value of the
options granted was computed to be $1,200,000, $819,000 and $1,879,000,
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 pro forma net earnings and pro forma net earnings per share
would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Net earnings (loss) -- as reported............. $ 3,867 $ 5,092 $ (30,588)
Net earnings (loss) -- pro forma............... $ 3,578 $ 4,593 $ (31,353)
Earnings (loss) per share:
Basic -- as reported....................... $ 0.74 $ 0.95 $ (5.23)
Diluted -- as reported..................... $ 0.70 $ 0.91 $ (5.23)
Earnings (loss) per share:
Basic -- pro forma......................... $ 0.68 $ 0.86 $ (5.37)
Diluted -- pro forma....................... $ 0.65 $ 0.82 $ (5.37)
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosure for
1995, 1996 and 1997 are not likely to be representative of the effects on
reported net earnings and earnings per share for future years since options
vest over several years and additional awards may be made.
F-16
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The table below summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1994..................... 611,413 $ 7.16
Granted.......................................... 361,500 12.76
Exercised........................................ (79,275) 5.85
Terminated....................................... (65,067) 11.25
--------- ------
Balance at December 31, 1995..................... 828,571 9.41
Granted.......................................... 331,000 11.07
Exercised........................................ (70,788) 8.41
Terminated....................................... (27,757) 11.56
--------- ------
Balance at December 31, 1996..................... 1,061,026 9.94
Granted.......................................... 361,500 15.38
Exercised........................................ (206,975) 7.97
Terminated....................................... (92,378) 11.41
--------- ------
Balance at December 31, 1997..................... 1,123,173 11.96
Granted.......................................... 288,500 16.97
Exercised........................................ (61,207) 7.76
Terminated....................................... (36,634) 12.94
--------- ------
Balance at March 31, 1998 (unaudited)............ 1,313,832 $13.16
========= ======
</TABLE>
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and the remaining contractual lives at
December 31, 1997 by group of similar price and grant dates:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
NUMBER OF EXERCISE CONTRACTUAL
EXERCISE PRICE RANGE SHARES PRICE LIFE
-------------------------------------------- --------- -------- -----------
<S> <C> <C> <C>
$1.63-$5.23........................... 145,349 $ 4.76 3.3
$9.13-$13.75.......................... 799,824 12.07 7.7
$14.00-$20.63......................... 178,000 17.31 9.2
--------- ------ ---
1,123,173 $11.96 7.4
========= ====== ===
</TABLE>
Options exercisable at December 31, 1997, totaled 565,547 shares at a
weighted average exercise price of $10.10. Options available for grant at
December 31, 1997 totaled 1,021,322 shares.
NOTE 14 -- LONG-TERM CONTRACTS:
During 1994, the Company entered into a long-term research and development
contract with a consortium of companies to develop an Autonomous Landing
Guidance System for commercial and military aircraft as part of the U.S.
Government's Technology Reinvestment Program. The Company's portion of this
contract aggregated $650,000. In April 1995, the Company was awarded an
additional $900,000 under this contract for the second phase of the
development. Revenue from this contract aggregated $896,000, $416,000 and $0
during the years ended December 31, 1995, 1996 and 1997, respectively, and are
included in revenue.
F-17
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Costs associated with this contract aggregated $425,000, $200,000 and $0 in
1995, 1996 and 1997, respectively, and are included in cost of goods sold.
Outstanding billings at December 31, 1996 and 1997 aggregated $35,000 and $0,
respectively, and were included in accounts receivable.
NOTE 15--RELATED PARTY TRANSACTIONS:
The Company and Hughes Aircraft Company are related parties resulting from
Hughes' stock interest in the Company. The Company purchases inventory parts
from Hughes and its subsidiaries. During the years ended December 31, 1995,
1996 and 1997, the Company purchased parts aggregating $1,320,000, $1,670,000
and $2,243,000, respectively, from Hughes and its subsidiaries. As of December
31, 1996 and 1997, the Company owed Hughes $128,000 and $1,243,000,
respectively. Sales of the Company's products to Hughes and its affiliates
amounted to $320,000, $103,000 and $34,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
As a result of the AGEMA acquisition (see Note 17), Spectra-Physics AB and
subsidiaries ("Spectra") are related parties as a result of Spectra's stock
interest in the Company. At December 31, 1997 and March 31, 1998, the Company
owed Spectra $4,985,000 and $5,031,000, respectively, which is payable in full
on June 30, 1998.
NOTE 16--EXPORT SALES AND MAJOR CUSTOMERS:
Export sales and sales to major customers are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States........................... $27,062 $44,865 $48,462 $10,411 $15,007
Europe.................................. 15,872 14,883 24,008 4,339 9,597
Other foreign........................... 7,191 6,269 19,301 1,071 3,095
------- ------- ------- ------- -------
$50,125 $66,017 $91,771 $15,821 $27,699
======= ======= ======= ======= =======
Major Customers:
U.S. Government........................ $15,686 $26,469 $18,983 $ 3,928 $ 4,162
======= ======= ======= ======= =======
</TABLE>
NOTE 17--AGEMA ACQUISITION:
Effective December 1, 1997, the Company acquired all of the outstanding
shares of AGEMA Infrared Systems AB, a corporation organized under the laws of
Sweden, AGEMA Infrared Systems Limited, a corporation organized under the laws
of the United Kingdom, AGEMA Infrared Systems Ltd., a corporation organized
under the laws of Canada and AGEMA Infrared Systems, Inc., a Delaware
corporation ("AGEMA") in exchange for 4,162,000 shares of the Company's common
stock with a value of $54,106,000. An additional $1,559,000 of direct
acquisition costs were also incurred and included in the purchase price. AGEMA
designs, manufactures and markets handheld infrared imaging systems for the
commercial market. The results of AGEMA's operations have been combined with
those of the Company since the date of acquisition.
F-18
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based upon their estimated fair values as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT
DECEMBER 1,
1997
-----------
<S> <C>
Current assets................................................. $23,413
Property and equipment......................................... 3,590
Other long-term assets......................................... 1,599
In-process research and development............................ 33,600
Intangibles.................................................... 3,600
Excess of purchase price over net assets acquired.............. 14,092
Current liabilities............................................ (20,153)
Long-term liabilities.......................................... (4,076)
-------
$55,665
=======
</TABLE>
The excess of purchase price over net assets acquired is being amortized on
a straight-line basis over 15 years. Amortization of such excess of purchase
price over the net assets acquired aggregated $79,000 for 1997 and is included
in selling and other operating costs.
The consolidated, unaudited results of operations, on a pro forma basis, are
presented as though the acquisition of AGEMA had occurred on January 1, 1996,
excluding one-time charges for acquired in-process research and development,
acquisition related costs and duplicative inventories (in thousands, except
per share data).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenue....................................................... $114,418 $134,825
Net earnings.................................................. 1,888 7,122
Earnings per share:
Basic....................................................... $ 0.20 $ 0.74
Diluted..................................................... $ 0.19 $ 0.71
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense of the excess of purchase price over net assets acquired and other
intangible assets. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been in
effect on January 1, 1996, or of future results of operations of the
consolidated entities.
For the purposes of this pro-forma presentation, amounts were translated at
an average rate of 6.71 and 7.60 Swedish Krona to the U.S. dollar for 1996 and
1997, respectively.
In conjunction with the acquisition, during the quarter ended December 31,
1997, the Company recognized a one-time charge of $52,549,000. The write-off
consisted of $36,450,000 of acquired in-process research and development and
acquisition-related costs, which were included as a separate line in operating
expenses, and $16,099,000 of inventories due to the creation of duplicative
product lines, which was included in cost of goods sold.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 12
Price Range of Common Stock............................................. 13
Dividend Policy......................................................... 13
Capitalization.......................................................... 14
Selected Consolidated Financial Data.................................... 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............................................. 16
Business................................................................ 24
Management.............................................................. 39
Principal and Selling Shareholders...................................... 42
Underwriting............................................................ 44
Experts................................................................. 45
Legal Matters........................................................... 45
Available Information................................................... 46
Information Incorporated by Reference................................... 46
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,409,130 SHARES
LOGO
[LOGO OF FLIR APPEARS HERE]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC CREST SECURITIES INC.
MAY , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
estimated underwriting discount, expected to be incurred by the Registrant in
connection with the offering described in this Registration Statement. All
amounts are estimates except the SEC registration fee, the NASD fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee.................................................. 15,888
NASD Filing Fee....................................................... 5,885
Nasdaq Listing Fee.................................................... 17,500
Printing Expenses..................................................... 150,000
Accounting Fees and Expenses.......................................... 80,000
Legal Fees and Expenses............................................... 175,000
Blue Sky Fees and Expenses (including fees of counsel)................ 5,000
Transfer Agent and Registrar Fees..................................... 5,000
Miscellaneous Expenses................................................ 95,727
--------
Total............................................................... $550,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation, the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and
indemnification provisions contained therein. Pursuant to Section 60.047(2)(d)
of the OBCA, Article IV of the Company's Second Restated Articles of
Incorporation (the "Restated Articles") eliminates the liability of the
Company's directors to the Company or its shareholders, except for any
liability related to breach of the duty of loyalty, actions not in good faith
and certain other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has
acted in good faith and with a reasonable belief that actions taken were in
the best interests of the corporation or at least not adverse to the
corporation's best interests and, if in a criminal proceeding, the individual
had no reasonable cause to believe the conduct in question was unlawful. Under
the OBCA, corporations may not indemnify against liability in connection with
a claim by or in the right of the corporation but may indemnify against the
reasonable expenses associated with such claims. Corporations may not
indemnify against breaches of the duty of loyalty. The OBCA provides for
mandatory indemnification of directors against all reasonable expenses
incurred in the successful defense of any claim made or threatened whether or
not such claim was by or in the right of the corporation. Finally, a court may
order indemnification if it determines that the director or officer is fairly
and reasonably entitled to indemnification in view of all the relevant
circumstances whether or not the director or officer met the good faith and
reasonable belief standards of conduct set out in the statute. Article IV of
the Restated Articles requires the Company to indemnify its directors and
officers to the fullest extent not prohibited by law.
The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.
The Company also has entered into indemnity agreements with each executive
officer of the Company and each member of the Company's Board of Directors.
These indemnity agreements provide for indemnification of the indemnitee to
the fullest extent allowed by law.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality
of the securities being registered
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal
opinion filed as Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ohrlings Coopers & Lybrand AB
24.1 Powers of Attorney (included in signature page in Part II of the
Registration Statement)
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act of 1934) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PORTLAND, STATE OF OREGON, ON MAY
28, 1998.
FLIR SYSTEMS, INC.
/s/ J. Kenneth Stringer III
By: _________________________________
J. KENNETH STRINGER III
PRESIDENT AND CHIEF OPERATING
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert P. Daltry and J. Kenneth Stringer III
and each of them singly, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all further amendments to said Registration Statement
(including post-effective amendments and new registration statements pursuant
to Rule 462 or otherwise), 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-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the foregoing, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or his substitute,
may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN DULY SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY 28, 1998.
SIGNATURE TITLE
/s/ Robert P. Daltry Chairman of the Board and Chief
- ------------------------------------- Executive Officer (Principal
ROBERT P. DALTRY Executive Officer)
/s/ J. Kenneth Stringer III Director, President and Chief
- ------------------------------------- Operating Officer
J. KENNETH STRINGER III
/s/ J. Mark Samper Vice President Finance and Chief
- ------------------------------------- Financial Officer (Principal
J. MARK SAMPER Financial and Accounting Officer)
/s/ Leif Bergstrom Vice Chairman of the Board of
- ------------------------------------- Directors
LEIF BERGSTROM
II-3
<PAGE>
/s/ Patrick L. Edsell Director
- -------------------------------------
PATRICK L. EDSELL
/s/ John C. Hart Director
- -------------------------------------
JOHN C. HART
/s/ Egon Linderoth Director
- -------------------------------------
EGON LINDEROTH
/s/ W. Allen Reed Director
- -------------------------------------
W. ALLEN REED
/s/ Lars Spongberg Director
- -------------------------------------
LARS SPONGBERG
/s/ Ronald L. Turner Director
- -------------------------------------
RONALD L. TURNER
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality
of the securities being registered
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal
opinion filed as Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ohrlings Coopers & Lybrand AB
24.1 Powers of Attorney (included in signature page in Part II of the
Registration Statement)
</TABLE>
<PAGE>
EXHIBIT 1.1
FLIR SYSTEMS, INC.
2,409,130 SHARES/1/
COMMON STOCK
UNDERWRITING AGREEMENT
June __, 1998
HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON STEPHENS
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC CREST SECURITIES INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
FLIR Systems, Inc., an Oregon corporation (herein called the Company),
proposes to issue and sell 1,638,630 shares of its authorized but unissued
Common Stock, $___ par value (herein called the Common Stock), and the
shareholders of the Company named in Schedule II hereto (herein collectively
called the Selling Securityholders) propose to sell an aggregate of 770,500
shares of Common Stock of the Company (said 2,409,130 shares of Common Stock
being herein called the Underwritten Stock). The Company proposes to grant to
the Underwriters (as hereinafter defined) an option to purchase up to 361,370
additional shares of Common Stock (herein called the Option Stock, and with the
Underwritten Stock, herein collectively called the Stock). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting as representatives, named in Schedule I
hereto (herein collectively called the Underwriters, which term shall also
include any underwriter purchasing Stock pursuant to Section 3(b) hereof). You
represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-3 (No. 33-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement, as used in this Agreement, shall mean such
registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements thereto, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the rules and regulations of the Commission
with respect to the Stock (herein called a Rule 462(b) Registration Statement),
and, in the event of
- ---------------------------
/1/ Plus an option to purchase from the Company up to 361,370 additional shares
to cover over-allotments.
<PAGE>
any amendment thereto after the effective date of such segistration statement
(herein called the Effective Date), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any Rule 462(b) Registration Statement). The term Prospectus, as used
in this Agreement, shall mean the prospectus, including the documents
incorporated by reference therein, relating to the Stock first filed with the
Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus, as used in this Agreement, shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in the Registration Statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) Each of the Company, Robert P. Daltry and J. Kenneth Stringer III (the
Management Selling Securityholders), jointly and severally, hereby represents
and warrants as follows:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition, prospects or results of operations of the Company and its
subsidiaries, taken as a whole).
(ii) The authorized capital stock of the Company consists of
10,000,000 shares of Preferred Stock, $___ par value, of which no shares
are outstanding, and 30,000,000 shares of Common Stock, $___ par value, of
which there are outstanding 9,875,165 shares (excluding the Underwritten
Stock plus the number of shares of Option Stock issued on the date hereof).
Proper corporate proceedings have been taken validly to authorize such
authorized capital stock. All of the outstanding shares of such capital
stock have been duly and validly issued and are fully paid and
nonassessable. The Company has reserved an aggregate of ___________ shares
of Common Stock for issuance under its stock incentive plans (hereinafter
called the Incentive Plans), of which options to purchase 1,313,832 shares
of Common Stock are have been granted and are outstanding. No other shares
of capital stock, or options, warrants or other rights to acquire capital
stock of the Company are outstanding.
(iii) All of the issued and outstanding capital stock of each of the
subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and nonassessable, and is owned by the Company free and clear
of all liens, encumbrances and security interests, and no options, warrants
or other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into shares of capital stock or
ownership interests in such subsidiaries are outstanding.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition,
prospects or results of operations of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the ordinary
course of business, other than as set forth in the Registration Statement
and the Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement and
the Prospectus.
<PAGE>
(v) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the Securities
Exchange Act of 1934, as amended (herein called the Exchange Act) and the
rules and regulations of the Commission thereunder. On the Effective Date,
the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, as of its date the Prospectus did not and, on the Closing
Date and any later date on which Option Stock is to be purchased, the
Prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and
warranties in this subparagraph (v) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information herein or otherwise
furnished to the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus.
(vi) The Stock is duly and validly authorized, duly and validly
issued, fully paid and nonassessable (or, in the case of shares of the
Stock to be sold by the Company, will be, when issued and sold to the
Underwriters as provided herein) and conforms to the description thereof in
the Prospectus. No further approval or authority of the shareholders or
the Board of Directors of the Company will be required for the transfer and
sale of the Stock to be sold by the Selling Securityholders or the issuance
and sale of the Stock as contemplated herein. No preemptive rights of, or
rights of refusal in favor of, shareholders exist with respect to the
Stock, or the issue and sale thereof, pursuant to the Articles of
Incorporation or Bylaws of the Company and there are no contractual
preemptive rights, rights of first refusal or rights of co-sale that exist
and have not been waived with respect to the Stock being sold by the
Selling Securityholders or the issue and sale of the Stock.
(vii) All holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have included such
securities in the Registration Statement, have waived such rights or such
rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(viii) The Stock to be sold by the Selling Securityholders is
listed and duly admitted to trading on the Nasdaq National Market, and,
prior to the Closing Date, the Stock to be issued and sold by the Company
will be authorized for listing on the Nasdaq National Market upon official
notice of issuance.
(ix) The Registration Statement has become effective under the
Securities Act and, to the best of the Company's and the Management Selling
Securityholder's knowledge, no stop order suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the
Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission.
(x) There are no franchises, contracts, leases, documents or legal
proceedings, pending or threatened, of a character required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement, which are not so described and filed as
required.
(xi) neither the Company nor any of its subsidiaries is in violation
of its Articles of Incorporation or Bylaws, as the case may be; neither the
Company nor any of its subsidiaries is in violation or breach of, or in
default under (nor has any event occurred that with notice or lapse of
time, or both, would be a violation or breach of, or a default under) the
performance of any obligation, agreement or condition contained in any any
agreement or instrument to which the Company any of its subsidiaries is a
party or by which it or any of its properties or assets are bound or
affected (except for such violations, breaches or defaults as would not
have a material adverse effect on the business, properties, financial
condition, prospects or results of operations of the Company and its
subsidiaries, taken as a
<PAGE>
whole). Neither the Company nor any of its subsidiaries is in violation of
any applicable law or regulation, or any order, writ, injunction or decree,
of any jurisdiction, court or governmental instrumentality (except for such
violations as would not have a material effect on the business, properties,
financial condition, prospects or results of operations of the Company and
its subsidiaries, taken as a whole).
(xii) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company and is the legal, valid and binding obligation
of the Company enforceable against it in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general equity principles, and as rights to
indemnity or contribution hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(xiii) The issue and sale by the Company of the shares of Stock to
be sold by the Company as contemplated by the Underwriting Agreement will
not conflict with, or result in a breach of, the Articles of Incorporation
or Bylaws of the Company or any of its subsidiaries or any agreement or
instrument to which the Company or any of its subsidiaries is a party or
any applicable law or regulation, or any order, writ, injunction or decree,
of any jurisdiction, court or governmental instrumentality.
(xiv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Stock by the Underwriters.
(xv) Neither the Company nor any Subsidiary has violated any Federal
or state law, statute, ordinance, rule, regulation or common law, as the
same may be interpreted or administered by any federal, state, regional,
county or local agencies, relating to (a) the protection, investigation,
remediation, or restoration of the environment or natural resources, (b)
the handling, use, storage, treatment, disposal, release or threatened
release of any Hazardous Material (as defined below), or (c) pollution or
contamination (Environmental Laws); "Hazardous Material" means any
substance, material, or waste that is (A) listed, classified or regulated
as a hazardous substance or waste in any concentration pursuant to any
Environmental Law, or (B) any other substance, material, or waste which may
be the subject of regulatory action by any governmental entity pursuant to
any Environmental Law.
(xvi) The Company and each of its subsidiaries has such permits,
licenses, registrations, franchises and authorizations of governmental or
regulatory authorities or third parties (Permits), including, without
limitation, under any applicable federal export and import laws, as are
necessary to own, lease and operate its properties and assets and to
conduct its businesses or operations; the Company and each of its
subsidiaries are in compliance with such Permits, and no event has occurred
that allows, or after notice or lapse of time, or both would allow,
revocation or termination thereof or result in any other material
impairment of the rights of the holder of any such Permits.
(xvii) Neither the Company nor any of its subsidiaries is, or intends
to conduct its business in a manner in which it would become, an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xviii) The Company and each of its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as is reasonable and prudent for the business in
which it is engaged.
(xix) Price Waterhouse LLP, the accounting firm that has audited the
required annual financial statements and supporting schedules filed or to
be filed with the Commission as part of the Registration Statement and the
Prospectus, is an independent public accounting firm with respect to the
Company as required by the Securities Act;
<PAGE>
(xx) The consolidated financial statements of the Company, together
with related notes and schedules of the Company included in the
Registration Statement and the Prospectus, are accurate and present fairly
the financial position, results of operations and cash flows of the Company
as consolidated with its subsidiaries at the indicated dates and for the
indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP)
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have been
made and any unaudited financial statements have been prepared on a basis
substantially consistent with that of the audited operating financial
statements included in the Registration Statement and the Prospectus. The
summary and selected financial and operating data included in the
Registration Statement and the Prospectus presents fairly the information
shown therein and have been prepared on a basis consistent with the audited
and any unaudited financial statements, as the case may be, included
therein.
(xxi) No labor dispute with the employees of the Company or any of
its subsidiaries exists, or to the best knowledge of the Company and the
Management Selling Securityholders after due inquiry, is imminent, and
neither the Company nor any of its subsidiaries has received notice of any
existing or imminent labor disturbance by the employees of any of its
principle suppliers, customers, manufacturers or contractors.
(xxii) The Company and each of its subsidiaries has filed or caused
to be filed, or has properly filed extensions for, all foreign, federal,
state and local income, value added and franchise tax returns and has paid
all taxes and assessments shown thereon as due, except for such taxes and
assessments as are disclosed or adequately reserved against and that are
being contested in good faith by appropriate proceedings, promptly
instituted and diligently conducted. All material tax liabilities are
adequately provided for on the books of the Company and each of its
subsidiaries, and there is no material tax deficiency that has been or
could reasonably be expected to be asserted against the Company or any of
its subsidiaries that is not so provided for.
(xxiii) The Company and each of its subsidiaries owns or has valid
licenses to use, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
Patents and Proprietary Rights) currently employed by it in connection with
the business it now operates. Except as disclosed in the Registration
Statement and Prospectus, neither the Company nor any of its subsidiaries
has received any notice and neither the Company nor any of the Management
Selling Securityholders are otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Patent or
Proprietary Rights.
(xxiv) Neither the Company nor any of its subsidiaries nor, to the
best knowledge of the Company and the Management Selling Securityholders,
any employee or agent of the Company or any of its subsidiaries has made
any payment of funds or received or retained any funds in violation of any
law, rule or regulation (including, without limitation, the Foreign Corrupt
Practices Act) of a character required to be disclosed in the Prospectus.
(xxv) No transaction has occurred between or among the Company or any
of its subsidiaries and any of the Company's or such subsidiary's officers
or directors, or any affiliate or affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(xxvi) Other than as provided to the Underwriters under this
Agreement, neither the Company nor any of its subsidiaries has incurred any
liability for finder's or broker's fees or agent's commissions in
connection with the execution and delivery of this Agreement or the
transactions hereby contemplated.
(xxvii) The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
<PAGE>
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for inventory
is compared with the existing inventory at reasonable intervals and
appropriate action is taken with respect to any differences;
(xxviii) The Company and each of its subsidiaries is in compliance
with all provisions of Section 1 of Florida Statutes, Section 517.075, An
Act Relating to Disclosure of Doing Business with Cuba.
(b) Each of the Selling Securityholders hereby represents and warrants as
follows:
(i) Such Selling Securityholder has good and marketable title to all
the shares of Stock to be sold by such Selling Securityholder hereunder,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, with full right and authority to deliver the same
hereunder, subject, in the case of each Selling Securityholder, to the
rights of ___________, as Custodian (herein called the Custodian), and that
upon the delivery of and payment for such shares of the Stock hereunder,
the several Underwriters will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims.
(ii) Certificates in negotiable form for the shares of the Stock to
be sold by such Selling Securityholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian.
Such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Securityholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
(iii) The Underwriting Agreement has been duly executed and
delivered by or on behalf of such Selling Securityholder and the Custody
Agreement among the Selling Securityholders and _________, as Custodian,
and the Power of Attorney referred to in such Custody Agreement have been
duly executed and delivered by such Selling Securityholder. Such
agreements are the legal, valid and binding obligations of such Selling
Securityholder enforceable against it in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general equity principles, and as rights to
indemnity or contribution hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(iv) The issue and sale by such Selling Securityholder of the shares
of Stock to be sold by the Selling Securityholder as contemplated by this
Agreement will not conflict with, or result in a breach of, any charter of
such Selling Securityholder or any agreement or instrument to which such
Selling Securityholder is a party or any applicable law or regulation, or
any order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality.
(v) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, on the Effective Date, the Registration
Statement did not contain any untrue statement of a material
<PAGE>
fact or omit to state any material fact with respect to the Selling
Stockholder required to be stated therein or necessary in order to make the
statements therein with respect to the Selling Securityholder not
misleading, and, as of its date the Prospectus did not contain any untrue
statement of a material fact or omit to state any material fact with
respect to the Selling Securityholder necessary in order to make the
statements therein with respect to the Selling Securityholder, in the light
of the circumstances under which they were made, not misleading.
(c) Hughes Aircraft Company ("Hughes") hereby represents and warrants as
follows:
(i) Hughes has reviewed the representations and warranties of the
Company and the Management Selling Stockholders set forth in subsection
2(a) above and nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that
any such representation and warranty is inaccurate in any material respect.
(ii) Hughes has reviewed the Registration Statement and Prospectus
and, although such Selling Securityholder has not independently verified
the accuracy or completeness of all the information contained therein,
nothing has come to the attention of such Selling Securityholder that would
lead such Selling Securityholder to believe that on the Effective Date, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, and as of
its date the Prospectus contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
1,638,630 shares of the Underwritten Stock to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Securityholder, and each of the Underwriters agrees to purchase
from the Company and the Selling Securityholders the respective aggregate number
of shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and the Selling Securityholders and purchased by the several Underwriters shall
be $_______ per share. The obligation of each Underwriter to the Company and
each of the Selling Securityholders shall be to purchase from the Company and
the Selling Securityholders that number of shares of the Underwritten Stock
which represents the same proportion of the total number of shares of the
Underwritten Stock to be sold by each of the Company and the Selling
Securityholders pursuant to this Agreement as the number of shares of the
Underwritten Stock set forth opposite the name of such Underwriter in Schedule I
hereto bears to the total number of shares of the Underwritten Stock to be
purchased by all Underwriters pursuant to this Agreement, as adjusted by you in
such manner as you deem advisable to avoid fractional shares. In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraphs (b) and (c) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-
defaulting Underwriters fail so to make such arrangements with respect to all
such shares and portion, the number of shares of the Stock which each non-
defaulting Underwriter is otherwise obligated to purchase under this Agreement
shall be automatically increased on a pro rata basis to absorb the remaining
shares and portion which the defaulting
<PAGE>
Underwriter or Underwriters agreed to purchase; provided, however, that the non-
defaulting Underwriters shall not be obligated to purchase the shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total number
of shares of the Stock which all Underwriters agreed to purchase hereunder. If
the total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company and the Selling Securityholders
shall have the right, within 24 hours next succeeding the 24-hour period above
referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company and the Selling
Securityholders shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company and the Selling Securityholders shall make
arrangements within the 24-hour periods stated above for the purchase of all the
shares of the Stock which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 361,370 shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the outside front
cover page, in the last two legends on the inside front cover page and under the
caption etitled "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of
<PAGE>
Gibson, Dunn & Crutcher LLP, San Francisco, California, at 7:00 a.m., San
Francisco time, on the fourth/2/ business day after the date of this Agreement,
or at such time on such other day, not later than seven full business days after
such fourth business day, as shall be agreed upon in writing by the Company, the
Selling Securityholders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Gibson, Dunn & Crutcher LLP,
San Francisco, California, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Option Stock is purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders respectively covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act
or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the
Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be
issued, to obtain the withdrawal thereof at the earliest possible moment.
- --------------------------
/2/ This assumes that the transaction will be priced after the close of market
and that T+4 will apply to the transaction. If the pricing took place before or
during market hours (which will generally not be the case), the closing would be
three business days after pricing.
<PAGE>
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for the
Underwriters, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser of the Stock, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time
such Prospectus is delivered to such purchaser, not misleading. If, after
the initial public offering of the Stock by the Underwriters and during
such period, the Underwriters shall propose to vary the terms of offering
thereof by reason of changes in general market conditions or otherwise, you
will advise the Company in writing of the proposed variation, and, if in
the opinion either of counsel for the Company or of counsel for the
Underwriters such proposed variation requires that the Prospectus be
supplemented or amended, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and
all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with
the applicable provisions of the Securities Act and the applicable rules
and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request
in writing, copies of all periodic and special reports furnished to
shareholders of the Company and of all information, documents and reports
filed with the Commission.
<PAGE>
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) The Company and the Selling Securityholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident
to (i) the preparation, printing and filing with the Commission and the
National Association of Securities Dealers, Inc. ("NASD") of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to
be so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you and the Underwriters of
the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the shares the Stock
being sold by the Selling Securityholders.
(j) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for
blue sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by
or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the
offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to pay
and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company and each of the Selling Securityholders hereby agrees
that the Company or such Selling Security holder, as the case may be, will
not, without the prior written consent of Hambrecht & Quist LLC on behalf
of the Underwriters, directly or indirectly (i) sell, offer, contract to
sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap
or similar arrangement that transfers, in whole or in part, any of the
economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise,
during the 90 day period following the date of the Prospectus, other than
(a) the sale by the Company and the Selling Securityholders of the shares
of Common Stock to be purchased by the Underwriters pursuant to the
Underwriting Agreement, and (b) the issuance by the Company of shares of
Common Stock upon exercise of options granted pursuant to the Company's
stock incentive plancs as outstanding or reserved for issuance on the date
of the Prospectus.
(m) The Company agrees to cause all executive officers and directors
of the Company and Sprectra-Physicis AB, Pharos Holding, Inc. and Spectra-
Physics Holdings PLC (the "Spectra Securityholders") to agree that such
shareholders will not, without the prior written consent of Hambrecht &
Quist LLC on behalf of the Underwriters, directly or indirectly (i) sell,
offer, contract to sell, make any short sale, pledge, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or similar arrangement that transfers, in
whole or in part, any of the economic consequences or ownership of Common
Stock, whether any such transaction described
<PAGE>
in clause (i) or (ii) above is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise, prior to December 2, 1998.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and Selling Securityholders, jointly and severally, agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise, and the Company and the Selling Securityholders, jointly and
severally, agree to reimburse each such Underwriter and controlling person for
any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by reference) and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the Company
with paragraph (c) of Section 6 hereof, and (3) Hughes shall only be liable
under this paragraph with respect to (A) information pertaining to Hughes
contained in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (B) facts
that would constitute a breach of any representation or warranty of Hughes set
forth in Section 2(b) or 2(c) hereof. The indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholders
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
<PAGE>
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (herein called the Notice) of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party
<PAGE>
as a result of the losses, claims, damages or liabilities referred to in
paragraph (a) or (b) of this Section 7 (i) in such proportion as is appropriate
to reflect the relative benefits received by each indemnifying party from the
offering of the Stock or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Securityholders on the one hand and the Underwriters on the other shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Stock received by the Company and the Selling
Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraph (a) of
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 11 hereof shall be limited to an
amount equal to the initial public offering price of the stock sold by such
Selling Securityholder to the Underwriters. The Company and the Selling
Securityholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities
<PAGE>
or an escalation of major hostilities by the United States or the declaration of
war or a national emergency by the United States on or after the date hereof,
(ii) any outbreak of hostilities or other national or international calamity or
crisis or change in economic or political conditions if the effect of such
outbreak, calamity, crisis or change in economic or political conditions in the
financial markets of the United States would, in the Underwriters' reasonable
judgment, make the offering or delivery of the Stock impracticable, (iii)
suspension of trading in securities generally or a material adverse decline in
value of securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company or the Selling Securityholders to the Underwriters and
no liability of the Underwriters to the Company or the Selling Securityholders;
provided, however, that in the event of any such termination the Company and the
Selling Securityholders agree to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company and the Selling Securityholders under this Agreement, including all
costs and expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Gibson, Dunn & Crutcher LLP , counsel for
the Underwriters.
(c) You shall have received from Ater Wynne Hewitt Dodson & Skerritt,
LLP, counsel for the Company and the Selling Securityholders, an opinion,
addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex A hereto, and if Option Stock is purchased at
any date after the Closing Date, additional opinions from each such
counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, and,
since such dates, except in the ordinary
<PAGE>
course of business, neither the Company nor any of its subsidiaries has
entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, (iv) neither the Company nor any of its
subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there are
not any pending or known threatened legal proceedings to which the Company
or any of its subsidiaries is a party or of which property of the Company
or any of its subsidiaries is the subject which are material and which are
not disclosed in the Registration Statement and the Prospectus, (vi) there
are not any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement which have
not been filed as required, (vii) the representations and warranties of the
Company and the Selling Securityholders herein are true and correct in all
material respects as of the Closing Date or any later date on which Option
Stock is to be purchased, as the case may be, and (viii) there has not been
any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in market
levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company and the Selling Securityholders
stating that the respective signers of said certificate have carefully
examined the Registration Statement in the form in which it originally
became effective and the Prospectus contained therein and any supplements
or amendments thereto, and that the statements included in clauses (i)
through (vii) of paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from Price Waterhouse LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting
the business or properties of the Company or any of its subsidiaries which,
in your sole judgment, makes it impractical or inadvisable to proceed with
the public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received from all
executive officers and directors of the Company and the Spectra
Securityholders the agreements referred to in Sections 6(l) and (m) of this
Agreement.
All of the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
<PAGE>
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company and the Selling
Securityholders will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, FLIR Systems, Inc., 16505 S.W.
72nd Avenue, Portland, Oregon 97224, Attention: Robert P. Daltry; and if to the
Selling Securityholders, shall be mailed, telegraphed or delivered to the
Selling
<PAGE>
Securityholders in care of _____________________ c/o FLIR Systems, Inc.,
16505 S.W. 72nd Avenue, Portland, Oregon 97224, Attention: Robert P. Daltry.
All notices given by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
<PAGE>
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
FLIR SYSTEMS, INC.
By __________________________
By __________________________
SELLING SECURITYHOLDERS:
By __________________________
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON STEPHENS
PRUDENTIAL SECURITIES INCORPORATED
PACIFIC CREST SECURITIES INC.
By Hambrecht & Quist LLC
By __________________________
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
<PAGE>
SCHEDULE I
UNDERWRITERS
UNDERWRITERS NUMBER OF SHARES
Hambrecht & Quist LLC .........................................
BancAmerica Robertson Stephens ................................
Prudential Securities Incorporated ............................
Pacific Crest Securities Inc. .................................
____
Total.....................................................
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
NAME AND ADDRESS
OF SELLING SECURITYHOLDERS NUMBER OF SHARES
____
Total ....................................................
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition, prospects or results of operations of the Company and its
subsidiaries, taken as a whole).
(ii) To the best of such counsel's knowledge, the authorized capital
stock of the Company consists of 10,000,000 shares of Preferred Stock, $___
par value, of which no shares are outstanding, and 30,000,000 shares of
Common Stock, $___ par value, of which there are outstanding 9,875,165
shares (excluding the Underwritten Stock plus the number of shares of
Option Stock issued on the date hereof). Proper corporate proceedings have
been taken validly to authorize such authorized capital stock. All of the
outstanding shares of such capital stock have been duly and validly issued
and are fully paid and nonassessable. The Company has reserved an
aggregate of ___________ shares of Common Stock for issuance under its
stock incentive plans (hereinafter called the Incentive Plans), of which
options to purchase 1,313,832 shares of Common Stock are have been granted
and are outstanding. No other shares of capital stock, or options,
warrants or other rights to acquire capital stock of the Company are
outstanding.
(iii) All of the issued and outstanding capital stock of each of the
subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and nonassessable, and, to the best of such counsel's
knowledge, is owned by the Company free and clear of all liens,
encumbrances and security interests, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in such subsidiaries are outstanding.
(iv) The Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need express no
opinion) comply in all material respects, with the provisions of the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder.
(v) The Stock is duly and validly authorized, and when issued and
sold to the Underwriters as provided in the Underwriting Agreement, will be
duly and validly issued, fully paid and nonassessable and conforms to the
description thereof in the Prospectus. No further approval or authority of
the shareholders or the Board of Directors of the Company is required for
the transfer and sale of the Stock to be sold by the Selling
Securityholders or the issuance and sale of the Stock as contemplated
herein. No preemptive rights of, or rights of refusal in favor of,
shareholders exist with respect to the Stock, or the issue and sale
thereof, pursuant to the Articles of Incorporation or Bylaws of the Company
and, to the knowledge of such counsel, there are no contractual preemptive
rights, rights of first refusal or rights of co-sale that exist and have
not been waived with respect to the Stock being sold by the Selling
Securityholders or the issue and sale of the Stock.
(vi) All holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have included such
securities in the Registration Statement, have waived such rights or such
rights have
<PAGE>
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement;
(vii) The Stock to be sold by the Selling Securityholders is listed
and duly admitted to trading on the Nasdaq National Market, and, prior to
the Closing Date, the Stock to be issued and sold by the Company will be
authorized for listing on the Nasdaq National Market upon official notice
of issuance.
(viii) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for
that purpose have been instituted or are pending or contemplated by the
Commission.
(ix) To the best of such counsel's knowledge, there are no
franchises, contracts, leases, documents or legal proceedings, pending or
threatened, of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not so described and filed as required.
(x) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company and is the legal, valid and binding obligation
of the Company enforceable against it in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general equity principles, and as rights to
indemnity or contribution hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(xi) The issue and sale by the Company of the shares of Stock to be
sold by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, the Articles of Incorporation or
Bylaws of the Company or any of its subsidiaries or, to the best of such
counsel's knowledge, any agreement or instrument to which the Company or
any of its subsidiaries is a party or any applicable law or regulation, or
any order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality.
(xii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Stock by the Underwriters.
(xiii) Neither the Company nor any of its subsidiaries is an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xiv) The information required to be set forth or incorporated by
reference in the Registration Statement and the Prospectus in answer to
Items 9 and 10 (insofar as it relates to such counsel) of Form S-3 is, to
the best of such counsel's knowledge, accurately and adequately set forth
therein in all material respects or no response is required with respect to
such Items, and the description of the Company's stock incentive plans and
the options granted and which may be granted thereunder set forth or
incorporated by reference in the Registration Statement and the Prospectus
accurately and fairly presents the information required to be shown with
respect to said plans and options to the extent required by the Securities
Act and the rules and regulations of the Commission thereunder.
(xv) The summaries of documents contained or incorporated by
reference in the Registration Statement and the Prospectus under the
captions ____________ and the summaries of law contained or incorporated by
reference in Registration Statement and the Prospectus under the captions
__________ are fair and accurate summaries of such documents and laws,
respectively.
<PAGE>
(xvi) To the knowledge of such counsel, each of the Selling
Securityholders has good and marketable title to all the shares of Stock to
be sold by such Selling Securityholder under the Underwriting Agreement,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, with full right and authority to deliver the same
hereunder, subject, in the case of each Selling Securityholder, to the
rights of ___________, as Custodian (herein called the Custodian), and upon
the delivery of and payment for such shares of the Stock hereunder, the
several Underwriters will receive good and marketable title thereto, free
and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, assuming for the purpose of this opinion that the
Underwriters purchased the same in good faith without notice of any adverse
claims.
(xvii) The Underwriting Agreement has been duly executed and
delivered by or on behalf of the Selling Securityholders and the Custody
Agreement among the Selling Securityholders and _________, as Custodian,
and the Power of Attorney referred to in such Custody Agreement have been
duly executed and delivered by such Selling Securityholders. Such
agreements are the legal, valid and binding obligations of such Selling
Securityholder enforceable against it in accordance with its terms, except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general equity principles, and as rights to
indemnity or contribution hereunder may be limited by federal or state
securities laws or the public policy underlying such laws.
(xviii) To the knowledge of such counsel, the issue and sale by
such Selling Securityholder of the shares of Stock to be sold by the
Selling Securityholder as contemplated by this Agreement will not conflict
with, or result in a breach of, any charter of such Selling Securityholder
or any agreement or instrument to which such Selling Securityholder is a
party or any applicable law or regulation, or any order, writ, injunction
or decree, of any jurisdiction, court or governmental instrumentality.
Such opinion shall also state that such counsel has particpated in meetings
with the Company, the Selling Stockholders, Price Waterhouse, the Underwriters
and representatives of the Underwriters at which meetings the contents of the
Registration Statement and the Prospectus were discuss and that such counsel has
no reason to believe that on the Effective Date, the Registration Statement
(except as to the financial statements and schedule and other financial data
contained or incorprated by reference therein, as to which such counsel need not
express any opinion) contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, as of its date and on
the Closing Date and any later date on which Option Stock is to be purchased,
the Prospectus (except as to the financial statements and schedule and other
financial data contained or incorprated by reference therein, as to which such
counsel need not express any opinion) contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
222 S.W. Columbia, Suite 1800
Portland, Oregon 97201
(503) 226-1191 (Phone)
(503) 226-0079 (Fax)
May 28, 1998
Board of Directors
FLIR Systems, Inc.
16505 S.W. 72nd Avenue
Portland, OR 97224
In connection with the public offering of up to 2,409,130 shares of
common stock, par value $0.01 per share (the "Common Stock"), of FLIR
Systems, Inc., an Oregon corporation (the "Company"), under the Registration
Statement on Form S-3 (the "Registration Statement") and the proposed sale of
the Common Stock pursuant to the terms of an underwriting agreement (the
"Underwriting Agreement") to be entered into by and among the Company, certain
shareholders of the Company, and Hambrecht & Quist, BancAmerica Robertson
Stephens, Prudential Securities Incorporated and Pacific Crest Securities Inc.,
as representatives of the several underwriters, we have examined such corporate
records, certificates of public officials and officers of the Company and other
documents as we have considered necessary or proper for the purpose of this
opinion.
Based on the foregoing and having regard to legal issues which we deem
relevant, it is our opinion that the shares of Common Stock to be sold pursuant
to the Underwriting Agreement, when such shares have been delivered against
payment therefor as contemplated by the Underwriting Agreement, will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-mentioned Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required to be filed pursuant to
Section 7 of the Securities Act of 1933, as amended, or the rules thereunder.
Very truly yours,
/s/ Ater Wynne Hewitt Dodson & Skerritt, LLP
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated March 9, 1998, relating
to the consolidated financial statements of FLIR Systems, Inc. which appear in
such Prospectus. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears on page 42 of FLIR
Systems Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997. We also consent to the references to us under the headings "Experts" and
"Selected Consolidated Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Consolidated Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Portland, Oregon
May 28, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of FLIR Systems, Inc. on Form S-3 of our report dated October 14, 1997, except
as to the information presented in Note 13 for which the date is November 10,
1997, on our audits of the combined financial statements of AGEMA Infrared
Systems, as described in Note 1 to the financial statements, as of December
31, 1995 and 1996, and for the three years in the period ended December 31,
1996, appearing in the Proxy Statement dated November 10, 1997 filed on
November 12, 1997 with the Securities and Exchange Commission. We also consent
to the reference to our firm under the caption "Experts."
Ohrlings Coopers & Lybrand AB
/s/ Kerstin Moberg
Kerstin Moberg
Stockholm, Sweden
May 28, 1998
