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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-18908
IN FOCUS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0932102
(State or other jurisdiction of (I.R.S. Employer
incorporation Identification No.)
or organization)
27700B SW PARKWAY AVENUE, WILSONVILLE, OREGON 97070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-685-8888
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
WITHOUT PAR VALUE
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $394,568,622 as of February 27, 1998 based upon the last sales
price as reported by the Nasdaq National Market System.
The number of shares outstanding of the Registrant's Common Stock as of February
27, 1998 was 22,078,571 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, dated March 9, 1998.
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IN FOCUS SYSTEMS, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 14
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and 15
Management
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 16
8-K
Signatures 20
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Statements in this Form 10-K which the Company considers to be forward-looking
are denoted with an *, and the following cautionary language applies to all such
statements, as well as any other statements in this Form 10-K which the reader
may consider to be forward-looking in nature. 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. The Company, from time to time, may make
forward-looking statements relating to anticipated gross margins, availability
of products manufactured on behalf of the Company, backlog, new product
introductions and future capital expenditures. The following factors, among
others, could cause actual results to differ from those indicated in the
forward-looking statements: 1) in regard to gross margins, uncertainties
associated with market acceptance of and demand for the Company's products,
impact of competitive products and their pricing and dependence on third party
suppliers; 2) in regard to product availability and backlog, uncertainties
associated with manufacturing capabilities and dependence on third party
suppliers; 3) in regard 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; and 4) in regard to future capital expenditures, uncertainties
associated with new product introductions.
INTRODUCTION
In Focus Systems, Inc. (an Oregon corporation) was founded in October 1986 to
develop, manufacture and market innovative projection products using LCD and
Digital Micromirror Device-TM- ("DMD") technologies to present output from
personal computers and other electronic devices. References within this
document to the "Company" or to "In Focus" are to In Focus Systems, Inc. and its
consolidated subsidiaries, In Focus Systems FSC, Inc. and In Focus Services,
Inc. As of January 1, 1998, In Focus Services, Inc. was dissolved. All share
and per share amounts in this Form 10-K have been adjusted for a two for one
stock split effective February 10, 1998.
PRODUCTS
The Company develops, manufactures and markets data/video projection products
and services to present video, audio, graphics and data from personal computers,
workstations, VCRs and laser disc players. The Company's products are used in
business, education and government markets for training sessions, meetings,
sales presentations, technical seminars, group collaboration and other
applications involving the sharing of computer-generated and/or video
information with an audience. The Company's products are compatible with all
major personal computers and most video sources used in business and education.
The Company also provides creative presentation services to Fortune 500 and
other companies.
PROJECTION SYSTEMS
The Company has established three major platforms intended to meet the diverse
projection requirements of its audience. These are Personal Projectors,
Conference Room Projectors and Fixed/Auditorium Projectors. Personal Projectors
are intended for the mobile presenter who places a premium on less size and
weight in projection solutions. Conference Room
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Projectors are intended for campus environments that require both mobility and a
superior image. Fixed/Auditorium Projectors are intended for conference room
and auditorium environments that require fixed high and bright solutions where
optimal connectivity alternatives are available.
PERSONAL PROJECTORS:
LITEPRO 420 The LP 420 is the first true personal projector. It features a
portable package that is just 6.8 pounds and 500 ANSI lumens in a 9"x12"x3.9"
form factor. The LP 420 combines Texas Instruments' Digital Light
Processing-TM- technology, true SVGA resolution and Cable Wizard-TM- Lite
connectivity, and includes In Focus Presents-TM- software and intelligent
electronics for automatic synchronization, tracking, image positioning and video
source detection.
CONFERENCE ROOM PROJECTORS:
LITEPRO 220 The LitePro 220 is a portable multimedia projection system which
combines an amorphous, active matrix LCD with 800 x 600 resolution, full
motion video, built in JBL Sound System-Registered Trademark-, Smart Remote,
auto sensing and Cable Wizard connectivity. The LitePro 220 provides 800 x
600 resolution, 250 ANSI lumens and weighs 16 pounds.
LITEPRO 225 The LP225 is a portable multimedia projection system which combines
an amorphous, active matrix LCD with 800 x 600 SVGA resolution, full motion
video, sound, 2-button Executive Remote, auto-sensing and Plug and Project
simplicity with Cable Wizard-TM- II Lite. The LP 225 provides 800 x 600
resolution, 250 ANSI Lumens and weighs 16 pounds.
LITEPRO 720 The LitePro 720 is a portable conference room multimedia projection
system which combines advanced polysilicon active matrix LCDs, dichroic optics,
full motion video, sound, Smart Remote, auto sensing, Cable Wizard connectivity
and includes In Focus Presents-TM- software and intelligent electronics for
automatic synchronization, tracking, image positioning and video source
detection. The LitePro 720 provides 800 x 600 SVGA resolution, 450 ANSI lumens
and weighs 12 pounds.
LITEPRO 725 The LP 725 is a portable conference room multimedia projection
system which combines advanced polysilicon active matrix LCDs, dichroic optics,
full motion video, sound, Smart Remote, auto sensing, Cable Wizard connectivity
and includes In Focus Presents-TM- software and intelligent electronics for
automatic synchronization, tracking, image positioning and video source
detection. The LP 725 provides 800 x 600 SVGA resolution, 750 ANSI lumens and
weighs 12 pounds.
LITEPRO 730 The LP 730 is a portable conference room multimedia projection
system which combines advanced polysilicon active matrix LCDs, dichroic optics,
full motion video, sound, Smart Remote, auto-sensing, Cable Wizard and includes
In Focus Presents-TM- software and intelligent electronics for automatic
synchronization, tracking, image positioning and video source detection. The LP
730 provides 1024 x 768 true XGA resolution, 400 ANSI lumens and weighs 12
pounds.
LITEPRO 740 The LP 740 is a true SXGA workstation projection system which
combines state-of-the-art reflective active matrix LCDs, dichroic optics, full
motion video, sound, auto sensing and full function remote control. The LP 740,
which targets the high resolution graphics markets of engineering and
simulation, provides true 1280 x 1024 resolution, 600
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ANSI lumens and weighs 31 pounds.
FIXED/AUDITORIUM PROJECTORS:
LITEPRO 1000 The LP 1000 is an Ultra-bright, versatile solution for fixed
installation environments featuring advanced polysilicon active matrix LCDs,
dichroic optics, full motion video, sound, a choice of three lenses, three
computer inputs, three video inputs, 18 degree keystone correction, In Focus
Presents-TM- software and intelligent electronics for auto synchronization,
tracking, image positioning and video source detection. The LP 1000 provides
true 1024 x 768 XGA resolution, 1000 ANSI lumens and weighs 24 pounds
OTHER:
LITESHOW PRO PRESENTATION PLAYER The LiteShow Pro Presentation Player allows
presenters to take advantage of electronic projectors without the need of laptop
PCs. Using an integrated ZIP-TM- disk or a downloaded computer file, the player
intelligently optimizes presentations to match the true resolution and full
color palette of the In Focus projection systems being used. The LiteShow Pro
includes a single cable for LitePro projectors, supports Microsoft-TM-
PowerPoint-TM- files and includes viewers for Microsoft Office-TM- '95-97
application-based presentations and Adobe Acrobat-TM- files.
PRODUCT AND TECHNOLOGY DEVELOPMENT
The Company maintained its investment level in research and development in 1997
in order to enhance existing products as well as create new, differentiated
products in the market place. The Company expects this focus to continue into
1998.
The Company expended approximately $7,613,000, $11,693,000 and $11,671,000 on
research and development activities for the years ended December 31, 1995, 1996
and 1997, respectively. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN ITEM 14.
MARKETING AND DISTRIBUTION
In Focus sells its brand name products through distributors, PC resellers,
dealers, catalogs and governmental sales distribution channels. More than 165
audiovisual dealers, computer dealers and presentation specialists sell the
Company's name brand products. In Focus also sells through two-tier distributors
such as Ingram-Micro, Tech Data, Merisel, Microage and Access Graphics, who in
turn resell In Focus products to value added resellers throughout North America.
In Focus has devoted significant resources to develop and support a well-trained
dealer network with the ability to demonstrate and sell the Company's products
to a wide range of end-users.
Internationally, In Focus sells its products to 70 international distributors in
more than 60 countries. These distributors sell the Company's products to
audiovisual dealers, PC resellers and to end-users. For the year ended December
31, 1997, international sales represented approximately 42 percent of the
Company's revenue. International sales managers located in Miami, Florida,
Singapore and Amsterdam work with the international distributors to sell and
support the Company's products. SEE NOTE 10 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN ITEM 14. The Company has private label arrangements with
Boxlight Corporation, which resells the Company's LCD projectors under its own
label, and APTi Corporation in Japan, which markets the Company's LP 420 under a
co-branded APTi and In Focus brand name.
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During 1997, the Company continued to develop and refine several sales and
marketing programs including telesales and telemarketing, a global accounts
program, a cooperative marketing program, a target attainment program, a
demonstration program and a leasing program.
SERVICES
In Focus services include hardware and software support, training, documentation
imaging, digital printing, accessories, replacement parts, remanufactured
product and equipment rental. The service organization has facilities in
Memphis, Tennessee, Wilsonville, Oregon and at the Company's facility in the
Netherlands. Hardware repair is conducted at the Company's headquarters in
Wilsonville, by authorized agents for the Company in Belgium, Canada and
Singapore and through a network of Authorized Service Providers worldwide.
Customers have toll-free telephone access to technical specialists who respond
to applications and hardware questions. All of the Company's products are
covered by a one-year warranty for parts and labor from the date of sale, with
extended service agreements available for purchase. A number of authorized
dealers and distributors in North America and internationally have been trained
by the Company to provide customer service repair, technical support and
training to their resellers and end-users.
MANUFACTURING AND SUPPLY
The principal components of the Company's products are display devices,
including various types of LCDs and DMDs, integrated circuits, light sources,
optics, plastic housing parts and electronic sub-assemblies. The Company
procures and tests parts manufactured to the Company's specifications and also
designs and delivers certain electronic components to local sub-contractors for
sub-assembly. The Company then manufactures the final product, which includes
precise alignment of the LCDs and 100 percent testing.
The Company offers products utilizing several types of display devices and
generally attempts to procure components from multiple sources. Certain
components, however, including certain LCDs, DMDs and plastic housing parts for
the projection panels, are purchased from single or limited sources. The plastic
housing parts for the projection panels are molded using Company-owned tooling.
The key components in projection panels and projection systems are the display
devices and imaging engines manufactured to the Company's specifications by both
major Japanese and American manufacturers of products for the electronics
industry. The Company believes that it could obtain most LCDs and imaging
engines manufactured to its specifications from other foreign sources within
three-to-six months at a price that would not be materially higher than the
price paid to existing suppliers.
CUSTOMERS
The Company sells its products to a large number of customers worldwide. No
customer accounted for greater than 10 percent of revenue in the year ended
December 31, 1997.
BACKLOG
The Company's customers generally order products for immediate delivery, and the
Company generally ships products within one week after receipt of an order.
Primarily as a result of strong demand, the Company was unable to fill all of
its orders for its products, resulting in backlog at December 31, 1997 of
approximately $14.9 million. Backlog at December 31, 1996 and 1995 was
approximately $9.2 million and $33.1 million, respectively. Given current
supply and demand estimates, it is anticipated that a majority of
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the current backlog will turn over by the end of the first quarter of 1998*.
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.
COMPETITION
The Company believes its ability to compete in the projection display market
depends on certain key product characteristics, including ease of use,
resolution, brightness, range and quality of colors, portability, display speed,
power requirements and price.
The Company faces competition from over 70 "soft-label" and manufacturers and
expects continued competition as new technologies, applications and products are
introduced. Principal current competitors include Sharp Corporation, Epson,
Sanyo, NEC, Sony, Panasonic, IBM, JVC, 3M, Polaroid, Proxima Corporation, ASK,
Davis and Liesengang.
PATENTS, TRADEMARKS AND LICENSES
The Company has been issued more than 25 United States patents and 18 foreign
patents covering various novel aspects of its display systems. In addition,
numerous applications for United States patents are pending on inventions which
enable In Focus' display systems to operate at higher speeds with higher
resolution, better contrast, more efficient light and optical paths, greater
numbers of colors or shades and increased ease of use features. Corresponding
applications for many of these inventions are pending in Australia, Canada,
Japan, Taiwan and the European Patent Office.
The Company attempts to protect its proprietary information through agreements
with customers and suppliers. The Company requires its employees, consultants
and advisors to execute confidentiality agreements on the commencement of
employment with or service to In Focus. While the Company has enhanced its
ability to compete by aggressively protecting its intellectual property, it
believes the rapid pace of technological change in the industry will mean that
the Company's ability to develop new technologies and distribute new products on
a timely basis will be of equal importance in maintaining its competitive
position.
The Company licenses certain of its patents through Motif, Inc., the Company's
50/50 joint venture with Motorola, Inc. To date, Motif has executed three
license agreements, with additional license negotiations ongoing.
In Focus holds United States registered trademarks for "In Focus," "PC Viewer,"
"In Focus Systems," "Genigraphics," "TSTN," "Overview," "PanelBook,"
"Presentation Plus" and "LitePro." The Company is in the process of
registration of the trademarks "LP," "Powerpro," "Smartview" and "Instant
Answers." In addition, In Focus either holds or has registrations pending for
its most important marks in over 35 foreign countries.
EMPLOYEES
As of December 31, 1997, In Focus had 635 employees, including 111 temporary
personnel engaged through the services of an employment agency. In Focus
believes its relations with its employees are good.
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ITEM 2. PROPERTIES
The Company currently leases facilities in Wilsonville, Oregon consisting of a
total of 180,000 square feet of office and manufacturing space leased pursuant
to a noncancelable operating lease, which expires in December 1998 and has a
five-year renewal option. The Company also leases space in Memphis, Tennessee in
relation to its creative presentation operations. The Memphis lease expires in
2002.
ITEM 3. LEGAL PROCEEDINGS
As of February 27, 1998, there were no material, pending legal proceedings to
which the Company or its subsidiaries are a party. From time to time, the
Company becomes involved in ordinary, routine or regulatory legal proceedings
incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq National Market System under the
symbol INFS. The high and low sales prices for the two years in the period
ended December 31, 1997 were as follows:
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1996 High Low
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Quarter 1 $ 19.25 $ 14.75
Quarter 2 28.75 12.13
Quarter 3 12.63 6.57
Quarter 4 11.13 6.69
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1997 High Low
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Quarter 1 $ 13.88 $ 7.94
Quarter 2 13.13 8.38
Quarter 3 13.03 10.44
Quarter 4 17.94 11.44
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The approximate number of beneficial shareholders and shareholders of record at
February 27, 1998 was 8,000 and 205, respectively.
There were no cash dividends declared or paid in 1997 or 1996. The Company does
not anticipate declaring cash dividends in the foreseeable future.
There were no sales of unregistered securities by the Company during the year
ended December 31, 1997.
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ITEM 6. SELECTED FINANCIAL DATA
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IN THOUSANDS:
EXCEPT PER SHARE
AMOUNTS 1997 1996 1995 1994 1993
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STATEMENT OF OPERATIONS DATA
Revenue $ 315,761 $ 258,475 $ 202,821 $ 123,068 $ 73,542
Cost of product sales 230,503 185,313 126,148 70,035 46,838
Gross profit 85,258 73,162 76,673 53,033 26,704
Operating expenses:
Marketing and sales 32,726 30,152 25,265 17,468 11,133
Engineering 18,222 18,545 11,882 5,572 4,435
General and administrative 7,852 7,535 6,585 6,189 4,083
Income from operations 26,458 16,930 32,941 23,804 7,053
Other income 1,817 1,824 1,593 (4,769) 1,515
Income before provision for
income taxes 28,275 18,754 34,534 19,035 8,568
Provision for income taxes 8,225 5,622 11,842 8,627 2,556
Net income $ 20,050 $ 13,132 $ 22,692 $ 10,408 $ 6,012
Basic net income per share $ 0.93 $ 0.60 $ 1.04 $ 0.47 $ 0.28
Diluted net income per share $ 0.90 $ 0.58 $ 0.99 $ 0.45 $ 0.27
BALANCE SHEET DATA
Working capital $ 112,402 $ 93,109 $ 81,414 $ 63,343 $ 63,866
Total assets 189,908 138,250 127,303 102,210 79,171
Long-term debt, less current
portion - 738 - - -
Shareholders' equity 133,029 107,960 97,527 86,168 70,240
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Revenue increased to $315.8 million in 1997 from $258.5 million in 1996. The 22
percent growth in revenue is primarily a result of strong demand for the
Company's SVGA products, including its LitePro 720, 220 and the 420 which was
introduced and shipped in volume in the fourth quarter of 1997. In addition,
the Company released and shipped in volume the LitePro 730, an XGA product, in
the third quarter of 1997. Self contained projection systems accounted for
approximately 92 percent of revenue in 1997. International revenue increased to
$131.5 million in 1997 (42 percent of total revenue) from $106.2 million in 1996
(41 percent of total revenue).
In 1997 and 1996, the amount of revenue generated from Asian countries which
have been affected by the economic downturn in late 1997 and early 1998 was
immaterial and the Company does not expect its revenues to be adversely effected
by such downturn *.
The Asian market grew at the same rate as the industry as a whole during 1997
and it is now the third largest market in the Company's industry. The Company
has historically had very little market share in the Asian market and sees the
growth in the Asian market as an opportunity to expand its revenue base in Japan
and China*. All sales to Asian companies have been, and continue to be, paid
for by COD or guaranteed by letters of credit, thereby eliminating any
receivables risk. The Company has a sales, service and support branch office
in Singapore, but no operating subsidiaries in Asian countries.
The data video projector industry has experienced 20 to 25 percent average sales
price (ASP) reductions per year over the last two years. Many of the Company's
competitors are headquartered in Japan. The Company expects similar ASP
reductions to occur in the industry in 1998*.
The Company's parts contracts with Asian companies are denoted in U.S. dollars
and contain clauses for price adjustments when there are significant
fluctuations in currency rates. Accordingly, for purchases beginning the first
day of the next quarter, parts costs are adjusted based upon changes in local
currencies relative to the U.S. dollar.
The Company's customers generally order products for immediate delivery, and the
Company generally ships products within one week after receipt of an order.
Primarily as a result of strong demand, the Company was unable to fill all of
its orders for its products, resulting in backlog at December 31, 1997 of
approximately $14.9 million. Backlog at December 31, 1996 and 1995 was
approximately $9.2 million and $33.1 million, respectively. Given current
supply and demand estimates, it is anticipated that a majority of the current
backlog will turn over by the end of the first quarter of 1998*. 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.
Gross profit, as a percentage of revenue, decreased to 27.0 percent in 1997 from
28.3 percent in 1996. The decline in gross margins in 1997 resulted primarily
from pricing competition on VGA resolution projectors and first generation
Digital Light Processing (DLP)
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projectors. An excess supply of VGA projectors caused by a rapid market shift
to higher resolution projectors resulted in aggressive pricing for lower
resolution projectors as manufacturers sold off remaining inventories of VGA
based products. During the second and third quarters of 1997, the Company
transitioned out of its LitePro 210 projector and by the end of 1997, the
Company transitioned out of the LitePro 580 and its first generation DLP
projector, the LitePro 620. The downward pressure on gross margins was
partially offset by the spreading of fixed costs over higher production volumes
and shipping new higher margin products in volume late in the fourth quarter of
1997. The gross margin in the fourth quarter of 1997 was 27.6 percent.
Marketing and sales expense increased, while decreasing as a percentage of
revenue, to $32.7 million (10.4 percent of revenue) in 1997 from $30.2 million
(11.7 percent of revenue) in 1996. The Company continues to focus its marketing
efforts on areas that most directly contribute to revenue growth and customer
satisfaction. During the third and fourth quarters, the Company invested in
improving its sales infrastructure and increased marketing expenditures for
products that were introduced in the fourth quarter. The Company has been
managing its spending in line with growth in revenue and new product
introductions.
Engineering expenses decreased to $18.2 million (5.8 percent of revenue) in 1997
from $18.5 million (7.2 percent of revenue) in 1996. The decrease in engineering
expense is primarily a result of timing for new product releases under
development. Expenditures increased in the fourth quarter of 1997 as new
products were being released.
General and administrative expenses increased, while decreasing as a percentage
of revenue, to $7.9 million (2.5 percent of revenue) in 1997 from $7.5 million
(2.9 percent of revenue) in 1996. The slight increase in the 1997 amount is
primarily attributed to growth of the Company, partially offset by decreased
costs as a result of a decrease in the workforce that occurred at the beginning
of the third quarter of 1996 along with continued cost containment efforts.
Income from operations increased to $26.5 million (8.4 percent of revenue) in
1997 from $16.9 million (6.6 percent of revenue) in 1996. The increase is
primarily a result of increased sales and lower operating expenses as a
percentage of revenue, partially offset by decreased gross margins as indicated
above.
The Company's effective tax rate was approximately 29.1 percent in 1997,
compared to approximately 30.0 percent in 1996. The decrease is primarily a
result of a lower effective state tax rate, the reinstatement of the research
and development tax credit, on both a federal and state level, and an adjustment
for prior year taxes based on current estimates of such liability.
The Company believes that the impact of inflation on net income was minimal in
1997 and 1996.
1996 COMPARED TO 1995
Revenue increased to $258.5 million in 1996 from $202.8 million in 1995. The 27
percent growth in revenue resulted primarily from growth in unit sales of the
Company's complete line of LitePro projection products, offset by a decrease in
projector average selling prices. Self contained projection systems accounted
for approximately 87 percent of revenue in
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1996. International revenue increased to $106.2 million in 1996 (41 percent of
total revenue) from $78.9 million in 1995 (39 percent of total revenue).
Gross profit, as a percentage of revenue, decreased to 28.3 percent in 1996 from
37.8 percent in 1995. The decline in gross margins in 1996 resulted primarily
from a) the expected arrival of new competition in the market, which resulted 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) higher than anticipated costs as a result of expediting
parts to support a steeper than expected ramp up in production for the LitePro
210 and 620 and d) in conjunction with new product launches in the second
quarter, the repositioning of mature products in the market. Repositioning of
mature products 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.
Marketing and sales expense increased, while decreasing as a percentage of
revenue, to $30.2 million (11.7 percent of revenue) in 1996 from $25.3 million
(12.5 percent of revenue) in 1995. The increase in expenditures is 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 of 1996 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 expenses increased to $18.5 million (7.2 percent of revenue) in 1996
from $11.9 million (5.9 percent of revenue) in 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 several new products during the second
and third quarters of 1996. The increases in engineering expense were partially
offset by a reduction in the workforce at the beginning of the third quarter of
1996 and cost containment efforts.
General and administrative expenses increased, while decreasing as a percentage
of revenue, to $7.5 million (2.9 percent of revenue) in 1996 from $6.6 million
(3.3 percent of revenue) in 1995. The increase in expenditures 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 of 1996. 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 significantly reduced
operating expenses for the second half of 1996.
Income from operations decreased to $16.9 million (6.6 percent of revenue) in
1996 from $32.9 million (16.2 percent of revenue) in 1995. This decrease is
mainly attributable to the lower gross margins achieved in 1996, as discussed
above.
The Company's effective tax rate was approximately 30.0 percent in 1996,
compared to approximately 34.3 percent in 1995. The decrease in the effective
rate is primarily a result of the reinstatement of the research and development
tax credit effective July 1, 1996 and an increased benefit realized under the
Company's Foreign Sales Corporation, offset by increased state taxes as a
percentage of income.
12
<PAGE>
The Company believes that the impact of inflation on net income was minimal in
1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had working capital of $112.4 million, which
included $38.0 million of cash and cash equivalents and $7.2 million of
marketable securities-current. The $7.0 million increase in the combined cash
and marketable securities balance is primarily due to $15.2 million provided by
operations, $3.8 million provided by the sale of common stock through the
exercise of employee stock options and $1.2 million provided by the income tax
benefit of nonqualified stock option exercises and disqualifying dispositions,
offset by $9.0 million used for purchases of property and equipment and the
repayment of $1.0 million in long-term debt. The current ratio at December 31,
1997 and 1996 was 3.0:1 and 4.2:1, respectively.
Accounts receivable increased $32.5 million to $87.8 million at December 31,
1997 compared to $55.3 million at December 31, 1996. The increase is primarily
related to record sales in December 1997, offset, in part, by ongoing cash
collection efforts with channel partners. As a result, the Company's days'
sales outstanding increased to 81 days at December 31, 1997 compared to 68 days
at December 31, 1996.
Inventories increased $9.4 million to $32.1 million at December 31, 1997 from
$22.7 million at December 31, 1996. The increase is primarily related to the
introduction of the LitePro 420 in the fourth quarter of 1997 and increased
demand for the Company's products overall. Annualized inventory turns were
approximately 10.4 times for the fourth quarter of 1997 compared to
approximately 8 times for the fourth quarter of 1996 on an annualized basis.
Income taxes receivable were $0.3 million at December 31, 1997 compared to $1.3
million at December 31, 1996 due to the timing of estimated federal and state
tax payments.
The $9.0 million of purchases of property, plant and equipment in 1997 were
primarily for new product tooling and information systems. Expenditures for
property and equipment in 1998 are expected to be approximately $10.0 million,
primarily for new product tooling and information systems infrastructure*.
In April 1997, 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 LIBOR rate on December 31, 1997 was 5.7 percent.
The line of credit expires on June 30, 1999. The line of credit agreement
contains certain liquidity, tangible net worth and pre-tax profit covenants. At
December 31, 1997 the Company was in compliance with all of the covenants and
had no outstanding balance under the line of credit.
Shareholders' equity increased $25.1 million as a result of net income of $20.1
million, tax benefit of disqualifying dispositions and non-qualified stock
option exercises of $1.2 million and employee stock option exercises of $3.8
million.
The Company has assessed the impact of the Year 2000 issue and has determined
that costs to upgrade its information and operating systems are not expected to
be material*. There is no material impact on the Company's products.
13
<PAGE>
The Company's working capital requirements over the next year are expected to be
met from existing cash and marketable securities balances, cash flow from
operations and amounts available under its line of credit facility*.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS
130 is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company expects to adopt SFAS 130 in the first
quarter of 1998 and does not expect comprehensive income to be materially
different from currently reported net income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The financial statements and notes thereto required by this item begin on page
F-1 of this document, as listed in Item 14 of Part IV.
Quarterly financial data for each of the eight quarters in the two-year period
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
- ----
Revenue $ 67,698 $ 58,569 $ 59,080 $ 73,128
Gross profit 23,416 13,320 15,962 20,464
Net income (loss) 6,991 (1,148) 2,378 4,911
Basic net income (loss) per share 0.32 (0.05) 0.11 0.23
Diluted net income (loss) per share 0.31 (0.05) 0.11 0.23
1997
- ----
Revenue $ 64,764 $ 74,594 $ 79,559 $ 96,844
Gross profit 18,767 19,603 20,203 26,685
Net income 4,400 4,849 4,186 6,615
Basic net income per share 0.21 0.23 0.20 0.31
Diluted net income per share 0.20 0.22 0.19 0.29
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE, respectively, in the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of
Arthur Andersen LLP, are included on the pages indicated below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets B December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997,1996 and 1995 F-3
Consolidated Statements of Shareholders' Equity - December 31,
1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
The following schedule and report thereon is filed herewith:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants on Financial Statement
Schedule F-16
Schedule II Valuation and Qualifying Accounts F-17
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1997.
16
<PAGE>
EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
Exhibit No.
- -----------
3.1 1990 Restated Articles of Incorporation - Incorporated by
reference to Exhibit 3.1 to the Company's Form S-1 Registration
Statement (Commission File No. 33-36460) as filed with the
Securities and Exchange Commission on November 13, 1990.
3.2 1997 Restated Bylaws B Incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as filed with the Securities and Exchange
Commission on March 14, 1997.
4.1 See Article VII of Exhibit 3.1 and Section II of Exhibit 3.2.
10.1 1988 Combination Stock Option Plan, as amended - Incorporated by
reference to Exhibit 10.1 to the Company's annual report on Form
10-K for the year ended December 31, 1991.
10.2 Amendment No. 5 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 4.2 of the Company's Form
S-8 Registration Statement (Commission File No. 33-47449) as
filed with the Securities and Exchange Commission on April 24,
1992.
10.3 Amendment No. 6 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 10.3 of the Company's annual
report on Form 10-K for the year ended December 31, 1992, as
filed with the Securities and Exchange Commission on March 31,
1993.
10.4 Amendment No. 7 to 1988 Combination Stock Option Plan -
Incorporated by reference to the Company's annual report on Form
10-K for the year ended December 31, 1994, as filed with the
Securities and Exchange Commission on March 16, 1995.
10.5 Amendment No. 8 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 4.1.1 of the Company's Form
S-8 Registration Statement (Commission File No. 333-15235) as
filed with the Securities and Exchange Commission on October 31,
1996.
10.6 Amendment No. 9 to 1988 Combination Stock Option Plan -
Incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, as
filed with the Securities and Exchange Commission on March 14,
1997.
10.7 Form of Incentive Stock Option Agreement - Incorporated by
reference to Exhibit 10.2 to the Company's annual report on Form
10-K for the year ended December 31, 1991.
17
<PAGE>
Exhibit No.
- -----------
10.8 Form of Non-Qualified Stock Option Agreement - Incorporated by
reference to Exhibit 10.3 of the Company's Form S-1 Registration
Statement (Commission File No. 33-36460) as filed with the
Securities and Exchange Commission on November 13, 1990.
10.9 In Focus Systems, Inc. Directors' Stock Option Plan -
Incorporated by reference to Exhibit 4.3 to the Company's Form
S-8 Registration Statement (Commission File No. 33-57488) as
filed with the Securities and Exchange Commission on January 26,
1993.
10.10 Amendment No. 1 to the In Focus Systems, Inc. Directors' Stock
Option Plan - Incorporated by reference to the Company's annual
report on Form 10-K for the year ended December 31, 1995, as
filed with the Securities and Exchange Commission on March 14,
1996.
10.11 Amendment No. 2 to the In Focus Systems, Inc. Directors' Stock
Option Plan - Incorporated by reference to Exhibit 4.2.2 of the
Company's Form S-8 Registration Statement (Commission File No.
333-15235) as filed with the Securities and Exchange Commission
on October 31, 1996.
10.12 Form of Directors' Stock Option Agreement - Incorporated by
reference to Exhibit 4.3.1 to the Company's Form S-8 Registration
Statement (Commission File No. 33-57488) as filed with the
Securities and Exchange Commission on January 26, 1993.
10.13 In Focus Systems, Inc. 1998 Stock Incentive Plan document.
10.14 Letter of employment for John V. Harker - Incorporated by
reference to the Company's annual report on Form 10-K, as filed
with the Securities and Exchange Commission of March 31, 1993.
10.15 1998 Executive Bonus Plan - Chief Executive Officer and Chairman
of the Board.
10.16 1998 Executive Bonus Plan - Sr. Vice President
10.17 1998 Executive Bonus Plan - Vice President.
10.18 Lease Agreement for Registrant's facilities in Wilsonville,
Oregon, dated January 20, 1993 - Incorporated by reference to the
Company's annual report on Form 10-K for the year ended December
31, 1992, as filed with the Securities and Exchange Commission on
March 31, 1993.
10.19 Amendment No. 1, dated March 1, 1995, to facilities Lease
Agreement dated January 20, 1993 - Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995,as filed with the Securities and Exchange
Commission of March 14, 1996.
18
<PAGE>
Exhibit No.
- -----------
10.20 Amendment No. 2, dated May 15, 1995, to facilities Lease
Agreement dated January 20, 1993 - Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995,as filed with the Securities and Exchange
Commission of March 14, 1996.
10.21 Amendment No. 3, dated September 1, 1995, to facilities Lease
Agreement dated January 20, 1993 - Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995,as filed with the Securities and Exchange
Commission of March 14, 1996.
10.22 Amendment No. 4, dated December 1, 1995, to facilities Lease
Agreement dated January 20, 1993 - Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as filed with the Securities and Exchange
Commission on March 14, 1996.
10.23 Lease Agreement for Registrant's additional facilities in
Wilsonville, Oregon dated November 7, 1995 - Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, as filed with the Securities and
Exchange Commission on March 14, 1996.
10.24 Credit Agreement by and between In Focus Systems, Inc. and Wells
Fargo Bank, National Association, dated April 30, 1997.
10.25 Shareholder Rights Plan B Incorporated by reference to the
Company's previously filed Form 8-K dated July 16, 1997 and filed
with the Securities and Exchange Commission on July 25, 1997.
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial data schedule
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 13, 1998 IN FOCUS SYSTEMS, INC.
By /s/ JOHN V. HARKER
------------------------
John V. Harker
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on February 13, 1998:
Signature Title
- --------- -----
/s/ JOHN V. HARKER Chairman of the Board, President
- ------------------ and Chief Executive Officer
John V. Harker (Principal Executive Officer)
/s/ MICHAEL D. YONKER Vice President, Information Services
- --------------------- Chief Financial Officer, Secretary and
Michael D. Yonker Treasurer
(Principal Financial and Accounting
Officer)
/s/ PETER D. BEHRENDT Director
- ---------------------
Peter D. Behrendt
/s/ MICHAEL R. HALLMAN Director
- ----------------------
Michael R. Hallman
/s/ JACK D. KUEHLER Director
- -------------------
Jack D. Kuehler
/s/ NOBUO MII Director
- -------------
Nobuo Mii
20
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
In Focus Systems, Inc.:
We have audited the accompanying consolidated balance sheets of In Focus
Systems, Inc. (an Oregon corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of In Focus Systems,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Portland, Oregon,
January 22, 1998
F-1
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 37,950 $ 33,935
Marketable securities - held to maturity 7,220 4,263
Accounts receivable, net of allowances of
$4,835 and $3,942 87,845 55,289
Inventories, net 32,120 22,715
Income taxes receivable 310 1,305
Deferred income taxes 1,247 3,135
Other current assets 2,589 1,546
---------- ----------
Total Current Assets 169,281 122,188
Marketable securities - held to maturity 3,500 -
Property and equipment, net of accumulated
depreciation of $21,769 and $13,692 15,507 14,553
Deferred income taxes 516 -
Other assets, net 1,104 1,509
---------- ----------
Total Assets $ 189,908 $ 138,250
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 47,818 $ 22,210
Payroll and related benefits payable 3,493 2,282
Marketing cooperative payable 1,176 1,604
Other current liabilities 4,392 2,983
---------- ----------
Total Current Liabilities 56,879 29,079
Note payable - 738
Deferred income taxes - 473
Shareholders' Equity:
Common stock, 30,000,000 shares authorized;
shares issued and outstanding: 21,931,728
and 21,386,972 51,733 47,912
Additional paid-in capital 11,278 10,080
Retained earnings 70,018 49,968
---------- ----------
Total Shareholders' Equity 133,029 107,960
---------- ----------
Total Liabilities and Shareholders' Equity $ 189,908 $ 138,250
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheet.
F-2
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $ 315,761 $ 258,475 $ 202,821
Cost of sales 230,503 185,313 126,148
---------- ---------- ----------
Gross profit 85,258 73,162 76,673
Operating expenses:
Marketing and sales 32,726 30,152 25,265
Engineering 18,222 18,545 11,882
General and administrative 7,852 7,535 6,585
---------- ---------- ----------
58,800 56,232 43,732
---------- ---------- ----------
Income from operations 26,458 16,930 32,941
Other income (expense):
Interest expense (79) (45) -
Interest income 2,025 1,597 2,010
Other, net (129) 272 (417)
---------- ---------- ----------
1,817 1,824 1,593
---------- ---------- ----------
Income before provision for income taxes 28,275 18,754 34,534
Provision for income taxes 8,225 5,622 11,842
---------- ---------- ----------
Net income $ 20,050 $ 13,132 $ 22,692
---------- ---------- ----------
---------- ---------- ----------
Basic net income per share $ 0.93 $ 0.60 $ 1.04
---------- ---------- ----------
---------- ---------- ----------
Diluted net income per share $ 0.90 $ 0.58 $ 0.99
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 23,071,538 $ 52,250 $ 5,215 $ 28,703 $ 86,168
Exercise of Common Stock Options 779,410 4,155 - - 4,155
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 2,512 - 2,512
Stock repurchase (2,000,000) (10,000) - (8,000) (18,000)
Net income - - - 22,692 22,692
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 21,850,948 46,405 7,727 43,395 97,527
Exercise of Common Stock Options 536,024 3,731 - - 3,731
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 2,353 - 2,353
Stock repurchase (1,000,000) (2,224) - (6,559) (8,783)
Net income - - - 13,132 13,132
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 21,386,972 47,912 10,080 49,968 107,960
Exercise of Common Stock Options 544,756 3,821 - - 3,821
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,198 - 1,198
Net income - - - 20,050 20,050
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 21,931,728 $ 51,733 $ 11,278 $ 70,018 $ 133,029
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,050 $ 13,132 $ 22,692
Adjustments to reconcile net income to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 8,190 6,235 3,740
Other non-cash expenses 257 49 431
(Increase) decrease in:
Accounts receivable, net (32,556) (5,926) (18,804)
Inventories, net (9,405) (11,948) 665
Income taxes receivable, net 995 (3,433) -
Deferred income taxes 899 (1,579) (280)
Other current assets (1,043) 621 (752)
Increase (decrease) in:
Income taxes payable, net - - 1,532
Accounts payable 25,608 734 13,835
Payroll and related benefits payable 1,211 206 279
Marketing cooperative payable (428) 8 1,012
Other current liabilities 1,409 1,024 283
---------- ---------- ----------
Net cash provided by (used in) operating activities 15,187 (877) 24,633
Cash flows from investing activities:
Restricted cash - 1,000 -
Purchase of marketable securities-held to maturity (11,018) (10,742) (22,910)
Maturities of marketable securities-held to maturity 4,561 25,098 35,672
Payments for purchase of property and equipment (8,981) (7,988) (7,265)
Other assets, net 198 146 (576)
---------- ---------- ----------
Net cash provided by (used in) investing activities (15,240) 7,514 4,921
Cash flows from financing activities:
Payment under note payable guarantee - - (3,232)
Payments under note payable (951) (168) -
Proceeds from sale of common stock 3,821 3,731 4,155
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 1,198 2,353 2,512
Stock repurchase - (8,783) (18,000)
---------- ---------- ----------
Net cash provided by (used in) financing activities 4,068 (2,867) (14,565)
---------- ---------- ----------
Increase in cash and cash equivalents 4,015 3,770 14,989
Cash and cash equivalents:
Beginning of period 33,935 30,165 15,176
---------- ---------- ----------
End of period $ 37,950 $ 33,935 $ 30,165
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
IN FOCUS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NUMBERS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of In Focus Systems,
Inc. (the "Company") and its wholly-owned subsidiaries, In Focus Systems FSC,
Inc., formed February 1, 1990 and In Focus Services, Inc. formed August 4, 1994.
As of January 1, 1998, In Focus Services, Inc. was dissolved. All significant
intercompany accounts and transactions have been eliminated. In January 1998,
the Company announced a 2 for 1 stock split of its Common Stock for holders of
record of the Company's Common Stock on February 10, 1998. All share and per
share amounts have been retroactively adjusted to reflect this stock split. See
Note 11. below.
NATURE OF OPERATIONS
The Company develops, manufactures and markets multimedia projection products
and services to present video, audio, graphics and data from personal computers,
workstations, VCRs and laser disc players. The Company's products are used in
businesses, schools and government agencies for training sessions, meetings,
sales presentations, technical seminars and other applications involving the
sharing of computer-generated and/or video information with an audience. The
Company's products are compatible with all major personal computers and most
video sources used in business and education. The Company also provides creative
presentation services to Fortune 500 and other companies.
ESTIMATES
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Management believes that the estimates used are reasonable.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents consist of highly liquid investments with maturities at the
date of purchase of 90 days or less; marketable securities consist primarily of
government and corporate debt instruments. The Company's marketable securities
are all classified as "held to maturity" as the Company has the intent and
ability to hold the securities until maturity. Accordingly, these securities
are carried at amortized cost. See Note 2 below.
REVENUE RECOGNITION
Revenue from the sale of products is recognized at time of shipment to the
customer. The Company maintains a reserve for sales returns and allowances.
Reserves are also established when the Company establishes a price protection
program for a particular product or products. The Company has incentive programs
for dealers and distributors whereby rebates are offered based upon exceeding a
percentage of quarterly and annual volume goals. Estimated rebates are netted
against revenue in the month in which revenue is recognized.
F-6
<PAGE>
PRODUCT WARRANTY
Estimated warranty costs are provided at the time of sale of the warranted
products.
CONCENTRATIONS OF RISK
The Company generally attempts to procure components from multiple sources.
Certain components, however, including LCDs, DMDs and plastic housing parts, are
purchased from single or limited sources.
The Company sells its products to a large number of customers worldwide. At
December 31, 1997, four customers each represented between 5.0 percent and 10.1
percent of total accounts receivable and at December 31, 1996, four customers
each represented between 5.0 percent and 6.5 percent of total accounts
receivable. The Company performs ongoing credit evaluations of its customers
and maintains a reserve for potential credit losses. Historically, the Company
has not incurred significant losses related to its accounts receivable.
The Company invests its excess cash with high credit quality financial
institutions, which bear minimal risk and, by policy, limits the amount of
credit exposure to any one financial institution. The Company has not
experienced any losses on its investments.
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets (approximately two to five years). Leasehold improvements are amortized
over the lease term or the estimated useful life of the asset, whichever is
shorter.
RESEARCH AND DEVELOPMENT
Included in engineering expenses are expenditures for research and development
of products, which are expensed as incurred, of approximately $11,671, $11,693
and $7,613 for the years ended December 31, 1997, 1996 and 1995, respectively.
ADVERTISING COSTS
Advertising costs, which are included in sales and marketing expenses, are
expensed as incurred. Advertising expense was approximately $5,593, $5,245 and
$3,274 in 1997, 1996 and 1995, respectively.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). Effective January 1, 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 requires that companies which do not choose
to account for stock-based compensation as prescribed by this Statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS 123
had been adopted. Additionally, certain other disclosures are required with
respect to stock compensation and the assumptions used to determine the pro
forma effects of SFAS 123.
F-7
<PAGE>
NET INCOME PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128. Following
is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- ------------------------------- ----------------------------- ------------------------------- ---------------------------
Per Per Per
Share Share Share
BASIC EPS Income Shares Amount Income Shares Amount Income Shares Amount
----------------------------- ------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income available to Common
Shareholders $ 20,050 21,653 $ 0.93 $ 13,132 21,724 $ 0.60 $ 22,692 21,888 $ 1.04
------ ------ ------
EFFECT OF DILUTIVE SECURITIES
Stock Options - 696 - 836 - 1,000
------------------ ------------------ -----------------
DILUTED EPS
Income available to Common
Shareholders $ 20,050 22,349 $ 0.90 $ 13,132 22,560 $ 0.58 $ 22,692 22,888 $ 0.99
------ ------ ------
</TABLE>
PATENTS AND TRADEMARKS
Costs associated with obtaining patents and trademarks are capitalized and
amortized over the estimated life of the associated patent or trademark.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current presentation.
2. MARKETABLE SECURITIES:
The Company accounts for its Marketable Securities in accordance with Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS 115).
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---------------- ----------------
Held to Maturity Held to Maturity
---------------- ----------------
<S> <C> <C>
Fair Market Value $ 10,850 $ 4,354
---------------- ----------------
---------------- ----------------
Amortized Cost:
State and Local
Government 10,720 4,263
---------------- ----------------
Total $ 10,720 $ 4,263
---------------- ----------------
---------------- ----------------
Maturity Information:
Less than one year 7,220 4,263
One to five years 3,500 --
---------------- ----------------
Total $ 10,720 $ 4,263
---------------- ----------------
---------------- ----------------
</TABLE>
F-8
<PAGE>
3. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS 109, ACCOUNTING
FOR INCOME TAXES. The Company realizes tax benefits as a result of the exercise
of nonqualified stock options and the exercise and subsequent sale of certain
incentive stock options (disqualifying dispositions). For financial reporting
purposes, any reduction in income tax obligations as a result of these tax
benefits is credited to paid-in capital. Tax benefits of $1,198, $2,353 and
$2,512 were credited to paid-in capital in 1997, 1996 and 1995, respectively.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
- ----------------------- ---------- ---------- ----------
<S> <C> <C> <C>
FEDERAL:
Current $ 6,630 $ 6,462 $ 10,898
Deferred 839 (1,306) (280)
---------- ---------- ----------
7,469 5,156 10,618
STATE:
Current 696 739 1,224
Deferred 60 (273) --
---------- ---------- ----------
756 466 1,224
---------- ---------- ----------
Total $ 8,225 $ 5,622 $ 11,842
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Total deferred income tax assets at December 31, 1997 and 1996 were $5,465 and
$3,413, respectively. Total deferred income tax liabilities at December 31,
1997 and 1996 were $3,702 and $751, respectively. Individually significant
temporary differences at December 31, 1997 include accounts receivable reserves,
which were recorded as deferred assets of $1,700. Individually significant
temporary differences at December 31, 1996 include accounts receivable reserves,
which were recorded as deferred assets of $1,497. The Company has not recorded a
valuation allowance against the deferred tax assets, as they are realizable as a
result of past income and available income tax carrybacks.
The reconciliation between the effective tax rate and the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997 1996 1995
- --------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0 % 35.0 % 35.0 %
State taxes, net of federal income tax
benefit 1.7 3.5 2.1
Research and development tax credit (2.7) (1.6) (0.7)
Foreign sales corporation tax benefit (3.1) (3.1) (0.9)
Tax exempt interest (1.7) (2.4) (1.6)
Other (0.1) (1.4) 0.4
-------- -------- --------
Effective tax rate 29.1 % 30.0 % 34.3 %
-------- -------- --------
-------- -------- --------
</TABLE>
F-9
<PAGE>
4. INVENTORIES:
<TABLE>
<CAPTION>
December 31, 1997 1996
- -------------------------------------- --------- --------
<S> <C> <C>
Raw materials and components $ 11,774 $ 6,259
Work-in-process 2,240 1,148
Finished goods 18,106 15,308
--------- --------
$ 32,120 $ 22,715
--------- --------
--------- --------
5. PROPERTY AND EQUIPMENT:
December 31, 1997 1996
- -------------------------------------- --------- --------
Furniture and fixtures $ 3,160 $ 3,030
Manufacturing equipment 12,797 7,496
Engineering equipment 1,663 1,344
Computer equipment 18,244 14,889
Leasehold improvements 1,412 1,486
--------- --------
37,276 28,245
Less accumulated depreciation (21,769) (13,692)
--------- --------
$ 15,507 $ 14,553
--------- --------
--------- --------
</TABLE>
6. LINE OF CREDIT
In April 1997, 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 LIBOR rate on December 31, 1997 was 5.7 percent.
The line of credit expires on June 30, 1999. The line of credit agreement
contains certain liquidity, tangible net worth and pre-tax profit covenants. At
December 31, 1997 the Company was in compliance with all of the covenants and
had no outstanding balance under the line of credit.
F-10
<PAGE>
7. LEASE OBLIGATIONS:
The Company leases its facilities and certain improvements under a noncancelable
operating lease, which expires in December 1998 and has a five-year renewal
option. The Company also leases space in Memphis, Tennessee for its creative
presentation operations, which expires in 2002.
Future minimum lease payments under the noncancelable operating leases as of
December 31, 1997 are as follows (there were no capital leases at December 31,
1997):
<TABLE>
Year ending December 31,
<S> <C>
1998 $ 2,182
1999 220
2000 220
2001 220
2002 73
----------
Total minimum lease payments $ 2,915
----------
----------
</TABLE>
Rental expense for the years ended December 31, 1997, 1996 and 1995 was $2,305,
$2,268 and $1,305, respectively.
8. SHAREHOLDERS' EQUITY:
GENERAL
In connection with the formation of a joint venture, the Company sold 4,424
shares of Common Stock to Motorola at $5 per share under a Stock Purchase
Agreement. Under the terms of the agreement, Motorola was granted limited
preemptive rights to future issuances of the Company's Common Stock and the
Company was granted the right of first refusal in the event shares owned by
Motorola are sold. In March 1995, the Company bought 2,000 shares of its Common
Stock from Motorola for $9 per share. Motorola sold additional shares of the
Company's Common Stock from time to time throughout 1995 and at December 31,
1995, Motorola held no shares of the Company's Common Stock.
In July 1996, the Company completed the repurchase of a total of 1,000 shares of
its Common Stock at an average price of $8.80 per share, for a total of $8,785,
which was paid out of existing cash balances.
F-11
<PAGE>
COMMON SHARE PURCHASE RIGHTS
In July 1997, the Company declared a dividend distribution of one common share
purchase right for each outstanding share of the Company's Common Stock (the
"Rights"). If a person becomes an Acquiring Person, each Right will entitle its
holder to purchase, at the Right's exercise price, a number of common shares of
the Company having a market value at the time of twice the exercise price. The
exercise price is $65. Rights held by the Acquiring Person will become void and
will not be exercisable to purchase shares at the bargain purchase price. An
Acquiring Person is defined as a person who acquires 20 percent or more of the
outstanding common shares of the Company. In effect, this would enable a holder
of Rights (other than an Acquiring Person) to purchase $65 worth of Common Stock
at half price. The Company's Board of Directors is entitled to redeem the rights
at $.01 per right at any time before a person has acquired 20 percent or more of
the outstanding Common Stock.
STOCK OPTION PLANS
The Company's 1988 Combination Stock Option Plan, as amended (the "Option Plan")
provides for the issuance of incentive stock options to employees of the Company
and nonstatutory stock options to employees, officers, directors and consultants
of the Company. At December 31, 1997, the Company had 3,630 shares of Common
Stock reserved for issuance under the Option Plan. Under the Option Plan, the
exercise price of incentive stock options cannot be less than fair market value
at date of grant and the exercise price of a nonstatutory stock options cannot
be less than 50 percent of fair market value at the date of grant or book value
per share at the end of the preceding fiscal year. Options granted generally
vest over a four-year period and expire ten years from the date of grant. The
Option Plan expires December 21, 1998. Subject to shareholder approval at the
Company's 1998 Annual Meeting of Shareholders, the Company's Board of Directors
has approved the 1998 Stock Incentive Plan covering 1,500 shares of the
Company's Common Stock.
Activity under the Option Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares Share Weighted
Available Subject Average
for Grant to Options Exercise Price
------------ ------------ --------------
<S> <C> <C> <C>
Balances, December 31, 1994 1,944 2,505 $ 6.62
Options granted (1,302) 1,302 12.90
Options canceled 236 (236) 8.37
Options exercised - (779) 5.33
------------ ------------ --------------
Balances, December 31, 1995 878 2,792 9.76
Additional shares reserved 1,000 - -
Options granted (2,104) 2,104 12.13
Options canceled 1,378 (1,378) 15.83
Options exercised - (536) 6.96
------------ ------------ --------------
Balances, December 31, 1996 1,152 2,982 9.14
Options granted (1,212) 1,212 12.21
Options canceled 550 (550) 9.97
Options exercised - (504) 7.05
------------ ------------ --------------
Balances, December 31, 1997 490 3,140 $ 10.51
------------ ------------ --------------
------------ ------------ --------------
</TABLE>
F-12
<PAGE>
The Company's Directors' Stock Option Plan, as amended (the "Directors' Plan")
provides for the issuance of stock options covering a total of 400 shares of the
Company's Common Stock to directors of the Company who have not, at any time
during the year preceding the grant of a stock option under the Directors' Plan,
been an employee of the Company or its subsidiaries ("Eligible Directors"). The
Directors' Plan provides for the automatic grant of options to purchase 20
shares of the Company's Common Stock on the date the director becomes an
eligible director and options to purchase 10 shares of the Company's Common
Stock on each anniversary of that date through August 21, 2002. The Directors'
Plan also provides for the automatic grant of options to each Eligible Director
on a quarterly basis in lieu of the payment of a retainer and attendance fees.
All Director options vest six months after the date of grant.
At December 31, 1997 the Company has reserved 360 shares of Common Stock for
issuance under the Directors' Plan. Activity under the Directors' Plan is as
follows:
<TABLE>
<CAPTION>
Shares Shares Weighted
Available Subject to Average
for Grant Options Exercise Price
------------- ------------ --------------
<S> <C> <C> <C>
Balances, December 31, 1994 332 68 $ 6.49
Options granted (40) 40 16.13
------------- ------------ --------------
Balances, December 31, 1995 292 108 10.06
Options granted (70) 70 10.76
------------- ------------ --------------
Balances, December 31, 1996 222 178 10.34
Options granted (78) 78 11.86
Options canceled 22 (22) 11.01
Options exercised - (40) 6.36
------------- ------------ --------------
Balances, December 31, 1997 166 194 $ 11.72
------------- ------------ --------------
------------- ------------ --------------
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for an employee stock option and
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to remain with
the accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been adopted.
F-13
<PAGE>
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1997, 1996 and 1995 using the
Black-Scholes option pricing model as prescribed by SFAS 123 using the following
weighted average assumptions for grants:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
- ---------------------------------- --------- --------- --------
<S> <C> <C> <C>
Risk-free interest rate 6.25% 6% 6%
Expected dividend yield 0% 0% 0%
Expected lives (years) 5 5 5
Expected volatility 73.1% 74.7% 72.0%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted during
1997, 1996 and 1995 was $10,030, $14,048 and $10,982, respectively, which would
be amortized on a pro forma basis over the vesting period of the options
(typically four years under the Option Plan and six months under the Directors'
Plan). The weighted average fair value of options granted during 1997, 1996 and
1995 was $7.77 per share, $6.46 per share and $8.19 per share, respectively, for
options granted at fair market value. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
income and net income per share would approximate the pro forma disclosures
below:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997 1996 1995
- --------------------------------------- ---------------- -----------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 20,050 $15,514 $ 13,132 $ 9,225 $ 22,692 $ 21,313
Net income per
share - basic $ 0.93 $ 0.72 $ 0.60 $ 0.42 $ 1.04 $ 0.97
Net income per
share - diluted $ 0.90 $ 0.72 $ 0.58 $ 0.42 $ 0.99 $ 0.96
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995,
and additional awards are anticipated in future years.
F-14
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------- --------------------------
Weighted
Average Weighted Number of Weighted
Range of Number Remaining Average Shares Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/97 Life (years) Price at 12/31/97 Price
- ----------- ----------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$4.63-8.00 368 6.14 $ 6.18 300 $5.99
8.06-8.25 860 8.25 8.25 268 8.25
8.38-10.60 688 8.84 9.54 126 9.69
10.63-13.75 804 8.67 12.10 184 12.94
14.13-18.38 614 9.11 15.64 140 16.07
- ----------- ----------- ------------ ----------- ----------- ---------
$4.63-18.38 3,334 8.40 $10.58 1,018 $9.69
- ----------- ----------- ------------ ----------- ----------- ---------
- ----------- ----------- ------------ ----------- ----------- ---------
</TABLE>
At December 31, 1996 and 1995, 976 and 812 options, respectively, were
exercisable at weighted average exercise prices of $8.72 per share and $6.87
per share, respectively.
9. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997 1996 1995
- ------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for interest $ 78 $ 39 $ -
Cash paid during the period for income 5,361 8,861 8,078
taxes
Property acquired through note payable - 566 -
</TABLE>
10. EXPORT SALES AND MAJOR CUSTOMERS:
The Company markets its products in the United States and internationally.
Geographic revenue information is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997 1996 1995
- ------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
United States $ 184,215 $ 152,285 $ 123,933
Europe 73,761 66,045 49,555
Other 57,785 40,145 29,333
---------- ---------- ----------
$ 315,761 $ 258,475 $ 202,821
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
No customers accounted for 10 percent or more of revenue in the years ended
December 31, 1997, 1996 or 1995.
11. SUBSEQUENT EVENT
In January 1998, the Company announced a 2 for 1 stock split of its Common Stock
for holders of record of the Company's Common Stock on February 10, 1998. All
share and per share amounts have been retroactively adjusted to reflect this
stock split.
F-15
<PAGE>
Report of Independent Public Accountants
on Financial Statement Schedule
To the Board of Directors and Shareholders of
In Focus Systems, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in In Focus Systems, Inc.'s 1997
Annual Report on Form 10-K, and have issued our report thereon dated January
22, 1998. Our audits were made for the purpose of forming an opinion on
those statements taken as a whole. The Valuation and Qualifying Accounts
schedule is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
January 22, 1998 ARTHUR ANDERSEN LLP
F-16
<PAGE>
SCHEDULE II
In Focus Systems, Inc.
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1996, and 1997
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------------
Balance Charged Charged to Balance
at Beginning to Costs and Other Accounts- Deductions- at End
Description of Period Expenses Describe Describe (a) of Period
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,217 $ 317 $ - $ (350) $ 1,184
Sales allowances (b) $ 863 $ 7,175 $ - $ (7,133) $ 905
Year Ended December 31, 1996:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,184 $ 1,040 $ - $ (392) $ 1,832
Sales allowances (b) $ 905 $ 15,234 $ - $(14,029) $ 2,110
Year Ended December 31, 1997:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,832 $ 78 $ - $ (303) $ 1,607
Sales allowances (b) $ 2,110 $ 17,886 $ - $(16,768) $ 3,228
</TABLE>
(a) Charges to the accounts included in this column are for the purposes for
which the reserves were created.
(b) The reserve for sales allowances is used for pricing adjustments made in
accordance with the Company's pricing structure.
F-17
<PAGE>
EXHIBIT 10.13
IN FOCUS SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN
1. STATEMENT OF PURPOSE.
The principal purposes of this Stock Incentive Plan ("Plan") are to
secure to In Focus Systems, Inc. (the "Company") the advantages of the
incentive inherent in stock ownership on the part of employees, officers,
directors, and consultants responsible for the continued success of the
Company and to create in such individuals a proprietary interest in, and a
greater concern for, the welfare of the Company through the grant of options
to acquire shares of the common stock of the Company ("Common Stock") and
through the award of restricted Common Stock. Such grants or awards of
options and of stock pursuant to this Plan shall be referred to as "Awards."
Each incentive stock option ("ISO") granted hereunder is intended to
constitute an "incentive stock option," as such term is defined in Section
422 of the Internal Revenue Code of 1986, as the same may be amended from
time to time (the "Code"), and this Plan and each such ISO is intended to
comply with all of the requirements of said Section 422 and of all other
provisions of the Code applicable to incentive stock options and to plans
issuing the same. Each nonstatutory stock option ("Non-ISO") granted
hereunder is intended to constitute a nonstatutory stock option that does not
comply with the requirements of Section 422 of the Code. ISO's and Non-ISO's
shall sometimes hereinafter be referred to collectively as "Options". This
Plan is expected to benefit shareholders by enabling the Company to attract
and retain personnel of the highest caliber by offering to them an
opportunity to share in any increase in the value of the Common Stock to
which such personnel have contributed.
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Board of Directors of
the Company ("Board") or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of, the
Board (hereinafter, "Plan Administrator"). If and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting
as Plan Administrator of the Plan with respect to any persons subject or
likely to become subject to Section 16 under the Exchange Act the provisions
regarding (a) "outside directors," as contemplated by Section 162(m) of the
Code, and (b) "nonemployee directors," as contemplated by Rule 16b-3 under
the Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons
to different committees, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
2.2 Except for the terms and conditions explicitly set forth in
the Plan, the Plan Administrator shall have exclusive authority, in its
discretion, to determine all matters relating to awards under the Plan,
including the selection of individuals to be granted Awards, the type of
Awards, the number of shares of Common Stock subject to an Award, all terms,
conditions, restrictions and limitations, if any, of an Award, and the terms
of any instrument that evidences the Award. The Plan Administrator shall
also have exclusive authority to interpret the
1
<PAGE>
Plan and may from time to time adopt, and change, rules and regulations of
general application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions
taken and determinations made by the Plan Administrator pursuant to the Plan,
shall be conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's
officers as it so determines.
3. ELIGIBILITY.
3.1 ISO's may be granted to any employee of the Company or of an
Affiliate of the Company, as defined in Section 3.2 below. Non-ISO's may be
granted to any employee, officer or director (whether or not also an
employee), or consultant of the Company or of an Affiliate of the Company.
Each employee, officer, director, or consultant selected by the Plan
Administrator to receive an Option shall sometimes hereinafter be referred to
as an "Optionee".
3.2 As used in this Plan, an "Affiliate" of a corporation shall
refer to a "parent corporation" of such corporation as described in Section
424(e) of the Code or a "subsidiary corporation" of such corporation as
described in Section 424(f) of the Code.
3.3 An Optionee who is not an employee of the Company or of an
Affiliate of the Company shall not be eligible to receive an ISO hereunder
and no ISO's shall be granted to any such non-employee Optionee.
3.4 No Option shall be granted hereunder to any Optionee unless
the Plan Administrator shall have determined, based on the advice of counsel,
that the grant of such option (and the exercise thereof by the Optionee) will
not violate the securities law of the state where the Optionee resides.
4. SHARES SUBJECT TO THE PLAN.
4.1 Subject to adjustment from time to time as provided in Section
10, a maximum of seven hundred fifty thousand (750,000) shares of Common
Stock shall be available for issuance under the Plan; in addition, if
subsequent to the 1998 Annual Meeting of the Company's shareholders the
Company repurchases any shares of Common Stock (whether on the open market,
pursuant to option exercises or otherwise), then additional shares of Common
Stock may be issued pursuant to the Plan, provided that the number of such
additional shares shall not exceed the lesser of (i) the number of shares so
repurchased, or (ii) seven hundred fifty thousand (750,000) shares. Shares
issued under the Plan shall be drawn from authorized and unissued shares.
4.2 Upon exercise of an Option, the number of shares of Common
Stock thereafter available hereunder and under the Option shall decrease by
the number of shares of Common Stock as to which such Option was exercised;
provided that if such shares are pledged to secure a promissory note given in
payment of the Option Price for such shares and, as a result of a default on
such note, the pledged shares are returned to the Company, then such shares
shall again be available for the purposes of this Plan.
4.3 Any shares of Common Stock made subject to an Award granted
hereunder that cease to be subject to the Award (other than by reason of
exercise or payment of
2
<PAGE>
the Award to the extent it is exercised for or settled in shares) shall again
be available for issuance in connection with future Awards under this Plan.
4.4 The Company shall at all times during the term of this Plan
reserve and keep available such number of shares as shall be sufficient to
satisfy the requirements of the Plan.
4.5 Subject to any adjustment as provided in Section 10, if and so
long as the Common Stock is registered under Section 12 of the Exchange Act,
not more than two hundred thousand (200,000) shares of Common Stock may be
made subject to Awards under the Plan to any one individual in the aggregate
in any one fiscal year of the Company, except the Company may make additional
one-time grants of up to five hundred thousand (500,000) shares to a newly
hired individual, such limitation to be applied in a manner consistent with
the requirements of, and only to the extent required for compliance with, the
exclusion from the limitation on deductibility of compensation under Section
162(m) of the Code.
5. OPTION TERMS.
5.1 The Plan Administrator shall specify the following terms to be
contained in each Option granted to an Optionee hereunder, which Option shall
be executed by the Company and such Optionee:
5.1.1 Whether such Option is an ISO or a Non-ISO;
5.1.2 The number of shares of Common Stock subject to
purchase pursuant to such Option;
5.1.3 The date on which the grant of such Option shall be
effective (the "Date of Grant");
5.1.4 The period of time during which such Option shall be
exercisable, which shall in no event be more than ten (10) years following
its Date of Grant for ISO's; provided, however, that if an ISO is granted to
an Optionee who on the Date of Grant owns, either directly or indirectly
within the meaning of Section 424(d) of the Code, more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
an Affiliate of the Company, the period of time during which such Option
shall be exercisable shall in no event be more than five (5) years following
its Date of Grant;
5.1.5 The price at which such Option shall be exercisable
by the Optionee (the "Option Price"); provided, however, that the Option
Price for all Options shall be not less than the fair market value, as
defined in Section 5.2 below, on the Date of Grant of the shares of Common
Stock subject thereto; and provided further that, if such Option is granted
to an Optionee who on the Date of Grant owns, either directly or indirectly
within the meaning of Section 424(d) of the Code, more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
an Affiliate of the Company, then the Option Price specified in such Option
shall be at least one hundred ten percent (110%) of the fair market value, on
the Date of Grant, of the Common Stock subject thereto;
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5.1.6 Any vesting schedule upon which the exercise of an
Option is contingent; provided that the Plan Administrator shall have
complete discretion with respect to the terms of any vesting schedule upon
which the exercise of an Option is contingent, including, without limitation,
discretion (a) to allow full and immediate vesting upon grant of such Option,
(b) to permit partial vesting in stated percentage amounts based on the
length of the holding period of such Option, or (c) to permit full vesting
after a stated holding period has passed; and
5.1.7 Such other terms and conditions as the Plan
Administrator deems advisable and as are consistent with the purpose of this
Plan.
5.2 Fair market value shall be determined as follows:
5.2.1 If the Company's Common Stock is publicly traded at
the time an Option is granted hereunder, fair market value shall be
determined as of the date of grant and shall mean:
(a) The average (on that date) of the high and low prices of
the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or
(b) The last reported sale price (on that date) of the Common
Stock on the NASDAQ National Market System, if the Common Stock is
not then traded on a national securities exchange; or
(c) The closing bid price (or average of bid prices) last
quoted on such date by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on
the NASDAQ National Market System.
5.2.2 If the Common Stock is not publicly traded at the
time an Option is granted hereunder, fair market value shall be deemed to be
the fair value of the Common Stock as determined by the Plan Administrator
after taking into consideration all factors that it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arm's length.
5.3 No Option shall be granted hereunder during the suspension of
this Plan or after the termination of this Plan pursuant to Section 12.2.
Except as expressly provided herein, nothing contained in this Plan shall
require that the terms and conditions of Options granted hereunder be uniform.
5.4 Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Options under the Plan in substitution for options
issued under other plans, or assume under the Plan awards issued under other
plans, if the other plans are or were plans of other acquired entities
("Acquired Entities") (or the parent of the Acquired Entity) and the new
Option is substituted, or the old option is assumed, by reason of a merger,
consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is
approved by the Board and said agreement sets forth the terms and conditions
of the substitution for or assumption of outstanding awards of the Acquired
Entity, said terms and
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conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, and the persons holding such
Options shall be deemed to be Optionees.
6. LIMITATION ON GRANTS OF ISO'S.
In the event that the aggregate fair market value of Common Stock and other
stock with respect to which ISO's granted to an Optionee hereunder or
incentive stock options granted to such Optionee under any other plan of the
Company or any of its Affiliates are exercisable for the first time during
any calendar year, exceeds the maximum permitted under Section 422(d) of the
Code, then to the extent of such excess, such ISO's shall be treated as
Non-ISO's.
7. EXERCISE OF OPTION.
7.1 Subject to any limitations or conditions imposed upon an
Option pursuant to Section 5 above, an Optionee may exercise an Option or any
part thereof (unless partial exercise is specifically prohibited by the terms
of the Option), by giving written notice thereof to the Company at its
principal place of business accompanied by payment as described in Section
7.2.
7.2 The exercise price for shares purchased under an Option shall
be paid in full to the Company by delivery of consideration equal to the
Option Price for the whole number of shares as to which it is exercised.
Such consideration must be paid in cash or by check, or, in the Plan
Administrator's discretion, a combination of cash and/or check and/or one or
both of the following alternative forms: (a) tendering (either actually or,
if and so long as the Common Stock is registered under Section 12(b) or 12(g)
of the Exchange Act, by attestation) Common Stock already owned by the
Optionee for at least six (6) months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a fair market value on the day prior to the exercise date equal to the
aggregate Option Price or (b) if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, delivery of a
properly executed exercise notice, together with irrevocable instructions, to
(i) a brokerage firm, that may from time to time be designated by the Company
in its discretion, to deliver to the Company the aggregate amount of sale or
loan proceeds to pay the Option Price and any withholding tax obligations
that may arise in connection with the exercise and (ii) the Company, to
deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board.
In addition, the exercise price for shares purchased under an Option may be
paid, either singly or in combination with one or more of the alternative
forms of payment authorized by this Section 7.2, by (y) a promissory note; or
(z) such other consideration as the Plan Administrator may permit. Any
promissory note delivered in connection with exercise of an Option shall bear
interest at a rate specified by the Plan Administrator but in no case less
than the rate required to avoid imputation of interest (taking into account
any exceptions) for federal income tax purposes.
7.3 As soon as practicable after exercise of an option in
accordance with Sections 7.1 and 7.2 above, the Company shall issue a stock
certificate evidencing the Common Stock with respect to which the Option has
been exercised. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of such stock certificate, no right to vote or receive dividends or
any other rights as a
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shareholder shall exist with respect to such Common Stock, notwithstanding
the exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 10 below.
7.4 The amount to be paid by the Optionee upon exercise shall be
the full Option Price together with the amount of any taxes required to be
withheld with respect to the grant or exercise of the Option. Subject to the
Plan and to applicable law, the Plan Administrator, in its sole discretion,
may permit such withholding obligations to be paid, in whole or in part, by
electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the fair market value of the withholding obligation.
8. TRANSFERABILITY AND POST-TERMINATION EXERCISES.
8.1 Except as provided otherwise in this Section 8, no Option
shall be transferable or exercisable by any person other than the Optionee to
whom such Option was originally granted.
8.2 The Plan Administrator shall establish and set forth in each
instrument that evidences an Option whether the Option will continue to be
exercisable and the terms and conditions of such exercise, if the Optionee
ceases to be employed by or provide services to the Company or its
Affiliates, which may be waived or modified by the Plan Administrator. If
not so established and subject to Section 8.3, the Option will be exercisable
in accordance with the following terms, which may be waived or modified by
the Plan Administrator:
8.2.1 In case of termination of Optionee's employment or
services other than by reason of death, the Option shall be exercisable, to
the extent of the number of shares purchasable at the date of termination,
only within three months after the date the Optionee ceases to be an employee
or consultant of the Company or Affiliate, but no later than the remaining
term of the Option.
8.2.2 Any Option exercisable at the time of the Optionee's
death may be exercised to the extent of the number of shares purchasable at
the date of death, by the personal representative of the Optionee's estate or
the person(s) to whom the Optionee's rights under the Option have passed by
will or applicable laws of descent and distribution at any time or from time
to time within one year after the date of death, but in no event later than
the remaining term of the Option.
8.2.3 Any portion of an Option not exercisable on the date
of termination of the Optionee's employment or services shall terminate on
such date, unless the Plan Administrator determines otherwise.
8.2.4 Subject to Section 8.3, the effect of a
Company-approved leave of absence on terms and conditions of an Option shall
be determined by the Plan Administrator in its sole discretion. A transfer
of services or employment between or among the Company and subsidiaries shall
not be considered a termination of employment or services.
8.2.5 To the extent exercisable, a Non-ISO may be exercised
during the Optionee's lifetime by the Optionee's guardian or legal
representative.
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8.3 To the extent required by Section 422 of the Code, ISO's shall
be subject to the following additional terms and conditions: To qualify for
ISO tax treatment, an Option designated as an ISO must be exercised within
three months after termination of employment for reasons other than death,
except that in the case of termination of employment due to total disability,
such Option must be exercised within one year after such termination.
Employment shall not be deemed to continue beyond the first 90 days of a
leave of absence unless the Optionee's reemployment rights are guaranteed by
statute or contract. For purposes of this Section 8.3, "total disability"
shall have the meaning given to such term in the Company's long-term
disability plan, as such plan is in effect on the date of determination.
8.4 In the event that a qualified domestic relations order, as
defined by Section 414(p) of the Code or Title I of the Employee Retirement
Income Security Act or the rules thereunder, mandates the transfer of any
Option that could have been exercised immediately prior to the issuance of
such order, such Option shall pass to the person or persons entitled thereto
pursuant to the order and shall be exercisable by such person or persons in
accordance with the terms thereof.
8.5 The Plan Administrator may, in its discretion, authorize all
or a portion of the Non-ISO's granted to an Optionee to be on terms which
permit transfer by such Optionee to (i) the spouse, children or grandchildren
of the Optionee ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners, provided that (x)
there may be no consideration for any such transfer, (y) the stock option
agreement pursuant to which such Options are granted must be approved by the
Plan Administrator and must expressly provide for transferability in a manner
consistent with this Section, and (z) subsequent transfers of transferred
Options are prohibited except those in accordance with Section 8 of the Plan.
The Plan Administrator may, in its discretion, in permitting transferability,
impose additional conditions in the Option Agreement consistent with this
section, including without limitation imposition of a post-exercise holding
period on transferees. Following transfer, any such Options shall continue to
be subject to the same terms and conditions as were applicable immediately
prior to transfer; provided, the events of termination of employment of
Sections 8 and 9 hereof shall continue to be applied with respect to the
original Optionee, following which the Options shall be exercisable by the
transferee only to the extent and for the periods specified. The Company
disclaims any obligation to provide notice to a transferee of early
termination of the Option due to termination of employment or otherwise.
Notwithstanding a transfer pursuant to the foregoing, the original Optionee
will remain subject to applicable withholding taxes upon exercise. No
transfer will be effective until written notice of transfer is delivered to
the Company. The Company reserves the right to approve transfers hereunder.
8.6 In order to obtain certain tax benefits afforded to ISO's
under Section 422 of the Code, the Optionee must hold the shares issued upon
exercise of an ISO for two years after the grant date of the ISO and one year
from the date of exercise. An Optionee may be subject to the alternative
minimum tax at the time of exercise of an ISO. The Plan Administrator may
require an Optionee to give the Company prompt notice of any disposition of
shares acquired by the exercise of an ISO prior to expiration of such holding
periods.
9. TERMINATION OF OPTIONS.
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To the extent not earlier exercised, an Option shall terminate at the
earliest of the following dates:
9.1 The termination date specified for such Option in the
respective Option Agreement;
9.2 As specified in Section 8 above:
9.3 The date of any sale, transfer, or hypothecation, or any
attempted sale, transfer or hypothecation, of such Option in violation of
Section 8 above;
9.4 The date specified in Section 10.2 below for such termination
in the event of a Terminating Event; or
9.5 At the discretion of the Plan Administrator, immediately upon
determination by the Plan Administrator that the Optionee has (i) made
unauthorized disclosure of confidential information relating to the Company,
(ii) failed to assign to the Company any invention which the Optionee is
obligated to assign to the Company pursuant to written agreement or
otherwise, or (iii) breached the terms of any written agreement in effect
between the Company and the Optionee relating to confidentiality,
nondisclosure or ownership of inventions.
10. ADJUSTMENTS.
10.1 In the event of a material alteration in the capital
structure of the Company on account of a recapitalization, stock split,
reverse stock split, stock dividend, or otherwise, then the Plan
Administrator shall make such adjustments to this Plan and to the Awards then
outstanding and thereafter granted hereunder as the Plan Administrator
determines to be appropriate and equitable under the circumstances, so that
the proportionate interest of each holder shall, to the extent practicable,
be maintained as before the occurrence of such event. Such adjustments may
include, without limitation (a) a change in the number or kind of shares of
stock of the Company covered by such Awards, and (b) a change in the Option
Price payable per share; provided, however, that the aggregate Option Price
applicable to the unexercised portion of existing Options shall not be
altered, it being intended that any adjustments made with respect to such
Options shall apply only to the price per share and the number of shares
subject thereto. For purposes of this Section 10.1, neither (i) the issuance
of additional shares of stock of the Company in exchange for adequate
consideration (including services), nor (ii) the conversion of outstanding
preferred shares of the Company into Common Stock shall be deemed material
alterations of the capital structure of the Company. In the event the Plan
Administrator shall determine that the nature of a material alteration in the
capital structure of the Company is such that it is not practical or feasible
to make appropriate adjustments to this Plan or to the Awards granted
hereunder, such event shall be deemed a Terminating Event as defined in
Section 10.2 below.
10.2 All Options granted hereunder shall terminate upon the
occurrence of any of the following events ("Terminating Events"): (a) the
dissolution or liquidation of the Company; or (b) a material change in the
capital structure of the Company that is subject to this Section 10.2 by
virtue of the last sentence of Section 10.1 above.
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10.3 All Options granted hereunder shall become immediately
exercisable, without regard to any contingent vesting provision to which such
Options may have otherwise been subject, in the event of a reorganization (as
defined in Section 10.4), which results in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) less than a majority of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such reorganization.
10.4 In the event of a reorganization as defined in this Section
10.4 in which the Company is not the surviving or acquiring company, or in
which the Company is or becomes a wholly-owned subsidiary of another company
after the effective date of the reorganization, then the plan or agreement
respecting the reorganization shall include appropriate terms providing for
the assumption of each Option granted hereunder, or the substitution of an
option therefor, such that no "modification" of any such Option occurs under
Section 424 of the Code. For purposes of Section 10.3 and this Section 10.4,
reorganization shall mean any statutory merger, statutory consolidation, sale
of all or substantially all of the assets of the Company, or sale, pursuant
to an agreement with the Company, of securities of the Company pursuant to
which the Company is or becomes a wholly-owned subsidiary of another
corporation after the effective date of the reorganization.
10.5 The Plan Administrator shall have the right to accelerate the
date of exercise of any installment of any option; provided, however, that,
without the consent of the Optionee with respect to any Option, the Plan
Administrator shall not accelerate the date of any installment of any Option
granted to an employee as an ISO (and not previously converted into a Non-ISO
pursuant to Section 13 below) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Section 6 above.
10.6 Adjustments and determinations under this Section 10 shall be
made by the Plan Administrator (upon the advice of counsel), whose decisions
as to what adjustments or determination shall be made, and the extent
thereof, shall be final, binding, and conclusive.
11. STOCK AWARDS.
11.1 GRANT OF STOCK AWARDS. The Plan Administrator is authorized
to make awards of Common Stock on such terms and conditions and subject to
such restrictions, if any (which may be based on continuous service with the
Company or the achievement of performance goals related to operating profit
as a percentage of revenues, revenue and profit growth, profit-related return
ratios, such as return on equity, or cash flow, where such goals may be
stated in absolute terms or relative to comparison companies), as the Plan
Administrator shall determine, in its sole discretion, which terms,
conditions and restrictions shall be set forth in the instrument evidencing
the award ("Stock Award"). The terms, conditions and restrictions that the
Plan Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held
during the periods they are subject to restrictions and the circumstances
under which forfeiture of restricted stock shall occur by reason of
termination of the holder's services.
11.2 ISSUANCE OF SHARES. Upon the satisfaction of any terms,
conditions and restrictions prescribed in respect to a Stock Award, or upon
the holder's release from any terms,
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conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the
holder or, in the case of the holder's death, to the personal representative
of the holder's estate or as the appropriate court directs, a stock
certificate for the appropriate number of shares of Common Stock.
11.3 WAIVER OF RESTRICTIONS. Notwithstanding any other provisions
of the Plan, the Plan Administrator may, in its sole discretion, waive the
forfeiture period and any other terms, conditions or restrictions on any
restricted stock under such circumstances and subject to such terms and
conditions as the Plan Administrator shall deem appropriate.
11.4 PAYMENT. Stock Awards under the Plan may be settled through
cash payments, delivery of Common Stock or granting of awards or combinations
thereof as the Plan Administrator shall determine. Any award settlement,
including payment deferrals, may be subject to such conditions, restrictions
and contingencies as the Plan Administrator shall determine. The Plan
Administrator may permit or require deferral of any award payment, subject to
rules and procedures as it may establish, which may include provisions for
payment or crediting of interest, or dividend equivalents.
12. TERMINATION AND AMENDMENT OF PLAN.
12.1 The Plan may be amended only by the Board as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares
as to which Awards may be granted under the Plan, (b) modify the class of
persons eligible to receive Awards, or (c) otherwise require shareholder
approval under any applicable law or regulation.
12.2 The Company's shareholders or the Board may suspend or
terminate the Plan at any time. The Plan will have no fixed expiration date;
provided, however, that no ISO may be granted more than ten (10) years after
the earlier of the Plan's adoption by the Board and approval by the
shareholders.
12.3 The amendment or termination of the Plan shall not, without
the consent of the Optionee under the Plan, impair or diminish any rights or
obligations under any Option theretofore granted under the Plan. Any change
or adjustment to an outstanding ISO shall not, without the consent of the
holder, be made in a manner so as to constitute a "modification" that would
cause such ISO to fail to continue to qualify as an incentive stock option.
13. CONVERSION OF ISO'S INTO NON-ISO'S.
At the written request of any ISO Optionee, the Plan Administrator may in its
discretion take such actions as may be necessary to convert such Optionee's
ISO's (or any installments or portions of installments thereof) that have not
been exercised on the date of conversion into Non-ISO's at any time prior to
the expiration of such ISO's, regardless of whether the Optionee is an
employee of the Company or of an Affiliate of the Company at the time of such
conversion. Such actions may include, but shall not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such ISO's. At the time of such conversion, the Plan
Administrator, with the consent of the Optionee, may impose such conditions
on the
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exercise of the resulting Non-ISO's as the Plan Administrator in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in this Plan shall be deemed to give
any Optionee the right to have such Optionee's ISO's converted into
Non-ISO's, and no such conversion shall occur until and unless the Plan
Administrator takes appropriate action. The Plan Administrator, with the
consent of the Optionee, may also terminate any portion of any ISO that has
not been exercised at the time of such conversion.
14. CONDITIONS UPON ISSUANCE OF SHARES.
14.1 Shares shall not be issued pursuant to the exercise of any
Award unless the exercise of such Award and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended
("Securities Act"), the Exchange Act, any applicable state securities law,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed or otherwise traded,
and such compliance has been confirmed by counsel for the Company. The
Company shall be under no obligation to any participants to register for
offering or resale or to qualify for an exemption under the Securities Act,
or to register or qualify under state securities laws, any shares of
Company's stock issued under the Plan or to continue in effect any
registrations or qualifications if made. The Company may issue certificates
for shares with such legends and subject to such restrictions on transfer as
counsel for the Company deems necessary or desirable for compliance with
federal and state securities laws.
14.2 As a condition to the exercise of any Option, the Company may
require the participant exercising such Option to represent and warrant at
the time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such representations
and warranties are required by any relevant provision of law.
14.3 The Company's inability to obtain authority from any
regulatory body having jurisdiction, which authority the Company's counsel
has determined to be necessary to the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability with respect to the
failure to issue or sell such shares.
15. USE OF PROCEEDS.
Proceeds from the sale of Common Stock pursuant to the exercise of Options
granted hereunder shall constitute general funds of the Company and shall be
used for general corporate purposes.
16. NOTICES.
All notices, requests, demands and other communications required or permitted
to be given under this Plan and the Awards granted hereunder shall be in
writing and shall be either served personally on the party to whom notice is
to be given (in which case notice shall be deemed to have been duly given on
the date of such service), or mailed to the party to whom notice is to be
given, by first class mail, registered or certified, return receipt
requested, postage prepaid, and addressed to the party at his or its most
recent known address, in which case such notice shall be
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deemed to have been duly given on the third (3rd) postal delivery day
following the date of such mailing.
17. MISCELLANEOUS PROVISIONS.
17.1 Optionees shall be under no obligation to exercise Options
granted hereunder.
17.2 Nothing contained in this Plan shall obligate the Company to
retain an Optionee or holder of a Stock Award as an employee, officer,
director, or consultant for any period, nor shall this Plan interfere in any
way with the right of the Company to reduce such person's compensation.
17.3 The provisions of this Plan and each Award hereunder shall be
binding upon such holder, the Qualified Successor or Guardian, and the heirs,
successors, and assigns.
17.4 This Plan is intended to constitute an "unfunded" plan and
nothing herein shall require the Company to segregate any monies or other
property or shares of Common Stock or create any trusts or deposits, and no
Optionee or holder shall have rights greater than a general unsecured
creditor of the Company.
17.5 It is the Company's intention that, if and so long as any of
the Company's equity securities are registered pursuant to Section 12(b) or
12(g) of the Exchange Act, the Plan shall comply in all respects with Rule
16b-3 under the Exchange Act and, if any Plan provision is later found not to
be in compliance with such Rule 16b-3, the provision shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting
the requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
Optionees who are officers or directors subject to Section 16 of the Exchange
Act without so restricting, limiting or conditioning the Plan with respect to
other Optionees. Additionally, in interpreting and applying the provisions
of the Plan, any Option granted as an ISO pursuant to the Plan shall, to be
extent permitted by law, be construed as an "incentive stock option" within
the meaning of Section 422 of the Code.
17.6 Where the context so requires, references herein to the
singular shall include the plural, and vice versa, and references to a
particular gender shall include either or both genders.
17.7 This Plan and any agreements hereunder shall be administered,
interpreted and enforced under the internal laws of the State of Oregon
without regard to conflicts of laws thereof.
18. EFFECTIVE DATE OF PLAN AND AMENDMENTS.
This Plan was initially adopted by the Board of Directors on __________, 1997
and approved by the shareholders on _______________.
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EXHIBIT 10.15
IN FOCUS SYSTEMS, INC.
1998 EXECUTIVE BONUS PLAN
CEO, CHAIRMAN OF THE BOARD
POLICY: It is In Focus Systems' policy to provide the Corporate CEO and
Chairman of the Board the opportunity for increased compensation
based upon In Focus Systems' overall achievement of Corporate
profit goals.
GUIDELINES: 1. Adoption of Plan
This Executive Bonus Plan (the "Plan") was adopted by the
Board of Directors of In Focus Systems, Inc. (the "Company")
effective January 26, 1998.
2. Purpose of Plan and Effective Date
The purpose of the Plan is to establish the terms and
conditions under which the Company will pay Executive
bonuses for the calendar year beginning January 1, 1998, and
ending December 31, 1998.
Unless the Board of Directors specifically provides
otherwise, all Executive bonuses will be awarded solely in
accordance with this Plan.
3. Eligibility
Eligibility is limited to the CEO and Chairman of the Board
of the Company.
Eligible Executives must be in active pay status for an
entire quarter to be paid profit sharing for that quarter.
In the event that an Executive is with the Company for less
than one year, a pro-rated bonus will be calculated based on
number of months employed. No annual bonus will be paid if
an Executive joins the Company after October 1, 1998.
Executives must be actively employed on the last day of the
year to be eligible for any annual bonus amount.
<PAGE>
4. Plan Components
(a) Profit Sharing
The first component of the bonus plan shall be the payment
of the profit sharing, paid quarterly. The percentage to be
paid (multiplied by the Executive's quarterly salary) shall
be at the same rate as calculated for other employees in
accordance with the currently approved In Focus Systems
Profit Sharing Program. The payment to be made to the
Executives shall not reduce the amount to be paid to other
employees, i.e., shall not come from the profit-sharing pool
calculated for other employees.
(b) Annual Bonus
The second component of the bonus plan shall be an annual
bonus paid at year end based on: the Company's 1998
financial performance (Profit Before Tax). This payout
shall be calculated as follows:
- The targeted bonus shall be 60 percent and shall be
calculated using the following formula:
Bonus = (P) * (60%)
- where:
-- P = Corporate PBT performance (vs. Operating Plan)
calculated by dividing actual 1998 Profit Before
Tax (PBT) plus income/loss from joint venture
activity by Operating Plan PBT plus planned
income/loss from joint venture activity.
- Other limitations/constraints regarding calculation of
the bonus are as follows:
-- Bonus = 0 if P is less than 75%
-- Maximum bonus payout shall be 200% of the target
bonus amount.
-- An accelerator shall apply to above plan
performance starting at 110% of plan. For every
percent above 110%, 1.5% shall be added to the
bonus amount (see attachment for examples).
<PAGE>
5. Payment of Executive Bonus
Payment of the Executive Bonus Plan will be based on audited
year-end results, and will be distributed within 30 days
after the audit has been completed.
6. Discretion of the Board of Directors
Nothing in this Plan shall prohibit the Board of Directors
from awarding a bonus to one or more Executives in addition
to the Executive Bonus awarded pursuant to this Plan.
The Board of Directors reserves the right to modify, change
or rescind this policy at any time at its sole discretion as
is required to meet the Company's objectives.
<PAGE>
EXHIBIT 10.16
IN FOCUS SYSTEMS, INC.
1998 EXECUTIVE BONUS PLAN - SENIOR VICE PRESIDENT
POLICY: It is In Focus Systems' policy to provide Corporate Senior Vice
Presidents the opportunity for increased compensation based upon:
1) In Focus Systems' overall achievement of Corporate profit
goals, and 2) performance of each Senior Vice President against
his individual goals/objectives.
GUIDELINES: 1. Adoption of Plan
This Senior Vice President Bonus Plan (the "Plan") was
adopted by the Board of Directors of In Focus Systems, Inc.
(the "Company") effective January 26, 1998.
2. Purpose of Plan and Effective Date
The purpose of the Plan is to establish the terms and
conditions under which the Company will pay Senior Vice
President bonuses for the calendar year beginning January 1,
1998 and ending December 31, 1998.
Unless the Board of Directors specifically provides
otherwise, all Senior Vice President bonuses will be awarded
solely in accordance with this Plan.
3. Eligibility
Eligibility is limited to the Senior Vice President of the
Company.
Eligible Senior Vice Presidents must be in active pay status
for an entire quarter to be paid profit sharing for that
quarter.
In the event that a Senior Vice President is with the
Company for less than one year, a pro-rated bonus will be
calculated based on number of months employed. No annual
bonus will be paid if a Senior Vice President joins the
Company after October 1, 1998. Senior Vice Presidents must
be actively employed on the last day of the year to be
eligible for any annual bonus amount.
<PAGE>
4. Plan Components
(a) Profit Sharing
The first component of the bonus plan shall be the payment
of the profit sharing, paid quarterly. The percentage to be
paid (multiplied by the Senior Vice President's quarterly
salary) shall be at the same rate as calculated for other
employees in accordance with the currently approved In Focus
Systems Profit Sharing Program. The payment to be made to
the Vice Presidents shall not reduce the amount to be paid
to other employees, i.e., shall not come from the
profit-sharing pool calculated for other employees.
(b) Annual Bonus
The second component of the bonus plan shall be an annual
bonus paid at year end based on: 1) the Company's 1998
financial performance (Profit Before Tax), and 2) the
performance of the Senior Vice President against his
individual goals/objectives. This payout shall be
calculated as follows:
_ The targeted bonus shall be 35 percent and shall be
calculated using the following formula:
Bonus = (.75P + .25G) (35%)
where:
- P = Corporate PBT performance (vs. Operating Plan)
calculated by dividing actual 1998 Profit Before
Tax (PBT) plus income/loss from joint venture
activity by Operating Plan PBT plus planned
income/loss from joint venture activity.
- G = Individual performance (vs. 1998 goals)
determined by the CEO, by comparing the individual
Senior Vice President's performance against his
major 1998 goals.
_ Other limitations/constraints regarding calculation of
the bonus are as follows:
- Profit Component of Bonus = 0 if P is less than
.75
- Individual Goals Component of Bonus = 0 if G is
less than .75
- Maximum bonus component for individual performance
= 130%.
<PAGE>
- Maximum bonus component for PBT component = 200%.
- If Profit is less than 75% of Plan but greater
than 49.99% of Plan, the Executive shall receive a
reduced bonus amount based on what the Individual
Performance component would have otherwise been.
The reduced amount shall be calculated by
multiplying the Individual Performance component
by the percentage of Profit actually achieved.
- If Profit is less than 50%, no payouts will be
made from either component.
5. Payment of Senior Vice President Bonus
Payment of the Senior Vice President Bonus Plan will be
based on audited year-end results, and will be distributed
within 30 days after the audit has been completed.
6. Discretion of the Board of Directors
Nothing in this Plan shall prohibit the Board of Directors
from awarding a bonus to one or more Senior Vice Presidents
in addition to the Senior Vice President Bonus awarded
pursuant to this Plan.
The Board of Directors reserves the right to modify, change
or rescind this policy at any time at its sole discretion as
is required to meet the Company's objectives.
Any annual bonus greater than $100,000 will require approval
of the Corporate Compensation Committee.
<PAGE>
EXHIBIT 10.17
IN FOCUS SYSTEMS, INC.
1998 EXECUTIVE BONUS PLAN - VICE PRESIDENT
POLICY: It is In Focus Systems' policy to provide Corporate Vice
Presidents the opportunity for increased compensation based upon:
1) In Focus Systems' overall achievement of Corporate profit
goals, and 2) performance of each Vice President against his/her
individual goals/objectives.
GUIDELINES: 1. Adoption of Plan
This Vice President Bonus Plan (the "Plan") was adopted by
the Board of Directors of In Focus Systems, Inc. (the
"Company") effective January 26, 1998.
2. Purpose of Plan and Effective Date
The purpose of the Plan is to establish the terms and
conditions under which the Company will pay Vice President
bonuses for the calendar year beginning January 1, 1998, and
ending December 31, 1998.
Unless the Board of Directors specifically provides
otherwise, all Vice President bonuses will be awarded solely
in accordance with this Plan.
3. Eligibility
Eligibility is limited to all Vice Presidents of the
Company.
Eligible Vice Presidents must be in active pay status for an
entire quarter to be paid profit sharing for that quarter.
In the event that a Vice President is with the Company for
less than one year, a pro-rated bonus will be calculated
based on number of months employed. No annual bonus will be
paid if a Vice President joins the Company after October 1,
1998. Vice Presidents must be actively employed on the last
day of the year to be eligible for any annual bonus amount.
<PAGE>
4. Plan Components
(a) Profit Sharing
The first component of the bonus plan shall be the payment
of the profit sharing, paid quarterly. The percentage to be
paid (multiplied by the Vice President's quarterly salary)
shall be at the same rate as calculated for other employees
in accordance with the currently approved In Focus Systems
Profit Sharing Program. The payment to be made to the Vice
Presidents shall not reduce the amount to be paid to other
employees, i.e., shall not come from the profit-sharing pool
calculated for other employees.
(b) Annual Bonus
The second component of the bonus plan shall be an annual
bonus paid at year end based on: 1) the Company's 1998
financial performance (Profit Before Tax), and 2) the
performance of each Vice President against his/her
individual goals/objectives. This payout shall be
calculated as follows:
- The targeted bonus shall be 30 percent and shall be
calculated using the following formula:
Bonus = (.75P + .25G) (30%)
where:
-- P = Corporate PBT performance (vs. Operating Plan)
calculated by dividing actual 1998 Profit Before
Tax (PBT) plus income/loss from joint venture
activity by Operating Plan PBT plus planned
income/loss from joint venture activity.
-- G = Individual performance (vs. 1998 goals)
determined by the CEO, by comparing the individual
Vice President's performance against his/her major
1998 goals.
- Other limitations/constraints regarding calculation of
the bonus are as follows:
-- Profit Component of Bonus = 0 if P is less than
.75
-- Individual Goals Component of Bonus = 0 if G is
less than .75
<PAGE>
-- Maximum bonus component for individual performance
= 130%.
-- Maximum bonus component for PBT component = 200%.
-- If Profit is less than 75% of Plan but greater
than 49.99% of Plan, the Executive shall receive a
reduced bonus amount based on what the Individual
Performance component would have otherwise been.
The reduced amount shall be calculated by
multiplying the Individual Performance component
by the percentage of Profit actually achieved.
-- If Profit is less than 50%, no payouts will be
made from either component.
5. Payment of Vice President Bonus
Payment of the Vice President Bonus Plan will be based on
audited year-end results, and will be distributed within 30
days after the audit has been completed.
6. Discretion of the Board of Directors
Nothing in this Plan shall prohibit the Board of Directors
from awarding a bonus to one or more Vice Presidents in
addition to the Vice President Bonus awarded pursuant to
this Plan.
The Board of Directors reserves the right to modify, change
or rescind this policy at any time at its sole discretion as
is required to meet the Company's objectives.
Any annual bonus greater than $100,000 will require approval
of the Corporate Compensation Committee.
<PAGE>
EXHIBIT 10.24
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of April 30, 1997, by and between IN
FOCUS SYSTEMS, INC., a 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 June 30, 1999, 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 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.
<PAGE>
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.
(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 on execution 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 by 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 4159-626738 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.
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<PAGE>
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") 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 March 31, 1997, 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.
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
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<PAGE>
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, 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.
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<PAGE>
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to extend any credit contemplated by this 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.
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
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<PAGE>
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 an independent 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 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.
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<PAGE>
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 March 31, 1997:
(a) Liquidity Ratio not less than 2.0 to 1.0, as of each fiscal quarter
end, 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 $85,000,000.00, as of
each fiscal quarter end, with "Tangible Net Worth" defined as the 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
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<PAGE>
consecutive fiscal quarters) basis, determined as of each fiscal quarter end,
beginning with the four fiscal quarter period ending
September 30, 1997.
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 [, or any action, claim,
investigation, suit or proceeding pending or asserted by or before any
governmental authority, arbitrator, court or administrative agency challenging
or denying Borrower's qualification for tax treatment as if it were a
partnership for income tax purposes]; (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 substantial change in the nature of
Borrower's business as
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<PAGE>
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 in favor of
Bank or which is existing as of, 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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<PAGE>
(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 S.W. Parkway Avenue
Wilsonville, OR 97070
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Portland RCBO
1300 S.W. Fifth Avenue, T-13
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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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: By:
---------------------- -----------------------
David Goode
Title: Vice President
--------------------
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<PAGE>
EXHIBIT A
REVOLVING LINE OF CREDIT NOTE
$10,000,000.00 Portland, Oregon
April 30, 1997
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
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<PAGE>
making reference thereto, on the first day of a Fixed Rate Term 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
hundredths percent (0.65%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term; or (iii) at the SAF Rate
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<PAGE>
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 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
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<PAGE>
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
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.
20
<PAGE>
(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 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 September 30, 1997.
(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
21
<PAGE>
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 June 30, 1999.
(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) Chief Executive Officer or Chief Financial Officer or Director of Finance or
Treasury Manager, 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 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
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<PAGE>
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.
(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
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<PAGE>
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 April 30,
1997, 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.
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<PAGE>
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
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.
25
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
IN FOCUS SYSTEMS, INC.
By:
-----------------------
Title:
--------------------
26
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. In Focus Systems FSC, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent public accountants, we hereby consent to the incorporation of our
reports dated January 22, 1998, included in this Form 10-K into the Company's
previously filed registration Statements Nos. 33-82522 and 333-15235 on Form
S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon,
March 10, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
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