<PAGE>
As filed with the Securities and Exchange Commission on December 22, 1999
Registration No. 333-90717
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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FLIR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 3812 93-0708501
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
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)
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J. Kenneth Stringer III
President and 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)
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Copies to:
Gregory E. Struxness, Esq.
Ater Wynne LLP
222 S.W. Columbia, Suite 1800
Portland, OR 97201
(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 ("Securities Act"), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
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.
------------
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 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this Prospectus is not complete and may be changed. The +
+securities being offered may not be sold until the Registration Statement +
+filed with the Securities and Exchange Commission is effective. This +
+Prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is +
+prohibited. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED December 22, 1999.
2,107,552 Shares
[LOGO OF FLIR SYSTEMS, INC.]
Common Stock
(Par Value $0.01 per Share)
-----------
The Selling Shareholders identified in this prospectus are offering 2,107,552
shares of FLIR Systems, Inc. Common Stock. FLIR's Common Stock is traded on the
Nasdaq National Market under the symbol "FLIR." On December 21, 1999, the last
reported sale price for the Common Stock, as reported on the Nasdaq National
Market was $14.88 per share. We will not receive any of the proceeds from the
sale of shares by the Selling Shareholders, and we are not offering any shares
for sale under this Prospectus. See "Plan of Distribution" for a description of
sales or distributions of the shares by the Selling Shareholders.
-----------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-----------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is December , 1999
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained in this Prospectus.
This summary does not contain all of the information you should consider before
purchasing stock in this offering. You should read the entire Prospectus,
especially "Risk Factors" and the Financial Statements and Notes, before
deciding to invest in our Common Stock.
FLIR Systems, Inc.
We are 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. Our state-of-the-art products include
handheld and ground based systems, as well as systems mounted on ships,
helicopters and airplanes. Our 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 smoke, haze and most types of fog. Our broadcast camera
systems consist of high performance TV cameras and are frequently mounted on
helicopters. They are used by local television news stations that frequently
use them to film and report on breaking news stories from the air. We have
recently begun to develop and market products which use "uncooled" thermal
imaging technology. This advanced technology allows us to build smaller, less
expensive, more energy efficient products and is creating new markets and new
product applications.
Our business is organized around two principal markets, commercial and
government. The commercial market includes:
. condition monitoring (of equipment)
. research and development
. manufacturing process control
. airborne observation and broadcast
The government market includes:
. search and rescue
. federal drug interdiction, surveillance and reconnaissance
. navigation safety
. border and maritime patrol
. environmental monitoring
. ground based security
Historically, the majority of our revenue has come from government sales.
However, we have been shifting our product mix in favor of the commercial
market, which now provides the majority of our revenues--66.3% last year.
We believe we have one of the largest sales and marketing organizations in
the industry. It effectively covers the world with a combination of direct
sales, independent representatives and distributors, application engineers and
service centers. In the commercial market our customers range from local
television news stations to global corporations. In the government market our
customers range from local police departments to military organizations.
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<PAGE>
We intend to continue growing internally as well as through the acquisition
of complementary businesses, product lines or technologies. Recent acquisitions
include AGEMA Infrared Systems AB, a Swedish corporation, and certain of its
affiliates, collectively AGEMA, in December 1997, and Inframetrics, Inc., a
Delaware corporation, in March 1999. AGEMA was 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. Inframetrics was one of the world's leading suppliers of
commercial thermal imaging systems.
We were incorporated in Oregon in 1978 and maintain our executive offices at
16505 S.W. 72nd Avenue, Portland, Oregon 97224. Our telephone number is 503-
684-3731. AGEMA, ThermoVision and InfraCAM are registered trademarks, and we
believe that all of our product names are trademarks, which belong to us. This
Prospectus also includes names and marks of other companies.
The Offering
<TABLE>
<S> <C>
Common Stock offered by the Selling Shareholders........... 2,107,552 shares
Common Stock outstanding after the Offering................ 14,347,766 shares(1)
Nasdaq National Market Symbol.............................. FLIR
</TABLE>
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(1) Based upon shares outstanding on September 30, 1999. Excludes (i) 1,573,723
shares of Common Stock reserved for issuance upon exercise of stock options
outstanding as of September 30, 1999 at a weighted average exercise price
of $14.17, and (ii) 1,530,225 shares of Common Stock reserved for issuance
upon exercise of options available for grant under our stock option plans
as of September 30, 1999. See Notes 12 and 13 to the Consolidated Financial
Statements.
4
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------------------------- ------------------
1994 1995 1996 1997(1) 1998 1998 1999(2)
------- ------- ------------ ------------ ------------ -------- --------
(unaudited) (in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Commercial............. $36,142 $40,262 $ 54,447 $ 86,656 $ 138,397 $ 99,274 $ 92,479
Government............. 42,356 40,397 57,338 58,278 70,225 46,240 38,867
------- ------- ------------ ------------ ------------ -------- --------
Total revenue........ 78,498 80,659 111,785 144,934 208,622 145,514 131,346
Cost of goods sold...... 41,068 40,233 57,864 86,835 95,329 68,506 71,027
------- ------- ------------ ------------ ------------ -------- --------
Gross profit......... 37,430 40,426 53,921 58,099 113,293 77,008 60,319
Operating expenses:
Research and
development........... 10,955 11,212 13,574 17,607 26,958 19,852 20,167
Selling and other
operating costs....... 18,298 23,008 29,989 41,225 58,933 41,576 41,535
Combination costs...... -- -- -- 36,450 -- -- 6,110
------- ------- ------------ ------------ ------------ -------- --------
Total operating
expenses............ 29,253 34,220 43,563 95,282 85,891 61,428 67,812
Earnings (loss) from
operations............. 8,177 6,206 10,358 (37,183) 27,402 15,580 (7,493)
Interest income......... 962 700 1,258 540 728 715 18
Interest expense and
other.................. (1,393) (2,402) (1,470) (4,093) (5,199) (3,538) (3,841)
------- ------- ------------ ------------ ------------ -------- --------
Earnings (loss) before
income taxes........... 7,746 4,504 10,146 (40,736) 22,931 12,757 (11,316)
Income tax provision
(benefit).............. 1,022 549 2,723 (11,548) 6,155 3,788 (3,622)
------- ------- ------------ ------------ ------------ -------- --------
Net earnings (loss) from
continuing operations.. 6,724 3,955 7,423 (29,188) 16,776 8,969 (7,694)
Discontinued operations,
net of taxes........... -- -- (830) -- -- -- --
------- ------- ------------ ------------ ------------ -------- --------
Net earnings (loss)..... $ 6,724 $ 3,955 $ 6,593 $ (29,188) $ 16,776 $ 8,969 $ (7,694)
======= ======= ============ ============ ============ ======== ========
Net earnings (loss) per
share:
Basic.................. $ 0.93 $ 0.54 $ 0.89 $ (3.69) $ 1.29 $ 0.71 $ (0.54)
======= ======= ============ ============ ============ ======== ========
Diluted................ $ 0.89 $ 0.52 $ 0.86 $ (3.69) $ 1.24 $ 0.68 $ (0.54)
======= ======= ============ ============ ============ ======== ========
Weighted average shares
outstanding(3):
Basic.................. 7,226 7,323 7,438 7,920 12,983 12,604 14,213
======= ======= ============ ============ ============ ======== ========
Diluted................ 7,513 7,600 7,701 7,920 13,510 13,141 14,213
======= ======= ============ ============ ============ ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------ September 30,
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- -------------
(unaudited) (in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $49,238 $50,829 $ 58,596 $ 50,774 $ 92,393 $ 61,252
Total assets............ 69,055 82,202 104,860 185,278 235,989 235,542
Short-term debt......... 437 2,491 8,529 32,706 42,638 69,556
Long-term debt,
excluding current
portion................ 13,516 13,482 24,106 20,634 19,296 1,702
Total shareholders'
equity................. 42,754 47,150 49,456 75,955 125,982 119,877
</TABLE>
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(1) In connection with the acquisition of AGEMA, which was effective on
December 1, 1997, we recorded a one-time charge of $52.5 million. The
charge consisted of $36.4 million of in-process research and development
and merger-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 are included in cost of goods sold. These
charges and related reserves are more fully discussed in Note 16 to the
Consolidated Financial Statements.
(2) In connection with the merger with Inframetrics, Inc., which was effective
on March 30, 1999, we recorded a one time charge of $24.3 million in the
quarter ended March 31, 1999. The charge consisted of $18.2 million of
inventories due to the creation of duplicative product lines, which is
included in cost of goods sold, and $6.1 million of transaction related
costs, which are included in combination costs, a separate line in
operating expenses. These charges and related reserves are more fully
discussed in Note 17 to the Consolidated Financial Statements.
(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.
5
<PAGE>
RISK FACTORS
This prospectus contains forward-looking statements within the meaning of
the Securities Litigation Reform Act of 1995 that are based on current
expectations, estimates and projections about our business, management's
beliefs and assumptions made by management. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "sees," "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 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 below and
elsewhere in this prospectus. In addition, such statements could be affected by
general industry and market conditions and growth rates, and general domestic
and international economic conditions. Such forward-looking statements speak
only as of the date of this prospectus and we do not undertake any obligation
to update any forward-looking statement to reflect events or circumstances
after the date of this prospectus. If we do update or correct one or more
forward-looking statements, investors and others should not conclude that we
will make additional updates or corrections with respect thereto or with
respect to other forward-looking statements.
An investment in our Common Stock is risky. You should carefully consider
the following risk factors in addition to the remainder of this prospectus
before purchasing our Common Stock. In addition, you should know that the risks
and uncertainties described below are not the only ones we face. Unforeseen
risks could arise and problems or issues that we now view as minor, could
become more significant.
If we were unable to adequately respond to any of the listed risks, our
business, financial condition and results of operations could be materially
adversely affected. Additionally, we cannot be certain or give any assurances
that any actions taken to lessen known risks and uncertainties will work. Our
inability to respond to any of the risks could cause the market price of our
Common Stock to decline, and you may lose all or part of your investment.
Financial Statement Issues
FLIR's operating results fluctuate quarterly and by season. Our quarterly
operating results have fluctuated widely in the past and we expect this to
continue. Some of the reasons for the fluctuations include:
. the timing of significant orders from and shipments to customers
. a substantial portion of our sales are made in the last month of each
quarter, with sales frequently concentrated in the last week or days of
the quarter
. the timing and market acceptance of our or competitors' new products or
technological advances
. the timing of the release of government appropriated funds for
procurement of our products
. our success in developing, introducing and shipping new products
. the mix of distribution channels through which we sell products
. changes in our or competitors' pricing policies
. the timing and amount of any inventory write downs
. our ability to obtain sufficient supplies of scarce components
. foreign currency fluctuations
. costs associated with the acquisition of other businesses, product lines
or technologies
. our ability to integrate acquired businesses, product lines or
technologies
. general economic conditions, both domestically and internationally
6
<PAGE>
Seasonal fluctuations in our operating results, particularly the increase in
sales we generally experience every year in the fourth quarter, result from:
. the seasonal pattern of contracting by the U.S. and certain foreign
governments
. the frequent requirement of international customers to take delivery of
equipment prior to the end of December due to funding considerations
. the tendency of commercial enterprises to fully utilize yearly capital
budgets prior to expiration
Due to the factors identified above and other factors, our quarterly
operating results have in the past and may in the future fail to meet the
expectations of public market analysts and investors. In fact, our revenue and
net income for the first quarter of 1999 failed to meet the expectations of
analysts as a result of a substantial decrease in orders from government
customers and, to a lesser extent, disruptions in the sales channel for
commercial customers resulting from the delay in obtaining Justice Department
approval for the Inframetrics acquisition. In that and other cases, the market
price of our Common Stock has been adversely affected and it is probable that
other such events in the future would have a similar affect on the market price
of our Common Stock. As a result of the fluctuations in our quarterly operating
results, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful and should not be relied upon as
indicators of future performance.
Government and international sales result in high accounts receivable. We
generally experience high levels of receivables due to long payment cycles for
U.S. Government sales and sales to customers outside the United States
("International Revenue") as well as long payment terms for certain OEM and
other customers. Additionally, because of the high unit prices of our products,
amounts owed by specific customers may be substantial at any given time and if
not paid could affect our liquidity. Our receivables levels relative to cash
from operations may also result from time to time in liquidity deficiencies
requiring more borrowing. Our accounts receivable at September 30, 1999
amounted to $77.8 million. We have established reserves for uncollectible
accounts which management feels are adequate, but such reserves might not be
enough. If such reserves are not enough, our 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--
Liquidity and Capital Resources."
Stock Ownership Issues
Existing shareholder controls a significant percentage of outstanding
stock. Spectra-Physics AB, the former parent company of AGEMA, and its
affiliates, collectively referred to as Spectra, beneficially own approximately
29.0% of the outstanding shares of Common Stock. In February 1999, Thermo
Instrument Systems Inc., a majority-owned, publicly traded subsidiary of Thermo
Electron Corporation purchased 98% of the outstanding shares of Spectra. We are
obligated to use reasonable best efforts to maintain two Spectra designees on
our Board so long as Spectra owns more than 20% but less than 30% of our
outstanding Common Stock. By virtue of its stock ownership position and Board
representation, Thermo Electron, through its ultimate beneficial ownership of
Spectra's shares of our Common Stock, will be able to significantly influence
our direction and policies, the election of our Board of Directors and the
outcome of any other matter requiring shareholder approval, including any
merger, consolidation, sale of substantially all of our assets or other change
of control transaction. See "Principal and Selling Shareholders."
Future sales of FLIR Common Stock could depress our stock price. As of
September 30, 1999, there were 14,347,766 shares of Common Stock outstanding,
of which 2,107,552 shares are being offered hereby. In addition, Spectra has
certain registration rights that allow it to require us to register for resale
all or a portion of a total of 4,162,000 shares of Common Stock owned by them
at any time. We originally reserved 4,269,400 shares of Common Stock for
issuance pursuant to our stock option plans. Of this amount 1,573,723 shares
were subject to outstanding options as of September 30, 1999. Sales of a
substantial number of shares of Common Stock in the public market or the
prospect of such sales, whether through this offering or otherwise, could
adversely affect the market price for our Common Stock. See "Shares Eligible
for Future Sale."
7
<PAGE>
FLIR's stock price could fluctuate. The market price of our Common Stock has
fluctuated in the past and is likely to fluctuate in the future. Factors that
may cause price fluctuations include:
. fluctuations in our quarterly operating results
. new product announcements by us or our competitors
. changes in product prices by us or our competitors
. technological innovations
. military or government budget developments in the United States and other
countries
In addition, the securities markets have experienced significant price and
volume fluctuations, and the market prices of technology companies have been
particularly affected by events unrelated to the companies' operating
performances. In the past, companies that have experienced stock price
volatility have been the object of securities class action litigation. If we
were subject to such litigation, it could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on our business, financial condition and results of operations.
Market and Technology Issues
The thermal imaging market is subject to rapid technological change. Since
its inception, the thermal imaging market has experienced rapid technological
change. Such change requires us to devote significant resources to
incorporating new technology into our products while often maintaining existing
products that use older technology. For example, the introduction of uncooled
detector technology has led to the introduction of our AGEMA 570, ThermoVision
and ThermoVision Sentry products which are smaller, lighter and solid state.
However, we must continue to maintain some of our products that incorporate the
older, cooled technology because that technology remains more appropriate for
some of our customer's needs and requirements. Although we expect sales of our
products utilizing cooled technology to continue generating a significant
portion of our revenue, we must always be prepared to offer products that
incorporate new technology. Delays in the introduction or shipment of new or
enhanced products, our inability to timely develop and introduce such new
products, the failure of such products to gain significant market acceptance,
problems associated with new product transitions or the introduction or market
acceptance of competing technology that renders our technology obsolete or less
desirable would have a material adverse effect on our business, financial
condition and results of operations.
Competition in the market for thermal imaging equipment is significant. The
rapid technological advances just discussed also result in increasing
competition within our industry. The speed with which companies can identify
new applications for thermal imaging, develop products to meet those needs and
supply commercial quantities at low prices to the market are important
competitive factors. Additionally, our products compete indirectly with
numerous other products such as image intensifiers and low-light cameras for
limited military and governmental funds. Finally, many of our competitors have
greater financial, technical and marketing resources. All of these factors
result in greater challenges from our existing competitors as well as
increasing competition from new challengers and require us to continue
investing in and focusing on research and development and new product
innovation. No assurance can be given that we will be able to compete
effectively in the future. See "Business--Competition."
FLIR depends upon the successful development and acceptance of new
products. Our future success depends on our ability to continue to improve our
existing products and to develop new products using the latest technology that
can satisfy customer requirements. For example, our near term success will
depend on the continued acceptance of the AGEMA 570, sales of which are
expected to generate a substantial amount of our annual revenue. We are also
investing a significant amount of our financial resources in the enhancement of
some of our existing products. We cannot be certain that we will successfully
complete these enhancements within the necessary time period or that customers
will accept our new products, or any future products. Any
8
<PAGE>
failure to complete the enhancement of these products or the failure of our
current or future products to gain or maintain market acceptance could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Products."
FLIR may be unable to adequately protect its proprietary technology. Our
ability to compete successfully and achieve future revenue growth depends in
part on our ability to protect our proprietary technology and operate without
infringing the rights of others. To accomplish this, we rely on a combination
of patent, trademark and trade secret laws, confidentiality agreements and
contractual provisions to protect our proprietary rights. Although we currently
hold United States patents covering certain aspects of our technologies, we
cannot be certain that we will obtain additional patents or trademarks on our
technology, products and trade names. Furthermore, we cannot be certain that
our patents or trademarks will be sufficiently broad to protect our proprietary
rights or will not be challenged or circumvented by competitors. Likewise, we
cannot be certain that measures taken to protect our proprietary rights will
adequately deter their misappropriation or disclosure. Any failure by us to
meaningfully protect our intellectual property could have a material adverse
effect on our business, financial condition and results of operations.
Moreover, because intellectual property does not necessarily represent a
barrier to entry into the thermal imaging industry, there can be no assurance
that we will be able to maintain our competitive advantage or that competitors
will not develop capabilities equal or superior to ours. See "Business--
Proprietary Rights."
FLIR's products may suffer from defects or errors. Our products use complex
system designs and components that may contain errors or defects, particularly
when new technology is incorporated into our products or new versions are
released. While we have not yet had to recall a product, if any of our products
are defective, we might be required to redesign or recall those products or pay
damages. Such an event could result in significant expenses, disrupt sales and
affect our reputation and that of our products which would have a material
adverse effect on our business, financial condition and results of operations.
Furthermore, product defects could result in product liability. We maintain
product liability insurance but cannot be certain that it is adequate or will
remain available on acceptable terms.
Component Supply Issues
FLIR depends on suppliers to provide crucial components for its products. We
rely on a number of sole source and limited source suppliers to provide certain
key components for our products. Accordingly, we could experience a scarcity in
the supply of some of our components. In particular, we have a contract with
Lockheed Martin Corporation IR Imaging Systems ("Lockheed Martin") for the
supply of uncooled detectors for integration into our AGEMA 570 product line.
Lockheed Martin is currently one of three large producers of specialized
uncooled detectors. Subject to certain exceptions, the contract gives us the
exclusive right to purchase uncooled detectors for use in the commercial market
and a limited, nonexclusive right to purchase uncooled detectors for use in the
government market. Under the contract, we have the corresponding obligation to
purchase uncooled detectors solely from Lockheed Martin for commercial
applications. Currently, the AGEMA 570, ThermoVision and ThermoVision Sentry
are our only products that use the Lockheed Martin detectors. However, we
intend to use uncooled detectors supplied by Lockheed Martin in other products,
such as the AGEMA 1000.The contract provides for the monthly delivery of a
fixed number of uncooled detectors, which may be increased or decreased by us
within certain limits. Based on current and anticipated production levels and
supply requirements, we expect that the contract will continue through 2001.
However, we may not be able to successfully negotiate a new contract with
Lockheed Martin or another company for uncooled detectors after the Lockheed
Martin contract expires. Any failure by us to renew the contract or identify
another source of uncooled detectors would have a material adverse effect on
our business, financial condition and results of operations.
Late deliveries or inadequate supplies of important components are
possible. Based on past experience, we expect to occasionally receive late
deliveries or to experience inadequate supplies of certain components. For
example, if the components provided by Lockheed Martin or any other significant
supplier were to become unavailable, our manufacturing operations would be
disrupted. Unless we could identify and qualify acceptable
9
<PAGE>
replacement components or redesign our products with different components, we
might not be able to obtain necessary components at an acceptable price. Any
extended interruption in the supply of sole or limited source components would
have a material adverse effect on our business, financial condition and results
of operations.
Management and Employee Issues
FLIR depends on key senior management and on qualified technical and sales
personnel. Our future success depends on the efforts and continued services of
our key executives and our ability to attract and retain qualified technical
and sales personnel. Significant competition exists for such personnel and we
cannot assure the retention of our key technical and sales personnel or our
ability to attract, assimilate and retain other highly qualified technical and
sales personnel as may be required in the future. We also cannot assure that
employees will not leave and subsequently compete against us. We do not
maintain key person life insurance. If we are unable to attract and retain key
personnel, our business, financial condition and results of operations could be
adversely affected. See "Management."
Rapid growth strains FLIR's resources. We expect our rapid growth to
continue causing significant strain on our managerial, operational and
financial resources. We have grown from 313 employees in 1993 to over 800
current employees and expect to continue hiring. Our future success will depend
upon our ability to manage, train and expand our employee base. In order to do
this, we must continue implementing and improving our operational,
administrative and financial systems and controls. No assurance can be given
that these factors will not have a material adverse effect on our future sales
and operations and, consequently, on our business, financial condition and
results of operations.
FLIR may experience difficulties in managing recent or future
acquisitions. We may experience difficulties in assimilating the personnel,
operations, products and technology acquired in the AGEMA acquisition in 1997,
the Inframetrics acquisition in 1999 and any future acquisitions. Additionally,
we could lose the key personnel from any of the companies that we acquire. Any
of these difficulties could disrupt our ongoing business, delay the release of
our financial results, distract our management and employees and increase our
expenses. Furthermore, we might have to incur additional debt or issue
additional equity securities to pay for any future acquisitions. The issuance
of any additional equity securities could dilute our existing shareholder's
ownership. No assurance can be given that we will realize the anticipated
benefits of any acquisition or that such acquisition will not have a material
adverse effect on our business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Customer Issues
A reduction in government purchasing could significantly decrease revenue. A
substantial portion of our revenue is derived from sales to U.S. Government
agencies and our business will continue to be substantially dependent upon such
purchases. Accordingly, our revenue could be adversely impacted by governmental
spending cuts, general budgetary constraints, and complex and competitive
governmental procurement processes. Additionally, even though most of our
government sales are not made for defense applications, a significant reduction
in purchases of thermal imaging systems for defense applications could result
in certain of our competitors committing more attention and resources to non-
defense applications, thereby exposing us to greater competitive pressures in
our primary markets. No sales to a single agency of the U.S. Government
accounted for more than 10% of our revenue last year, but aggregate sales to
U.S. Government agencies did account for 17.5% of our revenue. A significant
decline in our sales to U.S. or foreign governments for any reason would have a
material adverse effect on our business, financial condition and results of
operations.
The loss of a major customer would cut revenues. Excluding our combined
sales to U.S. Government agencies, we do not typically have continuing
customers whose purchases total more than 10% of our annual revenue. However,
from time to time we do have purchase commitments from individual customers
that would
10
<PAGE>
be greater than 10% of our annual revenue if completed within that year. The
loss of such a customer could have a material adverse effect on our business,
financial condition and results of operations.
International Sales Issues
FLIR faces risks from international sales and currency fluctuations. We
market and sell our products worldwide and anticipate that international sales
will continue to account for a significant portion of our revenue. Our
international sales are subject to a number of risks, including:
. 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
. general economic conditions
Historically, currency fluctuations have had little impact on our revenue
recognition. However, since we seek to reduce our exposure to currency
fluctuations by denominating the majority of our international sales in U.S.
dollars, a decrease in the value of foreign currencies relative to the U.S.
dollar could make our products less price-competitive. No assurance can be
given that these factors will not have a material adverse effect on our future
international sales and operations and, consequently, on our business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
Remediation of problems related to the European monetary conversion may
involve significant time and expense and may reduce our future sales. We are
aware of the issues associated with the forthcoming changes in Europe aimed at
forming a European economic and monetary union. One of the changes resulting
from this union required member countries to irrevocably fix their respective
currencies to a new currency, the Euro, on January 1, 1999, at which date the
Euro became a functional legal currency of these countries. During the next
three years, business in member countries will be conducted in both the
existing national currency, such as the Deutsche Mark, and the Euro. As a
result, companies operating in or conducting business in member countries will
need to ensure that their financial and other software systems are capable of
processing transactions and properly handing these currencies, including the
Euro.
Because of the extensive European operations of our AGEMA subsidiary, the
Euro conversion might significantly impact our operations. We are currently
assessing the impact the conversion to the Euro will have on both our internal
systems and the products we sell. We will take appropriate corrective actions
based on the results of our assessment. We have not yet determined the cost
related to addressing this issue.
Miscellaneous Issues
FLIR's Articles, Bylaws and Shareholder Rights Plan as well as Oregon law
contain provisions that could discourage a takeover. Provisions of our Second
Restated Articles of Incorporation, First Restated Bylaws, Oregon law and our
Shareholder Rights Plan could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders. See
"Description of Capital Stock."
11
<PAGE>
Year 2000 remediation may involve significant time and expense and could
reduce future sales. 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 our customers and suppliers, may
need to be upgraded to comply with such "Year 2000" requirements. We have taken
steps to confirm that our products, computer systems and software and those of
our suppliers are Year 2000 compliant and to determine whether the failure of
such compliance would have a material adverse effect on our business, financial
condition and results of operations. Furthermore, we believe 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 our products and services,
which could result in a material adverse effect on our business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Impact of the Year 2000."
12
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sales or distribution of Common
Stock by the Selling Shareholders pursuant to this prospectus.
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the range of high
and low sale price per share of the Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
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 Ended December 31, 1998
First Quarter................................................... 20.63 16.75
Second Quarter.................................................. 21.63 17.25
Third Quarter................................................... 18.13 10.50
Fourth Quarter.................................................. 23.75 10.50
Year Ending December 31, 1999
First Quarter................................................... 23.53 17.13
Second Quarter ................................................. 18.81 11.75
Third Quarter................................................... 18.00 12.63
Fourth Quarter (through December 21, 1999)...................... 17.00 11.25
</TABLE>
On December 21, 1999, the reported last sale price of the Common Stock on
the Nasdaq National Market was $14.88 per share. As of September 30, 1999,
there were approximately 400 holders of record of the Common Stock and
14,347,766 shares then outstanding.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings to fund the operation and
expansion of our business. We do not anticipate declaring or paying any cash
dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth our actual short-term debt and capitalization
at September 30, 1999. You should read this table in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1999
------------------
(in thousands)
<S> <C>
Short-term debt............................................. $ 69,556
========
Long-term debt.............................................. 1,702
--------
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued............................... --
Common Stock, $.01 par value, 30,000,000 shares authorized,
14,347,766 shares issued and outstanding(1)................ 144
Additional paid-in capital.................................. 142,980
Accumulated deficit......................................... (21,949)
Accumulated other comprehensive loss........................ (1,298)
--------
Total shareholders' equity.................................. 119,877
--------
Total capitalization........................................ $121,579
========
</TABLE>
- --------
(1) Based upon shares outstanding on September 30, 1999. Excludes (i) 1,573,723
shares of Common Stock issuable upon exercise of outstanding options as of
September 30, 1999 at a weighted average exercise price of $14.17, and (ii)
1,530,225 shares of Common Stock reserved for issuance upon exercise of
options available for grant under our stock option plans as of June 30,
1999. See Notes 12 and 13 to the Consolidated Financial Statements.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the years ended December
31, 1996, 1997 and 1998 and the consolidated balance sheet data as of December
31, 1997 and 1998 are derived from our Consolidated Financial Statements, which
have been audited by PricewaterhouseCoopers, LLP independent accountants,
except as they relate to Inframetrics, Inc., which financial statements were
audited by Ernst & Young LLP, independent accountants. Such Consolidated
Financial Statements are included elsewhere in this Prospectus. The
consolidated statement of operations data for years ended December 31, 1994 and
1995 and the consolidated balance sheet data as of December 31, 1994, 1995 and
1996 are derived from our unaudited consolidated financial statements which are
not included in this Prospectus. The balance sheet data as of September 30,
1999 and the statement of operations data for the nine months ended September
30, 1998 and 1999 are derived from unaudited consolidated financial statements
included elsewhere in this Prospectus. The unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments, which
we consider necessary for a fair presentation of our financial position and
results of operations for these periods. Historical results are not necessarily
indicative of future results.
When reviewing the selected consolidated financial data set forth below, it
is important that you also read the Consolidated Financial Statements and the
related Notes included in this Prospectus, as well as the next section of the
Prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------------------------- ------------------
1994 1995 1996 1997(1) 1998 1998 1999(2)
------- ------- ------------ ------------ ------------ -------- --------
(unaudited) (in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Commercial............. $36,142 $40,262 $ 54,447 $ 86,656 $ 138,397 $ 99,274 $ 92,479
Government............. 42,356 40,397 57,338 58,278 70,225 46,240 38,867
------- ------- ------------ ------------ ------------ -------- --------
Total revenue........ 78,498 80,659 111,785 144,934 208,622 145,514 131,346
Cost of goods sold...... 41,068 40,233 57,864 86,835 95,329 68,506 71,027
------- ------- ------------ ------------ ------------ -------- --------
Gross profit......... 37,430 40,426 53,921 58,099 113,293 77,008 60,319
Operating expenses:
Research and
development........... 10,955 11,212 13,574 17,607 26,958 19,852 20,167
Selling and other
operating costs....... 18,298 23,008 29,989 41,225 58,933 41,576 41,535
Combination costs...... -- -- -- 36,450 -- -- 6,110
------- ------- ------------ ------------ ------------ -------- --------
Total operating
expenses............ 29,253 34,220 43,563 95,282 85,891 61,428 67,812
Earnings (loss) from
operations............. 8,177 6,206 10,358 (37,183) 27,402 15,580 (7,493)
Interest income......... 962 700 1,258 540 728 715 18
Interest expense and
other.................. (1,393) (2,402) (1,470) (4,093) (5,199) (3,538) (3,841)
------- ------- ------------ ------------ ------------ -------- --------
Earnings (loss) before
income taxes........... 7,746 4,504 10,146 (40,736) 22,931 12,757 (11,316)
Income tax provision
(benefit).............. 1,022 549 2,723 (11,548) 6,155 3,788 (3,622)
------- ------- ------------ ------------ ------------ -------- --------
Net earnings (loss) from
continuing operations.. 6,724 3,955 7,423 (29,188) 16,776 8,969 (7,694)
Discontinued operations,
net of taxes........... -- -- (830) -- -- -- --
------- ------- ------------ ------------ ------------ -------- --------
Net earnings (loss)..... $ 6,724 $ 3,955 $ 6,593 $ (29,188) $ 16,776 $ 8,969 $ (7,694)
======= ======= ============ ============ ============ ======== ========
Net earnings (loss) per
share:
Basic.................. $ 0.93 $ 0.54 $ 0.89 $ (3.69) $ 1.29 $ 0.71 $ (0.54)
======= ======= ============ ============ ============ ======== ========
Diluted................ $ 0.89 $ 0.52 $ 0.86 $ (3.69) $ 1.24 $ 0.68 $ (0.54)
======= ======= ============ ============ ============ ======== ========
Weighted average shares
outstanding(3):
Basic.................. 7,226 7,323 7,438 7,920 12,983 12,604 14,213
======= ======= ============ ============ ============ ======== ========
Diluted................ 7,513 7,600 7,701 7,920 13,510 13,141 14,213
======= ======= ============ ============ ============ ======== ========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------- September 30,
1994 1995 1996 1997 1998 1999
------- ----------- -------- -------- -------- -------------
(unaudited) (in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $49,238 $50,829 $ 58,596 $ 50,774 $ 92,393 $ 61,252
Total assets............ 69,055 82,202 104,860 185,278 235,989 235,542
Short-term debt......... 437 2,491 8,529 32,706 42,638 69,556
Long-term debt,
excluding current
portion................ 13,516 13,482 24,106 20,634 19,296 1,702
Total shareholders'
equity................. 42,754 47,150 49,456 75,955 125,982 119,877
</TABLE>
- --------
(1) In connection with the acquisition of AGEMA, which was effective on
December 1, 1997, we recorded a one-time charge of $52.5 million. The
charge consisted of $36.4 million of in-process research and development
and merger-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 are included in cost of goods sold. These
charges and related reserves are more fully discussed in Note 16 to the
Consolidated Financial Statements.
(2) In connection with the merger with Inframetrics, Inc., which was effective
March 30, 1999, we recorded a one-time charge of $24.3 million in the
quarter ended March 31, 1999. The charge consisted of $18.2 million of
inventories due to the creation of duplicative product lines, which is
included in cost of goods sold, and $6.1 of transaction related costs,
which are included in combination costs, a separate line in operating
expenses. These charges and related reserves are more fully discussed in
Note 17 to the Consolidated Financial Statements.
(3) See Note 1 to the Consolidated Financial Statements for an explanation of
the determination of shares used in computing net earnings (loss) per
share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. Whenever possible, we use terms such as "expects,"
"anticipates," "intends,""plans," "believes," "sees," "estimates" and
variations of such words and similar expressions to identify forward-looking
statements. Our actual results could differ materially from those discussed in
this Prospectus. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors," as well as those discussed elsewhere
in this Prospectus.
Overview
FLIR was founded in 1978 and has become 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.
Our business is organized around two principal markets, commercial and
government. Historically, a majority of our revenue was derived from government
sales. However, we have shifted our product mix in favor of commercial
applications, which accounted for 66.3% and 59.8%, respectively, of our revenue
for the years ended December 31, 1998 and 1997. We continue to enhance our
state-of-the-art products within existing commercial and government markets, as
well as develop products for new market applications that use advanced thermal
imaging technology such as new "uncooled" detector technology that operates at
room temperature, allowing for systems that are cheaper, smaller, lighter, and
more energy efficient. Additionally, we have developed higher-margin image
analysis software tools that enhance the capability and customization of our
products. As hardware prices decline, the sophistication of image analysis
software and the incremental functionality provided by such analysis tools are
expected to become a more critical component of our products.
On March 30, 1999, we completed our merger with Inframetrics, Inc., a
privately held thermal imaging company headquartered in Billerica,
Massachusetts, by issuing approximately 2.3 million shares of our Common Stock
(including approximately 192,000 shares reserved for issuance upon the exercise
of outstanding options assumed by us in the merger) in exchange for all the
outstanding stock of Inframetrics. This merger increases our worldwide
commercial thermal imaging market share, enables us to expand our product
development efforts through the elimination of duplicative research and
development programs, creates an extensive sales and marketing organization and
allows us to more efficiently focus our manufacturing efforts. Inframetrics,
with 1998 sales of $54.7 million, is one of the major suppliers of commercial
thermal imaging systems in the world.
As a result of the merger with Inframetrics which was accounted for as a
pooling of interests (see Note 17 to the Consolidated Financial Statements),
the Consolidated Financial Statements and all amounts included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations for all periods presented have been restated to reflect the combined
operations and financial position for all such periods. Such restatements had
no effect on previously reported separate results of operations or
shareholders' equity.
In connection with the merger with Inframetrics, we recorded a one-time
charge of $24.3 million in the quarter ended March 31, 1999. The charge
consisted of $18.2 million of inventories due to the creation of duplicative
product lines, which is included in cost of goods sold, and $6.1 of transaction
related costs, which are included in combination costs, a separate line in
operating expenses. These charges and related reserves are more fully discussed
in Note 17 to the Consolidated Financial Statements.
Effective December 1, 1997, we acquired AGEMA, headquartered in Stockholm,
Sweden. AGEMA was 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. AGEMA reported
revenue of $52.4 million for the year ended December 31, 1997. However, because
the acquisition was accounted for as a purchase, our Consolidated Statement of
Operations for the year ended December 31, 1997 includes AGEMA's results only
for the month of December 1997.
17
<PAGE>
The acquisition of AGEMA was accomplished through the issuance of 4,162,000
shares of Common Stock, valued at $54.1 million, to Spectra-Physics AB, AGEMA's
parent company, in exchange for all the outstanding shares of AGEMA stock. In
connection with the acquisition we recorded a one-time charge of $52.5 million
in the quarter ended December 31, 1997. The charge 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 duplicative product lines, which were
included in cost of goods sold. In addition, we are amortizing a total of
approximately $20.6 million in intangible assets over periods ranging from 15
to 17 years. We have divided production responsibilities between our primary
facilities, with handheld and ground-based products manufactured in Stockholm
and government and airborne observation and broadcast products manufactured in
Portland.
International Revenue accounted for approximately 22.5%, 39.6% and 47.8% of
our revenue in 1996, 1997 and 1998, respectively. We anticipate that
international sales will continue to account for a significant portion of
revenue. With the acquisition of AGEMA contributing a significant volume of
sales denominated in foreign currencies, we have 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.
Results of Operations
The following table sets forth for the indicated periods certain items as a
percentage of revenue:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
--------------------- --------------------
1996 1997(1) 1998 1998 1999(2)
----- ------- ----- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Commercial....................... 48.7% 59.8% 66.3% 68.2% 70.4%
Government....................... 51.3 40.2 33.7 31.8 29.6
----- ----- ----- -------- --------
Total Revenue.................. 100.0 100.0 100.0 100.0 100.0
Costs of goods sold.............. 51.8 59.9 45.7 47.1 54.1
----- ----- ----- -------- --------
Gross profit................... 48.2 40.1 54.3 52.9 45.9
Operating expenses:
Research and development......... 12.1 12.1 12.9 13.6 15.3
Selling and other operating
costs........................... 26.8 28.5 28.3 28.6 31.6
Combination costs................ -- 25.2 -- -- 4.7
----- ----- ----- -------- --------
Total operating expenses....... 38.9 65.8 41.2 42.2 51.6
Earnings (loss) from
operations.................... 9.3 (25.7) 13.1 10.7 (5.7)
Interest income................... 1.1 0.4 0.3 0.5 --
Interest expense and other........ (1.3) (2.8) (2.4) (2.4) (2.9)
----- ----- ----- -------- --------
Earnings (loss) before income
taxes............................ 9.1 (28.1) 11.0 8.8 (8.6)
Income tax provision (benefit).... 2.5 (8.0) 3.0 2.6 (2.8)
----- ----- ----- -------- --------
Net earnings (loss) from
continuing operations............ 6.6 (20.1) 8.0 6.2 (5.8)
Discontinued operations, net of
taxes............................ (0.7) -- -- -- --
----- ----- ----- -------- --------
Net earnings (loss)............... 5.9% (20.1)% 8.0% 6.2% (5.8)%
===== ===== ===== ======== ========
</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 48.8%,
51.2%, 10.6% and 5.7%, respectively.
(2) Excluding the one-time charge of $24.3 million in connection with the
acquisition of Inframetrics, cost of goods sold, gross profit, earnings
from operations and net earnings for the nine months ended September 30,
1999 would have been 40.3%, 59.7%, 12.8% and 6.7%, respectively.
18
<PAGE>
Recent Developments
On June 1, 1999 we announced that we had accelerated our planned cost
reduction program associated with the integration of Inframetrics. We estimated
that this program, which included a reduction in the Company's global work
force from a peak of approximately 900 people worldwide to approximately
800 people, together with the elimination of duplicative overhead expense, the
consolidation of research and development and sales and marketing functions,
and other expense control measures, should reduce costs by approximately $10
million annually beginning in the third quarter of 1999. We recorded expenses
related to the termination costs in the quarter ended June 30, 1999. Such
termination costs approximated $370,000.
Nine Months Ended September 30, 1999 and 1998
Revenue. Revenue for the nine months ended September 30, 1999 decreased
9.7%, from $145.5 million in the first nine months of 1998 to $131.3 million in
the first nine months of 1999. Commercial revenue for the nine months ended
September 30, 1999 decreased 6.8% from $99.3 million in the first nine months
of 1998 to $92.5 million in first nine months of 1999. The decrease in
commercial revenue was primarily due to disruptions encountered in the
distribution channel as a result of the four month delay in consummating the
merger with Inframetrics caused by the delayed approval of the transaction by
the Federal Trade Commission and the Department of Justice and to decreased
sales to commercial broadcasters and law enforcement agencies. This delay
created uncertainty in the Company's customer base and management believes that
many orders that would have been placed earlier in 1999 were delayed until the
merger was completed and the surviving product lines were identified. While
this delay impacted the first two quarters of 1999, management believes that
the market has recovered as evidenced by increased thermography orders.
Revenues from the sale of systems to government customers for the nine months
ended September 30, 1999 totaled $38.9 million, a decrease of 15.9% from the
$46.2 million in revenue generated in the first nine months of 1998. The
significant decline in government revenue was due to issues encountered
primarily in the first quarter and the early portion of the second quarter by
agencies of the U.S. Government and other NATO countries in obtaining release
of 1999 procurement funds due to the funding uncertainties caused by the NATO
campaign in Kosovo, and the continued depressed economic conditions in several
international markets.
The Company's commercial products continued to account for the majority of
the Company's total revenue. For the nine months ended September 30, 1999,
commercial revenue increased to 70.4% of total revenue, as compared to 68.2%
for the first nine months of 1998.
For the first nine months of 1999, revenue from sales outside the United
States constituted 50.1% of total revenue, as compared to 36.8% for the first
nine months of 1998. While the percentage of revenue from international sales
will continue to fluctuate from quarter to quarter due to the timing of
shipments under international and domestic government contracts, management
anticipates that revenue from international sales as a percentage of total
revenue will continue to comprise a significant percentage of revenue.
Gross profit. As a percentage of revenue, gross profit decreased from 52.9%
to 45.9% for the nine month periods ended September 30, 1998 and 1999,
respectively. The primary reason for this significant decline was the inclusion
in cost of goods sold for the nine month period ended September 30, 1999 of a
one-time charge of $18.2 million related to duplicate inventories and products
which were determined to have reached the end of life, both created by
overlapping product lines as a result of the merger with Inframetrics. Without
this charge, gross profit as a percentage of revenue would have increased from
52.9% to 59.7% for the nine months ended September 30, 1998 and 1999,
respectively. This 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 uncooled commercial products, now generally exceed those
margins experienced from the sale of cooled imaging products and imaging
systems to the government market. The increase in gross profit as a percentage
of revenue was mitigated in part by an increase in shipments to
instrumentalities of the U.S. Government which typically have lower margins
than those of other customers in the government market and aggregated $22.4
million in the first nine months of 1999 compared to $18.6 million in the first
nine months of 1998.
19
<PAGE>
Research and development. Research and development expense increased 1.6%
for the nine months ended September 30, 1999, from $19.9 million in the first
nine months of 1998 to $20.2 million in the first nine months of 1999. As a
percentage of revenue, research and development expense increased from 13.6% to
15.3% for the nine months ended September 30, 1998 and 1999, respectively. In
absolute dollar terms, the increase in research and development expense was
primarily due to engineering efforts related to the introduction of new
products including the FireFLIR, UltraMedia LE, Maritime FLIR and UltraMedia
III, as well as on-going new product development and existing product
enhancements. This increase was mitigated by increased cost control efforts and
efficiencies realized as a result of the Inframetrics transaction. The overall
level of research and development expense reflects the continued emphasis on
product development and new product introductions.
Selling and other operating costs. Selling and other operating costs
decreased slightly for the nine months ended September 30, 1999, from $41.6
million in the first nine months of 1998 to $41.5 million in the first nine
months of 1999. As a percentage of revenue, selling and other operating costs
increased from 28.6% to 31.6% for the nine months ended September 30, 1998 and
1999, respectively. The relatively consistent level in absolute dollar terms
was due to the costs related to increased personnel as part of the continued
shift from a primarily representative based sales force to a more direct sales
force and increased personnel required for new markets, primarily the fire-
fighting market. This increase was mitigated by management's cost control
efforts and efficiencies realized as a result of the Inframetrics transaction.
Selling and other operating costs are expected to continue to increase in
absolute dollar terms, however, as a percentage of revenue they are expected to
decline throughout the rest of the year.
Inframetrics Merger. Effective March 30, 1999, the Company completed its
merger with Inframetrics, Inc., a privately held infrared imaging company
headquartered in Billerica, Massachusetts, by issuing approximately 2.3 million
shares of the Company's common stock (including approximately 192,000 shares
reserved for issuance upon the exercise of outstanding options) for all the
outstanding stock of Inframetrics. Additionally, the Company assumed and paid
off approximately $24 million of Inframetrics, Inc.'s short- and long-term
debt.
In conjunction with the merger, during the quarter ended March 31, 1999, the
Company recorded a one-time charge of $24.3 million. The charge consisted of
$18.2 million of inventories due to the creation of duplicative product lines,
which is included in cost of goods sold, and $6.1 of transaction related costs,
which are included in combination costs, a separate line in operating expenses.
These charges and related reserves are more fully discussed in Note 16 to the
consolidated financial statements.
Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations, foreign
currency transaction gains and losses and miscellaneous bank charges. The
increase from $3.5 million in the first nine months of 1998 to $3.8 in the
first nine months of 1999 was primarily due to higher interest rates and
increased debt levels to support working capital needs.
Income taxes. The provision for income taxes for the nine months ended
September 30, 1999 resulted in an effective tax rate of 32.0% compared to 29.7%
for the nine months ended September 30, 1998. 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 below statutory rates due to utilization of net operating loss
carryforwards, various tax credits, and benefits from the favorable tax
treatment of international revenue.
Years ended December 31, 1998, 1997 and 1996
Revenue. Revenue increased 43.9%, from $144.9 million in 1997 to $208.6
million in 1998. Commercial revenue increased 59.7%, from $86.7 million in 1997
to $138.4 million in 1998. This improvement was principally attributable to the
inclusion of a full year of AGEMA's operations in 1998 compared to only one
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month in 1997; increased deliveries of our handheld products, particularly the
AGEMA 570 with revenue aggregating $31.1 million compared to $6.3 million in
1997; and continued strong demand for the full line of broadcast camera systems
including the UltraMedia and the UltraMedia RS. Revenue from the sale of
systems to the government market increased 20.5%, from $58.3 million in 1997 to
$70.2 million in 1998. This increase was primarily attributable to continued
robust sales of the SAFIRE thermal imaging system, inclusion of revenue from
the sales of the Star SAFIRE, which was introduced in 1998, increased
deliveries to international customers, which typically have higher sales prices
than domestic orders, and increased sales of our ground-based surveillance
products, including the ThermoVision Sentry and the MilCam.
Revenue increased 29.7%, from $111.8 million in 1996 to $144.9 million in
1997. Commercial revenue increased 59.2%, from $54.4 million in 1996 to $86.7
million in 1997. This improvement was principally attributable to increased
sales of the UltraMedia (our 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 deliveries of
our handheld imaging systems (which aggregated $47.6 million in 1997 compared
to $31.9 million in 1996), higher international sales and the one month
contribution from AGEMA's operations (which aggregated $9.4 million). Revenue
in 1997 from the sale of systems to the government market increased 1.6%, from
$57.3 million in 1996 to $58.3 million in 1997. 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.
We have continued to benefit from our significant investment in developing a
worldwide sales and distribution channel. The majority of our revenue outside
the United States is derived from Europe, Japan and South America.
International revenue increased from $57.3 million in 1997 to $99.8 million in
1998 and accounted for approximately 47.8% of our revenue in 1998, an increase
from the 39.6% experienced in 1997 and the 22.5% experienced in 1996. The
increase in absolute dollars and as a percentage of revenue in 1998 was
primarily due to increased shipments to international government customers and
increased commercial international sales as a result of the inclusion of a full
year of AGEMA revenue in 1998 which was primarily international.
Gross profit. As a percentage of revenue, gross profit increased from 40.1%
in 1997 to 54.3% in 1998, 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 increased
from 51.2% for 1997 to 54.3% in 1998. The gross margin increase was primarily
due to an increase in higher margin international sales and a higher proportion
of total revenue derived from the sale of commercial products which, as a
result of the favorable cost structure of the uncooled products, now generally
exceed those margins experienced from the sale of imaging systems to the
government market. This increase was mitigated, in part, by an increase in
sales to the U.S. government, which aggregated $36.5 million in 1998 compared
to $27.1 million in 1997 and which typically have lower margins than other
sales to the government market. Gross profit, exclusive of the AGEMA-related
write-off in 1997, increased as a percentage of revenue from 48.2% in 1996 to
51.2% in 1997.
Research and development. Research and development expense increased 53.1%,
from $17.6 million in 1997 to $26.9 million in 1998, and increased 29.7%, from
$13.6 million in 1996 to $17.6 million in 1997. As a percentage of revenue,
research and development expense increased from 12.1% in 1997 to 12.9% in 1998
and remained consistent at 12.1% in 1996 and 1997. The increase in research and
development expense, in absolute dollar terms, was attributable to the
inclusion of a full year of AGEMA's operations in 1998 compared to only one
month in 1997 and increased research and development activities related to the
introduction of the Star SAFIRE, UltraMedia LE and FireFLIR, as well as to
ongoing product enhancements.
Selling and other operating costs. Selling and other operating costs
increased 42.9%, from $41.2 million in 1997 to $58.9 million in 1998, and
increased 37.5%, from $29.9 million in 1996 to $41.2 million in 1997. Selling
and other operating costs as a percentage of revenue decreased slightly from
28.5% in 1997 to 28.3% in 1998, and increased from 26.8% in 1996 to 28.5% in
1997. This increase, in absolute dollar terms, was primarily due to the
inclusion of a full year of AGEMA's operations in 1998 compared to only one
month in
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1997, costs associated with increased revenue, particularly the increase in
international sales, expenses related to the expanded operations of our
international operations and to increased personnel. Further, we have continued
to expand and strengthen the direct sales and marketing staff.
Interest expense and other. Interest expense and other includes costs
related to short-term and long-term debt, capital lease obligations,
miscellaneous bank charges and expenses and foreign currency transaction gains
and losses. The increase from $4.1 million in 1997 to $5.2 million in 1998 and
from $1.5 million in 1996 to $4.1 million in 1997 was primarily due to
increased short-term debt as a result of increased working capital needs during
each year.
Income taxes. Our effective income tax rates for 1998, 1997 and 1996 were
26.8%, 28.3% and 26.8%, respectively. The effective tax rates were
substantially below the statutory rate, as a result of our ability to realize
the benefits of a portion of our net operating loss carryforwards and existing
tax credits. Additionally, we recognized a net deferred tax benefit of $14.4
million and $569,000 in 1997 and 1996, respectively, under the recognition
criteria of Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes." The $14.4 million deferred tax benefit
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, 1998, we had net operating loss carryforwards aggregating
$3.8 million, which expire in the years 2005 through 2010. Utilization of our
acquired net operating loss carryforwards related to the Company's subsidiary,
FSI Automation, is limited to future earnings of FSI Automation and further
limited to approximately $350,000 per year. Additionally, we have various tax
credits available aggregating $2.7 million which expire in the years 2007
through 2013. Finally, we have a $11.8 million deferred tax asset related to
acquired in-process research and development. The realization of this deferred
tax asset is dependent upon the ability of our foreign subsidiaries to remit
earnings to us and is further limited to realization over a 15-year period.
Liquidity and Capital Resources
At September 30, 1999, the Company had short term borrowings net of cash on
hand of $64.2 million compared to $62.7 million at June 30, 1999 and compared
to $35.2 million at December 31, 1998. The increase in short-term borrowings
during the nine months ended September 30, 1999, was principally caused by the
repayment of Inframetrics' existing long-term debt which aggregated $18.3
million at December 31, 1998 and the continued high levels of inventories and
receivables.
At September 30, 1999, the Company had inventories on hand of $75.1 million
compared to $70.3 million at December 31, 1998. The primary reason for the
increase is the build-up of component inventory in anticipation of shipments to
government customers during the last quarter of 1999, which typically is the
largest revenue quarter of the year and build-up of component inventories for
FireFLIR and Maritime FLIR systems in anticipation of deliveries of these new
products. The level of inventory decreased $1.1 million from the June 30, 1999
balance of $76.2 million. This decrease, in a quarter in which the Company
normally experiences an increase in inventory in anticipation of the volume of
shipments in the fourth quarter, reflects the results of management's continued
efforts to increase inventory turns.
At September 30, 1999, the Company had accounts receivable in the amount of
$77.8 million compared to $91.2 million at December 31, 1998. The decrease in
the level of accounts receivable was primarily due to decreased shipments
during the first nine months of 1999. Also contributing to the decrease was the
greater percentage of total receivables that represent sales to commercial
customers which typically have a shorter collection cycle than sales to
government customers. Days sales outstanding decreased from 150 at June 30,
1999 to 122 at September 30, 1999.
The Company's investing activities have consisted primarily of expenditures
for fixed assets, which totaled $7.8 million and $10.1 million for the nine
months ended September 30, 1999 and 1998, respectively. The Company has
budgeted for approximately $7.0 million related to the replacement of the
Company's Enterprise
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Resource Planning (ERP) system to address Year 2000 and other issues and has
expended approximately $6.1 million through September 30, 1999.
The Company has available a $70.0 million line of credit which bears
interest at LIBOR plus 1.5% (6.8% at September 30, 1999) secured by all the
Company's assets. Additionally, the Company, through one of its subsidiaries,
has a 40,000,000 Swedish Krone (approximately $4.7 million) line of credit at
5.1% at September 30, 1999. At September 30, 1999, the Company had $68.3
million outstanding on these lines. On December 16, 1999, the Company increased
the $70.0 million line of credit to $100.0 million.
The Company believes that its existing cash and available credit facilities,
financing available from other sources and 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.
Quantitative and Qualitative Disclosure about Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to its short-term and long-term debt obligations. The Company
currently hedges interest rate exposure through the use of long-term interest
rate swaps. The Company believes that its net income or cash flow exposure
relating to rate changes for short-term and long-term debt obligations are
immaterial. Interest expense is affected by the general level of U.S. interest
rates and/or LIBOR.
The foreign subsidiaries of the Company generally use their local currency
as the functional currency. The Company does not currently enter into any
foreign exchange forward contracts to hedge certain balance sheet exposures and
intercompany balances against future movements in foreign exchange rates. To
date, such exposure has been immaterial. The Company does maintain small cash
balances denominated in currencies other than the U.S. Dollar. If foreign
exchange rates were to weaken against the U.S. Dollar, the Company believes
that the fair value of these foreign currency amounts would decline by an
immaterial amount.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Such software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations leading to disruptions in
the Company's activities and operations. If the Company or its significant
suppliers or customers fail to make necessary modifications, conversions and
contingency plans on a timely basis, the Year 2000 issue could have a material
adverse effect on the Company's business, operations, cash flows and financial
condition.
The Year 2000 issue affects the Company's internal systems as well as any of
the Company's products that include date-sensitive software. The Company has
conducted a comprehensive review of its computer systems to identify the
systems that could be affected by the Year 2000 issue. The Company identified
that the internal manufacturing system acquired by the Company in connection
with the acquisition of AGEMA is not Year 2000 compliant, and has completed the
installation of a new enterprise resource planning system, both hardware and
software, to correct this deficiency. The Company's existing product lines have
been tested and reviewed to ensure Year 2000 compliance and the Company's
products under development are being designed to be Year 2000 compliant.
Additionally, the Company has evaluated Year 2000 compliance on products from
its suppliers and partners.
Both internal and external resources are being employed to identify, correct
or reprogram, and test the systems for Year 2000 compliance. The total cost of
the project is estimated to be approximately $7.0 million and is being funded
through existing cash resources.
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The Company believes its most reasonably likely worst-case Year 2000
scenario would relate to system problems of third parties rather that with the
Company's internal systems. The Company has less control over year 2000
assessment, remediation and testing programs of third parties. The Company
believes its risks are greatest with regard to infrastructure (e.g.,
electricity supply, natural gas, water and sewer service), telecommunications,
banking, government and transportation services. If these critical third party
services experience difficulties resulting in disruption of service to the
Company, a shutdown of the Company's operations could occur for the duration of
the disruption. The inability of the Company to operate its manufacturing
facilities for any significant period, or any other failure, if not quickly
remedied, could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company has developed contingency plans to address potential Year 2000
issues, including availability of IT personnel and critical manufacturing
support personnel on December 31, 1999 and January 1, 2000, development of
workarounds and redundancy for critical systems and equipment, increased
inventory of critical materials on site and with suppliers and alternative
arrangements for the transmission of customer and supplier data. However, with
respect to major infrastructure (e.g., electricity supply, natural gas, water
and sewer service), telecommunications, banking, government and transportation
services, the Company has no contingency plans that would mitigate the lack of
such services. The Company continues to be in contact with the suppliers of
theses services to obtain assurance that there will be no material disruption
as a result of Year 2000. The Company is relying on information provided to it
by its infrastructure suppliers to assess their Year 2000 issues. Contingency
plans will continue to be refined throughout the remainder of calendar year
1999 as the Company learns more about the vulnerabilities, if any, of critical
third parties regarding Year 2000 issues. There can be no assurance that the
Company will be able to identify, avoid or develop contingency plans to address
all possible worst-case scenarios.
There can be no assurance, however, that the systems or products of other
companies on which the Company's systems also rely will be timely converted or
that any such failure to convert by a vendor, customer or another company would
not have an adverse effect on the Company's systems. Additionally, we cannot
completely ensure that the Company's computer systems and software products do
not contain undetected problems associated with Year 2000 Compliance. Such
problems, should they occur, may result in adverse effects on future operating
results.
In Process Research and Development
In connection with the acquisition of AGEMA in December 1997, the Company
expensed $33.6 million representing purchased in process research and
development ("IPR&D") that had not yet reached technological feasibility and
had no alternative future use. These expenditures were recognized as a period
expense in accordance with Statement of Financial Accounting Standards No. 2
and Financial Accounting Standards Board Interpretation No. 4. See Note 16 of
the notes to the financial statements for a further discussion of the AGEMA
acquisition.
The $33.6 million value assigned to IPR&D was assigned to three separate
technological projects: 570 series uncooled products ($13.7 million), uncooled
technology ($12.1 million) and QWIP technology ($7.8 million). The nature of
the efforts required to develop these projects into commercially viable
products includes the completion of all planning, designing, prototyping,
verification and testing activities that are necessary to establish that the
product can be produced to meet its design specifications, including functions,
features and technical performance requirements. At the date of acquisition,
the estimated total cost to be incurred to develop the IPR&D into commercially
variable products was approximately $25.5 million in the aggregate through the
year 2002.
The value assigned to the IPR&D was determined by an independent appraiser
using a discounted cash flow method. This involved estimating the costs to
develop the purchased in process technology into commercially viable products,
estimating the resulting net cash flow from such projects and discounting the
net
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cash flows back to their present values. The discount rate used was 25%, which
included a factor that is intended to take into account the uncertainty
surrounding the successful development of the purchased in process technology.
The resulting net cash flows were based on management's estimates of revenue
over a five year period, cost of sales, research and development expenses,
selling, general and administrative expense and income taxes from such projects
which were consistent with historical rates.
There can be no assurance that the Company will be able to complete the
required work in order to develop these projects into commercially viable
products. If the IPR&D projects discussed above are not successfully developed,
the revenue and profitability of the Company may be adversely affected in
future periods.
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BUSINESS
General
We are 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. Our products come in a variety of
configurations such as handheld or ground-based systems, as well as systems
mounted on ships, helicopters and airplanes. Our 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 smoke, haze and most types of
fog. Our products can also incorporate visible light cameras, image analysis
software and gyrostabilized gimbal technology. An example of a gyrostabilized
gimbal is the capsule-like object attached to the nose of local television news
stations' helicopters that you may have seen. These capsules, or gimbals,
contain broadcast quality cameras and, sometimes, thermal imaging cameras which
allow news stations to film breaking news stories.
Our products provide state-of-the-art imaging technology coupled with
competitive pricing. Our product configurations and image analysis software
tools increase our ability to provide products tailored to meet individual
customer requirements. In addition to our continuing line of products that
incorporate "cooled" detector technology, we have also developed and begun
selling innovative new products utilizing advanced "uncooled" thermal imaging
technology.
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, price 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 commercial 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 than price
in purchasing decisions. A simpler form of the technology was also employed in
limited commercial applications such as detecting heat loss from buildings or
houses, where 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 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 imaging systems. Until
recently, thermal imaging systems relied on infrared detectors which needed to
be cooled to near absolute zero in order to operate. This technology is
sometimes referred to as "cooled" detector technology. The cryogenic "coolers"
needed for such detectors are expensive components that consume a great amount
of power 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 cheaper, smaller, lighter, more energy efficient, solid
state systems. These factors 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. Despite the advantages of uncooled
technology, cooled systems should continue to play a significant role in the
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government market due to those systems' longer range performance capabilities.
As hardware prices decline, the sophistication of image analysis software and
the incremental functionality provided by such analysis tools are expected to
become a more critical component of customers' purchasing decisions.
Markets
Commercial Market. The commercial market is comprised of a broad range of
thermal imaging applications. 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 efficiency 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. Uncooled thermal imaging technology has created opportunities to
further penetrate existing market segments as well as to create demand in new
markets that can benefit from the enhanced price and performance of such
technology. The growth of the commercial market has also been driven by
improvements in hardware functionality, enhanced image analysis software
performance and declining hardware prices.
The commercial market primarily consists of the following market segments:
Condition Monitoring Thermal imaging systems are used for monitoring
the condition of equipment. Such monitoring
allows for the detection of equipment faults so
they can be repaired. This increases the
equipment's productivity and avoids
catastrophic failures or major equipment
damage, which in turn significantly reduces
operating expenses by lowering repair costs and
reducing downtime. Improved functionality of
image analysis software, longer battery
operation and simplicity of system operation
are critical factors for this market segment.
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 Because of its non-destructive analysis
capability, thermal imaging is a useful tool in
a wide variety of research and development
applications. Since 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.
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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 The use of airborne observation and broadcast
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. 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. Applications should increase as system size
and weight continue to decline, enabling the use of
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
favorable prices.
New Commercial Market New market segments for thermal imaging are
Opportunities 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. Machine vision is a
manufacturing process control that allows for real-
time, fully automated regulation and guidance of
the assembly or manufacturing process. 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 also comprised of a broad range
of thermal imaging applications. 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, airplanes 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 primarily consists 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.
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Surveillance and Thermal imaging systems are used in surveillance
Reconnaissance 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 aircraft or ships to see terrain and
objects and to detect and avoid obstacles at night
and in conditions of limited visibility 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 monitor 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.
Technology
We use our expertise in diverse technologies and engineering capabilities to
develop and produce sophisticated thermal imaging systems. In order to produce
cost-effective products and shorten the product development cycle, we integrate
the following engineering disciplines and manufacturing processes:
System Design and We believe that our extensive experience in systems
Radiometry integration allows us to effectively combine a wide
variety of engineering disciplines necessary to
design and manufacture thermal imaging systems. We
also possess the specialized system design
knowledge required to produce thermal imaging
systems that can accurately measure temperature--a
critical tool for many commercial applications.
Software Development We utilize both internal and external sources to
develop the software capabilities necessary to
simplify complex thermal imaging systems. We have
developed Windows-based image analysis software
applications that solve a variety of manufacturing
process and quality control problems. We also have
the necessary expertise to develop embedded
software control systems, communications software
and testing programs for our thermal imaging
systems.
Optical Design and We design and manufacture many of the sophisticated
Fabrication optics that are required to gather and transmit
detected thermal images with minimum distortion,
allowing us to significantly shorten the product
development cycle and avoid costs and delays
associated with reliance on third-party optics
sources.
Electronic Design We design signal processing circuits that interface
directly with the detector arrays to convert
detected infrared radiation into electronic signals
and design the electronic image processing that is
necessary to convert the electronic signals into
standard video format. Advances in
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microprocessors, electric miniaturization and image
processing have made significant contributions to
the performance and utility of our thermal imaging
systems.
Mechanical Engineering Our design and production of thermal imaging
systems involves highly sophisticated mechanical
engineering techniques. Such sophisticated
techniques are critical for the design and assembly
of the supporting structures for system components
such as detector arrays, coolers, scanners and
optics, which must meet high-precision mechanical
tolerances. Similarly, the gyrostabilized gimbal
assembly for the SAFIRE, Star SAFIRE, Mark III,
UltraMedia and UltraMedia-RS requires expertise in
electro-mechanical control, gyroscopes and
specialized stabilization controls.
Products
Commercial Products. We penetrated the commercial market by developing
customized products with increased flexibility and features, in addition to
software analysis tools. Our 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 image 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 analysis and post-processing of the acquired image. Most of our
airborne and observation broadcast camera systems incorporate industry standard
broadcast cameras rather than thermal imaging cameras. We also manufacture
airborne dual imaging systems, including both broadcast and thermal imaging
cameras. The product is typically mounted to an aircraft, usually 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 per
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/ThermaCAM 595 The AGEMA 570, introduced in December 1997 and now
known as the ThermaCAM 595, 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 electronic design and instant-on
performance. The second generation uncooled
detector used in the ThermaCAM 595 provides for
accurate temperature measurement of objects from -
20(degrees)C to
30
<PAGE>
+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
ThermaCam 595 has applications across all
commercial radiometric market segments, including
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 Plus The Tracer Plus, 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 Plus combines a high-
resolution thermal imaging camera, such as the
ThermaCam 595, 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 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 research and development applications
such as evaluating the uniformity of heat
distribution in the design of rubber tires.
AGEMA Report AGEMA Report software, the latest release of which
was introduced by AGEMA in 1996, allows for review,
analysis and processing of captured images and
data. AGEMA software is a Windows-based program
that is easy to use and affordable. AGEMA software
is typically packaged with the AGEMA 550 and 570,
though it is capable of operating with data
gathered from other imaging products as well.
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. The UltraMedia-RS allows small and
weight restricted aircraft to gather high quality
video footage from long distances, delivering a
maximum of 40:1 magnification.
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.
31
<PAGE>
UltraMedia LE The UltraMedia LE, introduced in the fourth quarter
of 1998, is a compact digital lowlight broadcast
system that delivers a maximum of 96:1
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 LE is also used by law enforcement
agencies around the world for surveillance, suspect
search and apprehension, and officer support.
UltraVision The UltraVision, introduced in the fourth quarter
of 1998, is the newest member of the Ultra family
of broadcast camera products. Its small size and
weight allows it to be mounted on even the most
weight-restricted aircraft. A high-performance
digital camera offers quality imaging, vivid color
and up to an hour of DV digital formats video
recording.
FireFLIR The FireFLIR, introduced in the first quarter of
1999, is a lightweight, hands-free, helmet-mounted
thermal imaging system for fire fighting
applications. The FireFLIR incorporates an uncooled
microbolometer detector that delivers monochrome
and crisp, high-resolution color images. The system
can detect up to 16,000 temperature levels,
offering incredible heat sensitivity and imagery
over extremely wide temperature ranges.
Mark III Quantum The Mark III Quantum, introduced in the third
quarter of 1998, is a gimbal-mounted, continuous
zoom, dual imaging system incorporating a state-of-
the-art infrared imaging detector with a color CCD
TV camera. Features include its small size (9"
diameter gimbal), light weight (26 lbs.), built-in
autotracking, GPS annotation and user-friendly
controls and graphics.
UltraForce The UltraForce, introduced in the second quarter of
1999, is a four-axis, gyrostabilized gimbal system.
Made from lightweight composite materials such as
Kevlar, it incorporates an uncooled infrared
imaging detector together with a CCD TV camera
capable of imaging in moderately low light
conditions.
Government Products. We offer a range of state-of-the-art products to
government agencies. To meet the needs of these customers, we provide a range
of products consisting of a thermal imaging system enclosed in a gyrostabilized
gimbal which is typically mounted to an aircraft or a 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 the most critical system components 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 Our newest product for the government market,
introduced in June 1998, is the Star SAFIRE, a 3-
axis gyrostabilized, 360 field of view thermal
imaging system incorporating third generation focal
plane array detector technology. Using three fields
of view, the system 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.
32
<PAGE>
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 border patrol.
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 government installations or buildings.
ThermoVision Sentry The ground-based ThermoVision Sentry, first
introduced in the fourth quarter of 1998, is the
first fixed or tripod mounted thermal imaging
system utilizing uncooled detector technology. The
system can detect small objects up to several
kilometers away under extreme environmental
conditions, day or night and incorporates an
integrated Pan and Tilt mechanism. 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.
Examples of ThermoVision Sentry applications
include perimeter security of military bases and
sensitive government installations or buildings.
Maritime FLIR The Maritime FLIR, introduced in the second quarter
of 1999, is an inverted stabilized 9" gimbal
infrared imaging system designed specifically for
the marine environment. Able to withstand
significant shock and vibration, the Maritime FLIR
is hermetically sealed and contains a 10x
continuous zoom infrared detector, a laser range
finder and an autotracker. This seaworthy system
also has a de-icing system and can be mounted on a
mast, wheelhouse or a weapons platform.
MilCAM The MilCAM, introduced in the first quarter of
1997, is a high performance hand held infrared
imaging system designed for tactical use by
military, paramilitary and law enforcement agencies
engaged in long range surveillance, target
observation, artillery observation/fire correction,
perimeter security an border surveillance.
33
<PAGE>
Customers
The primary customers for our products include domestic and foreign
government agencies, including military, paramilitary and police forces,
original equipment manufacturers, commercial manufacturers, research and
development facilities, universities, utility companies, news-gathering
agencies and various commercial enterprises. See "Risk Factors--Customer
Issues."
Sales, Distribution and Customer Service
We believe that our sales and marketing organization is the largest in the
industry and effectively covers the world with a combination of direct sales,
independent representatives and distributors, application engineers and service
centers. The process of selling and marketing our products involves extensive
product promotion, technical selling and after-sales support. Our commercial
and government products are highly technical and have distinct characteristics
and functionality. Our 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. We also
continuously update our training programs to incorporate technological and
competitive shifts and changes.
We have distinct sales channels for commercial, airborne observation and
broadcast and government customers. We sell our commercial thermal imaging
products worldwide through a direct sales staff of more than 180 people and a
network of 75 distributors (many with multiple offices) and representatives,
each with an exclusive right to sell our products in a defined geographic area.
This network is managed by 25 regional sales managers. We sell our airborne
observation and broadcast products through a seven person direct sales staff.
We sell our government products in the United States through a 23 person direct
sales staff, and internationally, through a 14 person direct sales staff and 50
independent representatives and distributors covering all major markets
worldwide. We have a technical and customer support staff comprised of 35
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, we maintain service facilities at our factories in
Portland, Oregon; Stockholm, Sweden; and West Malling, U.K. and at our
subsidiary locations in Brussels, Belgium; Frankfurt, Germany; Toronto, Canada;
Paris, France; and Milan, Italy. Each of our service facilities has the
capability to perform the complex calibrations required to service commercial
thermal imaging systems. We employ 35 people worldwide in our service
organizations. We also maintain limited service capability in three additional
foreign locations under the direction of our independent representatives or
distributors. Our product marketing involves Internet promotion, advertising,
direct mail, press tours, technical articles for publications and participation
in approximately 100 trade shows per year.
Backlog
We believe that backlog is not indicative of revenue for any future periods
because our 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 that may have multiple year delivery schedules.
Furthermore, delivery schedules are frequently revised to accommodate changes
in customer needs. Although orders received by us 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.
Manufacturing
We manufacture many of the critical components for our products, including
gimbals, optics, certain detectors and high speed motors, which minimizes lead
times, facilitates prompt delivery of our products, controls costs and ensures
that these components satisfy our quality standards. We purchase other parts
pre-assembled, including detectors, coolers, circuit boards, cables and wiring
harnesses. We purchase certain components from sole or limited source
suppliers. See "Risk Factors--Component Supplies Issues."
34
<PAGE>
Our manufacturing operations are, from time to time, audited by certain of
our OEM customers, which include several major aircraft manufacturers, and have
been certified as meeting their quality standards. Our facilities in Stockholm,
Sweden and West Malling, U.K. are ISO 9000 certified.
Competition
Competition in the market for thermal imaging equipment is significant. We
believe that the principal competitive factors in our market are performance,
cost, customer service, product reputation and effective marketing and sales
efforts. Our competitors are different in each market segment. In the
commercial market, principal competitors include Raytheon Company, Cincinnati
Electronics Corp., Nippon Avionics Co., Ltd., Wescam Ltd. and Media Cybernetics
Image Analysis. In the government market, we compete with General Electric
Company, p.l.c., Wescam Ltd., Lockheed Martin Corp., The Boeing Company,
Daimler-Benz Aerospace AG and Thompson-CSF. Many of these competitors have
substantially greater financial, technical and marketing resources than we do.
See "Risk Factors--Market and Technology Issues."
Proprietary Rights
Our ability to compete successfully and achieve future revenue growth will
depend in part on our ability to protect our proprietary technology and operate
without infringing the rights of others. We rely on a combination of patent,
trademark and trade secret laws, confidentiality agreements and contractual
provisions to protect our proprietary rights. But we believe that our
historical success has been primarily a function of other competitive
advantages such as the skill and experience of our employees, our worldwide,
multi-channel sales, distribution and servicing network and our name
recognition and quality products. Because intellectual property protection does
not necessarily represent a barrier to entry into the thermal imaging industry,
we cannot be certain or give any assurance that we can maintain this
competitive advantage or that competitors will not develop similar or superior
capabilities. See "Risk Factors--Market and Technology Issues."
Employees
As of September 30, 1999, we had 817 employees of whom 93 were in
administration, 203 were in engineering, 20 were in quality assurance, 249 were
in manufacturing, assembly and testing and 252 were in marketing and sales. We
have been successful in attracting and retaining highly skilled technical,
marketing and management personnel to date. None of our employees in the United
States are represented by a union or other bargaining group. Employees in
Sweden and Italy are represented by unions. We believe our relationships with
our employees and unions are good. See "Risk Factors--Management and Employee
Issues."
Legal Proceedings
We have, from time to time, been a party to certain claims, legal actions,
and complaints arising in the ordinary course of business. We do not believe
that the resolution of any such matters has had or will have a material impact
on the Company's results of operations or financial position.
35
<PAGE>
MANAGEMENT
Directors and Executive Officers
The members of our Board of Directors are elected for three-year, staggered
terms. Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert P. Daltry 55 Chairman of the Board of Directors
J. Kenneth Stringer III 46 President, Chief Executive Officer and Director
Arne Almerfors 54 Executive Vice President
James A. Fitzhenry 44 Vice President, General Counsel and Secretary
William N. Martin 43 Vice President, Sales
J. Mark Samper 38 Vice President, Finance and Chief Financial Officer
William A. Sundermeier 35 Vice President, Product Strategy
Jay S. Teich 45 Vice President, Boston Operations
Andrew C. Teich 38 Vice President, Marketing
John C. Hart 65 Director
Earl R. Lewis 55 Director
Ronald L. Turner 52 Director
W. Allen Reed 51 Director
Steven E. Wynne 47 Director
</TABLE>
Robert P. Daltry. Mr. Daltry joined FLIR 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. Mr. Daltry's current term on
the Board of Directors expires in 2002. He served as Chief Executive Officer
until December 1998. 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.
J. Kenneth Stringer III. Mr. Stringer joined FLIR 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. Mr. Stringer's current term on the Board of Directors expires in 2001. In
April 1995, Mr. Stringer was appointed President and Chief Operating Officer.
In December 1998 Mr. Stringer was appointed Chief Executive Officer. Prior to
joining FLIR, Mr. Stringer spent six years with Evans Products Company,
Portland, Oregon, as Director of Financial Reporting. He started his career
with Touche Ross and Company (which subsequently became Deloitte & Touche). Mr.
Stringer received his B.S. degree from the University of Oregon.
Arne Almerfors. Mr. Almerfors joined FLIR in December 1997 in connection
with FLIR'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 his B.S. and MBA from the University of Stockholm.
Mr. Almerfors received a Masters in Political Science in addition to post-
graduate courses in corporate finance and accounting from the University of
Stockholm.
James A. Fitzhenry. Mr. Fitzhenry joined FLIR in 1993 as Corporate Counsel
and Director of Administration, and was appointed Vice President, 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 MBA degrees from Willamette University.
36
<PAGE>
William N. Martin. Mr. Martin joined FLIR in 1994 as Director of Sales and
was appointed Vice President, Sales in 1995. Prior to joining FLIR, 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.
J. Mark Samper. Mr. Samper joined FLIR in 1990 as Corporate Controller and
was appointed Vice President of Finance and Chief Financial Officer in March
1995. Prior to joining FLIR, 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 also a Certified
Public Accountant.
William A. Sundermeier. Mr. Sundermeier joined FLIR in 1994 as Product
Marketing Manager and was appointed Director of Product Marketing in 1995. Mr.
Sundermeier currently serves as the Vice President of Product Marketing. Prior
to joining FLIR, Mr. Sundermeier was a founder of Quality Check Software, Inc.
(QCS) in 1993. From 1985 to 1993, Mr. Sundermeier served as Product Line
Manager at Cadre Technologies, Inc. Mr. Sundermeier also served as
Software/Hardware Engineer at Tektronix, Inc. from 1980 to 1985. Mr.
Sundermeier received his B.S. in Computer Science from Oregon State University.
Jay S. Teich. Mr. Teich joined FLIR in 1999 as Vice President of Boston
Operations. From 1991 to 1999, Mr. Teich was Vice President and later President
of Inframetrics, Inc. Inframetrics was acquired by FLIR in March 1999. Mr.
Teich joined Inframetrics in 1981 as an engineering manager. He received his
BSEE from Lehigh University and is an M.I.T. graduate in Engineering and
Mathematics.
Andrew C. Teich. Mr. Teich joined FLIR in 1999 as Vice President of
Marketing. From 1996, Mr. Teich served as Vice President of Sales and Marketing
at Inframetrics, Inc. Inframetrics was acquired by FLIR in March 1999. From
1984 to 1996, Mr. Teich served in the capacities of Sales Engineer, Western
Regional Sales Manager, International Sales Manager and Vice President of Sales
at Inframetrics. He holds an A.S. degree in Industrial Design from the
University of Bridgeport and received his B.S. in Marketing from Arizona State
University.
John C. Hart. Mr. Hart has served as a Director of FLIR since February 1987
and as Chairman of the Board of Directors from 1987 to April 1993. Mr. Hart's
current term on the Board of Directors expires in 2002. 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.
Earl R. Lewis. Mr. Lewis was elected to the Board in June 1999 in connection
with the acquisition of Spectra Physics AB by Thermo Instrument Systems Inc.
Mr. Lewis' current term on the Board of Directors expires in 2000. Mr. Lewis is
President and Chief Executive Officer of Thermo Instrument Systems and has
served in such capacities since March 1997 and January 1998, respectively. Mr.
Lewis is also Chief Operating Officer, Measurement and Detection, of Thermo
Electron Corporation, the parent company of Thermo Instrument Systems, and is
Chairman of the Board of several subsidiaries of Thermo Electron, including
Thermo Optek Corporation, Thermo Quest Corporation, Thermo Vision Corporation,
Thermo BioAnalysis Corporation and ONIX Systems Inc., and is a director of
Metrika Systems Corporation, ThermoSpectra Corporation and Thermo Instrument
Systems. Mr. Lewis is also a director of SpectRx Inc. Mr. Lewis holds a B.S.
from Clarkson College of Technology and has attended postgraduate programs at
the University of Buffalo, Northeastern University and Harvard University.
Ronald L. Turner. Mr. Turner was elected to the Board of Directors in 1993
and his current term on the Board of Directors expires in 2000. Mr. Turner is
President and Chief Operating Officer of Ceridian Corporation. Mr. Turner also
served as Executive Vice President, Operations from 1997 to 1998. From 1993 to
1997, Mr. Turner served as President and Chief Executive Officer of Computing
Devices International, an aerospace company, which was a division of Ceridian
Corporation. From 1987 to 1993, Mr. Turner was
37
<PAGE>
President and Chief Executive Officer of GEC-Marconi Electronic Systems
Corporation, a defense electronic 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 Ceridian Corporation, BTG, Inc.,
Government Electronics and Information Technology Association and on the Board
of Governors and Executive Committee of the Electronic Industries Alliance. He
is also a past President and a member of the Board of Governors of the
Massachusetts Institute of Technology Society of Sloan Fellows.
W. Allen Reed. Mr. Reed has served as a Director of FLIR since April 1992
and his current term on the Board of Directors expires in 2001. 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. Prior to joining Hughes, Mr. Reed was Vice President and
Portfolio Manager for Allen & Associates Investment Management Company. Mr.
Reed serves on the Boards of Directors of General Motors Acceptance
Corporation, Motors Insurance Corp. and WEBS Fund, Inc. Mr. Reed also serves as
Chairman of the Investment Advisory Committee for the Howard Hughes Medical
Institute.
Steven E. Wynne. Mr. Wynne was elected to the Board of Directors in November
1999 and his current term on the Board of Directors expires in 2000. Mr. Wynne
has served as President and Chief Executive Officer of adidas America since
1995. Prior to that time, he was a partner in the law firm of Ater Wynne LLP.
Mr. Wynne received an undergraduate degree from Willamette University and a
J.D. from Willamette University. Mr. Wynne also serves on the Board of
Directors of Protocol Systems, Inc. and the Board of Directors of Planar
Systems, Inc.
Board Composition
Under our articles of incorporation and bylaws, the directors are divided
into three classes. The term of office of only one class of directors expires
in each year, and their successors are elected for terms of three years and
until their successors are elected and qualified. There is no cumulative voting
for election of directors.
In December 1997, we acquired all of the outstanding shares of capital stock
of AGEMA in exchange for a total of 4,162,000 shares of our Common Stock. This
acquisition was completed effective as of December 1, 1997 pursuant to the
terms of a Combination Agreement dated as of October 6, 1997 by and among FLIR
and Spectra. Pursuant to the terms of the Combination Agreement, we agreed to
use our reasonable best efforts to cause three persons designated by Spectra to
be elected to the Board of Directors, and to cause the number of designees of
Spectra serving on the Board of Directors to be maintained at the number
described below: (i) three designees if on the date of mailing of the notice
for the annual shareholder meeting where such directors shall be up for
election, the Spectra Companies own thirty percent (30%) or more of the then
issued and outstanding shares of Common Stock, (ii) two designees if on the
date of mailing of the notice for the annual shareholder meeting where such
directors shall be up for election, the Spectra Companies own less than thirty
percent (30%) but more than or equal to twenty percent (20%) of the then issued
and outstanding shares of Common Stock, and (iii) one designee if on the date
of mailing of the notice for the annual shareholder meeting where such
directors shall be up for election, the Spectra Companies own less than twenty
percent (20%) but more than or equal to ten percent (10%) of the then issued
and outstanding shares of Common Stock. If at some point in the future the
Spectra Companies own less than ten percent (10%) of the then issued and
outstanding shares of Common Stock, the Spectra Companies shall no longer be
entitled to the rights described above.
In February 1999, Thermo Instrument Systems Inc., a majority-owned, publicly
traded subsidiary of Thermo Electron Corporation, a Delaware corporation,
acquired substantially all of the outstanding capital stock of Spectra. As a
result of such acquisition, Thermo Electron became the beneficial owner of the
4,162,000 shares of Common Stock owned by Spectra and its affiliates. Lars
Spongberg, Patrick L. Edsell and Egon Linderoth, who were elected to the Board
of Directors at the 1998 Annual Meeting as designees of
38
<PAGE>
Spectra, resigned in May of 1999 at Thermo Electron's request. Earl R. Lewis
was elected to the Board of Directors in June 1999 as a designee of
Spectra/Thermo Electron. These shares represent approximately 29.4% of the
shares of Common Stock outstanding as of April 12, 1999. By virtue of its stock
ownership position and Board representation, Thermo Electron will be able to
significantly influence our direction and policies, the election of our Board
of Directors and the outcome of any other matter requiring shareholder
approval, including any merger, consolidation, sale of substantially all of our
assets and other change of control transaction.
Board Committees
The Board of Directors has appointed a standing Audit Committee. The members
of the Audit Committee during the fiscal year ended December 31, 1998 were
Allen Reed and Patrick Edsell. The Audit Committee reviews the scope of the
independent annual audit, the independent public accountants' letter to the
Board of Directors concerning the effectiveness of our internal financial and
accounting controls and management's response to that letter, if deemed
necessary. The audit committee met twice during the fiscal year ended December
31, 1998. The Board of Directors also has appointed a Compensation Committee
which reviews executive compensation and makes recommendations to the full
Board regarding changes in compensation, and also administers our stock option
plans. During the fiscal year ended December 31, 1998, the Compensation
Committee held two meetings. The members of the Compensation Committee
currently are Messrs. Hart and Turner.
Compensation of Directors
Under the current Stock Option Plan for Nonemployee Directors, nonemployee
directors receive an annual grant of 6,000 shares of Common Stock. Each option
granted expires ten (10) years from the date of grant. All directors are also
entitled to reimbursement for out-of-pocket and travel expenses incurred in
connection with attendance at Board of Director meetings.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Hart and Turner who
have never been officers or employees of FLIR or any of our subsidiaries.
39
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended December 31, 1996, 1997 and 1998 concerning the compensation of our Chief
Executive Officer and of each of our other four most highly compensated
executive officers.
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
---------------------- ----------------------
Stock Long-term
Name and Options Incentive Plan
Principal Position Year Salary Bonus Granted Payouts(1) All Other(2)
------------------ ---- -------- -------- ------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Daltry........ 1998 $271,202 $230,000 30,000 $320,065 $5,000
Chairman of the Board of 1997 252,872 122,500 25,000 607,500 4,750
Directors 1996 227,846 130,000 10,000 183,315 5,550
J. Kenneth Stringer III.
President, Chief 1998 225,726 180,000 25,000 240,049 5,000
Executive Officer and 1997 216,292 99,000 20,000 455,625 4,750
Director 1996 183,125 100,000 8,000 137,486 5,775
Steven R. Palmquist(3)..
Vice President, 1998 184,750 67,500 12,000 80,016 5,000
Operations 1997 163,596 50,000 15,000 151,875 1,031
William N. Martin....... 1998 178,500 40,000 12,000 80,016 --
Vice President, Sales 1997 174,484 50,000 11,000 151,875 --
1996 175,956 35,000 5,000 45,829 --
James A. Fitzhenry...... 1998 159,579 55,000 12,000 80,016 5,000
Vice President, General 1997 149,391 40,000 11,000 151,875 4,750
Counsel and Secretary 1996 134,584 35,000 5,000 45,829 5,113
</TABLE>
- --------
(1) The amounts set forth under Long-term Incentive Plan Payouts represent the
dollar value of shares of restricted stock that were earned in 1996, 1997
and 1998 based upon achievement of specified performance goals. The value
of these shares was calculated based upon the closing price of the Common
Stock on December 31, 1996, February 3, 1998 and October 7, 1998,
respectively.
(2) The amounts set forth under All Other Compensation represent matching
amounts contributed on behalf of the named executive officers to our 401(k)
employee savings and retirement plan covering all of our employees.
(3) Mr. Palmquist resigned from his position with the Company in July 1999.
40
<PAGE>
Stock Options
The following table sets forth information concerning options granted to the
named executives during the year ended December 31, 1998 under our stock
options plans:
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees Price Expiration -----------------------
Name Granted(1) in 1998 Per Share Date 5% 10%
---- ---------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Daltry........ 30,000 8.2% $16.88 02/03/08 $318,378 $806,832
J. Kenneth Stringer III. 25,000 6.8% $16.88 02/03/08 265,315 672,360
Steven R. Palmquist..... 12,000 3.3% $16.88 02/03/08 127,351 322,733
William N. Martin....... 12,000 3.3% $16.88 02/03/08 127,351 322,733
James A. Fitzhenry...... 12,000 3.3% $16.88 02/03/08 127,351 322,733
</TABLE>
- --------
(1) Options granted in 1998 became exercisable starting 12 months after the
grant date, with one-third of the options becoming exercisable at that time
and with an additional one-third of the options becoming exercisable on the
second and third anniversary dates of the option grant, respectively.
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock compounded annually for a ten
year period. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions. There can be no assurance that the Common Stock will appreciate
at any particular rate or at all in future years.
Options Exercised in Last Fiscal Year and Fiscal Year End Option Values
The following table sets forth, for each of the named executive officers,
the shares acquired during 1998 and the related value realized, and the number
and value of unexercised options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Options Exercised Underlying Unexercised In-the-Money Options
in Last Fiscal Year(1) Options at December 31, 1998 at December 31, 1998(2)
------------------------ -------------------------------- -------------------------
Number of Value
Shares Realized Exercisable Unexercisable Exercisable Unexercisable
----------- ------------ -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Daltry........ 9,600 $176,400 129,000 50,000 $1,821,917 $393,333
J. Kenneth Stringer III. 6,000 88,650 77,850 41,000 1,011,530 321,042
Steven R. Palmquist..... 0 0 5,000 22,000 40,938 158,375
William N. Martin....... 5,334 30,087 5,000 21,000 54,374 168,042
James A. Fitzhenry...... 6,167 44,305 1,666 21,000 15,825 168,042
</TABLE>
- --------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is based on the difference
between $23.25, which was the closing price of the Common Stock on December
31, 1998, and the applicable exercise price.
41
<PAGE>
Restricted Stock Awards
The following table sets forth information concerning outstanding restricted
stock awards for each of the named executive officers:
<TABLE>
<CAPTION>
Estimated Future Payouts under
Non-Stock Price Based Plans(1)
--------------------------------
Performance or Threshold Target Maximum
Number Other Period Until Number Number Number
Name of Shares Maturation or Payout of Shares of Shares(2) of Shares
---- --------- -------------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Robert P. Daltry........ -- -- -- -- --
J. Kenneth Stringer III. 6,000 1/1/99-12/31/99 0 4,905 6,000
6,000 1/1/00-12/31/00 0 4,905 6,000
6,000 1/1/01-12/31/01 0 4,905 6,000
Steven R. Palmquist..... 4,000 1/1/99-12/31/99 0 3,270 4,000
4,000 1/1/00-12/31/00 0 3,270 4,000
4,000 1/1/01-12/31/01 0 3,270 4,000
William N. Martin....... 4,000 1/1/99-12/31/99 0 3,270 4,000
4,000 1/1/00-12/31/00 0 3,270 4,000
4,000 1/1/01-12/31/01 0 3,270 4,000
James A. Fitzhenry...... 4,000 1/1/99-12/31/99 0 3,270 4,000
4,000 1/1/00-12/31/00 0 3,270 4,000
4,000 1/1/01-12/31/01 0 3,270 4,000
</TABLE>
- --------
(1) Payouts of awards are tied to our achievement of specified levels of pretax
earnings growth, pretax return on equity and stock price appreciation. No
payouts are made if we do not achieve at least 10% growth in pretax
earnings and pretax return on equity, and stock price appreciation at least
equal to that of a pre-selected index during the performance period. The
maximum payout is made if pretax earnings growth exceeds 25%, pretax return
on equity exceeds 17.5% and stock price appreciation exceeds the
performance of the index by more than 20%. A cash payment representing 80%
of the value of the shares earned will be paid to each of the named
executive officers to cover the tax consequences of the total award. Terms
such as Index and Performance Period are defined terms in the Plan,
previously filed.
(2) The target number of shares payable with respect to the 1999, 2000 and 2001
performance periods are not presently determinable. As required by the
regulations of the Securities and Exchange Commission, the target number of
shares shown for such performance periods represent the number of shares
that would be earned for each period based on our actual performance in
1998.
Employment Agreements
We have entered into employment agreements (the "Employment Agreements")
with certain of our executive officers, including Robert P. Daltry, J. Kenneth
Stringer III, Arne Almerfors, James A. Fitzhenry, William N. Martin, Steven R.
Palmquist and J. Mark Samper. Each of the Employment Agreements is for a term
ending December 31, 1999, provided that if a "change of control" (as defined
below), occurs before December 31, 1999, the Employment Agreements will
continue in effect until two years after the change in control. If the
executive officer resigns voluntarily or is properly terminated "for cause" (as
defined below), all pay and benefits under the Employment Agreement will cease
as of the effective date of the termination or resignation. In the event of the
death of an executive officer, the designated beneficiary of the executive
officer would receive a lump sum payment equal to twelve months base salary at
the then current rate. With respect to Messrs. Daltry and Stringer, in the
event that the employment of such executive officer is terminated by us without
cause, such executive officer would be entitled to receive a lump sum payment
in an amount equal to two year's base salary plus bonuses earned through the
date of termination. For a period of two years following the change of control,
each executive officer would have the right to terminate his employment for
"good
42
<PAGE>
reason" (as defined), and to receive upon such termination a lump sum payment
in an amount equal to two times (three times in the case of Messrs. Daltry and
Stringer) their average annualized compensation during the five year period
preceding the change of control. In addition, the executive officers would be
entitled to the continuation of health and insurance benefits for certain
periods. For purposes of the Employment Agreements, a "change of control"
includes
. any merger or consolidation transaction that results in our shareholders
immediately before such transaction owning less than 50 percent of the
total combined voting power of the surviving corporation in the
transaction;
. the acquisition by any person of 20 percent or more of our total combined
voting power;
. the liquidation or sale of substantially all of our assets; and
. a change in the composition of the Board of Directors during any 24 month
period such that the directors in office at the beginning of the period
and/or their successors who were elected by or on the recommendation of
the directors in office at the beginning of the period do not constitute
at least a 70 percent majority of the Board.
In connection with our acquisition of AGEMA, the Employment Agreements were
amended to provide that the consummation of that transaction would not
constitute a change of control for purposes of the Employment Agreements. This
amendment to the Employment Agreements will terminate and become null and void
upon the acquisition by Spectra of any shares of Common Stock if at the time of
such acquisition Spectra would beneficially own more than 45 percent of the
issued and outstanding shares of Common Stock. In connection with the
acquisition by Thermo Electron of substantially all of the shares of Spectra,
the Employment Agreements were amended to provide that the closing of that
acquisition would not constitute a change of control for purposes of the
Employment Agreements. This amendment will terminate and become null and void
if Thermo Electron acquires any additional shares of Common Stock other than
those held by Spectra, or asserts any right to representation on our Board of
Directors. For purposes of these Employment Agreements, "cause" means the
failure to satisfactorily perform the duties assigned to the executive officer
within a certain period after notice of such failure is given and commission of
certain illegal or wrongful acts.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
FLIR and Hughes Aircraft Company ("Hughes") were related parties as a result
of Hughes' stock ownership interest in us. During 1998, Hughes disposed of its
FLIR stock and accordingly was no longer a related party at December 31, 1998.
We purchased inventory parts from Hughes and its subsidiaries during the years
ended December 31, 1998, 1997 and 1996 respectively, in the amounts of
$659,000, $2,243,000 and $1,670,000. Sales of our products to Hughes and its
affiliates amounted to $211,000, $34,000 and $103,000, respectively, for the
years ended December 31, 1998, 1997 and 1996. Hughes is a wholly-owned
subsidiary of Raytheon Company. Sales of our products to Raytheon for the years
ended December 31, 1998, 1997 and 1996 amounted to $8,824,000, $5,061,000 and
$1,429,000, respectively. All transactions with Hughes and Raytheon were on
terms no more favorable than those available to unaffiliated third parties.
Spectra is a related party as a result of its representation on the Board of
Directors and stock ownership interest. During 1998, we were indebted to
Spectra in the maximum amount of $5,031,000 as a result of debt assumed by us
in connection with the acquisition of AGEMA. This amount was repaid in July
1998.
43
<PAGE>
STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our Common Stock as of September 30, 1999 by (i)
each person known by us to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each of our directors, (iii) each of our named
executive officers, and (iv) all directors and executive officers as a group.
Except as otherwise indicated, we believe that each of the following
shareholders has sole voting and investment power with respect to the shares
they own.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Owned(1) Percent of Outstanding(1)
- ---------------- ---------------------------- -------------------------
<S> <C> <C>
Thermo Electron
Corporation(2)......... 4,162,000 29.0%
80 Wyman Street
Waltman, MA 02454
Franklin Resources,
Inc.(3)................ 1,295,730 9.0%
777 Mariners Island
Blvd.
San Mateo, CA 94404
Advent International
Corporation(4)......... 996,524 6.9%
75 State Street
Boston, MA 02109
Robert P. Daltry........ 291,146 2.0%
John C. Hart............ 36,000 *
Earl R. Lewis(5)........ 2,000 *
W. Allen Reed........... 41,000 *
J. Kenneth Stringer III. 169,585 1.2%
Ronald L. Turner........ 39,000 *
James A. Fitzhenry...... 22,920 *
William N. Martin....... 20,087 *
Directors and Executive
Officers as a group (14
persons)(6)............ 780,960 5.3%
</TABLE>
- --------
* Less than one percent (1%).
(1) Applicable percentage of ownership is based on 14,347,766 shares of Common
Stock outstanding as of September 30, 1999. 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
September 30, 1999 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
September 30, 1999 is as follows: Mr. Daltry--150,667; Mr. Hart--36,000;
Mr. Reed--39,000; Mr. Stringer--95,517; Mr. Turner--39,000; Mr. Martin--
7,666; Mr. Fitzhenry--10,999; and all officers and directors as a group--
431,066.
(2) This information as to beneficial ownership is based on an amendment to
Schedule 13D filed by Thermo Electron Corporation with the Securities and
Exchange Commission on August 16, 1999. The Schedule 13D states that (i)
Thermo Electron is the beneficial owner of 4,162,000 shares of Common
Stock as to which it has sole voting and dispositive power, and (ii) the
4,162,000 shares of Common Stock as to which beneficial ownership is
reported are held by Spectra.
44
<PAGE>
(3) This information as to beneficial ownership is based on a Schedule 13G/A
filed by Franklin Resources, Inc. with the Securities and Exchange
Commission on January 28, 1999. The Schedule 13G states that Franklin
Resources and its affiliates are the beneficial owners of 1,295,730 shares
of Common Stock as to which certain affiliates of Franklin Resources have
sole voting and dispositive power.
(4) This information as to beneficial ownership is based on a Schedule 13G
filed with the Securities and Exchange Commission on April 9, 1999 by
Global Private Equity II Limited Partnership, Advent Direct Investment
Program Limited Partnership, Advent Israel Limited Partnership, Advent
Israel (Bermuda) Limited Partnership, EnviroTech Investment Fund I Limited
Partnership (together the "Advent Partnerships"), Advent International
Corporation ("AIC") and Advent International Limited Partnership ("AILP").
The Schedule 13G states that AIC is the General Partner of AILP which in
turn is the General Partner of each of the Advent Partnerships and, as
such, that AIC has sole voting and sole dispositive power with respect to
the 996,524 shares of Common Stock as to which beneficial ownership is
reported.
(5) Mr. Lewis serves on our Board of Directors as a designee of Spectra. He
disclaims beneficial ownership of the 4,162,000 shares of Common Stock
held by Spectra.
(6) Does not include the 4,162,000 shares of Common Stock held by Spectra, as
to which all directors and executive officers disclaim beneficial
ownership.
45
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders are the former shareholders of Inframetrics, which
we acquired in March 1999. We are registering the shares for offer and sale
under the Securities Act of 1933 as required by an agreement we entered into
with the Selling Shareholders in connection with our acquisition of
Inframetrics. Our registration of the shares does not necessarily mean that any
Selling Shareholder will sell all or any of the shares such Selling Shareholder
owns. The following table sets forth certain information regarding the Selling
Shareholders.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior Owned After
to Offering(1) Shares Offering(1)
---------------------- Being ----------------------
Name Number Percent Offered Number Percent
- ---- ----------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Advent Direct Investment
Program Limited
Partnership............. 206,365 1.4% 206,365 -- --
Advent Israel Limited
Partnership............. 48,504 * 48,504 -- --
Advent Israel (Bermuda)
Limited Partnership..... 5,991 * 5,991 -- --
EnviroTech Investment
Fund I Limited
Partnership............. 187,664 1.3 187,664 -- --
Global Private Equity II
Limited Partnership..... 548,000 3.8 548,000 -- --
Commonwealth Capital
Ventures Limited
Partnership............. 170,570 1.2% 170,570 -- --
Orion Capital Holdings,
Limited Partnership..... 288,538 2.0% 288,538 -- --
M-K I Partnership,
Limited Partnership..... 93,689 * 93,689 -- --
The Parthenon Group,
Inc. ................... 52,914 * 52,914 -- --
Elbit Limited............ 315,005 2.2% 315,005 -- --
Inframetrics Investment
Limited Partnership..... 17 * 17 -- --
Jay Teich................ 82,522 * 45,115 37,407 *
Azriel Biberstain........ 49,704 * 27,654 22,050 *
Dan Manitakos............ 35,593 * 13,543 22,050 *
Andy Teich............... 32,948 * 10,898 22,050 *
Tom Scanlon.............. 17,480 * 8,818 8,662 *
Guy Pas.................. 15,590 * 8,818 6,772 *
John Rutherford.......... 10,824 * 10,824 -- --
Chris Alicandro.......... 8,630 * 7,055 1,575 *
Andrew Owen.............. 8,630 * 7,055 1,575 *
Charlie Torrielli........ 8,346 * 8,346 -- --
John Keene............... 8,157 * 7,055 1,102 *
Detlev Suderow........... 6,330 * 2,550 3,780 *
Kelly Murphy............. 5,412 * 5,412 -- --
Jeff Smith............... 5,102 * 3,527 1,575 *
Maria Cote............... 4,913 * 1,763 3,150 *
Rob Herring.............. 4,913 * 1,763 3,150 *
Eli Cohen................ 4,125 * 1,763 2,362 *
Andy Nielson............. 4,125 * 1,763 2,362 *
Paul Czerepuszko......... 3,414 * 2,469 945 *
Ken Wood................. 3,338 * 1,763 1,575 *
Paul Birrow.............. 2,393 * 1,763 630 *
Chris Koenig............. 2,393 * 1,763 630 *
Rich Demare.............. 1,920 * 1,763 157 *
Mike Conley.............. 1,763 * 1,763 -- --
Mike Jewett.............. 1,763 * 1,763 -- --
Gary Orlove.............. 1,763 * 1,763 -- --
Terry Ruane.............. 2,078 * 1,763 315 --
</TABLE>
- --------
* Less than one percent (1%).
(1) Applicable percentage of ownership is based on 14,347,766 shares at Common
Stock outstanding as of September 30, 1999. 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
September 30, 1999 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
September 30, 1999 are as follows: Andy Teich--22,050; Guy Pas--6,772;
Andrew Owen--1,575; Andy Nielson--2,362; Terry Ruane--315; and Chris
Koenig--630.
46
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders offering shares under this Prospectus are the
former shareholders of Inframetrics. In connection with the acquisition of
Inframetrics, the former shareholders of Inframetrics received a total of
2,107,522 shares of our Common Stock in exchange for all of the outstanding
shares of capital stock of Inframetrics.
The shares of Common Stock covered by this Prospectus may be offered and
sold from time to time by the Selling Shareholders. The Selling Shareholders
will act independently of FLIR in making decisions with respect to the timing,
manner and size of each sale. The sale of the shares covered by this Prospectus
may be effected directly to purchasers by the Selling Shareholders, by any
partner, member or shareholder of a Selling Shareholder to which shares have
been distributed, or by any donee or pledgee of any such Selling Shareholder as
principals or through one or more underwriters, brokers, dealers or agents from
time to time in one or more transactions (which may involve crosses or block
transactions) (i) or on any exchange or in the over-the-counter market, (ii) in
transactions otherwise than in the over-the-counter market, (iii) through the
writing of put or call options (whether such options are listed on an options
exchange or otherwise) relating to the shares, or (iv) through a combination of
any of the above. Any of such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by the Selling Shareholder or by
agreement between the Selling Shareholder and underwriters, brokers, dealers or
agents, or purchasers.
The Selling Shareholders may enter into hedging transactions with broker-
dealers or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of our
Common Stock in the course of hedging the positions they assume with Selling
Shareholders. The Selling Shareholders may also enter into options or other
transactions with broker-dealers or other financial institutions which require
the delivery to such broker-dealer or other financial institution of shares
offered hereby, which shares such broker-dealer or other financial institution
may resell pursuant to this Prospectus (as supplemented or amended to reflect
such transaction).
If the Selling Shareholders effect transactions by selling shares to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders or commissions from
purchasers of shares for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The Selling Shareholders and any brokers, dealers or agents that
participate in the distribution of the shares may be deemed to be
"underwriters" under the Securities Act of 1933 (the "Securities Act"), and any
profit on the sale of shares by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents may
be deemed to be underwriting discounts and commissions under the Securities
Act. We have agreed to indemnify each Selling Shareholder and any underwriter
against certain liabilities, including certain liabilities under the Securities
Act. The Selling Shareholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of shares
covered by this Prospectus against certain liabilities, including liabilities
under the Securities Act.
Because the Selling Shareholders may be deemed to be underwriters under the
Securities Act, the Selling Shareholders will be subject to the prospectus
delivery requirements of the Securities Act. We have informed the Selling
Shareholders that the anti-manipulative provisions of Regulation M promulgated
under the Securities Exchange Act of 1934 may apply to their sales in the
market.
Selling Shareholders may also resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon FLIR being notified by a Selling Shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or
47
<PAGE>
secondary distribution or a purchase by a broker or dealer, a supplement to
this Prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each Selling Shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction. In addition, upon FLIR being notified by a Selling
Shareholder that a partner, member or shareholder of a Selling Shareholder or a
donee or pledgee of a Selling Shareholder intends to sell shares, a supplement
to this Prospectus will be filed.
We will pay all of the costs, expenses and fees incident to the
registration, offering and sale of the shares to the public hereunder other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents. We will not receive any of the proceeds from the sale of any of the
shares by the Selling Shareholders.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. As of September 30, 1999,
there were 14,347,766 shares of Common Stock outstanding, of which 2,107,552
shares are being offered hereby. In addition, Spectra has certain registration
rights with respect to the 4,162,000 shares of Common Stock owned by them, and
the Selling Shareholders have certain additional registration rights with
respect to the shares of Common Stock being offered hereby.
In connection with our acquisition of AGEMA, we entered into a Registration
Rights Agreement dated as of December 1, 1997 with Spectra. That agreement
provides that if we propose to register any of our securities under the
Securities Act, whether for our own account or otherwise, Spectra, and its
permitted assigns, are entitled to notice of the registration and inclusion of
such shares therein, subject to certain limitations. In addition, Spectra, and
its permitted assigns, may require us to file a registration statement covering
such shares, and we are obligated to use our best efforts to effect such
registration, subject to certain conditions and limitations. We are obligated
to effect only two such demand registrations within any twelve month period. We
are required to pay all expenses, other than underwriting discounts and
commissions, incurred in connection with a registration initiated by us or the
first demand registration in any twelve month period, including all
registration, filing, qualification, printing and accounting fees, and the
reasonable fees and disbursements of counsel for the selling stockholders not
to exceed $25,000 and counsel for the Company. With respect to any registration
effected pursuant to the registration rights of such holders, we are required
to indemnify such holders against certain liabilities, including liabilities
under the Securities Act.
Pursuant to the Shareholders Agreement between the Company and the Selling
Shareholders dated as of March 19, 1999, as amended as of October 27, 1999 (the
"Shareholders Agreement"), the Selling Shareholders have certain additional
rights with respect to the registration under the Securities Act of the
2,107,552 shares of Common Stock offered hereby (the "Registrable Shares"). At
any time, the holders of at least 35 percent of the Registrable Shares may
require us to file another registration statement covering such shares, which
may provide for an underwritten offering of such shares, and we are obligated
to use our best efforts to effect such registration, subject to certain
conditions and limitations. We are obligated to effect only one such demand
registration except to the extent that any Registrable Shares are excluded from
such demand registration based on the advice of the underwriters of the
offering, in which case we will be obligated to effect further demand
registrations. At any time after April 1, 2000, the Selling Shareholders may
require us to file a registration statement on Form S-3 covering the
Registrable Shares, and we are obligated to use our best efforts to effect such
registration, subject to certain conditions and limitations. We are required to
pay all expenses, other than underwriting discounts and commissions, incurred
in connection with a demand or Form S-3 registration, including all
registration, filing, qualification, printing and accounting fees, and the
reasonable fees and disbursements of counsel for the selling stockholders not
to exceed $25,000 and counsel for the Company. With respect to any registration
effected pursuant to the registration rights of the Selling Shareholders, we
are required to indemnify such holders against certain liabilities, including
liabilities under the Act.
48
<PAGE>
If at any time after October 27, 1999 we are in material breach of any
material covenant or obligation set forth in the registration rights provisions
of the Shareholders Agreement, the Selling Shareholders, acting together, will
be entitled to either (i) seek damages and other remedies for such breach,
including any and all claims, causes of action, obligations, liabilities,
attorneys' fees and costs related thereto, or (ii) receive payment of late fees
from us in the amount of $10,000 for each day, if any, from the tenth business
day after the date we receive written notice of such breach from the Selling
Shareholders to the date that such breach is cured.
In addition to the registration rights described above, Spectra and the
Selling Shareholders will be entitled to sell their shares in compliance with
the provisions of Rule 144 under the Securities Act. In general, under Rule 144
as currently in effect, a person (or persons whose shares are aggregated) who
has beneficially owned restricted securities for at least one year (including
any period of ownership of preceding nonaffiliated holders) would generally be
entitled to sell, within any three month period, a number of shares that does
not exceed the greater of (i) 1% of the then-outstanding shares of Common Stock
of the Company, or (ii) the average weekly trading volume of the then-
outstanding shares of Common Stock during the four calendar weeks preceding
each such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least two years (including any period of
ownership of preceding nonaffiliated holders) would be entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
The Company has reserved 4,269,400 shares of Common Stock for issuance
pursuant to the Company's stock option plans. Of this amount, 1,573,723 shares
were subject to outstanding options at September 30, 1999. Common Stock issued
upon exercise of stock options granted under the stock option plans will
generally be eligible for resale in the open market.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 30,000,000 shares of Common Stock, par
value $0.01 per share, and 10,000,000 shares of Preferred Stock, par value,
$0.01 per share. The following description of our capital stock is not
complete. You should carefully read our Second Restated Articles of
Incorporation and First Restated Bylaws, which have been filed as exhibits to
the Registration Statement, of which this Prospectus is a part. Additionally,
certain provisions of Oregon law may impact our capital stock.
Common Stock
As of September 30, 1999, there were 14,347,766 shares of Common Stock
outstanding which were held of record by approximately 400 shareholders.
Holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by our Board of Directors out of funds legally available
for that purpose. Holders of Common Stock are entitled to one vote per share on
all matters on which they are entitled to vote. They do not have any cumulative
voting rights. There are no preemptive, conversion, redemption or sinking fund
rights applicable to the Common Stock. In the event of a liquidation,
dissolution or winding up of FLIR, holders of Common Stock are entitled to
share equally and ratably in all assets remaining after the payment of all
debts and liabilities as well as the liquidation preference of any outstanding
class or series of Preferred Stock. The outstanding shares of Common Stock,
including those offered through this Prospectus, are fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to any series of Preferred Stock which we may issue in the
future as described below.
Preferred Stock
The Board of Directors has the authority, without action by the
shareholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock
upon the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include restricting dividends on the Common Stock diluting
the voting power of the Common Stock, impairing the liquidation rights of the
Common Stock and delaying or preventing a change in control of FLIR without
further action by the shareholders. There are no agreements or understandings
for the issuance of Preferred Stock, and the Board of Directors has no present
intention of issuing any shares of Preferred Stock, except as contemplated by
the Shareholder Rights Plan described below.
Shareholder Rights Plan
On June 2, 1999, our Board of Directors approved a Shareholders Rights Plan
and declared a dividend distribution of one preferred stock purchase right
("Right") for each outstanding share of Common Stock. The dividend was payable
to shareholders of record on June 15, 1999--the Record Date. Each Right
entitles the registered holder to purchase from us one one-hundredth of a share
of Series A Junior Participating Preferred Stock at a Purchase Price of $65.00
per one one-hundredth share, subject to adjustment. The description and terms
of the Rights are set forth in a Rights Agreement dated June 2, 1999 between us
and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, a copy of which
has been filed with the Securities and Exchange Commission and is incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part. The following summary of the terms of the Rights
Agreement is not complete and is qualified by reference to the Rights
Agreement.
The Rights will not be exercisable and will not trade separately from the
Common Stock until the earlier of
. 10 days following a public announcement that a person or group of
affiliated or associated persons, referred to individually or
collectively as the Acquiring Person, has acquired beneficial ownership
of 15% or more of the outstanding shares of Common Stock, or
50
<PAGE>
. 10 business days (or such later date as may be determined by the Board)
following commencement of or announcement of an intention to make a
tender offer or exchange offer which would result in the beneficial
ownership by a person of 15% or more of the outstanding shares of Common
Stock.
The earlier of such dates is referred to as the Distribution Date.
Until the Distribution Date or the earlier expiration of the Rights, the
Rights will not be separable from the Common Stock and will be transferred
along with any transfer of that stock. As soon as practicable following the
Distribution Date, however, a separate Rights Certificate evidencing the Rights
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date, and such separate Rights Certificate alone
will evidence the Rights.
The Rights will not be exercisable until the Distribution Date and will
expire at the close of business on June 2, 2009, unless that date is changed or
the Rights are earlier redeemed or exchanged by us.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper action will be taken so that each holder of
a Right who exercises that Right will be entitled to receive a number of shares
of Common Stock equal in value to two times the exercise price of the Right.
The Rights beneficially owned by the Acquiring Person, however, will be void
and will not be exercisable. In the event that we are acquired in a merger,
other business combination transaction or 50% or more of our consolidated
assets or earning power is sold, proper action will be taken so that each
holder of a Right, other than those voided Rights held by the Acquiring Person,
will then be entitled to receive, upon the exercise of the Right, the number of
shares of common stock of the acquiring company which at the time of such
transaction is equal to a market value of two times the exercise price of the
Right.
The Purchase Price payable and the number of one one-hundredths of a share
of Preferred Stock or other securities or property issuable upon exercise of
the Rights are subject to customary anti-dilution provisions.
The number of outstanding Rights is also subject to adjustment in the event
of a stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring
prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater
of (a) $1 per share or (b) an amount equal to 100 times the dividend declared
per share of Common Stock. In the event of liquidation, dissolution or winding
up of FLIR, the holders of the Preferred Stock will be entitled to a minimum
preferential payment of the greater of (a) $1 per share (plus any accrued but
unpaid dividends) or (b) an amount equal of 100 times the payment made per
share of Common Stock. Each share of Preferred Stock will have 100 votes when
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transactions in which outstanding shares of Common Stock
are converted or exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions. Because of the nature of
the Preferred Stock's dividend, liquidation and voting rights, the value of the
one one-hundredth share of Preferred Stock purchasable upon exercise of each
Right should approximate the value of one share of Common Stock.
The Rights Agreement provides that at any time after any person or group
becomes an Acquiring Person and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of Common Stock, our Board of
Directors may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of one
share of Common Stock per Right, subject to adjustment.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued. In lieu of a
fractional share an adjustment in cash will be made based on the current market
price of the Preferred Stock or the Common Stock.
51
<PAGE>
In general, at any time until ten days after the date a person or group has
become an Acquiring Person, we may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (payable in cash, Common Stock or other
consideration deemed appropriate by the Board of Directors). After the
redemption period has expired, our right of redemption may be reinstated if an
Acquiring Person reduces his beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving us, provided there are no other Acquiring Persons. Immediately
upon the action of the Board of Directors ordering redemption of the Rights,
the Rights will terminate and the only right of the holders of Rights will be
to receive the $.01 redemption price.
The Rights Agreement may be amended by the Board of Directors in any way
prior to the Distribution Date. After the Distribution Date, the provisions of
the Rights Agreement may only be amended by the Board in order to cure any
ambiguity, defect or inconsistency or to make any other changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person).
Until a Right is exercised, the holder has no rights as a shareholder of
FLIR, including the right to vote or to receive dividends.
Anti-takeover Effects of Certain Provisions of Oregon Law, the Articles and
Bylaws
We are subject to the Oregon Business Combination Act. The Business
Combination Act generally provides that in the event a person or entity
acquires 15% or more of the voting stock of an Oregon corporation, thereby
becoming an "interested shareholder," the corporation and the interested
shareholder, or any affiliated entity, may not engage in certain business
combination transactions for a period of three years following the date the
person became an interested shareholder. Business combination transactions for
this purpose include:
. a merger or plan of share exchange;
. any sale, lease, mortgage or other disposition of the assets of the
corporation where the assets have an aggregate market value equal to 10%
or more of the aggregate market value of the corporation's assets or
outstanding capital stock; or
. certain transactions that result in the issuance of capital stock of the
corporation to the interested shareholder.
These restrictions are not applicable if:
. as a result of the transaction in which a person became an interested
shareholder, they will own at least 85% of the outstanding voting stock
of the corporation (excluding shares owned by directors who are also
officers, and certain employee benefit plans);
. the Board of Directors approves the share acquisition or business
combination before the interested shareholder acquires 15% or more of
the corporation's voting stock; or
. the Board of Directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (excluding shares owned by
the interested shareholder) approve the transaction after the interested
shareholder has acquired 15% or more of the corporation's voting stock.
Our Second Restated 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 our
shareholders.
52
<PAGE>
The staggered terms for directors, the provisions allowing the removal of
directors only for cause, the availability of Preferred Stock for issuance
without shareholder approval and the Shareholder Rights Plan may have the
effect of lengthening the time required for a person to acquire control of FLIR
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. This could deprive our shareholders of opportunities to realize a
premium for their Common Stock and could make removal of incumbent directors
more difficult. At the same time, these provisions may have the effect of
inducing any persons seeking control of FLIR to negotiate terms acceptable to
the Board of Directors.
Transfer Agent
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC.
LEGAL MATTERS
Certain of our legal matters, including the validity of the shares of Common
Stock being offered for sale under this Prospectus, will be passed on by Ater
Wynne LLP, Portland, Oregon.
EXPERTS
The audited financial statements included in this Prospectus, except as they
relate to Inframetrics, Inc., have been audited by PricewaterhouseCoopers LLP,
independent auditors, and, insofar as they relate to Inframetrics, Inc., by
Ernst & Young LLP, independent auditors, whose reports thereon appear herein.
Such financial statements have been so included in reliance on the reports of
such independent auditors given on the authority of such firms as experts in
auditing and accounting.
The audited financial statements of Inframetrics, Inc., not separately
presented in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, whose report thereon appears herein. Such financial
statements, to the extent they have been included in the financial statements
of FLIR Systems, Inc. have been so included in reliance on the report of such
independent auditors given on the authority of said firm as experts in auditing
and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in
this Prospectus to any of our contracts or other documents, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. We are
also subject to the informational requirements of the Securities Exchange Act
of 1934 and in accordance therewith file reports, proxy statements and other
information with the SEC. You may review a copy of the Registration Statement,
including exhibits and schedules filed therewith, as well as the reports, proxy
statements and other information that we have filed at the Securities and
Exchange Commission's public reference facilities in Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Securities and Exchange Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies
of such materials from the Public Reference Section of the Securities and
Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as FLIR, that file electronically with the Securities and Exchange
Commission.
53
<PAGE>
FLIR SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent Accountants............. F-2
Consolidated Statement of Operations for the Years Ended December 31,
1996, 1997 and 1998 and the Nine Months Ended September 30, 1998 and
1999..................................................................... F-3
Consolidated Balance Sheet as of December 31, 1997 and 1998 and September
30, 1999................................................................. F-4
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998 and the Nine Months Ended September 30,
1999..................................................................... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and the Nine Months Ended September 30, 1998 and
1999..................................................................... 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, based on our audits and the report of other auditors, 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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 did not audit the financial statements of Inframetrics, Inc., a
wholly-owned subsidiary, which statements reflect total assets of $34,160,000
and $31,421,000 at December 31, 1998 and 1997, respectively, and total revenues
of $54,690,000, $53,163,000 and $45,768,000 for each of the three years in the
period ended December 31, 1998. Those statements were audited by other auditors
whose report thereon has been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for Inframetrics, Inc.,
is based solely on the report of the other auditors. 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 and the report of
other auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
April 15, 1999, except as to Note 18, which is as of June 2, 1999
Portland, Oregon
F-2
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Commercial.................. $ 54,447 $ 86,656 $138,397 $ 99,274 $ 92,479
Government.................. 57,338 58,278 70,225 46,240 38,867
-------- -------- -------- -------- --------
Total revenue.............. 111,785 144,934 208,622 145,514 131,346
Cost of goods sold........... 57,864 86,835 95,329 68,506 71,027
Research and development..... 13,574 17,607 26,958 19,852 20,167
Selling and other operating
costs....................... 29,989 41,225 58,933 41,576 41,535
Combination costs............ -- 36,450 -- -- 6,110
-------- -------- -------- -------- --------
101,427 182,117 181,220 129,934 138,839
Earnings (loss) from
operations................ 10,358 (37,183) 27,402 15,580 (7,493)
Interest and other income.... 1,258 540 728 715 18
Interest and other expense... (1,470) (4,093) (5,199) (3,538) (3,841)
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes.............. 10,146 (40,736) 22,931 12,757 (11,316)
Income tax provision
(benefit)................... 2,723 (11,548) 6,155 3,788 (3,622)
-------- -------- -------- -------- --------
Earnings (loss) from
continuing operations..... 7,423 (29,188) 16,776 8,969 (7,694)
Discontinued operations, net
of taxes:
Loss from operations of
discontinued business (less
applicable income tax
benefit of $540)........... (830) -- -- -- --
-------- -------- -------- -------- --------
Net earnings (loss).......... $ 6,593 $(29,188) $ 16,776 $ 8,969 $ (7,694)
======== ======== ======== ======== ========
Net earnings (loss) per
share:
Basic...................... $ 0.89 $ (3.69) $ 1.29 $ 0.71 $ (0.54)
======== ======== ======== ======== ========
Diluted.................... $ 0.86 $ (3.69) $ 1.24 $ 0.68 $ (0.54)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FLIR SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1997 1998 1999
--------- -------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 7,545 $ 4,793 $ 4,140
Accounts receivable, net.................. 66,999 91,202 77,755
Inventories............................... 49,014 70,312 75,119
Prepaid expenses.......................... 3,610 6,061 7,418
Deferred income taxes..................... 8,326 6,776 6,776
--------- -------- --------
Total current assets.................... 135,494 179,144 171,208
Property and equipment, net................. 20,535 26,775 28,429
Software development costs, net............. 1,043 488 282
Deferred income taxes, net.................. 10,146 9,749 16,940
Intangible assets, net...................... 14,013 15,936 15,105
Other assets................................ 4,047 3,897 3,578
--------- -------- --------
$ 185,278 $235,989 $235,542
========= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable............................. $ 26,558 $ 39,958 $ 68,317
Accounts payable.......................... 21,311 24,031 23,337
Accounts payable to related parties....... 6,228 -- --
Accrued payroll and other liabilities..... 23,035 16,189 10,974
Accrued income taxes...................... 1,440 3,893 6,089
Current portion of long-term debt......... 6,148 2,680 1,239
--------- -------- --------
Total current liabilities............... 84,720 86,751 109,956
Long-term debt.............................. 20,634 19,296 1,702
Pension liability........................... 3,969 3,960 4,007
Commitments and contingencies............... -- -- --
Shareholders' equity:
Preferred stock, $0.01 par value,
10,000,000 shares authorized; no shares
issued at December 31, 1997, 1998 and
September 30, 1999....................... -- -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 11,835,265, 14,133,403
and 14,347,766 shares issued at December
31, 1997, December 31, 1998 and September
30, 1999, respectively................... 119 141 144
Additional paid-in capital................ 107,278 142,169 142,980
Accumulated deficit....................... (31,031) (14,255) (21,949)
Accumulated other comprehensive loss...... (411) (2,073) (1,298)
--------- -------- --------
Total shareholders' equity.............. 75,955 125,982 119,877
--------- -------- --------
$ 185,278 $235,989 $235,542
========= ======== ========
</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>
Preferred Stock Common Stock Accumulated
-------------------- -------------------- Additional Retained Other Total
<S> <C> <C> <C> <C> Paid-in Earnings Comprehensive Comprehensive
Shares Amount Shares Amount Capital (Deficit) Loss Total Income (Loss)
---------- --------- ---------- --------- ---------- --------- ------------- -------- -------------
$0.01 $0.01
Authorized......... 10,000,000 par value 30,000,000 par value
========== ========= ========== =========
Balance, December
31, 1995........... -- $-- 7,362,172 $ 74 $ 66,247 $ 14,773 $ -- $ 81,094 --
Net earnings for
the year.......... -- -- -- -- -- 6,593 -- 6,593 $ 6,593
Common stock
options exercised. -- -- 70,788 1 587 -- -- 588 --
Common stock
issued pursuant to
stock option
plans............. -- -- 33,330 -- 398 -- -- 398 --
Income tax benefit
from stock options
exercised......... -- -- -- -- 596 -- -- 596 --
Transfer of assets
to Elbit Ltd...... -- -- -- -- -- (9,310) -- (9,310) --
Purchase and
retirement of
common stock...... -- -- -- -- (16,401) (13,899) -- (30,300) --
Translation
adjustment........ -- -- -- -- -- -- (203) (203) (203)
---------- --------- ---------- --------- -------- -------- ------- -------- --------
Balance, December
31, 1996........... -- -- 7,466,290 75 51,427 (1,843) (203) 49,456 --
Comprehensive
income, year ended
December 31, 1996.. $ 6,390
========
Net loss for the
year.............. -- -- -- -- -- (29,188) -- (29,188) $(29,188)
Common stock
options exercised. -- -- 206,975 2 1,460 -- -- 1,462 --
Common stock
issued for
acquisition....... -- -- 4,162,000 42 54,064 -- -- 54,106 --
Income tax benefit
from stock options
exercised......... -- -- -- -- 327 -- -- 327 --
Translation
adjustment........ -- -- -- -- -- -- (208) (208) (208)
---------- --------- ---------- --------- -------- -------- ------- -------- --------
Balance, December
31, 1997........... -- -- 11,835,265 119 107,278 (31,031) (411) 75,955
Comprehensive loss,
year ended December
31, 1997........... $(29,396)
========
Net earnings for
the year.......... -- -- -- -- -- 16,776 -- 16,776 $ 16,776
Common stock
options exercised. -- -- 188,508 1 1,681 -- -- 1,682 --
Common stock
issued pursuant to
stock option
plans............. -- -- 111,130 1 1,181 -- -- 1,182
Common stock
issued............ -- -- 1,998,500 20 32,656 -- -- 32,676 --
Cost of stock
issuance.......... -- -- -- -- (627) -- -- (627) --
Translation
adjustment........ -- -- -- -- -- -- (1,662) (1,662) (1,662)
---------- --------- ---------- --------- -------- -------- ------- -------- --------
Balance, December
31, 1998........... -- -- 14,133,403 141 142,169 (14,255) (2,073) 125,982
Comprehensive
income year ended
December 31, 1998.. $ 15,114
========
Net loss for the
period............ -- -- -- -- -- (7,694) -- (7,694) $ (7,694)
Common stock
options exercised. -- -- 214,363 3 811 -- -- 814 --
Translation
adjustment........ -- -- -- -- -- -- 775 775 775
---------- --------- ---------- --------- -------- -------- ------- -------- --------
Balance, September
30, 1999
(unaudited)........ -- $-- 14,347,766 $144 $142,980 $(21,949) $(1,298) $119,877
========== ========= ========== ========= ======== ======== ======= ========
Comprehensive loss,
six months ended
September 30, 1999
(Unaudited)........ $ (6,919)
========
</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>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- ------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash (used) provided by
operating activities:
Net earnings (loss)......... $ 6,593 $(29,188) $16,776 $ 8,969 $ (7,694)
Income charges not affecting
cash:
Loss from discontinued
operations................. 830 -- -- -- --
In-process research and
development write-off...... -- 33,600 -- -- --
Depreciation................ 2,697 3,485 6,065 4,599 4,854
Amortization................ 481 680 2,412 1,934 2,041
Disposal and write-offs of
property and equipment..... 239 333 446 265 471
Deferred income taxes....... (569) (14,073) 1,947 (6) (7,191)
Changes in certain working
capital components, net of
effects of acquisition:
(Increase) decrease in
accounts receivable........ (6,932) (18,288) (24,203) (19,200) 13,447
(Increase) decrease in
inventories................ (12,760) 6,739 (21,298) (7,899) (4,807)
(Increase) decrease in
prepaid expenses........... (386) 73 (2,451) (354) (1,357)
(Increase) decrease in other
assets..................... (329) 1,324 (80) 103 157
Increase (decrease) in
accounts payable........... 4,560 4,588 2,720 (5,969) (694)
(Decrease) increase in
accounts payable to related
parties.................... (145) 976 (6,228) (6,228) --
Increase (decrease) in
accrued payroll and other
liabilities................ 1,084 5,383 (6,846) (13,252) (5,215)
(Decrease) increase in
accrued income taxes....... (88) (1,037) 2,453 1,880 2,196
-------- -------- ------- -------- ---------
Cash used by continuing
operations.................. (4,725) (5,405) (28,287) (35,158) (3,792)
Cash used in discontinued
operations.................. (4,376) -- -- -- --
-------- -------- ------- -------- ---------
Cash used by operating
activities.................. (9,101) (5,405) (28,287) (35,158) (3,792)
-------- -------- ------- -------- ---------
Cash used by investing
activities:
Additions to property and
equipment.................. (6,798) (11,905) (13,182) (10,077) (7,821)
Net cash acquired from
Agema...................... -- 805 -- -- --
Increase in intangible
assets..................... -- -- (2,880) -- --
Software development costs.. (630) (703) (239) (239) --
-------- -------- ------- -------- ---------
Cash used by investing
activities.................. (7,428) (11,803) (16,301) (10,316) (7,821)
-------- -------- ------- -------- ---------
Cash provided by financing
activities:
Net increase in notes
payable.................... 4,309 19,971 13,400 13,072 28,359
Proceeds from long-term
debt....................... 25,317 1,893 1,570 1,217 1,538
Repayments of long-term debt
including current portion.. (1,599) (1,381) (6,376) (5,684) (20,573)
(Decrease) increase of
pension liability.......... -- (107) (9) 123 47
Common stock issued......... 10,000 -- 32,676 32,676 --
Cost of common stock
issuance................... (562) -- (627) (551) --
Purchase and retirement of
common stock............... (30,300) -- -- -- --
Proceeds from exercise of
stock options
and shares issued pursuant
to incentive stock option
plans, including tax
benefit.................... 1,582 1,789 2,864 2,244 814
-------- -------- ------- -------- ---------
Cash provided by financing
activities.................. 8,747 22,165 43,498 43,097 10,185
-------- -------- ------- -------- ---------
Effect of exchange rate
changes on cash............. (173) (208) (1,662) (697) 775
-------- -------- ------- -------- ---------
Net (decrease) increase in
cash........................ (7,955) 4,749 (2,752) (3,074) (653)
Cash and cash equivalents,
beginning of period......... 10,751 2,796 7,545 7,545 4,793
-------- -------- ------- -------- ---------
Cash and cash equivalents,
end of period............... $ 2,796 $ 7,545 $ 4,793 $ 4,471 $ 4,140
======== ======== ======= ======== =========
</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
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 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 nine
months ended September 30, 1998 and 1999 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 related to the interim periods 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, 1998.
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 on commercial sales is generally recognized upon shipment.
Government sales often require significant integration with other aircraft
components and related revenue is generally recognized when products are
shipped from the Company's facilities and realization is reasonably assured.
Adjustments in estimates, which can affect both revenues and earnings, are made
in the period in which the information necessary to make the adjustment becomes
available. Provisions for estimated losses on sales or related receivables are
recorded when identified.
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, 1998 and
September 30, 1999 the Company did not hold any short-term investments.
F-7
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 three 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.
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. 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>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------ -------------
1996 1997 1998 1998 1999
------- ------- -------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding............................ 7,438 7,920 12,983 12,604 14,213
Assumed exercise of stock options net of
shares assumed reacquired under the
treasury stock method.................. 263 -- 527 537 --
------- ------- -------- ------ ------
Diluted shares outstanding.............. 7,701 7,920 13,510 13,141 14,213
======= ======= ======== ====== ======
</TABLE>
The effect of stock options for the year ended December 31, 1997 and the
nine months ended September 30, 1999, which aggregated 604,000 and 297,000,
respectively, have been 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>
Nine Months
Ended
Year Ended December 31, September 30,
----------------------- -------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest................................ $ 914 $ 2,273 $ 3,930 $2,590 $3,077
Taxes................................... $ 1,010 $ 3,332 $ 3,812 $3,626 $1,702
</TABLE>
The non-cash portion of the AGEMA acquisition in December 1997 was excluded
from the 1997 statement of cash flows (see Note 16).
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, 1998, 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 $14,000 in excess of its
recorded value at December 31, 1998.
Stock-based compensation
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 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
No. 123. The Company follows 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.
Comprehensive income
Translation adjustment represents the Company's only other comprehensive
income item. Translation adjustment represents unrealized gains/losses
resulting from the translation of the financial statements of the
F-9
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's foreign 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.
Recent accounting pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities." The Company plans to adopt SFAS No. 133 in 2001,
however, management believes that the impact of adoption will not have a
significant effect on the Company's financial position or results of
operations.
Note 2--Other Operating Costs
Selling and other operating costs consist of the following (in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
----------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Representative commissions............. $ 3,148 $ 4,331 $ 8,297 $ 5,386 $ 2,796
Allowance for doubtful accounts........ 1,320 1,059 417 274 389
Other selling, general and
administrative expenses............... 25,521 35,835 50,219 35,916 38,350
------- ------- ------- ------- -------
$29,989 $41,225 $58,933 $41,576 $41,535
======= ======= ======= ======= =======
</TABLE>
Note 3--Income Taxes
SFAS No. 109, "Accounting for Income Taxes," 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.
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Current tax expense:
Federal........................................... $ 2,966 $ 1,640 $ 2,209
State............................................. 326 350 68
Foreign........................................... -- 538 1,931
------- -------- -------
3,292 2,528 4,208
------- -------- -------
Deferred tax expense (benefit):
Federal........................................... 531 (16,802) 4,556
State............................................. 119 (1,858) 122
Foreign........................................... -- 478 --
------- -------- -------
650 (18,182) 4,678
------- -------- -------
(Decrease) increase in valuation allowance.......... (1,219) 4,106 (2,731)
------- -------- -------
Total provision (benefit)........................... $ 2,723 $(11,548) $ 6,155
======= ======== =======
</TABLE>
F-10
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets (liabilities) are composed of the following components
(in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Allowance for doubtful accounts............................... $ 821 $ 1,095
Warranty reserve.............................................. 592 577
Inventory basis differences................................... 3,905 2,521
Accrued liabilities........................................... 1,873 2,503
Other......................................................... 1,135 80
------- -------
Net current deferred tax assets............................... $ 8,326 $ 6,776
======= =======
Acquired in-process research and development.................. $12,768 $11,846
Net operating loss carryforwards.............................. 3,358 1,406
Credit carryforwards.......................................... 1,334 2,673
Depreciation.................................................. (29) (6)
Software development costs.................................... (396) (185)
Intangible assets............................................. -- (1,003)
Unremitted foreign earnings................................... -- (824)
------- -------
Gross long-term deferred tax asset............................ 17,035 13,907
Deferred tax asset valuation allowance........................ (6,889) (4,158)
------- -------
Net long-term deferred tax asset.............................. $10,146 $ 9,749
======= =======
</TABLE>
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,
----------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Statutory federal tax rate........................ 34.0% (34.0)% 34.0%
Increase (decrease) in rates resulting from:
State taxes..................................... 4.3 (4.0) 1.9
Foreign sales corporation benefit............... (2.0) (2.8) (1.5)
Research and development credits................ (8.8) (0.5) (5.3)
(Decrease) increase in valuation allowance...... (3.9) 10.1 (11.9)
Non-deductible expenses......................... 2.0 1.4 8.6
Other........................................... 1.2 1.5 1.0
------- -------- --------
Effective tax rate................................ 26.8% (28.3)% 26.8%
======= ======== ========
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards
which aggregated $3,795,000 and expire in the years 2005 through 2010.
Utilization of the Company's acquired net operating loss carryforwards related
to the Company's subsidiary FSI Automation is limited to future earnings of FSI
Automation and is further limited to approximately $350,000 per year. In
addition, the Company has various tax credits available aggregating $2,673,000
as of December 31, 1998, which expire in the years 2007 through 2013.
U.S. and foreign withholding taxes are provided on the earnings of foreign
subsidiaries. The Company is required to remit earnings of foreign subsidiaries
in order to realize the benefit of the acquired in-process research and
development deferred tax assets. Such assets are realizable over a 15 year
period. The valuation
F-11
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
allowance related to long-term deferred tax assets was decreased in 1998 due to
the effects that foreign subsidiaries profitability had on management's
assessment of the amount of deferred tax asset that is more likely than not to
be realized in the future.
Note 4--Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of
$2,639,000, $3,216,000 and $3,058,000 at December 31, 1997 and 1998 and
September 30, 1999, respectively.
Note 5--Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- ------- -------------
(Unaudited)
<S> <C> <C> <C>
Raw material and
subassemblies.......... $31,541 $36,315 $43,687
Work-in-progress........ 14,910 12,527 17,175
Finished goods.......... 5,359 22,330 16,069
------- ------- -------
51,810 71,172 76,931
Less progress payments
received from
customers.............. (2,796) (860) (1,812)
------- ------- -------
$49,014 $70,312 $75,119
======= ======= =======
</TABLE>
Note 6--Property and Equipment
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Machinery and equipment....................... $ 25,775 $ 31,953 $ 35,115
Office equipment and other.................... 11,568 17,250 24,453
-------- -------- --------
37,343 49,203 59,568
Less accumulated depreciation................. (16,808) (22,428) (31,139)
-------- -------- --------
$ 20,535 $ 26,775 $ 28,429
======== ======== ========
</TABLE>
Property and equipment includes the cost of equipment held by the Company
under capital lease agreements. Such cost and related accumulated depreciation
aggregated $3,674,000 and $1,939,000, respectively, at December 31, 1997, and
$2,938,000 and $2,078,000 respectively, at December 31, 1998, and $4,476,000
and $2,398,000, respectively, at September 30, 1999.
Note 7--Software Development Costs
Software development costs are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1997 1998 1999
------- ----- -------------
(Unaudited)
<S> <C> <C> <C>
Software development costs........................ $ 2,236 $ 765 $ 765
Less accumulated amortization..................... (1,193) (277) (483)
------- ----- -----
$ 1,043 $ 488 $ 282
======= ===== =====
</TABLE>
F-12
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1998, the Company sold a software product line for $1,500,000.
Related to this sale, the Company wrote off all capitalized software costs and
related accumulated amortization, which aggregated $1,710,000 and $1,225,000,
respectively. The unamortized balance of the capitalized software sold, which
aggregated $485,000, is included in cost of sales as amortization expense for
the year ended December 31, 1998.
Amortization of capitalized software costs aggregated $794,000, $459,000 and
$300,000 for the years ended December 31, 1998, 1997 and 1996, respectively and
$731,000 and $206,000 for the nine months ended September 30, 1998 and 1999,
respectively.
Note 8--Notes Payable
The Company has a $42,000,000 line of credit bearing interest at LIBOR plus
1.50% (7.0% and 6.8% at December 31, 1998 and September 30, 1999,
respectively), which is secured by all assets of the Company and expires on
June 1, 2000. In conjunction with the completion of the Inframetrics
transaction on March 30, 1999 (see Note 17), the Company's line of credit was
increased to $70,000,000. Approximately $24,000,000 of the line of credit was
utilized to payoff existing Inframetrics debt at the time of merger.
Additionally, the Company, through one of its subsidiaries, has a 40,000,000
Swedish Kroner (approximately $4,878,000) line of credit at 4.7% and 4.5% at
December 31, 1998 and September 30, 1999, respectively.
In 1996, the Company, through one of its subsidiaries, entered into a
revolving credit agreement with a commercial bank consisting of a revolving
credit facility of $6.5 million. At December 31, 1998, the revolving credit
facility enabled the Company to borrow up to $6.5 million. The interest rate on
the revolving line of credit ranged from 7.1% to 7.4% at December 31, 1998.
This line of credit was paid-off and closed in connection with the completion
of the Inframetrics transaction (See Note 17).
At December 31, 1997, 1998 and September 30, 1999, the Company had
$26,558,000, $39,958,000 and $68,317,000, respectively, outstanding against
these lines. Standby letters of credit were outstanding at December 31, 1998
and September 30, 1999, totaling $662,000 and $753,000, respectively.
Note 9--Long-Term Debt
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- September 30,
1997 1998 1999
------- ------- -------------
(Unaudited)
<S> <C> <C> <C>
Note payable--patent........................... $ 206 $ 109 $ 93
Note payable--Elbit Ltd. (paid in full in March
1999)......................................... 11,000 11,000 --
Interest on note payable to Elbit Ltd. (paid in
full in March 1999)........................... 1,117 2,087 --
Note payable to bank (paid in full in March
1999)......................................... 7,713 6,837 --
Note payable to bank (paid in full in 1998).... 4,609 -- --
Capital leases................................. 2,137 1,943 2,848
------- ------- ------
26,782 21,976 2,941
Less current portion........................... (6,148) (2,680) (1,239)
------- ------- ------
$20,634 $19,296 $1,702
======= ======= ======
</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
F-13
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rate of 14%. The Consumer Price Index was estimated assuming an average
increase of 5% per year. Payments of $119,000, $116,000 and $115,000 were made
in the years ended December 31, 1998, 1997 and 1996, 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.
The Company had a subordinated promissory note for $11 million to Elbit Ltd.
The note bears interest at 8% and was paid in full on March 30, 1999 in
conjunction with the closing of the Inframetrics merger. At December 31, 1997
and 1998, accrued interest of $1,117,000 and $2,087,000, respectively, on this
note is included in long-term debt on the accompanying balance sheet.
In 1996, the Company, through one of its subsidiaries, entered into a term
loan agreement with a commercial bank consisting of a note payable of $8.5
million The interest rate on the note payable ranged from 7.1% to 7.4% at
December 31, 1998. This note payable was paid-off and closed in connection with
the completion of the Inframetrics transaction. At December 31, 1997 and 1998,
the note payable balance of $7,713,000 and $6,837,000, respectively, is
included in long-term debt.
Note 10--Pension Plans
The Company offers most of the employees outside the United States
participation in defined benefit pension plans (the "Plans").
A summary of the components of the net periodic pension expense for the
Plans for substantially all employees outside the United States follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Change in benefit obligation:
Projected benefit obligation at beginning of the period........ $3,421
Service costs.................................................. --
Interest costs................................................. 278
Actuarial loss................................................. 241
Benefits paid.................................................. (57)
Foreign currency exchange changes.............................. (288)
------
Projected benefit obligation at December 31.................... 3,595
------
Fair value of plan assets at January 1........................... $ -- --
Funded status.................................................... 3,421 3,595
Unrecognized net (loss) gain..................................... 90 (73)
Unrecognized transition obligation............................... 458 438
------ ------
Pension liability recognized..................................... $3,969 $3,960
====== ======
</TABLE>
Changes in benefit obligation amounts are not reflected for 1997 since the
Plans for employees outside the United States were acquired with AGEMA in
December 1997, (see Note 16). Assumptions used for the Plans were as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Weighted average discount rate...................................... 6.00% 5.00%
Rates of increase in compensation levels............................ 3.00% 2.50%
Inflation rate...................................................... 2.00% 1.50%
</TABLE>
F-14
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Components of net periodic benefit cost are as follows (in thousands):
<TABLE>
<CAPTION>
1998
----
<S> <C>
Interest costs............................................................ $278
Amortization of transition costs.......................................... (35)
----
Net periodic pension costs................................................ $243
====
</TABLE>
Note 11--Commitments and Contingencies
The Company leases its primary facilities under various operating leases
which expire in 1999 through 2004. Total rent expense for the years ended
December 31, 1996, 1997 and 1998 amounted to $1,910,000, $2,379,000 and
$3,629,000, respectively. Rent expense aggregated $2,819,000 and $2,939,000 for
the nine months ended September 30, 1998 and 1999, respectively.
Minimum rental payments required under all non-cancelable leases for
equipment and facilities at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
<S> <C> <C>
1999....................................................... $ 836 $3,019
2000....................................................... 719 2,591
2001....................................................... 456 1,016
2002....................................................... 198 165
2003....................................................... 39 129
Thereafter................................................. -- 12
------ ------
Total minimum lease payments................................. 2,248 $6,932
======
Less amount representing interest............................ (305)
------
Present value of lease payments.............................. $1,943
======
</TABLE>
The Company recorded $129,000 and $138,000 in sublease income from a non-
cancelable sublease in 1997 and 1998, respectively. The future minimum rentals
to be received by the Company as of December 31, 1998 are $128,000 in 1999.
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 $842,000, $933,000 and
$1,120,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
From time to time, the Company may be subject to certain contingent
liabilities that arise in the ordinary course of its business activities. The
Company accrues for contingent liabilities when it is probable that future
expenditures will be made and such expenditures can be reasonably estimated. In
the opinion of management, there are no pending claims for which the outcome is
expected to result in a material adverse effect on the financial position or
results of operations of the Company.
Note 12--Capital Stock
In 1998, the Company increased the number of shares of common stock reserved
for future issuance pursuant to its incentive stock plans to 4,269,400. 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
F-15
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1997 and 1998 aggregated 115,000 and
133,500 shares, respectively. Of the shares granted, 57,500 and 53,630 shares
were earned in 1997 and 1998, 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, $1,747,000 and $1,050,000 was recorded in 1996, 1997 and
1998, respectively, and is included in selling and other operating costs. At
December 31, 1998, there were 81,500 shares available for future awards.
On July 6, 1998, the Company completed a secondary public offering of
2,399,130 shares of common stock, including 1,638,630 shares of common stock
issued and sold by the Company. Additionally, on July 24, 1998, the
underwriters exercised the over-allotment option related to the secondary
offering and the Company issued and sold an additional 359,870 shares of common
stock. The net proceeds of $32,049,000 were completely utilized to repay in
full a payable to a related party, which aggregated approximately $4,985,000,
and to reduce amounts outstanding under the Company's lines of credit.
Note 13--Stock Options
The Company has elected to account for its stock-based compensation under
APB 25; however, as required by SFAS No, 123, the Company has computed for pro
forma disclosure purposes the value of options granted during 1996, 1997 and
1998 using the Black-Scholes option pricing model. The weighted average
assumptions used for stock option grants for 1996, 1997 and 1998 were a risk-
free interest rate of 5.2%, 6.0% and 5.7%, respectively; an expected dividend
yield of 0%; an expected life of three years; and an expected volatility of
22.7%, 40.2% and 48.4%, 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, 1996, 1997 and 1998, the total value of the options
granted was computed to be $819,000, $1,879,000 and $2,440,000, 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 No.
123, the Company's 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,
------------------------
1996 1997 1998
------ -------- -------
<S> <C> <C> <C>
Net earnings (loss)--as reported...................... $6,593 $(29,188) $16,776
Net earnings (loss)--pro forma........................ $6,138 $(29,969) $15,606
Net earnings (loss) per share:
Basic--as reported.................................. $ 0.89 $ (3.69) $ 1.29
Diluted--as reported................................ $ 0.86 $ (3.69) $ 1.24
Net earnings (loss) per share:
Basic--pro forma.................................... $ 0.83 $ (3.78) $ 1.20
Diluted--pro forma.................................. $ 0.80 $ (3.78) $ 1.16
</TABLE>
The effects of applying SFAS No. 123 for providing pro forma disclosure for
1996, 1997 and 1998 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, 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............................................. 580,085 9.73
Exercised........................................... (206,975) 7.97
Terminated.......................................... (94,608) 11.13
--------- ------
Balance at December 31, 1997........................ 1,339,528 10.09
Granted............................................. 386,309 16.67
Exercised........................................... (188,508) 8.92
Terminated.......................................... (116,935) 12.47
--------- ------
Balance at December 31, 1998........................ 1,420,394 11.84
Granted............................................. 500,600 17.20
Exercised........................................... (214,362) 3.78
Terminated.......................................... (132,908) 17.48
--------- ------
Balance at September 30, 1999 (unaudited)........... 1,573,723 $14.17
========= ======
</TABLE>
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and the remaining contractual lives by group
of similar price and grant dates, as of December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Remaining
Number of Average Contractual
Exercise Price Range Shares Exercise Price Life
- -------------------- --------- -------------- -----------
<S> <C> <C> <C>
$0.38 179,323 0.38 9.0
$1.63 8,400 1.63 0.7
$3.17 14,372 3.17 9.0
$5.23 116,849 5.23 2.6
$9.13-$13.69 407,449 11.46 6.2
$13.75-$20.50 651,501 16.14 8.5
$20.63-$21.38 42,500 20.93 9.4
--------- ------ ---
1,420,394 $11.84 7.4
========= ====== ===
</TABLE>
Options exercisable at December 31, 1998, totaled 873,822 shares at a
weighted average exercise price of $9.22. Options available for grant at
December 31, 1998 totaled 1,900,249 shares.
Note 14--Related Party Transactions
The Company and Hughes Aircraft Company ("Hughes") were related parties as a
result of Hughes' stock ownership interest in the Company. During 1998, Hughes
disposed of its holdings of the Company's stock and accordingly was no longer a
related party at December 31, 1998. The Company purchased inventory parts from
Hughes and its subsidiaries during the years ended December 31, 1998, 1997 and
1996 respectively, in the amounts of $659,000, $2,243,000 and $1,670,000. Sales
of the Company's products to Hughes and its affiliates amounted to $211,000,
$34,000 and $103,000, respectively, for the years ended December 31, 1998, 1997
and 1996. Hughes is a wholly-owned subsidiary of Raytheon Company. Sales of the
Company's products to Raytheon for the years ended December 31, 1998, 1997 and
1996 amounted to $8,824,000, $5,061,000 and $1,429,000, respectively. All
transactions with Hughes and Raytheon were on terms no more favorable than
those available to unaffiliated third parties.
F- 17
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Spectra is a related party as a result of its representation on the
Company's Board of Directors and stock ownership interest. During 1998, the
Company was indebted to Spectra in the maximum amount of $5,031,000 as a result
of debt assumed by the Company in connection with the acquisition of AGEMA.
This amount was repaid in July 1998.
Note 15--Segment Information
The Company has determined its operating segments to be the commercial and
government market segments. The commercial segment consists of thermal imaging
applications including condition monitoring, research and development,
manufacturing process control and airborne observation and broadcast. The
government segment comprises thermal imaging applications including search and
rescue, federal drug interdiction, surveillance and reconnaissance, navigation
safety, border and maritime patrol, environment monitoring, and ground-based
security.
The accounting policies of the segments are the same as those described in
Note 1. The Company evaluates performance based upon revenue and gross profit
for each segment and does not evaluate segment performance on any other income
measurement.
Operating segment information including revenue and gross profit are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, Nine months ended September 30,
--------------------------------------------------- ---------------------------------
1996 1997 1998 1998 1999
---------------- ---------------- ----------------- ---------------- ----------------
(Unaudited)
Gross Gross Gross Gross Gross
Revenue Profit Revenue Profit Revenue Profit Revenue Profit Revenue Profit
-------- ------- -------- ------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 54,447 $25,227 $ 86,656 $26,403 $138,397 $ 76,477 $ 99,274 $52,615 $ 92,479 $40,307
Government.............. 57,338 28,694 58,278 31,696 70,225 36,816 46,240 24,393 38,867 20,012
-------- ------- -------- ------- -------- -------- -------- ------- -------- -------
Total................... $111,785 $53,921 $144,934 $58,099 $208,622 $113,293 $145,514 $77,008 $131,346 $60,319
======== ======= ======== ======= ======== ======== ======== ======= ======== =======
</TABLE>
Information related to revenue by significant geographical location is as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, September 30,
-------------------------- -------------
1996 1997 1998 1999
-------- -------- -------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
United States.......................... $ 86,604 $ 87,606 $108,803 $ 65,826
Europe................................. 16,842 30,372 43,939 34,651
Other foreign.......................... 8,339 26,956 55,880 30,869
-------- -------- -------- --------
$111,785 $144,934 $208,622 $131,346
======== ======== ======== ========
Major customers:
U.S. government instrumentalities.... $ 36,905 $ 27,123 $ 36,477 $ 22,390
======== ======== ======== ========
</TABLE>
All longed-lived assets are generally located in the United States with the
exception of property and equipment. Property and equipment is located in the
following geographic areas (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
--------------- -------------
1997 1998 1999
------- ------- -------------
(Unaudited)
<S> <C> <C> <C>
United States..................................... $10,588 $18,577 $23,327
Europe............................................ 9,947 8,198 5,102
------- ------- -------
$20,535 $26,775 $28,429
======= ======= =======
</TABLE>
F-18
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--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.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, 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>
Included in current liabilities acquired was $2,000,000 of estimated costs
to shut down certain identified AGEMA facilities. Such estimated costs included
the cost to involuntarily terminate or relocate employees, sell or relocate
certain assets, terminate operating leases and otherwise wind up operations
(collectively "the shutdown") at certain facilities formerly operated by AGEMA.
The shutdown was substantially completed prior to December 1, 1998. Actual
costs to accomplish the shutdown exceeded the costs originally estimated by
approximately $2,880,000. Excess shutdown costs were recorded as an adjustment
to the purchase price of AGEMA and resulted in an increase in the excess of
purchase price over net assets acquired. Total shutdown costs incurred are
summarized as follows (in thousands):
<TABLE>
<S> <C>
Salaries and personnel related.......................................... $2,466
Plant shutdown costs.................................................... 1,263
Relocation costs........................................................ 1,151
------
$4,880
======
</TABLE>
Intangible assets acquired and the excess of purchase price over net assets
acquired are being amortized on a straight-line basis over 15 years. Related
amortization expense aggregated $1,179,000 and $79,000 for 1998 and 1997,
respectively, and $882,000 and $993,000 for the nine months ended September 30,
1998 and 1999, respectively, and is included in selling and other operating
costs.
F-19
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Revenue....................................................... $187,988 $160,186
Net earnings.................................................. $ 8,522 $ 3,389
Earnings per share:
Basic....................................................... $ 1.08 $ 0.46
Diluted..................................................... $ 1.00 $ 0.44
</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 7.60 and 6.71 Swedish Kroner to the U.S. dollar for 1997 and
1996, 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 are included as a separate line in operating
expense, and $16,099,000 of inventories due to the creation of duplicative
product lines, which is included in cost of goods sold.
Note 17--Inframetrics Merger
Pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of March 19, 1999 by and among the Company, IRABU
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary
of the Company ("Merger Sub"), Inframetrics, Inc., a Delaware corporation
("Inframetrics") and the stockholders of Inframetrics, Merger Sub was merged
with and into Inframetrics effective as of March 30, 1999 (the "Effective
Time").
The shares of capital stock of Inframetrics outstanding immediately prior to
the effective time were converted into and exchanged for a total of 2,107,552
shares of the Company's common stock (including 210,755 shares of the Company's
common stock held in escrow to secure the indemnification obligations of the
stockholders of Inframetrics until September 26, 1999). In addition, all
employee stock options to purchase Inframetrics common stock that were
outstanding immediately prior to the effective time were assumed by the
Company. A total of 192,439 shares of the Company's common stock are issuable
upon the exercise of the stock options assumed by the Company in the Merger.
The transaction was accounted for as a pooling of interests and, therefore,
financial statements for all periods presented have been restated to reflect
combined operations and financial position for all such periods. Such
restatements had no effect on previously reported separate results of
operations or shareholders' equity.
F-20
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In conjunction with the merger, on March 31, 1999, the Company recognized a
one-time charge of $24.3 million consisting of the following (in thousands):
<TABLE>
<CAPTION>
Description: Amount
- ------------ -------
<S> <C>
Reserve for duplicative inventories.................................... $18,150
Transaction related costs.............................................. 3,110
Cost to exit activities................................................ 3,000
-------
Total.................................................................. $24,260
=======
</TABLE>
The inventory reserve relates to duplicative product lines created by the
merger and is included in cost of goods sold. The Company intends to write-off
and dispose of the related inventories throughout 1999. The transaction related
costs consisted of investment advisor fees, legal and accounting fees and other
direct transaction costs. Such costs are included in combination costs, a
separate line item in operating expenses. The cost to exit activities amount
relates to estimated shut down costs related to duplicative sales offices in
the United Kingdom, Germany and France. The related accrual is recorded in
accrued payroll and other liabilities on the balance sheet. Preliminary
shutdown plans have been identified and activities related to the shutdown of
these facilities has begun. It is expected that the shutdown of these
facilitates will be completed by December 31, 1999. Such costs are also
included in combination costs.
The following reconciles revenue and net earnings (loss) previously reported
to the restated information presented in the consolidated financial statements:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
Revenue:
- --------
<S> <C> <C> <C>
Previously reported............................... $ 66,017 $ 91,771 $153,932
Inframetrics...................................... 45,768 53,163 54,690
-------- -------- --------
Restated.......................................... $111,785 $144,934 $208,622
======== ======== ========
<CAPTION>
Net earnings (loss):
- --------------------
<S> <C> <C> <C>
Previously reported............................... $ 5,092 $(30,588) $ 16,254
Inframetrics...................................... 1,501 1,400 522
-------- -------- --------
Restated.......................................... $ 6,593 $(29,188) $ 16,776
======== ======== ========
</TABLE>
Consolidated results of operations for the three months ended March 31, 1999
of the Company and Inframetrics on a stand-alone basis, excluding one time
charges for duplicative inventories created as a result of overlapping product
lines, reserve for shutdown of duplicate sales offices and other direct
transaction costs are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
---------------------
(unaudited)
FLIR Inframetrics
------- ------------
<S> <C> <C>
Revenue................................................... $20,788 $13,650
------- -------
Net (loss) earnings....................................... $(2,764) $ 177
======= =======
<CAPTION>
Three Months Ended
March 31, 1998
---------------------
(unaudited)
FLIR Inframetrics
------- ------------
<S> <C> <C>
Revenue................................................... $27,699 $12,405
------- -------
Net earnings (loss)....................................... $ 290 $ (486)
======= =======
</TABLE>
F-21
<PAGE>
FLIR SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18--Subsequent Event
On June 2, 1999, the Board of Directors approved a Shareholder Rights Plan
which provides for
the issuance of one right for each share of outstanding common stock. The
rights will become exercisable only in the event that an acquiring party
acquires beneficial ownership of 15% or more of the Company's outstanding
common stock or announces a tender or exchange offer, the consummation of which
would result in beneficial ownership by that party of 15% or more of the
Company's outstanding common stock. Each right entitles the holder to purchase
one one-hundredth of a share of the Company's Series A Junior Participating
Preferred Stock with economic terms similar to that of one share of the
Company's common stock at a purchase price of $65.00, subject to adjustment.
The Company will generally be entitled to redeem the rights at $0.01 per right
at any time on or prior to the tenth day after an acquiring person has acquired
beneficial ownership of 15% or more of the Company's common stock. If an
acquiring person or group acquires beneficial ownership of 15% or more of the
Company's outstanding common stock and the Company does not redeem or exchange
the rights, each right not beneficially owned by the acquiring person or group
will entitle its holder to purchase, at the rights' then current exercise
price, that number of shares of common stock having a value equal to two times
the exercise price. The rights expire on June 2, 2009 if not previously
redeemed, exchanged or exercised.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different.
This document may only be used where it is legal to sell these securities. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of the common stock. References to "FLIR," "WE," "US" and "OUR" refer
to FLIR Systems, Inc. and its subsidiaries.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
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............................................................... 17
Business.................................................................. 26
Management................................................................ 36
Compensation of Executive Officers........................................ 40
Certain Transactions and Relationships.................................... 43
Stock Owned by Management and Principal Shareholders...................... 44
Selling Shareholders...................................................... 46
Plan of Distribution...................................................... 47
Shares Eligible for Future Sale........................................... 48
Description of Capital Stock.............................................. 50
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,107,552 Shares
[LOGO OF FLIR SYSTEMS, INC.]
Common Stock
-------------
PROSPECTUS
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses 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.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 8,643
Printing Expenses............................................... 50,000
Accounting Fees and Expenses.................................... 50,000
Legal Fees and Expenses......................................... 75,000
Transfer Agent and Registrar Fees............................... 5,000
Miscellaneous Expenses.......................................... 15,000
--------
Total......................................................... $203,643
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
As an Oregon corporation, we are 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
our Second Restated Articles of Incorporation (the "Restated Articles")
eliminates the liability of our directors to us or our 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 us to indemnify our 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.
We also have entered into indemnity agreements with each of our executive
officers and each member of our Board of Directors. These indemnity agreements
provide for indemnification of the indemnitee to the fullest extent allowed by
law.
II-1
<PAGE>
Item 15. Recent Sale of Unregistered Securities.
During the last three years, we sold or issued the following securities that
were not registered under the Securities Act:
(a) On December 1, 1997, we issued 4,162,000 shares of Common Stock to the
shareholders of AGEMA Infrared Systems AB in exchange for all of the
outstanding capital stock of AGEMA pursuant to the terms of a Combination
Agreement among FLIR, Spectra-Physics AB, Spectra-Physics Holdings S.A.,
Spectra-Physics Holding GmbH, Spectra-Physics Holdings PLC and Pharos Holdings,
Inc. This transaction was effected in reliance upon the exemption from
registration under the Securities Act provided under Section 4(2) of the
Securities Act.
(b) On March 30, 1999, we issued 2,107,552 shares of Common Stock to the
shareholders of Inframetrics, Inc. in exchange for all of the outstanding
capital stock of Inframetrics pursuant to the terms of an Agreement and Plan of
Merger among FLIR, Inframetrics, the shareholders of Inframetrics and Irabu
Acquisition Corporation, an Oregon corporation and wholly-owned subsidiary of
FLIR. This transaction was effected in reliance upon the exemption from
registration under the Securities Act provided by Regulation D under the
Securities Act. In addition to the shares of Common Stock issued to those
shareholders, all options to purchase Inframetrics common stock that were
outstanding immediately prior to the merger were assumed by us. A total of
192,439 shares of Common Stock are issuable upon the exercise of the
Inframetrics stock options we assumed. These shares have been registered with
the SEC pursuant to a Registration Statement on Form S-8.
(c) We sold securities upon the exercise of certain stock options granted
under our 1984 Stock Incentive plan. An aggregate of 105,687 shares of Common
Stock were issued at exercise prices ranging from $1.63 to $5.23. These
transactions were effected in reliance upon the exemption from registration
under the Securities Act provided by Rule 701 promulgated by the SEC pursuant
to authority granted under Section 3(b) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
2.1 Merger Agreement dated as of March 19, 1999 by and among FLIR Systems,
Inc., Inframetrics, Inc., Irabu Acquisition Corporation and the
Shareholders of Inframetrics, Inc. (incorporated by reference to Current
Report on Form 8-K filed on April 14, 1999)
3.1 Second Restated Articles of Incorporation of the FLIR Systems, Inc.
(incorporated by reference to Exhibit 3.1 to Registration Statement on
Form S-1 (File No. 33-62582))
3.2 First Amendment to Second Restated Articles of Incorporation of FLIR
Systems, Inc. (incorporated by reference to Exhibit 1.1 to Registration
Statement on Form 8-A filed on June 11, 1999)
3.3 Second Restated Bylaws of FLIR Systems, Inc.
4.1 Rights Agreement dated as of June 2, 1999 (incorporated by reference to
Exhibit 1.1 to the Registration Statement on Form 8-A filed on June 11,
1999)
5.1 Opinion of Ater Wynne LLP as to the legality of the securities being
registered.
10.1 Form of Indemnity Agreement between the FLIR Systems, Inc. and each
member of its Board of Directors (incorporated by reference to Exhibit
10.1 to Registration Statement on Form S-1 (File No. 33-62582))
10.2 1984 Incentive Stock Option Plan and Amendments (incorporated by
reference to Exhibit 10.2 to Registration Statement on Form S-1 (File No.
33-62582))
10.3 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to
Registration Statement on Form S-1 (File No. 33-62582))
10.4 1993 Stock Option Plan for Non-employee Directors (incorporated by
reference to Exhibit 10.4 to Registration Statement on Form S-1 (File No.
33-62582))
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
10.5 Lease Dated February 11, 1985, as amended, by and among the FLIR
Systems, Inc. and Pacific Realty Association, L.P. (incorporated by
reference to Exhibit 10.6 to Registration Statement on Form S-1 (File
No. 33-62582))
10.6 Business Loan Agreement with Bank of America NT & SA (incorporated by
reference to Annual Report on Form 10-K for the year ended December 31,
1998)
10.7 Amendment No. 1 to Business Loan Agreement with Bank of America NT & SA
(incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1998)
10.8 Combination Agreement, Dated October 6, 1997, Among FLIR Systems, Inc.,
Spectra-Physics AB, Spectra-Physics Holding S.A., Spectra-Physics
Holdings GmbH, Spectra-Physics Holdings PLC, and Pharos Holdings, Inc.
(incorporated by reference to Exhibit 2.0 to Current Report on Form 8-K
filed on October 24, 1997)
10.9 Form of Executive Employment Agreement dated as of May 5, 1997 (Robert
P. Daltry and J. Kenneth Stringer III) (incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed on October 24, 1997)
10.10 Form of Executive Employment Agreement dated as of May 5, 1997 (James A.
Fitzhenry, J. Mark Samper, William N. Martin and Steven R. Palmquist)
(incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K
filed on October 24, 1997)
10.11 Form of Agreement amending Executive Employment Agreement dated as of
December 1, 1997 for Robert P. Daltry, J. Kenneth Stringer III, James A.
Fitzhenry, J. Mark Samper, William N. Martin and Steven R. Palmquist
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed on December 15, 1997)
10.12 Form of Agreement Amending Executive Employment Agreement dated as of
January 20, 1999 amending Executive Employment Agreement of Robert P.
Daltry, J. Kenneth Stringer III, James A. Fitzhenry, J. Mark Samper,
William N. Martin, Arne Almorfors and David Smith (incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed on
August 16, 1999)
10.13 Registration Rights Agreement dated as of December 1, 1997 by and among
FLIR Systems, Inc., Spectra-Physics AB, Spectra-Physics Holdings PLC and
Pharos Holdings (incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K filed on December 15, 1997)
10.14 Contract for the Supply of Uncooled Imaging Modules, dated January 15,
1997* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
May 28, 1998)
10.15 Contract for the Supply of Uncooled Imaging Modules, dated March 4,
1998* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
May 28, 1998)
10.16 Inframetrics, Inc. Shareholders Agreement dated as of March 19, 1999 by
and among FLIR, Inframetrics and the shareholders of Inframetrics
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed on April 14, 1999)
10.17 Amendment to Inframetrics, Inc. Shareholders Agreement dated as of
October 27, 1999 by and among FLIR, Inframetrics and the former
shareholders of Inframetrics.**
10.18 FLIR Systems, Inc. 1999 Employee Stock Purchase Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated April 30,
1999)
10.19 Contract for the Supply of Uncooled Imaging Modules, dated August 8,
1999* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
December 2, 1999)
10.20 Form of Credit Agreement among FLIR Systems, Inc. and Bank of America,
N.A. and certain other financial institutions dated as of December 16,
1999
10.21 Form of Pledge Agreement dated as of December 16, 1999 by FLIR Systems,
Inc. in favor of Bank of America, N.A. as Agent
10.22 Form of Security Agreement dated as of December 16, 1999 between FLIR
Systems, Inc. and Bank of America, N.A. as Agent
21.0 Subsidiaries of FLIR Systems, Inc.**
23.1 Consent of Ater Wynne LLP (included in legal opinion filed as Exhibit
5.1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP**
24.1 Powers of Attorney**
99.0 Report of Ernst & Young LLP**
</TABLE>
- --------
* Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under 17 C.F.R. (S) 240.24b-2.
** Previously filed.
(b) Financial Statement Schedule.
Schedule II--Valuation and Qualifying Accounts
Report of Independent Accountants on Financial Statement Schedule
Item 17. Undertakings.
We hereby undertake that, for the purpose of determining any liability under
the Securities Act each filing of our annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act) 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
may be permitted to our directors, officers and controlling persons, we have
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 our payment of expenses incurred or paid
by a director, officer or controlling person 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, we 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 us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
this offering.
II-4
<PAGE>
(4) For purposes of determining any liability under the Securities Act, 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.
(5) For the purpose of determining any liability under the Securities Act,
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and has duly caused this Amendment to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Portland, State of Oregon, on December 20, 1999.
FLIR SYSTEMS, INC.
/s/ J. Kenneth Stringer III
By: ________________________________
J. Kenneth Stringer III
President and Chief Executive
Officer
Witness our hands on the date set forth below. Pursuant to the requirements
of the Securities Act, this Registration Statement has been duly signed by the
following persons in the capacities indicated on December 20, 1999.
Signature Title
Chairman of the Board
Robert P. Daltry*
- -------------------------
Robert P. Daltry
/s/ J. Kenneth Stringer III Director, President and Chief Executive Officer
- ------------------------- (Principal Executive Officer)
J. Kenneth Stringer III
Vice President Finance and Chief Financial Officer
J. Mark Samper* (Principal Financial and Accounting Officer)
- -------------------------
J. Mark Samper
Director
John C. Hart*
- -------------------------
John C. Hart
Director
- -------------------------
Earl R. Lewis
Director
W. Allen Reed*
- -------------------------
W. Allen Reed
Director
Ronald L. Turner*
- -------------------------
Ronald L. Turner
Director
- -------------------------
Steven E. Wynne
/s/ J. Kenneth Stringer III
*By: ___________________________
J. Kenneth Stringer III
Attorney-in-Fact
II-6
<PAGE>
FLIR SYSTEMS, INC.
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------------------------- ---------- --------------------- ---------- --------
Balance at Charged to Balance
Beginning Changes to Other Write-off at the
of the Cost and Account Net of End of
Year Expenses (Describe) Recoveries the Year
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
Allow. For Doubtful
Accts................... 2,639 417 0 160 3,216
Allow. For Deferred Tax
Assets.................. 6,889 (2,731) 0 0 4,158
Year ended December 31,
1997
Allow. For Doubtful
Accts................... 1,744 1,059 0 (164) 2,639
Allow. For Deferred Tax
Assets.................. 2,783 4,106 0 0 6,889
Year ended December 31,
1996
Allow. For Doubtful
Accts................... 842 1,320 0 (418) 1,744
Allow. For Deferred Tax
Assets.................. 4,002 (1,219) 0 0 2,783
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of FLIR Systems, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated April 15, 1999, except as to Note 18, which is as of June 2, 1999,
appearing in this Registration Statement on Form S-1 also included an audit of
the financial statement schedule listed in Item 16(b) of this Form S-1. We did
not audit the financial statement schedule of Inframetrics, Inc., a wholly-
owned subsidiary. That schedule was audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Inframetrics, Inc., is based solely on
the report of the other auditors. In our opinion, based on our audit and the
report of the other auditors, the financial statement schedule presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Portland, Oregon
April 15, 1999
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
2.1 Merger Agreement dated as of March 19, 1999 by and among FLIR Systems,
Inc., Inframetrics, Inc., Irabu Acquisition Corporation and the
Shareholders of Inframetrics, Inc. (incorporated by reference to Current
Report on Form 8-K filed on April 14, 1999)
3.1 Second Restated Articles of Incorporation of the FLIR Systems, Inc.
(incorporated by reference to Exhibit 3.1 to Registration Statement on
Form S-1 (File No. 33-62582))
3.2 First Amendment to Second Restated Articles of Incorporation of FLIR
Systems, Inc. (incorporated by reference to Exhibit 1.1 to Registration
Statement on Form 8-A filed on June 11, 1999)
3.3 Second Restated Bylaws of FLIR Systems, Inc.
4.1 Rights Agreement dated as of June 2, 1999 (incorporated by reference to
Exhibit 1.1 to the Registration Statement on Form 8-A filed on June 11,
1999)
5.1 Opinion of Ater Wynne LLP as to the legality of the securities being
registered.
10.1 Form of Indemnity Agreement between the FLIR Systems, Inc. and each
member of its Board of Directors (incorporated by reference to Exhibit
10.1 to Registration Statement on Form S-1 (File No. 33-62582))
10.2 1984 Incentive Stock Option Plan and Amendments (incorporated by
reference to Exhibit 10.2 to Registration Statement on Form S-1 (File
No. 33-62582))
10.3 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to
Registration Statement on Form S-1 (File No. 33-62582))
10.4 1993 Stock Option Plan for Non-employee Directors (incorporated by
reference to Exhibit 10.4 to Registration Statement on Form S-1 (File
No. 33-62582))
10.5 Lease Dated February 11, 1985, as amended, by and among the FLIR
Systems, Inc. and Pacific Realty Association, L.P. (incorporated by
reference to Exhibit 10.6 to Registration Statement on Form S-1 (File
No. 33-62582))
10.6 Business Loan Agreement with Bank of America NT & SA (incorporated by
reference to Annual Report on Form 10-K for the year ended December 31,
1998)
10.7 Amendment No. 1 to Business Loan Agreement with Bank of America NT & SA
(incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1998)
10.8 Combination Agreement, Dated October 6, 1997, Among FLIR Systems, Inc.,
Spectra-Physics AB, Spectra-Physics Holding S.A., Spectra-Physics
Holdings GmbH, Spectra-Physics Holdings PLC, and Pharos Holdings, Inc.
(incorporated by reference to Exhibit 2.0 to Current Report on Form 8-K
filed on October 24, 1997)
10.9 Form of Executive Employment Agreement dated as of May 5, 1997 (Robert
P. Daltry and J. Kenneth Stringer III) (incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed on October 24, 1997)
10.10 Form of Executive Employment Agreement dated as of May 5, 1997 (James A.
Fitzhenry, J. Mark Samper, William N. Martin and Steven R. Palmquist)
(incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K
filed on October 24, 1997)
10.11 Form of Agreement amending Executive Employment Agreement dated as of
December 1, 1997 for Robert P. Daltry, J. Kenneth Stringer III, James A.
Fitzhenry, J. Mark Samper, William N. Martin and Steven R. Palmquist
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed on December 15, 1997)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
No. Description
--- -----------
<C> <S>
10.12 Form of Agreement Amending Executive Employment Agreement dated as of
January 20, 1999 amending Executive Employment Agreement of Robert P.
Daltry, J. Kenneth Stringer III, James A. Fitzhenry, J. Mark Samper,
William N. Martin, Arne Almorfors and David Smith (incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed on
August 16, 1999)
10.13 Registration Rights Agreement dated as of December 1, 1997 by and among
FLIR Systems, Inc., Spectra-Physics AB, Spectra-Physics Holdings PLC and
Pharos Holdings (incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K filed on December 15, 1997)
10.14 Contract for the Supply of Uncooled Imaging Modules, dated January 15,
1997* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
May 28, 1998)
10.15 Contract for the Supply of Uncooled Imaging Modules, dated March 4,
1998* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
May 28, 1998)
10.16 Inframetrics, Inc. Shareholders Agreement dated as of March 19, 1999 by
and among FLIR, Inframetrics and the shareholders of Inframetrics
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
filed on April 14, 1999)
10.17 Amendment to Inframetrics, Inc. Shareholders Agreement dated as of
October 27, 1999 by and among FLIR, Inframetrics and the former
shareholders of Inframetrics.**
10.18 FLIR Systems, Inc. 1999 Employee Stock Purchase Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated April 30,
1999)
10.19 Contract for the Supply of Uncooled Imaging Modules, dated August 8,
1999* (incorporated by reference to Exhibit 10.1 to Form 10-Q/A filed
December 2, 1999)
10.20 Form of Credit Agreement among FLIR Systems, Inc. and Bank of America,
N.A. and certain other financial institutions dated as of December 16,
1999
10.21 Form of Pledge Agreement dated as of December 16, 1999 by FLIR Systems,
Inc. in favor of Bank of America, N.A. as Agent
10.22 Form of Security Agreement dated as of December 16, 1999 between FLIR
Systems, Inc. and Bank of America, N.A. as Agent
21.0 Subsidiaries of FLIR Systems, Inc.**
23.1 Consent of Ater Wynne LLP (included in legal opinion filed as Exhibit
5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Ernst & Young LLP**
24.1 Powers of Attorney**
99.0 Report of Ernst & Young LLP**
</TABLE>
- --------
* Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under 17 C.F.R. (S) 240.24b-2.
** Previously filed.
<PAGE>
Exhibit 3.3
SECOND RESTATED BYLAWS
OF
FLIR SYSTEMS, INC.
ARTICLE I
OFFICES
1.1 Principal Office. The principal office of the corporation shall
----------------
be located at 16505 SW 72nd Ave., Portland, Oregon 97224. The corporation may
have such other offices as the Board of Directors may designate or as the
business of the corporation may from time to time require.
1.2 Registered Office. The registered office of the corporation
-----------------
required by the Oregon Business Corporation Act to be maintained in the State of
Oregon may be, but need not be, identical with the principal office in the State
of Oregon, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the shareholders shall be
--------------
held during the month of May each year, unless a different date and time are
fixed by the Board of Directors and stated in the notice of the meeting,
beginning with the year 1994. The failure to hold an annual meeting at the time
stated herein shall not affect the validity of any corporate action.
2.2 Special Meeting. Special meetings of the shareholders may be
---------------
called by the President or by the Board of Directors and shall be called by the
President (or in the event of absence, incapacity, or refusal of the President,
by the Secretary or any other officer) at the request of the holders of not less
than one-tenth of all the outstanding shares of the corporation entitled to vote
at the meeting. The requesting shareholders shall sign, date, and deliver to the
Secretary a written demand describing the purpose or purposes for holding the
special meeting.
2.3 Place of Meetings. Meetings of the shareholders shall be held at
-----------------
the principal business office of the corporation or at such other place, within
or without the State of Oregon, as may be determined by the Board of Directors.
<PAGE>
2.4 Notice of Meetings. Written notice stating the date, time, and
------------------
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be mailed to each shareholder
entitled to vote at the meeting at the shareholder's address shown in the
corporation's current record of shareholders, with postage thereon prepaid, not
less than 10 nor more than 60 days before the date of the meeting.
2.5 Waiver of Notice. A shareholder may at any time waive any notice
----------------
required by law, the Articles of Incorporation, or these First Restated Bylaws.
The waiver must be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the corporation for inclusion in the minutes for
filing with the corporate records. A shareholder's attendance at a meeting
waives objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting. The shareholder's attendance also waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented.
2.6 Record Date
-----------
(a) For the purpose of determining shareholders entitled to
notice of a shareholders' meeting, to demand a special meeting, or to vote or to
take any other action, the Board of Directors may fix a future date as the
record date for any such determination of shareholders, such date in any case to
be not more than 70 days before the meeting or action requiring a determination
of shareholders. The record date shall be the same for all voting groups.
(b) A determination of shareholders entitled to notice of or to
vote at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date, which it must do if the
meeting is adjourned to a date more than 120 days after the date fixed for the
original meeting.
(c) If a court orders a meeting adjourned to a date more than 120
days after the date fixed for the original meeting, it may provide that the
original record date continue in effect or it may fix a new record date.
2.7 Shareholders' List for Meeting. After the record date for a
------------------------------
shareholders' meeting is fixed by the Board of Directors, the Secretary of the
corporation shall prepare an alphabetical list of the names of all its
shareholders entitled to notice of the shareholders' meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares and show the address of and number of shares held by each shareholder.
The shareholders' list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. The corporation shall make the shareholders'
list available at the meeting, and any shareholder or the shareholder's agent or
attorney is entitled to inspect the list at any time
2 - SECOND RESTATED BYLAWS
<PAGE>
during the meeting or any adjournment. Refusal or failure to prepare or make
available the shareholders' list does not affect the validity of action taken at
the meeting.
2.8 Quorum; Adjournment. Shares entitled to vote as a separate voting
-------------------
group may take action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. A majority of the votes entitled to be cast
on the matter by the voting group constitutes a quorum of that voting group for
action in that matter. A majority of shares represented at the meeting, although
less than a quorum, may adjourn the meeting from time to time to a different
time and place without further notice to any shareholder of any adjournment. At
such adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the meeting originally held. Once
a share is represented for any purpose at a meeting, it shall be deemed present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting, unless a new record date is set for the adjourned meeting.
2.9 Voting Requirements: Action Without Meeting. Unless otherwise
-------------------------------------------
provided in the Articles of Incorporation, each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders. If a quorum exists, action on a matter, other than the
election of directors, is approved if the votes cast by the shares entitled to
vote favoring the action exceed the votes cast opposing the action, unless a
greater number of affirmative votes is required by law or the Articles of
Incorporation. If a quorum exists, directors are elected by a plurality of the
votes cast by the shares entitled to vote unless otherwise provided in the
Articles of Incorporation. No cumulative voting for directors shall be permitted
unless the Articles of Incorporation so provide. Action required or permitted by
law to be taken at a shareholders' meeting may be taken without a meeting if the
action is taken by all the shareholders entitled to vote on the action. The
action must be evidenced by one or more written consents describing the action
taken, signed by all the shareholders entitled to vote on the action and
delivered to the corporation for inclusion in the minutes for filing with the
corporate records. Action taken under this section is effective when the last
shareholder signs the consent, unless the consent specifies an earlier or later
effective date. If the law requires that notice of proposed action be given to
nonvoting shareholders and the action is to be taken by unanimous consent of the
voting shareholders, the corporation must give its nonvoting shareholders
written notice of the proposed action at least 10 days before the action is
taken. The notice must contain or be accompanied by the same material that,
under the Oregon Business Corporation Act, would have been required to be sent
to nonvoting shareholders in a notice of meeting at which the proposed action
would have been submitted to the shareholders for action.
2.10 Proxies.
-------
(a) A shareholder may vote shares in person or by proxy by
signing an appointment, either personally or by the shareholder's attorney-in-
fact. An appointment of a proxy shall be effective when received by the
Secretary or other officer of the corporation authorized to tabulate votes. An
appointment is valid for 11 months unless a longer period is provided in the
3 - SECOND RESTATED BYLAWS
<PAGE>
appointment form. An appointment is revocable by the shareholder unless the
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest that has not been extinguished.
(b) The death or incapacity of a shareholder appointing a proxy
shall not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the Secretary or other
officer authorized to tabulate votes before the proxy exercises the proxy's
authority under the appointment.
2.11 Corporation's Acceptance of Votes.
---------------------------------
(a) If the name signed on a vote, consent, waiver, or proxy
appointment corresponds to the name of a shareholder, the corporation, if acting
in good faith, is entitled to accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the corporation,
if acting in good faith, is nevertheless entitled to accept the vote, consent,
waiver, or proxy appointment and give it effect as the act of the shareholder
if:
(i) The shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(ii) The name signed purports to be that of an
administrator, executor, guardian, or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent, waiver, or
proxy appointment;
(iii) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, or proxy appointment;
(iv) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's authority to
sign for the shareholder has been presented with respect to the vote, consent,
waiver, or proxy appointment; or
(v) Two or more persons are the shareholder as co-tenants
or fiduciaries and the name signed purports to be the name of at least one of
the co-owners and the person signing appears to be acting on behalf of all co-
owners.
4 - SECOND RESTATED BYLAWS
<PAGE>
(c) The corporation is entitled to reject a vote, consent,
waiver, or proxy appointment if the Secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
(d) The shares of a corporation are not entitled to vote if
they are owned, directly or indirectly, by a second corporation, and the first
corporation owns, directly or indirectly, a majority of the shares entitled to
vote for directors of the second corporation; provided, however, a corporation
may vote any shares, including its own shares, held by it in a fiduciary
capacity.
(e) The corporation and its officer or agent who accepts or
rejects a vote, consent, waiver, or proxy appointment in good faith and in
accordance with the standards of this provision shall not be liable in damages
to the shareholder for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a vote, consent,
waiver, or proxy appointment under this provision is valid unless a court of
competent jurisdiction determines otherwise.
2.12 Notice of Business to be Conducted at Meeting. At an annual
---------------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of stock of the corporation
which are beneficially owned by the stockholder, and (d) any material interest
of the stockholder in such business. Notwithstanding anything in the Bylaws to
the contrary, no business shall be
5 - SECOND RESTATED BYLAWS
<PAGE>
conducted at any annual meeting except in accordance with the procedures set
forth in this Section 2.12.
The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 2.12
and if the Chairman should so determine, the Chairman shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
ARTICLE III
BOARD OF DIRECTORS
3.1 Duties. All corporate powers shall be exercised by or under the
------
authority of the Board of Directors and the business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
3.2 Number and Qualification. As set forth in the Second Restated
------------------------
Articles of Incorporation, the number of directors of the corporation shall be
not less than five nor more than twelve, and within such limits, the exact
number shall be fixed and increased or decreased from time to time by resolution
of the Board of Directors. The directors shall be divided into three classes
designated Class I, Class H and Class III, each class to be as nearly equal in
number as possible. At the 1993 annual meeting of shareholders ("First
Meeting"), directors of all three classes shall be elected. The term of office
of Class III directors shall expire at the 1994 annual meeting of shareholders,
that of Class 11 directors shall expire at the 1995 annual meeting of
shareholders, and that of Class I directors shall expire at the 1996 annual
meeting of shareholders. At each annual meeting of shareholders after the First
Meeting, directors elected to succeed those directors whose terms expire shall
be elected to serve for three-year terms and until their successors are elected
and qualified, so that the term of one class of directors will expire each year.
When the number of directors is changed within the limits provided herein, any
newly created directorships, or any decrease in directorships, shall be so
apportioned among the classes as to make all classes as nearly equal as
possible, provided that no decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent directors. Directors
need not be residents of the State of Oregon or shareholders of the corporation.
3.3 Chairman of the Board of Directors. The directors may elect a
----------------------------------
director to serve as Chairman of the Board of Directors to preside at all
meetings of the Board of Directors and to fulfill any other responsibilities
delegated by the Board of Directors.
3.4 Regular Meetings. A regular meeting of the Board of Directors
----------------
shall be held without other notice than this Section 3.4 immediately after, and
at the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and
6 - SECOND RESTATED BYLAWS
<PAGE>
place, either within or without the State of Oregon, for the holding of
additional regular meetings without other notice than the resolution.
3.5 Special Meetings. Special meetings of the Board of Directors may
----------------
be called by or at the request of the President or any director. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Oregon, as the place for
holding any special meeting of the Board of Directors called by them.
3.6 Notice. Notice of the date, time, and place of any special
------
meeting of the Board of Directors shall be given at least three days prior to
the meeting by any means provided by law. If mailed, notice shall be deemed to
be given upon deposit in the United States mail addressed to the director at the
director's business address, with postage thereon prepaid. If by telegram,
notice shall be deemed to be given when the telegram is delivered to the
telegraph company. Notice by all other means shall be deemed to be given when
received by the director or a person at the director's business or residential
address whom the person giving notice reasonably believes will deliver or report
the notice to the director within 24 hours. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.7 Waiver of Notice. A director may at any time waive any notice
----------------
required by law, the Articles of Incorporation, or these First Restated Bylaws.
Unless a director attends or participates in a meeting, a waiver must be in
writing, must be signed by the director entitled to notice, must specify the
meeting for which notice is waived, and must be filed with the minutes or
corporate records.
3.8 Ouorum. A majority of the number of directors fixed by Section
------
3.2 shall constitute a quorum for the transaction of business at any meeting of
the Board of Directors.
3.9 Manner of Acting.
----------------
(a) The act of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors, unless
a different number is provided by law, the Articles of Incorporation, or these
First Restated Bylaws.
7 - SECOND RESTATED BYLAWS
<PAGE>
(b) Members of the Board of Directors may hold a board meeting by
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in such
a meeting shall constitute presence in person at the meeting.
(c) Any action that is required or permitted to be taken by the
directors at a meeting may be taken without a meeting if a consent in writing
setting forth the action so taken shall be signed by all of the directors
entitled to vote on the matter. The action shall be effective on the date when
the last signature is placed on the consent or at such earlier or later time as
is set forth therein. Such consent, which shall have the same effect as a
unanimous vote of the directors, shall be filed with the minutes of the
corporation.
3.10 Vacancies. Any vacancy, including a vacancy resulting from an
---------
increase in the number of directors, occurring on the Board of Directors may be
filled by the shareholders, the Board of Directors, or the affirmative vote of a
majority of the remaining directors if less than a quorum of the Board of
Directors, or by a sole remaining director. If the vacant office is filled by
the shareholders and was held by a director elected by a voting group of
shareholders, then only the holders of shares of that voting group are entitled
to vote to fill the vacancy. Any directorship not so filled by the directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose. A director elected to fill a vacancy shall
be elected to serve until the next annual meeting of shareholders and until a
successor shall be duly elected and qualified. A vacancy that will occur at a
specific later date, by reason of a resignation or otherwise, may be filled
before the vacancy occurs, and the new director shall take office when the
vacancy occurs.
3.11 Compensation. By resolution of the Board of Directors, the
------------
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3.12 Presumption of Assent. A director of the corporation who is
---------------------
present at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken (a) unless the
director's dissent to the action is entered in the minutes of the meeting, (b)
unless a written dissent to the action is filed with the person acting as the
secretary of the meeting before the adjournment thereof or forwarded by
certified or registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting or (c) unless the director objects at the
meeting to the holding of the meeting or transacting business at the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action.
8 - SECOND RESTATED BYLAWS
<PAGE>
3.13 Director Conflict of Interest.
-----------------------------
(a) A transaction in which a director of the corporation has a
direct or indirect interest shall be valid notwithstanding the director's
interest in the transaction if the material facts of the transaction and the
director's interest are disclosed or known to the Board of Directors or a
committee thereof and it authorizes, approves, or ratifies the transaction by a
vote or consent sufficient for the purpose without counting the votes or
consents of directors with a direct or indirect interest in the transaction; or
the material facts of the transaction and the director's interest are disclosed
or known to shareholders entitled to vote and they, voting as a single group,
authorize, approve, or ratify the transaction by a majority vote; or the
transaction is fair to the corporation.
(b) A conflict of interest transaction may be authorized,
approved, or ratified if it receives the affirmative vote of a majority of
directors on the Board of Directors or a committee thereof who have no direct or
indirect interest in the transaction. If a majority of such directors vote to
authorize, approve, or ratify the transaction, a quorum is present for the
purpose of taking action.
(c) A conflict of interest transaction may be authorized,
approved, or ratified by a majority vote of shareholders entitled to vote
thereon. Shares owned by or voted under the control of a director or an entity
controlled by a director who has a direct or indirect interest in the
transaction are entitled to vote with respect to a conflict of interest
transaction. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction constitutes a quorum for the purpose
of authorizing, approving, or ratifying the transactions.
(d) A director has an indirect interest in a transaction if (i)
another entity in which the director has a material financial interest or in
which the director is a general partner is a party to the transaction or (ii)
another entity of which the director is a director, officer, or trustee is a
party to the transaction and the transaction is or should be considered by the
Board of Directors.
3.14 Removal. All or any number of the directors of the corporation
-------
may be removed only for cause and at a meeting of shareholders called expressly
for that purpose, by the vote of 75 percent of the votes then entitled to be
cast for the election of directors. At any meeting of shareholders at which one
or more directors are removed, a majority of votes then entitled to be cast for
the election of directors may fill any vacancy created by such removal. If any
vacancy created by removal of a director is not filled by the shareholders at
the meeting at which the removal is effected, such vacancy may be filled by a
majority vote of the remaining directors.
3.15 Resignation. Any director may resign by delivering written
-----------
notice to the Board of Directors, its chairperson, or the corporation. Such
resignation shall be effective at the earliest of the following, unless the
notice specifies a later effective date, (a) on receipt, (b) five days after its
deposit in the United States mails, if mailed postpaid and correctly addressed,
or (c)
9 - SECOND RESTATED BYLAWS
<PAGE>
on the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by addressee. Once
delivered, a notice of resignation is irrevocable unless revocation is permitted
by the Board of Directors.
3.16 Nominations for Election to Board of Directors. Only persons
----------------------------------------------
who are nominated in accordance with the procedures set forth in this Section
3.16 shall be eligible for election as directors. Nominations of persons for
election to the Board of Directors may be made at a meeting of stockholders by
or at the direction of the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.16.
Such nominations, other than those made by or at the direction of the
Board of Directors shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of stock of the corporation which are beneficially owned by
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (b) as to the stockholder giving the
notice, (i) the name and address, as they appear on the corporation's books, of
such stockholder, and (ii) the class and number of shares of stock of the
corporation which are beneficially owned by such stockholder.
At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 3.16. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these First Restated Bylaws, and if the
10 - SECOND RESTATED BYLAWS
<PAGE>
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
4.1 Designation of Executive Committee. The Board of Directors may
----------------------------------
designate two or more directors to constitute an executive committee. The
designation of an executive committee, and the delegation of authority to it,
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed by law. No member of the executive committee shall
continue to be a member thereof after ceasing to be a director of the
corporation. The Board of Directors shall have the power at any time to increase
or decrease the number of members of the executive committee, to fill vacancies
thereon, to change any member thereof, and to change the functions or terminate
the existence thereof. The creation of the executive committee and the
appointment of members to it shall be approved by a majority of the directors in
office when the action is taken, unless a greater number is required by the
Articles of Incorporation or these First Restated Bylaws.
4.2 Powers of Executive Committee. During the interval between
-----------------------------
meetings of the Board of Directors, and subject to such limitations as may be
imposed by resolution of the Board of Directors, the executive committee may
have and may exercise all the authority of the Board of Directors in the
management of the corporation, provided that the committee shall not have the
authority of the Board of Directors with respect to the following matters:
authorizing distributions; approving or proposing to the shareholders actions
that are required to be approved by the shareholders under the Articles of
Incorporation or these First Restated Bylaws or by law; filling vacancies on the
Board of Directors or any committee thereof; amending the Articles of
Incorporation; adopting, amending, or repealing bylaws; approving a plan of
merger not requiring shareholder approval; authorizing or approving a
reacquisition of shares, except according to a formula or method prescribed by
the Board of Directors; authorizing or approving the issuance or sale or
contract for sale of shares or determining the designation and relative rights,
preferences, and limitations of a class or series of shares except within limits
specifically prescribed by the Board of Director.
4.3 Procedures; Meetings; Quorum.
----------------------------
(a) The Board of Directors shall appoint a chairperson from among
the members of the executive committee and shall appoint a secretary who may,
but need not, be a member of the executive committee. The chairperson shall
preside at all meetings of the executive committee and the secretary of the
executive committee shall keep a record of its acts and proceedings, which shall
be filed with the minutes of the corporation.
11 - SECOND RESTATED BYLAWS
<PAGE>
(b) Regular meetings of the executive committee, of which no
notice shall be necessary, shall be held on such days and at such places as
shall be fixed by resolution adopted by the executive committee. Special
meetings of the executive committee shall be called at the request of the
President or of any member of the executive committee, and shall be held upon
such notice as is required by these First Restated Bylaws for special meetings
of the Board of Directors.
(c) Attendance of any member of the executive committee at a
meeting shall constitute a waiver of notice of the meeting. A majority of the
executive committee, from time to time, shall be necessary to constitute a
quorum for the transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be the act of
the executive committee. Members of the executive committee may hold a meeting
of such committee by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in such meeting shall constitute presence in person at the
meeting.
(d) Any action that is required or permitted to be taken at a
meeting of in the executive committee may be taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all
members of the executive committee entitled to vote on the matter. The action
shall be effective on the date when the last signature is placed on the consent
or at such earlier or later time as is set forth therein. Such consent, which
shall have the same effect as a unanimous vote of the members of the executive
committee, shall be filed with the minutes of the corporation.
(e) The Board of Directors may approve a reasonable fee for the
members of the executive committee as compensation for attendance at meetings of
the executive committee.
4.4 Other Committees. By the approval of a majority of the directors
----------------
when the action is taken (unless a greater number is required by the Articles of
Incorporation), the Board of Directors, by resolution, may create one or more
additional committees, appoint directors to serve on them, and define the duties
of such committee or committees. Each such committee shall have two or more
members, who shall serve at the pleasure of the Board of Directors. Such
additional committee or committees, shall not have the powers proscribed in
Section 4.2.
ARTICLE V
OFFICERS
5.1 Number. The officers of the corporation shall be a President and
------
a Secretary. Such other officers and assistant officers as are deemed necessary
or desirable may be appointed by the Board of Directors and shall have such
powers and duties prescribed by the Board of Directors or the officer authorized
by the Board of Directors to prescribe the duties of
12 - SECOND RESTATED BYLAWS
<PAGE>
other officers. A duly appointed officer may appoint one or more officers or
assistant officers if such appointment is authorized by the Board of Directors.
Any two or more offices may be held by the same person.
5.2 Appointment and Term of Office. The officers of the corporation
------------------------------
shall be appointed annually by the Board of Directors at the first meeting of
the Board of Directors held after the annual meeting of the shareholders. If the
officers shall not be appointed at the meeting, a meeting shall be held as soon
thereafter as is convenient for such appointment of officers. Each officer shall
hold office until a successor shall have been duly appointed and qualified or
until the officer's death, resignation, or removal.
5.3 Qualification. An officer need not be a director, shareholder,
-------------
or a resident of the State of Oregon.
5.4 Resignation and Removal. An officer may resign at any time by
-----------------------
delivering notice of such resignation to the corporation. A resignation is
effective on receipt unless the notice specifies a later effective date. If the
corporation accepts a specified later effective date, the Board of Directors may
fill the pending vacancy before the effective date, but the successor may not
take office until the effective date. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board of Directors. Any
officer appointed by the Board of Directors may be removed at any time with or
without cause. Appointment of an officer shall not of itself create contract
rights. Removal or resignation of an officer shall not affect the contract
rights, if any, of the corporation or the officer.
5.5 Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
5.6 President. The President shall be the chief executive officer of
---------
the corporation and shall be in general charge of its business and affairs,
subject to the control of the Board of Directors. The President shall preside at
all meetings of shareholders and at all meetings of directors (unless there is
an acting Chairman of the Board presiding at the meeting). The President may
execute on behalf of the corporation all contracts, agreements, stock
certificates, and other instruments. The President shall from time to time
report to the Board of Directors all matters within the President's knowledge
affecting the corporation that should be brought to the attention of the Board
of Directors. The President shall vote all shares of stock in other corporations
owned by the corporation and is empowered to execute proxies, waivers of notice,
consents, and other instruments in the name of the corporation with respect to
such stock. The President shall perform other duties assigned by the Board of
Directors.
5.7 Vice Presidents. In the absence of the President or in the event
---------------
of the President's death or inability or refusal to act, the Vice President (or,
in the event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election,
13 - SECOND RESTATED BYLAWS
<PAGE>
or in the absence of any designation, then in the order of their election), if
any, shall perform the duties of the President and, when so acting, shall have
all the powers of and be subject to all the restrictions upon the President. Any
Vice President shall perform other duties assigned by the President or by the
Board of Directors.
5.8 Secretary. The Secretary shall prepare the minutes of all
---------
meetings of the directors and shareholders, shall have custody of the minute
books and other records pertaining to the corporate business, and shall be
responsible for authenticating the records of the corporation. The Secretary
shall countersign all instruments requiring the seal of the corporation and
shall perform other duties assigned by the Board of Directors. In the event no
Vice President exists to succeed to the President under the circumstances set
forth in Section 5.7 above, the Secretary shall make such succession.
5.9 Assistant Secretaries. The Assistant Secretaries, when
---------------------
authorized by the Board of Directors or these First Restated Bylaws, may sign,
with the President or Vice President, certificates for shares of the corporation
the issuance of which shall have been authorized by resolution of the Board of
Directors. The Assistant Secretaries shall, if required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries shall, in general, perform such duties as shall be specifically
assigned to them in writing by the President or the Board of Directors.
5.10 Salaries. The salaries of the officers shall be fixed from time
--------
to time by the Board of Directors, and no officer shall be prevented from
receiving such salary because the officer is also a director of the corporation.
ARTICLE VI
ISSUANCE OF SHARES
6.1 Certificates for Shares.
-----------------------
(a) Certificates representing shares of the corporation shall be
in a form determined by the Board of Directors. Such certificates shall be
signed, either manually or in facsimile, by two officers of the corporation, at
least one of whom shall be the President or a Vice President, and may be sealed
with the seal of the corporation or a facsimile thereof. All certificates for
shares shall be consecutively numbered or otherwise identified.
(b) Every certificate for shares of stock that are subject to any
restriction on transfer pursuant to the Articles of Incorporation, these First
Restated Bylaws, applicable securities laws, agreements among or between
shareholders, or any agreement to which the corporation is a party shall have
conspicuously noted on the face or back of the certificate either
14 - SECOND RESTATED BYLAWS
<PAGE>
(i) the full text of the restriction or (ii) a statement of the existence of
such restriction and that the corporation retains a copy of the restriction.
Every certificate issued when the corporation is authorized to issue more than
one class or series of stock shall set forth on its face or back either (i) the
full text of the designations, relative rights, preferences, and limitations of
the shares of each class and series authorized to be issued and the authority of
the Board of Directors to determine variations for future series or (ii) a
statement of the existence of such designations, relative rights, preferences,
and limitations and a statement that the corporation will furnish a copy thereof
to the holder of such certificate upon written request and without charge.
(c) The name and mailing address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. Each
shareholder shall have the duty to notify the corporation of his or her mailing
address. All certificates surrendered to the corporation for transfer shall be
canceled, and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed, or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board of
Directors prescribes.
6.2 Transfer of Shares. A transfer of shares of the corporation
------------------
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by the holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by the holder's attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation. The person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
6.3 Transfer Agent and Registrar. The Board of Directors may from
----------------------------
time to time appoint one or more transfer agents and one or more registrars for
the shares of the corporation, with such powers and duties as the Board of
Directors determines by resolution. The signatures of officers upon a
certificate may be facsimiles if the certificate is manually signed on behalf of
a transfer agent or by a registrar other than the corporation itself or an
employee of the corporation.
6.4 Officer Ceasing to Act. If the person who signed a share
----------------------
certificate, either manually or in facsimile, no longer holds office when the
certificate is issued, the certificate is nevertheless valid.
15 - SECOND RESTATED BYLAWS
<PAGE>
ARTICLE VII
CONTRACTS, LOANS, CHECKS, AND OTHER INSTRUMENTS
7.1 Contracts. The Board of Directors may authorize any officer or
---------
officers and agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
7.2 Loans. No loans shall be contracted on behalf of the corporation
-----
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
7.3 Checks; Drafts. All checks, drafts, or other orders for the
--------------
payment of money and notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers and agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
7.4 Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the Board of Directors may
select.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Seal. Board of Directors from time to time may provide for a
----
seal of the corporation, which shall be circular in form and shall have
inscribed thereon the name of the corporation, the state of incorporation and
the words "Corporate Seal."
8.2 Severability. Any determination that any provision of these
------------
First Restated Bylaws is for any reason inapplicable, invalid, illegal, or
otherwise ineffective shall not affect or invalidate any other provision of
these First Restated Bylaws.
8.3 Oregon Control Share Act Not Applicable. ORS 60.801 to 60.816 do
---------------------------------------
not apply to acquisitions of voting shares of the corporation.
16 - SECOND RESTATED BYLAWS
<PAGE>
ARTICLE IX
AMENDMENTS
These Second Restated Bylaws may be altered, amended, or repealed and
new bylaws may be adopted by the Board of Directors at any regular or special
meeting, subject to repeal or change by action of the shareholders of the
corporation.
___________________________________
James A. Fitzhenry, Secretary
ADOPTED: _______________, 1999.
17 - SECOND RESTATED BYLAWS
<PAGE>
Exhibit 5.1
Ater Wynne LLP
222 SW Columbia, Suite 1800
Portland, OR 97201
(503) 226-1191 (Phone)
(503) 226-0079 (Fax)
December 20, 1999
Board of Directors
FLIR Systems, Inc.
16505 SW 72nd Avenue
Portland, OR 97224
In connection with the public offering of up to 2,107,552 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-1
(the "Registration Statement") and the proposed sale of the Common Stock
pursuant to the plan of distribution described in the prospectus included in the
Registration Statement, 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 Registration Statement are 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 LLP
Ater Wynne LLP
<PAGE>
EXHIBIT 10.20
================================================================================
Credit Agreement
among
FLIR Systems, Inc.
and
Bank of America, N.A.
as Administrative Agent, Swing Line Lender
and
Letter of Credit Issuing Lender
and
The Other Financial
Institutions Party Hereto
Dated as of December 16, 1999
Banc of America Securities LLC,
as
Sole Arranger and Sole Book Manager
[BANK OF AMERICA LOGO APPEARS HERE]
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
SECTION I. DEFINITIONS AND ACCOUNTING TERMS.......................................................... 1
1.01 Defined Terms............................................................................ 1
1.02 Use of Certain Terms..................................................................... 19
1.03 Accounting Terms......................................................................... 20
1.04 Rounding................................................................................. 20
1.05 Exhibits and Schedules................................................................... 20
1.06 References to Agreements, Exhibits and Laws.............................................. 20
SECTION II. THE COMMITMENTS AND EXTENSIONS OF CREDIT................................................. 20
2.01 Committed Loans.......................................................................... 20
2.02 Borrowings, Conversions and Continuations of Committed Loans; Conversion to Term Loan.... 21
2.03 Letters of Credit........................................................................ 22
2.04 Security................................................................................. 26
2.05 Prepayments.............................................................................. 26
2.06 Reduction or Termination of Commitments.................................................. 27
2.07 Principal and Interest................................................................... 27
2.08 Fees..................................................................................... 27
2.09 Computation of Interest and Fees......................................................... 28
2.10 Making Payments.......................................................................... 28
2.11 Funding Sources.......................................................................... 29
2.12 Swing Line Loans......................................................................... 30
SECTION III. TAXES, YIELD PROTECTION AND ILLEGALITY.................................................. 31
3.01 Taxes.................................................................................... 31
3.02 Illegality............................................................................... 32
3.03 Inability to Determine Rates............................................................. 32
3.04 Increased Cost and Reduced Return; Capital Adequacy...................................... 32
3.05 Breakfunding Costs....................................................................... 33
3.06 Matters Applicable to all Requests for Compensation...................................... 33
3.07 Survival................................................................................. 34
SECTION IV. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT............................................. 34
4.01 Conditions of Initial Extension of Credit................................................ 34
4.02 Conditions to all Extensions of Credit................................................... 35
SECTION V. REPRESENTATIONS AND WARRANTIES............................................................ 36
5.01 Existence and Qualification; Power; Compliance with Laws................................. 36
5.02 Power; Authorization; Enforceable Obligations............................................ 36
5.03 No Legal Bar............................................................................. 36
5.04 Financial Statements; No Material Adverse Effect......................................... 36
5.05 Litigation............................................................................... 37
5.06 No Default............................................................................... 37
5.07 Ownership of Property; Liens............................................................. 37
5.08 Taxes.................................................................................... 37
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.09 Margin Regulations; Investment Company Act; Public Utility Holding Company Act.......... 37
5.10 ERISA Compliance........................................................................ 38
5.11 Intangible Assets....................................................................... 38
5.12 Compliance With Laws.................................................................... 38
5.13 Environmental Compliance................................................................ 39
5.14 Insurance............................................................................... 39
5.15 Year 2000............................................................................... 39
5.16 Disclosure.............................................................................. 39
SECTION VI. AFFIRMATIVE COVENANTS................................................................... 39
6.01 Financial Statements.................................................................... 39
6.02 Certificates, Notices and Other Information............................................. 40
6.03 Payment of Taxes........................................................................ 41
6.04 Preservation of Existence............................................................... 41
6.05 Maintenance of Properties............................................................... 41
6.06 Maintenance of Insurance................................................................ 41
6.07 Compliance With Laws.................................................................... 41
6.08 Inspection Rights....................................................................... 42
6.09 Keeping of Records and Books of Account................................................. 42
6.10 Compliance with ERISA................................................................... 42
6.11 Compliance With Agreements.............................................................. 42
6.12 Use of Proceeds......................................................................... 42
6.13 Maintenance of Security Interests and Liens............................................. 42
SECTION VII. NEGATIVE COVENANTS..................................................................... 42
7.01 Indebtedness............................................................................ 42
7.02 Liens and Negative Pledges.............................................................. 43
7.03 Fundamental Changes..................................................................... 43
7.04 Dispositions............................................................................ 44
7.05 Investments............................................................................. 44
7.06 Lease Obligations....................................................................... 44
7.07 Restricted Payments..................................................................... 44
7.08 ERISA................................................................................... 45
7.09 Change in Nature of Business............................................................ 45
7.10 Transactions with Affiliates............................................................ 45
7.11 Hostile Acquisitions.................................................................... 45
7.12 Capital Expenditures.................................................................... 45
7.13 Limitations on Upstreaming.............................................................. 45
7.14 Financial Covenants..................................................................... 45
7.15 Change in Auditors...................................................................... 46
SECTION VIII. EVENTS OF DEFAULT AND REMEDIES........................................................ 46
8.01 Events of Default....................................................................... 46
8.02 Remedies Upon Event of Default.......................................................... 48
SECTION IX. ADMINISTRATIVE AGENT.................................................................... 49
9.01 Appointment and Authorization of Administrative Agent................................... 49
9.02 Delegation of Duties.................................................................... 50
9.03 Liability of Administrative Agent....................................................... 50
9.04 Reliance by Administrative Agent........................................................ 50
9.05 Notice of Default....................................................................... 51
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.06 Credit Decision; Disclosure of Information by Administrative Agent............... 51
9.07 Indemnification of Administrative Agent.......................................... 52
9.08 Administrative Agent in Individual Capacity...................................... 52
9.09 Successor Administrative Agent................................................... 52
9.10 Co-Agents, Lead Managers......................................................... 53
9.11 Collateral Matters............................................................... 53
SECTION X. MISCELLANEOUS..................................................................... 54
10.01 Amendments; Consents............................................................. 54
10.02 Transmission and Effectiveness of Notices and Signatures......................... 55
10.03 Attorney Costs, Expenses and Taxes............................................... 55
10.04 Binding Effect; Assignment....................................................... 56
10.05 Marshalling; Set-off............................................................. 57
10.06 Sharing of Payments.............................................................. 58
10.07 No Waiver; Cumulative Remedies................................................... 58
10.08 Usury............................................................................ 59
10.09 Counterparts..................................................................... 59
10.10 Integration...................................................................... 59
10.11 Nature of Lenders' Obligations................................................... 59
10.12 Survival of Representations and Warranties....................................... 60
10.13 Indemnity by Borrower............................................................ 60
10.14 Nonliability of Lenders.......................................................... 60
10.15 No Third Parties Benefited....................................................... 61
10.16 Severability..................................................................... 61
10.17 Confidentiality.................................................................. 61
10.18 Further Assurances............................................................... 62
10.19 Headings......................................................................... 62
10.20 Time of the Essence.............................................................. 62
10.21 Foreign Lenders and Participants................................................. 62
10.22 Governing Law.................................................................... 63
10.23 Waiver of Right to Trial by Jury................................................. 63
10.24 ENTIRE AGREEMENT................................................................. 64
10.25 Certain Agreements Not Enforceable............................................... 64
</TABLE>
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<PAGE>
EXHIBITS
Form of
A Request for Extension of Credit
B Compliance Certificate
C Committed Loan Note
D Notice of Assignment and Acceptance
SCHEDULES
1 Prepayment Fees
2.01 Commitments and Pro Rata Shares
5.01 Subsidiaries
5.05 Litigation
5.08 Taxes
7.01 Existing Indebtedness, Liens and Negative Pledges
10.02 Offshore and Domestic Lending Offices, Addresses for Notices
-iv-
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT ("Agreement") is entered into as of December 16,
---------
1999, by and among FLIR Systems, Inc., an Oregon corporation, ("Borrower"), each
--------
lender from time to time party hereto (collectively, "Lenders" and individually,
-------
a "Lender"), BANK OF AMERICA, N.A., as Administrative Agent and Issuing Lender.
------
RECITAL
Borrower has requested that Lenders and Issuing Lender provide a secured
revolving line of credit with the option of changing it to a secured term loan,
and Lenders, Issuing Lender and Administrative Agent are willing to do so on the
terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained,
the parties hereto covenant and agree as follows:
SECTION I.
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall
have the meanings set forth below :
"Accounts Payable Days" means total accounts payable as of the end of a
---------------------
fiscal quarter divided by the sum of the cost of goods sold during such fiscal
quarter, plus the cost of goods sold during each of the preceding three fiscal
quarters, multiplied by 365.
"Administrative Agent" means Bank of America, N.A., in its capacity as
--------------------
Administrative agent under any of the Loan Documents, or any successor
administrative agent.
"Administrative Agent's Office" means Administrative Agent's address and,
-----------------------------
as appropriate, account as set forth on Schedule 10.02, or such other address or
--------------
account as Administrative Agent hereafter may designate by written notice to
Borrower and Lenders.
"Administrative Agent-Related Persons" means Administrative Agent
------------------------------------
(including any successor agent), together with its Affiliates (including, in the
case of Administrative Agent, the Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Affiliate" means any Person directly or indirectly controlling, controlled
---------
by, or under direct or indirect common control with, another Person. A Person
shall be deemed to be "controlled by" any other Person if such other Person
possesses, directly or indirectly, power (a) to vote 10% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners; or (b) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Agreement" means this Credit Agreement, as amended, restated, extended,
---------
supplemented or otherwise modified in writing from time to time.
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<PAGE>
"Alternate Base Rate" means the Base Rate less 0.25%.
-------------------
"Alternate Base Rate Loan" means a Loan which bears interest based on the
------------------------
Alternate Base Rate.
"Applicable Amount" means the following amounts per annum, based upon the
-----------------
Leverage Ratio as set forth in the most recent Compliance Certificate received
by Administrative Agent pursuant to Section 6.02(b); provided, however, that,
--------------- -------- -------
until Administrative Agent receives the Compliance Certificate for the period
ending March 31, 2000, such amounts shall be those indicated for pricing level 3
set forth below:
<TABLE>
<CAPTION>
Applicable Amount (in basis points per annum)
Pricing Commitment Offshore Base Rate
Level Leverage Ratio Fee Rate + +
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
1 *2.50 but ***3.00 50.0 200.0 75.0
2 *2.00 but **2.50 37.5 175.0 50.0
3 *1.50 but **2.00 37.5 150.0 25.0
4 *1.00 but **1.50 30.0 125.0 00.0
5 **1.00 25.0 100.0 00.0
</TABLE>
* Less than or equal to
** Greater than
*** Greater than or equal to
The Applicable Amount shall be in effect from the first of the month after
the date the most recent Compliance Certificate is received by Administrative
Agent until the date the next Applicable Amount becomes effective; provided,
--------
however, that if Borrower fails to timely deliver the next Compliance
- -------
Certificate, the Applicable Amount from the first of the month after the date
such Compliance Certificate was due, to but excluding the first of the month
after the date such Compliance Certificate is actually received by
Administrative Agent, shall be the highest pricing level set forth above, and,
thereafter, beginning on the first of the month following receipt of the
Compliance Certificate, the pricing level indicated by such Compliance
Certificate.
"Arranger" means Banc of America Securities LLC, in its capacity as sole
--------
arranger and sole book manager.
"Attorney Costs" means and includes all fees and disbursements of any law
--------------
firm or other external counsel and the allocated cost of internal legal services
and all disbursements of internal counsel.
"Audited Financial Statements" means the audited consolidated balance sheet
----------------------------
of Borrower and its Subsidiaries for the fiscal year ended December 31, 1998,
and the related consolidated statements of income and cash flows for such fiscal
year of Borrower, in each case as restated to reflect the acquisition of
Inframetrics which was accounted for as a pooling of interests.
-2-
<PAGE>
"Bank of America" means Bank of America, N.A.
---------------
"Base Rate" means a fluctuating rate per annum equal to the higher of (a)
---------
the Federal Funds Rate plus 50 basis points or (b) the rate of interest in
effect for such day as publicly announced from time to time by Bank of America
as its "prime rate." Such "prime rate" is a rate set by Bank of America based
upon various factors including Bank of America's costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate. Any change in such rate announced by Bank of America shall take effect at
the opening of business on the day specific in the public announcement of such
change.
"Base Rate Loan" means a Committed Loan which bears interest based on the
--------------
Base Rate.
"Borrower" has the meaning set forth in the introductory paragraph hereto.
--------
"Borrowing" and "Borrow" each mean, a borrowing hereunder consisting of
--------- ------
Loans of the same type made on the same day and, other than in the case of Base
Rate Loans, having the same Interest Period.
"Borrowing Date" means the date that a Loan is made, which shall be a
--------------
Business Day.
"Business Day" means any day other than a Saturday, Sunday, or other day on
------------
which commercial banks are authorized to close under the Laws of, or are in fact
closed in Washington. If such day relates to any Offshore Rate Loan, "Business
Day" means any such day on which dealings in Dollar deposits are conducted by
and between banks in the offshore Dollar interbank market.
"Closing Date" means the date all the conditions precedent in Section IV
------------ ----------
are satisfied or waived in accordance with Section IV.
----------
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral" means all property and interests in property and proceeds
----------
thereof now owned or hereafter acquired by Borrower in or upon which a Lien now
or hereafter exists in favor of Lenders, or Administrative Agent on behalf of
the Lenders, whether under the Security Agreement, Pledge Agreements or under
any of the other Collateral Documents. Collateral includes, but is not limited
to, all domestic accounts receivable, domestic machinery and equipment, domestic
inventory and general intangibles of Borrower and domestic Subsidiaries, as well
as a pledge of 100% of Borrower's stock or ownership interest in present or
future domestic Subsidiaries, and 65% of Borrower's stock or ownership interest
in present or future direct foreign Subsidiaries other than FSI International,
Inc., a Barbados Corporation, and FLIR Systems, Ltd., a Canadian Corporation,
FLIR Systems International, Ltd., a U.K. Corporation, and FLIR Systems Limited,
a U.K. Corporation.
"Collateral Documents" means, collectively, (i) the Security Agreement, the
--------------------
Pledge Agreements and all other security agreements, assignments, guarantees and
other similar agreements, if any, between Borrower or any Subsidiary and Lenders
or Administrative Agent
-3-
<PAGE>
for the benefit of Lenders now or hereafter delivered to Lenders or
Administrative Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the Uniform Commercial Code or comparable
law) against Borrower or any Subsidiary as debtor in favor of Lenders or
Administrative Agent for the benefit of Lenders as secured party, and (ii) any
amendments, supplements, modifications, renewals, replacements, consolidations,
substitutions and extensions of any of the foregoing.
"Commitment" means, for each Lender, the obligation of such Lender to make
----------
Extensions of Credit in an aggregate principal amount not exceeding the amount
set forth opposite such Lender's name on Schedule 2.01 at any one time
-------------
outstanding, as such amount may be reduced or adjusted from time to time in
accordance with this Agreement (collectively, the "Combined Commitments.")
--------------------
"Committed Loan" means a Loan of any type made to Borrower by a Lender in
--------------
accordance with its Pro Rata Share pursuant to Section 2.01, except as otherwise
------------
provided herein.
"Committed Loan Note" means a promissory note made by Borrower in favor of
-------------------
a Lender evidencing Committed Loans made by such Lender, substantially in the
form of Exhibit C (collectively, the "Committed Loan Notes").
--------- --------------------
"Compliance Certificate" means a certificate in the form of Exhibit B,
---------------------- ---------
properly completed and signed by a Responsible Officer of Borrower.
"Consolidated Accounts Payable Days" means Accounts Payable Days for
----------------------------------
Borrower and its Subsidiaries on a consolidated basis.
"Consolidated EBIT" means, for any period, for Borrower and its
-----------------
Subsidiaries on a consolidated basis, an amount equal to the sum of (a)
Consolidated Net Income, (b) Consolidated Interest Charges, (c) the amount of
taxes, based on or measured by income, used or included in the determination of
such Consolidated Net Income, and (d) Non-recurring Charges.
"Consolidated EBITDA" means, for any period, for Borrower and its
-------------------
Subsidiaries on a consolidated basis, an amount equal to the sum of (a)
Consolidated Net Income, (b) Consolidated Interest Charges, (c) the amount of
taxes, based on or measured by income, used or included in the determination of
such Consolidated Net Income, (d) the amount of depreciation and amortization
expense deducted in determining such Consolidated Net Income, and (e) Non-
recurring Charges.
"Consolidated Funded Indebtedness" means, as of any date of determination,
--------------------------------
for Borrower and its Subsidiaries on a consolidated basis, the sum of (a) the
outstanding principal amount of all obligations and liabilities, whether current
or long-term, for borrowed money (including Extensions of Credit hereunder), (b)
that portion of obligations with respect to capital leases that are capitalized
in the consolidated balance sheet of Borrower and its Subsidiaries and (c)
without duplication, all Guaranty Obligations with respect to Indebtedness of
the type
-4-
<PAGE>
specified in subsections (a) and (b) above of Persons other than Borrower or any
of its Subsidiaries.
"Consolidated Interest Charges" means, for any period, for Borrower and its
-----------------------------
Subsidiaries on a consolidated basis, the sum of (a) all interest, premium
payments, fees, charges and related expenses payable by Borrower and its
Subsidiaries in connection with borrowed money (including capitalized interest)
or in connection with the deferred purchase price of assets, in each case to the
extent treated as interest in accordance with GAAP and (b) the portion of rent
payable by Borrower and its Subsidiaries with respect to such period under
capital leases that is treated as interest in accordance with GAAP.
"Consolidated Net Income" means, for any period, for Borrower and its
-----------------------
Subsidiaries on a consolidated basis, the net income of Borrower and its
Subsidiaries from continuing operations after extraordinary items (excluding
gains or losses from Dispositions of assets) for that period.
"Consolidated Tangible Net Worth" means, as of any date of determination,
-------------------------------
for Borrower and its Subsidiaries on a consolidated basis, Shareholders' Equity
of Borrower and its Subsidiaries on that date minus the Intangible Assets of
Borrower and its Subsidiaries on that date.
"Continuation" and "Continue" mean, with respect to any Offshore Rate Loan,
------------ --------
the continuation of such Offshore Rate Loan as an Offshore Rate Loan on the last
day of the Interest Period for such Loan.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound.
"Conversion" and "Convert" mean, with respect to any Loan, the conversion
---------- -------
of such Loan from or into another type of Loan.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
------------------
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States of America or
other applicable jurisdictions from time to time in effect affecting the rights
of creditors generally.
"Default" means any event that, with the giving of any notice, the passage
-------
of time, or both, would be an Event of Default.
"Default Rate" means an interest rate equal to the Base Rate plus the
------------ ----
Applicable Amount, if any, applicable to Base Rate Loans plus 200 basis points
----
per annum, to the fullest extent permitted by applicable Laws; provided,
--------
however, that with respect to an Offshore Rate Loan, the Default Rate shall be
- -------
an interest rate equal to the interest rate (including any Applicable Amount)
otherwise applicable to such Loan plus 200 basis points per annum.
-5-
<PAGE>
"Designated Deposit Account" means a deposit account to be maintained by
--------------------------
Borrower with Bank of America, as from time to time designated by Borrower by
written notification to Administrative Agent.
"Disposition" or "Dispose" means the sale, transfer, license or other
----------- -------
disposition (including any sale and leaseback transaction) of any property by
any Person, including any sale, assignment, transfer or other disposal with or
without recourse of any notes or accounts receivable or any rights and claims
associated therewith.
"Dollar" and "$" means lawful money of the United States of America.
------ -
"Eligible Assignee" means (a) a financial institution organized under the
-----------------
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country, and
having a combined capital and surplus of at least $100,000,000, provided that
such bank is acting through a branch or agency located in the United States; (c)
a Person that is primarily engaged in the business of commercial banking and
that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a
Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; and
(d) another Lender.
"Environmental Laws" means all foreign, federal, state or local laws,
------------------
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental, health, safety and land use matters
applicable to any property.
"ERISA" means the Employee Retirement Income Security Act of 1974 and any
-----
regulations issued pursuant thereto, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
under common control with Borrower within the meaning of Sections 414(b) or (c)
of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
-----------
(b) a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject
to Section 4063 of ERISA during a plan year in which it was a substantial
employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations that is treated as such a withdrawal under Section 4062(e) of ERISA;
(c) a complete or partial withdrawal by Borrower or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer
-6-
<PAGE>
Plan; or (f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower
or any ERISA Affiliate.
"Event of Default" means any of the events specified in Section VIII after
---------------- ------------
the expiration of any applicable notice and cure periods.
"Extension of Credit" means (a) a Borrowing, Conversion or Continuation of
-------------------
Loans, (b) a Letter of Credit Action wherein a new Letter of Credit is issued or
which has the effect of increasing the amount of, extending the maturity of, or
making a material modification to an outstanding Letter of Credit or the
reimbursement of drawings thereunder, (c) each Lender's purchase of a risk
participation in a new Letter of Credit, or (d) each Lender's purchase of a risk
participation in a Swing Line Loan made by Swing Line Lender (collectively, the
"Extensions of Credit").
--------------------
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal Funds Rate
--------
for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate charged to Bank of America on
such day on such transactions as determined by Administrative Agent.
"GAAP" means generally accepted accounting principles as in effect from
----
time to time, applied in a manner consistent with that used in preparing the
Audited Financial Statements and in respect of a business conducting a business
the same as or similar to that of Borrower, including those set forth in
applicable bulletins, opinions, pronouncements, statements and interpretations
issued by the Accounting Principles Board, the American Institute of Certified
Public Accountants and the Financial Accounting Standard Board, consistently
applied.
"Governing State" means the State of Oregon.
---------------
"Governmental Authority" means (a) any international, foreign, federal,
----------------------
state, county or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality, central bank or public body, or (c) any court,
administrative tribunal or public utility.
"Guaranty Obligation" means, as to any Person, any (a) guaranty by that
-------------------
Person of Indebtedness of, or other obligation payable or performable by, any
other Person or (b) assurance, agreement, letter of responsibility, letter of
awareness, undertaking or arrangement given by that Person to an obligee of any
other Person with respect to the payment or performance of an obligation by, or
the financial condition of, such other Person, whether direct, indirect or
contingent, including any purchase or repurchase agreement covering such
obligation or any collateral security therefor, any agreement to provide funds
(by means of loans, capital contributions or otherwise) to such other Person,
any agreement to support the solvency or level
-7-
<PAGE>
of any balance sheet item of such other Person or any "keep-well" or other
arrangement of whatever nature given for the purpose of assuring or holding
harmless such obligee against loss with respect to any obligation of such other
Person; provided, however, that the term Guaranty Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guaranty Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the related primary obligation, or
portion thereof, covered by such Guaranty Obligation or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by the Person in good faith.
"Indebtedness" means as to any Person at a particular time, all items which
------------
would, in conformity with GAAP, be classified as liabilities on a balance sheet
of such Person as at such time (excluding trade and other accounts payable in
the ordinary course of business in accordance with customary trade terms and
which are not overdue for a period of more than 60 days and excluding deferred
taxes), but in any event including:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) any direct or contingent obligations of such Person arising under
letters of credit (including standby and commercial), banker's acceptances,
bank guaranties, surety bonds and similar instruments;
(c) whether or not so included as liabilities in accordance with GAAP,
all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse;
(d) lease payment obligations under capital leases or Synthetic Lease
Obligations; and
(e) all Guaranty Obligations of such Person in respect of any of the
foregoing.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer, unless such Indebtedness is
expressly made non-recourse to such Person except for customary exceptions
acceptable to the Requisite Lenders.
"Intangible Assets" means assets that are considered to be intangible
-----------------
assets under GAAP, including customer lists, goodwill, computer software,
copyrights, trade names, trade marks, patents, unamortized deferred charges,
unamortized debt discount and capitalized research and development costs.
"Interest Coverage Ratio" means, as of any date of determination, the ratio
-----------------------
of Consolidated EBIT, including an adjustment for verifiable Non-recurring
Charges and
-8-
<PAGE>
adjustments, for the period of the four prior fiscal quarters ending on such
date to Consolidated Interest Charges during such period.
"Indemnified Liabilities" has the meaning set forth in Section 10.13.
----------------------- -------------
"Interest Payment Date" means, (a) as to any Base Rate Loan or Alternate
---------------------
Base Rate Loan, the last Business Day of each calendar month; (b) as to any
Offshore Rate Loan, the last day of the relevant Interest Period and any date
that such Loan is prepaid or Converted in whole or in part; provided, however,
-------- -------
that if any Interest Period for an Offshore Rate Loan exceeds three months,
interest shall also be paid on the date which falls every three months after the
beginning of such Interest Period; and (c) as to all Loans, the Revolving Credit
Maturity Date or Term Loan Maturity Date; provided, further, that interest
-------- -------
accruing at the Default Rate shall be payable from time to time at any time upon
demand of Administrative Agent.
"Interest Period" means, for each Offshore Rate Loan as requested by
---------------
Borrower, (a) initially, the period commencing on the date such Offshore Rate
Loan is disbursed, Continued as, or Converted into, an Offshore Rate Loan and
(b) thereafter, the period commencing the day after the last day of the
preceding Interest Period, and ending, in each case, on the earlier of (x) the
applicable Maturity Date, or (y) one, two, three or six months thereafter;
provided that:
- --------
(i) any Interest Period that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
(ii) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of the calendar month at the end of such Interest
Period; and
(iii) unless Administrative Agent otherwise consents, there may not
be more than five Interest Periods in effect at any time.
"Investment" means, as to any Person, any acquisition or any investment by
----------
such Person, whether by means of the purchase or other acquisition of stock or
other securities of any other Person or by means of a loan, creating a debt,
capital contribution, guaranty or other debt or equity participation or interest
in any other Person, including any partnership and joint venture interests in
such other Person. For purposes of covenant compliance, the amount of any
Investment shall be the amount actually invested, without adjustment for
subsequent increases or decreases in the value of such Investment.
"IRS" means the Internal Revenue Service.
---
"Issuing Lender" means Bank of America, or any successor issuing lender
--------------
hereunder.
"Laws" or "Law" means, collectively, all international, foreign, federal,
---- ---
state and local statutes, treaties, rules, guidelines, regulations, ordinances,
codes and administrative or judicial
-9-
<PAGE>
precedents or authorities, including the interpretation or administration
thereof by any Governmental Authority charged with the enforcement,
interpretation or administration thereof, in each case whether or not having the
force of law.
"Lender" means each lender from time to time party hereto and, as the
------
context requires, Swing Line Lender and Issuing Lender.
"Lending Office" means, as to any Lender, the office or offices of such
--------------
Lender described as such on Schedule 10.02, or such other office or offices as
--------------
such Lender may from time to time notify Borrower and Administrative Agent.
"Letter of Credit" means any letter of credit issued or outstanding
----------------
hereunder.
"Letter of Credit Action" means the issuance, supplement, amendment,
-----------------------
renewal, extension, modification or other action relating to a Letter of Credit.
"Letter of Credit Application" means an application for a Letter of Credit
----------------------------
Action as shall at any time be in use by Issuing Lender.
"Letter of Credit Cash Collateral Account" means a blocked deposit account
----------------------------------------
at Bank of America with respect to which Borrower hereby grants a security
interest in such account to Administrative Agent for and on behalf of Lenders as
security for Letter of Credit Usage and with respect to which Borrower agrees to
execute and deliver from time to time such documentation as Administrative Agent
may reasonably request to further assure and confirm such security interest.
"Letter of Credit Commitment" means an amount equal to $10,000,000. The
---------------------------
Letter of Credit Commitment is part of, and not in addition to, the Commitments.
"Letter of Credit Expiration Date" means the date which is 30 days prior to
--------------------------------
the Revolving Credit Maturity Date.
"Letter of Credit Usage" means, as at any date of determination, the
----------------------
aggregate undrawn face amount of outstanding Letters of Credit plus the
----
aggregate amount of all drawings under the Letters of Credit honored by Issuing
Lender and not reimbursed to Issuing Lender by Borrower or deemed a part of a
Borrowing of Committed Loans which are Base Rate Loans pursuant to Section
2.03(e).
"Leverage Ratio" means, as of any date of determination, for the Borrower
--------------
and its Subsidiaries on a consolidated basis, the ratio of (a) Consolidated
Funded Indebtedness as of such date to (b) Consolidated EBITDA for the period of
the four fiscal quarters ending on that date.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement (in the nature of compensating balances, cash collateral accounts or
security interests), encumbrance, lien (statutory or other), charge, or
preference, priority or other security interest or preferential arrangement of
any kind or nature whatsoever (including any conditional sale or other title
-10-
<PAGE>
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable Laws of any jurisdiction), including
the interest of a purchaser of accounts receivable.
"Loan" means any advance made by any Lender to Borrower as provided in
----
Section II (collectively, the "Loans").
- ---------- -----
"Loan Documents" means this Agreement and any Note, certificate, fee
--------------
letter, and other instrument, document or agreement from time to time delivered
in connection with this Agreement.
"Material Adverse Effect" means any set of circumstances or events which
-----------------------
(a) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of any Loan Document, (b) is or
could reasonably be expected to be material and adverse to the condition
(financial or otherwise), business, assets, operations or prospects of Borrower,
or (c) materially impairs or could reasonably be expected to materially impair
the ability of Borrower to perform the Obligations.
"Minimum Amount" means, with respect to each of the following actions, the
--------------
minimum amount and any multiples in excess thereof set forth opposite such
action:
<TABLE>
<CAPTION>
Minimum Multiples in
Type of Action Amount excess thereof
---------------------------------------------------------------------
<S> <C> <C>
Borrowing of, prepayment of, or $ 500,000 $ 100,000
Conversion into, Base Rate Loans
Borrowing of, prepayment of, $5,000,000 $1,000,000
Continuation of, or Conversion
into, Offshore Rate Loans
Borrowing or prepayment of, $ 100,000 None
Swing Line Loans
Letter of Credit Action None None
Reduction in Commitments $1,000,000 $ 500,000
Assignments $5,000,000
</TABLE>
"Multiemployer Plan" means any employee benefit plan of the type described
------------------
in Section 4001(a)(3) of ERISA.
"Negative Pledge" means a Contractual Obligation that restricts Liens on
---------------
property.
"Non-recurring Charges" means verifiable non-recurring charges associated
---------------------
with the acquisition of Inframetrics in an amount not to exceed $24,300,000, and
other future non-recurring charges consented to by Requisite Lenders.
-11-
<PAGE>
"Notes" means, the Committed Loan Notes in the form of Exhibit C.
----- ---------
"Notice of Assignment and Acceptance" means a Notice of Assignment and
-----------------------------------
Acceptance substantially in the form of Exhibit D.
---------
"Obligations" means all advances to, and debts, liabilities, obligations,
-----------
covenants and duties of, Borrower arising under any Loan Document, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and
including interest that accrues after the commencement of any proceeding under
any Debtor Relief Laws by or against Borrower or any Subsidiary or Affiliate of
Borrower.
"Offshore Base Rate" has the meaning set forth in the definition of
------------------
Offshore Rate.
"Offshore Rate" means for any Interest Period with respect to any Offshore
-------------
Rate Loan, a rate per annum determined by Administrative Agent pursuant to the
following formula:
Offshore Rate = Offshore Base Rate
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Offshore Base Rate" means, for such Interest Period:
------------------
(a) the rate per annum (carried out to the fifth decimal place) equal
to the rate determined by Administrative Agent to be the offered rate that
appears on the page of the Telerate Screen that displays an average British
Bankers Association Interest Settlement Rate (such page currently being
page number 3750) for deposits in dollars (for delivery on the first day of
such Interest Period) with a term equivalent to such Interest Period,
determined as of approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, or
(b) in the event the rate referenced in the preceding subsection (a)
does not appear on such page or service or such page or service shall cease
to be available, the rate per annum (carried to the fifth decimal place)
equal to the rate determined by Administrative Agent to be the offered rate
on such other page or other service that displays an average British
Bankers Association Interest Settlement Rate for deposits in dollars (for
delivery on the first day of such Interest Period) with a term equivalent
to such Interest Period, determined as of approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period, or
(c) in the event the rates referenced in the preceding subsections
(a) and (b) are not available, the rate per annum determined by
Administrative Agent as the rate of interest at which dollar deposits (for
delivery on the first day of such Interest Period) in same day funds in the
approximate amount of the applicable Offshore Rate Loan and with a term
equivalent to such Interest Period would be offered by its London Branch to
major banks in the offshore dollar market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period.
-12-
<PAGE>
"Eurodollar Reserve Percentage" means, for any day during any Interest
-----------------------------
Period, the reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1%) in effect on such day, whether or not applicable to
any Lender, under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"). The Offshore Rate for each
outstanding Offshore Rate Loan shall be adjusted automatically as of the
effective date of any change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Committed Loan bearing interest based on the
------------------
Offshore Rate.
"Ordinary Course Dispositions" means:
----------------------------
(a) Dispositions of obsolete or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business;
(b) Dispositions of cash, cash equivalents, inventory and other
property in the ordinary course of business;
(c) Dispositions of property to the extent that such property is
exchanged for credit against the purchase price of similar replacement
property, or the proceeds of such sale are reasonably promptly applied to
the purchase price of such replacement property or where Borrower or its
Subsidiary determine in good faith that the failure to replace such
equipment will not be detrimental to the business of Borrower or such
Subsidiary; and
(d) Dispositions of assets or property by any Subsidiary of Borrower
to Borrower or another wholly-owned Subsidiary of Borrower;
provided, however, that no such Disposition shall be for less than the fair
- -------- -------
market value of the property being disposed of.
"Ordinary Course Indebtedness" means:
----------------------------
(a) Indebtedness under the Loan Documents;
(b) Intercompany Guaranty Obligations of Borrower or any of its
Subsidiaries guarantying Indebtedness otherwise permitted hereunder of
Borrower or any wholly-owned Subsidiary of Borrower or any wholly owned
Subsidiary of a wholly owned Subsidiary of Borrower;
(c) Indebtedness arising from the honoring of a check, draft or
similar instrument against insufficient funds; and
(d) Swap Contracts entered into in the ordinary course of business
and not otherwise prohibited hereunder.
-13-
<PAGE>
"Ordinary Course Investments" means:
---------------------------
(a) Investments consisting of cash and cash equivalents;
(b) Investments consisting of advances to officers, directors and
employees of Borrower and its Subsidiaries for travel, entertainment,
relocation and analogous ordinary business purposes;
(c) Investments of Borrower in any of its Subsidiaries and
Investments of any Subsidiary of Borrower in Borrower or another Subsidiary
of Borrower;
(d) Investments consisting of or evidencing the extension of credit
to customers or suppliers of Borrower and its Subsidiaries in the ordinary
course of business and any Investments received in satisfaction or partial
satisfaction thereof; and
(e) Investments consisting of Guaranty Obligations permitted by
Section 7.01.
------------
"Ordinary Course Liens" means:
---------------------
(a) Liens pursuant to any Loan Document;
(b) Liens for taxes not yet due or which are being contested in good
faith and by appropriate proceedings, if adequate reserves with respect
thereto are maintained on the books of the applicable Person in accordance
with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceedings, if adequate reserves with
respect thereto are maintained on the books of the applicable Person;
(d) pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from
the value of the property subject thereto or materially interfere with the
ordinary conduct of the business of any Person; and
(g) attachment, judgment or other similar Liens arising in connection
with litigation or other legal proceedings (and not otherwise a Default
hereunder) in the ordinary course of business that is currently being
contested in good faith by appropriate proceedings, adequate reserves have
been set aside and no material Property is subject to
-14-
<PAGE>
a material risk of loss or forfeiture and the claims in respect of such
Liens are fully covered by insurance (subject to ordinary and customary
deductibles).
"Organization Documents" means, (a) with respect to any corporation, the
----------------------
certificate or articles of incorporation and the bylaws; (b) with respect to any
limited liability company, the articles of formation and operating agreement;
and (c) with respect to any partnership, joint venture or other form of business
entity, the partnership agreement and any agreement, filing or notice with
respect thereto filed with the secretary of state of the state of its formation,
in each case as amended from time to time.
"Outstanding Obligations" means, as of any date, and giving effect to
-----------------------
making any Extensions of Credit requested on such date and all payments,
repayments and prepayments made on such date, (a) when reference is made to all
Lenders, the sum of (i) the aggregate outstanding principal amount of all
outstanding Loans, and (ii) all Letter of Credit Usage, and (b) when reference
is made to one Lender the sum of (i) the aggregate outstanding principal amount
of all Loans made by such Lender (excluding, in the case of Swing Line Lender,
its Swing Line Loans except to the extent provided in clause (iii) below), (ii)
such Lender's ratable risk participation in all Letter of Credit Usage, and
(iii) such Lender's ratable risk participation in all outstanding Swing Line
Loans.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
thereto established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as such term is
------------
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by Borrower or any
ERISA Affiliates or to which Borrower or any ERISA Affiliate contributes or has
an obligation to contribute, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding five plan years.
"Person" means any individual, trustee, corporation, general partnership,
------
limited partnership, limited liability company, joint stock company, trust,
unincorporated organization, bank, business association, firm, joint venture,
Governmental Authority, or otherwise.
"Plan" means any employee benefit plan maintained or contributed to by
----
Borrower or by any trade or business (whether or not incorporated) under common
control with Borrower as defined in Section 4001(b) of ERISA and insured by the
Pension Benefit Guaranty Corporation under Title IV of ERISA.
"Pro Rata Share" means, with respect to each Lender, the percentage of the
--------------
Combined Commitments set forth opposite the name of that Lender on Schedule
--------
2.01.
- ----
"Quarterly Payment Date" means the last Business Day of each March, June,
----------------------
September and December and the Revolving Credit Maturity Date and the Term Loan
Maturity Date.
-15-
<PAGE>
"Reportable Event" means any of the events set forth in Section 4043(b) of
----------------
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4062(e)
of ERISA.
"Request for Extension of Credit" means, unless otherwise specified herein,
-------------------------------
(a) with respect to a Borrowing, Conversion or Continuance of Committed Loans, a
written request substantially in the form of Exhibit A, (b) with respect to a
Letter of Credit Action, a Letter of Credit Application, and (c) with respect to
a Swing Line Loan, any written or verbal notice acceptable to Swing Line Lender,
in each case of a written Request for Extension of Credit, duly completed and
signed by a Responsible Officer of Borrower and delivered by Requisite Notice.
"Requisite Lenders" means (a) as of any date of determination if the
-----------------
Commitments are then in effect, Lenders (excluding any Lenders not funding when
required to so hereunder) having in the aggregate 66-2/3% or more of the
Combined Commitments then in effect and (b) as of any date of determination if
the Commitments have then been terminated and there are Loans and/or Letter of
Credit Usage outstanding, Lenders holding Loans and Letter of Credit Usage
aggregating 66-2/3% or more of the aggregate outstanding principal amount of the
Loans and Letter of Credit Usage.
"Requisite Notice" means, unless otherwise provided herein, (a) irrevocable
----------------
written notice to the intended recipient or (b) except with respect to Letter of
Credit Actions (which must be in writing), irrevocable telephonic notice to the
intended recipient, promptly followed by a written notice to such recipient.
Such notices shall be (i) delivered to such recipient at the address or
telephone number specified on Schedule 10.02 or as otherwise designated by such
--------------
recipient by Requisite Notice to each other party hereto, and (ii) if made by
Borrower, given or made by a Responsible Officer of Borrower. Any written
notice delivered in connection with any Loan Document shall be in the form, if
any, prescribed in the applicable section hereof or thereof and may be delivered
as provided in Section 10.02. Any notice sent by other than hardcopy shall be
-------------
promptly confirmed by a telephone call to the recipient and, if requested by
Administrative Agent, by a manually-signed hardcopy thereof.
"Requisite Time" means, with respect to any of the actions listed below,
--------------
the time and date set forth below opposite such action (all times are local time
(standard or daylight) as observed in the Governing State):
-16-
<PAGE>
<TABLE>
<CAPTION>
Type of Action Time Date of Action
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Delivery of Request for Extension of Credit
for, or notice for:
. Borrowing of, prepayment of, or Conversion 9:30 a.m. Same date as such Borrowing,
into, Base Rate Loans prepayment or Conversion
. Borrowing of, prepayment of, Continuation 10:00 a.m. 3 Business Days prior to such
of, or Conversion into, Offshore Rate Loans Borrowing, prepayment or Conversion
. Letter of Credit action 10:00 a.m. 2 Business Days prior to such action
. Voluntary reduction in or termination of 10:00 a.m. 2 Business Days prior to such
Commitments reduction or termination
. Payments by Lenders or Borrower to 12:00 p.m. On date payment is due
Administrative Agent
</TABLE>
"Responsible Officer" means the president, chief financial officer,
-------------------
treasurer or assistant treasurer, general counsel or vice president of corporate
operations of Borrower. Any document or certificate hereunder that is signed by
a Responsible Officer of Borrower shall be conclusively presumed to have been
authorized by all necessary corporate, partnership and/or other action on the
part of Borrower and such Responsible Officer shall be conclusively presumed to
have acted on behalf of Borrower.
"Restricted Payment" means:
------------------
(a) the declaration or payment of any dividend or distribution by
Borrower or any of its Subsidiaries, either in cash or property, on any
shares of the capital stock of any class of Borrower or any of its
Subsidiaries (except dividends or other distributions payable solely in
shares of capital stock of Borrower or any of its Subsidiaries or payable
by a Subsidiary to Borrower or another wholly-owned Subsidiary of
Borrower);
(b) the purchase, redemption or retirement by Borrower or any of its
Subsidiaries of any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its
capital stock, whether directly or indirectly, except for the "roll-up" of
existing Subsidiaries into other existing Subsidiaries;
(c) any other payment or distribution by Borrower or any of its
Subsidiaries in respect of its capital stock, either directly or
indirectly;
(d) any Investment other than an Investment otherwise permitted under
any Loan Document; and
(e) the prepayment, repayment, redemption, defeasance or other
acquisition or retirement for value prior to any scheduled maturity,
scheduled repayment or scheduled
-17-
<PAGE>
sinking fund payment, of any Indebtedness not otherwise permitted under any
Loan Document to be so paid.
"Revolving Credit Maturity Date" means December 1, 2002, as it may be
------------------------------
earlier terminated or extended in accordance with the terms hereof.
"Secured Swap Obligations" means all obligations and liabilities of
------------------------
Borrower of any kind arising under all Specified Swap Contracts, including
obligations and liabilities arising in connection with or as a result of early
termination of a Swap Contract, whether or not occurring as a result of a
default thereunder), absolute or contingent, due or to become due, now existing
or hereafter created or incurred, liquidated or unliquidated, determined or
undetermined.
"Shareholders' Equity" means, as of any date of determination for Borrower
--------------------
and its Subsidiaries on a consolidated basis, shareholders' equity as of that
date determined in accordance with GAAP.
"Specified Swap Contract" means any Swap Contact between any Lender and
-----------------------
Borrower.
"Subsidiary" means a corporation, partnership, joint venture, limited
----------
liability company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by
Borrower.
"Swap Contract" means (a) any and all rate swap transactions, basis swaps,
-------------
forward rate transactions, commodity swaps, commodity options, forward commodity
contracts, equity or equity index swaps or options, bond or bond price or bond
index swaps or options or forward bond or forward bond price or forward bond
index transactions, interest rate options, forward foreign exchange
transactions, cap transactions, floor transactions, collar transactions,
currency swap transactions, cross-currency rate swap transactions, currency
options, or any other similar transactions or any combination of any of the
foregoing (including any options to enter into any of the foregoing), whether or
not any such transaction is governed by or subject to any master agreement, or
(b) any and all transactions of any kind, and the related confirmations, which
are subject to the terms and conditions of, or governed by, any form of master
agreement published by the International Swaps and Derivatives Association,
Inc., or any other master agreement (any such master agreement, together with
any related schedules, as amended, restated, extended, supplemented or otherwise
modified in writing from time to time, a "Master Agreement"), including any such
----------------
obligations or liabilities under any Master Agreement.
"Swing Line" means the revolving line of credit established by Swing Line
----------
Lender in favor of Borrower pursuant to Section 2.12.
------------
"Swing Line Lender" means Bank of America, or any successor swing line
-----------------
Lender hereunder.
-18-
<PAGE>
"Swing Line Loan" means a loan which bears interest at the Alternate Base
---------------
Rate and made by Swing Line Lender to Borrower under the Swing Line.
"Swing Line Sublimit" means an amount equal to the lesser of (a) $5,000,000
-------------------
and (b) the Combined Commitments. The Swing Line Sublimit is part of, and not
in addition to, the Commitments.
"Synthetic Lease Obligations" means all monetary obligations of a Person
---------------------------
under (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations
which do not appear on the balance sheet of such Person but which, upon the
insolvency or bankruptcy of such Person, would be characterized as the
Indebtedness of such Person (without regard to accounting treatment).
"Term Loan" means the term loan described in Section 2.02(g).
--------- ---------------
"Term Loan Maturity Date" has the meaning set forth is Section 2.02(g).
----------------------- ---------------
"Threshold Amount" means $2,500,000.
----------------
"To the best knowledge of" means, when modifying a representation, warranty
------------------------
or other statement of any Person, that the fact or situation described therein
is known by such Person (or, in the case of a Person other than a natural
Person, known by any officer of such Person) making the representation, warranty
or other statement, or with the exercise of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable Person in
similar circumstances would have done) would have been known by such Person (or,
in the case of a Person other than a natural Person, would have been known by an
officer of such Person).
"Type" of Loan means (a) a Base Rate Loan, (b) an Offshore Rate Loan, and
----
(c) a Swing Line Loan.
"Unfunded Pension Liability" means the excess of a Pension Plan's benefit
--------------------------
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Pension Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
1.02 Use of Certain Terms.
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
or thereto, unless otherwise defined therein.
(b) As used herein, unless the context requires otherwise, the masculine,
feminine and neuter genders and the singular and plural include one another.
(c) The words "herein" and "hereunder" and words of similar import when
------ ---------
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The term "including" is by way of
---------
example and not limitation. References
-19-
<PAGE>
herein to a Section, subsection or clause shall refer to the appropriate
Section, subsection or clause in this Agreement.
(d) The term "or" is disjunctive; the term "and" is conjunctive. The term
-- ---
"shall" is mandatory; the term "may" is permissive. Masculine terms also apply
----- ---
to females; feminine terms also apply to males.
1.03 Accounting Terms. All accounting terms not specifically or completely
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, GAAP applied on a consistent basis, as in effect from time to
time, applied in a manner consistent with that used in preparing the Audited
Financial Statements, except as otherwise specifically prescribed herein.
------
1.04 Rounding. Any financial ratios required to be maintained by Borrower
pursuant to this Agreement shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than the
number of places by which such ratio is expressed in this Agreement and rounding
the result up or down to the nearest number (with a round-up if there is no
nearest number) to the number of places by which such ratio is expressed in this
Agreement.
1.05 Exhibits and Schedules. All exhibits and schedules to this Agreement,
either as originally existing or as the same may from time to time be
supplemented, modified or amended, are incorporated herein by this reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
1.06 References to Agreements, Exhibits and Laws. Unless otherwise
expressly provided herein, (a) references to agreements (including the Loan
Documents) and other contractual instruments shall include all amendments and
other modifications thereto (unless prohibited by any Loan Document), and (b)
references to any statute or regulation shall include all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
SECTION II.
THE COMMITMENTS AND EXTENSIONS OF CREDIT
2.01 Committed Loans.
(a) Subject to the terms and conditions set forth in this Agreement, each
Lender severally agrees to make, Convert and Continue Committed Loans until the
Maturity Date as Borrower may from time to time request; provided, however, that
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the Outstanding Obligations of each Lender shall not exceed such Lender's
Commitment, and the Outstanding Obligations of all Lenders shall not exceed the
Combined Commitments at any time. Subject to the foregoing and the other terms
and conditions hereof, Borrower may borrow, Convert, Continue, prepay and
reborrow Committed Loans as set forth herein without premium or penalty.
(b) Loans made by each Lender shall be evidenced by one or more Notes.
Each such Lender may attach schedules to its Note(s) and endorse thereon the
date, amount and maturity of
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its Committed Loans and payments with respect thereto. Such Notes shall be
conclusive absent manifest error of the amount of such Loans and payments
thereon. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligation of Borrower to pay any amount owing
with respect to the Loans.
2.02 Borrowings, Conversions and Continuations of Committed Loans;
Conversion to Term Loan.
(a) Borrower may irrevocably request a Borrowing, Conversion or
Continuation of Committed Loans in a Minimum Amount therefor by delivering a
Request for Extension of Credit therefor by Requisite Notice to Administrative
Agent not later than the Requisite Time therefor. All Borrowings, Conversions
and Continuations shall constitute Base Rate Loans unless properly and timely
otherwise designated as set forth in the prior sentence.
(b) Following receipt of a Request for Extension of Credit, Administrative
Agent shall promptly notify each Lender of its Pro Rata Share thereof by
Requisite Notice. In the case of a Borrowing of Loans, each Lender shall make
the funds for its Loan available to Administrative Agent at Administrative
Agent's Office not later than the Requisite Time therefor on the Business Day
specified in such Request for Extension of Credit. Upon satisfaction of the
applicable conditions set forth in Section IV, all funds so received shall be
----------
made available to Borrower in like funds received.
(c) Administrative Agent shall promptly notify Borrower and Lenders of the
interest rate applicable to any Loan other than a Base Rate Loan upon
determination of same.
(d) Except as otherwise provided herein, an Offshore Rate Loan may be
Continued or Converted only on the last day of the Interest Period for such
Offshore Rate Loan. No Loans may be requested as, Converted into or Continued as
Offshore Rate Loans during the existence of a Default or Event of Default.
During the existence of a Default or Event of Default, the Requisite Lenders may
demand that any or all of the then outstanding Offshore Rate Loans be Converted
immediately into Base Rate Loans. Such Conversion shall be effective upon notice
to Borrower and shall continue so long as such Default or Event of Default
continues to exist.
(e) If a Loan is to be made on the same date that another Loan is due and
payable, Borrower or Lenders, as the case may be, shall make available to
Administrative Agent the net amount of funds giving effect to both such Loans
and the effect for purposes of this Agreement shall be the same as if separate
transfers of funds had been made with respect to each such Loan.
(f) The failure of any Lender to make any Loan on any date shall not
relieve any other Lender of any obligation to make a Loan on such date, but no
Lender shall be responsible for the failure of any other Lender to so make its
Loan.
(g) At any time prior to the Revolving Credit Maturity Date, Borrower may
elect to change the entire principal balance outstanding hereunder into a Term
Loan. The Term Loan shall be payable in twenty-four (24) equal monthly principal
payments, plus interest in accordance with Section 2.07. Any then unpaid
------------
principal of the Term Loan and any then accrued and unpaid interest on the Term
Loan shall be paid on the Term Loan Maturity Date which is the
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date twenty-four (24) months after the date on which the such entire principal
balance was changed into a Term Loan. Any payments made on the Term Loan may not
be reborrowed.
2.03 Letters of Credit.
(a) The Letter of Credit Commitment. Subject to the terms and conditions
hereof, at any time and from time to time from the Closing Date through the
Letter of Credit Expiration Date, Issuing Lender shall take such Letter of
Credit Actions under the Commitments as Borrower may request; provided, however,
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that (i) the Outstanding Obligations of each Lender shall not exceed such
Lender's Commitment at any time, (ii) the Outstanding Obligations of all Lenders
shall not exceed the Combined Commitments at any time, and (iii) the aggregate
Letter of Credit Usage shall not exceed the Letter of Credit Commitment at any
time. Each Letter of Credit Action shall be in a form acceptable to Issuing
Lender and shall not violate any policies of Issuing Lender. No commercial
Letter of Credit shall expire after the Letter of Credit Expiration Date, which
date is thirty (30) days prior to the Revolving Credit Maturity Date. No standby
Letter of Credit shall have a duration in excess of three (3) years, and no
standby Letter of Credit shall expire after the date which is one year after the
Revolving Credit Maturity Date. If any Letter of Credit Usage remains
outstanding after the Letter of Credit Expiration Date, Borrower shall, not
later than the Letter of Credit Expiration Date, deposit cash in an amount equal
to such Letter of Credit Usage in a Letter of Credit Cash Collateral Account.
(b) Requesting Letter of Credit Actions. Borrower may irrevocably request
a Letter of Credit Action by delivering a Letter of Credit Application therefor
to Issuing Lender, with a copy to Administrative Agent (who shall notify
Lenders), by Requisite Notice not later than the Requisite Time therefor. Unless
Administrative Agent notifies Issuing Lender that such Letter of Credit Action
is not permitted hereunder or Issuing Lender determines that such Letter of
Credit Action is contrary to any Laws or policies of Issuing Lender or does not
otherwise conform to the requirements of this Agreement, Issuing Lender shall
effect such Letter of Credit Action. This Agreement shall control in the event
of any conflict with any Letter of Credit Application. Upon the issuance of a
Letter of Credit, each Lender shall be deemed to have purchased a pro rata
participation in such Letter of Credit from Issuing Lender in an amount equal to
that Lender's Pro Rata Share.
(c) Reimbursement of Payments Under Letters of Credit. Borrower shall
reimburse Issuing Lender through Administrative Agent for any payment that
Issuing Lender makes under a Letter of Credit on or before the date of such
payment; provided, however, that if the conditions precedent set forth in
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Section IV can be satisfied, Borrower may request a Borrowing of Committed Loans
- ----------
to reimburse Issuing Lender for such payment on or before the date thereof by
complying with Section 2.02, or Borrower may allow a deemed Borrowing of
------------
Committed Loans which are Base Rate Loans to take place on such payment date
pursuant to subsection (e) below.
(d) Funding by Lenders When Issuing Lender Not Reimbursed. Upon any
drawing under a Letter of Credit, Issuing Lender shall notify Administrative
Agent and Borrower. If Borrower fails to timely make the payment required
pursuant to subsection (c) above, Issuing Lender shall notify Administrative
Agent of such fact and the amount of such unreimbursed payment. Administrative
Agent shall promptly notify each Lender of its Pro Rata
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Share of such amount available to Administrative Agent at Administrative Agent's
Office not later than the Requisite Time on the Business Day specified by
Administrative Agent, and Administrative Agent shall remit the funds so received
to reimburse Issuing Lender. The obligation of each Lender to so reimburse
Issuing Lender shall be absolute and unconditional and shall not be affected by
the occurrence of an Event of Default or any other occurrence or event. Any such
reimbursement shall not relieve or otherwise impair the obligation of Borrower
to reimburse Issuing Lender for the amount of any payment made by Issuing Lender
under any Letter of Credit, together with interest as provided herein.
(e) Nature of Lenders' Funding. If the conditions precedent set forth in
Section IV can be satisfied (except for the giving of a Request for Extension of
- ----------
Credit) on the date Borrower is obligated to make, but fails to make, a
reimbursement of a payment under a Letter of Credit, the funding by Lenders
pursuant to subsection (d) above shall be deemed to be part of a Borrowing of
Committed Loans which are Base Rate Loans (without regard to the Minimum Amount
therefor) requested by Borrower. If the conditions precedent set forth in
Section IV cannot be satisfied on the date Borrower is obligated to make, but
- ----------
fails to make, a reimbursement of a payment under a Letter of Credit, the
funding by Lenders pursuant to subsection (d) above shall be deemed to be a
funding by each Lender of its participation in such Letter of Credit, and such
funds shall be payable by Borrower upon demand and shall bear interest at the
Default Rate payable on demand, and each Lender making such funding shall
thereupon acquire a pro rata participation, to the extent of such reimbursement,
in the claim of Issuing Lender against Borrower in respect of such payment and
shall share, in accordance with that pro rata participation, in any payment made
by Borrower with respect to such claim. If Administrative Agent or Issuing
Lender is required at any time to return to Borrower, or to a trustee, receiver,
liquidator, custodian, or any official under any proceeding under Debtor Relief
Laws, any portion of the payments made by Borrower to Administrative Agent for
the account of Issuing Lender pursuant to this subsection in reimbursement of a
payment made under a Letter of Credit or interest or fee thereon, each Lender
shall, on demand of Administrative Agent, forthwith return to Administrative
Agent or Issuing Lender the amount of its Pro Rata Share of any amounts so
returned by Administrative Agent or Issuing Lender plus interest thereon from
the date such demand is made to the date such amounts are returned by such
Lender to Administrative Agent or Issuing Lender, at a rate per annum equal to
the daily Federal Funds Rate.
(f) Special Provisions Relating to Evergreen Letters of Credit. Borrower
may request Letters of Credit that have automatic extension or renewal
provisions ("evergreen" Letters of Credit) so long as Issuing Lender has the
right to not permit any such extension or renewal at least annually within a
notice period to be agreed upon at the time each such Letter of Credit is
issued. Once an evergreen Letter of Credit is issued, unless Administrative
Agent has notified Issuing Lender that all Lenders have elected not to permit
such extension or renewal, Borrower, Administrative Agent and Lenders authorize
(but may not require) Issuing Lender to, in its sole and absolute discretion,
permit the renewal of such evergreen Letter of Credit at any time to a date not
later than the Letter of Credit Expiration Date, and, unless directed by Issuing
Lender, Borrower shall not be required to request such extension or renewal.
Notwithstanding the foregoing, Issuing Lender may, in its sole and absolute
discretion elect not to permit an evergreen Letter of Credit to be extended or
renewed at any time.
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<PAGE>
(g) Obligations Absolute. The obligation of Borrower to pay to Issuing
Lender the amount of any payment made by Issuing Lender under any Letter of
Credit shall be absolute, unconditional, and irrevocable. Without limiting the
foregoing, Borrower's obligation shall not be affected by any of the following
circumstances:
(i) any lack of validity or enforceability of the Letter of Credit,
this Agreement, or any other agreement or instrument relating thereto;
(ii) any amendment or waiver of or any consent to departure from the
Letter of Credit, this Agreement, or any other agreement or instrument
relating thereto;
(iii) the existence of any claim, setoff, defense, or other rights
which Borrower may have at any time against Issuing Lender, Administrative
Agent or any Lender, any beneficiary of the Letter of Credit (or any
persons or entities for whom any such beneficiary may be acting) or any
other Person, whether in connection with the Letter of Credit, this
Agreement, or any other agreement or instrument relating thereto, or any
unrelated transactions;
(iv) any demand, statement, or any other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid, or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever so long as any such document appeared
to comply with the terms of the Letter of Credit;
(v) payment by Issuing Lender in good faith under the Letter of
Credit against presentation of a draft or any accompanying document which
does not strictly comply with the terms of the Letter of Credit; or any
payment made by Issuing Lender under any Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee
for the benefit of creditors, liquidator, receiver or other representative
of or successor to any beneficiary or any transferee of any Letter of
Credit, including any arising in connection with any proceeding under any
Debtor Relief Laws;
(vi) the existence, character, quality, quantity, condition,
packing, value or delivery of any Property purported to be represented by
documents presented in connection with any Letter of Credit or for any
difference between any such Property and the character, quality, quantity,
condition, or value of such Property as described in such documents;
(vii) the time, place, manner, order or contents of shipments or
deliveries of Property as described in documents presented in connection
with any Letter of Credit or the existence, nature and extent of any
insurance relative thereto;
(viii) the solvency or financial responsibility of any party issuing
any documents in connection with a Letter of Credit;
(ix) any failure or delay in notice of shipments or arrival of any
Property;
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<PAGE>
(x) any error in the transmission of any message relating to a
Letter of Credit not caused by Issuing Lender, or any delay or interruption
in any such message;
(xi) any error, neglect or default of any correspondent of Issuing
Lender in connection with a Letter of Credit;
(xii) any consequence arising from acts of God, wars, insurrections,
civil unrest, disturbances, labor disputes, emergency conditions or other
causes beyond the control of Issuing Lender;
(xiii) so long as Issuing Lender in good faith determines that the
document appears to comply with the terms of the Letter of Credit, the
form, accuracy, genuineness or legal effect of any contract or document
referred to in any document submitted to Issuing Lender in connection with
a Letter of Credit; and
(xiv) where Issuing Lender has acted in good faith and any other
circumstances whatsoever.
In addition, Borrower will promptly examine a copy of each Letter of Credit
and amendments thereto delivered to it and, in the event of any claim of
noncompliance with Borrower's instructions or other irregularity, Borrower will
immediately notify Issuing Lender in writing. Borrower shall be conclusively
deemed to have waived any such claim against Issuing Lender and its
correspondents unless such notice is given as aforesaid.
(h) Role of Issuing Lender. Each Lender and Borrower agree that, in paying
any drawing under a Letter of Credit, Issuing Lender shall not have any
responsibility to obtain any document (other than any sight draft, certificates
and documents expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document. No Administrative Agent-
Related Person nor any of the respective correspondents, participants or
assignees of Issuing Lender shall be liable to any Lender for any action taken
or omitted in connection herewith at the request or with the approval of Lenders
or the Requisite Lenders, as applicable; any action taken or omitted in the
absence of gross negligence or willful misconduct; or the due execution,
effectiveness, validity or enforceability of any document or instrument related
to any Letter of Credit. Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided, however, that this assumption is not intended to, and shall
-------- -------
not, preclude Borrower's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other agreement. No
Administrative Agent-Related Person, nor any of the respective correspondents,
participants or assignees of Issuing Lender, shall be liable or responsible for
any of the matters described in subsection (g) above. In furtherance and not in
limitation of the foregoing, Issuing Lender may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary, and Issuing Lender
shall not be responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason.
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<PAGE>
(i) Applicability of ISP98 and UCP. Unless otherwise expressly agreed by
the Issuing Lender and Borrower when a Letter of Credit is issued, performance
under Letters of Credit by the Issuing Lender, its correspondents, and
beneficiaries will be governed by (i) with respect to standby Letters of Credit,
the rules of the "International Standby Practices 1998" (ISP98) or such later
revision as may be published by the International Chamber of Commerce (the
"ICC"), and (ii) with respect to commercial Letters of Credit, the rules of the
---
Uniform Customs and Practice for Documentary Credits, as published in its most
recent version by the ICC on the date any commercial Letter of Credit is issued,
and including the ICC decision published by the Commission on Banking Technique
and Practice on April 6, 1998 regarding the European single currency (euro).
(j) Standby Letter of Credit Fee. On each Quarterly Payment Date and on
the Revolving Credit Maturity Date, Borrower shall pay to Administrative Agent
in arrears, for the account of each Lender in accordance with its Pro Rata
Share, a standby Letter of Credit fee equal to the Applicable Amount for
Offshore Rate Loans times the actual daily maximum amount available to be drawn
-----
under each standby Letter of Credit since the later of the Closing Date and the
previous Quarterly Payment Date.
(k) Commercial Letter of Credit Issuance Fee and Documentary and
Processing Charges Payable to Issuing Lender. Concurrently with the issuance of
each commercial Letter of Credit, Borrower shall pay a commercial letter of
credit issuance fee to Issuing Lender, for the sole account of Issuing Lender,
in an amount set forth in a letter agreement between Borrower and Issuing
Lender. In addition, Borrower shall pay directly to Issuing Lender for its sole
account its customary documentary and processing charges in accordance with its
standard schedule, as from time to time in effect, for any amendment, transfer,
or other occurrence relating to a Letter of Credit. Such fee and charges are
nonrefundable.
(l) Standby Letter of Credit Fronting Fee. The Borrower shall pay to the
Issuing Lender a "standby Letter of Credit fronting" fee, solely for its own
account, in an amount set forth in a letter agreement between Borrower and
Issuing Lender.
2.04 Security. All obligations of the Borrower under this Agreement, the
Commited Loan Notes, all other Loan Documents and all Secured Swap Obligations
shall be secured by the Collateral, in accordance with the Collateral Documents.
2.05 Prepayments.
(a) Upon Requisite Notice to Administrative Agent not later than the
Requisite Time therefor, Borrower may at any time and from time to time
voluntarily prepay Committed Loans in part in the Minimum Amount therefor or in
full without premium or penalty. Administrative Agent will promptly notify each
Lender thereof and of such Lender's Pro Rata Share of such prepayment. Any
prepayment of an Offshore Rate Loan shall be accompanied by all accrued interest
thereon, together with the costs set forth in Section 3.05.
------------
(b) If for any reason the Outstanding Obligations exceed the Combined
Commitments as in effect or as reduced or because of any limitation set forth in
this Agreement or otherwise,
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<PAGE>
Borrower shall immediately prepay Loans and/or deposit cash in a Letter of
Credit Cash Collateral Account in an aggregate amount equal to such excess.
2.06 Reduction or Termination of Commitments. Upon Requisite Notice to
Administrative Agent not later than the Requisite Time therefor, Borrower may at
any time and from time to time, without premium or penalty, permanently and
irrevocably reduce the Commitments in a Minimum Amount therefor to any amount
not less than the Outstanding Obligations at such time or terminate the
Commitments. Any such reduction or termination shall be accompanied by payment
of all accrued and unpaid commitment fees with respect to the portion of the
Commitments being reduced or terminated. Administrative Agent shall promptly
notify Lenders of any such request for reduction or termination of the
Commitments. Each Lender's Commitment shall be reduced by an amount equal to
such Lender's Pro Rata Share times the amount of such reduction.
-----
2.07 Principal and Interest.
(a) If not sooner paid or changed into a Term Loan, Borrower agrees to
pay the outstanding principal amount of each Committed Loan on the Revolving
Credit Maturity Date.
(b) Subject to subsection (c) below, Borrower shall pay interest on the
unpaid principal amount of each Loan (before and after default, before and after
maturity, before and after judgment, and before and after the commencement of
any proceeding under any Debtor Relief Laws) from the date borrowed until paid
in full (whether by acceleration or otherwise) on each applicable Interest
Payment Date at a rate per annum equal to the interest rate determined in
accordance with the definition of such Type of Loan, plus, to the extent
----
applicable in each case, the Applicable Amount.
(c) If any amount payable by Borrower under any Loan Document is not paid
when due (without regard to any applicable grace periods), it shall thereafter
bear interest (after as well as before entry of judgment thereon to the extent
permitted by law) at a fluctuating interest rate per annum at all times equal to
the Default Rate to the fullest extent permitted by applicable Law. Accrued and
unpaid interest on past due amounts (including interest on past due interest)
shall be payable upon demand.
2.08 Fees.
(a) Commitment Fee. Borrower shall pay to Administrative Agent, for the
ratable accounts of Lenders pro rata according to their Pro Rata Share, a
commitment fee equal to the Applicable Amount times the average daily amount by
-----
which the Combined Commitments exceed all Outstanding Obligations (excluding
Letters of Credit Usage for commercial Letters of Credit and Swing Line Loans).
The commitment fee shall accrue at all times from the Closing Date until the
Revolving Credit Maturity Date and shall be payable in quarterly installments in
arrears on each Quarterly Payment Date and on the Revolving Credit Maturity
Date. The commitment fee shall be calculated quarterly in arrears; if there is
any change in the Applicable Amount during any quarter, the average daily amount
shall be computed and multiplied by the Applicable Amount separately for each
period that such Applicable Amount was in effect during
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such quarter. The commitment fees shall accrue at all times, including at any
time during which one or more conditions in Section IV are not met.
----------
(b) Administrative Fee. Borrower shall pay to Administrative Agent an
agency fee in such amounts and at such times as agreed upon by letter agreement
between Borrower and Administrative Agent. The agency fee is for the services to
be performed by Administrative Agent in acting as Administrative Agent and is
fully earned on the date paid. The agency fee paid to Administrative Agent is
solely for its own account and is nonrefundable.
(c) Structuring and Syndicating Fee. On the Closing Date, Borrower shall
pay to the Arranger a structuring and syndicating fee in the amount agreed upon
by letter agreement between Borrower and the Arranger. Such fee is for the
services of the Arranger in arranging the credit facilities under this Agreement
and is fully earned on the date paid. This fee paid to the Arranger is solely
for its own account and is nonrefundable.
(d) Lenders' Upfront Fee. On the Closing Date, Borrower shall pay to
Administrative Agent, for the respective accounts of Lenders (other than the Co-
Agent) pro rata according to their Pro Rata Share, an upfront fee in an amount
set forth in a letter from the Arranger to each Lender and acknowledged by that
Lender as the applicable upfront fee for such Lender. Such upfront fees are for
the credit facilities committed by each Lender under this Agreement and are
fully earned on the date paid. The upfront fee paid to each Lender is solely for
its own account and is nonrefundable.
2.09 Computation of Interest and Fees. Computation of interest on Base Rate
Loans when the Base Rate is determined by Bank of America's "prime rate" shall
be calculated on the basis of a year of 365 or 366 days, as the case may be, and
the actual number of days elapsed. Computation of all other types of interest
and all fees shall be calculated on the basis of a year of 360 days and the
actual number of days elapsed, which results in a higher yield to Lenders than a
method based on a year of 365 or 366 days. Interest shall accrue on each Loan
for the day on which the Loan is made, and shall not accrue on a Loan, or any
portion thereof, for the day on which the Loan or such portion is paid, provided
--------
that any Loan that is repaid on the same day on which it is made shall bear
interest for one day.
2.10 Making Payments.
(a) Except as otherwise provided herein, all payments by Borrower or any
Lender shall be made to Administrative Agent at Administrative Agent's Office
not later than the Requisite Time for such type of payment. All payments
received after such Requisite Time shall be deemed received on the next
succeeding Business Day. All payments shall be made in immediately available
funds in lawful money of the United States of America. All payments by Borrower
shall be made without condition or deduction for any counterclaim, defense,
recoupment or setoff.
(b) Upon satisfaction of any applicable terms and conditions set forth
herein, Administrative Agent shall promptly make any amounts received in
accordance with the prior subsection available in like funds received as
follows: (i) if payable to Borrower, by crediting
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the Designated Deposit Account, and (ii) if payable to any Lender, by wire
transfer to such Lender at the address specified in Schedule 10.02.
--------------
(c) Subject to the definition of "Interest Period," if any payment to be
made by Borrower shall come due on a day other than a Business Day, payment
shall instead be considered due on the next succeeding Business Day, and such
extension of time shall be reflected in computing interest and fees.
(d) Except as otherwise provided in Section 2.03(c) with respect to
---------------
Borrower reimbursing drawings under Letters of Credit, unless Borrower or any
Lender has notified Administrative Agent prior to the date any payment to be
made by it is due, that it does not intend to remit such payment, Administrative
Agent may, in its sole and absolute discretion, assume that Borrower or Lender,
as the case may be, has timely remitted such payment and may, in its sole and
absolute discretion and in reliance thereon, make available such payment to the
Person entitled thereto. If such payment was not in fact remitted to
Administrative Agent in immediately available funds, then:
(i) if Borrower failed to make such payment, each Lender shall
forthwith on demand repay to Administrative Agent the amount of such
assumed payment made available to such Lender, together with interest
thereon in respect of each day from and including the date such amount was
made available by Administrative Agent to such Lender to the date such
amount is repaid to Administrative Agent at the Federal Funds Rate; and
(ii) if any Lender fails to make such payment, Administrative Agent
shall be entitled to recover such corresponding amount on demand from such
Lender. If such Lender does not pay such corresponding amount forthwith
upon Administrative Agent's demand therefor, Administrative Agent promptly
shall notify Borrower, and Borrower shall pay such corresponding amount to
Administrative Agent. Administrative Agent also shall be entitled to
recover interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by Administrative
Agent to Borrower to the date such corresponding amount is recovered by
Administrative Agent, (A) from such Lender at a rate per annum equal to the
daily Federal Funds Rate. and (B) from Borrower, at a rate per annum equal
to the interest rate applicable to such Borrowing. Nothing herein shall be
deemed to relieve any Lender from its obligation to fulfill its Commitment
or to prejudice any rights which Administrative Agent or Borrower may have
against any Lender as a result of any default by such Lender hereunder.
2.11 Funding Sources. Nothing in this Agreement shall be deemed to obligate
any Lender to obtain the funds for any Loan in any particular place or manner or
to constitute a representation by any Lender that it has obtained or will obtain
the funds for any Loan in any particular place or manner.
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2.12 Swing Line Loans.
(a) Subject to the terms and conditions set forth in this Agreement, Swing
Line Lender agrees to make Swing Line Loans until the Revolving Credit Maturity
Date in such amounts as Borrower may from time to time request; provided,
--------
however, that (i) the aggregate principal amount of all Swing Line Loans shall
- -------
not exceed the Swing Line Sublimit, and (ii) the Outstanding Obligations of each
Lender shall not exceed such Lender's Commitment and the Outstanding Obligations
of all Lenders shall not exceed the Combined Commitments at any time. This is a
revolving credit and, subject to the foregoing and the other terms and
conditions hereof, Borrower may borrow, prepay and reborrow Swing Line Loans as
set forth herein without premium or penalty; provided, however, that Swing Line
-------- -------
Lender may terminate or suspend the Swing Line at any time in its sole
discretion upon Requisite Notice to Borrower. Swing Line Loans shall be
evidenced by one or more loan accounts or records maintained by Swing Line
Lender with the same effect as set forth in Section 2.01(b).
---------------
(b) Unless notified to the contrary by Swing Line Lender, Borrower may
irrevocably request a Swing Line Loan in the Minimum Amount therefor upon
Requisite Notice to Swing Line Lender not later than the Requisite Time
therefor. Each such request for a Swing Line Loan shall constitute a
representation and warranty by Borrower that the conditions set forth in
Sections 4.02(a) and (b) are satisfied. Promptly after receipt of such request,
- ---------------- ---
Swing Line Lender shall obtain telephonic verification from Administrative Agent
that the requested Swing Line Loans are permitted hereunder. Upon receiving such
verification, Swing Line Lender shall make such Swing Line Loan available to
Borrower. Without the consent of Requisite Lenders and Swing Line Lender, no
Swing Line Loan shall be made during the continuation of a Default or Event of
Default. Upon the making of each Swing Line Loan, each Lender shall be deemed to
have purchased from Swing Line Lender a risk participation therein in an amount
equal to that Lender's Pro Rata Share times the amount of the Swing Line Loan.
-----
(c) Each Swing Line Loan shall bear interest at the Alternate Base Rate.
Interest shall be paid on the Interest Payment Date. Swing Line Lender shall be
responsible for invoicing Borrower (or notifying Administrative Agent to so
invoice Borrower) for such interest. The interest payable on Swing Line Loans is
solely for the account of Swing Line Lender.
(d) Borrower shall repay each Swing Line Loan on the earliest of (i) the
seventh Business Day after it is made, (ii) upon demand made by Swing Line
Lender and (iii) the Revolving Credit Maturity Date. Borrower shall repay the
principal amount of each Swing Line Loan by payment directly to Swing Line
Lender or by debit at a demand deposit account at Swing Line Lender not later
than the Requisite Time for payments hereunder. If the conditions precedent set
forth in Section 4.02 can be satisfied, Borrower may request a Borrowing of
------------
Loans to repay Swing Line Lender pursuant to Section 2.02, or, failing to make
------------
such request, Borrower shall be deemed to have requested a Borrowing of Base
Rate Loans on such payment date pursuant to subsection (f) below. Swing Line
Lender shall promptly notify Administrative Agent of each Swing Line Loan and
each payment thereof.
(e) If Borrower fails to timely make any principal or interest payment on
any Swing Line Loan, Swing Line Lender shall notify Administrative Agent of such
fact and the unpaid amount. The Administrative Agent shall promptly notify each
Lender of its Pro Rata Share of
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such amount by Requisite Notice. Each Lender shall make funds in an amount equal
its Pro Rata Share of such amount available to Administrative Agent at
Administrative Agent's Office not later than the Requisite Time for payments
hereunder on the following Business Day. The obligation of each Lender to make
such payment shall be absolute and unconditional and shall not be affected by
the occurrence of an Event of Default or any other occurrence or event. Any such
payment shall not relieve or otherwise impair the obligation of Borrower to
repay Swing Line Lender for any amount of Swing Line Loans, together with
interest as provided herein.
(f) If the conditions precedent set forth in Section 4.02 can be satisfied
------------
(except for the giving of a Request for Extension of Credit) on any date
Borrower is obligated to, but fails to, repay a Swing Line Loan, the funding by
Lenders pursuant to the previous subsection shall be deemed to be a Borrowing of
Base Rate Loans (without regard to the Minimum Amount therefor) deemed requested
by Borrower. If the conditions precedent set forth in Section 4.02 cannot be
------------
satisfied on the date Borrower is obligated to make, but fails to make, such
payment, the funding by Lenders pursuant to the previous subsection shall be
deemed to be a funding by each Lender of its participation in such Swing Line
Loan, and each Lender making such funding shall thereupon acquire a pro rata
participation, to the extent of its payment, in the claim of Swing Line Lender
against Borrower in respect of such payment and shall share, in accordance with
that pro rata participation, in any payment made by Borrower with respect to
such claim. Any amounts made available by a Lender under its risk participation
shall be payable by Borrower upon demand of Administrative Agent, and shall bear
interest at a rate per annum equal to the Default Rate applicable to Base Rate
Loans.
SECTION III.
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Any and all payments by Borrower to or for the account of
Administrative Agent or any Lender under any Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of Administrative Agent
---------
and any Lender, taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the Laws of which Administrative Agent or such Lender
is organized or any political subdivision thereof (all such non-excluded taxes,
duties, levies, imposts, deductions, charges, withholdings, and liabilities
being hereinafter referred to as "Taxes"). If Borrower shall be required by any
-----
Laws to deduct any Taxes from or in respect of any sum payable under any Loan
Document to Administrative Agent or any Lender, (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section),
Administrative Agent and such Lender receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Borrower shall make
such deductions, (iii) Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
Laws, and (iv) Borrower shall furnish to Administrative Agent (who shall forward
the same to such Lender) the original or a certified copy of a receipt
evidencing payment thereof.
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(b) In addition, Borrower agrees to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under any Loan Document or from
the execution or delivery of, or otherwise with respect to, any Loan Document
(hereinafter referred to as "Other Taxes").
-----------
(c) Borrower agrees to indemnify Administrative Agent and each Lender for
the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes
imposed or asserted by any jurisdiction on amounts payable under this Section)
paid by Administrative Agent and such Lender and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
3.02 Illegality. If any Lender determines that any Laws have made it
unlawful, or that any Governmental Authority has asserted that it is unlawful,
for any Lender or its applicable Lending Office to make, maintain or fund
Offshore Rate Loans, or materially restricts the authority of such Lender to
purchase or sell, or to take deposits of, Dollars in the applicable offshore
Dollar market, or to determine or charge interest rates based upon the Offshore
Rate, then, on notice thereof by Lender to Borrower through Administrative
Agent, any obligation of that Lender to make Offshore Rate Loans shall be
suspended until Lender notifies Administrative Agent and Borrower that the
circumstances giving rise to such determination no longer exist. Upon receipt of
such notice, Borrower shall, upon demand from such Lender (with a copy to
Administrative Agent), prepay or Convert all Offshore Rate Loans of that Lender,
either on the last day of the Interest Period thereof, if Lender may lawfully
continue to maintain such Offshore Rate Loans to such day, or immediately, if
Lender may not lawfully continue to maintain such Offshore Rate Loans. Each
Lender agrees to designate a different Lending Office if such designation will
avoid the need for such notice and will not, in the good faith judgment of such
Lender, otherwise be materially disadvantageous to such Lender.
3.03 Inability to Determine Rates. If, in connection with any Extension of
Credit involving any Offshore Rate Loan, Administrative Agent determines that
(a) Dollar deposits are not being offered to banks in the applicable offshore
dollar market for the applicable amount and Interest Period of the requested
Offshore Rate Loan, (b) adequate and reasonable means do not exist for
determining the underlying interest rate for such Offshore Rate Loan, or (c)
such underlying interest rate does not adequately and fairly reflect the cost to
Lender of funding such Offshore Rate Loan, Administrative Agent will promptly
notify Borrower and all Lenders. Thereafter, the obligation of all Lenders to
make or maintain such Offshore Rate Loan shall be suspended until Administrative
Agent revokes such notice. Upon receipt of such notice, Borrower may revoke any
pending request for a Borrowing of Offshore Rate Loans or, failing that, be
deemed to have converted such request into a request for a Borrowing of Base
Rate Loans in the amount specified therein.
3.04 Increased Cost and Reduced Return; Capital Adequacy.
(a) If any Lender determines that any Laws:
(i) subject such Lender to any Tax, duty, or other charge with
respect to any Offshore Rate Loans or its obligation to make Offshore Rate
Loans, or change the basis
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on which taxes are imposed on any amounts payable to such Lender under this
Agreement in respect of any Offshore Rate Loans;
(ii) shall impose or modify any reserve, special deposit, or similar
requirement (other than the reserve requirement utilized in the
determination of the Offshore Rate) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities or commitments
of, such Lender (including its Commitment); or
(iii) shall impose on such Lender or on the offshore Dollar interbank
market any other condition affecting this Agreement or any of such
extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender of
making, Converting into, Continuing, or maintaining any Offshore Rate Loans or
to reduce any sum received or receivable by such Lender under this Agreement
with respect to any Offshore Rate Loans, then from time to time upon demand of
Lender (with a copy of such demand to Administrative Agent), Borrower shall pay
to such Lender such additional amounts as will compensate such Lender for such
increased cost or reduction.
(b) If any Lender determines that any change in or the interpretation of
any Laws have the effect of reducing the rate of return on the capital of such
Lender or compliance by such Lender (or its Lending Office) or any corporation
controlling such Lender as a consequence of such Lender's obligations hereunder,
then from time to time upon demand of such Lender (with a copy to Administrative
Agent), Borrower shall pay to such Lender such additional amounts as will
compensate such Lender for such reduction.
3.05 Breakfunding Costs. Borrower shall promptly pay each Lender a sum
computed pursuant to Schedule 1 if there occurs:
(a) any Continuation, Conversion, payment or prepayment of any Loan other
than a Base Rate Loan on a day other than the last day of the Interest Period
for such Loan (whether voluntary, mandatory, automatic, by reason of
acceleration, or otherwise); or
(b) any failure by Borrower (for a reason other than the failure of such
Lender to make a Loan) to prepay, borrow, Continue or Convert any Loan other
than a Base Rate Loan on the date or in the amount notified by Borrower;
3.06 Matters Applicable to all Requests for Compensation.
(a) A certificate of Administrative Agent claiming compensation under this
Section III and setting forth the additional amount or amounts to be paid to it
- -----------
hereunder shall be conclusive in the absence of clearly demonstrable error. In
determining such amount, Administrative Agent may use any reasonable averaging
and attribution methods. For purposes of this Section III, a Lender shall be
-----------
deemed to have funded each Offshore Rate Loan at the Offshore Base Rate used in
determining the Offshore Rate for such Loan by a matching deposit or other
borrowing in the offshore Dollar interbank market, whether or not such Offshore
Rate Loan was in fact so funded.
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(b) Borrower shall not be obligated to pay any such amount which arose
prior to the date which is 180 days preceding the date of such demand or is
attributable to periods prior to the date which is 180 days preceding the date
of such demand.
3.07 Survival. All of Borrower's obligations under this Section III shall
-----------
survive termination of the Commitments and payment in full of all Obligations.
SECTION IV.
CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT
4.01 Conditions of Initial Extension of Credit. The obligation of each
Lender to make the initial Extension of Credit is subject to satisfaction of the
following conditions precedent:
(a) Unless waived by all Lenders, the Administrative Agent's receipt of
the following, each of which shall be originals unless otherwise specified, each
properly executed by a Responsible Officer, each dated on or about the Closing
Date and each in form and substance satisfactory to the Administrative Agent and
its legal counsel:
(i) executed counterparts of this Agreement, sufficient in number
for distribution to Administrative Agent, Lenders and Borrower;
(ii) Committed Loan Notes executed by Borrower in favor of each
Lender, each in a principal amount equal to that Lender's Commitment;
(iii) the Collateral Documents;
(iv) such certificates of resolutions or other action, incumbency
certificates and/or other certificates of Responsible Officers of Borrower
as Administrative Agent may require to establish the identities of and
verify the authority and capacity of each Responsible Officer thereof
authorized to act as a Responsible Officer thereof;
(v) such evidence as Administrative Agent may reasonably require to
verify that Borrower and each Subsidiary, any stock of which will be
pledged to Lenders, is duly organized or formed, validly existing, in good
standing and qualified to engage in business in each jurisdiction in which
it is required to be qualified to engage in business, including certified
copies of Borrower's Organization Documents, certificates of good standing
and/or qualification to engage in business, tax clearance certificates, and
the like;
(vi) a certificate signed by a Responsible Officer of Borrower
certifying (A) that the conditions specified in Sections 4.01(c) and
----------------
4.01(d) have been satisfied, (B) that there has been no event or
-------
circumstance since the date of the Audited Financial Statements which has a
Material Adverse Effect, and (C) that the Audited Financial Statements
fairly present the financial position of Borrower and its subsidiaries as
of December 31, 1998 and fairly present the result of their operations and
their cash flows for the period ending on such date;
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(vii) an opinion of counsel to Borrower in form and substance
satisfactory to Administrative Agent, and such opinions of foreign counsel
regarding the pledge of foreign stock as collateral as shall be
satisfactory to Administrative Agent;
(viii) such other assurances, certificates, documents, consents or
opinions as Administrative Agent, Issuing Lender or the Requisite Lenders
reasonably may require.
(b) Any fees required to be paid on or before the Closing Date shall have
been paid.
(c) The representations and warranties made by Borrower herein, or which
are contained in any certificate, document or financial or other statement
furnished at any time under or in connection herewith or therewith, shall be
correct on and as of the Closing Date.
(d) Borrower shall be in compliance with all the terms and provisions of
the Loan Documents to which it is a party, and no Default or Event of Default
shall have occurred and be continuing.
(e) Unless waived by Administrative Agent, Borrower shall have paid all
Attorney Costs of Administrative Agent to the extent invoiced prior to or on the
Closing Date, plus such additional amounts of Attorney Costs as shall constitute
its reasonable estimate of Attorney Costs incurred or to be incurred by it
through the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between Borrower and
Administrative Agent).
4.02 Conditions to all Extensions of Credit. In addition to any applicable
conditions precedent set forth elsewhere in this Section IV or in Section II,
---------- ----------
the obligation of each Lender to honor any Request for Extension of Credit is
subject to the following conditions precedent:
(a) the representations and warranties of Borrower contained in Section V,
---------
or which are contained in any certificate, document or financial or other
statement furnished at any time under or in connection herewith or therewith,
shall be correct in all material respects on and as of the date of such
Extension of Credit, except to the extent that such representations and
warranties specifically refer to any earlier date.
(b) no Default or Event of Default exists, or would result from such
proposed Extension of Credit.
(c) Administrative Agent shall have timely received a Request for
Extension of Credit by Requisite Notice by the Requisite Time therefor.
(d) Administrative Agent shall have received, in form and substance
satisfactory to it, such other assurances, certificates, documents or consents
related to the foregoing as Administrative Agent or Requisite Lenders reasonably
may require.
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<PAGE>
Each request for an Extension of Credit by Borrower shall be deemed to be a
representation and warranty that the conditions specified in Sections 4.02(a)
----------------
and 4.02(b) have been satisfied and on and as of the date of such Extension of
-------
Credit.
SECTION V.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and Lenders that:
5.01 Existence and Qualification; Power; Compliance with Laws. Borrower
is a corporation duly organized or formed, and validly existing under the Laws
of the state of Oregon, has the corporate power and authority and the legal
right to own and operate its properties, to lease the properties it operates and
to conduct its business, is duly qualified and in good standing under the Laws
of each jurisdiction where its ownership, lease or operation of properties or
the conduct of its business requires such qualification, except where such non-
qualification does not have a Material Adverse Effect and is in compliance with
all Laws except to the extent that noncompliance does not have a Material
Adverse Effect. Schedule 5.01 lists every Subsidiary showing the jurisdiction
-------------
and organization of each Subsidiary and the percentage ownership of Borrower in
each Subsidiary.
5.02 Power; Authorization; Enforceable Obligations. Borrower has the
corporate power and authority and the legal right to make, deliver and perform
each Loan Document to which it is a party and Borrower has corporate power and
authority to borrow hereunder and has taken all necessary action to authorize
the borrowings on the terms and conditions of this Agreement and to authorize
the execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party. No consent or authorization of, filing with,
or other act by or in respect of any Governmental Authority, is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the other
Loan Documents. The Loan Documents have been duly executed and delivered by
Borrower and constitute a legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with their respective terms.
5.03 No Legal Bar. The execution, delivery, and performance by Borrower
of the Loan Documents to which it is a party and compliance with the provisions
thereof have been duly authorized by all requisite action on the part of
Borrower and do not and will not (a) violate or conflict with, or result in a
breach of, or require any consent under (i) any Organization Documents of
Borrower or any of its Subsidiaries, (ii) any applicable Laws, rules, or
regulations or any order, writ, injunction, or decree of any Governmental
Authority or arbitrator, or (iii) any material Contractual Obligation of
Borrower or any of its Subsidiaries or by which any of them or any of their
property is bound or subject, (b) constitute a default under any such agreement
or instrument, or (c) result in, or require, the creation or imposition of any
Lien on any of the properties of Borrower or any of its Subsidiaries, except as
provided herein.
5.04 Financial Statements; No Material Adverse Effect. The Audited
Financial Statements (i) were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein; (ii) fairly present the financial condition of Borrower and its
Subsidiaries as of the date thereof and their results of
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operations for the period covered thereby in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein; and (iii) show all material indebtedness and other liabilities,
direct or contingent, of Borrower and its Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Indebtedness in each
case in accordance with GAAP consistently applied throughout the period covered
thereby.
(a) Since the date of the Audited Financial Statements, there has been no
event or circumstance which has a Material Adverse Effect.
(b) For purposes of Section 5.04 or Section 5.04(a), any change,
------------ ---------------
adjustment or restatement of the Audited Financial Statements required by the
Securities and Exchange Commission shall not be deemed a Material Adverse Effect
or render any representation untrue.
5.05 Litigation. Except as disclosed on Schedule 5.05, no litigation,
-------------
investigation or proceeding of or before an arbitrator or Governmental Authority
is pending or, to the knowledge of Borrower threatened by or against Borrower or
any of its Subsidiaries or against any of their properties or revenues which, if
determined adversely, could result in an award or judgment exceeding $2,500,000
in excess of applicable insurance.
5.06 No Default. Neither Borrower nor any of its Subsidiaries are in
default under or with respect to any Contractual Obligation which could have a
Material Adverse Effect, and no Default or Event of Default has occurred and is
continuing or will result from the consummation of this Agreement or any of the
other Loan Documents, or the making of the Extensions of Credit hereunder.
5.07 Ownership of Property; Liens. Borrower and its Subsidiaries have
valid fee or leasehold interests in all real property which they use in their
respective businesses, and Borrower and its Subsidiaries have good and
marketable title to all their other property, and none of such property is
subject to any Lien, except as permitted in Section 7.02.
------ ------------
5.08 Taxes. Borrower and its Subsidiaries have filed all tax returns
which are required to be filed, and have paid, or made provision for the payment
of, all taxes with respect to the periods, property or transactions covered by
said returns, or pursuant to any assessment received by Borrower or its
Subsidiaries, except (a) such taxes, if any, as are being contested in good
------
faith by appropriate proceedings and as to which adequate reserves have been
established and maintained, (b) immaterial taxes, and (c) except as disclosed in
Schedule 5.08; provided, however, that in each case no material item or portion
- ------------- -------- -------
of property of Borrower or any of its Subsidiaries is in jeopardy of being
seized, levied upon or forfeited.
5.09 Margin Regulations; Investment Company Act; Public Utility Holding
Company Act.
(a) Borrower is not engaged nor will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" "margin stock" within the respective meanings of each
of the quoted terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter
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in effect. No part of the proceeds of any Extensions of Credit hereunder will be
used for "purchasing" or "carrying" "margin stock" as so defined or for any
purpose which violates, or which would be inconsistent with, the provisions of
Regulations U or X of such Board of Governors.
(b) Neither Borrower nor any of its Subsidiaries (i) is a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, or (ii) is or is
required to be registered as an "investment company" under the Investment
Company Act of 1940.
5.10 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state Laws. Each
Plan that is intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the IRS or an application for such a letter
is currently being processed by the IRS with respect thereto and, to the best
knowledge of Borrower, nothing has occurred which would prevent, or cause the
loss of, such qualification. Borrower and each ERISA Affiliate have made all
required contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower, threatened
claims, actions or lawsuits, or action by any Governmental Authority, with
respect to any Plan that has a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Plan that has a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA.
5.11 Intangible Assets. Borrower and its Subsidiaries own, or possess the
right to use, all trademarks, trade names, copyrights, patents, patent rights,
franchises, licenses and other intangible assets that are used in the conduct of
their respective businesses as now operated, and none of such items, to the best
knowledge of Borrower, conflicts with the valid trademark, trade name,
copyright, patent, patent right or intangible asset of any other Person to the
extent that such conflict has a Material Adverse Effect.
5.12 Compliance With Laws. Borrower and its Subsidiaries are in
compliance in all material respects with all Laws that are applicable to it.
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5.13 Environmental Compliance. Borrower and its Subsidiaries comply with
all existing Environmental Laws and, to the best of Borrower's knowledge, there
are no claims alleging potential liability or responsibility for violation of
any Environmental Law on their respective businesses, operations and properties,
and as a result thereof Borrower has reasonably concluded that such
Environmental Laws and claims do not, individually or in the aggregate, have a
Material Adverse Effect.
5.14 Insurance. The properties of Borrower and its Subsidiaries are
insured with financially sound and reputable insurance companies not Affiliates
of Borrower, in such amounts, with such deductibles and covering such risks as
are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where Borrower or such Subsidiary operates.
5.15 Year 2000. Borrower has (a) initiated a review and assessment of all
areas within its and each of its Subsidiaries' business and operations
(including those affected by customers and vendors) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications and devices containing imbedded computer chips used by Borrower or
its Subsidiaries (or their respective customers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (b) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, Borrower believes that all computer applications and devices
containing imbedded computer chips (including those of its and its Subsidiaries'
vendors) that are material to its or any of its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have a Material Adverse Effect.
5.16 Disclosure. No statement, information, report, representation, or
warranty made by Borrower in any Loan Document or furnished to Administrative
Agent or any Lender in connection with any Loan Document contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading.
SECTION VI.
AFFIRMATIVE COVENANTS
So long as any Obligation remains unpaid or unperformed, or any portion of
the Commitments remains outstanding, Borrower shall, and shall (except in the
case of Borrower's reporting covenants), cause each of its Subsidiaries, to:
6.01 Financial Statements. Deliver to Administrative Agent in form and
detail satisfactory to Administrative Agent and the Requisite Lenders, with
sufficient copies for each Lender:
(a) as soon as available, but in any event within 120 days after the end
of each fiscal year of Borrower, (i) a consolidated balance sheet of Borrower
and its Subsidiaries as at the end of such fiscal year, and the related
consolidated statements of income and cash flows for such
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fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, audited and accompanied by a
report and opinion of an independent certified public accountant of nationally
recognized standing reasonably acceptable to the Requisite Lenders, which report
and opinion shall be prepared in accordance with GAAP and shall not be subject
to any qualifications or exceptions as to the scope of the audit nor to any
qualifications and exceptions (including possible errors generated by financial
reporting and related systems due to the Year 2000 problem) not reasonably
acceptable to the Requisite Lenders and (ii) Borrower's Form 10-K as submitted
to the Securities and Exchange Commission; and;
(b) as soon as available, but in any event within 45 days after the end of
each fiscal quarter of Borrower, Borrower's Form 10-Q, as provided to the
Securities and Exchange Commission.
(c) as soon as available, but in any event within 120 days after the end
of each fiscal year of Borrower, a company-prepared, consolidated balance sheet
and income statement forecast, including a capital expenditure budget, for the
subsequent fiscal year.
6.02 Certificates, Notices and Other Information. Deliver to
Administrative Agent in form and detail satisfactory to the Administrative Agent
and the Requisite Lenders, with sufficient copies for each Lender:
(a) concurrently with the delivery of the financial statements referred to
in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a
---------------- ---
Responsible Officer of Borrower;
(b) promptly after request by Administrative Agent or any Lender, copies
of any detailed audit reports, management letters or recommendations submitted
to the board of directors (or the audit committee of the board of directors) of
Borrower by independent accountants in connection with the accounts or books of
Borrower or any of its Subsidiaries, or any audit of any of them;
(c) promptly after the same are available, copies of each annual report,
proxy or financial statement or other report or similar communication sent to
the stockholders of Borrower, and copies of all annual, regular, periodic and
special reports and registration statements which Borrower may file or be
required to file with the Securities and Exchange Commission under Sections 13
or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to
be delivered to Administrative Agent pursuant hereto;
(d) promptly after the occurrence thereof, notice of any Default or Event
of Default;
(e) notice of any material change in accounting policies or financial
reporting practices by Borrower or any of its Subsidiaries;
(f) promptly after the commencement thereof, notice of any litigation,
investigation or proceeding affecting Borrower where the amount involved exceeds
the Threshold Amount in
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excess of applicable insurance coverage, or in which injunctive relief or
similar relief is sought, which relief, if granted, has a Material Adverse
Effect;
(g) promptly after the occurrence thereof, notice of any Reportable Event
with respect to any Plan or the intent to terminate any Plan, or the institution
of proceedings or the taking or expected taking of any other action to terminate
any Plan or withdraw from any Plan;
(h) promptly after the occurrence thereof, notice of any Material Adverse
Effect;
(i) promptly of any discovery or determination that any computer
application (including those of its suppliers and vendors) that is material to
Borrower or any of its Subsidiaries' business and operations will not be Year
2000 compliant on a timely basis, except to the extent that such failure could
not reasonably be expected to have a Material Adverse Effect;
(j) promptly, such other data and information as from time to time may be
reasonably requested by Administrative Agent, or, through Administrative Agent
or any Lender.
Each notice pursuant to this Section shall be accompanied by a statement of
a Responsible Officer of Borrower setting forth details of the occurrence
referred to therein and stating what action Borrower has taken and proposes to
take with respect thereto.
6.03 Payment of Taxes. Pay and discharge when due all taxes, assessments,
and governmental charges, Ordinary Course Liens or levies imposed on Borrower or
its Subsidiaries or on its income or profits or any of its property, except for
any such tax, assessment, charge, or levy which is an Ordinary Course Lien under
subsection (b) of the definition of such term.
6.04 Preservation of Existence. Preserve and maintain its existence,
licenses, permits, rights, franchises and privileges necessary or desirable in
the normal conduct of its business, except where failure to do so does not have
a Material Adverse Effect.
6.05 Maintenance of Properties. Maintain, preserve and protect all of its
material properties and equipment necessary in the operation of its business in
good order and condition, subject to wear and tear in the ordinary course of
business, and not permit any waste of its properties.
6.06 Maintenance of Insurance. Maintain liability and casualty insurance
with responsible insurance companies satisfactory to Requisite Lenders in such
amounts and against such risks as is customary for similarly situated
businesses.
6.07 Compliance With Laws.
(a) Comply with the requirements of all applicable Laws and orders of any
Governmental Authority, noncompliance with which has a Material Adverse Effect.
(b) Conduct its operations and keep and maintain its property in
compliance with all Environmental Laws, where failure to comply would have a
Material Adverse Effect.
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6.08 Inspection Rights. At any time during regular business hours and as
often as reasonably requested, permit Administrative Agent or any Lender, or any
employee, agent or representative thereof, accompanied by a Borrower
representative to examine, audit and make copies and abstracts from Borrower's
records and books of account and to visit and inspect their properties and to
discuss their affairs, finances and accounts with any of their officers and key
employees, and, upon request, furnish promptly to Administrative Agent or any
Lender true copies of all financial information and internal management reports
made available to their senior management.
6.09 Keeping of Records and Books of Account. Keep adequate records and
books of account reflecting all financial transactions in conformity with GAAP,
consistently applied, and in material conformity with all applicable
requirements of any Governmental Authority having regulatory jurisdiction over
Borrower or any of its Subsidiaries.
6.10 Compliance with ERISA. Cause, and cause each of its ERISA Affiliates
to: (a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law; (b)
cause each Plan which is qualified under Section 401(a) of the Code to maintain
such qualification; and (c) make all required contributions to any Plan subject
to Section 412 of the Code.
6.11 Compliance With Agreements. Promptly and fully comply with all
Contractual Obligations under all material agreements, indentures, leases and/or
instruments to which any one or more of them is a party, except for any such
------
Contractual Obligations (a) the performance of which would cause a Default, (b)
then being contested by any of them in good faith by appropriate proceedings, or
(c) if the failure to comply therewith does not have a Material Adverse Effect.
6.12 Use of Proceeds. Use the proceeds of Extensions of Credit for lawful
corporate purposes not otherwise in contravention of this Agreement.
6.13 Maintenance of Security Interests and Liens. Execute and deliver all
Collateral Documents and perform such other acts as the Administrative Agent
reasonably requests to maintain the continuous perfection and priority of
Lenders' security interests and Liens in the Collateral.
SECTION VII.
NEGATIVE COVENANTS
So long as any Obligations remain unpaid or unperformed, or any portion of
the Commitments remains outstanding, Borrower shall not, nor shall it permit any
of its Subsidiaries to, directly or indirectly:
7.01 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except:
------
(a) Ordinary Course Indebtedness;
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(b) Indebtedness outstanding on the date hereof and listed on Schedule
--------
7.01 and any refinancings, refundings, renewals or extensions thereof, provided
- ---- --------
that the amount of such Indebtedness is not increased at the time of such
refinancing, refunding, renewal or extension except by an amount equal to the
premium or other amount paid, and fees and expenses incurred, in connection with
such refinancing and by an amount equal to any utilized commitments thereunder;
and
(c) Indebtedness secured by Purchase Money Liens not exceeding $5,000,000
in the aggregate in any fiscal year of Borrower and not exceeding $10,000,000 in
the aggregate anytime after the date of this Agreement.
(d) Indebtedness comprised of an existing line of credit and overdraft
facility from Svenska Handelsbanken in a maximum amount of 55,000,000 Swedish
kroner, 40,000,000 Swedish kroner of which is secured; and
(e) Indebtedness comprised of a capital lease to refinance the cost of
BaaN ERP software, in a maximum amount of not more than 5% of Borrower's
Consolidated Tangible Net Worth.
7.02 Liens and Negative Pledges. Incur, assume or suffer to exist, any
Lien or Negative Pledge upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except:
------
(a) Liens and Negative Pledges existing on the date hereof and listed on
Schedule 7.01 and any renewals or extensions thereof; provided that the
- ------------- --------
obligations secured or benefited thereby or the property covered thereby are not
increased;
(b) Ordinary Course Liens;
(c) Purchase Money Liens securing Indebtedness permitted by Section
-------
7.01(c);
- -------
(d) Liens created under any Collateral Document;
(e) Liens created under an existing chattel mortgage securing indebtedness
permitted by Section 7.01(d); and
---------------
(f) Liens created under a capital lease permitted by Section 7.01(e).
---------------
7.03 Fundamental Changes. Merge or consolidate with or into any Person,
acquire any Person or liquidate, wind-up or dissolve itself, or permit or suffer
any liquidation or dissolution or sell all or substantially all of its assets,
except, that so long as no Default or Event of Default exists or would result
therefrom:
(a) any Subsidiary of Borrower may merge with (i) Borrower provided that
Borrower shall be the continuing or surviving corporation, (ii) with any one or
more Subsidiaries of Borrower, and (iii) with any joint ventures, partnerships
and other Persons, so long as such joint ventures, partnerships and other
Persons will, as a result of making such merger and all other contemporaneous
related transactions, become a Subsidiary of Borrower; provided that when any
--------
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wholly-owned Subsidiary of Borrower is merging into another Subsidiary of
Borrower, the wholly-owned Subsidiary of Borrower shall be the continuing or
surviving Person; and
(b) any Subsidiary of Borrower may sell all or substantially all of its
assets (upon voluntary liquidation or otherwise), to Borrower or any of its
Subsidiaries; provided that when any wholly-owned Subsidiary of Borrower is
--------
selling all or substantially all of its assets to another Subsidiary of
Borrower, the Subsidiary acquiring such assets shall be a wholly-owned
Subsidiary of Borrower.
(c) Borrower or any Subsidiary may merge with or acquire any Person, but
only if Borrower or the applicable Subsidiary shall remain the parent or
surviving entity, and only if the value of the total consideration paid by
Borrower and Subsidiaries in all such transactions made anytime after the date
of this Agreement, including cash, property or stock of Borrower or any
Subsidiary does not exceed $25,000,000 and also does not exceed $15,000,000 in
any period of 12 consecutive months.
7.04 Dispositions. Make any Dispositions, except:
------
(a) Ordinary Course Dispositions; and
(b) Dispositions permitted by Section 7.03.
------------
(c) Dispositions of property with a value of less than $2,500,000 in any
period of 12 consecutive months if such property is not material to the
continuation of Borrower's business.
7.05 Investments. Make any Investments, except:
------
(a) Investments existing on the date hereof;
(b) Ordinary Course Investments; and
(c) Investments permitted by Section 7.03.
------------
7.06 Lease Obligations. Create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except:
------
(a) leases in existence on the date hereof and any renewal, extension or
refinancing thereof; and
(b) leases entered into or assumed by Borrower or any of its Subsidiaries
after the date hereof in the ordinary course of business. However, no capital
leases are permitted under this Subsection unless the amount thereof is within
the limit of Section 7.12.
------------
7.07 Restricted Payments. Make any Restricted Payments described in
subparagraph (a), (c), (d), or (e) under the definition of Restricted Payment;
provided, however, Borrower may make any Restricted Payment described in such
- --------- -------
subparagraphs (a), (c), (d) and (e) so long as the total of such payments does
not exceed $10,000,000 in any period of 12 consecutive months. Further, Borrower
may make any Restricted Payment described in
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subparagraph (b) under the definition of Restricted Payment so long as such
payment plus the total of all such payments described in such subparagraph made
anytime after the date of this Agreement will not exceed the lesser of
$25,000,000 and 15% of Borrower's Consolidated Tangible Net Worth as at the end
of Borrower's fiscal quarter most recently ended.
7.08 ERISA. At any time engage in a transaction which could be subject to
Sections 4069 or 4212(c) of ERISA, or permit any Pension Plan to (a) engage in
any non-exempt "prohibited transaction" (as defined in Section 4975 of the
Code); (b) fail to comply with ERISA or any other applicable Laws; or (c) incur
any material "accumulated funding deficiency" (as defined in Section 302 of
ERISA), which, with respect to each event listed above, has a Material Adverse
Effect.
7.09 Change in Nature of Business. Make any change in the nature of the
business of Borrower as conducted and as proposed to be conducted as of the date
hereof.
7.10 Transactions with Affiliates. Enter into any transaction of any kind
with any Affiliate of Borrower other than arm's-length transactions with
Affiliates that are otherwise permitted hereunder and other than transactions
with Subsidiaries, 100% of the capital stock of which has been pledged to secure
the Obligations in the case of domestic Subsidiaries, and 65% of the capital
stock of which has been so pledged in the case of foreign Subsidiaries.
7.11 Hostile Acquisitions. Use the proceeds of any Loan in connection
with the acquisition of a voting interest in any Person if such acquisition is
opposed by the board of directors or management of such Person unless (a)
------
Borrower has given Administrative Agent (who shall promptly notify each Lender)
five Business Days' prior notice thereof and (b) no Lender shall have, within
that period, notified Administrative Agent (who shall promptly notify Borrower)
not consented to the use of the proceeds of such Loan for that purpose.
7.12 Capital Expenditures. Make, or become legally obligated to make, any
capital expenditure, except capital expenditures in any fiscal year of Borrower
------
not exceeding the sum of $12,000,000.
7.13 Limitations on Upstreaming. Agree to any restriction or limitation
on the making of Restricted Payments or transferring of assets from any
Subsidiary of Borrower to Borrower.
7.14 Financial Covenants.
(a) Consolidated Tangible Net Worth. Permit Consolidated Tangible Net
Worth at any time to be less than the sum of (a) $89,056,000, (b) an amount
equal to 50% of the Net Income earned in each fiscal quarter ending after
September 30, 1999 (with no deduction for a net loss in any such fiscal quarter,
but with a deduction for any reduction in Consolidated Tangible Net Worth
resulting from repurchases of Borrower's capital stock permitted by Section
-------
7.07) and (c) an amount equal to 90% of the aggregate increases in Shareholders'
- ----
Equity of Borrower and its Subsidiaries after the date of this Agreement by
reason of the issuance or sale of capital stock of Borrower (including upon any
conversion of debt securities of Borrower into
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<PAGE>
such capital stock and including any issuance of capital stock of Borrower in
connection with any merger or acquisition described in Section 7.03(c)).
---------------
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio to be less
than 2.50:1.00:
(c) Leverage Ratio. Permit the Leverage Ratio at any time to be greater
than 3.00:1.00.
(d) Maximum Accounts Payable Days. Permit Borrower's Consolidated Accounts
Payable Days to exceed 80 days for the quarter ending December 31, 1999, and 50
days for each quarter ending thereafter.
7.15 Change in Auditors. Change the certified public accountants auditing
the books of Borrower without the consent of Requisite Lenders, such consent not
to be unreasonably withheld.
SECTION VIII.
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any one or more of the following events shall
constitute an Event of Default:
(a) Borrower fails to pay any principal on any Outstanding Obligation
(other than fees) as and on the date when due; or
(b) Borrower fails to pay any interest on any Outstanding Obligation, or
any commitment fees due hereunder within three Business Days after the date when
due; or fails to pay any other fees or amount payable to Administrative Agent or
any Lender under any Loan Document within five Business Days after the date due;
or
(c) Any default occurs in the observance or performance of any agreement
contained in Sections 6.01, 6.02, 6.08 or Section VII; or
------------- ---- ---- -----------
(d) The occurrence of an Event of Default (as such term is or may
hereafter be specifically defined in any other Loan Document) under any other
Loan Document; or Borrower fails to perform or observe any other covenant or
agreement (not specified in subsections (a), (b) or (c) above) contained in any
Loan Document on its part to be performed or observed and such failure continues
for 30 days; or
(e) Any representation or warranty in any Loan Document or in any
certificate, agreement, instrument or other document made or delivered by
Borrower pursuant to or in connection with any Loan Document proves to have been
incorrect when made or deemed made; or
(f) (i) Borrower (x) defaults in any payment when due of principal of or
interest on any Indebtedness (other than Indebtedness hereunder) or (y) defaults
in the observance or performance of any other agreement or condition relating to
any Indebtedness (other than
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<PAGE>
Indebtedness hereunder) or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur, the effect of
which default or other event is to cause, or to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
Indebtedness having an aggregate principal amount in excess of $1,000,000 to be
demanded or become due (automatically or otherwise) prior to its stated
maturity, or any Guaranty Obligation in such amount to become payable, or
Borrower is unable or admits in writing its inability to pay its debts as they
mature; or (ii) the occurrence under any Swap Contract of an Early Termination
Date (as defined in such Swap Contract) resulting from (x) any event of default
under such Swap Contract as to which Borrower or any Subsidiary is the
Defaulting Party (as defined in such Swap Contract) or (y) any Termination Event
occurs under any Swap Contract (as defined therein) as to which Borrower or any
Subsidiary is an Affected Party (as so defined), which, in either event, the
Swap Termination Value owed by Borrower or such Subsidiary as a result thereof
is greater than $1,000,000; or
(g) Any Loan Document, at any time after its execution and delivery and
for any reason other than the agreement of all Lenders or satisfaction in full
of all the Obligations, ceases to be in full force and effect or is declared by
a court of competent jurisdiction to be null and void, invalid or unenforceable
in any material respect; or Borrower denies that it has any or further liability
or obligation under any Loan Document, or purports to revoke, terminate or
rescind any Loan Document; or
(h) A final judgment against Borrower is entered for the payment of money
in excess of the Threshold Amount, or any non-monetary final judgment is entered
against Borrower which has a Material Adverse Effect and, in each case if such
judgment remains unsatisfied without procurement of a stay of execution within
30 calendar days after the date of entry of judgment or, if earlier, five days
prior to the date of any proposed sale, or any writ or warrant of attachment or
execution or similar process is issued or levied against all or any material
part of the Property of any such Person and is not released, vacated or fully
bonded within 30 calendar days after its issue or levy; or
(i) Borrower or any of its Subsidiaries institutes or consents to the
institution of any proceeding under Debtor Relief Laws, or makes an assignment
for the benefit of creditors; or applies for or consents to the appointment of
any receiver, trustee, custodian, conservator, liquidator, rehabilitator or
similar officer for it or for all or any material part of its property; or any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar
officer is appointed without the application or consent of that Person and the
appointment continues undischarged or unstayed for 60 calendar days; or any
proceeding under Debtor Relief Laws relating to any such Person or to all or any
material part of its property is instituted without the consent of that Person
and continues undismissed or unstayed for 60 calendar days, or an order for
relief is entered in any such proceeding; or
(j) (i) An ERISA Event occurs with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold
Amount; (ii) the aggregate amount of Unfunded Pension Liability
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<PAGE>
among all Pension Plans at any time exceeds the Threshold Amount; or (iii)
Borrower or any ERISA Affiliate fails to pay when due, after the expiration of
any applicable grace period, any installment payment with respect to its
withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in
an aggregate amount in excess of the Threshold Amount; or
(k) Any event occurs which has a Material Adverse Effect.
8.02 Remedies Upon Event of Default. Without limiting any other rights or
remedies of Administrative Agent or Lenders provided for elsewhere in this
Agreement, or the other Loan Documents, or by applicable Law, or in equity, or
otherwise:
(a) Upon the occurrence, and during the continuance, of any Event of
Default other than an Event of Default described in Section 8.01(i):
----- ---- ---------------
(i) the Requisite Lenders may request Administrative Agent to, and
Administrative Agent thereupon shall, terminate the Commitments and/or
declare all or any part of the unpaid principal of all Loans, all interest
accrued and unpaid thereon and all other amounts payable under the Loan
Documents to be immediately due and payable, whereupon the same shall
become and be immediately due and payable, without protest, presentment,
notice of dishonor, demand or further notice of any kind, all of which are
expressly waived by Borrower; and
(ii) Issuing Lender may, with the approval of Administrative Agent on
behalf of the Requisite Lenders, demand immediate payment by Borrower of an
amount equal to the aggregate amount of all outstanding Letters of Credit
Usage to be held in a Letter of Credit Cash Collateral Account.
(b) Upon the occurrence of any Event of Default described in Section
-------
8.01(i):
- -------
(i) the Commitments and all other obligations of Administrative
Agent or Lenders shall automatically terminate without notice to or demand
upon Borrower, which are expressly waived by Borrower;
(ii) the unpaid principal of all Loans, all interest accrued and
unpaid thereon and all other amounts payable under the Loan Documents shall
be immediately due and payable, without protest, presentment, notice of
dishonor, demand or further notice of any kind, all of which are expressly
waived by Borrower; and
(iii) an amount equal to the aggregate amount of all outstanding
Letters of Credit Usage shall be immediately due and payable to Issuing
Lender without notice to or demand upon Borrower, which are expressly
waived by Borrower, to be held in a Letter of Credit Cash Collateral
Account.
(c) Upon the occurrence of any Event of Default, Lenders and
Administrative Agent, or any of them, without notice to (except as expressly
provided for in any Loan Document) or demand upon Borrower, which are expressly
waived by Borrower (except as to notices expressly provided for in any Loan
Document), may proceed to (but only with the consent of the Requisite
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Lenders) protect, exercise and enforce their rights and remedies under the Loan
Documents against Borrower and such other rights and remedies as are provided by
Law or equity.
(d) Except as permitted by Section 10.05, no Lender may exercise any
-------------
rights or remedies with respect to the Obligations without the consent of the
Requisite Lenders in their sole and absolute discretion. The order and manner in
which Administrative Agent's and Lenders' rights and remedies are to be
exercised shall be determined by the Requisite Lenders in their sole and
absolute discretion. Regardless of how a Lender may treat payments for the
purpose of its own accounting, for the purpose of computing the Obligations
hereunder, payments shall be applied first, to costs and expenses (including
Attorney Costs) incurred by Administrative Agent and each Lender, second, to the
payment of accrued and unpaid interest on the Loans to and including the date of
such application, third, to the payment of the unpaid principal of the Loans and
Secured Swap Obligations on a pari passu basis, and fourth, to the payment of
all other amounts (including fees) then owing to Administrative Agent and
Lenders under the Loan Documents, in each case paid pro rata to each Lender in
the same proportions that the aggregate Obligations owed to each Lender under
the Loan Documents bear to the aggregate Obligations owed under the Loan
Documents to all Lenders, without priority or preference among Lenders. Any
surplus thereof which exists after payment and performance in full of the
Obligations shall be paid to Borrower or otherwise disposed of in accordance
with applicable law. No application of payments will cure any Event of Default,
or prevent acceleration, or continued acceleration, of amounts payable under the
Loan Documents, or prevent the exercise, or continued exercise, of rights or
remedies of Administrative Agent and Lenders hereunder or thereunder or at Law
or in equity.
SECTION IX.
ADMINISTRATIVE AGENT
9.01 Appointment and Authorization of Administrative Agent.
(a) Each Lender hereby irrevocably (subject to Section 9.09) appoints,
------------
designates and authorizes Administrative Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, Administrative Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall Administrative Agent have or
be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Administrative Agent. Without limiting the generality of the foregoing
sentence, the use of the term "agent" in this Agreement with reference to
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
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(b) Issuing Lender shall act on behalf of Lenders with respect to any
Letters of Credit issued by it and the documents associated therewith until such
time and except for so long as Administrative Agent may agree at the request of
the Requisite Lenders to act for such Issuing Lender with respect thereto;
provided, however, that Issuing Lender shall have all of the benefits and
- -------- -------
immunities (i) provided to Administrative Agent in this Section IX with respect
----------
to any acts taken or omissions suffered by Issuing Lender in connection with
Letters of Credit issued by it or proposed to be issued by it and the
application and agreements for letters of credit pertaining to the Letters of
Credit as fully as if the term "Administrative Agent" as used in this Section IX
----------
included Issuing Lender with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to Issuing Lender.
9.02 Delegation of Duties. Administrative Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Administrative Agent shall not
be responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
9.03 Liability of Administrative Agent. None of Administrative Agent-
Related Persons shall (i) be liable for any action taken or omitted to be taken
by any of them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of Lenders for any recital, statement, representation or warranty made by
Borrower or any Subsidiary or Affiliate of Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by Administrative Agent under or in connection with, this Agreement
or any other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of Borrower or any other party to any Loan Document to perform
its obligations hereunder or thereunder. No Administrative Agent-Related Person
shall be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of Borrower or any of Borrower's Subsidiaries or Affiliates.
9.04 Reliance by Administrative Agent.
(a) Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower),
independent accountants and other experts selected by Administrative Agent.
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Requisite Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by Lenders against any and all liability and expense which may be
incurred by it by reason of taking or
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continuing to take any such action. Administrative Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Requisite
Lenders or all Lenders, if required hereunder, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all of Lenders.
(b) For purposes of determining compliance with the conditions specified
in Section 4.01, each Lender that has executed this Agreement shall be deemed to
------------
have consented to, approved or accepted or to be satisfied with, each document
or other matter either sent by Administrative Agent to such Lender for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to such Lender.
9.05 Notice of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to Administrative Agent for the account of Lenders, unless
Administrative Agent shall have received written notice from a Lender or
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." Administrative
Agent will notify Lenders of its receipt of any such notice. Administrative
Agent shall take such action with respect to such Default or Event of Default as
may be requested by the Requisite Lenders in accordance with Section VIII;
------------
provided, however, that unless and until Administrative Agent has received any
- -------- -------
such request, Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of Lenders.
9.06 Credit Decision; Disclosure of Information by Administrative Agent.
Each Lender acknowledges that none of Administrative Agent-Related
Persons has made any representation or warranty to it, and that no act by
Administrative Agent hereinafter taken, including any consent to and acceptance
of any assignment or review of the affairs of Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty by any
Administrative Agent-Related Person to any Lender as to any matter, including
whether Administrative Agent-Related Persons have disclosed material information
in their possession. Each Lender, including any Lender by assignment,
represents to Administrative Agent that it has, independently and without
reliance upon any Administrative Agent-Related Person and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of Borrower and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to Borrower hereunder. Each Lender also
represents that it will, independently and without reliance upon any
Administrative Agent-Related Person and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigations as it
deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower. Except
for notices, reports and other documents expressly herein
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required to be furnished to Lenders by Administrative Agent herein,
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of
Borrower or any of its Subsidiaries which may come into the possession of any of
Administrative Agent-Related Persons.
9.07 Indemnification of Administrative Agent. Whether or not the
transactions contemplated hereby are consummated, Lenders shall indemnify upon
demand each Administrative Agent-Related Person (to the extent not reimbursed by
or on behalf of Borrower and without limiting the obligation of Borrower to do
so), pro rata, and hold harmless each Administrative Agent-Related Person from
and against any and all Indemnified Liabilities incurred by it; provided,
--------
however, that no Lender shall be liable for the payment to any Administrative
- -------
Agent-Related Person of any portion of such Indemnified Liabilities resulting
from such Person's gross negligence or willful misconduct; provided, however,
-------- -------
that no action taken in accordance with the directions of the Requisite Lenders
shall be deemed to constitute gross negligence or willful misconduct for
purposes of this Section. Without limitation of the foregoing, each Lender shall
reimburse Administrative Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by Administrative
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that Administrative Agent
is not reimbursed for such expenses by or on behalf of Borrower. The undertaking
in this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Administrative Agent.
9.08 Administrative Agent in Individual Capacity. Bank of America and its
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or other business with Borrower
and its Subsidiaries and Affiliates as though Bank of America were not
Administrative Agent or Issuing Lender hereunder and without notice to or
consent of Lenders. Lenders acknowledge that, pursuant to such activities, Bank
of America or its Affiliates may receive information regarding Borrower or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of Borrower or such Affiliate) and acknowledge that
Administrative Agent shall be under no obligation to provide such information to
them. With respect to its Loans, Bank of America shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not Administrative Agent or Issuing Lender.
9.09 Successor Administrative Agent. Administrative Agent may, and at the
request of Requisite Lenders shall, resign as Administrative Agent upon 30 days'
notice to Lenders. If Administrative Agent resigns under this Agreement,
Requisite Lenders shall appoint from among Lenders a successor administrative
agent for Lenders which successor administrative agent shall be approved by
Borrower. If no successor administrative agent is appointed prior to the
effective date of the resignation of Administrative Agent, Administrative Agent
may appoint, after consulting with Lenders and Borrower, a successor
administrative
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agent from among Lenders. Upon the acceptance of its appointment as successor
administrative agent hereunder, such successor administrative agent shall
succeed to all the rights, powers and duties of the retiring Administrative
Agent and the term "Administrative Agent" shall mean such successor
administrative agent and the retiring Administrative Agent's appointment, powers
and duties as Administrative Agent shall be terminated. After any retiring
Administrative Agent's resignation hereunder as Administrative Agent, the
provisions of this Section IX and Sections 10.03 and 10.11 shall inure to its
---------- -------------- -----
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. If no successor administrative agent
has accepted appointment as Administrative Agent by the date which is 30 days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and Lenders shall perform all of the duties of Administrative Agent hereunder
until such time, if any, as Requisite Lenders appoint a successor agent as
provided for above. Notwithstanding the foregoing, however, Bank of America may
not be removed as Administrative Agent at the request of Requisite Lenders
unless Bank of America shall also simultaneously be replaced as "Issuing Lender"
and "Swing Line Lender" hereunder pursuant to documentation in form and
substance reasonably satisfactory to Bank of America.
9.10 Co-Agents, Lead Managers. None of Lenders identified on the facing
page or signature pages of this Agreement as a "co-agent" or "lead manager"
shall have any right, power, obligation, liability, responsibility or duty under
this Agreement other than those applicable to all Lenders as such. Without
limiting the foregoing, none of Lender so identified as a "co-agent" or "lead
manager" shall have or be deemed to have any fiduciary relationship with any
Lender. Each Lender acknowledges that it has not relied, and will not rely, on
any of Lenders so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
9.11 Collateral Matters
(a) Administrative Agent is authorized on behalf of all Lenders, without
the necessity of any notice to or further consent from Lenders, from time to
time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) Lenders irrevocably authorize Administrative Agent, at its option and
in its discretion, to release any Lien granted to or held by Administrative
Agent upon any Collateral (i) upon termination of the Combined Commitments and
payment in full of all Loans and all other Obligations known to Administrative
Agent and payable under this Agreement or any other Loan Document; (ii)
constituting property sold or to be sold or disposed of as part of or in
connection with any disposition permitted hereunder; or (iii) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; or (iv) if approved, authorized or
ratified in writing by all Lenders. Upon request by Administrative Agent at any
time, Lenders will confirm in writing Administrative Agent's authority to
release particular types or items of Collateral pursuant to this Section
-------
9.11(b), provided that the absence of any such confirmation for whatever reason
- -------
shall not affect Administrative Agent's rights under this Section 9.11.
------------
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(c) Each Lender agrees with and in favor of each other (which agreement
shall not be for the benefit of Borrower or any Subsidiary) that Borrower's
obligation to such Lender under this Agreement and the other Loan Documents is
not and shall not be secured by any real property collateral now or hereafter
acquired by such Lender.
SECTION X.
MISCELLANEOUS
10.01 Amendments; Consents. No amendment, modification, supplement,
extension, termination or waiver of any provision of this Agreement or any other
Loan Document, no approval or consent thereunder, and no consent to any
departure by Borrower therefrom shall be effective unless in writing signed by
Administrative Agent and Requisite Lenders, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. Except as otherwise expressly provided herein, without the
approval in writing of Administrative Agent and all Lenders, no amendment,
modification, supplement, termination, waiver or consent may be effective:
(a) To reduce the amount of principal, principal prepayments or the rate
of interest payable on, any Loan, or the amount of any fee or other amount
payable to any Lender under the Loan Documents (unless such modification is
consented to by each Lender entitled to receive such fee) or to waive an Event
of Default consisting of the failure of Borrower to pay when due principal,
interest or any commitment fee;
(b) To postpone any date fixed for any payment of principal of, prepayment
of principal of, or any installment of interest on, any Loan or any installment
of any commitment fee, to extend the term of, or increase the amount of, any
Lender's Commitment (it being understood that a waiver of an Event of Default
shall not constitute an extension or increase in the Commitment of any Lender)
or modify the Pro Rata Share of any Lender;
(c) To amend the provisions of the definition of "Requisite Lenders",
Sections 4, 9, this Section 10.01 or Section 10.06; or
- ---------- - ------------- -------------
(d) To amend any provision of this Agreement that expressly requires the
consent or approval of all Lenders.
provided, however, that (i) no amendment, waiver or consent shall, unless in
- -------- -------
writing and signed by Issuing Lender in addition to Requisite Lenders or all
Lenders, as the case may be, affect the rights or duties of Issuing Lender under
any Loan Document relating to Letters of Credit, (ii) no amendment, waiver or
consent shall, unless in writing and signed by Administrative Agent in addition
to Requisite Lenders or all Lenders, as the case may be, affect the rights or
duties of Administrative Agent under any Loan Document, (iii) no amendment,
waiver or consent shall, unless in writing and signed by Swing Line Lender in
addition to Requisite Lenders or all Lenders, as the case may be, affect the
rights or duties of Swing Line Lender under any Loan Document, and (iv) any fee
letter may be amended, or rights or privileges thereunder waived, in a writing
executed by the parties thereto. Any amendment, modification, supplement,
termination, waiver or consent pursuant to this Section shall apply equally to,
and shall be binding upon, all Lenders and Administrative Agent.
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10.02 Transmission and Effectiveness of Notices and Signatures.
(a) Modes of Delivery. Except as otherwise provided in any Loan Document,
notices, requests, demands, directions, agreements and documents delivered in
connection with the Loan Documents (collectively, "communications") shall be
--------------
transmitted by Requisite Notice to the number and address set forth on Schedule
--------
10.02, may be delivered by the following modes of delivery, and shall be
- -----
effective as follows:
Mode of Delivery Effective on earlier of actual receipt and:
---------------------------------------------------------------------
Courier Scheduled delivery date
Facsimile When transmission in legible form complete
Mail Fourth Business Day after deposit in U.S.
mail first class postage pre-paid
Personal delivery When received
Telephone When conversation completed
provided, however, that communications delivered to Administrative Agent
- -------- -------
pursuant to Section II shall not be effective until actually received by
----------
Administrative Agent.
(b) Reliance by Administrative Agent and Lenders. Administrative Agent and
Lenders shall be entitled to rely and act on any communications purportedly
given by or on behalf of Borrower even if such communications (i) were not made
in a manner specified herein, (ii) were incomplete, (iii) were not preceded or
followed by any other notice specified herein, or (iv) the terms thereof, as
understood by the recipient, varied from any subsequent related communications
provided for herein. Borrower shall indemnify Administrative Agent and Lenders
from any loss, cost, expense or liability as a result of relying on any
communications permitted herein.
(c) Effectiveness of Facsimile Signatures. Signatures on communications
may be transmitted by facsimile only with the consent of Administrative Agent in
its sole and absolute discretion in each instance. The effectiveness of any such
signatures accepted by Administrative Agent shall, subject to applicable Law,
have the same force and effect as manual signatures and shall be binding on all
Borrower Parties and Administrative Agent and Lenders. Administrative Agent may
also require that any such signature be confirmed by a manually-signed hardcopy
thereof.
10.03 Attorney Costs, Expenses and Taxes. Borrower agrees (a) to pay or
reimburse Administrative Agent for all costs and expenses incurred in connection
with the development, preparation, negotiation and execution of the Loan
Documents, and the development, preparation, negotiation and execution of any
amendment, waiver, consent, supplement or modification to, any Loan Documents,
and any other documents prepared in connection herewith or therewith, and the
consummation and administration of the transactions contemplated hereby and
thereby, including all Attorney Costs, and (b) to pay or reimburse
Administrative Agent and each Lender for all costs and expenses incurred in
connection with any refinancing, restructuring,
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reorganization (including a bankruptcy reorganization) and enforcement or
attempted enforcement, or preservation of any rights under any Loan Documents,
and any other documents prepared in connection herewith or therewith, or in
connection with any refinancing, or restructuring of any such documents in the
nature of a "workout" or of any insolvency or bankruptcy proceeding, including
Attorney Costs. The foregoing costs and expenses shall include all search,
filing, recording, title insurance and appraisal charges and fees and taxes
related thereto, and other out-of-pocket expenses incurred by Administrative
Agent and the cost of independent public accountants and other outside experts
retained by Administrative Agent or any Lender. Such costs and expenses shall
also include administrative costs of Administrative Agent reasonably
attributable to the administration of the Loan Documents. Any amount payable by
Borrower under this Section shall bear interest from the second Business Day
following the date of demand for payment at the Default Rate, unless waived by
Administrative Agent. The agreements in this Section shall survive repayment of
all Obligations.
10.04 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents to which Borrower is a
party will be binding upon and inure to the benefit of Borrower, Administrative
Agent, Lenders and their respective successors and assigns, except that,
Borrower may not assign its rights hereunder or thereunder or any interest
herein or therein without the prior written consent of all Lenders and any such
attempted assignment shall be void. Any Lender may at any time pledge its Note
or any other instrument evidencing its rights as a Lender under this Agreement
to a Federal Reserve Lender, but no such pledge shall release that Lender from
its obligations hereunder or grant to such Federal Reserve Lender the rights of
a Lender hereunder absent foreclosure of such pledge.
(b) From time to time following the Closing Date, each Lender may assign
to one or more Eligible Assignees all or any portion of its Pro Rata Share of
its Commitment and/or Extensions of Credit; provided that (i) such assignment,
--------
if not to a Lender or an Affiliate of the assigning Lender, shall be consented
to by Borrower at all times other than during the existence of a Default or
Event of Default and Administrative Agent and Issuing Lender (which approval of
Borrower shall not be unreasonably withheld or delayed), (ii) a copy of a duly
signed and completed Notice of Assignment and Acceptance shall be delivered to
Administrative Agent, (iii) except in the case of an assignment to an Affiliate
of the assigning Lender, to another Lender or of the entire remaining Commitment
of the assigning Lender, the assignment shall not assign a Pro Rata Share
equivalent to less than $5,000,000, the Minimum Amount therefor, and (iv) the
effective date of any such assignment shall be as specified in the Notice of
Assignment and Acceptance, but not earlier than the date which is five Business
Days after the date Administrative Agent has received the Notice of Assignment
and Acceptance. Upon acceptance by Administrative Agent of such Notice
Assignment and Acceptance and consent thereto by Administrative Agent and
Issuing Lender and payment of the requisite fee described below, the Eligible
Assignee named therein shall be a Lender for all purposes of this Agreement,
with the Pro Rata Share therein set forth and, to the extent of such Pro Rata
Share, the assigning Lender shall be released from its further obligations under
this Agreement. Borrower agrees that it shall execute and deliver upon request
(against delivery by the assigning Lender to Borrower of any Note) to such
assignee Lender, one or more Notes evidencing that assignee Lender's Pro Rata
Share, and to the assigning Lender if requested, one or more Notes evidencing
the remaining
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balance Pro Rata Share retained by the assigning Lender. Administrative Agent's
consent to and acceptance of any assignment shall not be deemed to constitute
any representation or warranty by any Administrative Agent-Related Person as to
any matter.
(c) After receipt of a completed Notice of Assignment and Acceptance, and
receipt of an assignment fee of $3,500 from such Eligible Assignee (including
Affiliates of assigning Lenders), Administrative Agent shall, promptly following
the effective date thereof, provide to Borrower and Lenders a revised Schedule
--------
10.02 giving effect thereto.
- -----
(d) Each Lender may from time to time grant participations to one or more
other Person (including another Lender) all or any portion of its Pro Rata Share
of its Commitment and/or Extensions of Credit; provided, however, that (i) such
-------- -------
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) the participating banks or other
financial institutions shall not be a Lender hereunder for any purpose except,
if the participation agreement so provides, for the purposes of Section III (but
-----------
only to the extent that the cost of such benefits to Borrower does not exceed
the cost which Borrower would have incurred in respect of such Lender absent the
participation) and subject to Sections 10.05 and 10.06, (iv) Borrower,
------------------------
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) the participation shall not restrict an
increase in the Commitment or in granting Lender's Pro Rata Share, so long as
the amount of the participation interest is not affected thereby, and (vi) the
consent of the holder of such participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents; provided, however,
-------- -------
that the assigning Lender may, in any agreement with a participant, give such
participant the right to consent to any matter which (A) extends the Revolving
Credit Maturity Date or the Term Loan Maturity Date as to such participant or
any other date upon which any payment of money is due to such participant, (B)
reduces the rate of interest owing to such participant, any fee or any other
monetary amount owing to such participant, or (C) reduces the amount of any
installment of principal owing to such participant.
10.05 Marshalling; Set-off. Neither Administrative Agent nor Lenders shall
be under any obligation to marshal any assets in favor of Borrower or any other
Person or against or in payment of any or all of the Obligations. In addition to
any rights and remedies of Administrative Agent and Lenders or any assignee or
participant of Lenders or any Affiliates thereof (each, a "Proceeding Party")
----------------
provided by law, upon the occurrence and during the continuance of any Event of
Default, each Proceeding Party is authorized at any time and from time to time,
without prior notice to Borrower, any such notice being waived by Borrower to
the fullest extent permitted by law, to proceed directly, by right of set-off,
banker's lien, or otherwise, against any assets of Borrower which may be in the
hands of such Proceeding Party (including all general or special, time or
demand, provisional or other deposits and other indebtedness owing by such
Proceeding Party to or for the credit or the account of Borrower) and apply such
assets against the Obligations, irrespective of whether such Proceeding Party
shall have made any demand therefor and although such Obligations may be
unmatured. Each Lender agrees promptly to notify Borrower and Administrative
Agent after any such set-off and
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application made by such Lender; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application.
10.06 Sharing of Payments. Each Lender severally agrees that if it,
through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment of the Obligations held by it
that is ratably more than any other Lender, through any means, receives in
payment of the Obligations held by that Lender, then, subject to applicable
Laws: (a) Lender exercising the right of setoff, banker's lien or counterclaim
or otherwise receiving such payment shall purchase, and shall be deemed to have
simultaneously purchased, from the other Lender a participation in the
Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of Lenders share
any payment obtained in respect of the Obligations ratably in accordance with
each Lender's share of the Obligations immediately prior to, and without taking
into account, the payment; provided that, if all or any portion of a
--------
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by Borrower or any Person claiming through or succeeding
to the rights of Borrower, the purchase of a participation shall be rescinded
and the purchase price thereof shall be restored to the extent of the recovery,
but without interest. Each Lender that purchases a participation in the
Obligations pursuant to this Section shall from and after the purchase have the
right to give all notices, requests, demands, directions and other
communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Borrower expressly consents to
the foregoing arrangements and agrees that any Lender holding a participation in
an Obligation so purchased may exercise any and all rights of setoff, banker's
lien or counterclaim with respect to the participation as fully as if Lender
were the original owner of the Obligation purchased.
10.07 No Waiver; Cumulative Remedies.
(a) No failure by any Lender or Administrative Agent to exercise, and no
delay by any Lender or Administrative Agent in exercising, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege under any
Loan Document preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege.
(b) The rights, remedies, powers and privileges herein or therein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by Law. Any decision by Administrative Agent or any Lender not to
require payment of any interest (including Default Interest), fee, cost or other
amount payable under any Loan Document or to calculate any amount payable by a
particular method on any occasion shall in no way limit or be deemed a waiver of
Administrative Agent's or such Lender's right to require full payment
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thereof, or to calculate an amount payable by another method that is not
inconsistent with this Agreement, on any other or subsequent occasion.
(c) The terms and conditions of Section IX are inserted for the sole
----------
benefit of Administrative Agent and Lenders; the same may be waived in whole or
in part, with or without terms or conditions, in respect of any Extension of
Credit without prejudicing Administrative Agent's or Lenders' rights to assert
them in whole or in part in respect of any other Loan.
10.08 Usury. Notwithstanding anything to the contrary contained in any
Loan Document, the interest and fees paid or agreed to be paid under the Loan
Documents shall not exceed the maximum rate of non-usurious interest permitted
by applicable Law (the "Maximum Rate"). If Administrative Agent or any Lender
------------
shall receive interest or a fee in an amount that exceeds the Maximum Rate, the
excessive interest or fee shall be applied to the principal of the Outstanding
Obligations or, if it exceeds the unpaid principal, refunded to Borrower. In
determining whether the interest or a fee contracted for, charged, or received
by Administrative Agent or a Lender exceeds the Maximum Rate, such Person may,
to the extent permitted by applicable Law, (a) characterize any payment that is
not principal as an expense, fee, or premium rather than interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations.
10.09 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10 Integration. This Agreement, together with the other Loan Documents
and any letter agreements referred to herein, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. In the
event of any conflict between the provisions of this Agreement and those of any
other Loan Document, the provisions of this Agreement shall control and govern;
provided that the inclusion of supplemental rights or remedies in favor of
- --------
Administrative Agent or Lenders in any other Loan Document shall not be deemed a
conflict with this Agreement. Each Loan Document was drafted with the joint
participation of the respective parties thereto and shall be construed neither
against nor in favor of any party, but rather in accordance with the fair
meaning thereof.
10.11 Nature of Lenders' Obligations. The obligations of Lenders hereunder
are several and not joint or joint and several. Nothing contained in this
Agreement or any other Loan Document and no action taken by Administrative Agent
or Lenders or any of them pursuant hereto or thereto may, or may be deemed to,
make Lenders a partnership, an association, a joint venture or other entity,
either among themselves or with Borrower or any Affiliate of Borrower. Each
Lender's obligation to make any Loan pursuant hereto is several and not joint or
joint and several, and in the case of the initial Loan only is conditioned upon
the performance by all other Lenders of their obligations to make initial Loans.
A default by any Lender will not increase the Pro Rata Share attributable to any
other Lender.
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10.12 Survival of Representations and Warranties. All representations and
warranties made hereunder and in any Loan Document, certificate or statement
delivered pursuant hereto or thereto or in connection herewith or therewith
shall survive the execution and delivery thereof but shall terminate the later
of (a) when the Commitments are terminated and (b) when no Obligations remain
outstanding under any Loan Document. Such representations and warranties have
been or will be relied upon by Administrative Agent and each Lender,
notwithstanding any investigation made by Administrative Agent or any Lender or
on their behalf.
10.13 Indemnity by Borrower. Borrower agrees to indemnify, save and hold
harmless each Administrative Agent-Related Person and each Lender and their
respective Affiliates, directors, officers, agents, attorneys and employees
(collectively the "Indemnitees") from and against: (a) any and all claims,
-----------
demands, actions or causes of action that are asserted against any Indemnitee by
any Person (other than the Administrative Agent or any Lender) relating directly
or indirectly to a claim, demand, action or cause of action that such Person
asserts or may assert against Borrower, any of their Affiliates or any of their
officers or directors; (b) any and all claims, demands, actions or causes of
action arising out of or relating to, the Loan Documents, any predecessor loan
documents, the Commitments, the use or contemplated use of the proceeds of any
Loan, or the relationship of Borrower, the Administrative Agent and Lenders
under this Agreement; (c) any administrative or investigative proceeding by any
Governmental Authority arising out of or related to a claim, demand, action or
cause of action described in subsection (a) or (b) above; and (d) any and all
liabilities, losses, costs or expenses (including Attorney Costs) that any
Indemnitee suffers or incurs as a result of the assertion of any foregoing
claim, demand, action, cause of action or proceeding, or as a result of the
preparation of any defense in connection with any foregoing claim, demand,
action, cause of action or proceeding, in all cases, whether or not an
Indemnitee is a party to such claim, demand, action, cause of action or
proceeding, including those liabilities caused by an Indemnitee's own negligence
(all the foregoing, collectively, the "Indemnified Liabilities"); provided that
----------------------- --------
no Indemnitee shall be entitled to indemnification for any loss caused by its
own gross negligence or willful misconduct or for any loss asserted against it
by another Indemnitee.
10.14 Nonliability of Lenders. Borrower acknowledges and agrees that:
(a) Any inspections of any property of Borrower made by or through
Administrative Agent or Lenders are for purposes of administration of the Loan
Documents only, and Borrower is not entitled to rely upon the same (whether or
not such inspections are at the expense of Borrower);
(b) By accepting or approving anything required to be observed, performed,
fulfilled or given to Administrative Agent or Lenders pursuant to the Loan
Documents, neither Administrative Agent nor Lenders shall be deemed to have
warranted or represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof, and such
acceptance or approval thereof shall not constitute a warranty or representation
to anyone with respect thereto by Administrative Agent or Lenders;
(c) The relationship between Borrower and Administrative Agent and Lenders
is, and shall at all times remain, solely that of borrowers and lenders; neither
Administrative Agent nor
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Lenders shall under any circumstance be construed to be partners or joint
venturers of Borrower or their Affiliates; neither Administrative Agent nor
Lenders shall under any circumstance be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with Borrower or their
Affiliates, or to owe any fiduciary duty to Borrower or their Affiliates;
neither Administrative Agent nor Lenders undertake or assume any responsibility
or duty to Borrower or their Affiliates to select, review, inspect, supervise,
pass judgment upon or inform Borrower or their Affiliates of any matter in
connection with their Property or the operations of Borrower or their
Affiliates; Borrower and their Affiliates shall rely entirely upon their own
judgment with respect to such matters; and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by
Administrative Agent or Lenders in connection with such matters is solely for
the protection of Administrative Agent and Lenders and neither Borrower nor any
other Person is entitled to rely thereon; and
(d) Administrative Agent and Lenders shall not be responsible or liable to
any Person for any loss, damage, liability or claim of any kind relating to
injury or death to Persons or damage to Property caused by the actions, inaction
or negligence of Borrower and/or its Affiliates and Borrower hereby indemnifies
and holds Administrative Agent and Lenders harmless from any such loss, damage,
liability or claim.
10.15 No Third Parties Benefited. This Agreement is made for the purpose
of defining and setting forth certain obligations, rights and duties of
Borrower, Administrative Agent and Lenders in connection with the Loans, and is
made for the sole benefit of Borrower, Administrative Agent and Lenders, and
Administrative Agent's and Lenders' successors and assigns. Except as provided
in Sections 10.04 and 10.13, no other Person shall have any rights of any nature
-------------- -----
hereunder or by reason hereof.
10.16 Severability. Any provision of the Loan Documents that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.17 Confidentiality. Administrative Agent and each Lender shall use any
confidential non-public information concerning Borrower and its Subsidiaries
that is furnished to Administrative Agent or such Lender by or on behalf of
Borrower and its Subsidiaries in connection with the Loan Documents
(collectively, "Confidential Information") solely for the purpose of evaluating
------------------------
and providing products and services to them and administering and enforcing the
Loan Documents, and it will hold the Confidential Information in confidence.
Notwithstanding the foregoing, Administrative Agent and each Lender may disclose
Confidential Information to (a) any governmental agency or regulatory body
having or claiming to have authority to regulate or oversee any aspect of
Administrative Agent's or such Lender's business or that of their affiliates or
any of their or their affiliates' directors, officers, employees, advisors, or
representatives (collectively, the "Representatives") in connection with the
---------------
exercise of such authority or claimed authority; (b) the extent necessary or
appropriate to effect or preserve Administrative Agent's or such Lender's or any
of their Affiliates' security (if any) for any Obligation or to enforce any
right or remedy or in connection with any claims asserted by or
-61-
<PAGE>
against Administrative Agent or such Lender or any of their Representatives; (c)
Representatives whom it determines need to know such information for the
purposes set forth in this Section; and (d) any bank or financial institution or
other entity to which such Lender has assigned or desires to assign an interest
or participation in the Loan Documents or the Obligations, provided that any
--------
such recipient of such Confidential Information agrees to keep such Confidential
Information confidential as specified herein. For purposes hereof, the term
"Confidential Information" shall not include information that (x) is in
Administrative Agent's or a Lender's possession prior to its being provided by
or on behalf of Borrower, provided that such information is not known by
--------
Administrative Agent or such Lender to be subject to another confidentiality
agreement with, or other legal or contractual obligation of confidentiality to,
a Borrower, (y) is or becomes publicly available (other than through a breach
hereof by Administrative Agent or such Lender), or (z) becomes available to
Administrative Agent or such Lender on a nonconfidential basis, provided that
--------
the source of such information was not known by Administrative Agent or such
Lender to be bound by a confidentiality agreement or other legal or contractual
obligation of confidentiality with respect to such information.
10.18 Further Assurances. Borrower and its Subsidiaries shall, at their
expense and without expense to Lenders or Administrative Agent, do, execute and
deliver such further acts and documents as any Lender or Administrative Agent
from time to time reasonably requires for the assuring and confirming unto
Lenders or Administrative Agent of the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
10.19 Headings. Section headings in this Agreement and the other Loan
Documents are included for convenience of reference only and are not part of
this Agreement or the other Loan Documents for any other purpose.
10.20 Time of the Essence. Time is of the essence of the Loan Documents.
10.21 Foreign Lenders and Participants. Each Lender, and each holder of a
participation interest herein, that is a "foreign corporation, partnership or
trust" within the meaning of the Code shall deliver to Administrative Agent,
within 20 days after the Closing Date (or after accepting an assignment or
receiving a participation interest herein) two duly signed completed copies of
either Form W-8BEN (relating to such Person and entitling it to a complete
exemption from withholding on all payments to be made to such Person by Borrower
pursuant to this Agreement) or Form W-8ECI (relating to all payments to be made
to such Person by Borrower pursuant to this Agreement) of the United States
Internal Revenue Service or such other evidence satisfactory to Borrower and
Administrative Agent that no withholding under the federal income tax laws is
required with respect to such Person. Thereafter and from time to time, each
such Person shall (a) promptly submit to Administrative Agent such additional
duly completed and signed copies of one of such forms (or such successor forms
as shall be adopted from time to time by the relevant United States taxing
authorities) as may then be available under then current United States laws and
regulations to avoid, or such evidence as is satisfactory to Borrower and
Administrative Agent of any available exemption from, United States withholding
taxes in respect of all payments to be made to such Person by Borrower pursuant
to this Agreement and (b) take such steps as shall not be materially
disadvantageous to it, in the
-62-
<PAGE>
reasonable judgment of such Lender, and as may be reasonably necessary
(including the re-designation of its Lending Office, if any) to avoid any
requirement of applicable Laws that Borrower make any deduction or withholding
for taxes from amounts payable to such Person. If such Persons fails to deliver
the above forms or other documentation, then Administrative Agent may withhold
from any interest payment to such Person an amount equivalent to the applicable
withholding tax imposed by Sections 1441 and 1442 of the Code, without
reduction. If any Governmental Authority asserts that Administrative Agent did
not properly withhold any tax or other amount from payments made in respect of
such Person, such Person shall indemnify Administrative Agent therefor,
including all penalties and interest and costs and expenses (including Attorney
Costs) of Administrative Agent. The obligation of Lenders under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of Administrative Agent.
10.22 Governing Law.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE GOVERNING STATE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE; PROVIDED THAT ADMINISTRATIVE AGENT AND EACH LENDER
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF THE GOVERNING
STATE OR OF THE UNITED STATES FOR THE DISTRICT OF THE GOVERNING STATE, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER, ADMINISTRATIVE AGENT AND
EACH LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-
EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWER, ADMINISTRATIVE AGENT AND EACH
LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION
IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED HERETO. BORROWER,
ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
THE LAW OF THE GOVERNING STATE.
10.23 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
-63-
<PAGE>
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT
TO TRIAL BY JURY.
10.24 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10.25 Certain Agreements Not Enforceable. UNDER OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989,
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY LENDERS TO BE ENFORCEABLE.
-64-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FLIR SYSTEMS, INC., an Oregon corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK OF AMERICA, N.A., as
Administrative Agent
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK OF AMERICA, N.A., as
Issuing Lender, a Lender and Swing Line Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
BANK ONE, N.A., as a Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
ABN AMRO BANK N.V., as a Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
-65-
<PAGE>
KEYBANK, N.A., a Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
SVENSKA HANDELSBANKEN AB (publ),
a Lender
By:_____________________________________
Name:___________________________________
Title:__________________________________
-66-
<PAGE>
EXHIBIT A
FORM OF REQUEST FOR EXTENSION OF CREDIT
Date: ____________, _______
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
[___________, _____] between [____________________________, a
__________________] ("Borrower"), Lenders from time to time party thereto, Bank
--------
of America, N.A., as Administrative Agent and Issuing Lender (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the "Agreement;" the terms defined therein being used herein as therein
---------
defined).
The undersigned hereby requests (select one):
[_] A Borrowing of Loans [_] A Conversion or Continuation of Loans
1. On_________________________________________.
2. In the amount of $_________________________.
3. Comprised of_______________________________.
[type of Loan requested]
4. If applicable: with an Interest Period of_________ months.
The foregoing request complies with the requirements of Section 2.01 of the
------------
Agreement. The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the above date, before and after
giving effect and to the application of the proceeds therefrom:
(a) The representations and warranties made by Borrower in the
Agreement, or which are contained in any certificate, document or financial
or other statement furnished at any time under or in connection therewith,
are and will be correct on and as of the date of this Extension of Credit,
except to the extent that such representations and warranties specifically
refer to any earlier date; and
A-1
<PAGE>
(b) no Default or Event of Default has occurred and is continuing on
the date hereof or after giving effect to this Extension of Credit.
[BORROWER]
By:________________________________
Name:______________________________
Title:_____________________________
A-2
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ___________, ______
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
[___________, _____] between [____________________________, a
__________________] ("Borrower"), Lenders from time to time party thereto, Bank
--------
of America, N.A., as Administrative Agent and Issuing Lender (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the "Agreement;" the terms defined therein being used herein as therein
---------
defined).
The undersigned Responsible Officer hereby certifies as of the date hereof
that he is the _______________________________________________________ of
Borrower, and that, as such, he is authorized to execute and deliver this
Certificate to Administrative Agent on the behalf of Borrower, and that:
[Use following for fiscal year-end financial statements]
1. Attached hereto as Schedule 1 are the year-end audited financial
----------
statements required by Section 6.01(a) of the Agreement for the fiscal year of
---------------
Borrower ended as of the above date, together with the report and opinion of an
independent certified public accountant required by such section.
[Use following for fiscal quarter-end financial statements]
1. Attached hereto as Schedule 1 are the unaudited financial statements
----------
required by Section 6.01(b) of the Agreement for the fiscal quarter of Borrower
---------------
ended as of the above date. Such financial statements fairly present the
financial condition, results of operations and changes in financial position of
Borrower and its Subsidiaries in accordance with GAAP as at such date and for
such periods, subject only to normal year-end audit adjustments and the absence
of footnotes.
2. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his supervision, a
detailed review of the transactions and conditions (financial or otherwise) of
Borrower during the accounting period covered by the attached financial
statements.
3. A review of the activities of Borrower during such fiscal period has
been made under my supervision with a view to determining whether during such
fiscal period Borrower performed and observed all their respective Obligations
under the Loan Documents, and
[select one:]
B-1
<PAGE>
[to the best knowledge of the undersigned during such fiscal period,
Borrower performed and observed each covenant and condition of the Loan
Documents applicable to it.]
--or--
[the following covenants or conditions have not been performed or observed
and the following is a list of all such Defaults and its nature and status:]
4. The following financial covenant analyses and information set forth on
Schedule 2 attached hereto are true and accurate on and as of the date of this
- ----------
Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of___________, ______.
[BORROWER]
By:_____________________________
Name:___________________________
Title:__________________________
B-2
<PAGE>
For the Quarter/Year ended ___________________("Statement Date")
--------------
SCHEDULE 2
to the Compliance Certificate
($ in 000's)
<TABLE>
<S> <C>
I. Section 7.12 -- Capital Expenditures.
A. Capital expenditures made during fiscal year to date: $____________
B. Maximum permitted capital expenditures for fiscal year: $12,000,000
C. Excess (deficient) for covenant compliance (Lines I.B - I.A): $____________
II. Section 7.14(a) - Consolidated Tangible Net Worth.
A. Actual Consolidated Tangible Net Worth at Statement Date:
1. Shareholders' Equity: $____________
2. Intangible Assets: $____________
3. Consolidated Tangible Net Worth (Lines II.A1
less Line II.A.2): $____________
----
B. 50% of Consolidated Net Income for each fiscal quarter
ending after __________________ (no reduction for losses): $____________
C. 90% of net proceeds from issuance of equity after date of
Agreement: $____________
D. Repurchases of capital stock permitted by Section 7.07: $____________
------------
E. Minimum required Consolidated Tangible Net Worth
(Lines II.B + II.C - II.D + $89,056,000): $____________
F. Excess (deficient) for covenant compliance (Lines II.A -
II.E): $____________
III. Section 7.14(b) - Interest Coverage Ratio.
A. Consolidated EBIT for four consecutive fiscal quarters ending
on above date ("Subject Period"):
--------------
1. Consolidated Net income for Subject Period: $____________
2. Consolidated Interest Expense for Subject Period: $____________
3. Provision for income taxes for Subject Period: $____________
4. Consolidated EBIT (Lines III.A.1 + 2 + 3): $____________
B. Lease and rental expense for Subject Period: $____________
C. Consolidated Interest Charges for Subject Period: $____________
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
D. Interest Coverage Ratio ((Line III.A.4 +Line III.B) /
(Line III.B + III.C)): ______________ to 1
Minimum required: ___________________
IV. Section 7.14(c) - Leverage Ratio.
A. Consolidated EBITDA for Subject Period: $__________________
1. Consolidated Net income for Subject Period: $__________________
2. Consolidated Interest Expense for Subject Period: $__________________
3. Provision for income taxes for Subject Period: $__________________
4. Depreciation expenses for Subject Period: $__________________
5. Amortization expenses for intangibles for Subject Period: $__________________
6. Consolidated EBITDA (Lines IV.A.1 + 2 + 3 + 4 + 5): $__________________
B. Consolidated Funded Indebtedness at Statement Date: $__________________
C. Leverage Ratio (Line IV.A/Line IV.B): ______________ to 1
Maximum permitted: ___________________
</TABLE>
B-4
<PAGE>
EXHIBIT C
FORM OF COMMITTED LOAN NOTE
$_______________________ _________________________
FOR VALUE RECEIVED, the undersigned (the "Borrower"), hereby promises to
--------
pay to the order of _____________________________ (the "Lender"), on the
------
Revolving Credit Maturity Date, or if applicable, the Term Loan Maturity date
(as defined in the Credit Agreement referred to below) the principal amount of
_____________________(Dollars $[____________]), or such lesser principal amount
of Committed Loans (as defined in the Credit Agreement referred to below)
payable by Borrower to Lender on such Revolving Credit Maturity Date or Term
Loan Maturity Date under that certain Credit Agreement dated as of
________________________, _______among Borrower, Lenders from time to time
party thereto Bank of America, N.A., as Administrative Agent and Issuing Lender
(as amended, restated, extended, supplemented or otherwise modified in writing
from time to time, the "Agreement;" the terms defined therein being used herein
---------
as therein defined).
Borrower promises to pay interest on the unpaid principal amount of each
Committed Loan from the date of such Committed Loan until such principal amount
is paid in full, at such interest rates, and payable at such times as are
specified in the Credit Agreement.
All payments of principal and interest shall be made to Administrative
Agent for the account of Lender in United States dollars in immediately
available funds at Administrative Agent's Payment office.
If any amount is not paid in full when due hereunder, such unpaid amount
shall bear interest, to be paid upon demand, from the due date thereof until the
date of actual payment (and before as well as after judgment) computed at the
per annum rate set forth in the Credit Agreement.
This Note is one of the "Committed Loan Notes" referred to in the Credit
--------------------
Agreement. Reference is hereby made to the Credit Agreement for rights and
obligations of payment and prepayment, events of default and the right of Lender
to accelerate the maturity hereof upon the occurrence of such events. Committed
Loans made by Lender shall be evidenced by one or more loan accounts or records
maintained by Lender in the ordinary course of business. Lender may also attach
schedules to this Note and endorse thereon the date, amount and maturity of its
Committed Loans and payments with respect thereto.
Borrower, for itself, its successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and non-
payment of this Note.
C-1
<PAGE>
Borrower agrees to pay all collection expenses, court costs and Attorney
Costs (whether or not litigation is commenced) which may be incurred by Lender
in connection with the collection or enforcement of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF _______________.
[BORROWER]
By: _____________________________________
Name: ___________________________________
Title: __________________________________
C-2
<PAGE>
EXHIBIT D
FORM OF NOTICE OF ASSIGNMENT AND ACCEPTANCE
________________, _____
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of
[___________, _____] between [____________________________, a
__________________] ("Borrower"), Lenders from time to time party thereto, and
--------
Bank of America, N.A., as Administrative Agent and Issuing Lender (as amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the "Agreement;" the terms defined therein being used herein as therein
---------
defined).
1. We hereby give you notice of, and request your consent to, the
assignment by ______________________ (the "Assignor") to _______________________
--------
(the "Assignee") of % of the right, title and interest of the Assignor in and to
--------
the Loan Documents, including the right, title and interest of the Assignor in
and to the Commitment of the Assignor, all outstanding Loans made by the
Assignor and outstanding Letter of Credit Usage. Before giving effect to such
assignment:
(a) the aggregate amount of the Assignor's Commitment is $_______________;
(b) the aggregate principal amount of its outstanding Loans is $_____; and
(c) the aggregate face amount of Letter of Credit Usage is $_____________.
2. The Assignee hereby represents and warrants that it has complied with
the requirements of Section 10.04 of the Agreement in connection with this
-------------
assignment and acknowledges and agrees that: (a) other than the representation
and warranty that it is the legal and beneficial owner of the Pro Rata Share
being assigned thereby free and clear of any adverse claim, the Assignor has
made no representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with the
Agreement or the execution, legality, validity, enforceability, genuineness or
sufficiency of the Agreement or any other Loan Document; (b) the Assignor has
made no representation or warranty and assumes no responsibility with respect to
the financial condition of Borrower or the performance by Borrower of the
Obligations; (c) it has received a copy of the Agreement, together with copies
of the most recent financial statements delivered pursuant to Section 6.1
-----------
thereof and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment and
Acceptance; (d) it will, independently and without reliance upon Administrative
Agent or any Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Agreement; (e) it appoints and authorizes
Administrative Agent to take such action and to exercise such powers under the
Agreement and the other Loan Documents as are delegated to Administrative Agent
by the Agreement and such
D-1
<PAGE>
other Loan Documents; and (f) it will perform in accordance with their terms all
of the obligations which by the terms of the Agreement are required to be
performed by it as a Lender.
3. The Assignee agrees that, upon receiving your consent to such
assignment and from and after ____________________, the Assignee will be bound
by the terms of the Loan Documents, with respect to the interest in the Loan
Documents assigned to it as specified above, as fully and to the same extent as
if the Assignee were Lender originally holding such interest in the Loan
Documents.
4. The following administrative details apply to the Assignee:
(a) Offshore Lending Office:
Assignee name:___________________________________
Address:_________________________________________
_________________________________________________
Attention: ______________________________________
Telephone: (_) _________________________________
Telecopier: (_) _________________________________
(b) Domestic Lending Office:
Assignee name:___________________________________
Address:_________________________________________
_________________________________________________
Attention:_______________________________________
Telephone: (_) _________________________________
Telecopier: (_) _________________________________
(c) Notice Address:
Assignee name:___________________________________
Address:_________________________________________
Attention:_______________________________________
Telephone: (_) _________________________________
Telecopier: (_) _________________________________
(d) Payment Instructions: Account No.:
Account No.______________________________________
Attention:_______________________________________
Reference:_______________________________________
D-2
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice
of Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[ASSIGNOR]
By:___________________________________________
Name:_________________________________________
Title:________________________________________
[ASSIGNEE]
By:___________________________________________
Name:_________________________________________
Title:________________________________________
We hereby consent to the
foregoing assignment.
[BORROWER]
By: ___________________________
Name: _________________________
Title: ________________________
BANK OF AMERICA, N.A., as Administrative
Agent
By: ___________________________
Name: _________________________
Title: ________________________
D-3
<PAGE>
SCHEDULE 1
BREAKFUNDING COST
Breakfunding costs shall apply in the event that the Offshore Rate component of
the interest rate applicable to the Loan in question is greater than the
Available Offshore Rate. The breakfunding cost will be equal to such Loan
multiplied by the difference between the Offshore Rate component of the interest
rate applicable to such Loan and the Available Offshore Rate, with such
difference applied as an annual rate to the amount of such Loan for the duration
of the Interest Period applicable to such Loan remaining after the Prepayment
Date. "Available Offshore Rate" shall mean the Offshore Rate available on the
Prepayment Date for a sum equal to such Loan for a period beginning on the
Prepayment Date and ending at the end of the Interest Period applicable to such
Loan. "Prepayment Date" shall mean the date upon which any of the events
described in Section 3.05(a) or 3.05(b) of the Credit Agreement occurs.
Schedule 1 - Page 1
<PAGE>
SCHEDULE 2.01
<TABLE>
<CAPTION>
Lender Commitment Lender's Percentage of
Combined Commitments
<S> <C> <C>
Bank of America, N.A. $ 37,500,000 37.5%
Bank One, N.A. $ 20,000,000 20%
KeyBank National Association $ 17,500,000 17.5%
ABN AMRO Bank N.V. $ 15,000,000 15%
Svenska Handelsbanken AB (publ) $ 10,000,000 10%
Total Combined Commitments $100,000,000 100%
</TABLE>
Schedule 2.01 - Page 1
<PAGE>
SCHEDULE 10.02
INFORMATION FOR ADMINISTRATIVE AGENT
AND LENDERS
Administrative Agent:
- ---------------------
Bank of America, N.A.
Agency Management Services
Consumer & Commercial Banking
WA1-102-16-20
701 Fifth Avenue, Floor 16
Seattle WA 98104-7001
Attention: Dora A. Brown, Vice President
- ---------
Telephone: (206) 358-0101
Fax: (206) 358-0971
Lenders:
- --------
BANK OF AMERICA, N.A.
Commercial Banking
121 SW Morrison, Suite 1700
Portland OR 97204
Attention: Ray Evans, Vice President SCM
- ---------
Telephone: (503) 275-1456
Fax: (503) 275-1391
KEYBANK NATIONAL ASSOCIATION
1211 SW 5/th/, Suite 300
Portland OR 97204
Attention: L. Scott Bruun, Vice President
- ---------
Telephone: (503) 790-7561
Fax: (503) 790-7537
BANK ONE, N.A.
777 South Figueroa Street, 4/th/ Floor
Los Angeles CA 90017
Credit Contact: Kathleen V. LeRoy, Vice President
- --------------
Telephone: (213) 683-6406
Fax: (213) 683-4999
Operations Contact:
- ------------------
M. Hernandez, Client Svcs. Assoc.
One Bank One Plaza
Chicago IL 60670
Telephone: (312) 732-8297
Fax: (312) 732-4840
ABN AMRO BANK, N.V.
Schedule 10.02 - Page 1
<PAGE>
Credit, Documentation, Other Business Matters:
- ---------------------------------------------
One Union Square
600 University Street, Suite 2323
Seattle WA 98101-1129
Attention: David McGinnis, Group Vice President
- ---------
Telephone: (206) 587-0342
Fax: (206) 682-5641
Loan Compliance, Required Financial Reports (with copy to Seattle address):
- --------------------------------------------------------------------------
Ms. Sirirat Thavornrat
208 South LaSalle, Suite 1500
Chicago IL 60604-1003
Telephone: (312) 992-5119
Fax: (312) 992-5111
Loan Administration:
- -------------------
Telephone: (312) 992-5153
Fax: (312) 992-5158
SVENSKA HANDELSBANKEN AB (publ)
153 East 53/rd/ Street
New York NY 10022-4678
Credit Contact: Mr. Henrik Jensen, Vice President
- --------------
Telephone: (212) 326-5125
Fax: (212) 326-5151
Operations Contact:
- ------------------
Sophia Ng, Assistant Vice President
Telephone (212) 326-5147
Fax (212) 326-5110
Schedule 10.02 - Page 2
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Exhibit 10.21
PLEDGE AGREEMENT
Dated as of December 16, 1999
made by
FLIR Systems, Inc.
an Oregon Corporation
in favor of
BANK OF AMERICA, N.A.
as Agent
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TABLE OF CONTENTS
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<S> <C>
SECTION 1. Definitions; Interpretations.................................... 1
Section 2. Pledge.......................................................... 2
Section 3. Delivery or Transfer of Pledged Collateral...................... 3
Section 4. Representations and Warranties.................................. 4
Section 5. Covenants....................................................... 6
Section 6. Further Assurances.............................................. 7
Section 7. Voting Rights; Dividends........................................ 7
Section 8. Authorization; Agent Appointed Attorney-in-Fact................. 8
Section 9. Agent Performance of Pledgor's Obligations...................... 9
Section 10. No Responsibility for Certain Actions........................... 9
Section 11. Remedies in General............................................. 9
Section 12. Notices......................................................... 12
Section 13. Amendments; Waivers............................................. 12
Section 14. Cumulative Remedies............................................. 12
Section 15. Certain Waivers................................................. 12
Section 16. Costs and Expenses; Indemnification; Other Charges.............. 12
Section 17. Binding Effect; Transferability; No Third-Party Beneficiaries... 13
Section 18. Governing Law................................................... 14
Section 19. Entire Agreement................................................ 14
Section 20. Severability.................................................... 14
Section 21. Counterparts.................................................... 14
Section 22 Incorporation of Provisions of the Credit Agreement............. 14
Section 23 No Inconsistent Requirements.................................... 14
Section 24 Continuing Security Interest; Termination....................... 14
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of December 16, 1999, is
made by FLIR SYSTEMS, INC., an Oregon corporation (the "Pledgor"), in favor of
BANK OF AMERICA, N.A., a national banking association, as agent for its benefit
and the ratable benefit of the Banks (as defined below) and its successors as
agent for the Banks (in such capacity, and together with its successors as agent
for the Banks, the "Agent").
RECITALS
A. The Pledgor is a party to that certain Credit Agreement dated as of
December 16, 1999 by and among the Pledgor, the several financial institutions
from time to time party thereto (collectively, the "Banks"), and the Agent, as
agent for the Banks (as amended, restated, modified, renewed, supplemented or
extended from time to time, the "Credit Agreement").
B. It is a condition precedent to each Bank's obligation to make its
initial Loan under the Credit Agreement that the Pledgor enter into this
Agreement and grant to the Agent, for its benefit and the ratable benefit of the
Banks, the security interests hereinafter provided to secure the obligations of
the Pledgor described below.
NOW, THEREFORE, to induce the Bank to make Loans under the Credit
Agreement, and in consideration of such extensions of credit as the Banks have
made or may hereafter make to the Pledgor, the Pledgor, intending to be legally
bound hereby, covenants and agrees as follows:
SECTION 1. Definitions; Interpretations.
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(a) Terms Defined in Credit Agreement. All capitalized terms used in this
---------------------------------
Agreement and not otherwise defined herein have the meanings specified in the
Credit Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following terms
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have the following meanings:
"Book-Entry Shares" means any Pledged Shares evidenced or represented by a
-----------------
book-entry on the books of a Clearing Corporation.
"Clearing Corporation" means a "clearing corporation", as defined in
--------------------
Section 78.1020(e) of the UCC, at which the Agent and the Pledgor each maintains
a securities account.
"Commission" has the meaning specified in subsection 11(b)(i).
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"Indemnified Liabilities" has the meaning specified in subsection 16(b).
-----------------------
"Indemnified Person" has the meaning specified in subsection 16(b).
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"Lender Party" means, as the context may require, any Bank (including any
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Bank in its capacity as Issuing Bank), or the Agent, and each of their
respective successors, transferees and
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assigns.
"Pledge Agreement Supplement" has the meaning specified in subsection 3(d).
---------------------------
"Pledged Collateral" has the meaning specified in Section 2.
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"Pledged Shares" means all shares of capital stock or other equity
--------------
securities referred to in subsections (a), (b) and (c) of Section 2.
"Pledged Subsidiaries" means, collectively, the Subsidiaries of the Pledgor
--------------------
listed on Schedule 1 hereto or on any Pledge Agreement Supplement attached
hereto.
"Secured Obligations" means all advances, debts, liabilities, obligations,
-------------------
covenants and duties arising under the Credit Agreement, this Agreement, any
other Loan Document or Secured Swap Obligations owing by the Pledgor to any
Lender Party or the Agent, whether for principal, interest, costs, fees,
expenses, indemnities or otherwise, whether now existing or hereafter arising,
whether direct or indirect (including those acquired by assignment), and whether
due or to become due, absolute or contingent, liquidated or unliquidated,
determined or undetermined.
"Securities Act" has the meaning specified in subsection 11(b)(i).
--------------
"UCC" means the Uniform Commercial Code as the same may, from time to time,
---
be in effect in the State of Oregon; provided, however, in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of the security interest in any Pledged Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of Oregon, the term "UCC" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
(c) Terms Defined in UCC. Where applicable and except as otherwise
--------------------
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC.
(d) Interpretation. The rules of interpretation and other definitional
--------------
provisions set forth in Section 1.02 of the Credit Agreement shall be applicable
to this Agreement and are incorporated herein by this reference.
SECTION 2. Pledge. As security for the payment, in full in cash when due,
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whether at stated maturity, by acceleration or otherwise, and performance of the
Secured Obligations, the Pledgor hereby pledges, assigns, transfers,
hypothecates and sets over to the Agent for its benefit and the ratable benefit
of the other Lender Parties and grants to the Agent for its benefit and the
ratable benefit of the other Lender Parties a security interest in all of the
Pledgor's right, title and interest in, to and under the following, whether now
existing or owned or hereafter acquired or arising (collectively, the "Pledged
Collateral"):
(a) 100% of all shares of capital stock or other equity securities of the
Pledged Subsidiaries incorporated within the United States of America, and 65%
of the shares of capital stock or other equity securities of FLIR Systems, AB, a
Swedish corporation now owned by the
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Pledgor, as more fully described in Schedule 1 attached hereto, including,
without limitation, any such securities that are Book-Entry Shares; provided,
however, that Pledged Collateral shall not include the securities of any
presently existing Subsidiary incorporated outside of the United States of
America except for FLIR Systems, A.B., a Swedish corporation;
(b) all shares of capital stock or other equity securities of any Pledged
Subsidiary incorporated within the United States of America, and 65% of the
shares of capital stock or other equity securities of FLIR Systems, AB, a
Swedish corporation hereafter acquired, received or owned by the Pledgor
(whether in connection with any recapitalization, reclassification or
reorganization of the capital of a Pledged Subsidiary or otherwise), including,
without limitation, any such securities that are Book-Entry Shares;
(c) all shares of capital stock or other equity securities hereafter
acquired, received or owned by the Pledgor of any Person incorporated within the
United States of America, and 65% of the shares of capital stock or other equity
securities of the Person not incorporated in the United States of America who,
after the date hereof, becomes, as a result of any occurrence, a Pledged
Subsidiary, including, without limitation, any such securities that are Book-
Entry Shares;
(d) all certificates, instruments or other writings representing or
evidencing the Pledged Shares (other than any Book-Entry Shares or any other
Pledged Shares that constitute part of a fungible bulk of securities in the
possession of a Clearing Corporation);
(e) all warrants, options and other rights entitling the Pledgor to
acquire any interest in any Pledged Shares;
(f) all dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the Pledged Shares; and
(g) all cash and non-cash proceeds of the foregoing.
SECTION 3. Delivery or Transfer of Pledged Collateral.
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(a) All original certificates, instruments or other writings representing
or evidencing the Pledged Shares (other than certificated securities that
constitute part of a fungible bulk of securities in the possession of a Clearing
Corporation) shall be delivered to the Agent concurrently with the execution and
delivery of this Agreement (or immediately upon obtaining of any such Pledged
Shares hereafter), and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Agent.
(b) In the event that any Pledged Shares are Book-Entry Shares which are
registered in the name of a Clearing Corporation, concurrently with the
execution and delivery of this Agreement (or immediately upon obtaining any such
Pledged Shares hereafter), the Pledgor shall cause such Clearing Corporation to
make appropriate entries on its books reducing the account of the Pledgor and
increasing the account of the Agent by the number of such shares pledged or
purported to be pledged hereunder.
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(c) In the event that any Pledged Shares are certificated securities that
constitute part of a fungible bulk of securities in the custody of a Clearing
Corporation and are registered in such Clearing Corporation's name, concurrently
with the execution and delivery of this Agreement (or immediately upon obtaining
any such Pledged Shares hereafter), the Pledgor shall cause such Clearing
Corporation to make appropriate entries on its books reducing the account of the
Pledgor and increasing the account of the Agent by the number of such shares
pledged or purported to be pledged hereunder.
(d) Upon obtaining any Pledged Shares hereafter, the Pledgor agrees that
it will immediately (i) deliver to the Agent a duly executed Pledged Agreement
Supplement in substantially the form of Schedule 2 attached hereto (a "Pledge
Agreement Supplement") identifying such additional Pledged Shares, and (ii)
deliver or otherwise cause the transfer of such additional Pledged Shares to the
Agent pursuant to subsection (a), (b) or (c) above, as applicable. The Pledgor
hereby authorizes the Agent to attach each Pledge Agreement Supplement to this
Agreement and agrees that all shares of capital stock or other equity securities
listed thereon shall for all purposes hereunder constitute Pledged Collateral.
(e) The Agent shall have the right, at any time in its discretion and
without notice to the Pledgor, to transfer to or to register in its name or the
name of any of its nominees any or all of the Pledged Shares, subject only to
the provisions of Section 7(a). In addition, the Agent shall have the right at
any time to exchange certificates, instruments or other writings representing or
evidencing Pledged Shares for certificates, instruments or other writings of
smaller or larger denominations. As soon as practicable after the purchase or
receipt by the Pledgor of any Book-Entry Shares, the Pledgor shall cause the
issuer thereof to issue stock certificates with respect to such shares and
shall, immediately upon receipt thereof, deliver such certificates to the Agent
in accordance with this Section.
SECTION 4. Representations and Warranties. In addition to the representations
------------------------------
and warranties of the Pledgor set forth in the Credit Agreement, which are
incorporated herein by this reference, the Pledgor represents and warrants to
the Agent and the other Lender Parties that:
(a) The Pledgor is the record legal and beneficial owner of the Pledged
Collateral. No other Person, except the Agent pursuant to this Agreement, has
any right, title, claim or interest (by way of Lien, purchase option or
otherwise) in or against or to the Pledged Collateral.
(b) The pledge of the Pledged Collateral pursuant to this Agreement
creates in favor of the Agent, for its benefit and the ratable benefit of the
other Lender Parties, a legally valid, binding and enforceable, first priority
perfected, security interest in the Pledged Collateral, securing the payment of
the Secured Obligations. The Pledgor acknowledges that no filings or recordings
(including, without limitation, filings under the Uniform Commercial Code) are
necessary to be made under present law in order to perfect, protect and preserve
the security interest of the Agent for its benefit and the ratable benefit of
the other Lender Parties in the Pledged Collateral created or intended to be
created by this Agreement.
(c) All Pledged Shares have been duly authorized, validly issued and fully
paid and are non-assessable.
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(d) The Pledgor:
(i) is a corporation duly organized, and validly existing under the
laws of the jurisdiction of its incorporation;
(ii) has the power and authority and all material governmental
licenses, authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under this
Agreement and any other Loan Document to which it is a party;
(iii) is duly qualified as a foreign corporation and is licensed and
in good standing under the laws of each jurisdiction where its ownership, lease
or operation of property or the conduct of its business requires such
qualification or license, except where the failure to so qualify would not have
a Material Adverse Effect;
(iv) is in compliance in all material respects with all material Laws
that are applicable to it.
(e) The execution, delivery and performance by the Pledgor of this
Agreement and each other Loan Document to which it is a party, have been duly
authorized by all necessary corporate action and do not and will not (i)
contravene the terms of any of the Pledgor's Organization Documents, (ii)
conflict with or result in any breach or contravention of, or the creation of
any Lien under, any indenture, agreement, lease, instrument, Contractual
Obligation, injunction, order, decree or undertaking to which the Pledgor is a
party, or (iii) violate any Law.
(f) No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by, or enforcement
against, the Pledgor of this Agreement or any other Loan Document to which it is
a party, the exercise by the Agent of the voting or other rights provided for in
this Agreement, or the remedies in respect of the Pledged Collateral pursuant to
this Agreement, except as may be required in connection with the disposition of
the Pledged Shares by laws affecting the offering and sale of securities
generally.
(g) The Pledgor has full power, authority and legal right to pledge the
Pledged Collateral pursuant to this Agreement. There are and will be no
restrictions on the transferability of any Pledged Collateral transferred or
delivered by the Pledgor hereunder to the Agent or with respect to the
foreclosure, transfer or disposition thereof by the Agent, except as may be
required in connection with the disposition of the Pledged Shares by laws
affecting the offering and sale of securities generally.
(h) The Pledgor has delivered or otherwise caused the transfer to the
Agent, pursuant to subsection 3(a), 3(b) or 3(c), as applicable, of all Pledged
Shares.
(i) All Pledged Shares are (i) certificated securities represented or
evidenced by certificates, instruments or other writings, the originals of which
are in the possession of the Pledgor (prior to delivery to the Agent hereunder),
(ii) certificated securities that constitute part of a fungible bulk of
securities in the custody of a Clearing Corporation and registered in such
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Clearing Corporation's name, or (iii) uncertificated securities that are Book-
Entry Shares registered in the name of a Clearing Corporation.
(j) As of the date hereof, the Pledgor has no Subsidiaries other than
those listed on Schedule 5.01 to the Credit Agreement. Set forth on Schedule
5.01 to the Credit Agreement is a true, compete and accurate list of all
Pledgor's Subsidiaries. All the information set forth on such Schedule is true,
complete and accurate.
(k) None of the Pledged Shares constitutes margin stock.
The foregoing representations and warranties shall survive the execution
and delivery of this Agreement and shall be deemed restated automatically at
each such time as any additional Pledged Collateral is delivered hereunder to
the Agent.
SECTION 5. Covenants. In addition to the covenants of the Pledgor set forth in
---------
the Credit Agreement, which are incorporated herein by this reference, so long
as any of the Secured Obligations remain unsatisfied or any Bank shall have any
Commitment or any Letter of Credit shall be outstanding, the Pledgor agrees
that:
(a) The Pledgor, for itself and its successors and assigns, does hereby
irrevocably waive and release all preemptive, first-refusal and other similar
rights of the Pledgor to purchase any or all of the Pledged Shares upon any sale
thereof by the Agent hereunder, whether such right to purchase arises under any
of the Pledgor's Organization Documents, by agreement, by operation of law or
otherwise.
(b) The Pledgor warrants and covenants to defend the Agent's security
interest in and to the Pledged Collateral against the claims and demands of all
other Persons, and to appear in and defend any action, suit or proceeding which
may affect its title to, or the Agent's security interest in, the Pledged
Collateral.
(c) The Pledgor agrees that it will not (i) sell, assign, transfer,
surrender or otherwise dispose of, or grant any option, warrant or other right
or interest with respect to, any of the Pledged Collateral, (ii) create or
permit to exist any Lien upon or with respect to any of the Pledged Collateral,
except for the Lien created by this Agreement, or (iii) enter into any
shareholder agreement, voting agreement, voting trust, irrevocable proxies or
any other similar agreement or instrument with respect to any Pledged
Collateral.
(d) The Pledgor shall, immediately upon its acquisition (directly or
indirectly) of any Pledged Shares hereafter, pledge such shares hereunder
pursuant to subsection 3(d) and deliver or otherwise cause the transfer of such
shares to the Agent in accordance with subsection 3(a), (b) or (c), as
applicable. The Pledgor shall not cause or permit any issuer of Pledged Shares
to issue in favor of any Person other than the Pledgor any shares of capital
stock or other equity securities.
(e) The Pledgor shall pay promptly when due all taxes and other
governmental charges, all Liens and all other charges now or hereafter imposed
upon, relating to or affecting any Pledged Collateral.
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(f) The Pledgor will deliver promptly to the Agent and the other Lender
Parties all reports and notices received by the Pledgor in its capacity as
shareholder in respect of any Pledged Collateral.
SECTION 6. Further Assurances. The Pledgor agrees that at any time and from
------------------
time to time, at its own cost and expense, it will promptly procure, execute and
deliver all further instruments, documents and agreements, and take all further
action, that the Agent may request, in order to establish, maintain, preserve,
protect and perfect the Pledged Collateral, any security interest granted or
purported to be granted hereby and the priority of such security interest, or to
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any Pledged Collateral. Without limiting the generality of the
foregoing, the Pledgor further agrees that it shall, concurrently with the
execution of this Agreement and at any time and from time to time thereafter (a)
procure, execute and deliver to the Agent all stock powers, endorsements,
financing statements, assignments and other instruments of transfer requested by
Agent, (b) deliver to the Agent immediately upon receipt the originals of all
Pledged Shares and all certificates, instruments and other writings evidencing
the Pledged Collateral, and (c) cause the Lien of the Agent to be recorded or
registered in the books of any Clearing Corporation requested by the Agent.
SECTION 7. Voting Rights; Dividends.
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(a) So long as no Default or Event of Default shall exist or result
therefrom (and, in the case of clause (i) below, so long as written notice has
not been given by the Agent to the Pledgor at the instruction or with the
consent of the Requisite Lenders):
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Shares or any part thereof for
any purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; provided, however, that the Pledgor shall not exercise or shall
refrain from exercising any such right if, in the judgment of the Requisite
Lenders, conveyed in writing, such action would have a material adverse effect
on the value of the Pledged Collateral or any part thereof or the interest of
the Agent therein, and, provided, further, that the Pledgor shall give the Agent
at least five Business Days' prior written notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any such
right.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends or distributions paid in respect of the Pledged Shares, in compliance
with the terms of the Credit Agreement, except the following:
(A) dividends paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise distributed
in respect of, or in exchange for, any Pledged Shares;
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Shares in connection with a partial or total liquidation
or dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus; and
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(C) cash paid, payable or otherwise distributed in redemption
of, or in exchange for, any Pledged Shares;
all of which shall be, and all of which shall be forthwith
delivered to the Agent to hold as, Pledged Collateral and shall, if received by
the Pledgor, be received in trust for the benefit of the Agent, be segregated
from the other property or funds of the Pledgor, and be forthwith delivered to
the Agent as Pledged Collateral in the same form as so received (with any
necessary endorsement and indemnity).
(iii) The Agent shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may request for the purpose of enabling the Pledgor to exercise the voting and
other rights which it is entitled to exercise pursuant to clause (i) above and
to receive the dividends or distributions which it is authorized to receive and
retain pursuant to clause (ii) above.
(b) Upon the occurrence and during the continuance of a Default or an
Event of Default:
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
Section 7(a)(i) above shall cease upon written notice thereof from the Agent,
and all such rights shall thereupon become vested in the Agent, for its benefit
and the ratable benefit of the other Lender Parties, who shall thereupon have
the sole right to exercise such voting and other consensual rights.
(ii) All rights of the Pledgor to receive the dividends or
distributions which it would otherwise be authorized to receive and retain
pursuant to Section 7(a)(ii) above shall cease, and all such rights shall
thereupon become vested in the Agent, for its benefit and the ratable benefit of
the other Lender Parties, who shall thereupon have the sole right to receive and
hold as Pledged Collateral such dividends.
(iii) All dividends or distributions which are received by the Pledgor
contrary to the provisions of paragraph (ii) of this Section 7(b) shall be
received in trust for the benefit of the Agent, for its benefit and the ratable
benefit of the other Lender Parties, shall be segregated from other funds of the
Pledgor and shall be forthwith paid over to the Agent as Pledged Collateral in
the same form as so received (with any necessary endorsement or indemnity).
(iv) In order to permit the Agent to exercise the voting and other
rights which it may be entitled to exercise pursuant to Section 7(b)(i) above,
and to receive all dividends and distributions which it may be entitled to
receive under Section 7(b)(ii) above, the Pledgor shall, if necessary, upon
written notice of the Agent, from time to time execute and deliver to the Agent
appropriate proxies, dividend payment orders and other instruments as the Agent
may request.
SECTION 8. Authorization; Agent Appointed Attorney-in-Fact. The Agent shall
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have the right to, in the name of the Pledgor, or in the name of the Agent, or
otherwise, without notice to or assent by the Pledgor, and the Pledgor hereby
constitutes and appoints the Agent (and any of the Agent's officers, employees
or agents designated by the Agent) as the Pledgor's true and lawful attorney-in-
fact, with full power and authority to take any action and execute any and all
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endorsements, assignments, documents, instruments or UCC financing statements
which the Agent may deem necessary or desirable to accomplish the purposes of
this Agreement, including, without limitation, (a) to receive, endorse and
collect all instruments made payable to the Pledgor representing any dividend,
interest payment or other distribution in respect of the Pledged Collateral or
any part thereof and to give full discharge for the same, (b) to perfect or
continue perfected, maintain the priority of or provide notice of the Agent's
security interest in the Pledged Collateral or (c) to maintain, protect, sell,
assign, convey or otherwise transfer title in or dispose of the Pledged
Collateral. The foregoing power of attorney is coupled with an interest and
irrevocable so long as any Bank has any Commitment or any Letter of Credit
remains outstanding or the Secured Obligations have not been paid and performed
in full. The Pledgor hereby ratifies all that the Agent shall lawfully and in
good faith do or cause to be done by virtue of and in compliance with this
Section.
SECTION 9. Agent Performance of Pledgor's Obligations. The Agent may perform
------------------------------------------
or pay any obligation which the Pledgor has agreed to perform or pay under or in
connection with this Agreement, and the Pledgor shall reimburse the Agent on
demand for any amounts paid by the Agent pursuant to Section 16(a). Except in
cases where prompt action is required to minimize risk of loss, Agent will give
Pledgor 2 Business Days notice before performing or paying a Pledgor obligation.
SECTION 10. No Responsibility for Certain Actions. Notwithstanding any
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provision contained in this Agreement, and other than as set forth in Section
79.2070 of the UCC, neither the Agent nor any Lender Party shall have
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Agent or any Lender Party has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve any rights against any parties with respect to any Pledged Collateral.
The Agent shall have no duty with respect to the custody, safekeeping and
physical preservation of the Pledged Collateral in its possession other than as
set forth in Section 79.2070 of the UCC.
SECTION 11. Remedies in General. Upon the occurrence and during the
-------------------
continuance of an Event of Default:
(a) The Agent may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it under the Credit Agreement or any other Loan Document, all the rights and
remedies of a secured party under the UCC and other applicable laws, and the
Agent may also, without notice except as specified below, sell the Pledged
Shares or any part thereof in one or more parcels at public or private sale, at
any exchange, broker's board or at any of the Agent's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the Agent
may deem commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least 10 days' notice to the Pledgor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Pledged Shares regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. The
Pledgor hereby waives any claims against the Agent arising by reason of the
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fact that the price at which any Pledged Shares may have been sold at such a
private sale was less than the price which might have been obtained at a public
sale, even if the Agent accepts the first offer received and does not offer such
Pledged Shares to more than one offeree.
(b) If the Agent shall determine to exercise its right to sell all or any
of the Pledged Shares pursuant to this Section, the Pledgor agrees that, upon
request of the Agent, the Pledgor will, at its own expense:
(i) execute and deliver and cause each issuer of Pledged Shares to
execute and deliver all such instruments and documents, and do or cause to be
done all such other acts and things, as may be necessary or, in the opinion of
the Agent, advisable to register such Pledged Shares under the provisions of the
Securities Act of 1933, as from time to time amended (the "Securities Act"), in
accordance with the intended method of distribution thereof, and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be furnished,
and to make all amendments and supplements thereto and to the related prospectus
which, in the opinion of the Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
applicable thereto;
(ii) qualify the Pledged Shares under the state securities or "Blue
Sky" laws and to obtain all necessary governmental approvals for the sale of the
Pledged Shares in any state, as requested by the Agent;
(iii) cause each issuer of Pledged Shares to enter into customary
agreements (including an underwriting agreement in customary form) and take such
other actions as are required in order to expedite or facilitate the disposition
of such Pledged Shares, and will cause each issuer of Pledged Shares to furnish
to the Agent an opinion or opinions of counsel to such Person and a comfort
letter or comfort letters from such Person's independent public accountants,
each in customary form and covering such matters of the type customarily covered
by opinions or comfort letters, as the case may be, as Agent or the managing
underwriter therefor requests, and will cause each issuer of Pledged Shares
otherwise to comply with all applicable rules and regulations of the Commission,
and make available to its security-holders, as soon as practicable, an earnings
statement covering a period of 12 months, beginning within three months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act; and
(iv) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Shares or any part thereof valid and
binding and in compliance with applicable law.
The Pledgor further acknowledges the impossibility of ascertaining the
amount of damages which would be suffered by the Agent or the Lender Parties by
reason of the failure by the Pledgor to perform any of the covenants contained
in this Section and, consequently, agrees that, if the Pledgor shall fail to
perform any of such covenants, the Agent shall be entitled to specific
performance.
10
<PAGE>
(c) The Pledgor recognizes that, by reason of the aforementioned
requirements and certain prohibitions contained in the Securities Act and
applicable state securities laws, the Agent may, at its option, elect not to
require the Pledgor to register the offering or sale of all or any part of the
Pledged Shares under the provisions of the Securities Act and may therefore be
compelled, with respect to any sale of all or any part of the Pledged Shares, to
limit purchasers to those who will agree, among other things, to acquire such
securities for their own account, for investment, and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such sale may result in prices and other terms less favorable to the seller than
if such sale were a public sale without such restrictions and notwithstanding
such circumstances, agrees that any such sale shall be deemed to have been made
in a commercially reasonable manner. The Agent shall be under no obligation to
delay the sale of any of the Pledged Shares for the period of time necessary to
permit the Pledgor to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if the Pledgor
would agree to do so.
(d) If the Agent determines to exercise its right to sell any or all of
the Pledged Shares, upon written request, the Pledgor shall and shall cause,
each of its Subsidiaries to, from time to time, furnish to the Agent all such
information as the Agent may request in order to determine the number of shares
and other instruments included in the Pledged Shares which may be sold by the
Agent as exempt transactions under the Securities Act and rules of the
Commission thereunder, as the same are from time to time in effect.
(e) In connection with any disposition of the Pledged Shares, if the Agent
elects to obtain the advice of an investment banking firm, such firm shall be
selected by the Pledgor from among three nationally known investment banking
firms which are member firms of the New York Stock Exchange, which three firms
shall be proposed by the Agent to the Pledgor. Such selection by the Pledgor
shall be made within five Business Days after receipt by the Pledgor of the
names of the firms proposed by the Agent. In the absence of such selection by
the Pledgor within such period, the Agent may select any one of such firms. The
Pledgor agrees that the sale or other disposition of all or any part of the
Pledged Shares in reliance on the advice of the investment banking firm so
selected shall be deemed to be commercially reasonable under the UCC and
otherwise proper.
(f) The Pledgor shall indemnify and hold harmless the Agent, the Lender
Parties and any underwriter or financial advisor to the Agent or the Lender
Parties (and the officers, directors, shareholders, employees, attorneys, and
agents of each of them), from and against any and all loss, liability, claim,
damage and expense (including, without limitation, Attorney Costs) under the
Securities Act, any "Blue Sky" law or otherwise insofar as such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
alleged untrue statements of a material fact contained in a registration
statement or prospectus or on any preliminary prospectus or any amendment or
supplement thereto, or arises out of or is based upon any omission or alleged
omission to state therein a material fact required to be stated or necessary to
make the statements therein not misleading, such indemnification to remain
operative regardless of any investigation made by or on behalf of the Agent, the
Lender Parties or any underwriter or financial advisor or any other person or
entity indemnified hereunder. This indemnification does not apply to losses,
claims, damages, liabilities or expenses that are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
11
<PAGE>
information furnished in writing to the issuer of such Pledged Shares by the
Agent or on the Agent's behalf expressly for use therein.
(g) Any and all expenses which may be charged to or for the account of
Agent or the Lender Parties hereunder, including brokers' or underwriters'
commissions or discounts, financial advisory fees, accounting fees, Attorney
Costs, costs of printing and other expenses of offering, sale, or transfer shall
be reimbursed by or charged to the Pledgor pursuant to Section 16(a).
(h) Any cash held by the Agent as Pledged Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Pledged Shares shall be applied by the
Agent as specified in Section 8.02(d) of the Credit Agreement.
SECTION 12. Notices. All notices or other communications hereunder shall be
-------
given in the manner and to the addresses as specified, and shall be effective as
provided, in the Credit Agreement.
SECTION 13. Amendments; Waivers. No amendment or waiver of any provision of
-------------------
this Agreement, nor consent to any departure by the Pledgor herefrom, shall in
any event be effective unless the same shall be made as provided in the Credit
Agreement. No failure on the part of the Agent or any Lender Party to exercise,
and no delay in exercising, any right, remedy, power or privilege here-under
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, remedy, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
Unless otherwise specified in any such waiver or consent, a waiver or consent
given hereunder shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 14. Cumulative Remedies. The rights, powers and remedies of the Agent
-------------------
under this Agreement are cumulative and shall be in addition to all rights,
powers and remedies available to the Agent and the other Lender Parties pursuant
to the Credit Agreement, the other Loan Documents and at law or in equity, all
of which rights, powers and remedies shall be cumulative and may be exercised
successively or concurrently without impairing the Agent's rights hereunder.
SECTION 15. Certain Waivers. The Pledgor waives, to the fullest extent
---------------
permitted by law, any right to require the Agent or the Lender Parties (i) to
proceed against any Person, (ii) to exhaust any other collateral or security for
any of the Secured Obligations, (iii) to pursue any remedy in the Agent's or any
of the Lender Parties' power, or (iv) to make or give any presentments, demands
for performance, notices of nonperformance, protests, notices of protests or
notices of dishonor in connection with any of the Pledged Collateral.
SECTION 16. Costs and Expenses; Indemnification; Other Charges.
---------------------------------------------------
(a) Costs and Expenses. The Pledgor agrees to pay on demand:
------------------
(i) the out-of-pocket costs and expenses of the Agent and any of its
Affiliates, and the Agent's Attorney Costs, in connection with the
negotiation, preparation, execution,
12
<PAGE>
delivery and administration of this Agreement, and any amendments, modifications
or waivers of the terms thereof, and the custody of the Pledged Collateral; and
(ii) all costs and expenses of the Agent and its Affiliates, including
Attorney Costs, in connection with the enforcement or attempted enforcement of,
and preservation of any rights or interests under, this Agreement, including in
any out-of-court workout or other refinancing or restructuring or in any
bankruptcy case, and the custody or preservation, protection, sale or collection
of, or other realization upon, any of the Pledged Collateral, including all
expenses of taking, collecting, holding, sorting, handling, pre-paring for sale,
selling, or the like, and other such expenses of sales and collections of
Pledged Collateral, and any and all losses, costs and expenses sustained by the
Agent as a result of any failure by the Pledgor to perform or observe its
obligations contained herein.
(b) Indemnification. In addition to the agreement to indemnify contained
---------------
in subsection 11(f), the Pledgor hereby agrees to indemnify the Agent, the
Lender Parties, any Affiliate of any of them, and their respective directors,
officers, employees, agents, counsel and other advisors (each an "Indemnified
Person") against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including
Attorney Costs, to an Indemnified Person, which may be imposed on, incurred by,
or asserted against any Indemnified Person, in any way relating to or arising
out of this Agreement or the transactions contemplated hereby or any action
taken or omitted to be taken by it hereunder (the "Indemnified Liabilities");
provided that the Pledgor shall not be liable to any Indemnified Person for any
portion of such Indemnified Liabilities to the extent they are found by a final
decision of a court of competent jurisdiction to have resulted from such
Indemnified Person's gross negligence or willful misconduct. If and to the
extent that the foregoing indemnification is for any reason held unenforceable,
the Pledgor agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
(c) Other Charges. The Pledgor agrees to indemnify the Agent against and
-------------
hold it harmless from any and all present and future stamp, transfer,
documentary and other such taxes, levies, fees, assessments and other charges
made by any jurisdiction by reason of the execution, delivery, performance and
enforcement of this Agreement.
(d) Interest. Any amounts payable to the Agent under this Section or
--------
otherwise under this Agreement if not paid upon demand shall bear interest from
the date of such demand until paid in full, at the Default Rate.
SECTION 17. Binding Effect; Transferability; No Third-Party Beneficiaries. This
-------------------------------------------------------------
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Pledgor and the Agent, and their respective successors and assigns,
provided, however, that the Pledgor may not assign any of its rights hereunder
or interests herein without the written consent of the Agent and the Requisite
Lenders. The Pledgor acknowledges that upon any assignment or other transfer by
the Agent or any other Lender Party of any of the Secured Obligations, the Agent
or such other Lender Party may transfer its interest herein, or any part
thereof, to the assignee or transferee, who shall thereupon become vested with
all the rights, remedies, powers, security interests and liens herein granted to
the Agent or such other Lender Party, or the transferred part
13
<PAGE>
thereof, subject, however, to the restrictions contained in the Credit
Agreement. No Persons other than the Pledgor, the Lender Parties, the Agent and
the respective assignees of the Lender Parties and the Agent are intended to be
benefited hereby or shall have any rights hereunder, as third-party
beneficiaries or otherwise.
SECTION 18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF OREGON, EXCEPT TO THE
EXTENT THAT, BY REASON OF MANDATORY PROVISIONS OF LAW, ANY OR ALL OF THE
ATTACHMENT, PERFECTION OR PRIORITY OF THE SECURITY INTEREST IN ANY PLEDGED
COLLATERAL IS GOVERNED BY THE LAW OF ANOTHER JURISDIC-TION, PROVIDED THAT THE
AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
SECTION 19. Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties with respect to the subject matter hereof.
SECTION 20. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 21. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counter-parts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 22. Incorporation of Provisions of the Credit Agreement. To the extent
---------------------------------------------------
the Credit Agreement contains provisions of general applicability to the Loan
Documents, including any such provisions contained in Section X thereof, such
provisions are incorporated herein by this reference.
SECTION 23. No Inconsistent Requirements. The Pledgor acknowledges that this
----------------------------
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and agrees
that all such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.
SECTION 24. Continuing Security Interest; Termination. This Agreement shall
-----------------------------------------
create a continuing security interest in the Pledged Collateral and shall apply
to all past, present and future Secured Obligations, including Secured
Obligations that arise under transactions that continue any Secured Obligation,
increase or decrease any Secured Obligation, or from time to time create new
Secured Obligations after all or any prior Secured Obligations have been
satisfied. Upon termination of the Commitments of the Banks under the Loan
Documents, the
14
<PAGE>
surrender of any Letters of Credit issued by any Issuer for the account of the
Pledgor, and the payment and performance in full of all Secured Obligations, the
security interests granted under this Agreement shall terminate and the Pledgor
shall be entitled to the return, upon its request and at its expense, of such of
the Pledged Collateral as shall not have been sold or otherwise applied pursuant
to the terms hereof. Notwithstanding the foregoing, the obligations of the
Pledgor under Sections 11(f) and 16 shall survive such termination.
IN WITNESS WHEREOF, the Pledgor has executed this Agreement as of the
day and year first above written.
FLIR SYSTEMS, INC.
By: __________________________
Title: __________________________
By: __________________________
Title: __________________________
Accepted:
BANK OF AMERICA, N.A., as Agent
By: ______________________________
Title: ___________________________
15
<PAGE>
SCHEDULE 1
TO
PLEDGE AGREEMENT
<TABLE>
<CAPTION>
Name of Number of Number of
Pledged Jurisdiction of Class of Number of Shares Shares Owned
Subsidiary Incorporation Stock Shares Issued Outstanding by Pledgor
<S> <C> <C> <C> <C> <C>
</TABLE>
16
<PAGE>
SCHEDULE 2
TO
PLEDGE AGREEMENT
PLEDGE AGREEMENT SUPPLEMENT
This Pledge Agreement Supplement, dated as of _____________________, is
delivered pursuant to Section 3(d) of the Pledge Agreement referred to below.
The undersigned hereby agrees that this Pledge Agreement Supplement may be
attached to the Pledge Agreement, dated as of December 16, 1999 (as amended,
restated, modified, renewed, supplemented or extended from time to time, the
"Pledge Agreement"; the terms defined therein and not otherwise defined herein
being used as therein defined), made by the undersigned in favor Bank of
America, N.A., as Agent for the Lender Parties referred to therein, and that the
shares of capital stock or other equity securities listed on this Pledge
Agreement Supplement shall be and become part of the Pledged Collateral referred
to in the Pledge Agreement and shall secure all Secured Obligations.
The undersigned agrees that the shares of capital stock and other equity
securities listed below shall for all purposes constitute Pledged Collateral and
shall be subject to the security interest created by the Pledge Agreement.
The undersigned hereby certifies that the representations and warranties
set forth in Section 4 of the Pledge Agreement are true and correct with respect
to the Pledged Shares listed below on and as of the date hereof.
FLIR SYSTEMS, INC.
By: _____________________________
Title: __________________________
By: _____________________________
Title: __________________________
Accepted:
BANK OF AMERICA, N.A., as Agent
By: ________________________________
Title: _____________________________
17
<PAGE>
EXHIBIT 10.22
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of December 16, 1999,
is made between FLIR Systems, Inc., an Oregon corporation (the "Grantor"), and
BANK OF AMERICA, N.A. a national banking association, as agent for the Lenders
and its successors as agent for the Lenders (in such capacity, and together with
its successors as agent for the Lenders, the "Agent").
-----
RECITALS
A. The Grantor is a party to that certain Credit Agreement dated as of
December 16, 1999 by and among the Grantor, the several financial institutions
from time to time party thereto (the "Lenders"), and Bank of America, N.A., as
-------
agent for the Lenders (as amended, restated, modified, renewed, supplemented or
extended from time to time, the "Credit Agreement").
----------------
B. It is a condition precedent to each Lender's obligation to make its
initial Credit Extension under the Credit Agreement that the Grantor enter into
this Agreement and grant to the Agent, for itself and for the ratable benefit of
the Lenders the security interests hereinafter provided to secure the
obligations of the Grantor described below.
Accordingly, the parties hereto agree as follows:
SECTION 1. Definitions; Interpretation
---------------------------
(a) Terms Defined in Credit Agreement. All capitalized terms used in
---------------------------------
this Agreement and not otherwise defined herein have the meanings specified in
the Credit Agreement.
(b) Certain Defined Terms. As used in this Agreement, the following
---------------------
terms have the following meanings:
"Accounts" means any and all accounts of the Grantor, whether now
--------
existing or hereafter acquired or arising, and in any event includes all
accounts receivable, contract rights, rights to payment and other obligations of
any kind owed to the Grantor arising out of or in connection with the sale or
lease of merchandise, goods or commodities or the rendering of services or
arising from any other transaction, however evidenced, and whether or not earned
by performance, all guaranties, indemnities and security with respect to the
foregoing, and all letters of credit relating thereto, in each case whether now
existing or hereafter acquired or arising.
"Books" means all books, records and other written, electronic or
-----
other documentation in whatever form maintained now or hereafter by or for the
Grantor in connection with the ownership of its assets or the conduct of its
business or evidencing or containing information relating to the Collateral,
including: (i) ledgers; (ii) records indicating, summarizing, or evidencing the
Grantor's assets (including Inventory and Rights to Payment), business
operations or financial condition; (iii) computer programs and software; (iv)
computer discs, tapes, files, manuals, spreadsheets; (v) computer printouts and
output of whatever kind; (vi) any other computer prepared or electronically
stored, collected or reported information and
PAGE 1- SECURITY AGREEMENT
<PAGE>
equipment of any kind; and (vii) any and all other rights now or hereafter
arising out of any contract or agreement between the Grantor and any service
bureau, computer or data processing company or other Person charged with
preparing or maintaining any of the Grantor's books or records or with credit
reporting, including with regard to the Grantor's Accounts.
"Chattel Paper" means all writings of whatever sort which evidence a
-------------
monetary obligation and a security interest in or lease of specific goods,
whether now existing or hereafter arising.
"Collateral" has the meaning specified in Section 2.
---------- ---------
"Deposit Account" means any demand, time, savings, passbook or like
---------------
account now or hereafter maintained by or for the benefit of the Grantor with a
bank, savings and loan association, credit union or like organization (including
B of A) and all funds and amounts therein, whether or not restricted or
designated for a particular purpose.
"Documents" means any and all documents of title, bills of lading,
---------
dock warrants, dock receipts, warehouse receipts and other documents of the
Grantor, whether or not negotiable, and includes all other documents which
purport to be issued by a bailee or agent and purport to cover goods in any
bailee's or agent's possession which are either identified or are fungible
portions of an identified mass, including such documents of title made available
to the Grantor for the purpose of ultimate sale or exchange of goods or for the
purpose of loading, unloading, storing, shipping, transshipping, manufacturing,
processing or otherwise dealing with goods in a manner preliminary to their sale
or exchange, in each case whether now existing or hereafter acquired or arising.
"Equipment" means all now existing or hereafter acquired equipment of
---------
the Grantor in all of its forms, wherever located, and in any event includes any
and all machinery, furniture, equipment, furnishings and fixtures in which the
Grantor now or hereafter acquires any right, and all other goods and tangible
personal property (other than Inventory), including tools, parts and supplies,
automobiles, trucks, tractors and other vehicles, computer and other electronic
data processing equipment and other office equipment, computer programs and
related data processing software, and all additions, substitutions,
replacements, parts, accessories, and accessions to and for the foregoing, now
owned or hereafter acquired, and including any of the foregoing which are or are
to become fixtures on real property.
"Financing Statements" has the meaning specified in Section 3.
--------------------
"General Intangibles" means all general intangibles of the Grantor,
-------------------
now existing or hereafter acquired or arising, and in any event includes: (i)
all tax and other refunds, rebates or credits of every kind and nature to which
the Grantor is now or hereafter may become entitled; (ii) all good will, choses
in action and causes of action, whether legal or equitable, whether in contract
or tort and however arising; (iii) all uncertificated securities and interests
in limited and general partnerships; (iv) all rights of stoppage in transit,
replevin and reclamation; (v) all licenses, permits, consents, indulgences and
rights of whatever kind issued in favor of or otherwise recognized as belonging
to the Grantor by any Governmental Authority; and (vi) all indemnity agreements,
guaranties, insurance policies and other contractual, equitable and legal
PAGE 2- SECURITY AGREEMENT
<PAGE>
rights of whatever kind or nature; in each case whether now existing or
hereafter acquired or arising.
"Instruments" means any and all negotiable instruments, certificated
-----------
securities (excluding 35% of the certificated securities of FLIR Systems, AB, a
Swedish corporation, and excluding all of the certificated securities of any
other corporation incorporated outside of the United States of America) and
every other writing which evidences a right to the payment of money, in each
case whether now existing or hereafter acquired.
"Inventory" means any and all of the Grantor's inventory in all of its
---------
forms, wherever located, whether now owned or hereafter acquired, and in any
event includes all goods (including goods in transit) which are held for sale,
lease or other disposition, including those held for display or demonstration or
out on lease or consignment or to be furnished under a contract of service, or
which are raw materials, work in process, finished goods or materials used or
consumed in the Grantor's business, and the resulting product or mass, and all
repossessed, returned, rejected, reclaimed and replevied goods, together with
all parts, components, supplies, packing and other materials used or usable in
connection with the manufacture, production, packing, shipping, advertising,
selling or furnishing of such goods; and all other items hereafter acquired by
the Grantor by way of substitution, replacement, return, repossession or
otherwise, and all additions and accessions thereto, and any Document
representing or relating to any of the foregoing at any time.
"Lender Party" means, as the context may require, any Lender
------------
(including any Lender in its capacity as Issuing Lender), any Lender or its
Affiliate in its capacity as Swap Provider or the Agent and each of their
respective successors, transferees and assigns.
"Proceeds" means whatever is receivable or received from or upon the
--------
sale, lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral or other assets of the Grantor,
including "proceeds" as defined at UCC Section 9-306, any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to or for the account of
the Grantor from time to time with respect to any of the Collateral, any and all
payments (in any form whatsoever) made or due and payable to the Grantor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any Governmental
Authority (or any Person acting under color of Governmental Authority), any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral or for or on account of any damage or injury to or
conversion of any Collateral by any Person, any and all other tangible or
intangible property received upon the sale or disposition of Collateral, and all
proceeds of proceeds.
"Proceeds Account" has the meaning set forth in Section 10(c).
---------------- -------------
"Rights to Payment" means all Accounts, and any and all rights and
-----------------
claims to the payment or receipt of money or other forms of consideration of any
kind in, to and under all Chattel Paper, Documents, General Intangibles,
Instruments and Proceeds.
"Secured Obligations" means all Obligations of the Grantor under or in
-------------------
connection with the Credit Agreement and each other Loan Document to which the
Grantor is or
PAGE 3- SECURITY AGREEMENT
<PAGE>
may become a party, whether for principal, interest, costs, fees, expenses,
indemnities or otherwise and all obligations of the Grantor existing under this
Security Agreement and each other Loan Document to which it is or may become a
party, in each case whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined, and all Secured Swap Obligations.
"UCC" means the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of Oregon; provided, however, in the event that,
-------- -------
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of Oregon, the term "UCC" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
(c) Terms Defined in UCC. Where applicable and except as otherwise
--------------------
defined herein, terms used in this Agreement shall have the meanings assigned
to them in the UCC.
SECTION 2. Security Interest.
-----------------
(a) Grant of Security Interest. As security for the payment and
--------------------------
performance of the Secured Obligations, the Grantor hereby pledges, assigns,
transfers, hypothecates and sets over to the Agent for its benefit and for the
ratable benefit of the other Lender Parties, and hereby grants to the Agent for
its benefit and for the ratable benefit of the other Lender Parties, a security
interest in, all of the Grantor's right, title and interest in, to and under the
following property, wherever located and whether now existing or owned or
hereafter acquired or arising (collectively, the "Collateral"): (i) all
----------
Accounts; (ii) all Chattel Paper; (iii) all Deposit Accounts; (iv) all
Documents; (v) all Equipment; (vi) all General Intangibles; (vii) all
Instruments; (viii) all Inventory; (ix) all Books; and (x) all products and
Proceeds of any and all of the foregoing.
(b) Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (i) the Grantor shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by the
Agent of any of the rights hereunder shall not release the Grantor from any of
its duties or obligations under such contracts, agreements and other documents
included in the Collateral, and (iii) neither the Agent nor any other Lender
Party shall have any obligation or liability under any contracts, agreements and
other documents included in the Collateral by reason of this Agreement, nor
shall the Agent or any other Lender Party be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any such contract, agreement or other document included in the
Collateral hereunder.
(c) Continuing Security Interest. The Grantor agrees that this
----------------------------
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 22.
PAGE 4- SECURITY AGREEMENT
<PAGE>
SECTION 3. Financing Statements, Etc. The Grantor shall execute and deliver to
-------------------------
the Agent concurrently with the execution of this Agreement, and at any time and
from time to time thereafter, all financing statements, continuation financing
statements, termination statements, security agreements, chattel mortgages,
assignments, fixture filings, warehouse receipts, documents of title,
affidavits, reports, notices, schedules of account, letters of authority and all
other documents and instruments requested by, and in form satisfactory to the
Agent (the "Financing Statements"), and take all other action, as the Agent may
--------------------
reasonably request, to perfect and continue perfected, maintain the priority of
or provide notice of the Agent's security interest in the Collateral and to
accomplish the purposes of this Agreement.
SECTION 4. Representations and Warranties. In addition to the representations
------------------------------
and warranties of the Grantor set forth in the Credit Agreement, which are
incorporated herein by this reference, the Grantor represents and warrants to
the Agent that:
(a) Location of Chief Executive Office and Collateral. The Grantor's
-------------------------------------------------
chief executive office and principal place of business is located at the address
set forth in Schedule 1, and all other locations where any material amount of
----------
Collateral is kept are set forth in Schedule 1.
----------
(b) Locations of Books. All locations where Books pertaining to the
------------------
Rights to Payment are kept, including all equipment necessary for accessing such
Books and the names and addresses of all service bureaus, computer or data
processing companies and other Persons keeping any Books or collecting Rights to
Payment for the Grantor, are set forth in Schedule 1.
----------
(c) Trade Names and Trade Styles. All trade names and trade styles
----------------------------
under which the Grantor presently conducts its business operations are set forth
in Schedule 1, and, except as set forth in Schedule 1, the Grantor has not, at
---------- ----------
any time during the preceding five years: (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
(d) Ownership of Collateral. The Grantor is, and, except as permitted
-----------------------
by Section 5(i), will continue to be, the sole and complete owner of the
Collateral (or, in the case of after-acquired Collateral, at the time the
Grantor acquires rights in such Collateral, will be the sole and complete owner
thereof), free from any Lien other than Ordinary Course Liens, and those set
forth in Schedule 1.
----------
(e) Enforceability; Priority of Security Interest. (i) This Agreement
---------------------------------------------
creates a security interest which is enforceable against the Collateral in which
the Grantor now has rights and will create a security interest which is
enforceable against the Collateral in which the Grantor hereafter acquires
rights at the time the Grantor acquires any such rights; and (ii) the Agent has
a perfected and first priority security interest in the Collateral, in which the
Grantor now has rights, and will have a perfected and first priority security
interest in the Collateral in which the Grantor hereafter acquires rights at the
time the Grantor acquires any such rights, in each case for the Agent's own
benefit and for the ratable benefit of the other Lender Parties, and in each
case securing the payment and performance of the Secured Obligations.
PAGE 5- SECURITY AGREEMENT
<PAGE>
(f) Other Financing Statements. Other than (i) financing statements
--------------------------
or similar filings, under the UCC or any comparable law ("UCC Financing
-------------
Statements") disclosed to the Agent or set forth in Schedule 1 and (ii) UCC
- ---------- ----------
Financing Statements in favor of the Agent in its capacity as Agent for the
other Lender Parties under the Credit Agreement and any other Loan Documents, no
effective UCC Financing Statement naming the Grantor as debtor, assignor,
grantor, mortgagor, pledgor or the like and covering all or any part of the
Collateral is on file in any filing or recording office in any jurisdiction.
(g) Rights to Payment.
-----------------
(i) The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons obligated
thereon, representing undisputed, bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto, and
are and will be genuine, free from Liens, and not subject to any adverse claims,
counterclaims, setoffs, defaults, disputes, defenses, discounts, retainages,
holdbacks or conditions precedent of any kind of character, except to the extent
reflected by the Grantor's reserves for uncollectible Rights to Payment or to
the extent, if any, that such account debtors or other Persons may be entitled
to normal and ordinary course trade discounts, returns, adjustments and
allowances in accordance with Section 5(m), or as otherwise disclosed to the
Agent in writing;
(ii) to the Grantor's knowledge, all account debtors and other
obligors on the Rights to Payment are solvent and generally paying their debts
as they come due except to the extent that the Grantor has established adequate
reserves therefor in accordance with GAAP;
(iii) to the Grantor's knowledge, all Rights to Payment
materially comply with all applicable laws concerning form, content and manner
of preparation and execution, including where applicable any federal or state
consumer credit laws; (iv) the Grantor has not assigned any of its rights under
the Rights to Payment except as provided in this Agreement or as set forth in
the other Loan Documents;
(v) all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the Rights to
Payment are true and correct and in all material respects what they purport to
be; and
(vi) the Grantor has no knowledge of any fact or circumstance
which would materially impair the validity or collectibility of any of the
Rights to Payment.
(h) Inventory. Except for demonstration inventory, no Inventory is
---------
stored with any bailee, warehouseman or similar Person, nor has any Inventory
been consigned to the Grantor or consigned by the Grantor to any Person or is
held by the Grantor for any Person under any arrangement, except as set forth in
Schedule 1.
- ----------
(i) Equipment.
---------
(i) None of the Equipment or other Collateral is affixed to real
property to the extent necessary to make it a fixture, except Collateral with
respect to which the
PAGE 6- SECURITY AGREEMENT
<PAGE>
Grantor has supplied the Agent with all information and documentation necessary
to make all fixture filings required to perfect and protect the priority of the
Agent's security interest in all such Collateral which may be fixtures as
against all Persons having an interest in the premises to which such property
may be affixed; and
(ii) none of the Equipment is leased from or to any Person,
except as set forth at Schedule 1 or as otherwise disclosed to the Agent.
----------
(j) Compliance with Federal Fair Labor Standards Act. All Collateral
------------------------------------------------
manufactured by Grantor has been and will be produced in compliance with the
Federal Fair Labor Standards Act.
(k) Deposit Accounts. The names and addresses of all financial
----------------
institutions at which the Grantor maintains its Deposit Accounts, and the
account numbers and account names of such Deposit Accounts, are set forth in
Schedule 1.
- ----------
SECTION 5. Covenants. In addition to the covenants of the Grantor set forth
---------
in the Credit Agreement, which are incorporated herein by this reference, so
long as any of the Secured Obligations remain unsatisfied or any Lender shall
have any Commitment or any Letter of Credit shall be outstanding or any
Specified Swap Contract shall be in effect, the Grantor agrees that:
(a) Defense of Collateral. The Grantor will appear in and defend
---------------------
any action, suit or proceeding which may affect to a material extent its title
to, or right or interest in, or the Agent's right to or interest in, the
Collateral.
(b) Preservation of Collateral. The Grantor will do and perform all
--------------------------
reasonable acts that may be necessary and appropriate to maintain, preserve and
protect the Collateral.
(c) Compliance with Laws, Etc. The Grantor will comply in all
-------------------------
material respects with all laws, regulations and ordinances, and all policies of
insurance, relating in a material way to the possession, operation, maintenance
and control of the Collateral.
(d) Location of Books and Chief Executive Office. The Grantor will:
--------------------------------------------
(i) keep all Books pertaining to the Rights to Payment at the locations set
forth in Schedule 1; and (ii) give at least 30 days' prior written notice to the
----------
Agent of (A) any changes in any such location where Books pertaining to the
Rights to Payment are kept, including any change of name or address of any
service bureau, computer or data processing company or other Person preparing or
maintaining any Books or collecting Rights to Payment for the Grantor or (B) any
changes in the location of the Grantor's chief executive office or principal
place of business.
(e) Location of Collateral. The Grantor will: (i) keep the Collateral
----------------------
at the locations set forth in Schedule 1 and not remove the Collateral from such
----------
locations (other than disposals of Collateral permitted by subsection (i))
except upon at least 30 days' prior written notice of any removal to the Agent;
and (ii) give the Agent at least 30 days' prior written notice of any change in
the locations set forth in Schedule 1.
----------
(f) Change in Name, Identity or Structure. The Grantor will give
-------------------------------------
at least 30 days' prior written notice of (i) any change in name, (ii) any
changes in, additions to or other
PAGE 7- SECURITY AGREEMENT
<PAGE>
modifications of its trade names and trade styles set forth in Schedule 1, and
----------
(iii) any changes in its identity or structure in any manner which might make
any Financing Statement filed hereunder incorrect or misleading.
(g) Maintenance of Records. The Grantor will keep separate, accurate
----------------------
and complete Books with respect to the Collateral, disclosing the Agent's
security interest hereunder.
(h) Invoicing of Sales. The Grantor will invoice all of its sales
------------------
upon forms customary in the industry and to maintain proof of delivery and
customer acceptance of goods.
(i) Disposition of Collateral. The Grantor will not surrender or lose
-------------------------
possession of (other than to the Agent), sell, lease, rent, or otherwise dispose
of or transfer any of the Collateral or any right or interest therein, except to
the extent permitted by the Credit Agreement.
(j) Liens. Other than liens in favor of the Agent in its capacity as
-----
Agent under the Credit Agreement and Ordinary Course Liens and except as set
forth in Schedule 1, the Grantor will keep the Collateral free of all liens
and security interests of any kind.
(k) Expenses. The Grantor will pay all expenses of protecting,
--------
storing, warehousing, insuring, handling and shipping the Collateral.
(l) Leased Premises. At the Agent's request, the Grantor will obtain
---------------
from each Person from whom the Grantor leases any premises at which any
Collateral is at any time present such subordination, waiver, consent and
estoppel agreements as the Agent may require, in form and substance reasonably
satisfactory to the Agent.
(m) Rights to Payment. The Grantor will:
-----------------
(i) with such frequency as the Agent may reasonably require,
furnish to the Agent (A) master customer listings, including all names and
addresses, together with copies or originals (as requested by the Agent) of
documents, customer statements, repayment histories and present status reports
relating to the Accounts; (B) accurate records and summaries of Accounts,
including detailed agings specifying the name, face value and date of each
invoice, and listings of Accounts that are disputed or have been cancelled; and
(C) such other matters and information relating to the Accounts as the Agent
shall from time to time reasonably request;
(ii) give only normal discounts, allowances and credits as to
Accounts and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by the Grantor in the past, and
enforce all Accounts and other Rights to Payment strictly in accordance with
their terms, and take all such action to such end as may from time to time be
reasonably requested by the Agent, except that the Grantor may grant any
extension of the time for payment;
(iii) if any discount, allowance, credit, extension of time for
payment, agreement to make a rebate or otherwise to reduce the amount owing on,
or compromise or settle, an Account or other Right to Payment exists or occurs,
or if, to the knowledge of the Grantor, any dispute, setoff, claim, counterclaim
or defense exists or has been asserted or
PAGE 8- SECURITY AGREEMENT
<PAGE>
threatened with respect to an Account or other Right to Payment, disclose such
fact fully to the Agent in the Books relating to such Account or other Right to
Payment and in connection with any invoice or report furnished by the Grantor to
the Agent relating to such Account or other Right to Payment;
(iv) if any Accounts arise from contracts with the United
States or any department, agency or instrumentality thereof, immediately notify
the Agent thereof and, upon request of Requisite Lenders, execute any documents
and instruments and take any other steps requested by the Agent in order that
all monies due and to become due thereunder shall be assigned to the Agent and
notice thereof given to the Federal authorities under the Federal Assignment of
Claims Act;
(v) in accordance with its sound business judgment perform and
comply in all material respects with its obligations in respect of the Accounts
and other Rights to Payment;
(vi) upon the request of the Agent (A) at any time, notify all
or any designated portion of the account debtors and other obligors on the
Rights to Payment of the security interest hereunder, and (B) upon the
occurrence of an Event of Default, notify the account debtors and other obligors
on the Rights to Payment or any designated portion thereof that payment shall be
made directly to the Agent or to such other Person or location as the Agent
shall specify; an d
(vii) upon the occurrence of any Event of Default, establish
such lockbox or similar arrangements for the payment of the Accounts and other
Rights to Payment as the Agent shall require.
(n) Documents, Etc. Upon the request of the Agent, the Grantor will
--------------
(i) immediately deliver to the Agent, or an agent designated by it,
appropriately endorsed or accompanied by appropriate instruments of transfer or
assignment, all Documents, Instruments and Chattel Paper, and all other Rights
to Payment at any time evidenced by promissory notes, trade acceptances or other
instruments, and (ii) mark all Documents and Chattel Paper with such legends as
the Agent shall reasonably specify.
(o) Inventory. The Grantor will:
---------
(i) at such times as the Agent shall request, prepare and
deliver to the Agent a report of all Inventory, in form and substance
satisfactory to the Agent;
(ii) upon the request of Requisite Lenders, take a physical
listing of the Inventory and promptly deliver a copy of such physical listing to
the Agent; and
(iii) not store any Inventory with a bailee, warehouseman or
similar Person, nor dispose of any Inventory on a guaranteed sale, sale and
return, sale on approval, consignment or similar basis, nor acquire any
Inventory from any Person on any such basis, without in each case giving the
Agent prior written notice thereof.
PAGE 9- SECURITY AGREEMENT
<PAGE>
(p) Equipment. The Grantor will, upon the Agent's request, deliver to
---------
the Agent a report of each item of Equipment, in form and substance satisfactory
to the Agent.
(q) Notices, Reports and Information. The Grantor will (i) notify the
--------------------------------
Agent of any material claim made or asserted against the Collateral by any
Person and of any change in the composition of the Collateral or other event
which could materially adversely affect the value of the Collateral or the
Agent's Lien thereon; (ii) furnish to the Agent such statements and schedules
further identifying and describing the Collateral and such other reports and
other information in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail; and (iii) upon request of the Agent make such
demands and requests for information and reports as the Grantor is entitled to
make in respect of the Collateral.
SECTION 6. Collection of Rights to Payment. Until the Agent exercises its
-------------------------------
rights hereunder to collect Rights to Payment, the Grantor shall endeavor in the
first instance diligently to collect all amounts due or to become due on or with
respect to the Rights to Payment. At the request of the Agent, upon and after
the occurrence of any Event of Default, all remittances received by the Grantor
shall be held in trust for the Agent and, in accordance with the Agent's
instructions, remitted to the Agent or deposited to an account with the Agent in
the form received (with any necessary endorsements or instruments of assignment
or transfer).
SECTION 7. Authorization; Agent Appointed Attorney-in-Fact. The Agent shall
-----------------------------------------------
have the right to, in the name of the Grantor, or in the name of the Agent or
otherwise, without notice to or assent by the Grantor, and the Grantor hereby
constitutes and appoints the Agent (and any of the Agent's officers, employees
or agents designated by the Agent) as the Grantor's true and lawful attorney-in-
fact, with full power and authority to:
(i) sign any of the Financing Statements which must be executed or
filed to perfect or continue perfected, maintain the priority of or provide
notice of the Agent's security interest in the Collateral and file any such
Financing Statements by electronic means with or without a signature as
authorized or required by applicable law or filing procedures;
(ii) take possession of and endorse any notes, acceptances, checks,
drafts, money orders or other forms of payment or security and collect any
Proceeds of any Collateral;
(iii) sign and endorse any invoice or bill of lading relating to
any of the Collateral, warehouse or storage receipts, drafts against customers
or other obligors, assignments, notices of assignment, verifications and notices
to customers or other obligors;
(iv) notify the Postal Service authorities to change the address
for delivery of mail addressed to the Grantor to such address as the Agent may
designate and, without limiting the generality of the foregoing, establish with
any Person lockbox or similar arrangements for the payment of the Rights to
Payment;
(v) receive, open and dispose of all mail addressed to the
Grantor;
(vi) send requests for verification of Rights to Payment to the
customers or other obligors of the Grantor;
PAGE 10 - SECURITY AGREEMENT
<PAGE>
(vii) contact, or direct the Grantor to contact, all account
debtors and other obligors on the Rights to Payment and instruct such account
debtors and other obligors to make all payments directly to the Agent;
(viii) assert, adjust, sue for, compromise or release any claims
under any policies of insurance;
(ix) exercise dominion and control over, and refuse to permit
further withdrawals from, Deposit Accounts maintained with the Agent; notify
each Person maintaining lockbox or similar arrangements for the payment of the
Rights to Payment to remit all amounts representing collections on the Rights to
Payment directly to the Agent;
(xi) ask, demand, collect, receive and give acquittances and
receipts for any and all Rights to Payment, enforce payment or any other rights
in respect of the Rights to Payment and other Collateral, grant consents, agree
to any amendments, modifications or waivers of the agreements and documents
governing the Rights to Payment and other Collateral, and otherwise file any
claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as the Agent may deem
necessary or desirable to maintain, preserve and protect the Collateral, to
collect the Collateral or to enforce the rights of the Agent with respect to the
Collateral;
(xii) execute any and all applications, documents, papers and
instruments necessary for the Agent to use trade marks, trade names or other
intellectual property and grant or issue any exclusive or nonexclusive license
or sublicense with respect thereto;
(xiii) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral; and
(xiv) execute any and all such other documents and instruments,
and do any and all acts and things for and on behalf of the Grantor, which the
Agent may deem necessary or advisable to maintain, protect, realize upon and
preserve the Collateral and the Agent's security interest therein and to
accomplish the purposes of this Agreement.
The event of Default, it shall not exercise the power of attorney,
or any rights granted to the Agent, pursuant to clauses (ii) through (xiii). The
foregoing power of attorney is coupled with an interest and irrevocable so long
as any Lender has any Commitment or any Letter of Credit remains outstanding or
any Specified Swap Contract shall be in effect or the Secured Obligations have
not been paid and performed in full. The Grantor hereby ratifies, to the extent
permitted by law, all that the Agent shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 7.
SECTION 8. Agent Performance of Grantor Obligations. The Agent may perform or
----------------------------------------
pay any obligation which the Grantor has agreed to perform or pay under or in
connection with this Agreement, and the Grantor shall reimburse the Agent on
demand for any amounts paid by the
PAGE 11 - SECURITY AGREEMENT
<PAGE>
Agent pursuant to this Section 8. Except in cases where prompt action is
required to minimize risk of loss, Agent will give Grantor two (2) Business Days
notice before performing or paying a Grantor obligation.
SECTION 9. Agent's Duties. Notwithstanding any provision contained in this
--------------
Agreement, the Agent shall have no duty to exercise any of the rights,
privileges or powers afforded to it and shall not be responsible to the Grantor
or any other Person for any failure to do so or delay in doing so. Beyond the
exercise of reasonable care to assure the safe custody of Collateral in the
Agent's possession and the accounting for moneys actually received by the Agent
hereunder, the Agent shall have no duty or liability to exercise or preserve any
rights, privileges or powers pertaining to the Collateral.
SECTION 10. Remedies.
--------
(a) Remedies. Upon the occurrence of any Event of Default, the Agent
--------
shall have, in addition to all other rights and remedies granted to it in this
Agreement, the Credit Agreement or any other Loan Document, all rights and
remedies of a secured party under the UCC and other applicable laws. Without
limiting the generality of the foregoing, the Grantor agrees that the Agent may:
(i) peaceably and without notice enter any premises of the
Grantor, take possession of any the Collateral, remove or dispose of all or part
of the Collateral on any premises or elsewhere, or, in the case of Equipment,
render it nonfunctional, and otherwise collect, receive, appropriate and realize
upon all or any part of the Collateral, and demand, give receipt for, settle,
renew, extend, exchange, compromise, adjust, or sue for all or any part of the
Collateral, as the Agent may determine;
(ii) require the Grantor to assemble all or any part of the
Collateral and make it available to the Agent at any place and time designated
by the Agent;
(iii) use or transfer any of the Grantor's rights and interests
in any Collateral, by license, by sublicense (to the extent permitted by an
applicable license) or otherwise, on such conditions and in such manner as the
Agent may determine;
(iv) secure the appointment of a receiver of the Collateral or
any part thereof to the extent and in the manner provided by applicable law;
(v) withdraw (or cause to be withdrawn) any and all funds from
Deposit Accounts; and
(vi) sell, resell, lease, use, assign, transfer or otherwise
dispose of any or all of the Collateral in its then condition or following any
commercially reasonable preparation or processing (utilizing in connection
therewith any of the Grantor's assets, without charge or liability to the Agent
therefor) at public or private sale in compliance with all laws and regulations,
including required export licenses, by one or more contracts, in one or more
parcels, at the same or different times, for cash or credit, or for future
delivery without assumption of any credit risk, all as the Agent deems
advisable; provided, however, that the Grantor shall be credited with the net
-------- -------
proceeds of sale only when such proceeds are finally collected by the
PAGE 12 - SECURITY AGREEMENT
<PAGE>
Agent. The Agent shall have the right upon any such public sale, and, to the
extent permitted by law, upon any such private sale, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption,
which right or equity of redemption the Grantor hereby releases, to the extent
permitted by law. The Grantor hereby agrees that the sending of notice by
ordinary mail, postage prepaid, to the address of the Grantor set forth in the
Credit Agreement, of the place and time of any public sale or of the time after
which any private sale or other intended disposition is to be made, shall be
deemed reasonable notice thereof if such notice is sent ten days prior to the
date of such sale or other disposition or the date on or after which such sale
or other disposition may occur, provided that the Agent may provide the Grantor
shorter notice or no notice, to the extent permitted by the UCC or other
applicable law.
(b) License. For the purpose of enabling the Agent to exercise its
-------
rights and remedies under this Section 10 or otherwise in connection with this
----------
Agreement, the Grantor hereby grants to the Agent an irrevocable, nonexclusive
and assignable license (exercisable without payment or royalty or other
compensation to the Grantor) to use, license or sublicense any trade marks,
trade names or other intellectual property.
(c) Proceeds Account. To the extent that any of the Secured
----------------
Obligations may be contingent, unmatured or unliquidated (including with respect
to undrawn amounts under any Letter of Credit or contingent amounts due under
any Specified Swap Contract) at such time as there may exist an Event of
Default, the Agent may, at its election, (i) retain the proceeds of any sale,
collection, disposition or other realization upon the Collateral (or any portion
thereof) in a special purpose non-interest-bearing restricted deposit account
(the "Proceeds Account") created and maintained by the Agent for such purpose
----------------
(which shall constitute a Deposit Account included within the Collateral
hereunder) until such time as the Agent may elect to apply such proceeds to the
Secured Obligations, and the Grantor agrees that such retention of such proceeds
by the Agent shall not be deemed strict foreclosure with respect thereto; (ii)
in any manner elected by the Agent, estimate the liquidated amount of any such
contingent, unmatured or unliquidated claims and apply the proceeds of the
Collateral against such amount; or (iii) otherwise proceed in any manner
permitted by applicable law. The Grantor agrees that the Proceeds Account shall
be a blocked account and that upon the irrevocable deposit of funds into the
Proceeds Account, the Grantor shall not have any right of withdrawal with
respect to such funds. Accordingly, the Grantor irrevocably waives until the
termination of the security interests granted under this Agreement in accordance
with Section 22, the right to make any withdrawal from the Proceeds Account and
the right to instruct the Agent to honor drafts against the Proceeds Account.
(d) Application of Proceeds. Subject to subsection (c) immediately
-----------------------
above, the cash proceeds actually received from the sale or other disposition or
collection of Collateral, and any other amounts received in respect of the
Collateral the application of which is not otherwise provided for herein, shall
be applied (after payment of any amounts payable to the Agent pursuant to
Section 8 or Section 14) in whole or in part by the Agent for the benefit of the
Lender Parties as provided in Section 8.02(d) of the Credit Agreement. The
Grantor shall remain liable to the Agent for any deficiency which exists after
any sale or other disposition or collection of Collateral.
PAGE 13 - SECURITY AGREEMENT
<PAGE>
SECTION 11. Certain Waivers. The Grantor waives, to the fullest extent
---------------
permitted by law, (i) any right of redemption with respect to the Collateral,
whether before or after sale hereunder, and all rights, if any, of marshalling
of the Collateral or other collateral or security for the Secured Obligations;
(ii) any right to require the Agent (A) to proceed against any Person, (B) to
exhaust any other collateral or security for any of the Secured Obligations, (C)
to pursue any remedy in the Agent's power, or (D) to make or give any
presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any of the
Collateral; and (iii) all claims, damages, and demands against the Agent arising
out of the repossession, retention, sale or application of the proceeds of any
sale of the Collateral.
SECTION 12. Notices. All notices or other communications hereunder shall be
-------
given in the manner and to the addresses specified in the Credit Agreement. All
such notices and other communications shall be effective (i) if delivered by
hand or prepaid courier service, when delivered; (ii) if sent by mail, upon the
earlier of the date of receipt or five Business Days after deposit in the mail,
first class, postage prepaid; (iii) if sent by telex, upon receipt by the sender
of an appropriate answer-back; and (iv) if sent by facsimile transmission, when
sent.
SECTION 13. No Waiver; Cumulative Remedies. No failure on the part of the
------------------------------
Agent to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to the Agent.
SECTION 14. Costs and Expenses; Indemnification; Other Charges.
--------------------------------------------------
(a) Costs and Expenses. The Grantor agrees to pay on demand:
------------------
(i) the reasonable out-of-pocket costs and expenses of the
Agent and any of its Affiliates, and the Agent's reasonable Attorney Costs, in
connection with the negotiation, preparation, execution, delivery and
administration of this Agreement, and any amendments, modifications or waivers
of the terms thereof, and the custody of the Collateral;
(ii) all title, appraisal (including the allocated costs of
internal appraisal services), survey, audit, consulting, search, recording,
filing and similar costs, fees and expenses incurred or sustained by the Agent
or any of its Affiliates in connection with this Agreement or the Collateral;
and
(iii) all costs and expenses of the Agent and its Affiliates,
including Attorney Costs, in connection with the enforcement or attempted
enforcement of, and preservation of any rights or interests under, this
Agreement, including in any out-of-court workout or other refinancing or
restructuring or in any bankruptcy case, and the protection, sale or collection
of, or other realization upon, any of the Collateral, including all expenses of
taking, collecting, holding, sorting, handling, preparing for sale, selling, or
the like, and other such expenses of sales and collections of Collateral, and
any and all losses, costs and expenses
PAGE 14 - SECURITY AGREEMENT
<PAGE>
sustained by the Agent as a result of any failure by the Grantor to perform or
observe its obligations contained herein.
(b) Indemnification. The Grantor hereby agrees to indemnify the
---------------
Agent, the other Lender Parties, any Affiliate of any of them, and their
respective directors, officers, employees, agents, counsel and other advisors
(each an "Indemnified Person") against, and hold each of them harmless from, any
------------------
and all liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including the reasonable fees and disbursements of counsel to an
Indemnified Person (including allocated costs of internal counsel), which may be
imposed on, incurred by, or asserted against any Indemnified Person, in any way
relating to or arising out of this Agreement or the transactions contemplated
hereby or any action taken or omitted to be taken by it hereunder (the
"Indemnified Liabilities"); provided that the Grantor shall not be liable to any
-----------------------
Indemnified Person for any portion of such Indemnified Liabilities to the extent
they are found by a final decision of a court of competent jurisdiction to have
resulted from such Indemnified Person's gross negligence or willful misconduct.
If and to the extent that the foregoing indemnification is for any reason held
unenforceable, the Grantor agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(c) Other Charges. The Grantor agrees to indemnify the Agent against
-------------
and hold it harmless from any and all present and future stamp, transfer,
documentary and other such taxes, levies, fees, assessments and other charges
made by any jurisdiction by reason of the execution, delivery, performance and
enforcement of this Agreement.
(d) Interest. Any amounts payable to the Agent under this Section 14
--------
or otherwise under this Agreement if not paid upon demand shall bear interest
from the date of such demand until paid in full, at the rate of interest set
forth in subsection 2.07(c) of the Credit Agreement.
SECTION 15. Binding Effect. This Agreement shall be binding upon, inure to the
--------------
benefit of and be enforceable by the Grantor, the Agent and their respective
successors and assigns.
SECTION 16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OREGON, EXCEPT AS REQUIRED
BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF
THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN RESPECT OF ANY
COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN OREGON, PROVIDED
THAT THE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
SECTION 17. Entire Agreement; Amendment. This Agreement contains the entire
---------------------------
agreement of the parties with respect to the subject matter hereof and shall not
be amended except by the written agreement of the parties as provided in the
Credit Agreement.
PAGE 15 - SECURITY AGREEMENT
<PAGE>
SECTION 18. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Agreement
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any reason it
is not deemed so modified, it shall be ineffective and invalid only to the
extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 19. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 20. Incorporation of Provisions of the Credit Agreement. To the extent
---------------------------------------------------
the Credit Agreement contains provisions of general applicability to the Loan
Documents, including any such provisions contained in Section X thereof, such
provisions are incorporated herein by this reference.
SECTION 21. No Inconsistent Requirements. The Grantor acknowledges that this
----------------------------
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and agrees
that all such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.
SECTION 22. Termination. Upon termination of the Commitments of the Lenders
-----------
under the Loan Documents, the surrender of any Letters of Credit issued by any
Issuer for the account of the Grantor, termination of all Specified Swap
Contracts, and payment and performance in full of all Secured Obligations, the
security interests granted under this Agreement shall terminate and the Agent
shall promptly execute and deliver to the Grantor such documents and instruments
reasonably requested by the Grantor as shall be necessary to evidence
termination of all security interests given by the Grantor to the Agent
hereunder; provided, however, that the obligations of the Grantor under Section
-------- ------- -------
14 shall survive such termination.
- --
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE GRANTOR: THE AGENT:
- ------------ ----------
FLIR SYSTEMS, INC., BANK OF AMERICA, N.A.
an Oregon corporation
By: _____________________ By: _____________________
Its:_____________________ Its:_____________________
Address:
16505 SW 72/nd/ Avenue
Portland OR 97224
PAGE 16- SECURITY AGREEMENT
<PAGE>
Facsimile No.: (503) 684-4188
Attention: Mark Samper
PAGE 17 - SECURITY AGREEMENT
<PAGE>
SCHEDULE 1
----------
1. Locations of Chief Executive Office and Other Locations, Including of
---------------------------------------------------------------------
Collateral
----------
a. Chief Executive Office and Principal Place of Business:
b. Other locations where Grantor conducts business or Collateral is kept:
2. Locations of Books Pertaining to Rights to Payment
--------------------------------------------------
3. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
-------------------------------------------------------------------------
Etc.
- ----
4. Inventory Stored with Warehousemen or on Leased Premises, Etc.
--------------------------------------------------------------
5. Leased Equipment and Other Liens
--------------------------------
6. Deposit Accounts
----------------
PAGE 18 - SECURITY AGREEMENT
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated April 15, 1999, except as to Note 18, which is as of June 2,
1999, relating to the financial statements of FLIR Systems, Inc., which appear
in such Registration Statement. We also consent to the use of our report dated
April 15, 1999 relating to the financial statement schedule, which appears in
this Registration Statement on Form S-1. We also consent to the references to
us under the headings "Experts" and "Selected Consolidated Financial Data" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
December 20, 1999
