FLIR SYSTEMS INC, 10-Q/A, 1998-05-28

FLIR SYSTEMS INC
10-Q/A, 1998-05-28
SEARCH, DETECTION, NAVAGATION, GUIDANCE, AERONAUTICAL SYS

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
__________________

FORM 10-Q/A
__________________

(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM _______________ TO _________________

Commission file number 0-21918

FLIR SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

OREGON 93-0708501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

16505 S.W. 72ND AVENUE, PORTLAND, OREGON 97224
(Address of principal executive offices) (Zip Code)

(503) 684-3731
(Registrant's telephone number, including area code)
__________________

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----

At March 31, 1998, there were 9,875,165 shares of the Registrant's common stock,
$0.01, par value, outstanding.

1
<PAGE>

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

10.1 Contract for the Supply of Uncooled Imaging Modules, dated
January 15, 1997*
10.2 Contract for the Supply of Uncooled Imaging Modules, dated
March 4, 1998*

*Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under 17 C.F.R. (S)240.24b-2.

(b) No reports on Form 8-K were filed during the three months ended March 31,
1998.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

FLIR SYSTEMS, INC.

Date May 28, 1998 /s/ J. Mark Samper
--------------------------- ------------------------------------
J. Mark Samper
Vice President of Finance and
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)

<PAGE>

EXHIBIT 10.1

CONTRACT
FOR THE SUPPLY OF
UNCOOLED IMAGING MODULES

between

AGEMA Infrared Systems AB
Rinkebyvagen 19
Danderyd
Sweden

and

Lockheed Martin IR Imaging Systems, Inc.
2 Forbes Road
Lexington, Massachusetts 02173
United States of America

The bracketed portions of this contract marked with double asterisk [**] have
been omitted and filed separately with the Securities and Exchange Commission
pursuant to 17 C.F.R (S)240.24b-2.

<PAGE>

CONTRACT
FOR THE SUPPLY OF
UNCOOLED MICROBLOMETER MODULES

This is a Contract ("The Contract") by and between AGEMA Infrared Systems AB,
(hereinafter called the "Buyer"), having a place of business at Rinkebyvagen 19,
Danderyd, Sweden, and Lockheed Martin IR Imaging Systems, Inc. (hereinafter
called the "Seller"), having a place of business at 2 Forbes Road, Lexington, MA
02173, United States of America. The Buyer and the Seller may be collectively
referred to herein as the "Parties", and each may be referred to herein as a
"Party".

WHEREAS, the Buyer and Seller, on May 31st, 1994, have entered into a
Cooperative Development and Exclusivity Agreement relating to Uncooled Imaging
Modules which contemplated but did not detail the production sale of such
equipment by the Seller to the Buyer; and

WHEREAS, the Seller has developed and is prepared to sell Uncooled Imaging
Modules; and

WHEREAS, the Buyer seeks to purchase Uncooled Imaging Modules for the purpose of
application to products of the Buyer,

NOW, THEREFORE, the Buyer and the Seller agree as follows:

The Seller shall sell, and the Buyer shall purchase Uncooled Imaging Modules, in
accordance with the Terms and Conditions herein set forth. The Contract is
executed in duplicate originals, of which one shall remain with the Buyer and
the other with the Seller.

IN WITNESS WHEREOF, the Buyer and the Seller have caused this contract to be
executed by their duly authorized representatives as of the day and year last
written below.

Lockheed Martin IR Imaging Systems, Inc. AGEMA Infrared Systems AB

by _____________________________ by ______________________________

Title __________________________ Title ___________________________

Date ___________________________ Date ____________________________
<PAGE>

CONTRACT INDEX
<TABLE>
<CAPTION>

ITEM PAGE

<S> <C>

COVER 1

SIGNATURE PAGE 2

CONTRACT INDEX 3

TERMS AND CONDITIONS

PREAMBLE. 4

Article 1. EFFECTIVE DATE OF THE CONTRACT. 4

Article 2. PRICE; DELIVERABLE ITEMS; DELIVERY SCHEDULE; SELLER'S
INVOICES AND BUYER'S PAYMENTS; NO SET OFF. 4

Article 3. SHIPMENT AND TRANSFER OF TITLE. 8

Article 4. EXPORT LICENSES 8

Article 5. EXCUSABLE DELAYS 8

Article 6. WARRANTY 8

Article 7. LIQUIDATED DAMAGES. 9

Article 8. LIMITATION OF LIABILITY 9

Article 9. NOTICES. 10

Article 10. ASSIGNMENT 10

Article 11. COMPLIANCE WITH U. S. A. LAW 10

Article 12. CONFIDENTIALITY 11

Article 13. ADVERTISING. 11

Article 14. LAW. 11

Article 15. ARBITRATION. 11

</TABLE>
<PAGE>

<TABLE>

<S> <C>

Article 16. TERMINATION AND CANCELLATION 11

Article 17. LANGUAGE. 12

Article 18. CONFIGURATION MANAGEMENT; BUYER'S PARTICIPATION IN
PRODUCTION AND INSPECTION SYSTEM AUDITS; PRIVACY OF
INFORMATION. 12

Article 19. GENERAL 12

EXHIBIT A UNCOOLED IMAGING MODULE SPECIFICATION
DOCUMENT #14801ES017 A1

EXHIBIT B CONTRACT DELIVERY SCHEDULE B1

</TABLE>
<PAGE>

TERMS AND CONDITIONS

PREAMBLE

The Contract consists of the Cover Page, the Signature Page and the Index, plus
the Terms and Conditions in the Articles hereinafter set forth. If any
supporting data such as a Statement of Work, a work performance schedule,
specifications, drawings or other such documents are applicable to The Contract,
they are provided herein as the Exhibits identified in the Index. The Contract,
for administrative purposes of the Buyer, is covered by a Purchase Order issued
by the Buyer, which Purchase Order shall be subject to the provisions of Article
19.3 hereof.

The Contract is entered into between the Buyer and the Seller to implement some
of the provisions of the Cooperative Development Agreement between the Buyer and
the Seller relating to Uncooled Imaging Modules that was made and effective on
31 May 1994.

Conflicts, if any, among the following parts of The Contract shall be resolved
by taking them in this order of precedence: (i) the Terms and Conditions; and
(ii) the Exhibits. The provisions of The Contract may in some particulars, but
only where explicitly stated, differ from the provisions of the aforesaid
Cooperative Development Agreement; in these instances, conflicts between The
Contract and the Cooperative Development Agreement shall be resolved in favor of
The Contract.

Article 1 EFFECTIVE DATE OF THE CONTRACT.

The Effective Date of The Contract shall be that date upon which The Contract
has been signed by the Buyer and by the Seller and a duplicate original has been
delivered to each.

Article 2 PRICE; DELIVERABLE ITEMS; DELIVERY SCHEDULE; SELLER'S INVOICES AND
BUYER'S PAYMENTS; NO SET OFF.

2.1 Price.

2.1.1 Contract Prices. The prices to be paid by the Buyer for the deliverable
items under The Contract shall be subject to adjustments depending on
fluctuations in the rate of exchange of U. S. Dollars for Swedish Krona . The
agreed adjustments are described in paragraph 2.1.2, below. "Nominal" prices, as
described below, are the unadjusted prices.

2.1.1.1 The nominal price of The Contract (the Nominal Contract Price), at a
Total Deliverable Modules Quantity of [**], is is $[**]. This price includes
$[**] for [**], Item 1 of Table 2.2-1 hereof, plus $[**] for the special tests,
Item 2 of said Table, to be performed on the first [**] deliverable Modules.

2.1.1.2 The Nominal Unit Price to be billed by the Seller to the Buyer on
delivery of an Uncooled Imaging Module shall be $[**] for the duration of
The Contract. The Nominal Unit Price is identified for billing purposes and for
convenience in the administration of Terms and Conditions hereof.

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

2.1.2 Currency and Currency Fluctuation. All prices stated herein are stated in
United States dollars. To accommodate fluctuations in currency, payments shall
be made in accordance with the following procedure:

a. The rate of exchange of United States Dollars for Swedish Krona ($/Kr) set
the London Currency Exchange at 0900 hours GMT on the Effective Date of the
Contract shall be made part of the record of The Contract by a communication
between the Buyer and the Seller.

b. On the day upon which the Buyer presents to the Buyer's bank its order to
make any payment to the Seller required hereunder, the Buyer shall determine
and certify to the Seller the same rate of exchange set at 0900 hours GMT on
that day (the payment date).

c. The Buyer shall on that day direct its bank to make payment to the Seller
(by wire transfer, per Article 2, paragraph 2.5.2 hereof) of an amount in U. S.
Dollars calculated as follows:

If the ratio of the rate of exchange (in $/Kr) on the aforesaid payment date
to the rate of exchange ($/Kr) on the Effective Date of The Contract is R,
then.

if 1.05 R $US Payment =Invoice Price x (R - 0.05), or

if 0.95 (less than) R (less than) 1.05 $US Payment =Invoice Price, or

if R 0.95 $US Payment =Invoice Price x (R + 0.05)

The provisions of this paragraph 2.1.2 shall not apply to payments to be made by
the Buyer to the Seller pursuant to the Cooperative Development and Exclusivity
Agreement between the Buyer and the Seller that was made and effective as of the
31st day of May 1994, or to payments of any Termination Liabilities pursuant to
the Buyer's options under paragraph 2.2.2 hereof.

2.1.3 Taxes, Duties, Fees and Assessments. All U. S. A. taxes are included in
the Contract Price. All taxes, duties, fees or assessments of any nature levied
against the Seller by any governmental authority except the U. S. A. in
connection with The Contract shall be the responsibility of the Buyer, and shall
be paid by the Buyer directly to the governmental authority concerned. Prices do
not include freight and insurance charges associated with transportation beyond
the FCA point, which shall be paid by the Buyer.

2.2 Deliverable Items, Total Deliverable Modules Quantities and Related Buyer's
Options

2.2.1 The items to be delivered hereunder are identified in Table 2.2-1.

TABLE 2.2-1 Deliverable Items
<TABLE>
<CAPTION>

Item Qty/UM Description* FCA Point Destination

<S> <C> <C> <C> <C>
1 [**] Uncooled Imaging Module (UIM)** Airport, Boston, TBD
MA
2 lot Special Testing and Reports, First Not Applicable Not Applicable
200 UIMs***
</TABLE>

* Quantity Subject to downward change per paragraph 2.2.2, below.

** As described in the "Uncooled Imaging Module Specification", Exhibit A,
hereof.
<PAGE>

*** In accordance with the Specification, Exhibit A hereof, Paragraph 4.3,
"Acceptance Tests", Item 3.3.7, [**].

2.2.2 Total Deliverable Modules Quantities and Related Buyer's Options.

2.2.2.1 On the Effective Date of The Contract, the Total Deliverable Modules
Quantity hereunder shall be [**] units.

2.2.2.2 The Buyer shall have the option, which must be exercised by the Buyer on
or before Seller's close of business on April 30, 1997, to reduce Total
Deliverable Modules Quantity hereunder to [**] units by telefax notification
(followed by a mailing of the same notification) to the Seller in accordance
with Article 9 hereof, "Notices". If the Buyer exercises this option:

(a) The Buyer shall have no further option under The Contract to increase or
to decrease the Total Deliverable Modules Quantity, and

(b) The Nominal Unit Price set forth in paragraph 2.1.1.2 hereof shall not
change; and

(c) The Buyer shall be obligated to the Seller for a one-time Termination
Liability payment of $[**]. The Seller's invoice to the Buyer for payment
of this amount in U. S. Dollars, due net 60 days after the date of the
invoice. This payment shall not be subject to the rate of exchange
provisions of paragraph 2.1.2 hereof; and

(d) The Nominal Contract Price shall be changed to $[**], which is the sum of
the Termination Liability payment and [**] times the Nominal Unit Price,
plus the $[**] price for the special tests of Item 2, Table 2.1-1.

2.2.2.3 If the Buyer does not exercise the option provided for in paragraph
2.2.2.2, then the Buyer shall have the option, which must be exercised by the
Buyer on or before Seller's close of business on January 2, 1998 at no later
than 1700 hours GMT, to reduce the Total Deliverable Modules Quantity hereunder
to [**] units by telefax notification (followed by a mailing of the same
notification) to the Seller in accordance with Article 9 hereof, "Notices". If
the Buyer exercises this option:

(a) The Buyer shall have no further option under The Contract to increase or
to decrease the Total Deliverable Modules Quantity, and

(b) The Nominal Unit Price set forth in paragraph 2.1.1.2 hereof shall not
change; and

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

2.3 Acceptance Testing

2.3.1 Prior to delivery of the first five deliverable Uncooled Imaging Modules
hereunder, the Seller shall perform on each unit the Design Verification Tests
described in the document referenced in the Specification, Exhibit A hereof,
entitled "Uncooled Imaging Module Test Procedures, Document # 21056460", and
each unit shall be required to pass the test. The tests may be witnessed on a
non-interference basis by designated employees of the Buyer. The tests shall be
considered as the final acceptance tests on the units, and the Seller shall
prepare, certify and deliver with the units copies of the test data. The Seller
shall provide adequate advance notice of the start of the tests to the Buyer.

2.3.2 Prior to delivery of the remaining deliverable Uncooled Imaging Modules
hereunder, the Seller shall perform on each unit Acceptance Tests decribed in
the document referenced in the Specification, Exhibit A hereof, entitled,
"Uncooled Imaging Module Test Procedures, Document # 21056460", and each unit
shall be required to pass the test. The tests may be witnessed on a non-
interference basis by designated employees of the Buyer. Whether or not so
witnessed, the tests shall be considered as the final acceptance tests on the
units, and the Seller shall prepare, certify and deliver with the units copies
of the test data. The Seller when requested by the Buyer, provide approximate
dates for scheduled acceptance testing of units, and coordinate with the Buyer
any visits for the purpose of witnessing tests.

2.3.3 During the performance of the tests described in 2.3.1 and 2.3.2, above,
the Seller shall the special tests called for in Item 2 of Table 2.1-1 hereof,
per the requirement set forth in the Specification, Exhibit A hereof.The Seller
shall supply the test data for the special tests with the deliverable items.

2.4 Delivery Schedule; Just-in-Time Scheduling.

The Seller shall deliver the Items hereunder to the Buyer in accordance with the
"Nominal" schedule shown in Exhibit B, "Contract Delivery Schedule" hereof.

To permit "Just-in-Time" receipt of inventory by the Buyer, the Buyer may elect
to increase or decrease the quantity of units to be delivered in any month by 50
percent of the quantity shown for that month in the Schedule. In the event of
any such change, the Conrtact Delivery Schedule end dates shall change
accordingly.

In the event that the Buyer wishes to change the delivery requirement within the
aforesaid limits in any month in the Contract Delivery Schedule, then the Buyer,
at least three months in advance, shall so notify the Seller of the changed
requirement per Article 9, " Notices", hereof.

2.5 Seller's Invoices and Buyer's Payments.

2.5.1 Seller's Invoices.

2.5.1.1 Invoices for Module Deliveries. The Seller shall submit invoices to the
Buyer upon shipment of the items listed in Item 1 of Table 2.1-1 hereof, in the
amount determined by multiplying the Nominal Unit Price set forth in paragraph
2.1.1.2 hereof by the number of Units shipped. At the time of invoice
preparation, the Seller shall calculate any amounts due to the Buyer pursuant to
Article 7, "Liquidated Damages", hereof, in connection with the shipment at
hand, and include appropriate adjustments on the invoice.
<PAGE>

2.5.1.2 Invoices for Item 2, Special Tests. The Seller shall submit a single
invoice in the amount of $[**] for the special tests of Item 2, Table 2.1-1
hereof, on completion of delivery of the first thirty (30) Item 1 Modules.

2.5.1.3 All Invoices. The Seller shall transmit this invoice to the address set
forth below: (i) by telefax on the date of the invoice; and (ii) by mail or
express delivery service on the date of the invoice or on the next business day
thereafter. The package shall contain an original and three copies of the
invoice and any attachments required hereunder.

AGEMA Infrared Systems AB
Box 3, S-182 11
Danderyd
Sweden

Attention: Mrs. Evy Akerman Accounting Department.
Telephone: 46 8 753 25 18
FAX: 46 8 753 07 17

2.5.2 Buyer's Payments.

The Buyer shall pay to the Seller the amount of Seller's invoice, adjusted for
currency fluctuations if required pursuant to paragraph 2.1.3 hereof, within 60
days of the date of the invoice. The Buyer shall make payment to the Seller by
wire transfer of U. S. Dollars to the account set forth below.

Lockheed Martin IR Imaging Systems, Inc.
via: Mellon Bank
Three Mellon Bank Center Rm. 153-2618
Pittsburgh, PA 15259-0003

ABA Number 043000261
Contractor's Account Number 193-5836
Type of Depositor Account : C

2.6 No Set-off. The Buyer shall not set off any amount owed by the Seller or
any of its affiliated companies to the Buyer against any amount owed by the
Buyer to the Seller under The Contract.

2.7 Meetings. The Buyer and the Seller shall convene at six-month intervals
during the period of performance of The Contract for coordination of, and
reporting to one another on, the status of the performance under The Contract
and the progress of the Buyer in the development of its market for products
employing the products of The Seller. The location of the meetings shall
alternate between the facilities of the Buyer and the Seller, and each shall
bear its own expenses therefor. The first of such meetings shall take place at
the Seller's facility on or before 30 April 1997, for the purpose of discussion
and negotiation of the Buyer's anticipated future requirements for up to 60
percent of deliveries to be of PAL configuration. Seller acknowledges that the
Buyer's order schedule, delivery rate and the exclusivity period may be impacted
by such future requirements.

Article 3 SHIPMENT and TRANSFER OF TITLE

3.1 All Shipment by the Seller hereunder shall be made "FCA Logan International
Airport, Boston, Massachusetts, U.S. A.", in accordance with the definition and
provisions of the term set forth in INCOTERMS, except that the Buyer shall be
responsible hereunder to obtain all necessary export licenses.

[**] Information omitted pursuant to 17 C.F.R. (S) 240.24b-2.
<PAGE>

3.2 Title in the Uncooled Imaging Modules delierable hereunder shall pass to
the Buyer at the FCA point, i. e., on delivery to the carrier at Logan
International Airport, Boston, Massachusetts, U.S. A.

Article 4 EXPORT LICENSES

The Buyer is advised that the Uncooled Imaging Modules deliverable under The
Contract are controlled in Category XII of the International Traffic in Arms
Regulations (ITAR). As such, the export of the deliverable items hereunder
requires a license from the United States Government.

Article 5 EXCUSABLE DELAYS

The Seller shall not be liable for delays in delivery due to causes beyond the
Seller's control without the Seller's fault or negligence, including, but not
limited to: acts of God; natural disasters, fire, floods, explosions or
earthquakes; epidemics or quarantine restrictions; serious accidents; any act of
civil or military authority; war, insurrection or riot; and labor disputes;
providing that in such cases the Seller exercises due diligence in promptly
notifying the Buyer in writing of any known or anticipated delay, and
recommences the performance of his obligation on cessation of the delay.

Whatever the cause of any known or anticipated delay, the Seller shall be
responsible for informing the Buyer of the reason therefor, and when the Seller
expects to proceed with his obligations.

In the event of any such delay, the date of delivery or performance hereunder
shall be extended by a period equal to the time loss by reason of such delay.
In the event the Seller's production is curtailed for any of the above reasons,
the Seller may allocate its production among its various customers in a
commercially fair and reasonable manner.

Article 6 WARRANTY

6.1 The Seller warrants that goods delivered under The Contract shall be in
conformity with the "Uncooled Imaging Module Specification, Document #
14801ES017", Exhibit A, hereof, and free from defects in material and
workmanship under normal use and service, for a period as described in paragraph
6.4 hereof.

6.2 If, during such period, (i) the Seller is notified promptly in writing upon
delivery of any defect in the goods, including a detailed description of such
defect; (ii) such goods are returned to the Seller transportation prepaid; and
(iii) the Seller's examination of such goods discloses to the Seller's
satisfaction that such goods are defective and such defects are not caused by
accident, abuse, misuse, neglect, alteration, improper installation, repair or
alteration by someone other than the Seller, improper testing, or use contrary
to any instructions issued by the Seller, then within eight weeks after the
arrival of the returned defective goods at the Seller's plant the Seller shall
(at its sole option) either repair or replace such goods. The Seller shall
return any goods repaired or replaced under this warranty to the Buyer
transportation prepaid.

6.3 Prior to any return of goods by the Buyer pursuant to this Article, the
Buyer shall afford the Seller the opportunity to inspect such goods at the
Buyer's location. In any event, the Seller shall issue a Return Material
Authorization to the Buyer prior to any return of goods to the Seller by the
Buyer.
<PAGE>

6.4 The period of this warranty shall be as follows.

(a) The initial warranty period for any delivered item shall commence on the
day of delivery of that item by the Seller to the FCA point, and continue
for 15 months thereafter.

(b) The limitation of paragraph 6.4 (a) notwithstanding, the vacuum life
shall be warranted for a period of five years from the day of delivery of
any item, provided that no warranty of vacuum life shall apply unless the
module is operated in an environment that has an ambient temperature of
[**] or less and/or is stored at a temperature between the minimum
storage temperature and [**].

(c) The limitation of paragraph 6.4 (a) notwithstanding, UIM performance
under normal use and service shall be such that for [**] months after
delivery there shall be no more than [**] new unsubstituted nonoperable
pixels (NOP). A nonoperable pixel is defined as one that produces a
signal that differs by more than [**] from the median of the signal from
each of its [**] nearest neighboring pixels when imaging an object having
a temperature of [**] and operating in an ambient environment with a
temperature of [**].

(d) If a defect is discovered during the first 90 days of the initial
warranty period, and if the Buyer has not delivered the item in question,
incorporated into the Buyer's product, to a customer of the Buyer, the
Buyer and the Seller shall proceed as in paragraph 6.2, above. If a
warranted defect is confirmed and the item is repaired or replaced under
the warranty, the item returned by the Seller to the Buyer shall bear the
warranty for an new initial period of 15 months as in (a), above.

(e) If a defect is discovered after the first 90 days of the initial warranty
period, or if the Buyer has delivered a defective item, incorporated into
the Buyer's product, to a customer of the Buyer, the Buyer and the Seller
shall proceed as in paragraph 6.2, above. If a warranted defect is
confirmed and the item is repaired or replaced under the warranty, the
warranty period for the item shall be extended by the amount of time
between the Buyer's notice of defect and the Seller's return of the item
to the Buyer at the FCA point.

6.5 The foregoing warranty constitutes the Seller's exclusive liability, and
the exclusive remedy of the Buyer, for any breach of any warranty or other
nonconformity of the goods covered by The Contract.

6.6 THIS WARRANTY IS EXCLUSIVE, AND IN LIEU OF ALL OTHER WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE HEREBY EXPRESSLY DISCLAIMED.

Article 7 LIQUIDATED DAMAGES.

The Seller guarantees delivery of the items identified in Table 2.1-1 hereof
(hereinafter, "Item(s))" in accordance with the Contract Delivery Schedule set
forth in Exhibit B hereof. It is agreed by the parties that if actual damages
arise by reason of the Seller's delay in delivery, such damages would be
difficult to determine accurately. Therefore, the Seller agrees that in the
event that a) the delivery of any Item is delayed for more than one full
calendar week beyond a grace period of three (3) weeks

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

after such guaranteed delivery time for other than excusable causes as defined
in Article 5, "Excusable Delays" hereof, the Seller shall pay to the Buyer as
fixed, agreed and liquidated damages for each additional full calendar week
beyond said grace period in making delivery, one-half of one percent (0.5%) of
the Contract Unit price of the delayed Unit per full calendar week of delay, and
the Seller shall be liable for the amount thereof; PROVIDED, that the Seller's
liability under this Article is limited to four percent.(4.0%) of the Contract
Unit price of the delayed Item causing the actual damages. Seller's payment of
liquidated damages, as herein provided, shall be the Buyer's sole remedy for
delays due to causes for which the Seller is responsible under this Contract.

Article 8 LIMITATION OF LIABILITY

8.1 The total liability of the Seller for any and all claims, whether in
contract, warranty, tort or otherwise, arising out of, connected with or
resulting from the performance or non-performance of The Contract, or from the
manufacture, sale, delivery, resale, repair, replacement or use of any product
or the furnishing of any service, shall not exceed the price allocable to the
product or service that gives rise to the claim. This total cumulative liability
limitation specifically applies to, but is not limited to, those liabilities of
the Seller that may arise from claims under the provisions of Article 6 of The
Contract entitled "Warranty" and Article 7 of The Contract entitled, "Liquidated
Damages". Except as to title, any such liability shall terminate upon expiration
of the warranty period for the last warranted Item delivered hereunder.

8.2 IN NO EVENT SHALL THE SELLER BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES RESULTING FROM THE SELLER'S PERFORMANCE OR FAILURE TO
PERFORM UNDER THE CONTRACT, OR THE FURNISHING, PERFORMANCE, OR USE OF ANY GOODS
OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO A BREACH OF CONTRACT, BREACH OF
WARRANTY, THE NEGLIGENCE OF THE SELLER, OR OTHERWISE.

Article 9 NOTICES

9.1 Any notice, request, or correspondence of either the Buyer or the Seller to
the other with reference to The Contract shall be in the English language.

9.2 Buyer's address for notices from the Seller shall be as follows:

AGEMA Infrared Systems AB
Box 3, S-182 11
Danderyd
Sweden

Attention: Mr. Arne Almerfors
Managing Director
Telephone: 46 8 753 25 10
FAX: 46 8 753 07 17
<PAGE>

9.3 Seller's address for notices from the Buyer shall be as follows:

Lockheed Martin IR Imaging Systems, Inc.
2 Forbes Road
Lexington, MA 02173

Attention: Mr. John J. Ainley
International Contracts Manager, M/S 340
Telephone: 617-863-3767
FAX: 617-863-4193

Article 10 ASSIGNMENT

10.1 Neither the Buyer nor the Seller may assign its rights under The Contract
without the prior written consent of the other, and any purported assignment
without such consent shall have no force or effect. Such consent shall not be
unreasonably withheld.

10.2 Such consent shall not be required in the case where the assignment is to
be made to a successor-in-interest to that part of the business of the assignor
that includes The Contract, provided that the successor-in-interest agrees to be
bound by the obligations hereunder of the assignor.

Article 11 COMPLIANCE WITH U. S. A. LAW

The Seller's performance under The Contract shall comply with the federal, state
and local laws and regulations of the U. S. A.

Article 12 CONFIDENTIALITY

The Buyer and the Seller agree that The Contract and performance hereunder will
be kept confidential and will be dealt with in accordance with each party's
usual procedures relating to proprietary information. No publicity will be
released by either the Buyer or the Seller without the prior written consent of
the other.

Article 13 ADVERTISING

Neither the Buyer nor the Seller shall make use of the other's name for
publicity purposes, and neither shall use any information or news contained in
or connected with The Contract unless the other has given its written consent.

Article 14 LAW

The Contract shall be governed by the laws of the Commonwealth of Massachusetts
and of the United States of America as to all matters of interpretation,
performance and remedies insofar as such law is existent and can or will be
applied in the jurisdiction in which either the Buyer or the Seller may seek
adjudication of any such matter.
<PAGE>

Article 15 ARBITRATION

In the event that disputes arise under the terms of The Contract on which there
is continuing disagreement for more than thirty (30) days, either the Buyer or
the Seller may elect by a thirty (30) days Notice in writing, to submit the
matter to Arbitration. If the dispute is not settled within said thirty (30) day
period of such Notice, the following shall apply to such Arbitration which shall
be the exclusive mechanism for resolution of disputes hereunder should the Buyer
and the Seller be unable amicably to resolve such disputes.

(a) The Arbitration shall be conducted in London, England.

(b) The Arbitration shall be conducted under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce.

(c) The costs of the Arbitration shall be distributed equally between the
Buyer and the Seller, and each shall otherwise bear its own additional or
other expenses and fees.

(d) The Decision of the Arbitration Tribunal shall be binding on the Buyer
and the Seller, and such Decision shall be enforceable in any Court
having jurisdiction of the party against whom any such decision or award
is granted.

Article 16 TERMINATION AND CANCELLATION

16.1 The Contract may be terminated, as hereinafter provided, by either party
for material breach or default of the terms or conditions hereof. In the event
of such termination a sixty-day Notice in writing setting forth the breach or
default shall be provided; however, should the party receiving the Notice
correct said breach or default complained of during said sixty-day period, then
the Notice shall be considered null and void as if the same had not been sent.

16.2 The Contract shall be automatically canceled in the event of bankruptcy,
voluntary or involuntary winding up, the appointment of a receiver of the assets
or business, making of an assignment for the benefit of creditors, or the
termination of the operation of the business of either the Buyer or the Seller.

16.3 In the event of termination or cancellation of The Contract for any reason,
the obligations of the Buyer and the Seller to comply with the terms and
conditions of The Contract shall continue up to the effective date of such
termination.

16.4 Termination or cancellation of The Contract shall not affect obligations
of confidentially assumed hereunder by either the Buyer or the Seller.

Article 17 LANGUAGE

The English Language shall be used in all communications between the Seller and
the Buyer relating to The Contract.
<PAGE>

Article 18 CONFIGURATION MANAGEMENT; BUYER'S PARTICIPATION IN PRODUCTION AND
INSPECTION SYSTEM AUDITS; PRIVACY OF INFORMATION.

18.1 Configuration Management. The Seller shall maintain a configuration
management system for control of changes in the Uncooled Imaging Module.
Subject to paragraph 18.3, below, the Seller shall provide copies of all
Engineering Change Orders (ECO's) to the Buyer as they are approved by the
Seller's Configuration Review Board (CRB). The Seller shall forward minor
changes (class II ECO's) to the Buyer in the Seller's format for the Buyer's
information. The Seller shall forward major changes (class I ECO's) to the Buyer
for approval. The Seller shall classify class I ECO's as "Routine" or "Urgent".
"Routine" ECOs shall be dispositioned within 60 calendar days of the date sent.
If the Buyer fails to respond within this time, the Seller may assume the
Buyer's approval. For "Urgent" ECOs, the disposition time limit shall be 20
calendar days.

The Seller shall at its option prepare and submit proposals for equitable
adjustment of the contract price, delivery and other terms for any ECO activity
arising from:Buyer-initiated changes, including those due to the needs of the
Buyer's vendors. The Seller shall include rough-order-of-magnitude estimates of
price impact with the initial technical proposals, and follow with formal price
proposals if the Buyer decides to go forward.

18.2 Buyer's Participation in Production and Inspection System Audits.

The Buyer may, during the period of performance of The Contract, participate in
inspections and conduct on-site audits of the Seller's procedures that govern
the production and inspection thereunder. The Buyer shall make agrrangements
with the Seller in advance such participation and conduct of audits. The
activities shall be conducted on a non-interference basis at reasonable and
mutually accepted times and intervals.

18.3 Privacy of Information. The Seller shall not in connection with the
activities identified in paragraphs be required to divulge information about
its Uncooled Imaging Module manufacturing processes and facilities that is
proprietary to the Seller or for which U. S. Government regulations prohibit
disclosure.

Article 19 GENERAL

19.1 The headings and titles to and within the Articles of The Contract are
inserted for convenience only and shall not be deemed a part hereof or affect
the construction or interpretation of any provision hereof.

19.2 No cancellation, modification, amendment, deletion, addition or other
change in The Contract or any provision hereof or waiver of any right or remedy
herein provided, shall be effective for any purpose unless specifically set
forth in writing and signed by the Buyer and the Seller. No waiver of any right
or remedy in respect of any occurrence or event on one occasion shall be deemed
a waiver of such right or remedy in respect of such occurrence or event on any
other occasion.

19.3 The Buyer may use its standard purchase order forms in the administration
of The Contract. The Buyer and the Seller agree that such use is only for the
administrative convenience of the Buyer and that no provisions on the face or
reverse of such forms or the Buyer's attachments thereto shall have any effect
on The Contract or the subject matter of the purchase order except as required
to identify The Contract and the purchase order
<PAGE>

19.4 The Contract is written pursuant to Article III of the Cooperative
Development and Exclusivity Agreement between the Buyer and the Seller that was
made and effective as of the 31st day of May 1994, and is not intended to
supersede any provision of that Agreement or any Non-Disclosure Agreement that
exists between the Buyer and the Seller. Nonetheless, The Contract supersedes
all other agreements, oral or written, heretofore made with respect to the
subject hereof and the transactions contemplated hereby, and contains the entire
agreement of the Buyer and the Seller with respect to the production and
delivery of Uncooled Imaging Modules.
<PAGE>

EXHIBIT A

UNCOOLED IMAGING MODULE
SPECIFICATION,
DOCUMENT # 14801ES017

[**Technical specifications and test procedures documents of 8 and 27 pages
respectively have been omitted]

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

EXHIBIT B

CONTRACT DELIVERY SCHEDULE

[** Schedule omitted]

[**] Information omitted pursuant to 17 C.F.R. (S) 240.24b-2.

<PAGE>

EXHIBIT 10.2

CONTRACT
FOR THE SUPPLY OF
UNCOOLED IMAGING MODULES

BETWEEN

AGEMA INFRARED SYSTEMS AB
RINKEBYVAGEN 19
DANDERYD
SWEDEN

AND

LOCKHEED MARTIN CORPORATION
IR IMAGING SYSTEMS
2 FORBES ROAD
LEXINGTON, MASSACHUSETTS 02173
UNITED STATES OF AMERICA

The bracketed portions of this contract marked with double asterisk [**] have
been omitted and filed separately with the Securities Exchange Commission
pursuant to 17 C.F.R (S)240.24b-2.

<PAGE>

CONTRACT
FOR THE SUPPLY OF
UNCOOLED MICROBLOMETER MODULES

This is a Contract ("The Contract") by and between AGEMA Infrared Systems AB,
(hereinafter called the "Buyer"), having a place of business at Rinkebyvagen 19,
Danderyd, Sweden, and Lockheed Martin Corporation, IR Imaging Systems
(hereinafter called the "Seller"), having a place of business at 2 Forbes Road,
Lexington, MA 02173, United States of America. The Buyer and the Seller may be
collectively referred to herein as the "Parties", and each may be referred to
herein as a "Party".

WHEREAS, the Buyer and Seller, on May 31st, 1994, entered into a Cooperative
Development and Exclusivity Agreement relating to Uncooled Imaging Modules which
contemplated but did not detail the production and sale of such equipment by the
Seller to the Buyer; and

WHEREAS, the parties entered into a contract for production and delivery of [**]
Uncooled Imaging Modules, and said contract is anticipated to be completed in
the near future; and

WHEREAS, the Buyer seeks to purchase additional quantities of Uncooled Imaging
Modules for the purpose of application to products of the Buyer,

NOW, THEREFORE, the Buyer and the Seller agree as follows:

IN WITNESS WHEREOF, the Buyer and the Seller have caused this contract to be
executed by their duly authorized representatives as of the day and year last
written below.

Lockheed Martin Corporation AGEMA Infrared Systems AB
IR Imaging Systems

by _____________________________ by _____________________________

Title __________________________ Title __________________________

Date ___________________________ Date ___________________________

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

CONTRACT INDEX
<TABLE>
<CAPTION>

ITEM PAGE

<S> <C>
COVER 1

SIGNATURE PAGE 2

CONTRACT INDEX 3

TERMS AND CONDITIONS
PREAMBLE. 4

Article 1 DEFINITIONS. 4

Article 2 DELIVERABLE ITEMS AND PRICES, OPTION, [**] ANS RELATED SOFTWARE SOURCE CODE; ACCEPTANCE 4
TESTING; DELIVERY SCHEDULE, JUST-IN-TIME SCHEDULING, SHIPMENT AND TRANSFER OF TITLE; SELLER'S
INVOICES AND BUYER'S PAYMENTS; NO SET OFF.

Article 3. EXCLUSIVITY. 7

Article 4. EXPORT LICENSES 10

Article 5. EXCUSABLE DELAYS 10

Article 6. WARRANTY 10

Article 7. LIQUIDATED DAMAGES. 12

Article 8. LIMITATION OF LIABILITY 12

Article 9. NOTICES. 13

Article 10. ASSIGNMENT 13

Article 11. COMPLIANCE WITH U. S. A. LAW 13

Article 12. CONFIDENTIALITY 14

Article 13. ADVERTISING. 14

Article 14. LAW. 14

Article 15. ARBITRATION. 14

Article 16 TERMINATION AND CANCELLATION 15

Article 17. LANGUAGE. 15

Article 18. CONFIGURATION MANAGEMENT; BUYER'S PARTICIPATION IN
PRODUCTION AND INSPECTION SYSTEM AUDITS; RELEASE OF
INFORMATION. 15

Article 19. GENERAL 16

EXHIBIT A UNCOOLED IMAGING MODULE SPECIFICATION
DOCUMENT NO. 14801ES017 REV. A A1

EXHIBIT B ACCEPTANCE TEST PROCEDURE
DOCUMENT #NO. 14801AP018 REV. A B1

EXHIBIT C CONTRACT DELIVERY SCHEDULE C1

</TABLE>

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

TERMS AND CONDITIONS

PREAMBLE

The Contract consists of the Cover Page, the Signature Page and the Index, plus
the Terms and Conditions in the Articles hereinafter set forth. If any
supporting data such as a Statement of Work, a work performance schedule,
specifications, drawings or other such documents are applicable to The Contract,
they are provided herein as the Exhibits identified in the Index. Conflicts, if
any, among the following parts of The Contract shall be resolved by taking them
in this order of precedence: (i) the Terms and Conditions; and (ii) the
Exhibits.

Article 1 DEFINITIONS.

1.1 The Buyer as used herein shall mean the Swedish Corporation above described
and its subsidiaries. It includes FLIR SYSTEMS AB which will become the new
name for the Buyer in June 1998.

1.2 The Seller as used herein shall mean Lockheed Martin Corporation, IR Imaging
Systems, an unincorporated Division of Lockheed Martin Corporation.

1.3 GROUND BASED SECURITY SYSTEMS as used herein shall mean the Buyer's imaging
cameras or observation systems which are permanently mounted on or at a fixed or
semi-fixed location (such as a pole, tripod, gate, building or tower), the
purpose of which cameras or systems is to detect intrusion or to otherwise
protect or provide security for the facility at which the equipment is located.

1.4 THERMOGRAPHY as used herein shall mean the use of thermal imaging systems to
determine the radiometric temperature of items and portions of items in an
imaged scene without direct physical contact to those items. Such information,
often displayed as a picture or pseudo-color picture, is used in a wide variety
of industrial applications.

Article 2 DELIVERABLE ITEMS AND PRICES, OPTION, VSP AND RELATED SOFTWARE SOURCE
CODE; ACCEPTANCE TESTING; DELIVERY SCHEDULE, JUST-IN-TIME SCHEDULING, SHIPMENT
AND TRANSFER OF TITLE; SELLER'S INVOICES AND BUYER'S PAYMENTS; NO SET OFF.

2.1 Deliverable Items, Prices and Option

2.1.1 The items to be delivered hereunder are identified in Table 2.1-1.

TABLE 2.1-1 Deliverable Items
<TABLE>
<CAPTION>

Item Qty/UM Description Unit Price Extended Price

<S> <C> <C> <C> <C>
1 [**] Uncooled Imaging Module* $[**] $[**]
2 (Option per [**] Uncooled Imaging Module* $[**] $[**]
para. 2.1.2)
</TABLE>

* As described in the "Uncooled Imaging Module Specification, Document No.
140801ES017, Rev. A", Exhibit A, hereto. The maximum number of NTSC only
units over any three months period will be 20 per cent; the maximum number of
PAL only units over any three months period will be 20 per cent.

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

All U. S. A. taxes are included in the prices in Table 2.1-1. All taxes, duties,
fees or assessments of any nature levied against the Seller by any governmental
authority except the U. S. A. in connection with The Contract shall be the
responsibility of the Buyer, and shall be paid by the Buyer directly to the
governmental authority concerned. Prices do not include freight and insurance
charges associated with transportation beyond the FCA point, which shall be paid
by the Buyer.

2.1.2 Option.

The Buyer shall have the option, exercisable by no later than the close of the
Seller's business day on 30 April 1999, to increase the quantity of Uncooled
Imaging Modules to be delivered hereunder, by [**] units. Should the Buyer
exercise this Option, deliveries thereunder shall commence in the month
following the last scheduled delivery and at the same rate of delivery shown for
the final month of The Contract Delivery Schedule.

2.1.3 [**] and Related Software Source Code.

The Seller intends at some future time (but is not required by this Contract) to
introduce a [**] Board set into its Uncooled Imaging Module to replace the
current [**] Board set. If the Seller introduces such replacement after delivery
of [**] modules under this contract but prior to delivery of [**] modules
hereunder, it shall reduce the module price for each such module containing [**]
by $[**]. If [**] is introduced between units [**] and [**], the $[**] unit
price reduction shall also apply to modules ordered by exercise of the option
granted above, if ordered with [**].

The Buyer acknowledges that introduction of [**] will cause a change in the
current FFE; and that the $[**] price reduction can only occur if the module is
identical to the then current production version in both hardware and software.

Subject to approval of the U.S. Government, which approval it shall be the
responsibility of the Buyer to obtain, the Seller agrees to provide to the
Buyer, at no charge, its proprietary [**] software source code and updates
thereto, embodied in the [**] based Uncooled Imaging Module; and to license the
Buyer to modify such software source code for use in the Buyer's products which
include the Seller's Uncooled Imaging Module.

Provision of such software source code and updates thereto shall not affect the
Seller's right to deliver modules to the Buyer which contain then current
Seller-based software.

2.2 Acceptance Testing

Prior to delivery of the Uncooled Imaging Modules hereunder, the Seller shall
perform on each unit Acceptance Tests described in the document "Uncooled
Imaging Module Acceptance Test Procedure, Document No. 14801AP018 Rev. A",
Exhibit B hereto, and each unit shall be required to pass the test. The tests
may be witnessed on a non-interference basis by designated employees of the
Buyer. Whether or not so witnessed, the tests shall be considered as the final
acceptance tests on the units, and the Seller shall prepare, certify and deliver
with the units copies of the test data. The Seller when requested by the Buyer,
shall provide approximate dates for scheduled acceptance testing of units, and
shall coordinate with the Buyer any visits for the purpose of witnessing tests.

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

2.3 Delivery Schedule; Just-in-Time Scheduling; Shipment and Transfer of
Title.

2.3.1 Delivery Schedule.

The Seller shall deliver the Items hereunder to the Buyer in accordance with the
Contract Delivery Schedule, Exhibit C hereto.

2.3.2 Just-in-Time Scheduling.

To permit "just-in-time" receipt of inventory by the Buyer, the Buyer may elect
to increase the quantity of units to be delivered in any month by up to 50 per
cent of the quantity shown for that month in the Contract Delivery Schedule. In
the event of any such change, The Contract Delivery Schedule shall be changed
accordingly. Any such increase in quantity/schedule shall require five months
written notice in advance. Notice to increase quantity to be delivered in any
month may not be provided sooner than March, 1999.

In the event of any increase in quantity/schedule, the option exercise date set
forth in Article 2.1.2 shall be accelerated such that there shall be at least
seven months remaining in the amended Contract Delivery Schedule at the time of
exercise of the option.

The Buyer may elect to decrease the quantity of units to be delivered in any
month by up to 50 per cent of the quantity shown for that month in the Contract
Delivery Schedule. In the event of any such change, The Contract Delivery
Schedule shall be changed accordingly, but in no event will the final contract
delivery be extended more than six months from the last originally scheduled
delivery. Any such decrease in quantity/schedule shall require three months
written notice in advance.

2.3.3 Shipment and Transfer of Title.

All Shipment by the Seller hereunder shall be made FCA Logan International
Airport, Boston, Massachusetts, U.S.A., in accordance with the definition and
provisions of the term "FCA" set forth in INCOTERMS, except that the Buyer shall
be responsible hereunder to obtain all necessary export licenses. Title to the
Uncooled Imaging Modules deliverable hereunder shall pass to the Buyer at the
FCA point, i. e., on delivery to the carrier at Logan International Airport,
Boston, Massachusetts, U.S.A.

2.4 Seller's Invoices and Buyer's Payments.

2.4.1 Seller's Invoices.

2.4.1.1 Invoices for Module Deliveries. The Seller shall submit invoices to the
Buyer upon shipment of the items listed in Table 2.1-1 hereof, in the amount
determined by multiplying the Unit Price by the number of Units shipped. At the
time of invoice preparation, the Seller shall calculate any amounts due to the
Buyer pursuant to Article 7, "Liquidated Damages", hereof, in connection with
the shipment at hand, and include appropriate adjustments on the invoice.

2.4.1.2 Address for Invoice Submission. The Seller shall transmit this invoice
to the address set forth below: (i) by telefax on the date of the invoice; and
(ii) by mail or express delivery service on the date of the invoice or on the
next business day thereafter. The package shall contain an original and three
copies of the invoice and any attachments required hereunder.

AGEMA Infrared Systems AB
Box 3, S-182 11
<PAGE>

Danderyd
Sweden

Attention: Mrs. Evy Akerman Accounting Department.
Telephone: 46 8 753 25 18
FAX: 46 8 753 07 17

2.4.2 Buyer's Payments.

The Buyer shall pay to the Seller the amount of Seller's invoice within 60 days
of the date of the invoice. The Buyer shall make payment to the Seller by wire
transfer of U. S. Dollars to the account set forth below.

Citibank
399 Park Avenue
New York, NY 10043
Citibank Routing: ABA# 021000089
Lockheed Martin Corporation IR Imaging Systems
Account Number 40709866

2.5 No Set-off.

The Buyer shall not set off any amount owed by the Seller or any of its
affiliated companies to the Buyer against any amount owed by the Buyer to the
Seller under The Contract.

Article 3 EXCLUSIVITY

3.1 The Buyer shall have limited exclusivity in the commercial marketplace, as
defined below, with respect to the marketing of Infrared Thermal Imaging Systems
containing Uncooled Imaging Modules therein.

3.2 To that end, during the period of delivery of the Uncooled Imaging Modules
ordered hereunder, the Seller agrees not to provide or to deliver uncooled
microbolometer technology or Uncooled Imaging Modules or uncooled microbolometer
detector arrays or any information similar thereto [** 1.5 pages omitted]

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

3.3 Notwithstanding the above, the Seller shall have the right to deliver
Uncooled Imaging Modules or uncooled microbolometer technology or uncooled
microbolometer detector arrays or any information similar thereto or to
cooperate with any company in connection with any military or space program.

3.4 In addition, the Buyer shall have exclusivity which shall be limited to the
industrial/commercial marketplace for THERMOGRAPHY.

3.5 The Buyer shall have the non-exclusive right to sell to all other markets,
except that The Buyer shall have no right to and shall not, without the prior
written consent of the Seller, sell products which include the Seller's Uncooled
Imaging Modules where the end user is the U.S. Government and/or non-U.S.
military customers.

3.6 Notwithstanding paragraph 3.5 above, The Buyer shall have the non-exclusive
right to sell [**] to any customer except that the Buyer shall not without the
prior written consent of the Seller, sell or otherwise provide cameras or
systems for [**].

3.7 The Buyer shall not, without the prior written consent of the Seller, sell
or otherwise provide to any person or organization [**] UNCOOLED IMAGING MODULES
which are not part of a camera or system of the Buyer, except for repair or
replacement.

3.8 The Buyer, to this same end, for the same period of time, agrees not to
start any negotiations or cooperation or to take deliveries of uncooled infrared
focal plane arrays from any source; provided that if the Seller becomes
delinquent in deliveries by a cumulative total of at least [**] units over any
three month period, the Buyer may thereafter open discussions with another
potential source of uncooled infrared focal planes. If the Buyer purchases a
quantity of [**] units or more from any such second source, the mutual
exclusivity provisions of this Article 3 will thereupon be no longer in effect.

3.9 The Buyer will not sell products which include Uncooled Imaging Modules for
any of the

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

following fields of use (which are excluded from the License Agreement between
the Seller and Honeywell, Inc.):

. [**]. The exclusion does not include applications [**] such as
surveillance, search and rescue etc.

. [**]. The use is undefined but it contemplates an installation in a
[**].

. [**].

Article 4 EXPORT LICENSES

Article 5 EXCUSABLE DELAYS

The Seller shall not be liable for delays in delivery due to causes beyond the
Seller's control and without the Seller's fault or negligence, including, but
not limited to: acts of God; natural disasters, fire, floods, explosions or
earthquakes; epidemics or quarantine restrictions; serious accidents; any act of
civil or military authority; war, insurrection or riot; and labor disputes;
providing that in such cases the Seller exercises due diligence in promptly
notifying the Buyer in writing of any known or anticipated delay, and
recommences the performance of its obligation on cessation of the delay.

Whatever the cause of any known or anticipated delay, the Seller shall be
responsible for informing the Buyer of the reason therefor, and when the Seller
expects to proceed with its obligations.

Article 6 WARRANTY

6.1 The Seller warrants that Uncooled Imaging Modules (hereinafter, the "goods")
delivered under The Contract shall be free from defects in material and
workmanship under normal use and service, for a period of 15 months after
delivery of the goods to the FCA point.

6.2 The Seller warrants that goods delivered under The Contract shall be in
conformity with the "Uncooled Imaging Module Specification, Document No.
14801ES017 Rev. A, Exhibit A, hereto, for a period of 90 days after delivery of
the goods to the FCA point, except as follows:

(a) The vacuum life shall be warranted for a period of five years from the day
of delivery of any

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

item, provided that no warranty of vacuum life shall apply unless the
module is operated in an environment that has an ambient temperature of
[**] or less and/or is stored at a temperature between the minimum storage
temperature and [**].

(b) The UIM performance under normal use and service shall be such that for
[**] months after delivery there shall be no more than [**] new
unsubstituted nonoperable pixels (NOP). A nonoperable pixel is defined as
one that produces a signal that differs by more than [**] from the median
of the signal from each of its [**] nearest neighboring pixels when
imaging an object having a temperature of [**] and operating in an ambient
environment with a temperature of [**].

6.3 If, during the warranty periods of paragraphs 6.1. and 6.2 hereof, (i) the
Seller is notified promptly in writing upon delivery of any defect described
therein in the goods, including a detailed description of such defect; (ii) such
goods are returned to the Seller transportation prepaid; and (iii) the Seller's
examination of such goods discloses to the Seller's satisfaction that such goods
are defective and such defects are not caused by accident, abuse, misuse,
neglect, alteration, improper installation, repair or alteration by someone
other than the Seller, improper testing, or use contrary to any instructions
issued by the Seller, then within eight weeks after the arrival of the returned
defective goods at the Seller's plant the Seller shall (at its sole option)
either repair or replace such goods. The Seller shall return any goods repaired
or replaced under this warranty to the Buyer transportation prepaid. Prior to
any return of goods by the Buyer pursuant to this Article, the Buyer shall
afford the Seller the opportunity to inspect such goods at the Buyer's location.
In any event, the Seller shall issue a Return Material Authorization to the
Buyer prior to any return of goods to the Seller by the Buyer.

6.4 With respect to the time of notice of a defect, the following special
provisions shall apply:

(a) If a defect is discovered during the first 90 days of the initial warranty
period, and if the Buyer has not delivered the item in question,
incorporated into the Buyer's product, to a customer of the Buyer, the
Buyer and the Seller shall proceed as in paragraph 6.3, above. If a
warranted defect is confirmed and the item is repaired or replaced under
the warranty, the item returned by the Seller to the Buyer shall bear the
warranty for an new initial period in accordance with paragraph 6.1 or
6.2, as applicable.

(b) If a defect under paragraph 6.1 is discovered after the first 90 days of
the initial warranty period, or if the Buyer has delivered a defective
item, incorporated into the Buyer's product, to a customer of the Buyer,
the Buyer and the Seller shall proceed as in paragraph 6.3, above. If a
warranted defect is confirmed and the item is repaired or replaced under
the warranty, the warranty period for the item shall be extended by the
amount of time between the Buyer's notice of defect and the Seller's
return of the item to the Buyer at the FCA point.

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

Article 7 LIQUIDATED DAMAGES.

The Seller guarantees delivery of the Uncooled Imaging Modules in accordance
with the Contract Delivery Schedule set forth in Exhibit C hereto. It is agreed
by the parties that if actual damages arise by reason of the Seller's delay in
delivery, such damages would be difficult to determine accurately. Therefore,
the Seller agrees that in the event that the delivery of any Uncooled Imaging
Module is delayed for more than one full calendar week beyond a grace period of
three (3) weeks after such guaranteed delivery time for other than excusable
causes as defined in Article 5, "Excusable Delays" hereof, the Seller shall pay
to the Buyer as fixed, agreed and liquidated damages for each additional full
calendar week beyond said grace period in making delivery, one-half of one
percent (0.5%) of the Contract Unit price of the delayed Uncooled Imaging Module
per full calendar week of delay, and the Seller shall be liable for the amount
thereof; PROVIDED, that the Seller's liability under this Article is limited to
four percent (4.0%) of the Contract Unit price of the delayed Uncooled Imaging
Module causing the actual damages. Seller's payment of liquidated damages, as
herein provided, shall be the Buyer's sole remedy for delays due to causes for
which the Seller is responsible under this Contract.

Article 8 LIMITATION OF LIABILITY

Article 9 NOTICES

9.1 Any notice, request, or correspondence of either the Buyer or the Seller to
the other with reference to The Contract shall be in the English language.

9.2 Buyer's address for notices from the Seller shall be as follows:

AGEMA Infrared Systems AB
Box 3, S-182 11
Danderyd
Sweden

Attention: Mr. Arne Almerfors
Managing Director
Telephone: 46 8 753 25 10
FAX: 46 8 753 07 17

9.3 Seller's address for notices from the Buyer shall be as follows:

Lockheed Martin Corporation
IR Imaging Systems
2 Forbes Road
Lexington, MA 02173

Attention: Mr. John J. Ainley
International Contracts Manager, M/S 340
Telephone: 781-863-3767
FAX: 781-863-4193

Article 10 ASSIGNMENT

Article 11 COMPLIANCE WITH U. S. A. LAW

The Seller's performance under The Contract shall comply with the federal, state
and local laws and regulations of the U. S. A.
<PAGE>

Article 12 CONFIDENTIALITY

Article 13 ADVERTISING

Article 14 LAW

Article 15 ARBITRATION

(a) The Arbitration shall be conducted in London, England.

(b) The Arbitration shall be conducted under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce.

(c) The costs of the Arbitration shall be distributed equally between the Buyer
and the Seller, and each shall otherwise bear its own additional or other
expenses and fees.

(d) The Decision of the Arbitration Tribunal shall be binding on the Buyer and
the Seller, and such Decision shall be enforceable in any Court having
jurisdiction of the party against whom any such decision or award is
granted.
<PAGE>

Article 16 TERMINATION AND CANCELLATION

16.4 Termination or cancellation of The Contract shall not affect obligations
of confidentially assumed hereunder by either the Buyer or the Seller.

Article 17 LANGUAGE

The English Language shall be used in all communications between the Seller and
the Buyer relating to The Contract.

Article 18 CONFIGURATION MANAGEMENT; BUYER'S PARTICIPATION IN PRODUCTION AND
INSPECTION SYSTEM AUDITS; RELEASE OF INFORMATION.

18.1 Configuration Management. The Seller shall maintain a configuration
management system for control of changes in the Uncooled Imaging Module.
Subject to paragraph 18.3, below, the Seller shall provide copies of all
Engineering Change Orders (ECOs) to the Buyer as they are approved by the
Seller's Configuration Review Board (CRB). The Seller shall forward minor
changes (class II ECO's) to the Buyer in the Seller's format for the Buyer's
information. The Seller shall forward major changes (class I ECO's) to the Buyer
for approval. The Seller shall classify class I ECO's as "Routine" or "Urgent".
"Routine" ECOs shall be within 60 calendar days of the date sent. If the Buyer
fails to respond within this time, the Seller may assume the Buyer's approval.
For "Urgent" ECOs, the disposition time limit shall be 20 calendar days.

The Seller shall at its option prepare and submit proposals for equitable
adjustment of the contract price, delivery and other terms for any ECO activity
arising from Buyer-initiated changes, including those due to the needs of the
Buyer's vendors. The Seller shall include rough-order-of-magnitude estimates of
price impact with the initial technical proposals, and follow with formal price
proposals if the Buyer decides to go forward.

18.2 Buyer's Participation in Production and Inspection System Audits.

The Buyer may, during the period of performance of The Contract, participate in
inspections and conduct on-site audits of the Seller's procedures that govern
the production and inspection thereunder. The Buyer shall make arrangements with
the Seller in advance of such participation and conduct of audits. The
activities shall be conducted on a non-interference basis at reasonable and
mutually
<PAGE>

accepted times and intervals. The Seller should provide sufficient details
concerning status of work in progress and vendor material deliveries for the
Buyer to determine the integrity of the Contract Delivery Schedule. The Seller
shall provide suitable office arrangements for one on-site resident Buyer
representative. If the representative is a foreign national, special
restrictions on access will apply.

18.3 Release of Information. The Seller shall not, in connection with the
activities identified in this Article, be required to divulge information about
its Uncooled Imaging Module for which U. S. Government regulations require an
Export License.

Article 19 GENERAL

19.4 The Contract contains the entire agreement between the Parties concerning
production and delivery of Uncooled Imaging Modules in the quantities described
herein, and supersedes any previous understanding, commitment or agreement,
oral or written, with respect thereto.

<PAGE>

EXHIBIT A

UNCOOLED IMAGING MODULE
SPECIFICATION,
DOCUMENT No. 14801ES017 REV. A

[**Technical specifications document of 8 pages has been omitted]

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

EXHIBIT B

UNCOOLED IMAGING MODULE
ACCEPTANCE TEST PROCEDURE,
DOCUMENT No. 14801AP018 REV. A

[**Technical specification and testing procedures document
of 12 pages has been omitted]

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.
<PAGE>

EXHIBIT C

CONTRACT DELIVERY SCHEDULE

YEAR MONTH MODULE QUANTITY
DELIVERABLE UNDER ITEM 1, TABLE
2.1-1

<S> <C> <C>
1998 SEP [**]
OCT [**]
NOV [**]
DEC [**]
1999 JAN [**]
FEB [**]
MAR [**]
APR [**]
MAY [**]
JUN [**]
JUL [**]
AUG [**]
SEP [**]
OCT [**]
NOV [**]

</TABLE>

(SCHEDULE FOR ORIGINAL CONTRACT; AMEND AS NECESSARY DURING PERIOD OF
PERFORMANCE)

[**] Information omitted pursuant to 17 C.F.R. (S)240.24b-2.