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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 000-18908
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IN FOCUS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0932102
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
27700B SW Parkway Avenue, Wilsonville, Oregon 97070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-685-8888
------------------
The index to exhibits appears on page 9 of this document.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock without par value 10,670,573
(Class) (Outstanding at November 1, 1996)
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IN FOCUS SYSTEMS, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets -September 30, 1996 and
December 31, 1995 2
Consolidated Statements of Operations - Three Month and Nine
Month Periods Ended September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
1
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PART II - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,645 $ 30,165
Marketable securities - held to maturity 17,939 16,563
Accounts receivable, net of allowances of
$2,892 and $2,089 51,947 49,363
Inventories, net 27,147 10,767
Income taxes receivable 2,993 -
Deferred income taxes 3,230 1,624
Other current assets 2,010 2,167
--------- ---------
Total Current Assets 111,911 110,649
Restricted cash - 1,000
Marketable securities - held to maturity - 2,056
Property and equipment, net of accumulated
depreciation of $11,996 and $8,412 15,465 12,201
Other assets, net 1,711 1,397
--------- ---------
Total Assets $ 129,087 $ 127,303
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Income taxes payable $ - $ 2,128
Accounts payable 20,780 21,476
Payroll and related benefits payable 1,593 2,076
Marketing cooperative payable 1,495 1,596
Other current liabilities 1,796 1,959
--------- ---------
Total Current Liabilities 25,664 29,235
Note payable 352 -
Deferred income taxes 605 541
Shareholders' Equity:
Common stock, 30,000,000 shares authorized;
shares issued and outstanding: 10,647,554
and 10,925,474 47,421 46,405
Additional paid-in capital 9,990 7,727
Retained earnings 45,055 43,395
--------- ---------
Total Shareholders' Equity 102,466 97,527
--------- ---------
Total Liabilities and Shareholders' Equity $ 129,087 $ 127,303
--------- ---------
--------- ---------
The accompanying notes are an integral part of these balance sheets.
2
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<TABLE>
<CAPTION>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, exept shares and per share amounts)
Three months ended September 30, Nine months ended September 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 59,080 $ 54,448 $ 185,347 $ 141,791
Cost of sales 43,118 34,710 132,649 88,073
--------- ---------- ---------- ----------
Gross profit 15,962 19,738 52,698 53,718
Operating expenses:
Marketing and sales 7,190 6,038 22,167 17,789
Engineering 4,225 3,305 14,315 8,041
General and administrative 1,349 1,626 5,564 4,602
---------- ---------- ---------- ----------
12,764 10,969 42,046 30,432
---------- ---------- ---------- ----------
Income (loss) from operations 3,198 8,769 10,652 23,286
Other income (expense):
Interest expense (8) - (11) -
Interest income 330 422 1,273 1,394
Other, net 13 (75) 126 171
---------- ---------- ---------- ----------
335 347 1,388 1,565
---------- ---------- ---------- ----------
Income (loss) before equity in income (loss) of
joint venture and provision for income taxes 3,533 9,116 12,040 24,851
Provision for (benefit from) income taxes 1,148 3,134 4,168 8,500
---------- ---------- ---------- ----------
Income (loss) before equity in income (loss)
of joint venture 2,385 5,982 7,872 16,351
Equity in income (loss) of joint venture (7) - 349 (431)
---------- ---------- ---------- ----------
Net income (loss) $ 2,378 $ 5,982 $ 8,221 $ 15,920
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share $ 0.22 $ 0.53 $ 0.72 $ 1.39
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Shares used in per share calculations 10,816,854 11,236,689 11,378,168 11,457,801
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,221 $ 9,938
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 3,651 1,656
Equity in (income) loss of joint venture (349) 431
(Increase) decrease in:
Accounts receivable, net (2,584) (7,918)
Inventories, net (16,380) (2,735)
Income taxes receivable (2,993) -
Deferred income taxes (1,542) 55
Other current assets 157 (847)
Increase (decrease) in:
Income taxes payable (2,128) (320)
Accounts payable (696) 8,173
Payroll and related benefits payable (483) (261)
Marketing cooperative payable (101)
Other current liabilities (163) 306
-------- --------
Net cash provided by (used in) operating activities (15,390) 8,478
Cash flows from investing activities:
Restricted cash 1,000 -
Purchase of marketable securities-held to maturity (10,742) (15,689)
Sale of marketable securities-held to maturity 11,422 29,289
Payments for purchase of property and equipment (6,496) (3,636)
Investment in joint venture 349 (431)
Other assets, net (381) (193)
-------- --------
Net cash provided by (used in) investing activities (4,848) 9,340
Cash flows from financing activities:
Payments on long-term debt -
Proceeds from sale of common stock 3,240 1,277
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 2,263 819
Stock repurchase (8,785) (18,000)
-------- --------
Net cash provided by (used in) financing activities (3,282) (15,904)
Increase (decrease) in cash and cash equivalents (23,520) 1,914
Cash and cash equivalents:
Beginning of period 30,165 15,176
-------- --------
End of period $ 6,645 $ 17,090
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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IN FOCUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The financial information included herein for the three-month and nine month
periods ended September 30, 1996 and 1995 is unaudited; however, such
information reflects all adjustments consisting only of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods. The financial information as of December 31, 1995 is
derived from In Focus Systems, Inc.'s (the Company's) Annual Report to
Shareholders which is incorporated by reference into the Company's 1995 Form
10-K. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's 1995 Annual Report to Shareholders.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2: INVENTORIES
Inventories are valued at the lower of cost (using average costs, which
approximates the first in, first-out (FIFO) method), or market, and include
materials, labor and manufacturing overhead.
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials and components $ 12,405 $ 4,786
Work-in-process 2,437 1,166
Finished goods 12,305 4,815
-------- --------
$ 27,147 $10,767
-------- --------
-------- --------
NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
Nine months ended
September 30,
------------------
1996 1995
-------- -------
Cash paid during the period for income taxes $ 8,571 $ 6,467
Cash paid during the period for interest 9 --
Property acquired through debt 352 --
Reclass of joint venture reserve to note payable
(a non-cash financing activity) -- 3,232
NOTE 4: LINE OF CREDIT
In September 1996, the Company entered into an unsecured $10.0 million line of
credit with a commercial bank. The line of credit bears interest, at the
Company's election, at one of the following: 1) the bank's prime rate, 2) LIBOR
plus .65 percent, or 3) at a fixed rate as quoted to the borrower by the bank on
the date of borrowing. The line of credit expires on April 30, 1997. The line
of credit agreement contains certain liquidity, tangible net worth and pre-tax
profit covenants. At September 30, 1996 the Company was in compliance with all
of the covenants and had no outstanding balance under the line of credit.
NOTE 5: RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements which are denoted with an
"*". Investors are cautioned that all forward-looking statements involve risks
and uncertainties and several factors could cause actual results to differ
materially from those in the forward-looking statements. This Form 10-Q
includes forward-looking statements relating to anticipated gross margins,
availability of products manufactured on behalf of the Company, backlog and new
product introductions, and the following factors, among others, could cause
actual results to differ from those indicated in the forward-looking statements:
1) in regards to gross margins, uncertainties associated with market acceptance
of and demand for the Company's products, impact of competitive products and
pricing and dependence on third party suppliers; 2) in regards to product
availability and backlog, uncertainties associated with manufacturing
capabilities and dependence on third party suppliers; and 3) in regards to new
product introductions, uncertainties associated with the development of
technology and the establishment of full manufacturing capabilities, dependence
on third party suppliers and intellectual property rights. Investors are
directed to the Company's filings with the Securities and Exchange Commission,
including the Company's 1995 Form 10-K, which are available from the Company
without charge, for a more complete description of the risks and uncertainties
relating to the material in this Form 10-Q as well as to other aspects of the
Company's business.
RESULTS OF OPERATIONS
Revenue increased to $59.1 million in the third quarter of 1996 from $54.4
million in the third quarter of 1995, and to $185.3 million for the nine months
ended September 30, 1996 from $141.8 million for the comparable period of 1995.
The increase in revenue is mainly a result of growth in unit sales of the
Company's complete line of LitePro projection products, offset by a decrease in
projector average selling prices. International sales represented 39 percent of
total revenues in the first nine months of 1996 compared to 40 percent in the
first nine months of 1995.
The Company achieved gross margins of 28 percent in the first nine months of
1996, with 27 percent achieved in the third quarter of 1996, compared to 38
percent in the first nine months of 1995 and 36 percent in the third quarter of
1995. The decline in gross margins in 1996 resulted primarily from a) new
competition entering the market, resulting in additional pricing pressures
market wide, b) reserves established for price protection provided to customers
on sales of LitePro 580s during the second quarter of 1996, c) the Company
incurred higher than anticipated costs as a result of expediting parts to
support a steeper ramp up in production for the LitePro 210 and 620 and d) in
conjunction with new product launches in the second quarter, the Company
repositioned mature products in the market. This process included providing
additional discounts for volume purchases, price protection and stock rotation
coverage in certain situations, along with writing down slower moving inventory
to the lower of cost or market.
6
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The Company expects the cost of projection technologies to continue to decrease
market wide, resulting in pricing pressures which are leading to decreased
average selling prices for the Company's products*. In an effort to protect its
gross margins, the Company has introduced new, internally developed and
manufactured products.
The Company's customers generally order products for immediate delivery with
product shipment within 30 days after receipt of an order. As a result of not
being able to procure adequate supplies of SVGA glass for the LitePro 220 and
orders on credit hold at the end of the quarter, backlog at September 30, 1996
was approximately $20.3 million. Backlog at December 31, 1995 was approximately
$33.1 million. Backlog at September 30, 1995 was approximately $15.7 million.
Given current supply and demand estimates, it is anticipated that most of the
current backlog will turn over by the end of 1996*. There is minimal seasonal
influence relating to the Company's order backlog. The stated backlog is not
necessarily indicative of Company sales for any future period nor is a backlog
any assurance that the Company will realize a profit from filling the orders.
Marketing and sales expense increased to $7.2 million and $22.2 million,
respectively (12 percent and 12 percent of revenue, respectively) for the three
month and nine month periods ended September 30, 1996 compared to $6.0 million
and $17.8 million, respectively (11 percent and 13 percent of revenue,
respectively) for the comparable periods of 1995. The increases are primarily a
result of growth in revenues, demand creation programs and brand recognition
efforts, offset by a reduction in the workforce at the beginning of the third
quarter and cost containment efforts during the third quarter that focused
resources on those areas that most directly contributed to revenue growth,
quality and customer satisfaction.
Engineering expense increased to $4.2 million and $14.3 million, respectively (7
percent and 8 percent of revenue, respectively) for the three month and nine
month periods ended September 30, 1996 compared to $3.3 million and $8.0
million, respectively (6 percent and 6 percent of revenue, respectively) for the
comparable periods of 1995. The increase is primarily a result of increased
research and development efforts to support the Company's product introduction
plans as well as investments in engineering and mechanical computer aided design
systems. In addition, the Company incurred additional costs associated with the
introduction of new products during the second quarter. The increases in
engineering expense were partially offset by a reduction in the workforce at the
beginning of the third quarter and cost containment efforts.
General and administrative expense was $1.3 million and $5.6 million,
respectively (2 percent and 3 percent of revenue, respectively) for the three
month and nine month periods ended September 30, 1996 compared to $1.6 million
and $4.6 million, respectively (3 percent and 3 percent of revenue,
respectively) for the comparable periods of 1995. The increase in the year to
date amount is primarily attributable to increased investment in training and
information systems and severance reserves recorded as part of the reduction in
force at the end of the second quarter. At the end of the second quarter, the
Company reevaluated workload requirements and reduced the workforce by 8
percent, implementing a flatter organization structure, which is intended to
significantly reduce operating expense for the second half of 1996*. The
decrease in the third quarter is a result of the workforce reduction mentioned
above, as well as the reversal of approximately $0.4 million in accrued
7
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severance and incentive accruals no longer required in 1996. Without the
reversal of the accruals, general and administrative expense would have been 3
percent of revenue in the third quarter of 1996 and relatively flat in amount
with the prior year's third quarter.
Income from operations decreased to $3.2 million and $10.7 million, respectively
(5 percent and 6 percent of revenue, respectively) for the three month and nine
month periods ended September 30, 1996 from $8.8 million and $23.3 million (16
percent and 16 percent of revenue, respectively) for the comparable periods of
1995, primarily as a result of lower gross margins as discussed above.
The Company's effective tax rate in the third quarter of 1996 was 32.5 percent
and for the nine months ended September 30, 1996 was 34.6 percent, compared to
34 percent for the year ended December 31, 1995. The decrease in the third
quarter of 1996 is primarily a result of the reinstatement of the research and
development tax credit effective July 1, 1996 through May 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996 working capital was $86.2 million, including $6.6 million
of cash and cash equivalents and $17.9 million of marketable securities. In the
first nine months of 1996, working capital increased by $4.8 million and the
current ratio increased to 4.4:1 from 3.8:1.
Cash and cash equivalents decreased $23.5 million from December 31, 1995
primarily due to $15.4 million used in operations, $6.5 million used for
purchases of property and equipment and $8.8 million for the repurchase of the
Company's Common Stock, offset by $1.0 million release of restricted cash, the
net sale of $0.7 million of marketable securities, $3.2 million provided by the
sale of common stock through the exercise of employee stock options and $2.3
million provided by the income tax benefit of nonqualified stock option
exercises and disqualifying dispositions.
Accounts receivable increased to $51.9 million at September 30, 1996 from $49.4
million at the end of 1995. The growth in receivables is primarily attributable
to increased aging of receivables on sales of the LitePro 580. During the third
quarter, the Company focused collection efforts in order to collect on the sell
through of the LitePro 580s. Cash receipts associated with the sell through of
the LitePro 580 began late in the third quarter and are expected to completely
turn during the fourth quarter of 1996.* Accordingly, days sales outstanding
has increased to 80 days at September 30, 1996 from 74 days at December 31,
1995, but decreased from 90 days at June 30, 1996.
The Company expects to see working capital constrained in the channels for the
duration of 1996 as new competitors and products enter the market*. In addition
to providing alternative forms of financing, the Company is creating additional
channels of distribution for its products.
Inventories increased $16.4 million to $27.1 million at September 30, 1996 from
$10.8 million at December 31, 1995 due primarily to growth in parts stock and
finished goods to support the shift in production to products that the Company
manufactures, unfilled orders for certain customers on credit hold at the end of
the quarter and the shortage of a key
8
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component which caused a slower than anticipated product introduction ramp and
fewer shipments of a new SVGA projector during the third quarter. Inventory
turns have decreased to approximately 6 in the first nine months of 1996 on an
annualized basis compared to approximately 11 times during 1995 when the Company
primarily distributed an OEM product.
Income taxes receivable increased to $3.0 million at September 30, 1996 from a
payable of $2.1 million at December 31, 1995 due to the prescribed calculation
methods and the timing of estimated federal and state tax payments.
The $3.3 million increase in property and equipment is primarily a result of
$6.8 million of expenditures primarily for new product tooling, information
systems and plant floor layout redesign to accommodate available to promise and
assemble to order production lines, offset by $3.6 million of depreciation.
Total expenditures for property and equipment in 1996 are expected to be
approximately $8.6 million, primarily for the projects mentioned above.*
In July 1996, the Company completed its repurchase of a total of 500,000 shares
of its Common Stock for at an average price of $17.60 for a total of $8,785,000,
which was paid out of existing cash balances.
In September 1996, the Company entered into an unsecured $10.0 million line of
credit with a commercial bank. The line of credit bears interest, at the
Company's election, at one of the following: 1) the bank's prime rate, 2) LIBOR
plus .65 percent, or 3) at a fixed rate as quoted to the borrower by the bank on
the date of borrowing. The line of credit expires on April 30, 1997. The line
of credit agreement contains certain liquidity, tangible net worth and pre-tax
profit covenants. At September 30, 1996 the Company was in compliance with all
of the covenants and had no outstanding balance under the line of credit.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
EXHIBIT NO. AND DESCRIPTION
10 Line of Credit Agreement between the Company and Wells Fargo Bank,
National Association, dated September 30, 1996.
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. Form 8-K under Item 5., Other Events, dated July 31, 1996.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 4, 1996 IN FOCUS SYSTEMS, INC.
By: /s/ JOHN V. HARKER
--------------------------------------
John V. Harker
Chairman of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ MICHAEL D. YONKER
--------------------------------------
Michael D. Yonker
Vice President, Information Services and
Chief Financial Officer
(Principal Financial and Accounting Officer)
10
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CREDIT AGREEMENT
THIS AGREEMENT is entered into as of September 30, 1996, by and between IN
FOCUS SYSTEMS, INC., an Oregon corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDIT
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including April 30, 1997, not to exceed at any time the aggregate
principal amount of Ten Million Dollars ($10,000,000.00) ("Line of Credit"), the
proceeds of which shall be used for working capital. Borrower's obligation to
repay advances under the Line of Credit shall be evidenced by a promissory note
substantially in the form of Exhibit A attached hereto ("Line of Credit Note"),
all terms of which are incorporated herein by this reference.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 1.2. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
<PAGE>
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to Two Thousand Five Hundred Dollars
($2,500.00), which fee shall be due and payable in full upon the execution and
delivery to Bank of this Agreement.
(d) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
one-eighth percent (1/8%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a calendar quarter basis by Bank and shall be
due and payable by Borrower in arrears within fifteen (15) days after each
billing is sent to Bank.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 003-0068772 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Oregon, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents")
-2-
<PAGE>
have been duly authorized, and upon their execution and delivery in accordance
with the provisions hereof will constitute legal, valid and binding agreements
and obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated June 30, 1996, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year outside normal course of business.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals,
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<PAGE>
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this
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Agreement is subject to the fulfillment to Bank's satisfaction of all of the
following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Such other documents as Bank may require under any other Section of
this Agreement.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
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ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement,
statement of cash flow and 10-K's;
(b) not later than 45 days after and as of the end of each fiscal quarter,
a financial statement of Borrower, prepared by Borrower, to include balance
sheet, income statement, statement of cash flow and 10-Q's;
(c) contemporaneously with each annual and quarterly financial statement
of Borrower required hereby, a certificate of the president or chief financial
officer of Borrower that said financial statements are accurate and that there
exists no Event of Default nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute an Event of Default;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply
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with the provisions of all documents pursuant to which Borrower is organized
and/or which govern Borrower's continued existence and with the requirements of
all laws, rules, regulations and orders of any governmental authority applicable
to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$500,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein), with compliance determined commencing with
Borrower's financial statements for the period ending September 30, 1996:
(a) Liquidity Ratio not at any time less than 2.0 to 1.0, with "Liquidity"
defined as the sum of cash, marketable securities and trade account receivables,
and with "Liquidity Ratio" defined as Liquidity divided by total current
liabilities.
(b) Tangible Net Worth not at any time less than $75,000,000.00, with
"Tangible Net Worth" defined as the
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aggregate of total stockholders' equity plus subordinated debt less any
intangible assets.
(c) Pre-tax profit not less than $1.00, measured on a rolling four fiscal
quarter (i.e., each period of four consecutive fiscal quarters) basis,
determined as of each fiscal quarter end, beginning with the four fiscal quarter
period ending September 30, 1996.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain, or
any uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property in
excess of an aggregate of $100,000.00.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any
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substantial change in the nature of Borrower's business as conducted as of the
date hereof; acquire all or substantially all of the assets of any other entity;
nor sell, lease, transfer or otherwise dispose of all or a substantial or
material portion of Borrower's assets except in the ordinary course of its
business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank and additional guaranties in amounts not to exceed an
aggregate of $500,000.00.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof in amounts not to exceed an
aggregate of $500,000.00 at any time.
SECTION 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing which are
existing, and disclosed to Bank in writing prior to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
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(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time ("Bankruptcy Code"), or under
any state or federal law granting relief to debtors, whether now or hereafter in
effect; or any involuntary petition or proceeding pursuant to the Bankruptcy
Code or any other applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced against
Borrower, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors.
(g) The dissolution or liquidation of Borrower; or Borrower, or any of its
directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default:
(a) all indebtedness of Borrower under each of the Loan Documents, any term
thereof to the contrary notwithstanding, shall at Bank's option and without
notice become immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit under
any of the Loan Documents shall immediately cease and terminate; and (c) Bank
shall have all rights, powers
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and remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
credit accommodation from Bank subject hereto and to exercise any or all of the
rights of a beneficiary or secured party pursuant to applicable law. All
rights, powers and remedies of Bank may be exercised at any time by Bank and
from time to time after the occurrence of an Event of Default, are cumulative
and not exclusive, and shall be in addition to any other rights, powers or
remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: IN FOCUS SYSTEMS, INC.
27700 B SW Parkway
Wilsonville, OR 97070-9215
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Portland Regional Commercial Banking Office
1300 S.W. Fifth Ave., 19th Flr.
Portland, OR 97201
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full
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amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan
Documents to a maximum of $1,000.00, Bank's continued administration hereof and
thereof, and the preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
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SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Oregon selected
by the AAA or other administrator. If there is any inconsistency between the
terms hereof and any
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such rules, the terms and procedures set forth herein shall control. All
statutes of limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the Oregon State Bar or retired judges of the state or federal
judiciary of Oregon, with expertise in the substantive laws applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Oregon, (ii) may grant any remedy or relief that
a court of the state of Oregon could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the same
extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Oregon Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and deliberations.
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(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Oregon, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Oregon. Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence and not
based on legal error under the substantive law of the state of Oregon.
(f) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK 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 BANK TO BE
ENFORCEABLE.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
IN FOCUS SYSTEMS, INC. NATIONAL ASSOCIATION
By: /s/ Michael D. Yonker By: /s/ Dave Goode
------------------------ -------------------------
Michael D. Yonker Dave Goode
Title: CFO, Secretary & Treasurer Vice President
--------------------------
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REVOLVING LINE OF CREDIT NOTE
$10,000,000.00 Portland, Oregon
September 30, 1996
FOR VALUE RECEIVED, the undersigned IN FOCUS SYSTEMS, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at 1300 S.W. Fifth Ave., 19th Flr., Portland, Oregon, or at such
other place as the holder hereof may designate, in lawful money of the United
States of America and in immediately available funds, the principal sum of Ten
Million Dollars ($10,000,000.00), or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in Oregon are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2) or three (3) months, as designated by Borrower,
during which all or a portion of the outstanding principal balance of this Note
bears interest determined in relation to LIBOR; provided however, that no Fixed
Rate Term may be selected for a principal amount less than Five Hundred Thousand
Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall
extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would
end on a day which is not a Business Day, then such Fixed Rate Term shall be
extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term
<PAGE>
for delivery of funds on said date for a period of time approximately equal to
the number of days in such Fixed Rate Term and in an amount approximately equal
to the principal amount to which such Fixed Rate Term applies. Borrower
understands and agrees that Bank may base its quotation of the Inter-Bank Market
Offered Rate upon such offers or other market indicators of the Inter-Bank
Market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
(e) "SAF Rate" means such rate as may be quoted by Bank to Borrower on the
date of each advance bearing interest in relation to such rate.
(f) "SAF Interest Period" means a period commencing on a Business Day,
selected by Borrower, and terminating on the next Business Day.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time; (ii) at a fixed rate per annum determined by Bank to be sixty-five one-
hundredths percent (0.65%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term; or (iii) at the SAF Rate quoted by Bank to Borrower
on the first day of the applicable SAF Interest Period. When interest is
determined in relation to the Prime Rate, each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank. With respect to each LIBOR or SAF selection hereunder, Bank is
hereby authorized to note the date, principal amount, interest rate and Fixed
Rate Term or SAF Interest Period applicable thereto and any payments made
thereon on Bank's books
-2-
<PAGE>
and records (either manually or by electronic entry) and/or on any schedule
attached to this Note, which notations shall be prima facie evidence of the
accuracy of the information noted.
(b) SELECTION OF INTEREST RATE OPTIONS. At any time any portion of this
Note bears interest determined in relation to LIBOR or SAF Rate, it may be
continued by Borrower at the end the Fixed Rate Term or SAF Interest Period
applicable thereto so that all or a portion thereof bears interest determined in
relation to the SAF Rate, Prime Rate or to LIBOR for a new Fixed Rate Term
designated by Borrower. At any time any portion of this Note bears interest
determined in relation to the Prime Rate, Borrower may convert all or a portion
thereof so that it bears interest determined in relation to LIBOR for a Fixed
Rate Term, or to the SAF Rate, as designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR or SAF Rate
option for all or a portion of the outstanding principal balance hereof, and at
the end of each Fixed Rate Term and SAF Interest Period, Borrower shall give
Bank notice specifying: (i) the interest rate option selected by Borrower;
(ii) the principal amount subject thereto; and (iii) for each LIBOR selection,
the length of the applicable Fixed Rate Term. Any such notice may be given by
telephone so long as, with respect to each LIBOR selection, (A) Bank receives
written confirmation from Borrower not later than three (3) Business Days after
such telephone notice is given, and (B) such notice is given to Bank prior to
10:00 a.m., California time, on the first day of the Fixed Rate Term. For each
LIBOR or SAF Rate option requested hereunder, Bank will quote the applicable
rate to Borrower at approximately 10:00 a.m., California time, on the first day
of the Fixed Rate Term or SAF Interest Period. If Borrower does not immediately
accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be
subject to a redetermination by Bank of the applicable rate; provided however,
that if Borrower fails to accept any such rate by 11:00 a.m., California time,
on the Business Day such quotation is given, then the quoted rate shall expire
and Bank shall have no obligation to permit a LIBOR or SAF Rate, as applicable,
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Termor SAF Interest Period, Borrower shall be deemed to have made a Prime
Rate interest selection for such advance or the principal amount to which such
Fixed Rate Term or SAF Interest Period applied.
(c) ADDITIONAL LIBOR PROVISIONS.
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
-3-
<PAGE>
Borrower, and (B) any portion of the outstanding principal balance hereof which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in relation
to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options
-4-
<PAGE>
hereunder and/or to reduce any amount receivable by Bank in connection
therewith, then in any such case, Borrower shall pay to Bank immediately upon
demand such amounts as may be necessary to compensate Bank for any additional
costs incurred by Bank and/or reductions in amounts received by Bank which are
attributable to such LIBOR options. In determining which costs incurred by Bank
and/or reductions in amounts received by Bank are attributable to any LIBOR
options made available to Borrower hereunder, any reasonable allocation made by
Bank among its operations shall be conclusive and binding upon Borrower.
(d) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable
on the last day of each month, commencing October 31, 1996.
(e) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on April 30, 1997.
(b) ADVANCES. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) John Harker or Mike Yonker or Jeff Bouchard or Timothy Carrasco, any one
acting alone, who are authorized to request advances and direct the disposition
of any advances until written notice of the revocation of such authority is
received by the holder at the office designated above, or (ii) any person, with
respect to advances deposited to the credit of any account of any Borrower with
the holder, which advances, when so deposited, shall be conclusively presumed to
have been made to or for the benefit of each Borrower regardless of the fact
that
-5-
<PAGE>
persons other than those authorized to request advances may have authority to
draw against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first, and
finally, to the outstanding principal balance of this Note which bears interest
at the SAF Rate.
PREPAYMENT:
(a) PRIME RATE. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Five Hundred Thousand Dollars ($500,000.00); provided however,
that if the outstanding principal balance of such portion of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. In consideration of Bank providing this prepayment
option to Borrower, or if any such portion of this Note shall become due and
payable at any time prior to the last day of the Fixed Rate Term applicable
thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:
(i) DETERMINE the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount
had it remained outstanding until the last day of the Fixed Rate Term
applicable thereto.
(ii) SUBTRACT from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR in
effect on the date of prepayment for new loans made for such term and
in a principal amount equal to the amount prepaid.
-6-
<PAGE>
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum four percent (4%) above
the Prime Rate in effect from time to time (computed on the basis of a 360-day
year, actual days elapsed). Each change in the rate of interest on any such
past due prepayment fee shall become effective on the date each Prime Rate
change is announced within Bank.
(c) SAF RATE. Borrower has no right to prepay principal on any portion of
this Note which bears interest at the SAF Rate.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of September
30, 1996, as amended from time to time (the "Credit Agreement"). Any default in
the payment or performance of any obligation under this Note, or any defined
event of default under the Credit Agreement, shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all reasonable costs of the holder's in-house counsel),
expended or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any
way related to this Note, including without limitation, any action for
declaratory
-7-
<PAGE>
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK 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 BANK TO BE
ENFORCEABLE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
IN FOCUS SYSTEMS, INC.
By: /s/ Michael Yonker
-------------------------------
Title: CFO, Secretary and Treasurer
----------------------------
-8-
<PAGE>
WELLS FARGO BANK CERTIFICATE OF INCUMBENCY
- --------------------------------------------------------------------------------
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
The undersigned, Michael D. Yonker, Secretary of IN FOCUS SYSTEMS, INC., a
corporation created and existing under the laws of the state of OREGON, hereby
certifies to Wells Fargo Bank, National Association ("Bank") that the following
named persons are those duly elected officers of this corporation specified in
the Corporate Resolution attached hereto and that the signatures opposite their
names are their true signatures:
Title Name Signature
Chairman of the Board
- ------------------------ ------------------------ ------------------------
President and Chief
Executive Officer John V. Marker /s/ John V. Marker
- ------------------------ ------------------------ ------------------------
Chief Financial Officer Michael D. Yonker /s/ Michael D. Yonker
- ------------------------ ------------------------ ------------------------
Secretary and Treasurer
- ------------------------ ------------------------ ------------------------
- ------------------------ ------------------------ ------------------------
The undersigned further certifies that should any of the above-named
officers change, or should the signature requirements of said Corporate
Resolution change, this corporation shall provide Bank immediately with a new
Certificate of Incumbency. Bank is hereby authorized to rely on this
Certificate until a new Certificate certified by the Secretary of this
corporation is received by Bank.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate
seal of said corporation as of September 30, 1996.
/s/ Michael Yonker
-------------------------
Secretary
(SEAL)
<PAGE>
IN FOCUS SYSTEMS, INC.
CALCULATIONS OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------- -------------------------------------------------
1996 1995 1996 1995
------------------------ ------------------------ ------------------------ ------------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period 10,728,595 10,728,595 10,746,044 10,746,044 10,922,934 10,922,934 10,968,744 10,968,744
Dilutive Common Stock
Options Using the Treasury
Stock Method 88,259 88,281 490,645 491,977 455,234 463,325 489,057 495,131
------------------------ ------------------------ ------------------------ ------------------------
Total Shares Used for Per
Share Calculations 10,816,854 10,816,876 11,236,689 11,238,021 11,378,168 11,386,259 11,457,801 11,463,875
------------------------ ------------------------ ------------------------ ------------------------
------------------------ ------------------------ ------------------------ ------------------------
Net Income $2,378,000 $2,378,000 $5,982,000 $5,982,000 $8,221,000 $8,221,000 $15,920,000 $15,920,000
------------------------ ------------------------ ------------------------ ------------------------
------------------------ ------------------------ ------------------------ ------------------------
Net Income Per Share $ 0.22 $ 0.22 $ 0.53 $ 0.53 $ 0.72 $ 0.72 $ 1.39 $ 1.39
------------------------ ------------------------ ------------------------ ------------------------
------------------------ ------------------------ ------------------------ ------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,545
<SECURITIES> 17,939
<RECEIVABLES> 51,947
<ALLOWANCES> 2,892
<INVENTORY> 27,147
<CURRENT-ASSETS> 111,911
<PP&E> 15,465
<DEPRECIATION> 11,996
<TOTAL-ASSETS> 111,911
<CURRENT-LIABILITIES> 25,664
<BONDS> 352
0
0
<COMMON> 47,421
<OTHER-SE> 55,045
<TOTAL-LIABILITY-AND-EQUITY> 129,087
<SALES> 185,347
<TOTAL-REVENUES> 185,347
<CGS> 132,849
<TOTAL-COSTS> 132,849
<OTHER-EXPENSES> 42,046
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 12,040
<INCOME-TAX> 4,166
<INCOME-CONTINUING> 8,221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,221
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
