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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, 1998
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
27700B SW PARKWAY AVENUE, WILSONVILLE, OREGON 97070
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-685-8888
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 $145,369,067 as of February 26, 1999 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
26, 1999 was 22,279,403 shares.
-----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, dated March 19, 1999.
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IN FOCUS SYSTEMS, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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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 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures 23
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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. The Company's products utilize 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 Systems Asia Pte Ltd.
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.
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PROJECTION SYSTEMS
The Company has established product platforms intended to meet the diverse
projection requirements of its audience. These are Personal Projectors,
Conference Room Projectors, Fixed/Auditorium Projectors and Home Theater
Projectors. Personal Projectors are intended for the mobile presenter who places
a premium on less size and weight in projection solutions. Conference Room
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. Home Theater Projectors are
intended for home entertainment environments.
PERSONAL PROJECTORS:
LP420/425 The LP 420 is the first true personal projector. It features an
ultra-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 technology, true 800 x 600 SVGA resolution and Cable Wizard Lite
connectivity, and includes In Focus Presents software and intelligent
electronics for automatic synchronization, tracking, image positioning and video
source detection. The LP425 is the next generation personal projector; it
features 700 ANSI lumens.
LP400 The LP400, the successor to the LP425, is a value priced 700 ANSI lumen
ultra-portable personal projector weighing just 6.8 pounds. The LP400 combines
Texas Instruments' Digital Light Processing technology, true SVGA resolution and
Cable Wizard Lite connectivity, and includes In Focus Presents software and
intelligent electronics for automatic synchronization, tracking, image
positioning and video source detection.
LP425Z The LP425Z is a 7.4 pound version of the LP 425 with a zoom lens.
The LP425Z can deliver up to 900 ANSI lumens with true SVGA resolution.
LP435Z The LP 435Z is a 7.4 pound, ultra-high XGA resolution version of the
LP425 with a zoom lens. The LP435Z can deliver up to 1000 ANSI lumens.
CONFERENCE ROOM PROJECTORS:
LP225 The LP225 is a portable conference room multimedia projection system,
which provides 250 ANSI lumens and weighs 16 pounds. The LP225 combines an
amorphous, active matrix LCD's 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.
LP725 The LP725 is a portable conference room multimedia projection system,
which provides 750 ANSI lumens and weighs 12 pounds. The LP725 combines
advanced polysilicon active matrix LCD's with 800 x 600 SVGA resolution,
dichroic optics, full motion video, sound, Smart Remote, auto sensing, Cable
Wizard connectivity and includes In Focus Presents software and intelligent
electronics for automatic synchronization, tracking, image positioning and
video source detection.
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LP735 The LP735 is the next generation in portable conference room multimedia
projection systems which provides 650 ANSI lumens and weighs 12 pounds. The
LP735 combines advanced polysilicon active matrix LCD's with 1024 x 768 true
XGA resolution, dichroic optics, full motion video, sound, Smart Remote,
auto-sensing, Cable Wizard and includes In Focus Presents software and
intelligent electronics for automatic synchronization, tracking, image
positioning and video source detection.
LP750 The LP750, the successor to the LP735, is the latest breakthrough in
brightness and versatility in portable conference room multimedia projection
systems, providing 800 ANSI lumens and weighing 9.7 pounds. The LP750
combines advanced polysilicon active matrix LCDs with 1024 x 768 true XGA
resolution, dichroic optics, full motion video, sound, Smart Remote,
auto-sensing, Cable Wizard and includes In Focus Presents software and
intelligent electronics for automatic synchronization, tracking, image
positioning and video source detection.
LP740/740B The LP740B is the next generation true SXGA workstation projection
system targeting the CAD/CAM software trainer markets, which provides 1500
peak ANSI lumens and weighs 31 pounds. The LP740B combines state-of-the-art
reflective active matrix LCD's with true 1280 x 1024 resolution, dichroic
optics, three computer inputs, two video inputs, full motion video, sound,
auto-sensing and full function remote control.
FIXED/AUDITORIUM PROJECTORS:
LP1000 The LP1000 is an Ultra-bright, versatile solution for fixed
installation environments, which provides 1000 ANSI lumens and weighs 24
pounds. It features advanced polysilicon active matrix LCD's with true 1024 x
768 XGA resolution, dichroic optics, full motion video, sound, a choice of
three lenses, three computer inputs, three video inputs, 18 degree keystone
correction, In Focus Presents software and intelligent electronics for auto
synchronization, tracking, image positioning and video source detection.
LP1200 The LP1200 is a High-bright, versatile solution for collaborative
meeting environments, which provides 1200 ANSI lumens and weighs 20 pounds.
It features advanced polysilicon active matrix LCD's with true 1024 x 768 XGA
resolution, dichroic optics, full motion video, sound, three computer inputs,
three video inputs, 15 degree electronic keystone correction and intelligent
electronics for auto synchronization, tracking, image positioning and video
source detection.
HOME THEATER PROJECTOR:
LS700 The LS700 is the Company's first projector intended for home theater
use. The LS700 is a portable multimedia projection system, which provides 600
ANSI lumens and weighs 12 pounds. The LS700 combines advanced polysilicon
active matrix LCD's with 1024 x 768 true XGA resolution. Built-in video
processing circuitry from Faroudja Laboratories gives you rich and accurate
image quality, removing errors usuallly found in video signals.
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PRODUCT AND TECHNOLOGY DEVELOPMENT
The Company maintained its investment level in research and development in
1998 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 1999.
The Company expended approximately $12,895,000, $11,671,000 and $11,693,000
on research and development activities for the years ended December 31, 1998,
1997 and 1996, respectively. SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS CONTAINED IN ITEM 14.
MARKETING AND DISTRIBUTION
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. In Focus offers its products
to approximately 60 authorized audiovisual dealers and presentation
specialists as direct resellers. In addition, In Focus sells its brand name
products through wholesale distributors including; Ingram Micro, Tech Data,
Merisel, Pinacore and Access Graphics, who in turn sell to PC resellers,
online providers, catalogs and government resellers.
Internationally, In Focus sells its products to 130 international business
partners in more than 85 countries. These distributors sell the Company's
products to audiovisual dealers, PC resellers and in some cases, directly to
end-users. For the year ended December 31, 1998, international sales
represented approximately 42 percent of the Company's revenue. International
sales subsidiaries located in Singapore and The Netherlands 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,
Picturetel and Microfield Graphics Corporation, which resell the Company's
projectors under their own labels. APTi Corporation in Japan, markets the
Company's LP 400 series projectors under a co-branded APTi and In Focus brand
name. Additionally, in a joint marketing and development agreement, Faroudja,
Inc. resells co-developed enhanced-video projectors through their established
network of home theater dealers.
During 1998, the Company continued to develop and refine several sales and
marketing programs including; telesales and telemarketing, global account
management, cooperative marketing, and other online-based programs designed
to drive trial and purchase of In Focus projectors among end-users.
SERVICE
In Focus services include; customer support, hardware and software service,
training, accessories, replacement parts and remanufactured products. The
Service organization has facilities in Wilsonville, Oregon, Singapore and the
Netherlands. Hardware repair is conducted at the Company's headquarters in
Wilsonville and by authorized agents for the Company along with 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 two-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
worldwide have been trained by the Company to provide customer service
repair, technical support and training to their resellers and end-users.
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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. Specifically, the DMD light source is
produced in the Company's class 10,000 clean room, while other light sources
are subcontracted outside the Company. 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. One
customer accounted for 13.3 percent of revenue in the year ended December 31,
1998 and accounted for 8.2 percent of the accounts receivable balance at
December 31, 1998. Three additional customers each represented between 5.9
percent and 8.0 percent of accounts receivable at December 31, 1998.
BACKLOG
Because there are multiple competitive products for the Company's resellers
to choose from, the Company does not operate with a large backlog. Instead,
the Company's customers generally order products for immediate delivery and
the Company must respond to competitive prices and ship the product quickly
or risk losing the order. However, as a result of orders from customers on
credit hold and orders for newly introduced XGA products, backlog at December
31, 1998 was approximately $15.2 million. Backlog at December 31, 1997 and
1996 was approximately $14.9 million and $9.2 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 1999*.
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, image quality, portability and price.
The Company faces competition primarily from 30 to 40 manufacturers, 10 of
which make up approximately 90 percent of the products sold in the industry.
The Company expects
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continued competition as new technologies, applications and products are
introduced. Principal current competitors include ASK/Proxima Corporation,
Epson, Lightware, NEC, Sanyo, Sharp Corporation, Sony and Phillips.
PATENTS, TRADEMARKS AND LICENSES
The Company has been issued more than 40 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
that enable In Focus' display systems to be lighter, brighter, and more
compact, and to operate with better contrast, more efficient optical paths,
and increased ease of use features. Corresponding applications for selected
inventions are pending internationally through the Patent Cooperation Treaty
and at foreign Patent Offices.
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," "In Focus
Systems," "LitePro," "Instant Access Rental Program," "TSTN," "Overview,"
"PanelBook," "Presentation Plus" and "PC Viewer." In addition, In Focus
either holds or has registrations pending for its most important trademarks
in over 35 foreign countries.
EMPLOYEES
As of December 31, 1998, In Focus had 532 employees, including 62 temporary
personnel engaged through the services of an employment agency. In Focus
believes its relations with its employees are good.
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 2003.
ITEM 3. LEGAL PROCEEDINGS
As of February 26, 1999, 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.
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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, 1998.
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, 1998 were as follows:
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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
1998 High Low
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Quarter 1 $ 21.00 $ 9.00
Quarter 2 9.47 6.63
Quarter 3 7.00 3.63
Quarter 4 9.06 3.81
</TABLE>
The approximate number of beneficial shareholders and shareholders of record
at February 26, 1999 was 9,800 and 500, respectively.
There were no cash dividends declared or paid in 1998 or 1997. 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, 1998.
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ITEM 6. SELECTED FINANCIAL DATA
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IN THOUSANDS
(except per share amounts) 1998 1997 1996 1995 1994
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STATEMENT OF OPERATIONS DATA
Revenue $ 306,663 $ 315,761 $ 258,475 $ 202,821 $ 123,068
Cost of product sales 242,123 230,503 185,313 126,148 70,035
Gross profit 64,540 85,258 73,162 76,673 53,033
Operating expenses:
Marketing and sales 40,561 32,726 30,152 25,265 17,468
Engineering 20,153 18,222 18,545 11,882 5,572
General and administrative 7,226 7,852 7,535 6,585 6,189
Income (loss) from operations (3,400) 26,458 16,930 32,941 23,804
Other income (expense) 952 1,817 1,824 1,593 (4,769)
Income (loss) before income taxes (2,448) 28,275 18,754 34,534 19,035
Provision for (benefit from) income taxes (1,777) 8,225 5,622 11,842 8,627
Net income (loss) $ (671) $ 20,050 $ 13,132 $ 22,692 $ 10,408
Basic net income (loss) per share $ (0.03) $ 0.93 $ 0.60 $ 1.04 $ 0.47
Diluted net income (loss) per share $ (0.03) $ 0.90 $ 0.58 $ 0.99 $ 0.45
BALANCE SHEET DATA
Working capital $ 119,487 $ 112,402 $ 93,109 $ 81,414 $ 63,343
Total assets 171,931 189,908 138,250 127,303 102,210
Long-term debt, less current portion - - 738 - -
Shareholders' equity 135,601 133,029 107,960 97,527 86,168
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Revenue decreased to $306.7 million in 1998 from $315.8 million in 1997. The
Company's revenue in 1998 was derived almost entirely from products manufactured
in-house and approximately 70 percent of revenue in the fourth quarter was
derived from products that were introduced within the last six months. The
Company's revenues, and financial performance, were adversely affected in 1998
by strong price competition that was fueled by a weakened yen to the dollar.
Price decreases in the second half of 1998 returned to more historical levels of
5 to 10 percent rather than the accelerated rates experienced in the first half
of 1998, due in part to a strengthening of the yen to the dollar in the second
half of the year. SVGA products experienced greater pricing pressure than XGA
products due to a slight shift in demand from SVGA to XGA and a constrained
supply of XGA products. Except for ASK/Proxima, the Company's primary
competitors are Asian companies. The decrease in average selling prices was
partially offset by increases in units sold, with the number of units sold
during 1998 increasing 15.1 percent over 1997.
International revenue decreased to $127.6 million in 1998 (41.6 percent of total
revenue), including 7.8 percent from Asia Pacific countries, from $131.5 million
in 1997 (41.7 percent of total revenue), including 7.5 percent from Asia Pacific
countries. Sales to most Asia Pacific companies have been, and continue to be,
prepaid or guaranteed by letters of credit, thereby reducing receivables risk.
The Company has a marketing, sales and service subsidiary in Singapore.
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.
Because there are multiple competitive products for the Company's resellers to
choose from, the Company does not operate with a large backlog. Instead, the
Company's customers generally order products for immediate delivery and the
Company must respond to competitive prices and ship the product quickly or risk
losing the order. However, as a result of orders from customers on credit hold
and orders for newly introduced XGA products, backlog at December 31, 1998 was
approximately $15.2 million. Backlog at December 31, 1997 and 1996 was
approximately $14.9 million and $9.2 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 1999*. 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 21.0 percent in 1998 from
27.0 percent in 1997. The Company achieved gross margins of 22.4 percent in the
fourth quarter of 1998. The decline in gross margins in 1998 compared to 1997 is
primarily attributable to an aggressive competitive pricing environment and
accelerated price reductions to end of life the LP420, LP720 and LP730, offset
in part by a shift in mix in 1998 to higher margin products that incorporate
engines designed and manufactured by the Company. The
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Company expects the competitive pricing environment will continue for the
foreseeable future.* Accordingly, the Company is continuing its ongoing
efforts to reduce manufacturing costs by working closely with its suppliers
to reduce direct material costs and designing products with extensible
platforms that use new and lower cost technologies. In addition, the Company
continues to focus on adding value to projectors that use its own engine
designs in order to become less reliant on more expensive out-sourced engines.
Marketing and sales expense increased to $40.6 million (13.2 percent of revenue)
in 1998 from $32.7 million (10.4 percent of revenue) in 1997. The increase is
primarily a result of expenditures in the first quarter of 1998 to build demand
for the LP420 in two-tier wholesale distribution, work force reduction charges
in the first half of 1998 and the addition of sales and service infrastructure
around the world, particularly in Europe and Asia, partially offset by lower
head count in the third and fourth quarters of 1998 as a result of the work
force reduction and other efforts to bring spending in line with current revenue
and margin levels.
Engineering expenses increased to $20.2 million (6.6 percent of revenue) in 1998
from $18.2 million (5.8 percent of revenue) in 1997. This increase is primarily
a result of timing for new product releases under development as well as costs
related to work force reduction in the first half of 1998 in order to create a
more efficient organization, partially offset by lower head count in the third
and fourth quarters of 1998 as a result of the work force reduction.
General and administrative expenses decreased to $7.2 million (2.4 percent of
revenue) in 1998 from $7.9 million (2.5 percent of revenue) in 1997. The 1998
amount includes work force reduction charges taken during the first half of
1998. The third and fourth quarters of 1998 realized efficiencies with lower
head count as a result of the work force reduction and other efforts to bring
spending in line with current revenue and margin levels.
Loss from operations was $3.4 million in 1998 compared to income from operations
of $26.5 million (8.4 percent of revenue) in 1997. The decrease is primarily a
result of flat sales, decreased margins and higher operating expenses as a
percentage of revenue.
The Company's effective tax rate was a benefit of approximately 72.6 percent in
1998, compared to a provision of approximately 29.1 percent in 1997. The
increase in the rate is due to the Company's loss position and the magnitude of
the research and development tax credit and certain other permanent tax benefits
related to the amount of the loss.
The Company believes that the impact of inflation on net income was minimal in
1998 and 1997.
1997 COMPARED TO 1996
Revenue increased to $315.8 million in 1997 from $258.5 million in 1996. The 22
percent growth in revenue was primarily a result of strong demand for the
Company's SVGA products, including its LitePro 720, 220 and the 420, which were
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).
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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) 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. 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.
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 was 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 was
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 was
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 was 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.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $119.5 million, which
included $26.8 million of cash and cash equivalents and $11.8 million of
marketable securities. The $10.1 million decrease in the combined cash and
marketable securities balance is primarily due to $4.8 million used in
operations and $7.9 million used for purchases of property and equipment, offset
by $2.2 million provided by the sale of common stock through the exercise of
employee stock options and $1.1 million provided by the income tax benefit of
nonqualified stock option exercises and disqualifying dispositions. The current
ratio at December 31, 1998 and 1997 was 4.3:1 and 3.0:1, respectively.
Accounts receivable decreased $9.1 million to $78.7 million at December 31, 1998
compared to $87.8 million at December 31, 1997, primarily as a result of greater
sales at the end of 1997 compared to the end of 1998. The Company's day's sales
outstanding ("DSO") decreased to 80 days at December 31, 1998 compared to 81
days at December 31, 1997. At December 31, 1998, 70.3 percent of the Company's
accounts receivable were current, 14.7 percent were 30 days or less past due and
15.0 percent were beyond 30 days past due. Of the beyond 30 days past due, one
customer, which is currently in bankruptcy proceedings, represents $1.2 million,
or 1.4 percent of total accounts receivable. The Company believes it is
adequately reserved for this and other potential bad debts.*
Inventories decreased $0.8 million to $31.3 million at December 31, 1998 from
$32.1 million at December 31, 1997. Annualized inventory turns were
approximately 8.5 times in the fourth quarter of 1998 compared to approximately
10.4 times in the fourth quarter of 1997.
Accounts payable decreased $20.1 million to $27.7 million at December 31, 1998
from $47.8 million at December 31, 1997, primarily due to lower raw material and
parts supplies at December 31, 1998 compared to 1997 and the timing of payments
made.
The $7.9 million of purchases of property, plant and equipment in 1998 were
primarily for new product tooling, engineering design and test equipment and
information systems infrastructure. Expenditures for property and equipment in
1999 are expected to be approximately $8.2 million, primarily for new product
tooling, engineering equipment 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, 1998 was 5.06 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, 1998 the Company had no outstanding balance under the line of credit. At
December 31, 1998, the Company was out of compliance with a covenant requiring
the Company to have profit before taxes on a rolling four quarter basis. The
Company received a waiver of this covenant as of December 31, 1998.
Shareholders' equity increased $2.6 million as a result of the tax benefit of
disqualifying dispositions and non-qualified stock option exercises of $1.1
million and employee stock option exercises of $2.2 million, offset by a net
loss of $0.7 million.
14
<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*.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
During the first half of 1998, the Company made organizational changes that
included the sale of the Company's slides and transparency imaging and projector
rental business (formerly provided by the Genigraphics business unit) and
several other cost containment measures. These actions resulted in the Company
laying off 18 percent of its workforce, thereby reducing annual compensation by
approximately $4.8 million.
YEAR 2000
PRODUCTS
The Company has determined that all past and current products ("Products"),
including LitePro and LP projectors, PanelBook, PowerView, SmartView and PC
Viewer projection panels, and LiteShow II and LiteShow Pro presentation players,
are Year 2000-compliant. However, with respect to the LiteShow Pro presentation
player, the Company does not make any representation as to Microsoft Windows
software installed thereon. In the fourth quarter of 1998 the Company made
additional modifications to its systems based upon new recommendations provided
by the Company's technology vendors.
INFORMATION SYSTEMS
The Company utilizes a packaged application strategy for all critical
information systems functions. By the third quarter of 1998 all enterprise
information system components were current with all Year 2000 updates and
changes required by the manufacturers. This includes enterprise software,
operating systems, networking components, application and data servers, PC
hardware, and core office automation software.
Various component tests have been conducted to verify full Year 2000 operational
compliance. This process has uncovered additional year 2000 issues that are
being worked jointly with the Company's technology vendors. Additionally, the
Company's vendors are revising their updates and recommendations as other
companies report issues to them. We expect this process to be ongoing as more
companies conduct their testing and provide feedback to the technology vendors.
In addition to the information system component testing, the Company will
conduct a system wide test, to include all components from the desktop to the
data center, to ensure that all of the compliant components can function
properly as a whole. This full integration test will be conducted within the
next two quarters. The focus of these tests will be to ensure that the Company's
business processes run end-to-end with no Year 2000 errors or issues.
The Company's packaged application strategy has allowed it to keep its
technology on maintenance contracts with its suppliers. Year 2000 upgrades to
these technologies are covered under the maintenance contracts and represent no
additional spending. Application upgrade and technology retirement intervals are
not accelerated as a result of the Year 2000 issue. The packaged application
strategy, maintenance contracts, upgrade and technology retirement intervals
have been in place for the past four years. At this time the Company foresees no
material incremental spending for the Year 2000 issue*.
15
<PAGE>
Like all US businesses, the Company will be at risk from external
infrastructure failures that could arise from Year 2000 failures. It is not
clear that electrical power, telephone and computer networks, for example,
will be fully functional across the nation in the Year 2000. Investigation
and assessment of infrastructures, like the nations power grid, is beyond the
scope and resources of the Company. Investors should use their own awareness
of the issues in the nations' infrastructure to make ongoing infrastructure
risk assessments and their potential impact to a company's performance.
SUPPLIER BASE
The Company has begun a year 2000 supplier audit program. It has contacted all
of its critical suppliers to inform them of the Company's year 2000
expectations, and a request has been made for each vendor's compliance program.
The supplier audit program is in its early stages and does not have a return
rate useful for projecting overall Company impact from its supplier base at this
time.
It should be noted that there have been predictions of failures of key
components in the transportation infrastructure due to the year 2000 problem. It
is possible that there could be delays in rail, over-the-road and air shipments
due to failure in transportation control systems. Investigation and validation
of the world's transportation infrastructure is beyond the scope and the
resources of the Company. Investors should use their own awareness of the issues
in the transportation infrastructure to make ongoing infrastructure risk
assessments and their potential impact to a company's performance.
The Company has not yet developed any contingency plans in regard to its
internal systems, supplier issues or any of the more global infrastructure
issues. The Company is developing a contingency plan that will be completed upon
receiving confirmations from its critical suppliers and customers.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for all derivative
instruments. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company does not have any derivative instruments and, accordingly, the
adoption of SFAS 133 will have no impact on the Company's financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No disclosure is required under this item.
16
<PAGE>
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.
Unaudited quarterly financial data for each of the eight quarters in the
two-year period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
1998
- ----
Revenue $70,474 $72,346 $75,308 $88,535
Gross profit 14,106 14,949 15,662 19,823
Net income (loss) (3,396) (1,204) 1,708 2,221
Basic net income (loss) per share (0.15) (0.05) 0.08 0.10
Diluted net income (loss) per share (0.15) (0.05) 0.08 0.10
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<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 1999 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 1999 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 1999 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
18
<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 - December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended December 31, 1998,1997
and 1996 F-3
Consolidated Statements of Shareholders' Equity - December 31, 1998, 1997 and 1996
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996 F-5
Notes to Consolidated Financial Statements F-6
The following schedule and report thereon is filed herewith:
Page
----
Report of Independent Public Accountants on Financial Statement Schedule
F-16
Schedule II Valuation and Qualifying Accounts F-17
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1998.
</TABLE>
19
<PAGE>
EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
3.1 1990 Restated Articles of Incorporation, as Amended -
Incorporated by reference to Exhibit 3 to Form 10-Q for the
quarter ended March 31, 1998 and filed with the Securities and
Exchange Commission on May 12, 1998.
3.2 1997 Restated Bylaws - 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 In Focus Systems, Inc. 1998 Stock Incentive Plan - Incorporated
by reference to Exhibit 10 to Form 10-Q for the quarter ended
March 31, 1998 and filed with the Securities and Exchange
Commission on May 12, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
10.8 Form of Incentive Stock Option Agreement
10.9 Form of Non-Qualified Stock Option Agreement
10.10 Form of Restricted Stock Agreement
10.11 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. 333-15235) as
filed with the Securities and Exchange Commission on January 26,
1993.
10.12 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.
10.13 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.
10.14 Amendment No. 3 to the In Focus Systems, Inc. Directors' Stock
Option Plan
10.15 Amendment No. 4 to the In Focus Systems, Inc. Directors' Stock
Option Plan
10.16 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. 333-15235) as filed
with the Securities and Exchange Commission on January 26, 1993.
10.17 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.
10.18 1999 Executive Bonus Plan - Chief Executive Officer and Chairman
of the Board.
10.19 1999 Executive Bonus Plan - Sr. Vice President
10.20 1999 Executive Bonus Plan - Vice President.
10.21 Commercial Lease Agreement for Registrant's facilities in
Wilsonville, Oregon, dated January 1999, by and between Mentor
Graphics Corporation and In Focus Systems, Inc.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
10.22 Credit Agreement by and between In Focus Systems, Inc. and Wells
Fargo Bank, National Association, dated April 30, 1997 -
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 10, 1998.
10.23 Shareholder Rights Plan - 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.
10.24 Amendment No. 1 to Shareholder Rights Plan
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial data schedule
</TABLE>
22
<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 19, 1999 IN FOCUS SYSTEMS, INC.
By /s/ John V. Harker
-----------------------------
John V. Harker
Chairman of the Board, President,
Chief Executive Officer and Chief Financial 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 19, 1999:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ John V. Harker Chairman of the Board, President,
- ------------------ Chief Executive Officer and Chief Financial Officer
John V. Harker (Principal Executive Officer and
Principal Financial and Accounting Officer)
/s/ Peter D. Behrendt Director
- ---------------------
Peter D. Behrendt
/s/ Michael R. Hallman Director
- ----------------------
Michael R. Hallman
/s/ Nobuo Mii Director
- -------------
Nobuo Mii
</TABLE>
23
<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, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Portland, Oregon, ARTHUR ANDERSEN LLP
January 19, 1999
F-1
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,786 $ 37,950
Marketable securities - held to maturity 11,805 7,220
Accounts receivable, net of allowances of
$7,094 and $4,835 78,698 87,845
Inventories, net 31,279 32,120
Income taxes receivable 1,125 310
Deferred income taxes 2,531 1,247
Other current assets 3,593 2,589
----------------- -----------------
Total Current Assets 155,817 169,281
Marketable securities - held to maturity - 3,500
Property and equipment, net of accumulated
depreciation of $30,444 and $21,769 13,056 15,507
Deferred income taxes 1,352 516
Other assets, net 1,706 1,104
----------------- -----------------
Total Assets $ 171,931 $ 189,908
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 27,657 $ 47,818
Payroll and related benefits payable 2,179 3,493
Accrued warranty 2,161 1,711
Other current liabilities 4,333 3,857
----------------- -----------------
Total Current Liabilities 36,330 56,879
Shareholders' Equity:
Common stock, 50,000,000 shares authorized;
shares issued and outstanding: 22,218,729
and 21,931,728 53,895 51,733
Additional paid-in capital 12,359 11,278
Retained earnings 69,347 70,018
----------------- -----------------
Total Shareholders' Equity 135,601 133,029
----------------- -----------------
Total Liabilities and Shareholders' Equity $ 171,931 $ 189,908
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue $ 306,663 $ 315,761 $ 258,475
Cost of sales 242,123 230,503 185,313
--------------- --------------- ---------------
Gross profit 64,540 85,258 73,162
Operating expenses:
Marketing and sales 40,561 32,726 30,152
Engineering 20,153 18,222 18,545
General and administrative 7,226 7,852 7,535
--------------- --------------- ---------------
67,940 58,800 56,232
--------------- --------------- ---------------
Income (loss) from operations (3,400) 26,458 16,930
Other income (expense):
Interest expense (82) (79) (45)
Interest income 1,280 2,025 1,597
Other, net (246) (129) 272
--------------- --------------- ---------------
952 1,817 1,824
--------------- --------------- ---------------
Income (loss) before income taxes (2,448) 28,275 18,754
Provision for (benefit from) income taxes (1,777) 8,225 5,622
--------------- --------------- ---------------
Net income (loss) $ (671) $ 20,050 $ 13,132
--------------- --------------- ---------------
--------------- --------------- ---------------
Basic net income (loss) per share $ (0.03) $ 0.93 $ 0.60
--------------- --------------- ---------------
--------------- --------------- ---------------
Diluted net income (loss) per share $ (0.03) $ 0.90 $ 0.58
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per 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, 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
Exercise of Common Stock Options 287,001 2,162 - - 2,162
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,081 - 1,081
Net loss - - - (671) (671)
---------------- ------------- ----------- ----------- -------------
Balance at December 31, 1998 22,218,729 $ 53,895 $ 12,359 $ 69,347 $ 135,601
---------------- ------------- ----------- ----------- -------------
---------------- ------------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE>
IN FOCUS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (671) $ 20,050 $ 13,132
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation and amortization 9,865 8,190 6,235
Deferred income taxes (2,120) 899 (1,579)
Other non-cash expenses 144 257 49
(Increase) decrease in:
Accounts receivable, net 8,870 (32,556) (5,926)
Inventories, net 828 (9,405) (11,948)
Income taxes receivable (815) 995 (3,433)
Other current assets (378) (1,043) 621
Increase (decrease) in:
Accounts payable (20,161) 25,608 734
Payroll and related benefits payable (1,314) 1,211 206
Accrued warranty and other current liabilities 926 981 1,032
-------------- ---------------- --------------
Net cash provided by (used in) operating activities (4,826) 15,187 (877)
Cash flows from investing activities:
Restricted cash - - 1,000
Purchase of marketable securities-held to maturity (12,107) (11,018) (10,742)
Maturities of marketable securities-held to maturity 11,022 4,561 25,098
Payments for purchase of property and equipment (7,935) (8,981) (7,988)
Cash received from sale of Genigraphics 208 - -
Other assets, net (769) 198 146
-------------- ---------------- --------------
Net cash provided by (used in) investing activities (9,581) (15,240) 7,514
Cash flows from financing activities:
Payments under note payable - (951) (168)
Proceeds from sale of common stock 2,162 3,821 3,731
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 1,081 1,198 2,353
Stock repurchase - - (8,783)
-------------- ---------------- --------------
Net cash provided by (used in) financing activities 3,243 4,068 (2,867)
-------------- ---------------- --------------
Increase (decrease) in cash and cash equivalents (11,164) 4,015 3,770
Cash and cash equivalents:
Beginning of period 37,950 33,935 30,165
-------------- ---------------- --------------
End of period $ 26,786 $ 37,950 $ 33,935
-------------- ---------------- --------------
-------------- ---------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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 Systems Asia Pte Ltd formed July 1,
1998. 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.
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.
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 price
adjustments. 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.
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, Digital Micromirror Devices(TM)
("DMDs") and plastic
F-6
<PAGE>
housing parts, are purchased from single or limited sources. 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.
The Company sells its products to a large number of customers worldwide.
However, during 1998, one customer represented 13.3 percent of total revenues
and at December 31, 1998, this customer represented 8.2 percent of the accounts
receivable balance. At December 31, 1998, three additional customers each
represented between 5.9 percent and 8.0 percent of total accounts receivable and
at December 31, 1997, four customers each represented between 5.0 percent and
10.1 percent of total accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains a reserve for potential credit
losses.
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 $12,895, $11,671
and $11,693 for the years ended December 31, 1998, 1997 and 1996, respectively.
ADVERTISING COSTS
Advertising costs, which are included in sales and marketing expenses, are
expensed as incurred. Advertising expense was approximately $5,839, $5,593 and
$5,245 in 1998, 1997 and 1996, 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, 1998 1997 1996
- ----------------------------- ----------------------------- ----------------------------- ---------------------------
Per Share Per Share Per Share
BASIC EPS Loss Shares Amount Income Shares Amount Income Shares Amount
----------------------------- ----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common Shareholders $ (671) 22,170 $ (0.03) $ 20,050 21,653 $ 0.93 $ 13,132 21,724 $ 0.60
--------- --------- ---------
--------- --------- ---------
EFFECT OF DILUTIVE SECURITIES
Stock Options - - - 696 - 836
------------------- ------------------- -----------------
DILUTED EPS
Income (loss) available to
Common Shareholders $ (671) 22,170 $ (0.03) $ 20,050 22,349 $ 0.90 $ 13,132 22,560 $ 0.58
--------- --------- ---------
--------- --------- ---------
</TABLE>
2,022, 300 and 276 shares issuable pursuant to stock options have not been
included in the above calculations for 1998, 1997 and 1996, respectively, since
they would have been antidilutive.
PATENTS AND TRADEMARKS
Costs associated with obtaining patents and trademarks are capitalized in other
assets and amortized over the estimated life of the associated patent or
trademark.
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS
131), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION for
the year ended December 31, 1998. Based upon definitions contained within SFAS
131, the Company has determined that it operates in one segment.
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>
Held to Maturity December 31, 1998 December 31, 1997
- ------------------------------------------ -------------------------- --------------------------
<S> <C> <C>
Fair Market Value $ 11,885 $ 10,850
-------------------------- --------------------------
-------------------------- --------------------------
Amortized Cost:
State and Local Government 11,805 10,720
-------------------------- --------------------------
Total $ 11,805 $ 10,720
-------------------------- --------------------------
-------------------------- --------------------------
Maturity Information:
Less than one year 11,805 7,220
One to five years - 3,500
-------------------------- --------------------------
Total $ 11,805 $ 10,720
-------------------------- --------------------------
-------------------------- --------------------------
</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 $1,057, $1,198 and
$2,353 were credited to paid-in capital in 1998, 1997 and 1996, respectively.
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- --------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
FEDERAL:
Current $ 230 $ 6,630 $ 6,462
Deferred (1,975) 839 (1,306)
------------- ------------- --------------
(1,745) 7,469 5,156
STATE:
Current 113 696 739
Deferred (145) 60 (273)
------------- ------------- --------------
(32) 756 466
------------- ------------- --------------
Total $ (1,777) $ 8,225 $ 5,622
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Total deferred income tax assets at December 31, 1998 and 1997 were $7,992 and
$5,465, respectively. Total deferred income tax liabilities at December 31, 1998
and 1997 were $4,109 and $3,702, respectively. Individually significant
temporary differences at December 31, 1998 include accounts receivable reserves
and book/tax depreciation differences, which were recorded as deferred assets of
$701 and $1,531, respectively. Individually significant temporary differences at
December 31, 1997 included accounts receivable reserves, which were recorded as
deferred assets of $1,700. 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, 1998 1997 1996
- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0)% 35.0% 35.0%
State taxes, net of federal income taxes (1.3) 1.7 3.5
Research and development tax credit (26.3) (2.7) (1.6)
Foreign sales corporation tax benefit (10.0) (3.1) (3.1)
Tax exempt interest (13.4) (1.7) (2.4)
Meals and entertainment 4.5 0.3 0.4
Other 7.9 (0.4) (1.8)
----------- ----------- -----------
Effective tax rate (72.6)% 29.1% 30.0%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-9
<PAGE>
4. INVENTORIES:
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------- -------------- ---------------
<S> <C> <C>
Raw materials and components $ 6,118 $ 11,774
Work-in-process 1,649 2,240
Finished goods 23,512 18,106
-------------- ---------------
$ 31,279 $ 32,120
-------------- ---------------
-------------- ---------------
</TABLE>
5. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31, 1998 1997
- --------------------------------------------- --------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 3,728 $ 3,160
Manufacturing equipment 16,260 12,797
Engineering equipment 1,864 1,663
Computer equipment 19,697 18,244
Leasehold improvements 1,951 1,412
--------------- ---------------
43,500 37,276
Less accumulated depreciation (30,444) (21,769)
--------------- ---------------
$ 13,056 $ 15,507
--------------- ---------------
--------------- ---------------
</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, 1998 was 5.06 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, 1998 there was no balance outstanding under this line of credit. At December
31, 1998, the Company was out of compliance with a covenant requiring the
Company to have profit before taxes on a rolling four quarter basis. The Company
received a waiver of this covenant as of December 31, 1998.
F-10
<PAGE>
7. LEASE OBLIGATIONS:
The Company leases its primary facility and certain improvements under a
noncancelable operating lease, which expires in December 2003 as to
approximately 150 square feet and December 1999 as to approximately 30 square
feet. The lease has two, one year renewal options in regard to the 30 square
feet.
Future minimum lease payments under the noncancelable operating leases as of
December 31, 1998 are as follows (there were no capital leases at December 31,
1998):
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 2,600
2000 2,033
2001 2,033
2002 2,161
2003 2,161
Thereafter 912
-------------
Total minimum lease payments $ 11,900
-------------
-------------
</TABLE>
Rental expense for the years ended December 31, 1998, 1997 and 1996 was $2,500,
$2,305 and $2,268, respectively.
8. SHAREHOLDERS' EQUITY:
GENERAL
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 $8,783,
which was paid out of existing cash balances.
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.
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.
F-11
<PAGE>
STOCK OPTION PLANS
The Company's 1988 Combination Stock Option Plan, as amended (the "1988 Plan")
expired in December 1998. The Company's 1998 Stock Incentive Plan (the "1998
Plan", together with the 1988 Plan, the "Plans"), covering 1,500 shares of the
Company's Common Stock, was approved by the Shareholders in April 1998. The 1998
Plan provides for the issuance of incentive stock options to employees of the
Company and restricted stock and nonstatutory stock options to employees,
officers, directors and consultants of the Company. At December 31, 1998, the
Company had 4,821 shares of Common Stock reserved for issuance under the Plans.
Under the Plans, the exercise price of incentive and nonstatutory stock options
cannot be less than the fair market value of the Company's Common Stock at the
date of grant. Options granted generally vest over a four-year period and expire
ten years from the date of grant.
Activity under the Plans is summarized as follows:
<TABLE>
<CAPTION>
Shares
Available for Shares Subject to Weighted Average
Grant Options Exercise Price
---------------- ------------------- ---------------------
<S> <C> <C> <C>
Balances, December 31, 1995 896 2,792 $ 9.76
Additional shares reserved 1,000 - -
Options granted (2,104) 2,104 12.13
Options canceled 1,379 (1,379) 15.83
Options exercised - (536) 6.96
---------------- ------------------- ---------------------
Balances, December 31, 1996 1,171 2,981 9.14
Options granted (1,213) 1,213 12.21
Options canceled 555 (555) 9.97
Options exercised - (504) 7.05
---------------- ------------------- ---------------------
Balances, December 31, 1997 513 3,135 10.51
Additional shares reserved 1,500 - -
Restricted share grants (51) - -
Restricted share cancellations 6 - -
Options granted (2,366) 2,366 7.54
Options canceled 1,752 (1,752) 12.01
Options exercised - (275) 7.61
Shares expired (7) - -
---------------- ------------------- ---------------------
---------------- ------------------- ---------------------
Balances, December 31, 1998 1,347 3,474 $7.60
---------------- ------------------- ---------------------
---------------- ------------------- ---------------------
</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 provided 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.
The Directors' Plan was amended in the first quarter of 1999 to eliminate the
quarterly grant and to change the date of the annual grant to the date that the
Eligible Director is re-elected to the Board. The Eligible Directors will
receive cash payments in lieu of the quarterly stock option awards. All Eligible
Director options vest six months after the date of grant.
At December 31, 1998 the Company has reserved 347 shares of Common Stock for
issuance under the Directors' Plan. Activity under the Directors' Plan is as
follows:
<TABLE>
<CAPTION>
Shares Shares Subject to Weighted Average
Available for Options Exercise Price
Grant
---------------- ------------------- ---------------------
<S> <C> <C> <C>
Balances, December 31, 1995 291 108 $ 10.06
Options granted (70) 70 10.76
---------------- ------------------- ---------------------
Balances, December 31, 1996 221 178 10.34
Options granted (78) 78 11.86
Options canceled 22 (22) 11.01
Options exercised - (40) 6.36
---------------- ------------------- ---------------------
Balances, December 31, 1997 165 194 11.72
Options granted (45) 45 8.33
Options canceled 54 (54) 13.62
Options exercised - (12) 5.73
---------------- ------------------- ---------------------
---------------- ------------------- ---------------------
Balances, December 31, 1998 174 173 $ 10.66
---------------- ------------------- ---------------------
---------------- ------------------- ---------------------
</TABLE>
F-13
<PAGE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
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 restricted stock awards and options granted during 1998, 1997
and 1996 using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following weighted average assumptions:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998 1997 1996
- --------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Risk-free interest rate 5.50% 6.25% 6.00%
Expected dividend yield 0.00% 0.00% 0.00%
Expected lives (years) 5 5 5
Expected volatility 75.0% 73.1% 74.7%
</TABLE>
Using the Black-Scholes methodology, the total value of stock awards and options
granted during 1998, 1997 and 1996 was $12,991, $10,030 and $14,048,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically four years under the Plans and six months under
the Directors' Plan). The weighted average fair value of stock awards and
options granted during 1998, 1997 and 1996 was $5.28 per share, $7.77 per share
and $6.46 per share, respectively. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's net
income (loss) and net income (loss) per share would approximate the pro forma
disclosures below:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998 1997 1996
- ----------------------------------------------------- ------------------------- ----------------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
------------ ---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (671) $(6,578) $ 20,050 $ 15,514 $ 13,132 $ 9,225
Net income (loss) per
share - basic $(0.03) $ (0.30) $ 0.93 $ 0.72 $ 0.60 $ 0.42
Net income (loss) per
share - diluted $(0.03) $ (0.30) $ 0.90 $ 0.72 $ 0.58 $ 0.42
</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.
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Number of Weighted
Range of Exercise Number Remaining Average Shares Average
Prices Outstanding at Contractual Exercise Exercisable Exercise
12/31/98 Life (years) Price at 12/31/98 Price
- ------------------- ---------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$3.75-4.31 1,180 9.8 $ 4.31 1 $ 4.31
4.50-7.75 740 9.0 6.46 101 6.46
7.81-11.85 1,007 7.4 8.79 537 8.91
12.00-15.22 577 8.3 14.59 185 13.48
15.57-18.63 143 7.2 16.79 112 16.81
- ------------------- ---------------- ---------------- -------------- --------------- --------------
$ 3.75-18.63 3,647 8.6 $ 8.00 936 $ 10.50
- ------------------- ---------------- ---------------- -------------- --------------- --------------
- ------------------- ---------------- ---------------- -------------- --------------- --------------
</TABLE>
At December 31, 1997 and 1996, 1,018 and 976 options, respectively, were
exercisable at weighted average exercise prices of $9.69 per share and $8.72 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, 1998 1997 1996
- ----------------------------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Cash paid during the period for interest $ 82 $ 78 $ 39
Cash paid during the period for income taxes 450 5,361 8,861
Note receivable in relation to sale of Genigraphics 630 - -
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, 1998 1997 1996
- ---------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
United States $ 179,052 $ 184,215 $ 152,285
Europe 78,882 73,761 66,045
Asia Pacific 23,907 23,717 19,777
Other 24,822 34,068 20,368
---------------- ---------------- --------------
$ 306,663 $ 315,761 $ 258,475
---------------- ---------------- --------------
---------------- ---------------- --------------
</TABLE>
Long-lived assets, other than in the United States, are not material.
One customer accounted for 13.3 percent of revenue in the year ended December
31, 1998 and no customers accounted for greater than 10 percent of revenue
during the years ended December 31, 1997 or 1996.
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 1998
Annual Report on Form 10-K, and have issued our report thereon dated January 20,
1999. 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 19, 1999 ARTHUR ANDERSEN LLP
F-16
<PAGE>
SCHEDULE II
IN FOCUS SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(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>
Year Ended December 31, 1996:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,184 $ 1,040 $ - $ (277) $ 1,947
Sales allowances $ 905 $ 15,234 $ - $ (14,029) $ 2,110
Year Ended December 31, 1997:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,947 $ 27 $ - $ (367) $ 1,607
Sales allowances $ 2,110 $ 19,235 $ - $ (18,117) $ 3,228
Year Ended December 31, 1998:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 1,607 $ 1,175 $ - $ (138) $ 2,644
Sales allowances $ 3,228 $ 32,864 $ - $ (31,642) $ 4,450
</TABLE>
(a) Charges to the accounts included in this column are for the purposes for
which the reserves were created.
F-17
<PAGE>
EXHIBIT 10.8
IN FOCUS SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
In Focus Systems, Inc., an Oregon corporation (the "Corporation"),
through its Board of Directors or a Committee thereof (the "Plan
Administrator"), has granted to ____________ ("Optionee") an option (the
"Option") to purchase ____________ shares of the Corporation's Common Stock (the
"Option Shares") at a price of $__________ per share (the "Option Price"). The
Option has been granted to Optionee on __________, __________ (the "Grant
Date"), pursuant to the In Focus Systems 1998 Stock Incentive Plan (the "Plan").
1. NATURE OF THE OPTION
1.1 The Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
1.2 Except as expressly provided herein, the Option is subject
to the terms, definitions and provisions of the Plan, as it may be amended from
time to time. The terms defined in the Plan have the same meaning in this
Agreement.
2. DATE EXERCISABLE; VESTING.
2.1 Subject to the restrictions and conditions set forth in the
Plan, the Option shall become exercisable by Optionee as follows:
2.1.1 The Option shall become exercisable as to
twenty-five percent (25%) of the total number of Option Shares at the end of the
twelve (12) month period of Optionee's continuous employment with the
Corporation following the Grant Date.
2.1.2 The Option shall thereafter become exercisable as
to twenty-five percent (25%) of the total number of Option Shares at the end of
each subsequent twelve (12) month period of Optionee's continuous employment
with the Corporation.
2.1.3 The right to purchase any installment of the
Option Shares shall be cumulative, so that when the right to purchase any Option
Shares has accrued, such Option Shares may be purchased at any time or from time
to time thereafter prior to the Expiration Date, subject to the limitations of
Sections 3 and 4 herein.
2.2 In the event Optionee for any reason ceases to be an
employee of the Corporation, whether by dismissal, resignation, death,
disability or otherwise, the Option shall be exercisable thereafter only to the
extent Optionee was entitled to exercise it at the date of termination of
employment.
Page 1 - INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
2.3 The Option may become immediately exercisable for the full
number of Option Shares in the event of a reorganization as defined in the Plan.
3. EXERCISE OF OPTION.
3.1 MANNER OF EXERCISE. The Option may be exercised in whole or
in part by delivery to the Corporation, from time to time, of written notice,
signed by Optionee, specifying the number of Option Shares that Optionee then
desires to purchase, together with cash or check payable to the order of the
Corporation, or other form of payment acceptable to the Plan Administrator, for
an amount of United States dollars equal to the Option Price of such Option
Shares. The total number of dates on which Optionee exercises this Option, or
any other option granted by the Corporation to Optionee, shall not exceed four
(4) in any twelve (12) month period.
3.2 STOCK CERTIFICATES. As soon as practicable after any
exercise in whole or in part of the Option by Optionee, the Corporation shall
deliver to Optionee or, at Optionee's request, Optionee's designated broker, a
certificate or certificates for the number of shares of Stock with respect to
which the Option was so exercised, registered in Optionee's name.
4. DURATION OF OPTION. The Option, to the extent not previously
exercised, shall terminate upon the earliest of the following dates:
4.1 The date (10) years from the Grant Date (the "Expiration
Date");
4.2 Three (3) months after the date of Optionee's termination of
employment with the Corporation, in the event such termination is for any reason
other than Optionee's total disability (as defined in the Plan) or death;
4.3 One year after Optionee's termination of employment, if such
termination is by reason of Optionee's total disability (as defined in the Plan)
or death;
4.4 The date of any sale, transfer or hypothecation, or any
attempted sale, transfer or hypothecation, of such Option in violation of
Section 5;
4.5 Upon the occurrence of any Terminating Event (as defined in
the Plan); or
4.6 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.
Page 2 - INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
5. NONTRANSFERABILITY.
5.1 RESTRICTION. The Option is not transferable by Optionee
otherwise than by testamentary will, the laws of descent and distribution, or
qualified domestic relations order (as defined in the Plan) and, during
Optionee's lifetime, may be exercised only by Optionee or Optionee's guardian or
legal representative or the transferee pursuant to a qualified domestic
relations order. No assignment or transfer of the Option, whether voluntary,
involuntary, or by operation of law or otherwise, except by testamentary will,
the laws of descent and distribution, or qualified domestic relations order,
shall vest in the assignee or transferee any interest or right, but immediately
upon any attempt to assign or transfer the Option, the Option shall terminate
and be of no further force or effect.
5.2 EXERCISE IN EVENT OF DEATH OR DISABILITY. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances when
the provision should logically be construed to apply to the Optionee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will, the laws of descent and
distribution, or qualified domestic relations order, the word "Optionee" shall
be deemed to include such person or persons.
6. NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE. Optionee shall not
be deemed for any purpose to be a shareholder of the Corporation with respect to
any Option Shares as to which the Option has not been exercised.
7. ADJUSTMENTS UPON RECAPITALIZATION OR REORGANIZATION.
7.1 RECAPITALIZATION. In the event of a material alteration in
the capital structure of the Corporation on account of a recapitalization, stock
split, reverse stock split, stock dividend or otherwise, the Option shall be
subject to adjustment by the Plan Administrator in accordance with the Plan.
7.2 REORGANIZATION. In the event of a reorganization as defined
in the Plan, the Option shall be assumed or an option substituted therefor in
accordance with the Plan.
8. MISCELLANEOUS PROVISIONS.
8.1 DISCLAIMER. Notwithstanding any other provision herein
to the contrary, Optionee acknowledges that the Corporation cannot, and does
not, guarantee that the Plan or the Option meets all the requirements of IRC
Section 422. Optionee hereby releases and discharges the Corporation, and
its successors, officers and directors, from any and all loss, liability or
damage that Optionee may incur in the event the Plan or the Option fails, for
whatever reason, to meet all the requirements of IRC Section 422.
Page 3 - INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
8.2 WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the sale of
Option Shares, the Corporation, in accordance with the Code, may require
Optionee to pay additional withholding taxes in respect of the amount that is
considered compensation includible in Optionee's gross income.
8.3 DISPUTES. Any dispute or disagreement that may arise under
or as a result of this Agreement, or any question as to the interpretation of
this Agreement or the Plan, shall be determined by the Plan Administrator in its
absolute discretion, and any such determination shall be final, binding, and
conclusive on all affected persons.
8.4 DISPOSITION OF STOCK. Optionee understands that if Optionee
disposes of any Option Shares within two (2) years after the Date of Grant or
within one (1) year after such Option Shares were issued to Optionee, Optionee
may be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the fair market
value of the Option Shares at the time of exercise minus the price paid for such
shares. Optionee hereby agrees to notify the Corporation in writing within 30
days after the date of any such disposition.
8.5 GOVERNING LAW. This Agreement shall be administered,
interpreted and enforced under the internal laws of the State of Oregon, without
regard to conflicts of laws thereof.
Page 4 - INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the Date of Grant.
OPTIONEE: CORPORATION:
IN FOCUS SYSTEMS, INC.
By:
- ------------------------------ -------------------------------------
Name: Susan L. Thompson
- ------------------------------ Title: Vice-President, Human Resources
Page 5 - INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT 10.9
IN FOCUS SYSTEMS, INC.
EXECUTIVE NONSTATUTORY
STOCK OPTION AGREEMENT
In Focus Systems, Inc., an Oregon corporation (the "Corporation"),
through its Board of Directors or a Committee thereof (the "Plan
Administrator"), has granted to John V. Harker ("Optionee") an option (the
"Option") to purchase 39,996 shares of the Corporation's Common Stock (the
"Option Shares") at a price of $4.313 per share (the "Option Price"). The
Option has been granted to Optionee on October 14, 1998 (the "Grant Date"),
pursuant to the In Focus Systems 1998 Stock Incentive Plan (the "Plan").
1. NATURE OF THE OPTION
1.1 The Option is a nonstatutory option and is not intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
1.2 Except as expressly provided herein, the Option is subject
to the terms, definitions and provisions of the Plan, as it may be amended from
time to time. The terms defined in the Plan have the same meaning in this
Agreement.
2. DATE EXERCISABLE; VESTING.
2.1 Subject to the restrictions and conditions set forth in the
Plan, the Option shall become exercisable by Optionee as follows:
2.1.1 The Option shall become exercisable as to
twenty-five percent (25%) of the total number of Option Shares at the end of the
twelve (12) month period of Optionee's continuous employment with the
Corporation following the Grant Date.
2.1.2 The Option shall thereafter become exercisable as
to twenty-five percent (25%) of the total number of Option Shares at the end of
each subsequent twelve (12) month period of Optionee's continuous employment
with the Corporation.
2.1.3 The right to purchase any installment of the
Option Shares shall be cumulative, so that when the right to purchase any Option
Shares has accrued, such Option Shares may be purchased at any time or from time
to time thereafter prior to the Expiration Date, subject to the limitations of
Sections 3 and 4 herein.
Page 1 - EXECUTIVE NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
2.2 In the event Optionee for any reason ceases to be an
employee of the Corporation, whether by dismissal, resignation, death,
disability or otherwise, the Option shall be exercisable thereafter only to the
extent Optionee was entitled to exercise it at the date of termination of
employment.
2.3 Notwithstanding Sections 2.1 or 2.2 above or any other
provision herein to the contrary, the Option shall become immediately
exercisable, without regard to any contingent vesting provision to which such
Option may otherwise be subject, in the event of the occurrence of a Change of
Control.
2.4 For purposes of this Agreement, a "Change of Control" shall
be deemed to have occurred upon the first fulfillment of the conditions set
forth in any one of the following four paragraphs:
2.4.1. Any "person" as such term is defined in Section
3(a)(9) and 13(d)(3) of the Securities "Exchange Act of 1934, as amended (the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes a beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company, representing twenty-five percent
(25%) or more of the combined voting power of the Company's then outstanding
securities; PROVIDED, that the foregoing shall not include a person who acquires
such securities, or a material portion thereof, as the result of one or more
transactions approved by the Company's Board of Directors; or
2.4.2. A majority of the directors elected at any Annual
or special meeting of shareholders of the Company are not individuals nominated
by the Company's then incumbent Board of Directors; or
2.4.3. The shareholders of the Company approve a
reorganization, merger or consolidation of the Company with any other
corporation or entity, other than a reorganization, merger or consolidation
which would result 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) at least fifty-one percent (51%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such reorganization, merger or consolidation; or
2.4.4. The shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of its assets.
3. EXERCISE OF OPTION.
Page 2 - EXECUTIVE NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
3.1 MANNER OF EXERCISE. The Option may be exercised in whole or
in part by delivery to the Corporation, from time to time, of written notice,
signed by Optionee, specifying the number of Option Shares that Optionee then
desires to purchase, together with cash or check payable to the order of the
Corporation, or other form of payment acceptable to the Plan Administrator, for
an amount of United States dollars equal to the Option Price of such Option
Shares. The total number of dates on which Optionee exercises this Option, or
any other option granted by the Corporation to Optionee, shall not exceed four
(4) in any twelve (12) month period.
3.2 STOCK CERTIFICATES. As soon as practicable after any
exercise in whole or in part of the Option by Optionee, the Corporation shall
deliver to Optionee or, at Optionee's request, Optionee's designated broker, a
certificate or certificates for the number of shares of Stock with respect to
which the Option was so exercised, registered in Optionee's name.
4. DURATION OF OPTION. The Option, to the extent not previously
exercised, shall terminate upon the earliest of the following dates:
4.1 The date (10) years from the Grant Date (the "Expiration
Date");
4.2 Three (3) months after the date of Optionee's termination of
employment with the Corporation, in the event such termination is for any reason
other than Optionee's total disability (as defined in the Plan) or death;
4.3 One year after Optionee's termination of employment, if such
termination is by reason of Optionee's total disability (as defined in the Plan)
or death;
4.4 The date of any sale, transfer or hypothecation, or any
attempted sale, transfer or hypothecation, of such Option in violation of
Section 5;
4.5 Upon the occurrence of any Terminating Event (as defined in
the Plan);
4.6 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; or
4.7 Immediately upon Optionee providing or agreeing to provide
services (whether as an employee, consultant, partner, shareholder, member,
director or
Page 3 - EXECUTIVE NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
otherwise) to any third-party engaged or proposing to engage in the manufacture,
distribution or development of data video projectors or components thereof.
5. NONTRANSFERABILITY.
5.1 RESTRICTION. The Option is not transferable by Optionee
otherwise than by testamentary will, the laws of descent and distribution, or
qualified domestic relations order (as defined in the Plan) and, during
Optionee's lifetime, may be exercised only by Optionee or Optionee's guardian or
legal representative or the transferee pursuant to a qualified domestic
relations order. No assignment or transfer of the Option, whether voluntary,
involuntary, or by operation of law or otherwise, except by testamentary will,
the laws of descent and distribution, or qualified domestic relations order,
shall vest in the assignee or transferee any interest or right, but immediately
upon any attempt to assign or transfer the Option, the Option shall terminate
and be of no further force or effect.
5.2 EXERCISE IN EVENT OF DEATH OR DISABILITY. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances when
the provision should logically be construed to apply to the Optionee's guardian,
legal representative, executor, administrator, or the person or persons to whom
the Option may be transferred by testamentary will, the laws of descent and
distribution, or qualified domestic relations order, the word "Optionee" shall
be deemed to include such person or persons.
6. NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE. Optionee shall not
be deemed for any purpose to be a shareholder of the Corporation with respect to
any Option Shares as to which the Option has not been exercised.
7. ADJUSTMENTS UPON RECAPITALIZATION OR REORGANIZATION.
7.1 RECAPITALIZATION. In the event of a material alteration in
the capital structure of the Corporation on account of a recapitalization, stock
split, reverse stock split, stock dividend or otherwise, the Option shall be
subject to adjustment by the Plan Administrator in accordance with the Plan.
7.2 REORGANIZATION. In the event of a reorganization as defined
in the Plan, the Option shall be assumed or an option substituted therefor in
accordance with the Plan.
8. MISCELLANEOUS PROVISIONS.
8.1 TAXATION UPON EXERCISE OF OPTION. Optionee understands
that pursuant to certain provisions of the Code, upon exercise of the Option,
Optionee may recognize income for tax purposes in an amount equal to the fair
market value of the Option Shares at the time of exercise minus the price paid
for such shares. The Corporation may be required to
Page 4 - EXECUTIVE NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
withhold tax from Optionee's current compensation with respect to such income;
to the extent that Optionee's current compensation is insufficient to satisfy
the withholding tax liability, the Company may require the Optionee to make a
cash payment to cover such liability as a condition of exercise of the Option.
8.2 DISPUTES. Any dispute or disagreement that may arise under
or as a result of this Agreement, or any question as to the interpretation of
this Agreement or the Plan, shall be determined by the Plan Administrator in its
absolute discretion, and any such determination shall be final, binding, and
conclusive on all affected persons.
8.3 GOVERNING LAW. This Agreement shall be administered,
interpreted and enforced under the internal laws of the State of Oregon, without
regard to conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the Date of Grant.
OPTIONEE: CORPORATION:
IN FOCUS SYSTEMS, INC.
By:
- ------------------------------ ------------------------------------
John V. Harker Name: Susan L. Thompson
Chairman of the Board, President Title: Vice-President, Human Resources
and Chief Executive Officer
Page 5 - EXECUTIVE NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT 10.10
IN FOCUS SYSTEMS, INC.
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (this "Agreement") is made and entered
into as of ____________(the "Match Date") by and between In Focus Systems, Inc.,
an Oregon corporation (the "Corporation"), and ______________ ("Participant").
WHEREAS, Participant is an elected or appointed officer or director of
the Corporation or one or more of its subsidiaries; and
WHEREAS, pursuant to the Officer and Director Stock Ownership Program
(the "Program") created under the Corporation's 1998 Stock Incentive Plan (the
"Plan"), the Board of Directors or a Committee thereof (the "Plan
Administrator") has approved the award to Participant of shares of the
Corporation's Common Stock ("Shares") on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto agree as follows:
1. AWARD.
1.1 Participant is the beneficial owner of ___________Shares
that were purchased by Participant on ________________ (the "Matched Shares").
1.2 For purposes of Section 1.1:
1.2.1 The term "beneficial owner" shall have the same
meaning given to that term for purposes of preparing the beneficial ownership
table in the Corporation's proxy statement for its annual meeting of
shareholders.
1.2.2 The term "purchase" shall mean any acquisition of
Shares pursuant to the exercise of any stock option awarded to Participant under
one or more stock option or incentive plans of the Corporation, or any open
market purchase that has been pre-approved by the Compliance Officer.
1.3 The Corporation hereby awards to Participant, and
Participant hereby accepts, as of the Match Date, _________ Restricted Shares,
which represents one Restricted Share for every two Matched Shares, rounded up
to the nearest whole share. The
Page 1 - RESTRICTED STOCK AGREEMENT
<PAGE>
Restricted Shares shall be subject to the terms and conditions of this
Agreement, and the terms and conditions set forth in the Plan as the same may be
amended from time to time.
2. VESTING.
2.1 Subject to the restrictions and conditions set forth in the
Plan, the Restricted Shares shall vest as follows:
2.1.1 Each Restricted Share granted pursuant to this
Agreement shall vest at the end of the three (3) year period, commencing on the
Match Date, of Participant's continuous service as an elected or appointed
officer or director of the Corporation; PROVIDED, HOWEVER, that if Participant
does not continue to hold his or her Matched Shares throughout such period, the
portion of Participant's Restricted Shares (determined by the Plan Administrator
in its absolute discretion) that bears the same ratio as the Matched Shares that
Participant does not continue to hold during such period bears to the total
Matched Shares shall vest at the end of the nine (9) year period, commencing on
the Match Date, of Participant's continuous service as an elected or appointed
officer or director of the Corporation.
2.1.2 In the event Participant for any reason ceases to
serve as an elected or appointed officer or director of the Corporation, whether
by dismissal, resignation, disability or otherwise, all unvested Restricted
Shares shall be forfeited; PROVIDED, HOWEVER, that in the event Participant
ceases to serve as an elected or appointed officer or director of the
Corporation by reason of such Participant's death, all unvested Restricted
Shares shall immediately vest.
2.1.3 Notwithstanding anything to the contrary in this
Section 2.1, all unvested Restricted Shares shall be forfeited immediately upon
determination by the Plan Administrator (in its absolute discretion) that
Participant has (i) made unauthorized disclosure of confidential information
relating to the Corporation, (ii) failed to assign to the Corporation any
invention which Participant is obligated to assign to the Corporation pursuant
to written agreement or otherwise, or (iii) breached the terms of any written
agreement in effect between the Corporation and Participant relating to
confidentiality, nondisclosure or ownership of inventions.
Page 2 - RESTRICTED STOCK AGREEMENT
<PAGE>
2.2 For purposes of Section 2.1:
2.2.1 Participant shall "continue to serve as an elected
or appointed officer or director of the Corporation" if Participant remains an
elected or appointed officer or director of the Corporation or its subsidiaries
at all times during the applicable period. Medical leave approved by the Plan
Administrator, in its absolute discretion, shall not be considered an
interruption of service for this purpose.
2.2.2 Participant shall "continue to hold" his or her
Restricted Shares if such Shares remain beneficially owned (as defined in
Section 1.2 hereof) by Participant at all times, and are not sold, assigned, or
pledged (as collateral for a loan, or as security for the performance of an
obligation, or for any other purpose) to any person at any time, during the
applicable period.
3. RESTRICTIONS. Until a Restricted Share vests pursuant to
Section 2.1 hereof, it shall not be liable for the debts, contracts or
engagements of Participant or successors in interest nor be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
other legal or equitable proceeding (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; PROVIDED, HOWEVER,
that nothing in this Section 3 shall prevent transfers by will or by the
applicable laws of descent and distribution, or by qualified domestic relations
order (as defined in the Plan).
4. ACCELERATION OF VESTING.
4.1 The Plan Administrator, in its absolute discretion, may
accelerate the vesting of any or all of the Restricted Shares at any time and
for any reason.
4.2 Notwithstanding anything to the contrary in this
Agreement, any unvested Restricted Shares shall become fully vested immediately
prior to the consummation of a reorganization (as defined in Section 10.4 of the
Plan), which results in the voting securities of the Corporation 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 Corporation or such surviving entity outstanding immediately
after such reorganization.
5. ESCROW.
5.1 Until a Restricted Share vests, (i) the record address
of the holder of record of such Restricted Share shall be c/o the Secretary of
the Corporation at
Page 3 - RESTRICTED STOCK AGREEMENT
<PAGE>
the address of the Corporation's principal executive office, (ii) the stock
certificates representing such Restricted Share shall be held in escrow in the
custody of the Secretary of the Corporation, duly endorsed in blank or
accompanied by a duly executed stock powers, and (iii) such stock certificate
shall contain the following legend:
"THE TRANSFER AND REGISTRATION OF TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS AS
PROVIDED IN A RESTRICTED STOCK AGREEMENT DATED AS OF _______________BY
AND BETWEEN THE CORPORATION AND ___________________."
5.2 As soon as practical after the date upon which a
Restricted Share vests and provided Participant shall have paid the Withholding
Liability to the Corporation pursuant to Section 7.1 hereof, the Corporation
shall deliver to Participant or, at Participant's request, Participant's
designated broker, a certificate or certificates representing such Restricted
Shares, registered in Participant's name, which certificate or certificates
shall not contain the legend set forth in Section 5.1 above.
6. RIGHTS AS SHAREHOLDER. The holder of record of any
Restricted Share shall be entitled to exercise all voting rights with respect to
such share and to receive all dividends or distributions paid or made with
respect thereto.
7. MISCELLANEOUS PROVISIONS.
7.1 INCOME TAX WITHHOLDING. If the Corporation becomes
obligated to withhold an amount on account of any tax imposed in connection with
an award of Restricted Shares pursuant to this Agreement, including without
limitation, any federal, state, local or other income taxes, or any FICA, state
disability insurance tax or other employment tax, then Participant shall, on the
date the restrictions on the Restricted Shares lapse (or, if earlier, the date
that Participant makes an election under Section 83(b) of the Internal Revenue
Code, if any, or such other the date upon which the Corporation becomes so
obligated to withhold (the "Withholding Date")) pay such amount (the
"Withholding Liability") to the Corporation in cash or check payable to the
Corporation. Participant hereby consents to the Corporation withholding the
full amount of the Withholding Liability from any compensation or other amounts
otherwise payable to Participant (including, without limitation, any vested
Restricted Shares) if Participant does not pay the Withholding Liability to the
Company on the Withholding Date, and Participant agrees that the withholding and
payment of any such amount by the Corporation to the relevant taxing authorities
shall constitute full satisfaction of the Corporation's obligation to pay such
compensation of other amounts to Participant.
Page 4 - RESTRICTED STOCK AGREEMENT
<PAGE>
7.2 TAXABLE INCOME AND SECTION 83(b) ELECTION.
Participant understands that the taxable income recognized by Participant as a
result of the award of Restricted Shares hereunder, and the Withholding
Liability and Withholding Date with respect thereto, would be affected by a
decision by Participant to make an election under Section 83(b) of the Internal
Revenue Code of 1986, as amended (an "83(b) Election"), with respect to the
Restricted Shares within thirty (30) days of the Match Date. Participant
understands and agrees that he or she will have the sole responsibility for
determining whether to make an 83(b) Election with respect to the Restricted
Shares, and for properly making such election and filing the election with the
relevant taxing authorities on a timely basis. Participant will not rely on the
Corporation for any advice in connection with the decision whether to make, or
procedures for making, an 83(b) Election with respect to the Restricted Shares.
Participant agrees to submit to the Corporation a copy of any 83(b) Election
with respect to the Restricted Shares immediately upon filing such election with
the relevant taxing authorities.
7.3 DISPUTES. Any dispute or disagreement that may arise
under or as a result of this Agreement, or any question as to the interpretation
of this Agreement, the Program or the Plan, shall be determined by the Plan
Administrator in its absolute discretion, and any such determination shall be
final, binding, and conclusive on all affected persons.
7.4 GOVERNING LAW. This Agreement shall be administered,
interpreted and enforced under the internal laws of the State of Oregon, without
regard to conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the Match Date.
PARTICIPANT: CORPORATION:
IN FOCUS SYSTEMS, INC.
By:
- ------------------------------ --------------------------------------
Name: Susan L. Thompson
- ------------------------------ Title: Vice-President, Human Resources
Page 5 - RESTRICTED STOCK AGREEMENT
<PAGE>
EXHIBIT 10.14
Amendment No. 3
To
Directors' Stock Option Plan
The Board of Directors if In Focus Systems, Inc. (the "Company") approved the
following amendment to the In Focus Systems, Inc. Directors' Stock Option Plan
(the "Plan") on July 17, 1998.
1. The second sentence of Section 4 of the Plan is amended to read as
follows:
"The aggregate number of shares of Common Stock reserved for issuance
upon exercise of Options granted under the Plan shall be FOUR HUNDRED
THOUSAND (400,000) shares, and Options may be granted under this Plan
only with respect to the shares so reserved."
2. Subsections 5A and 5B of the Plan are amended in their entirety to
read as follows:
"5. GRANT OF OPTIONS.
A. AUTOMATIC GRANT OF OPTIONS ON INITIALLY BECOMING AN ELIGIBLE
DIRECTOR. Subject to Paragraph 4 and Paragraph 19 herein, each
Eligible Director shall automatically be granted an Option on the
date he or she initially becomes an Eligible Director (the "Grant
Date") to purchase 20,000 shares of Common Stock of the Company.
The per share exercise price of each such Option shall be the
"fair market value" of a share of Common Stock of the Company on
the Grant Date, which shall, for purposes of each Option granted
under this paragraph 5A, mean the date on which the individual
initially becomes an Eligible Director.
B. AUTOMATIC GRANT OF OPTIONS ON EACH ANNIVERSARY OF BECOMING AN
ELIGIBLE DIRECTOR. Subject to Paragraph 4 and Paragraph 19
herein, each Eligible Director shall automatically be granted an
Option on each anniversary of the date he or she initially became
an Eligible Director (the "Grant Date") to purchase 10,000 shares
of Common Stock of the Company. The per share exercise price of
each such Option shall be the "fair market value" of a share of
Common Stock of the Company on the Grant Date, which shall, for
purposes of each Option granted under this paragraph 5B, mean
each respective anniversary of the date the individual initially
became an Eligible Director. As to any individual who was an
Eligible Director at the time this Plan was initially adopted on
August 31, 1992, such anniversary date shall be August 21, 1992."
<PAGE>
EXHIBIT 10.15
IN FOCUS SYSTEMS, INC.
AMENDMENT NO. 4 TO
DIRECTORS' STOCK OPTION PLAN
The Board of Directors of In Focus Systems, Inc. approved the following
amendments to the In Focus Systems, Inc. Directors' Stock Option Plan (the
"Plan") on January 22, 1999.
1. Section 5.B. of the Plan is hereby amended to provide in its entirety
as follows:
"B. AUTOMATIC GRANT OF OPTIONS UPON REELECTION AS DIRECTOR. Subject
to Paragraph 4 herein, each Eligible Director shall automatically be granted an
Option to purchase 10,000 shares of the Company's Common Stock on the date of
each annual meeting of the Company's shareholders at which the director is
reelected to the Company's Board of Directors. The per share exercise price of
each such option shall be the fair market value (as defined in Section 5.E
below) of a share of the Company's Common Stock on the date of grant, and the
date of grant shall be the date of the annual shareholders' meeting at which the
director is reelected."
2. Section 5.C. of the Plan (including all subsections and
subparagraphs) is hereby deleted in its entirety.
<PAGE>
EXHIBIT 10.18
IN FOCUS SYSTEMS, INC.
1999 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 22, 1999.
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, 1999, and
ending December 31, 1999.
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, 1999.
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 1999 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 1999 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%
- There will be no maximum on the bonus payout.
- 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).
1999 Executive Bonus Plan
CEO and Chairman of the Board
<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.
1999 Executive Bonus Plan
CEO and Chairman of the Board
<PAGE>
EXHIBIT 10.19
IN FOCUS SYSTEMS, INC.
1999 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/her 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 22, 1999.
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,
1999 and ending December 31, 1999.
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, 1999. 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 1999
financial performance (Profit Before Tax), and 2) the
performance of the Senior Vice President against his/her
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 1999 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. 1999 goals)
determined by the CEO, by comparing the individual
Senior Vice President's performance against
his/her major 1999 goals.
1999 Executive Bonus Plan
Sr. Vice President
<PAGE>
_ 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%.
- No maximum bonus payout for PBT component.
- 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.
1999 Executive Bonus Plan
Sr. Vice President
<PAGE>
EXHIBIT 10.20
IN FOCUS SYSTEMS, INC.
1999 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 22, 1999.
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, 1999, and
ending December 31, 1999.
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,
1999. 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 1999
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 1999 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. 1999 goals)
determined by the CEO, by comparing the individual
Vice President's performance against his/her major
1999 goals.
1999 Executive Bonus Plan
Vice President
<PAGE>
_ 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%.
- No maximum bonus payout for PBT component.
- 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.
1999 Executive Bonus Plan
Vice President
<PAGE>
EXHIBIT 10.21
COMMERCIAL LEASE
BETWEEN
MENTOR GRAPHICS CORPORATION ("LANDLORD")
AND
IN FOCUS SYSTEMS, INC. ("TENANT")
Dated: __________, 1999
1 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
TABLE OF CONTENTS
SECTION 1. OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.1 ORIGINAL TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 WALKING PATH ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 COMMON AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 RENT CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 TIME AND PLACE OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . 7
2.4 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3. RENEWAL OF LEASE OF BUILDING E PROPERTY. . . . . . . . . . . . . . 8
3.1 RENEWAL OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4. USE OF THE PREMISES. . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 PERMITTED USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 RESTRICTIONS ON USE. . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. OPERATING EXPENSES AND REPAIRS . . . . . . . . . . . . . . . . . .11
5.1 OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . .11
5.2 TENANT OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . .11
5.3 WRITTEN STATEMENT OF ESTIMATE. . . . . . . . . . . . . . . . . . . .11
5.4 FINAL WRITTEN STATEMENT. . . . . . . . . . . . . . . . . . . . . . .11
5.5 TENANT AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.6 DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.7 PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.8 INTERFERENCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.9 INSPECTION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . .13
5.10 EMERGENCY REPAIRS. . . . . . . . . . . . . . . . . . . . . . . . . .13
5.11 FOOD SERVICE CHARGE. . . . . . . . . . . . . . . . . . . . . . . . .13
SECTION 6. ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.1 ALTERATIONS PROHIBITED . . . . . . . . . . . . . . . . . . . . . . .13
6.2 TENANT IMPROVEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .14
6.3 SPECIAL IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . .14
6.4 OWNERSHIP AND REMOVAL OF ALTERATIONS . . . . . . . . . . . . . . . .14
6.5 PERSONAL PROPERTY AMENITY. . . . . . . . . . . . . . . . . . . . . .15
6.6 SECURITY ACCESS SYSTEM . . . . . . . . . . . . . . . . . . . . . . .15
6.7 HVAC ENERGY MANAGEMENT COMPUTER SYSTEM . . . . . . . . . . . . . . .15
6.8 TELEPHONE SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.9 INCENTIVE PACKAGES . . . . . . . . . . . . . . . . . . . . . . . . .15
SECTION 7. "TRIPLE NET" LEASE: PAYMENT OF TAXES, UTILITIES, AND INSURANCE. .15
7.1 PROPERTY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
7.2 PRORATION OF TAXES . . . . . . . . . . . . . . . . . . . . . . . . .16
7.3 NEW CHARGES, FEES, SUBSTITUTE OR ALTERNATE TAX . . . . . . . . . . .16
7.4 PAYMENT OF UTILITIES CHARGES . . . . . . . . . . . . . . . . . . . .16
7.5 PAYMENT OF INSURANCE . . . . . . . . . . . . . . . . . . . . . . . .16
SECTION 8. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.1 LIABILITY INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . .16
8.2 PROPERTY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . .16
8.3 TENANT'S BUSINESS INTERRUPTION INSURANCE . . . . . . . . . . . . . .17
8.4 WAIVER OF SUBROGATION RIGHTS . . . . . . . . . . . . . . . . . . . .17
SECTION 9. DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . .17
9.1 RIGHT OF TERMINATION ON SUBSTANTIAL DAMAGE . . . . . . . . . . . . .17
9.2 OBLIGATION TO REBUILD. . . . . . . . . . . . . . . . . . . . . . . .18
9.3 TENANT RESTORATION . . . . . . . . . . . . . . . . . . . . . . . . .18
9.4 DAMAGE LATE IN TERM. . . . . . . . . . . . . . . . . . . . . . . . .19
9.5 COST OF MOVING PROPERTY. . . . . . . . . . . . . . . . . . . . . . .19
9.6 RENT ABATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .19
SECTION 10. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . .19
10.1 TOTAL TAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
10.2 PARTIAL TAKING . . . . . . . . . . . . . . . . . . . . . . . . . . .19
10.3 SALE IN LIEU OF CONDEMNATION . . . . . . . . . . . . . . . . . . . .20
SECTION 11. LIENS, LIABILITY AND INDEMNITY . . . . . . . . . . . . . . . . . .20
11.1 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
11.2 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . .20
11.3 LANDLORD'S LIABILITY . . . . . . . . . . . . . . . . . . . . . . . .20
SECTION 12. QUIET ENJOYMENT; MORTGAGE PRIORITY . . . . . . . . . . . . . . . .21
12.1 LANDLORD'S WARRANTY OF QUIET ENJOYMENT . . . . . . . . . . . . . . .21
12.2 MORTGAGE PRIORITY; SUBORDINATION . . . . . . . . . . . . . . . . . .21
12.3 ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . .21
SECTION 13. ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . . .21
13.1 PROHIBITION ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . .21
13.2 OBLIGATIONS AFTER TRANSFER . . . . . . . . . . . . . . . . . . . . .22
SECTION 14. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.1 DEFAULT IN RENT. . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.2 UNAUTHORIZED TRANSFER. . . . . . . . . . . . . . . . . . . . . . . .22
14.3 DEFAULT IN OTHER COVENANTS . . . . . . . . . . . . . . . . . . . . .22
14.4 INSOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.5 ABANDONMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
SECTION 15. REMEDIES ON DEFAULT. . . . . . . . . . . . . . . . . . . . . . . .23
15.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
15.2 RELETTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
3 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
15.3 DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
15.4 RIGHT TO SUE MORE THAN ONCE. . . . . . . . . . . . . . . . . . . . .23
15.5 RIGHT TO CURE DEFAULTS . . . . . . . . . . . . . . . . . . . . . . .23
15.6 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 16. SURRENDER AT EXPIRATION. . . . . . . . . . . . . . . . . . . . . .24
16.1 CONDITION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . .24
16.2 TRADE FIXTURES . . . . . . . . . . . . . . . . . . . . . . . . . . .24
16.3 HOLDOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
SECTION 17. RECIPROCAL CONFIDENTIALITY AGREEMENT . . . . . . . . . . . . . . .25
17.1 LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17.2 TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17.3 NONDISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17.4 DEFINITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
17.5 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
SECTION 18. ENVIRONMENTAL CONDITIONS. . . . . . . . . . . . . . . . . . . . .25
18.1 INTENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
18.2 PLANS AND SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . .25
18.3 TENANT'S RIGHT TO CONTEST AGENCY ORDERS. . . . . . . . . . . . . . .26
18.4 NOTICE OF COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . .27
18.5 RESTRICTIONS ON USE. . . . . . . . . . . . . . . . . . . . . . . . .27
18.6 INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
18.7 SITE REMEDIATION . . . . . . . . . . . . . . . . . . . . . . . . . .29
18.8 ONGOING OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . .29
18.9 ENVIRONMENTAL AUDIT. . . . . . . . . . . . . . . . . . . . . . . . .30
18.10 IRREVOCABLE LICENSE. . . . . . . . . . . . . . . . . . . . . . . . .30
18.11 DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
18.12 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 19. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .31
19.1 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
19.2 COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 20. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .31
20.1 NONWAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
20.2 ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.3 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.4 SUCCESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.5 RECORDATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.6 ENTRY FOR INSPECTION . . . . . . . . . . . . . . . . . . . . . . . .32
20.7 INTEREST ON RENT . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.8 TIME OF ESSENCE. . . . . . . . . . . . . . . . . . . . . . . . . . .32
20.9 PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . .32
20.10 INTEGRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
20.11 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
20.12 REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .33
20.13 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . .33
20.14 BROKER'S COMMISSION. . . . . . . . . . . . . . . . . . . . . . . . .33
20.16 MULTIPLE COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . .33
4 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
EXHIBITS PAGE REFERENCED
----------
A. Forest Building Property. . . . . . . . . . . . . . . . . . . . . . 6
B. Building E Property . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Campus Use Rules and Regulations. . . . . . . . . . . . . . . . . . 6
D. Common Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Permitted Uses. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
F. Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G. Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 11
H. Tenant Improvements/Alterations . . . . . . . . . . . . . . . . . . 14
I. Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
J. Hazardous Substances List . . . . . . . . . . . . . . . . . . . . . 25
K. Final Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
L. Baseline Environmental Assessment Report . . . . . . . . . . . . . 30
5 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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COMMERCIAL LEASE
Dated: January , 1999
Between: MENTOR GRAPHICS CORPORATION ("Landlord")
8005 SW Boeckman Road
Wilsonville, Oregon 97070
And: IN FOCUS SYSTEMS, INC. ("Tenant")
27700 SW Parkway Avenue
Wilsonville, Oregon 97070-77777
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the following described land and improvements (the "Premises") on the
terms and conditions stated below:
(a) That certain property located at 27700 SW Parkway
Avenue, in the City of Wilsonville, County of Clackamas,
State of Oregon, and consisting of the Mentor Graphics
Forest Building (the "Forest Building") of approximately
150,578 square feet and the approximately 9.5 acres of land
under and surrounding said building, including approximately
325 existing parking spaces (more particularly described in
Exhibit A attached hereto and incorporated herein by this
reference) (the "Forest Building Property").
(b) That certain property located at a portion of Mentor
Graphics' Evergreen Building (Building E), consisting of
approximately 30,000 rentable square feet, located at 8105
SW Boeckman Road, City of Wilsonville, County of Clackamas,
State of Oregon, and as more particularly described on
Exhibit B attached hereto and incorporated herein by this
reference (the "Building E Property").
SECTION 1. OCCUPANCY
1.1 ORIGINAL TERM. The term of the Lease of the Forest Building
Property shall commence January 1, 1999, ("Commencement Date"), and continue
through December 31, 2003, unless sooner terminated as herein provided. The
term of the Lease of the Building E Property shall commence January 1, 1999, and
continue through December 31, 1999, unless sooner terminated as herein provided,
and subject to the Renewal Options set forth in Section 3.1 hereof.
1.2 POSSESSION.
1.2.1 Tenant's right to possession and obligations under the
Lease shall commence as of January 1, 1999. Tenant has inspected the Premises
and accepts the Premises as is and Landlord shall not be required to perform any
work to ready the Premises for Tenant's occupancy.
1.3 WALKING PATH ACCESS. Tenant shall be entitled to a limited
nonexclusive right of access to the walking path on Landlord's campus. Tenant's
use of the walking path shall be subject to Landlord's Campus Use Rules and
Regulations attached as Exhibit C and by this reference made a part hereof.
Substantially similar Campus Rules and Regulations shall also apply to Landlord
and its employees, vendors, guests, and agents. Copies of such Rules and
Regulations shall be provided to
6 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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Tenant upon execution of this Lease and from time to time as amended by Landlord
in its sole discretion. Tenant's right of access may be restricted or revoked
only if Tenant consistently fails to comply with such Campus Rules and
Regulations. It is understood and agreed that Tenant's limited nonexclusive
right of access shall not create any easement or any other right in favor of
Tenant with regard to the walking path or its adjacent property. It is
understood and agreed that Tenant shall not have or be entitled to access to,
over or across, any other part of the Landlord's adjacent property unless
specifically set forth herein.
1.4 COMMON AREAS. For the purposes of this Lease, all portions of
the Premises which are identified on the site plan attached hereto as Exhibit D,
and by this reference made a part hereof, shall be a common area for the sole
and exclusive joint use of Landlord and all tenants and other occupants. It is
understood and agreed that the common area includes a total of approximately 325
existing parking spaces for the joint use of Tenant and Landlord. Tenant shall
be entitled to 24 reserved parking spaces as noted on Exhibit D. Landlord
hereby grants to Tenant, for use by Tenant, Tenant's customers, invitees and
employees, the right to the use of all such common areas. Tenant agrees that
such common areas shall be subject to Landlord's Campus Use Rules and
Regulations, and Tenant agrees that Tenant is responsible for compliance with
such Rules and Regulations by Tenant, Tenant's customers, invitees and
employees.
SECTION 2. RENT
2.1 BASE RENT.
2.1.1 Base Rent for Forest Building Property. During the
original Lease term, Tenant shall pay to Landlord, on a monthly basis, Base Rent
at the rate of $.94 per rentable square foot per month (the "Base Rental Rate")
in the total amount of $ 141,543.32 per month (triple net) for the period of
January 1, 1999 to December 31, 2001 and $1.09 per square foot per month in the
total amount of $164,130.02 per month for the period of January 1, 2002 to
December 31, 2003.
2.1.2 Rent for Building E Property. For the period of January
1, 1999 to December 31, 1999, Tenant shall pay to Landlord on a monthly basis,
Rent at the rate of $18.50 per square foot per year, full service (the "Building
E Rental Rate") in the total amount of $46,250 per month.
2.2 RENT CREDIT. Landlord shall grant to Tenant a one-time rent
credit in the sum of $100,000 to be applied to rent due under the January 20,
1993 Commercial Lease between Tenant and Landlord (1993 Lease) or to rent that
is or becomes otherwise due under this Lease. Tenant shall provide Landlord
with written notice of use of the rent credit. The rent credit must be used
within 90 days of the Commencement Date of the Lease and if it is not so used,
the Rent Credit shall be null and void and will no longer be available for use
by Tenant.
2.3 TIME AND PLACE OF PAYMENT. Rent shall be payable on the first
day of each month in advance at such place as may be designated by Landlord.
Rent is uniformly apportionable day-to-day based on a thirty (30) day month. In
the event of commencement or termination of this Lease at a time other than the
beginning or end of one of the specified rental periods, the rent shall be
prorated as of the date of commencement or termination and in the event of
termination for reasons other than default, all prepaid rent shall be refunded
to Tenant or paid on its account.
2.4 SECURITY DEPOSIT. To secure Tenant's compliance with all terms,
including payment and performance, of this Lease, Tenant shall pay Landlord the
sum of $40,000 as a security deposit. The deposit shall be refundable within
thirty (30) days after expiration of the Lease, or other termination not caused
by Tenant's default except as provided in Section 5.8. Landlord may commingle
the deposit with its funds and Tenant shall not be entitled to interest on the
deposit. Landlord shall have the right to offset against the deposit any sums
owing from Tenant to Landlord and not paid when due, any damages caused
7 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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by Tenant's default, the cost of curing any default by Tenant should Landlord
elect to do so, and the cost of performing any repair or cleanup that is
Tenant's responsibility under this Lease. Offset against the deposit shall not
be an exclusive remedy in any of the above cases, but may be invoked by
Landlord, at its option, in addition to any other remedy provided by law or this
Lease for Tenant's nonperformance. Landlord shall give written notice to Tenant
each time an offset is claimed against the deposit, and, unless the Lease is
terminated, Tenant shall, within ten (10) business days after such notice,
deposit with Landlord a sum equal to the amount of the offset so that the total
deposit amount, net of offset, shall remain constant throughout the Lease term.
The parties agree that the security deposit made by Tenant under the 1993 Lease
shall be used as the Security Deposit under this Lease.
2.5 ADDITIONAL RENT. All payments required to be paid by Tenant
under this Lease, including, but not limited to, taxes, insurance costs, utility
charges, but excluding Base Rent, and any other sum that Tenant is required to
pay to Landlord or third parties shall be Additional Rent.
SECTION 3. RENEWAL OF LEASE OF BUILDING E PROPERTY
3.1 RENEWAL OPTIONS. If Tenant is not in default under the terms of
this Lease at the time the option is to be exercised, Tenant shall have the
option to renew its Lease of the Building E Property for two (2) terms of one
(1) year, as follows:
3.1.1 Commencement. The renewal term shall commence on the day
following expiration of the initial term.
3.1.2 Exercise. Each one-year option may be exercised by written
notice from Tenant to Landlord given not less than one hundred and eighty (180)
days prior to the last day of the prior expiring term. If Tenant does not
exercise the first one-year option, then the second one-year option shall be
null and void.
3.1.3 Terms and Conditions. The terms and conditions of the
Lease for each option term shall be identical with the terms of this Lease
except for the Rental Rate. After exercising the second renewal option, Tenant
will no longer have any option to renew the Lease of the Building E Property.
3.1.4 Adjusted Rent. The Building E Rental Rate during each of
the two renewal terms shall be $19.50 per square foot, full service.
3.1.5 Right of First Refusal. If Tenant exercises both one-year
options for the Building E Property, Tenant shall have a one-time right of first
refusal , on the Building E Property pursuant to which Landlord will notify
Tenant in writing if Landlord, at its sole option, intends to offer the Building
E Property or any portion of the Building E Property for lease to a third party.
Tenant's right of first refusal shall be to lease for an additional one year
term, commencing on January 1, 2002 and ending on December 31, 2002, at a market
rental rate, the portion of the Building E Property which Mentor Graphics
otherwise intends to offer for lease to a third party. Upon receipt of written
notice from Landlord, Tenant shall have five business days to notify Landlord in
writing of Tenant's acceptance of such terms. Tenant's right of first refusal
shall not impose upon Landlord any obligation to offer the Building E Property
or any portion thereof for lease.
8 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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SECTION 4. USE OF THE PREMISES
4.1 PERMITTED USE. The Premises shall be used as specifically
described in the attached Exhibit E, and by this reference made a part hereof,
and for no other purpose without the prior written consent of Landlord.
4.2 RESTRICTIONS ON USE. In connection with the use of the Premises,
Tenant shall do the following:
4.2.1 Compliance with Laws. Landlord represents that as of the
date of this Lease, the Premises are in compliance with all applicable laws,
regulations, codes or requirements of any public authority affecting the
Premises ("Laws"). If the Premises are subsequently found to have not been in
compliance with the Laws as of the date of Tenant's possession of the Premises,
Landlord shall be liable for the cost of bringing the Premises into compliance
with the Laws. Tenant shall provide written notice to Landlord of any Laws'
violation existing at the date of Tenant's possession. Within thirty (30) days
after receipt of such notice from Tenant of the nature of the Laws' violation,
Landlord shall commence and pursue with reasonable diligence appropriate
curative action. Tenant shall conform to all applicable Laws now existing or
thereafter enacted or promulgated, affecting the Premises or Tenant's use
thereof, regarding the maintenance, operation, or use of the Premises, or any
other aspect thereof including, but not limited to, compliance with the
Americans with Disabilities Act, 42 U.S.C. 12101 ET SEQ. (1990) ("ADA"), and all
related or similar rules or regulations, and correct, at Tenant's own expense,
any failure of compliance therewith.
4.2.2 Fire Hazards. With respect to that portion of the Premises
consisting of the Forest Building, Tenant shall not allow the Premises at any
time to fall into such a state of repair or disorder as to increase the fire
hazard thereon, nor shall Tenant install any power machinery on the Premises
except under the supervision and with the written consent of Landlord, which
consent will not be unreasonably withheld. Tenant shall at all times maintain
all building systems, including but not limited to, fire detection and building
safety features (such as exit signs) in proper working order. With respect to
all portions of the Premises and except as approved by Landlord, Tenant shall
not store gasoline or other highly combustible materials on the Premises at any
time, and shall refrain from any activity that would make it impossible to
insure the Premises against casualty, would increase the insurance rate, or
would prevent Landlord from taking advantage of any ruling of the Oregon
Insurance Rating Bureau, or its successor, allowing the insured to obtain
reduced premium rates for long-term fire insurance policies.
4.2.3 Unlawful, Offensive Activities. Tenant shall refrain from
any use that would be unlawful, improper or reasonably offensive to owners,
tenants or users of neighboring premises or that would tend to create a nuisance
or damage the reputation of the Premises. In particular, but not by way of
limitation, Tenant shall not permit any material objectionable noise or odor to
escape or to be emitted from the Premises or to do anything or permit anything
to be done upon or about the Premises in any way tending to create a nuisance.
Tenant shall not sell, or permit to be sold, any spirituous, vinous or malt
liquors on the Premises. Further, Tenant shall not sell, or permit to be sold
or consumed, any controlled substance on or about the Premises.
4.2.4 Structural, Mechanical Overloading. Tenant shall refrain
from loading the electrical system, floors or other structural or mechanical
elements of the Premises beyond the point considered safe by a competent
engineer or architect selected by Landlord at Landlord's sole expense. Landlord
shall have the right at any time to select and request that such an architect or
engineer inspect the Premises to decide whether or not any mechanical or
structural system or element of the Premises, or any part thereof, is being
overloaded so as to cause any undue or serious stress or strain on the Premises
or any part thereof. Except in the event of an emergency, Tenant shall be
entitled to thirty (30) days'
9 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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written notice of a scheduled inspection on a mutually convenient date. Unless
otherwise agreed, each inspection shall be conducted during normal business
hours and in such manner as to not interfere with Tenant's normal business
operations, including quarter and year-end activities. The decision of said
engineer or architect shall be final and binding upon Tenant, and if the
engineer or architect so called upon shall decide that in his or her opinion the
stress or strain is such as to endanger or injure the Premises or any part
thereof, then and in that event Tenant agrees immediately to relieve said stress
or strain in question by lightening the load which causes such stress or strain,
in a manner satisfactory to Landlord.
4.2.5 Signage.
(a) Tenant shall install its primary monument signage on
the North Parkway Avenue entrance to the Premises. Such monument signage
shall be similar in stature to the Landlord's sign. In addition, at the
South Parkway Avenue entrance to the Premises, Tenant shall have
directional signage only to be added by the Landlord to the Landlord's
existing sign. All Tenant signage shall be at Tenant's sole expense. All
external signage shall be subject to approval by Landlord. The location of
external signs are indicated on the attached Exhibit F, which by this
reference is made a part hereof.
(b) Landlord grants to Tenant approval to attach signage to
the exterior of the Forest Building which is substantially similar to the
signage on the exterior of Landlord's Deschutes Building. Additionally,
Landlord grants the Tenant approval to attach informational signage or
decals to the glass on selected exterior doors and on relights adjacent to
interior doors.
4.2.6 Site Access. Tenant's employees shall have primary access
to the Premises via the North Parkway Avenue entrance. Tenant will have limited
access to the Premises for its corporate headquarters' entrance via the South
Parkway Avenue entrance. Tenant will limit access via the South Parkway Avenue
entrance to Tenant's corporate headquarters' personnel and visitors. Tenant
will exercise its best efforts to assure that Tenant's employees, visitors, and
vendors use the appropriate entrance to the Premises. It is understood and
agreed that the right of access via the South Parkway Avenue entrance does not
create any right to easement or any other right in favor of Tenant with regard
to such entrance. Tenant will exercise best efforts to assure that Tenant's
employees, visitors, and vendors shall not use Landlord's entrances from
Boeckman Road.
4.2.7 Supervision. Tenant shall keep the Premises clean and
orderly and will supervise its employees and cause Tenant's agents, independent
contractors, employees, customers, suppliers, and invitees to conduct their
activities in such a manner as to comply with the requirements of this Lease,
including the rules and regulations described in Section 4.2.9.
4.2.8 Storage, Trash. Tenant shall not store anything outside
the Premises except in areas approved by Landlord. Tenant shall use only
commercially available trash and garbage receptacles. Tenant shall dispose of
trash and other matter in a manner acceptable to Landlord, at Tenant's expense.
Landlord's approval shall not unreasonably be withheld.
4.2.9 Regulations. Landlord shall have the right to make and
enforce reasonable rules and regulations ("the Campus Rules and Regulations")
consistent with this Lease for the purpose of establishing standards and
requirements concerning the conduct and operation of business, and promoting
safety, order, cleanliness, and good service to the Premises, and adjacent
property. Tenant will promptly comply with all such Campus Rules and
Regulations.
10 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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SECTION 5. OPERATING EXPENSES AND REPAIRS
5.1 OPERATING EXPENSES. For the purposes of this Lease, the term
"Operating Expenses" shall mean all expenses paid or incurred by Landlord or on
Landlord's behalf as reasonably determined by Landlord to be necessary or
appropriate for the efficient operation, maintenance and repair of the Forest
Building Property, including the common areas thereof, and the curbs and
sidewalks adjoining the Forest Building Property. Operating Expenses are
further described in the attached Exhibit G, which by this reference is made a
part of this Lease. The Operating Expense for "Capital Reserve" is intended to
cover the cost of replacing, or performing major repairs on, Landlord's capital
improvements with an expected life, as determined by Generally Accepted
Accounting Principles (GAAP), of one or more years, which cost is capitalized,
not expensed, by Landlord. The Operating Expense for "Capital Reserve" is not
intended to cover the cost of capital improvements required by any public
authority's rules, regulations, or actions and such costs shall be paid as
follows:
(a) The cost of those capital improvements required by any
public authority's rules, regulations, or actions as the result of
Tenant's use of the Premises shall be paid in full by Tenant within 30
days of Tenant's receipt of Landlord's invoice or statement for such
cost.
(b) The cost of those capital improvements required by any
public authority's rules, regulations, or actions for reasons other
than Tenant's use of the Premises shall be paid by Landlord and
amortized over the useful life of the capital improvement, in
accordance with GAAP. The annual amortization expense, pursuant to
GAAP, shall be charged to Tenant as Additional Rent over the remaining
term of this Lease.
5.2 TENANT OBLIGATIONS. Tenant shall pay as Additional Rent the
Operating Expenses of the Forest Building Property. In addition, Tenant shall
be obligated to provide at its sole expense certain items of repair and
maintenance as listed as Tenant's responsibility on the attached Exhibit G. All
items of repair and maintenance which are Tenant's responsibility shall be
performed to the Landlord's satisfaction at standards established by Landlord in
other buildings on its adjacent campus.
5.3 WRITTEN STATEMENT OF ESTIMATE. At least ten (10) business days
prior to the commencement of each calendar year during the term of this Lease,
Landlord shall furnish Tenant with a written statement setting forth the
estimated Operating Expenses for the next calendar year. Tenant shall pay to
Landlord as Additional Rent on the first day of each month of the calendar year
an amount equal to one-twelfth (1/12) of the amount shown in Landlord's written
statement. If Landlord delivers the written statement late, Tenant shall pay to
Landlord an amount equal to one-twelfth (1/12) of the estimated Operating
Expenses for the immediately preceding calendar year until Landlord does furnish
the written statement. Upon receipt of Landlord's statement, Tenant shall pay
the amount of any excess of the expired portion of the current calendar year
over the Tenant's actual payments during such time and any excess payments by
Tenant shall be credited to the next due payment of Rent from Tenant. The
Capital Reserve Account and the Administrative Fee Account reflect flat fee
charges and shall, therefore, not be included in the Operating Statement (as
defined in Section 5.5 below), nor shall they be adjusted annually.
5.4 FINAL WRITTEN STATEMENT. Within one hundred twenty (120) days
after the close of each calendar year during the term hereof, Landlord shall
deliver to Tenant a written statement (the "Operating Statement") setting forth
actual Operating Expenses for the preceding operating year. If the actual
Operating Expenses are in excess of the Tenant's estimated Operating Expenses,
Tenant shall pay the amount of such excess to Landlord as Additional Rent within
thirty (30) days after receipt of such
11 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
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statement by Tenant. If Tenant's Operating Expenses are less than the Tenant's
estimated Operating Expenses actually paid by Tenant, then the amount of the
excess overpayment shall be paid by Landlord to Tenant within thirty (30) days
following the date of such statement or Landlord may elect to apply the
overpayment to Tenant's next Rent payment, reimbursing only the excess over such
next payment, if any.
5.5 TENANT AUDIT. Tenant shall have the right to an audit performed
by an independent auditor whose fee shall be paid by Tenant and who shall sign a
nondisclosure agreement reasonably acceptable to Landlord. Landlord shall be
entitled to thirty (30) days' prior written notice to schedule an audit on a
mutually convenient date. Each audit shall be conducted during regular business
hours and in such a manner as not to interfere with Landlord's normal business
and quarter-end and year-end activities. Audits shall not be made more often
than annually. The auditor's report shall only confirm or deny the accuracy of
Landlord's Operating Statement. Such auditor's report shall not provide Tenant
with information considered by Landlord to be confidential, except to the extent
necessary to provide Tenant with information relating to the nature and extent
of any inaccuracy. This right to audit shall survive termination or expiration
of this Lease for a period of one year.
5.6 DISPUTES. Each such Operating Statement given by Landlord
pursuant to this Section shall be conclusive and binding upon Tenant unless
within thirty (30) days (or sixty (60) days if Tenant requests an audit under
Section 5.5) after the receipt of such Operating Statement, Tenant notifies
Landlord in writing that it disputes the correctness of the Operating Statement,
specifying the particular respects in which the Operating Statement is claimed
to be incorrect. If such disputes shall not have been settled by agreement,
either party, within said time period after receipt of such statement, may
submit the dispute to arbitration as provided in Section 19 herein. Pending the
determination of such dispute by agreement or arbitration, as aforesaid, Tenant,
within ten (10) business days of receipt of such Operating Statement, shall pay
Additional Rent in accordance with the Operating Statement, without prejudice to
Tenant's position. If the dispute shall be determined in Tenant's favor,
Landlord shall, within thirty (30) days, pay to Tenant the amount of Tenant's
overpayment of rents resulting from compliance with the Operating Statement.
5.7 PAYMENT. If an operating year ends after the expiration or
termination of this Lease, the Additional Rent in respect thereof payable under
this Section shall be paid by Tenant within ten (10) business days of its
receipt of the Operating Statement for such calendar year and before the
Security Deposit is released. If Tenant's estimated operating expense payments
have exceeded the Tenant's actual Operating Expenses, then the amount of the
overpayment shall be paid by Landlord to Tenant within ten (10) business days
following the date of receipt of the Operating Statement.
5.8 INTERFERENCE. In performing any repairs, replacements,
maintenance, construction or other work on or around the Premises, Tenant shall
not cause unreasonable interference with Landlord's use of the Premises or
adjacent campus and, to the extent reasonably possible, will schedule work so as
not to impact Landlord's high volume hours or days. In performing any repairs,
replacements, maintenance, or other work on or around the Premises, Landlord
shall not cause unreasonable interference with the use of the Premises by Tenant
and, to the extent reasonably possible, will schedule work so as not to impact
Tenant's high volume hours or days. Tenant shall have no right to an abatement
of rent nor any claim against Landlord for any inconvenience or disturbance
resulting from Landlord's activities performed in conformance with the
requirement of this provision and Tenant hereby expressly waives any claim to
damages, including loss of business resulting therefrom. Notwithstanding the
foregoing, if Landlord performs repairs, replacements or maintenance arising
from or required by circumstances or conditions within Landlord's control in
such a manner as to create a material or long-term and unreasonable interference
with Tenant's use of the Premises, Tenant shall be entitled to an abatement of
rent based upon the pro rata portion of the space in which the interference took
place. It is understood and agreed that Landlord reserves, and at any and all
times shall have, the right to repair or improve the Forest Building or to add
thereto, and for that purpose at any time may erect scaffolding and
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other necessary structures about and upon the Forest Building. In such event,
Landlord and Landlord's representatives, contractors and workers may enter in or
about the Forest Building with such materials as Landlord may deem necessary
therefor. Tenant shall grant Landlord and Landlord's contractors access using
the standards and procedures described herein at Section 20.6.
5.9 INSPECTION OF PREMISES. Landlord shall have the right to inspect
the Premises at any reasonable time or times to determine the necessity of
repair. Landlord will use its best efforts to give Tenant 24 hours written
notice of inspection, except in the case of an emergency. Whether or not such
inspection is made, the duty of Landlord to make repairs pursuant to Section 5.1
shall not mature until a reasonable time after Landlord has received from Tenant
written notice of the repairs that are required. Tenant will give immediate
notice to Landlord's Facilities Operations Manager or the Assistant Facilities
Operations Manager if any governmental agency gives notice of, or conducts, an
inspection of the Premises. It is the intent of this provision that Tenant will
notify Landlord promptly to enable Landlord's representative to accompany the
inspector if Landlord so desires. Within 48 hours of the receipt thereof,
Tenant shall provide Landlord with a copy of any written communication from any
such governmental agency regarding, or resulting from, such inspection.
5.10 EMERGENCY REPAIRS. If either party fails or refuses to make
repairs as required by Sections 5.1 and 5.2 of this Lease, respectively, and
such repairs are necessary in order to prevent imminent damage to or destruction
of the Forest Building or either party's trade fixtures or personal property,
and if following five (5) days written notice of the need for such repairs given
to one party by the other such repairs have not been commenced or reasonable
steps to make such repairs have not been taken by the responsible party, the
other party may make such repairs and charge the reasonable actual costs thereof
to the responsible party. If either party makes such repair, that party shall
bill the other party promptly. The other party shall within thirty (30) days of
receipt of the repair bill either pay the bill or request arbitration of any
disputed amounts. In no event, however, shall Tenant have a right to offset the
costs of such repairs against its obligations to pay Base Rent or Additional
Rent hereunder.
5.11 FOOD SERVICE CHARGE. Tenant shall pay to Landlord as Additional
Rent the sum of $500.00 per month for food service charges. This sum is
intended to cover expenses incurred by Landlord as the result of Landlord's food
service vendor, Bus Stop Food, use of Landlord's kitchen facilities to provide
certain food services to Tenant. Tenant's obligation to make such payments
shall continue until the termination or expiration of the Lease, or termination
or expiration of the underlying food services agreement between Tenant and Bus
Stop Foods, whichever is sooner. The services to be provided to Tenant by Bus
Stop Food shall be set forth in a separate agreement between Tenant and Bus Stop
Food to which Landlord shall not be a party. Landlord shall have no liability
to Tenant or its employers, guests or invitees with regard to any claim, damage,
injury, property damage or any other liability directly or indirectly arising
out of the agreement between Tenant and Bus Stop Food and Tenant shall indemnify
Landlord for and hold Landlord harmless from all costs, losses, damages and
expenses related to same. Subject to the terms of Section 5 of this Lease,
Tenant shall be responsible for any Alterations required to facilitate the
provision of food services in the Premises.
SECTION 6. ALTERATIONS
6.1 ALTERATIONS PROHIBITED. Tenant shall make no significant
improvements or alterations on the Premises of any kind (which shall be defined
as any improvement or alteration to HVAC; Windows; Structural; Architectural;
Wiring; Mechanical; Electrical; Fire Protection; Alarms; Landscaping; anything
which is required by code or requires a permit; or any other major improvement
or alteration) without first obtaining Landlord's written consent. Landlord
will promptly respond to such request and will not unreasonably withhold
consent. All alterations shall be made in a good and workmanlike manner by
licensed and bonded contractors, approved by the Landlord, and in compliance
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with applicable laws and building codes and shall be appropriately documented,
including changes to "as built" drawings on file with the Landlord. As used
herein, "alterations" includes, but is not limited to, the installation of all
major walls, doors, corridors, floors, mezzanines, stairs, landscaping, roofing,
windows, electrical and mechanical equipment/systems/panels/controls, computer
and telecommunications wiring, cables, and conduits.
6.2 TENANT IMPROVEMENTS. Prior to commencing construction of any
tenant improvements, Tenant shall have detailed plans and specifications for the
tenant improvements (the "Tenant Improvements"), prepared by a duly qualified
architect, including a schedule of construction, and submit such plans and
specifications to Landlord for written approval. Such plans and specifications
shall comply with the requirements of Section 18, all building codes and all
requirements of all governmental departments and agencies having jurisdiction
over the Premises, including compliance with the ADA. Landlord shall notify
Tenant within a reasonable period after receipt of the plans and specifications
of its approval or disapproval of the same. Upon approval of the plans and
specifications by Landlord, Tenant shall commence its work in accordance with
the plans and specifications approved by Landlord as above provided, and proceed
expeditiously to complete said work. All Tenant Improvements shall be made in a
good and workmanlike manner by licensed and bonded contractors and shall be
appropriately documented, including changes to "as built" drawings on file with
Landlord. Tenant shall keep the Premises free of any related liens pursuant to
Section 11. It is also understood and agreed that Tenant will not grant a
security interest in any Tenant Improvements, trade fixtures or fixtures without
the prior written consent of Landlord, which consent will not be unreasonably
withheld. Landlord will reply to the request for consent within ten (10)
business days.
6.3 SPECIAL IMPROVEMENTS. It is agreed between the parties that
Landlord may require Tenant to install certain reasonable Tenant Improvements
intended for the handling, processing, storing and containing of hazardous
materials to standards which may exceed the requirements of applicable federal,
state and local laws and regulations.
6.4 OWNERSHIP AND REMOVAL OF ALTERATIONS.
6.4.1 Removal. All Tenant Improvements and alterations performed
on the Premises by either Landlord or Tenant, including those Tenant
Improvements and alterations performed by either party under the 1993 Lease,
shall be removed by Tenant at its sole expense and the Premises restored to its
original condition at the end of the Lease term as provided for herein unless,
not later than ninety (90) days prior to the expiration of the final Lease term,
Landlord gives written notice to Tenant allowing Tenant to leave any part of
said improvements and alterations in the Premises. If Landlord does not give
Tenant such written notice, Tenant shall leave no Tenant Improvements in the
Premises. A list of Tenant Improvements and alterations performed by Tenant
and/or Landlord under the 1993 Lease that Landlord has agreed Tenant will be
allowed to leave in the Premises upon expiration or termination of this Lease is
attached as Exhibit H. At the time Landlord reviews any additional construction
plans of Tenant, Landlord shall endeavor to advise Tenant which Alterations, if
any, Landlord may allow Tenant to leave in the Premises upon the expiration or
termination of this Lease.
6.4.2 Hardwiring. Notwithstanding the foregoing, Landlord shall
not unreasonably require Tenant to remove hardwiring installed in the walls of
the Premises.
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6.5 PERSONAL PROPERTY AMENITY.
6.5.1 Personal Property. Landlord will provide, for Tenant's use
on the Premises, existing prewired partitions, hanging files, warehouse racks
and planters with plants during the term of the Lease. Said personal property
consists of approximately 680 partitions, 230 hanging files, 45 planters with
plants, and 100 warehouse racks presently located in the Forest Building.
Landlord will make available said personal property in the Premises where said
property is located. Tenant accepts said personal property as is, where it is.
6.5.2 Access Control Units/Card Readers. Landlord shall leave in
place all local access control units and card readers for the security system as
presently located in the Premises during the term of the Lease for use by
Tenant. Tenant shall pay actual card fees and related charges as incurred by
Landlord from time to time.
6.6 SECURITY ACCESS SYSTEM. Tenant will purchase and install a
PC-based system and software to maintain security access for the Premises.
Tenant shall immediately notify Landlord's security office of all major alarm
events as they occur. Tenant will provide Landlord with active security access
cards for Landlord's access to the Premises. Landlord will use the security
cards only for emergency access during nonbusiness hours and will access the
Premises during business hours only when accompanied by a Tenant escort.
6.7 HVAC ENERGY MANAGEMENT COMPUTER SYSTEM. Tenant will purchase and
install a PC-based system and software to operate the HVAC Energy Management
Computer System.
6.8 TELEPHONE SYSTEM. At its sole cost, Tenant will arrange for its
own telephone service, together with all switching and associated hardware,
software and cabling as necessary.
6.9 INCENTIVE PACKAGES. As additional consideration to Tenant,
Landlord shall provide to Tenant the following furniture:
6.9.1 Thirty (30) desks and executive chair sets;
6.9.2 Sixteen (16) conference room tables and eighty (80) chairs.
6.9.3 Said furniture shall be made available to Tenant as needed
and within a reasonable time. Tenant may take possession of said furniture at
reasonable times upon reasonable notice. Upon termination of the Lease or any
renewal thereof, all the above furniture shall be returned to Landlord in its
original condition, ordinary wear and tear excepted.
SECTION 7. "TRIPLE NET" LEASE: PAYMENT OF TAXES, UTILITIES, AND INSURANCE.
This is a "triple net" lease of the Building E Property and Tenant shall pay as
Additional Rent the following items:
7.1 PROPERTY TAXES. Tenant shall pay as and when due all personal
property taxes on its personal property, equipment and trade fixtures located on
the Premises, including, but not limited to, the personal property provided by
Landlord as described in Sections 6.5 and 6.9. Tenant shall pay to Landlord as
and when due all real property taxes and assessments levied against the Premises
as set forth in Exhibit G. As used herein, real property taxes includes any fee
or charge relating to the ownership, use, or rental of the Premises, other than
taxes on the net income of Landlord or Tenant. Tenant's Operating Expenses for
real property taxes shall equal the actual real property taxes.
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7.2 PRORATION OF TAXES. Tenant's share of real property taxes and
assessments for the years in which this Lease commences or terminates shall be
prorated based on the portion of the tax year that this Lease is in effect. For
the purposes of this Section, the Lease shall be deemed to have commenced on
January 1, 1999.
7.3 NEW CHARGES, FEES, SUBSTITUTE OR ALTERNATE TAX. If a new charge,
fee, or tax relating to the ownership or use of the Premises or the receipt of
rental therefrom, or in lieu of, or as an alternate to, property taxes, is
assessed or imposed, then, to the extent permitted by law, Tenant shall pay such
charge or fee. Tenant shall pay any and all governmental fees related to their
occupancy of the Premises including, but not limited to, system development
fees. Tenant, however, shall have no obligation to pay any income, profits, or
franchise tax levied on the net income derived by Landlord from this Lease.
7.4 PAYMENT OF UTILITIES CHARGES. Tenant shall pay when due all
charges for services and utilities incurred in connection with the use,
occupancy, operation, and maintenance of the Premises, including (but not
limited to) charges for fuel, water, gas, electricity, sewage disposal, power,
refrigeration, air conditioning, telephone, and janitorial services. If any
utility services are provided by or through Landlord, charges to Tenant shall be
comparable with prevailing rates for comparable services. If the charges are
not separately metered or stated, Landlord shall apportion the charges on an
equitable basis, and Tenant shall pay its apportioned share on demand. Tenant
may protest or seek audits of utility charges from the providing utility
following procedures available therefor. Landlord will cooperate with Tenant's
reasonable appeals of said charges. It is understood that if Landlord has paid
the utility charges in question, Tenant shall pay Landlord and receive Tenant's
pro rata refund, if any, upon resolution of the protest.
7.5 PAYMENT OF INSURANCE. Tenant shall pay when due all premiums for
insurance as provided for under Section 8 below.
SECTION 8. INSURANCE
8.1 LIABILITY INSURANCE. Tenant shall continuously keep the Premises
insured at its expense with comprehensive general liability insurance with a
combined single limit of $5,000,000, or such higher limits as Landlord may
reasonably require from time to time; provided, however, such limits will not
exceed the limits usually required by landlords of similar buildings involving
similar activity in the Northwest. Further, Tenant shall maintain such other
insurance including, but not limited to, workers' compensation, auto liability,
and employer liability insurance as Landlord may reasonably require during the
Lease term. All such insurance shall name Landlord as an additional insured and
shall contain a contractual liability endorsement referring to this Lease. The
policies shall be in a form, in amounts and with companies authorized to do
business in Oregon, and reasonably acceptable to Landlord. Certificates
evidencing such insurance and bearing endorsements requiring thirty (30) days'
written notice to Landlord prior to any change or cancellation, shall be
furnished to Landlord prior to Tenant's occupancy of the Premises and annually
thereafter.
8.2 PROPERTY INSURANCE.
8.2.1 Insurance on the Premises. Unless otherwise requested by
Tenant as provided below, Landlord shall continuously keep the Premises insured
under a fire, extended coverage and all risks generic type endorsement insurance
policy in an amount determined by Landlord but not to exceed the full
replacement cost of the Premises and those improvements installed by Landlord.
Landlord shall also obtain insurance policy endorsements for earthquake and
sprinkler leakage coverage. The cost of the insurance described above shall be
paid by Tenant as part of the Operating Expenses as provided in Section 5. At
Tenant's option and upon 90 days' prior written notice to Landlord, Tenant may
elect to
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obtain insurance in its own name in which case, Tenant shall continuously keep
the Premises insured under a fire, extended coverage and all risks generic type
endorsement insurance policy in a form and an amount determined by Landlord but
not to exceed the full replacement cost of the Premises and those improvements
installed by Landlord. Tenant will obtain additional insurance policy
endorsements for earthquake and sprinkler leakage coverage. Landlord will be
named as an additional insured and loss payee on all insurance covering the
Premises and the improvements installed by Landlord. All such insurance will be
acquired through insurance companies authorized to do business in Oregon and
reasonably acceptable to Landlord. Tenant will provide Landlord with
certificates of insurance evidencing such coverage. Such certificates shall
provide that the Tenant's insurer shall give Landlord 30 days' prior written
notice of any change in, or cancellation of, insurance on the Premises. If at
any time during the term of this Lease or any extension, Tenant fails or refuses
to continuously keep the Premises insurance as required above, Landlord may
immediately obtain substantially similar insurance on the Premises and pass the
cost of such insurance through to Tenant as an Operating Expense. Tenant shall
notify Landlord 120 days prior to Tenant's insurance renewal date and, within 30
days of receipt of such notice, Landlord shall provide Tenant with Landlord's
estimated cost of replacement of the Premises and those improvements installed
by Landlord.
8.2.2 Insurance on Tenant's Personal Property. For purposes of
Section 8 and Section 9, "Tenant's Personal Property" shall mean Tenant's
furniture, equipment and trade fixtures located on the Premises and the Tenant
Improvements installed on the Premises by Tenant. Tenant shall be responsible
for insuring Tenant's Personal Property but shall not be required by Landlord to
do so.
8.3 TENANT'S BUSINESS INTERRUPTION INSURANCE. During the term of
this Lease and any extension, Tenant will maintain in effect a policy of
business interruption insurance. Tenant shall name Landlord as a loss payee on
such insurance in an amount which, in any calendar year, shall not exceed the
annual Rent to which Landlord is entitled under this Lease.
8.4 WAIVER OF SUBROGATION RIGHTS. Neither Landlord nor Tenant shall
be liable to the other for loss arising out of damage to or destruction of the
Premises or the contents thereof when such loss is caused by any of the perils
which are or could be included within or insured against by a standard form of
fire insurance with extended coverage, including earthquake and sprinkler
leakage insurance. All such claims for, and all loss, however caused, hereby
are waived. Such absence of liability shall exist whether or not the damage or
destruction is caused by the negligence of either Landlord or Tenant or by any
of their respective agents, servants or employees. It is the intention and
agreement of the Landlord and Tenant that each party shall look to its
respective insurance carriers for reimbursement of any such loss, and further,
that the insurance carriers involved shall not be entitled to subrogation under
any circumstances against any party to this Lease. Neither Landlord nor Tenant
shall have any interest or claim in the other's insurance policy or policies, or
the proceeds thereof, unless specifically covered therein as a joint assured.
This waiver shall be valid only if the insurance policy in question expressly
permits waiver of subrogation or if the insurance company agrees in writing that
such a waiver will not affect coverage under the policies. Each party agrees to
use best efforts to obtain such an agreement from its insurer if the policy does
not expressly permit a waiver of subrogation and to promptly notify the other if
it does not.
SECTION 9. DAMAGE AND DESTRUCTION
9.1 RIGHT OF TERMINATION ON SUBSTANTIAL DAMAGE. If fire or other
casualty or acts of God, war or insurrection cause damage to either the
Evergreen Building or the Forest Building in an amount exceeding thirty percent
(30%) of its full replacement cost, then Landlord may elect to terminate this
Lease with respect to that portion of the Premises that is damaged by giving
written notice of such
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termination to Tenant thirty (30) days after receipt of notification as to the
cost of repair. In such event, all rights and obligations of the parties with
respect to the damaged building shall cease as of the date of termination, and
Tenant shall be entitled to the reimbursement of any prepaid amounts paid by
Tenant and attributable to the anticipated term for that portion of the
Premises.
9.2 OBLIGATION TO REBUILD.
9.2.1 Completion of Repairs. If the Lease is not terminated
pursuant to Section 9.1 above, Landlord shall proceed to restore and repair the
Premises to a condition comparable in function and value to that existing prior
to the damage. Work shall be commenced as soon as reasonably possible and
thereafter shall proceed without interruption except for work stoppages on
account of labor disputes and matters beyond Landlord's reasonable control.
Tenant shall cooperate with Landlord during the period of repair of the
structure and mechanical systems and vacate all or any part of the Premises to
the extent necessary for performance of the required work.
9.2.2 Cost of Restoration and Repair of Premises. If the Lease
is not terminated pursuant to Section 9.1 above, Landlord shall use the proceeds
from the insurance described in Section 8.2.1 to make restoration and repairs to
the Premises and those improvements and that equipment installed in the Premises
by Landlord. Tenant shall not be entitled to any such insurance proceeds. If
the cost of the restoration and repair of the Premises exceeds the proceeds from
the insurance described in Section 8.2.1, then the additional costs shall be
borne as follows:
(a) To the extent the damage or destruction is caused by
Landlord, its employees, vendors, agents or invitees or by an act of
war or insurrection, Landlord shall be responsible for the additional
costs.
(b) To the extent the damage or destruction is caused by Tenant,
its employees, vendors, agents or invitees, Tenant shall be
responsible for the additional costs.
(c) To the extent the damage or destruction is caused by an act
of God or by a third party, who is not a vendor, agent or invitee of
either party, the parties shall share equally in the additional costs.
9.2.3 Repair and Restoration of Tenant's Personal Property.
Tenant shall use the proceeds from the insurance described in Section 8.2.2 to
repair and restore Tenant's Personal Property. Regardless of the cause of
damage or destruction, Landlord shall have no liability with regard to Tenant's
Personal Property and shall not be entitled to any proceeds from the insurance
described in Section 8.2.2.
9.2.4 Repair and Restoration of Landlord's Personal Property. During
the term of the Lease, Landlord may have certain furnishings, equipment and
other property ("Landlord's Personal Property") on the Premises. Regardless of
the cause of damage or destruction, Tenant shall have no liability for
Landlord's Personal Property and shall not be entitled to any proceeds from
insurance, if any, carried on such property by Landlord.
9.3 TENANT RESTORATION. If the Premises are to be restored by
Landlord as provided in this Section, Tenant, at its sole expense, shall be
responsible for the repair and restoration of Tenant's Personal Property (as
defined in Section 8.2.2). Tenant shall commence the installation of the same
promptly upon delivery to Tenant of possession of the Premises, and Tenant shall
diligently prosecute such installation to completion. If Tenant desires to
modify its Tenant Improvements, Tenant shall submit a new plan for Tenant
Improvements to Landlord for approval, which approval will not be unreasonably
withheld.
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9.4 DAMAGE LATE IN TERM. If damage or destruction to which Section
9.2 would apply occurs within one year of the end of the then current Lease
term, notwithstanding any right to renew, Tenant may elect to terminate the
Lease by written notice to Landlord given within thirty (30) days after the
date of the damage; provided that Tenant shall not be entitled to terminate
unless and until business interruption insurance payments toward rent cease,
and provided further that on any termination Landlord succeeds to all
available insurance proceeds from all policies insuring the Premises. Such
termination shall have the same effect as termination by Landlord under
Section 9.1.
9.5 COST OF MOVING PROPERTY. Tenant shall pay all costs of moving
its personal property when required in connection with any repairs of the
Premises.
9.6 RENT ABATEMENT. There shall be no rent abatement to the extent
the damage is caused by Tenant, its agents, employees or invitees, or to the
extent payment of rent is made possible by Tenant naming Landlord as loss payee
under Tenant's policy of business interruption insurance, as set forth in
Section 8.3. In the event of an abatement, the Base Rent, but not any
Additional Rent, shall abate during the abatement period and only to the extent
the Premises or any portion of the Premises are not reasonably usable for
Tenant's use. If the damage does not cause any material interference with
Tenant's use, there shall be no rent abatement.
SECTION 10. EMINENT DOMAIN
10.1 TOTAL TAKING. If a condemning authority takes all of the
Premises or a portion sufficient to render the remaining part of the Premises
reasonably unsuitable for the use that Tenant was then making of the Premises,
then the Lease shall terminate as of the date the title vests in the condemning
authority. Landlord shall be entitled to all of the proceeds of condemnation,
except for any award specifically made to Tenant for moving expenses, the taking
of Tenant's Tenant Improvements, trade fixtures or personal property,
interruption or damage to Tenant's business, or the value of the unexpired term
of Tenant's leasehold interest ("Tenant's Claims"), and Tenant shall have no
claim against Landlord as a result of the condemnation. Tenant may make a
separate claim for Tenant's Claims against the condemning authority.
10.2 PARTIAL TAKING. If a portion of the Premises is condemned and
Section 10.1 does not apply, this Lease shall continue on the following terms:
10.2.1 Landlord shall be entitled to all of the proceeds of
condemnation of the Premises, and Tenant shall have no claim against Landlord as
a result of the condemnation. Tenant may make a separate claim for Tenant's
Claims against the condemning authority.
10.2.2 Landlord shall proceed as soon as reasonably possible to
make such repairs and alterations to the Premises as are necessary to restore
the remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation except for repairs to Tenant's
property for which Tenant is responsible under Section 5 of this Lease.
Landlord need not incur expenses for restoration in excess of the amount of
condemnation proceeds received by Landlord after payment of all reasonable
costs, expenses and attorneys' fees paid or incurred by Landlord in connection
with the condemnation.
10.2.3 After the date on which title vests in the condemning
authority or an earlier date on which alterations or repairs are commenced by
Landlord to restore the balance of the Premises in anticipation of taking, the
rent shall be reduced in proportion to the reduction in value of the Premises as
an economic unit on account of the partial taking. If the parties are unable to
agree on the amount of the reduction of rent, the amount shall be determined by
arbitration in the manner provided in Section 19.
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10.2.4 If a portion of Landlord's property not included in the
Premises is taken, and severance damages are awarded on account of the Premises,
or an award is made for detriment to the Premises as a result of activity by a
public body not involving a physical taking of any portion of the Premises, this
shall be regarded as a partial condemnation to which Sections 10.2.1 and 10.2.2
apply, and the rent shall be reduced to the extent of reduction in rental value
of the Premises as though a portion had been physically taken.
10.2.5 If Tenant in good faith believes that the condemning
authority has taken so large a portion of the Premises to render the remaining
part of the Premises unsuitable for the use that the Tenant was then making of
the Premises, Tenant shall give notice to the Landlord of its desire to
terminate the Lease as soon as reasonably possible but prior to Landlord's
commencement of the repair and alterations provided for in Section 10.2.2. If
the parties are unable to agree as to whether the partial taking has rendered
the Premises reasonably unsuitable for the use the Tenant was then making of the
Premises, the dispute shall be resolved by arbitration in a manner provided in
Section 19.
10.3 SALE IN LIEU OF CONDEMNATION. Sale of all or part of the
Premises to a purchaser with the power of eminent domain in the face of a threat
or probability of the exercise of the power shall be treated for the purposes of
this Section 10 as a taking by condemnation.
SECTION 11. LIENS, LIABILITY AND INDEMNITY
11.1 LIENS
11.1.1 Except with respect to activities for which Landlord is
responsible, Tenant shall pay as and when due all claims for work done on, and
for services rendered or material furnished to, the Premises, and shall keep the
Premises free from any liens. If Tenant fails to pay any such claims or to
discharge any lien, Landlord may do so and collect the cost as Additional Rent.
Any amount so added shall bear interest at the rate equal to the Prime Rate
charged by Bank of America plus 2% per annum up to the maximum rate allowed by
law from the date expended by Landlord and shall be payable on demand. Such
action by Landlord shall not constitute a waiver of any right or remedy which
Landlord may have on account of Tenant's default.
11.1.2 Tenant may withhold payment of any claim in connection
with a good-faith dispute over the obligation to pay, as long as Landlord's
property interests are not jeopardized. If a lien is filed as a result of
nonpayment, Tenant shall, within ten (10) business days after knowledge of the
filing, secure the discharge of the lien or deposit with Landlord cash or
sufficient corporate surety bond or other surety satisfactory to Landlord in an
amount sufficient to discharge the lien plus any costs, attorney fees, and other
charges that could accrue as a result of a foreclosure or sale under the lien.
11.2 INDEMNIFICATION. Tenant shall indemnify, defend, and hold
Landlord harmless from: (a) any claim, loss, liability, or expense, including
attorneys' fees, arising out of or related to any activity, action or inaction
of Tenant or its agents, independent contractors, employees, customers,
suppliers or invitees on the Premises; (b) any condition of the Premises in the
possession of, under the control of, or which is the responsibility of Tenant;
and (c) any food, beverages, goods or services sold or dispensed by Tenant from
the Premises (including "dram shop," products liability and other claims.)
11.3 LANDLORD'S LIABILITY. Landlord shall have no liability to
Tenant for any injury, loss, or damage caused by third parties, or any condition
or defect of the Premises which is the responsibility of Tenant under this
Lease, or for any interruption of or failure in the supply of utilities or
services to the Premises, which was not under Landlord's control.
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SECTION 12. QUIET ENJOYMENT; MORTGAGE PRIORITY.
12.1 LANDLORD'S WARRANTY OF QUIET ENJOYMENT. Landlord warrants that
it is the owner of the Premises and has the right to lease them free of all
encumbrances except those, if any, set forth on the attached Exhibit I. So long
as Tenant is not in default and, subject to any such exceptions, Landlord
covenants that Tenant shall have the right to quiet enjoyment of the Premises
free from the lawful claims of all persons during the Lease term.
12.2 MORTGAGE PRIORITY; SUBORDINATION. This Lease is and shall be
prior to any mortgage or deed of trust ("Encumbrance") recorded after the date
of this Lease and affecting the Premises. However, if any lender holding such
an Encumbrance requires that this Lease be subordinate to the Encumbrance, then
Tenant agrees that the Lease shall be subordinate to the Encumbrance, and to any
and all advances made on the security thereof, and to all extensions thereof, so
long as the holder of the Encumbrance agrees in writing with Tenant that, as
long as Tenant pays the rent and observes and performs all of the provisions of
this Lease and as long as the Lease is not otherwise terminated pursuant to its
terms, no foreclosure, deed given in lieu of foreclosure, or sale pursuant to
the terms of the Encumbrance, or other steps or procedures taken under the
Encumbrance, shall affect Tenant's rights under this Lease. If the foregoing
condition is met, Tenant shall promptly execute any documents required by the
holder of the Encumbrance to accomplish the purposes of this Section. If the
Premises are sold as a result of foreclosure of any Encumbrance thereon, or
otherwise transferred by Landlord or any successor, Tenant shall attorn to the
purchaser or transferee. If the holder of the Encumbrance has requested that
Tenant execute a subordination consistent herewith and Tenant fails or refuses
for more than ten (10) business days, the holder of the Encumbrance shall be
entitled, by written notice thereof to Tenant, to effect a subordination of this
Lease, such that it shall be deemed subordinate to the Encumbrance. Landlord
represents that Landlord's current lender has agreed that it will not object to
Landlord entering into this Lease. Landlord will obtain approval of any future
lender to the Lease.
12.3 ESTOPPEL CERTIFICATE. Tenant will, within ten (10) business
days after notice from Landlord, execute and deliver to Landlord a certificate
stating whether or not this Lease has been modified and is in full force and
effect and specifying any modifications or alleged breaches by Landlord. The
certificate shall also state the amount of monthly Base Rent, as adjusted, the
dates to which rent has been paid in advance, the amount of any security deposit
or prepaid rent and any other matters that may reasonably be requested by the
Landlord. Failure to deliver the certificate within the specified time shall be
conclusive upon the Tenant that the Lease is in full force and effect and has
not been modified except as represented in the notice requesting the
certificate.
SECTION 13. ASSIGNMENT AND SUBLETTING
13.1 PROHIBITION ON TRANSFER. Tenant shall not assign, mortgage,
pledge, hypothecate or encumber the Premises or Tenant's leasehold estate, or
any rights of Tenant under this Lease or sublet any portion of the Premises, or
license the use of any portion of the Premises or otherwise transfer any
interest in the Premises (whether voluntary, involuntary, by operation of law or
otherwise), without the prior written consent of Landlord, which will not be
unreasonably withheld. If Landlord consents to an assignment, sublease or other
transfer of Tenant's rights and obligations under this Lease, any amount of
rents generated under such assignment, sublease or transfer, over and above the
payments required of Tenant to Landlord shall accrue solely to Landlord. The
reasonable and documented costs incurred by Tenant for tenant improvements,
brokerage fees and legal expenses directly attributable to the assignment,
sublease or other transfer shall be included in the calculation of the amount of
rents generated over and above the payments required of Tenant. If Tenant is a
corporation or partnership, any transfer of a controlling (including but not
limited to a majority voting interest) interest in the stock or partnership of
Tenant shall be deemed an assignment of this Lease. Any attempted transfer
without consent shall be null and void and, at the option of Landlord, will
cause termination of this Lease.
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13.2 OBLIGATIONS AFTER TRANSFER. The giving of consent in one
instance shall not preclude the need for Tenant or its successor to obtain
Landlord's consent to further transfers. If Tenant is permitted to make any
transfer, Tenant shall not be relieved of its obligations, but shall remain
primarily liable to Landlord for performance of all such obligations.
SECTION 14. DEFAULT
The following shall be events of default:
14.1 DEFAULT IN RENT. Failure of Tenant to pay any Base Rent or
Additional Rent, or pay any other charge imposed hereunder, within ten (10)
business days after it is due.
14.2 UNAUTHORIZED TRANSFER. Tenant makes any transfer without
Landlord's prior written consent as required under Section 13 above.
14.3 DEFAULT IN OTHER COVENANTS. Failure of Tenant to comply with
any term or condition or fulfill any obligation of the Lease (other than the
payment of rent or other charges as described in Section 14.1) within thirty
(30) days after written notice by Landlord specifying the nature of the default
with reasonable particularity. If the default is of such a nature that it
cannot be completely remedied within the thirty (30) day period, this provision
shall be deemed to be complied with if Tenant begins correction of the default
within the said 30-day period and thereafter proceeds with reasonable diligence
and in good faith to effect the remedy as soon as practicable.
14.4 INSOLVENCY. Dissolution, termination of existence, insolvency
on a balance sheet basis, or business failure of Tenant; the failure of Tenant
generally to pay its debts as they become due; an assignment by Tenant for the
benefit of creditors; the filing by Tenant of a voluntary petition in bankruptcy
or under any other federal or state law relating to insolvency or debtor's
relief; an adjudication that Tenant is bankrupt, insolvent or entitled to
debtor's relief under other applicable federal or state law relating to
insolvency or debtor's relief; the appointment of or consent by Tenant a
receiver, trustee, or custodian of Tenant or of Tenant's property; the filing of
any involuntary petition of bankruptcy and failure of Tenant to secure a
dismissal of the petition within sixty (60) days after filing; attachment of or
the levying of execution on the leasehold interest and failure of Tenant to
secure discharge of the attachment or release of the levy of execution within
ten (10) business days shall constitute a default; the making or suffering by
Tenant of a fraudulent transfer under applicable federal or state law;
concealment by Tenant of any of its property in fraud of creditors; the making
or suffering by Tenant of a preference within the meaning of the federal
bankruptcy law; or the imposition of a lien through legal proceedings or
distraint upon any of the property of Tenant which is not discharged or bonded.
During any period when there are guarantors of this Lease, each reference to
"Tenant" in this Section shall be deemed to refer to "Guarantor or Tenant,"
separately. If Tenant consists of two or more individuals or business entities,
the events of default specified in this Section 14.4 shall apply to each such
individual or entity, unless within ten (10) business days after an event of
default occurs, the remaining individuals produce evidence satisfactory to
Landlord that they have unconditionally acquired the interest of the one causing
the default. If the Lease has been assigned under Section 13, the events of
default so specified shall apply only with respect to the one then exercising
the rights of Tenant under the Lease.
14.5 ABANDONMENT. Tenant abandons the Premises, for which purpose
"abandons" means a failure by Tenant to occupy, use, and operate its business on
the Premises for one or more of the purposes permitted under this Lease for a
total of five (5) business days or more during the Lease term, unless such
failure is excused under other provisions of this Lease.
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SECTION 15. REMEDIES ON DEFAULT
Upon default, Landlord may exercise any one or more of the following
remedies:
15.1 TERMINATION. In the event of a default, the Lease may be
terminated at the option of Landlord by written notice to Tenant. Whether or
not the Lease is terminated by the election of Landlord or otherwise, Landlord
shall be entitled to recover damages from Tenant for the default, and Landlord
may reenter, take possession of the Premises, and remove any persons or property
by legal action or by self-help with the use of reasonable force and without
liability for damages and without having accepted a surrender.
15.2 RELETTING. Following reentry or abandonment, Landlord may use
the Premises for Landlord's own purposes or relet the Premises, and in either
event, may make any suitable alterations or refurbish the Premises, or both, or
change the character or use of the Premises, but Landlord shall not be required
to relet for any use or purpose other than that specified in the Lease or for a
use which Landlord may reasonably consider injurious to the Premises, or to any
tenant that Landlord may reasonably consider objectionable. Landlord may relet
all or part of the Premises, alone or in conjunction with other properties, for
a term longer or shorter than the term of this Lease, upon any reasonable terms
and conditions, including the granting of some rent-free occupancy or other rent
concession. None of the actions allowed in Section 15.1 or 15.2 will be deemed
an acceptance of surrender by Tenant. Landlord will exercise reasonable efforts
to mitigate its damages; provided, however, Landlord may offer to prospective
tenants such incentives as are reasonable in the market to obtain a new tenant.
15.3 DAMAGES. In the event of termination or retaking of possession
following default, Landlord shall be entitled to recover immediately, without
waiting until the due date of any future rent or until the date fixed for
expiration of the Lease term, the following amounts as damages:
15.3.1 The loss of rental from the date of default until a new
tenant is secured and paying rent.
15.3.2 The reasonable costs of reentry and reletting, including
without limitation the cost of any cleanup, refurbishing, removal of Tenant's
property and fixtures, costs incurred under Section 15.5, or any other expense
occasioned by Tenant's default including but not limited to, any remodeling or
repair costs, attorney fees, court costs, broker commissions, and advertising
costs.
15.3.3 Any excess of the value of the rent and all of Tenant's
other obligations under this Lease over the reasonable expected return from the
Premises for the period commencing on the earlier of the date of an arbitration
hearing or the date the Premises are relet, and continuing through the end of
the term. The present value of future amounts will be computed using a discount
rate equal to the prime loan rate of major Oregon banks in effect on the date of
the arbitration hearing.
15.4 RIGHT TO SUE MORE THAN ONCE. Landlord may sue periodically to
recover damages during the period corresponding to the remainder of the Lease
term, and no action for damages shall bar a later action for damages
subsequently accruing.
15.5 RIGHT TO CURE DEFAULTS. If either party fails to perform any
obligation or make any payment called for under this Lease, the other party
shall have the option to do so in its sole discretion. All expenditures to
correct the default shall be reimbursed by the other party on demand with
interest at the rate equal to the Prime Rate charged by Bank of America plus 2%
per annum, up to the maximum rate allowed by law from the date of expenditure.
Such action shall not waive any other remedies available because of the default.
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15.6 REMEDIES CUMULATIVE. The foregoing remedies shall be in
addition to and shall not exclude any other remedy available to Landlord under
applicable law.
SECTION 16. SURRENDER AT EXPIRATION
16.1 CONDITION OF PREMISES. Upon expiration of the Lease term or
earlier termination on account of default, Tenant shall deliver all keys and
security cards to Landlord and surrender the Premises in first-class condition,
reasonable wear and tear excepted, broom clean, and free from any environmental
contamination caused by Tenant or through its use, such cleanup to be performed
pursuant to Section 18. Repairs and maintenance for which Tenant is responsible
shall be completed to the latest practical date prior to such surrender.
Tenant's obligations under this Section shall be subordinate to the provisions
of Section 9 relating to destruction. Tenant Improvements constructed by Tenant
with permission from Landlord shall be removed and notwithstanding any other
provision, the Premises restored to the original condition, pursuant to Section
6.4.
16.2 TRADE FIXTURES. Prior to expiration or other termination of the
Lease term, Tenant shall remove all furnishings, furniture, and trade fixtures
that remain its property and restore all damage caused by such removal. If
Tenant fails to do so, this shall be an abandonment of the property, and
Landlord may retain the property and all rights of Tenant with respect to it
shall cease or, by notice in writing given to Tenant within twenty (20) days
after removal was required, Landlord may elect to hold Tenant to its obligation
of removal. If Landlord elects to require Tenant to remove, Landlord may effect
a removal and place the property in public storage for Tenant's account. Tenant
shall be liable to Landlord for the cost of removal, transportation to storage,
and storage, with interest at the rate equal to the Prime Rate charged by Bank
of America plus 2% per annum, up to the maximum rate allowed by law from the
date of expenditure by Landlord.
16.3 HOLDOVER
16.3.1 If Tenant does not vacate the Premises at the time
required, and Landlord does not consent in writing in advance to Tenant holding
over, Landlord shall have the option either: (a) to treat Tenant as a tenant
from month to month, subject to all of the provisions of this Lease, except the
provisions for term and renewal (the initial base rental rate shall be equal to
150 percent of the Base Rental Rate last paid by Tenant during the Lease term),
or (b) to eject Tenant from the Premises and recover damages caused by wrongful
holdover. If Landlord consents in writing in advance to the holdover, the
initial base rental rate shall be equal to 125 percent of the Base Rental Rate
last paid by Tenant during the Lease term. Failure of Tenant to remove
fixtures, furniture, furnishings, or trade fixtures that Tenant is required to
remove under this Lease shall constitute a failure to vacate to which this
Section shall apply if the property not removed will substantially interfere
with occupancy of the Premises by another tenant or with occupancy by Landlord
for any purpose including preparation for a new tenant.
16.3.2 If a month-to-month tenancy results from a holdover by
Tenant under this Section 16.3, the tenancy shall be terminable at the end of
any monthly rental period on written notice from Landlord given not less than
ten (10) business days' prior to the termination date which shall be specified
in the notice. Tenant waives any notice that would otherwise be provided by law
with respect to a month-to-month tenancy.
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SECTION 17. RECIPROCAL CONFIDENTIALITY AGREEMENT
17.1 LANDLORD. Landlord acknowledges that Tenant's products contain
trade secret and confidential information of Tenant. Landlord shall take
reasonable and appropriate action by instruction, agreement or otherwise with
all employees, invitees and agents who have access to the Premises to protect
the confidentiality of Tenant's trade secret and confidential information.
Landlord further agrees to use best efforts to give Tenant 24 hours' notice
prior to bringing any third party on site or instructing any employee or agent
to enter the Premises. Such notice shall not apply where entry is reasonably
required to perform janitorial services or is necessitated by an emergency
requiring prompt attention or repair by Landlord.
17.2 TENANT. Tenant acknowledges that during the term of the Lease
Tenant may have access to Landlord's trade secret and confidential information.
Tenant shall take reasonable and appropriate action by instruction, agreement or
otherwise with all employees, invitees, and agents who have access to the
Premises to protect the confidentiality of Landlord's trade secret and
confidential information. Tenant further agrees to not enter Landlord's portion
of the Premises without the prior consent and escort of an authorized
representative of Landlord.
17.3 NONDISCLOSURE. Tenant and Landlord agree (a) to maintain in
confidence all trade secret and confidential information acquired during the
term of this Lease; (b) not to disclose trade secret or confidential information
to anyone except parties authorized in writing by the disclosing party to
receive it; (c) not to use trade secret or confidential information for any
purpose other than that for which it is disclosed; and (d) to protect trade
secret and confidential information from unauthorized disclosure.
17.4 DEFINITION. Information considered trade secret or confidential
includes without limitation: (a) matters of a technical nature such as trade
secret processes or devices, know-how, data, formulas, inventions (whether or
not patentable or copyrighted), specifications and characteristics of products
planned or being developed, and research subjects, methods and results; (b)
matters of a business nature such as information about costs, profits, pricing
policies, markets, sales, suppliers, customers, product plans, and marketing
plans or strategies; (c) confidential information of either party's customers
and/or third parties disclosed under a written nondisclosure agreement; and (d)
other information of a similar nature not generally disclosed by a party to the
public.
17.5 SURVIVAL. The obligations of this Section shall survive
termination of the Lease for a period of three (3) years.
SECTION 18. ENVIRONMENTAL CONDITIONS
18.1 INTENT. It is the intent of Landlord and Tenant to protect the
environment and to maintain the current environmental condition and appearance
of the Landlord's Wilsonville campus.
18.2 PLANS AND SPECIFICATIONS. Tenant represents and warrants that
Tenant will not manage, use or store any Hazardous Substance (as defined in
Section 18.11.2) on the Premises other than those normally used in routine
office operations and those Hazardous Substances and amounts listed on Exhibit J
for Tenant's assembly operations. Based upon those representations and
warranties, Tenant shall not be required to comply with the remainder of this
Section 18.2, but Tenant shall comply with the remaining applicable provisions
of Section 18, and with all applicable codes, regulations and laws, including
Environmental Laws and the following conditions:
Tenant's storage, transport, management and use of Hazardous
Substances listed in Exhibit J and hazardous wastes shall be limited to Tenant's
designated assembly and storage areas. Tenant shall store all Hazardous
Substances in fire proof safety cabinets. The cabinets shall provide secondary
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containment, be under negative air pressure and be exhausted to the exterior of
the building. Reactive or otherwise incompatible materials shall not be stored
in the same cabinet, and separate cabinets for such materials shall be provided.
All hazardous wastes shall be managed as follows:
1. Tenant shall dispose of hazardous waste in a permitted hazardous waste
facility that has an EPA approved I.D. number.
2. Tenant shall accumulate no more than 55 gallons of hazardous waste on site,
and shall not store hazardous waste on site for more than 90 days.
3. Tenant shall properly label and mark all containers and packages of
hazardous waste.
4. Tenant shall ensure that Tenant's employees are familiar with proper
hazardous waste handling and emergency response procedures.
5. Tenant shall maintain records for all hazardous waste shipments for three
years and shall, within 30 days of such shipment, provide Landlord with
copies of documents evidencing such hazardous waste shipments.
If Tenant plans to, or does, manage, use, or store any other Hazardous
Substances or additional amounts of 10% or more of the Hazardous Substances
listed on Exhibit J on the Premises, Tenant will comply with all provisions of
Section 18, including Section 18.2. Tenant shall develop plans and
specifications (the Final Plan) for improvements to the Premises, for operations
on the Premises, for the management, storage, and use of Hazardous Substances on
the Premises and for the off-site disposal of hazardous waste in accordance with
this Lease. The Final Plan must be reviewed and approved by Landlord and
initialled and attached to this Lease as Exhibit K, and Tenant must be in full
compliance with all applicable codes, regulations and laws, including
Environmental Laws, and with the Final Plan, before Tenant commences
construction activities on the Premises, manages any Hazardous Substances on the
Premises or commences manufacturing operations on the Premises. All operations
and activities on the Premises shall be conducted in strict compliance with all
current and future enacted Environmental Laws (as defined in Section 18.2) and
in compliance with the Final Plan. If, at any time during the term of the
Lease, Tenant wishes to change or expand its improvements or activities on the
Premises, including, but not limited to, changes in the types or amounts of
Hazardous Substances delivered to, used or generated on the Premises, Tenant
shall notify Landlord in writing of the proposed change or expansion and,
subject to Landlord's prior written approval, which shall not be unreasonably
withheld, such change or expansion shall be incorporated into the approved Final
Plan and Tenant will thereafter comply with the revised Final Plan. If the
parties are not able to agree upon the appropriate provisions to be incorporated
into the Final Plan, such dispute shall be resolved by arbitration to be
conducted in accordance with Section 19 of this Lease.
18.3 TENANT'S RIGHT TO CONTEST AGENCY ORDERS. Tenant shall retain
the right to contest, at its sole expense and in good faith by appropriate legal
proceedings, the applicability or enforcement of any Environmental Laws.
Notwithstanding that right, Tenant shall comply with all lawful orders of any
court or other governmental body unless Tenant is prosecuting an appeal or
proceedings for review and has secured a stay of enforcement or execution or
other binding arrangement postponing enforcement or execution pending such
appeal or proceedings for review and has provided a bond or other financial
guaranty for the benefit of Landlord of not less than 150% of the potential
liability, including costs and penalties, to be suffered from an adverse
determination of such an appeal.
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18.4 NOTICE OF COMMUNICATIONS.
18.4.1 If Tenant: (a) receives notice that any violation of any
Environmental Law has occurred or is about to occur on the Premises or adjacent
property; (b) receives notice that any administrative or judicial complaint or
order has been filed or is about to be filed against Tenant alleging violations
of any Environmental Law or requiring Tenant to take any action in connection
with the release of Hazardous Substances into the environment; (c) receives any
notice (either written or verbal) from a federal, state, or local governmental
agency or private party alleging that the Tenant may be liable or responsible
for costs associated with a response to, or cleanup of, any Hazardous Substance;
(d) receives any notice that Tenant is subject to a federal, state or local
investigation evaluating whether any remedial action is needed to respond to the
release of any Hazardous Substance, or any other substance into the environment
in violation of Environmental Laws; or (e) receives any notice that the Premises
or any adjacent property is subject to a lien or claim of in favor of any
governmental entity for any liability under Environmental Laws, or for damages
arising from or costs incurred by such governmental entity in response to a
release of a Hazardous Substance, then Tenant shall immediately provide Landlord
with a copy or written description of such notice.
18.4.2 Tenant shall, within five (5) business days, provide
Landlord with copies of all documents, including but not limited to, hazardous
waste manifests, received from, or sent to, any environmental regulatory agency.
18.5 RESTRICTIONS ON USE.
18.5.1 Tenant will not do or permit any act or thing that may
impair the value of the Premises or any part thereof or any adjacent property,
or that materially increases the danger, or poses an unreasonable risk of harm,
to any person (on or off the Premises) arising from activities thereon, or that
constitutes a public or private nuisance or waste to the Premises or any part
thereof or any adjacent property. Tenant shall not conduct or allow any
activity on the Premises or use the Premises in any manner that: (a) causes the
Premises to become a hazardous waste treatment, storage or disposal facility
within the meaning of the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901 ET SEQ., or any similar state law or local ordinance; (b)
causes or contributes to a release or threat of release of Hazardous Substances
on or from the Premises or (c) otherwise brings the Premises within the ambit,
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601-9657, or any similar state law or local ordinance.
18.5.2 Tenant shall not:
(a) Release or threaten to release any liquid, solid or gaseous matter, or
any combination thereof, into the atmosphere, the soil, groundwater or
any body of water, which matter, as reasonably determined by any
governmental entity, does, may, or threatens to pollute or contaminate
the same, or may adversely affect: (1) the health or safety of persons
wherever located, whether on the Premises or anywhere else; (2) the
condition, use or enjoyment of the Premises or any other real or
personal property, whether on the Premises or anywhere else; or (3)
the Premises or any of the improvements thereto or thereon including,
but not limited to, buildings, foundations, pipes, utilities,
landscaping or parking areas; however, to assist Tenant in avoiding a
breach of this Section 18.5.2(a), Landlord agrees to provide Tenant
with notice and an opportunity to cure, within 48 hours, any de
minimus release of a Hazardous Substance if such release is not of a
nature that poses a risk of fire, explosion or other potential danger
to the health or safety of persons or to property situated in, under
or about the Premises or to the Premises; is not required by law to be
reported to any
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health, safety or environmental agency; is an isolated, accidental
occurrence and not of a continuing nature; and the cost of removing
the Hazardous Substance so released and of repairing any damage or
remediating any contamination caused by the Hazardous Substance is not
reasonably expected to exceed 10% of the Monthly Base Rent in effect
at the time that the release occurs;
(b) Emit any exhaust or discharge which is in violation of the Final Plan
or of any governmental law, rule, regulation or requirement;
(c) Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of the Building E Property by
Landlord's employees during joint occupancy or on any property
adjacent to the Premises, or which will create a nuisance or violate
any governmental law, rule, regulation or requirement or the
requirements of the Final Plan; or
(d) Transmit, receive, or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or
hazardous to any person or property in, on or about the Premises, or
anywhere else, or which interferes with the operation of any
electrical, electronic, telephonic or other equipment wherever
located, on the Premises or anywhere else.
18.6 INDEMNITY.
18.6.1 INDEMNITY BY TENANT. Tenant shall indemnify and hold
Landlord, and Landlord's officers, directors, employees, agents, successors and
assigns, harmless from and against any and all claims, liabilities, penalties,
judgments, forfeitures, losses, costs or expenses (including attorneys' fees),
arising from or caused in whole or in part, directly or indirectly, by the
presence, discharge or release of Hazardous Substances in, on, under or about
the Premises, but only to the extent that any such presence, discharge or
release was caused by Tenant's activities on the Premises. Tenant will defend
Landlord against any cost, claim or liability arising under this Section 18.6.1,
at Tenant's expense, with counsel reasonably acceptable to Landlord, or at
Landlord's election, will reimburse Landlord for any legal fees or costs
reasonably incurred by Landlord in connection with any such claim. Tenant's
obligations hereunder shall include, without limitation, and whether foreseeable
or unforeseeable, all costs of any remedial action, repair, cleanup,
detoxification or decontamination of the Premises and adjacent property, and the
preparation and implementation of any closure, remedial action or other required
plans in connection therewith. Any acts or omissions of Tenant, or by
employees, agents, assignees, contractors or subcontractors of Tenant, or others
who act on behalf of Tenant (whether or not they are negligent, intentional,
willful or unlawful) shall be strictly attributable to Tenant. The obligations
of Tenant hereunder shall survive the expiration or earlier termination of this
Lease Agreement and any extensions thereof.
18.6.2 INDEMNITY BY LANDLORD. Landlord shall indemnify and hold
Tenant and Tenant's officers, directors, employees, agents, successors and
assigns, harmless from and against any and all claims, liabilities, penalties,
judgments, forfeitures, losses, costs or expenses (including attorneys' fees),
arising from or caused in whole or in part, directly or indirectly, by the
presence, discharge or release of Hazardous Substances in, on, under or about
the Premises established by the Baseline Environmental Assessment as being
present on the Premises as of the date of the 1993 Lease or which Tenant proves
was caused by Landlord after the date of the 1993 Lease. Landlord will defend
Tenant against any cost, claim or liability arising under this Section 18.6.2,
at Landlord's expense, with counsel reasonably acceptable to Tenant, or at
Tenant's election, will reimburse Tenant for any legal fees or costs reasonably
incurred by Tenant in connection with any such claim. Landlord's obligations
hereunder shall
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include, without limitation, and whether foreseeable or unforeseeable, all costs
of any remedial action, repair, cleanup, detoxification or decontamination of
the Premises and adjacent property, and the preparation and implementation of
any closure, remedial action or other required plans in connection therewith.
Any acts or omissions of Landlord, or by employees, agents, assignees, tenants,
contractors of subcontractors of Landlord, or others who act on behalf of
Landlord (whether or not they are negligent, intentional, willful or unlawful)
shall be strictly attributable to Landlord. The obligations of Landlord
hereunder shall survive the expiration or earlier termination of this Lease
Agreement and any extensions thereof.
18.6.3 CONTAMINATION CAUSED BY ACT OF THIRD PARTY. Landlord
and Tenant shall not be liable to each other for Hazardous Substances released
or discharged by third parties which migrate, flow, percolate, diffuse, or in
any way move onto or under the Premises from surrounding properties not owned by
the Landlord subsequent to the effective date of this Lease Agreement.
18.7 SITE REMEDIATION.
18.7.1 In the event of a discharge, release, or threat of
release of any Hazardous Substance on, under or about the Premises or
adjacent property, Tenant shall immediately take any and all actions
necessary to remediate the Premises; provided, however, that Tenant shall
not, without Landlord's prior written consent, enter into any settlement
agreement, consent decree, or other compromise in respect to any claims,
proceedings, lawsuits or actions, completed or threatened pursuant to any
laws or in connection with any third party. Landlord's prior consent shall
not, however, be necessary if the presence of Hazardous Substances on, under,
or about the Premises either poses an immediate threat to the health, safety
or welfare of any individual or is of such a nature that an immediate
remedial response is necessary and it is not possible to obtain Landlord's
consent prior to undertaking such action. Such submittal to Landlord is for
Landlord's sole benefit, and despite any approval of Landlord, Tenant shall
at all times be solely responsible for ensuring that the completion of any
remedial action is in full compliance with all Environmental Laws and
regulations and good business practices. If Tenant undertakes any remedial
action with respect to any Hazardous Substances on, under or about the
Premises or adjacent property, Tenant shall immediately notify Landlord of
any such remedial action, and shall conduct and complete such remedial action
in compliance with all Environmental Laws and policies, to the sole
satisfaction of Landlord; and in accordance with the orders and directives of
all federal, state and local governmental authorities. Costs and expenses
incurred under this Section 18.7.1 may be subject to the indemnification
provisions set forth in Section 18.6.
18.7.2 Tenant agrees that if any hazardous waste is removed
from the Premises by Tenant, Landlord or any other person or entity, the number
assigned by the Environmental Protection Agency to such hazardous waste shall be
solely in the name of Tenant and Tenant shall assume any and all liability for
such removed hazardous waste.
18.8 ONGOING OBLIGATIONS. Notwithstanding the expiration or early
termination of the Lease, if all of Tenant's obligations under this Section have
not been fulfilled to Landlord's satisfaction, Tenant shall be deemed to be
holding over pursuant to Section 16.3 of this Lease, until such time as Landlord
and all governmental agencies having jurisdiction in the matter determine that
the Final Plan and all Environmental Laws have been fully complied with and
further, until any cleanup required under Environmental Laws, or required by
Landlord pursuant to this Lease, has been fully implemented and completed, and
the Premises and adjacent property are returned to their pre-lease condition.
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18.9 ENVIRONMENTAL AUDIT.
18.9.1 Tenant and Landlord have approved the Baseline
Environmental Assessment Report attached as Exhibit L and by this reference made
a part hereof. Landlord and Tenant agree that any environmental contamination
not identified in the Baseline Environmental Assessment shall be deemed to have
resulted from Tenant's operations on the Premises, unless Tenant proves that
such contamination was caused by Landlord or that such contamination migrated
onto the Premises from property adjacent to Landlord's Campus.
18.9.2 At least ninety (90) days prior to the expiration or
termination of the Lease, Tenant, at its cost, shall, prior to removal or
demolition of Tenant Improvements, perform a preliminary environmental
assessment similar to the original Baseline Environmental Assessment and shall
submit to Landlord a written report on that Assessment for the benefit of
Landlord, in scope, form and substance, and prepared by an independent,
competent and qualified engineer, satisfactory to the Landlord. Such written
report shall show that the engineer made all appropriate inquiry consistent with
generally accepted engineering practice and no evidence or indication came to
light which would suggest there was a release of Hazardous Substances on the
Premises or adjacent property, and which demonstrates that the Premises and
adjacent property comply with, and do not deviate from the Final Plan and all
applicable Environmental Laws. Tenant shall, at its cost, provide a final
environmental assessment report to Landlord subsequent to removal or demolition
of Tenant's Improvements. Should it be determined by Landlord from such reports
that there is a violation of the Lease, the Final Plan or any Environmental
Laws, or there is a condition of contamination requiring a remedial response or
action, Tenant shall, at its expense, undertake and diligently prosecute all
necessary cleanup and remediation of the Premises and take all necessary actions
so as to surrender the Premises to Landlord at the end of the Lease term in the
same condition as it was delivered to Tenant at the beginning of the Lease term.
18.10 IRREVOCABLE LICENSE. Tenant hereby grants, and will cause any
subtenants, dealers, franchisees, or assignees to grant to Landlords, its
agents, attorneys, employees, consultants and contractors, an irrevocable
license and authorization to enter upon and inspect the Premises and facilities
thereon, and perform such tests, including without limitation, subsurface
testing, soils and groundwater testing, and other tests which may physically
invade the Premises as the Landlord, in its reasonable discretion, determines
are necessary to protect its ownership interest. Landlord shall make reasonable
efforts to provide Tenant with at least 24 hours advance notice of Landlord's
intent to enter the Premises for these purposes.
18.11 DEFINED TERMS.
18.11.1 "Environmental Laws" shall be interpreted in the
broadest sense to include any and all federal, state, and local statutes,
regulations, rules, and ordinances now or hereafter in effect, as the same may
be amended from time to time, which govern Hazardous Substances or relate to the
protection of human health, safety or the environment, including but not limited
to, the Resource Conservation and Recovery Act (RCRA) (42 U.S.C. Section 6901
et seq.); the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA) (42 U.S.C. Section 9601 et seq.); the Toxic Substances Control Act
(15 U.S.C. Section 2601, et seq.); Superfund Amendment and Reauthorization Act
of 1986 (SARA) (P.L. 99-499); the Federal Insecticide, Fungicide and Rodenticide
Act/Pesticide Act (7 U.S.C. Section 136 et seq.); the Safe Drinking Water Act
(42 U.S.C. Section 300(f) et seq.); the Clean Air Act (42 U.S.C. Section 7401
et seq.); the Federal Water Pollution Control Act/Clean Water Act (33 U.S.C.
Section 1251 et seq.); the Oil Pollution Act of 1990 (33 U.S.C. Section 2701
et seq.); Emergency Planning and Community Right-To-Know Act of 1986 (EPCRTKA)
(42 U.S.C. Section 11001 et seq.); National Environmental Policy Act of 1969
(NEPA) (42 U.S.C. Section 4321 et seq.); Noise Control Act of 1972 (42 U.S.C.
Section 4901 et seq.); the Oregon Revised Statutes relating to community
information on hazardous waste reduction (ORS 453.307 et seq.); toxic use
reduction and hazardous waste reduction (ORS 465.003 et seq.); environmental
cleanup of
30 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
hazardous substances, hazardous wastes, and oil contamination (ORS 465.200 et
seq.); notice of environmental hazards (ORS 466.360 et seq.); treatment storage,
and disposal of hazardous waste and PCBs (ORS 466.005 et seq.); use of PCBs (ORS
466.505 et seq.); spill response and cleanup of hazardous materials and oil (ORS
466.605 et seq.); underground storage tanks (ORS 466.706 et seq.); penalties for
noncompliance (ORS 466.880 et seq.); water pollution control (ORS 468B.005 et
seq.); Oil or Hazardous Material Spillage (ORS 468B.300 et seq.); asbestos
abatement (ORS 468A.700 et seq.); and any similar or equivalent laws; and any
implementing laws, regulations; rules, and ordinances.
18.11.2 "Hazardous Substances" shall be interpreted in the
broadest sense to include any substances, materials, wastes, pollutants, oils,
or regulated substances, or contaminants as defined or designated as hazardous,
toxic, radioactive, dangerous, or any other similar term in or under any
Environmental Laws, and shall specifically include asbestos and
asbestos-containing materials, petroleum products, including crude oil or any
fraction thereof, and urea formaldehyde, and any other substance that, because
of their quantity, concentration, or physical, chemical, or infectious
characteristics, may cause or threaten a present or potential hazard to human
health or the environment when generated, used, stored, handled, treated,
discharged, disposed or released.
18.11.3 "Release" shall be interpreted in the broadest sense to
include the spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment, including but not limited to, the abandonment or discarding of
barrels, drums, containers, tanks, and any other receptacle containing or
previously containing any Hazardous Substance.
18.12 SURVIVAL. All of Landlord's rights and Tenant's obligations
contained in this Section shall survive any termination or expiration of this
Lease.
SECTION 19. ARBITRATION
19.1 GENERAL. If any dispute arises between the parties as to any
matters relating to this Lease, said dispute shall be resolved by binding
arbitration. Either party may request arbitration. The party requesting
arbitration shall do so by giving notice to that effect to the other party,
specifying in said notice the nature of the dispute, and said dispute shall be
determined in the City of Portland, by a single arbitrator, in accordance with
the rules then pertaining to the American Arbitration Association (or any
organization which is the successor thereto) except to the extent provided
otherwise under Oregon laws on arbitration and as otherwise provided herein. If
the parties cannot agree upon an arbitrator, either party may petition the
presiding judge of the Circuit Court of Multnomah County, Oregon, to appoint the
arbitrator. Any such appointed arbitrator shall be a qualified expert with
respect to the subject in dispute as determined by the presiding judge. Each
party shall submit its position to the arbitrator and the arbitrator shall
choose the position of one of the parties. The award in such arbitration may be
enforced on the application of either party by the order of judgment of a court
of competent jurisdiction.
19.2 COSTS. The fees and expenses of any arbitration shall be borne
by the losing party. The prevailing party shall be entitled to recover the
expense of its attorneys and experts as well as a reasonable amount for its own
personal time incurred in connection with any arbitration.
SECTION 20. MISCELLANEOUS
20.1 NONWAIVER. Waiver by either party of strict performance of any
provision of this Lease shall not be a waiver of or prejudice the party's right
to require strict performance of the same provision in the future or of any
other provision.
31 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
20.2 ATTORNEYS' FEES. If suit or action is instituted in connection
with any controversy arising out of this Lease, the prevailing party shall be
entitled to recover, in addition to costs, such sum as the court may adjudge
reasonable as attorneys' fees at trial, on petition for review, and on any
appeal, including any proceeding in bankruptcy, including but not limited to,
proceedings for relief from the automatic stay, proceedings concerning the
assumption or rejection of this Lease, matters related to negotiation of any
plan of reorganization, and proceedings to determine Landlord's claim.
20.3 NOTICES. Except where specifically provided otherwise, any
notice required or permitted under this Lease shall be in writing and deemed
given when actually delivered or 48 hours after deposited in United States mail
as certified mail return receipt requested addressed to the address first given
in this Lease or to such other address as may be specified from time to time by
either of the parties in writing.
20.4 SUCCESSION. Subject to the above-stated limitations on transfer
of Tenant's interest, this Lease shall be binding on and inure to the benefit of
the parties and their respective successors and assigns.
20.5 RECORDATION. A Memorandum of this Lease shall be recorded by
the Landlord within thirty (30) days of the commencement of the Lease term.
20.6 ENTRY FOR INSPECTION. Landlord shall have the right to enter
upon the Premises at any time to determine Tenant's compliance with this Lease,
to make necessary repairs to the building or to the Premises, or to show the
Premises to any prospective tenant, purchaser, or lender, or any consultant,
contractor, or engineer, and in addition, shall have the right, at any time
during the last two months of the term of this Lease, to place and maintain upon
the Premises notices for leasing or selling of the Premises. Landlord shall use
its best efforts to provide 24 hours' notice prior to inspection, except in case
of emergency. Additionally, Landlord shall have the right to show the Premises
to any prospective purchaser or lender, or any consultant, contractor, or
engineer, but will provide Tenant with a minimum of 48 hours' notice in order to
coordinate a mutually convenient time. Such visits will be conducted during
normal business hours and will not be scheduled to conflict with normal business
operations. Tenant shall have the right to reasonably screen the potential
visitors' list and query Landlord as to the purpose of the visit. Tenant may
require all visitors to sign a reasonable nondisclosure agreement and as it
deems appropriate, require an escort.
20.7 INTEREST ON RENT. Any rent or other payment required of Tenant
by this Lease shall, if not paid within ten (10) business days after it is due,
bear interest at the rate equal to the Prime Rate charged by Bank of America
plus 2% per annum up to the maximum rate allowed by law from the due date until
paid. Tenant shall pay the interest upon demand by Landlord. Landlord may levy
and collect the interest in addition to all other remedies available for
Tenant's default, and collection of interest shall not waive the breach caused
by the late payment.
20.8 TIME OF ESSENCE. Time is of the essence of the performance of
each of Landlord's and Tenant's obligations under this Lease.
20.9 PARTIAL INVALIDITY. If any term, covenant, or condition of this
Lease should be held by a court of competent jurisdiction or an arbitrator to be
invalid, void, or unenforceable, the remainder of this Lease shall continue in
full force and effect, and shall in no way be affected, impaired, or invalidated
thereby, and shall be construed as the parties would have intended had they
known of such court's ruling prior to the execution of this Lease.
32 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
20.10 INTEGRATION. This Lease constitutes the entire agreement of the
parties hereto and supersedes all oral and written agreements and understandings
made and entered into by the parties on or prior to the date hereof. No
subsequent alteration, amendment, change, or addition to this Lease shall be
binding upon either party unless reduced to writing executed by Landlord and
Tenant.
20.11 CAPTIONS. Captions appearing at the commencement of the
Sections are descriptive only and for the convenience in reference to this
Lease. Should there be any conflict between any captions and the substantive
text of the Section, the substantive text shall control and govern in the
construction of this Lease.
20.12 REPRESENTATIONS. Tenant certifies that no representations as to
the condition or repair of the Premises have been made by Landlord or its
agents, and that no agreement to alter, repair, or improve said Premises has
been made by Landlord, except as expressly set forth herein.
20.13 APPLICABLE LAW. The parties agree that the law of the State of
Oregon shall be applicable for all purposes, in construing and determining the
validity of this Lease, determining the rights and remedies of the parties in
the event of default by either party and other matters.
20.14 BROKER'S COMMISSION. The parties acknowledge and agree that
Tenant is represented by Corporate Property Services and Landlord is represented
by Trammell Crow Company. The parties also agree that a real estate commission
for this Lease shall be paid by Mentor Graphics pursuant to its separate
agreement with Trammell Crow Company. InFocus shall be solely responsible for
paying any real estate commission that may be due to Corporate Property
Services. In consideration for payment by InFocus of such real estate
commission to Corporate Property Services, Mentor Graphics shall grant InFocus
the rent credit described in Section 2.2.
20.15 MULTIPLE COUNTERPARTS. This Lease may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute a single instrument, and shall be effective upon execution of one or
more of such counterparts by each of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Lease on the
respective dates set forth below.
LANDLORD:
Date: November __, 1998 MENTOR GRAPHICS CORPORATION
By: / Larry C Gardner /
---------------------------------------
Its:
TENANT:
Date: November __, 1998 IN FOCUS SYSTEMS, INC.
By: / John V. Harker /
---------------------------------------
Its:
33 MENTOR GRAPHICS CORP./IN FOCUS SYSTEMS, INC. - COMMERCIAL LEASE
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT, dated as of December __, 1998 ("First Amendment"),
to Rights Agreement dated as of July 16, 1997 (the "Rights Agreement"), between
In Focus Systems, Inc., an Oregon corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., a New Jersey limited liability company, (the
"Rights Agent"). Capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Rights Agreement.
WHEREAS, the Company and the Rights Agent previously entered into the
Rights Agreement; and
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may from time to time supplement or amend any provision of
the Rights Agreement in accordance with the terms of such Section 26.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
agreements set forth in this Amendment, the parties hereby amend the Rights
Agreement as follows:
1. Section 1.3(ii)(A)(z) of the Rights Agreement is hereby amended
in its entirety to the following:
"(z) securities which such Person or any of such Person's Affiliates
or Associates may acquire, does or do acquire or may be deemed to
acquire or may be deemed to have the right to acquire, pursuant to any
merger or other acquisition agreement between the Company and such
Person (or one or more of such Person's Affiliates or Associates) if
prior to such Person becoming an Acquiring Person the Board of
Directors of the Company has approved such agreement and determined
that such Person shall not be or be deemed to be the beneficial owner
of such securities within the meaning of this Section 1.3; or."
2. Section 1.3(ii)(A)(y) and Section 14.1 of the Rights Agreement
are hereby amended by deleting the words "Section 11.15" and replacing them with
the words "Section 11.14."
3. Section 1.7 of the Rights Agreement is hereby deleted in its
entirety.
4. Section 1.9 of the Rights Agreement is hereby amended to delete
the word "unallocated" and replace with the word "unincorporated."
5. The second proviso of Section 11.1.2 of the Rights Agreement is
hereby deleted in its entirety.
<PAGE>
6. The first and fifth sentences of Section 11.1.3 of the Rights
Agreement are hereby amended by deleting the words "first occurrence of one of
the events listed in Section 11.1.2 above" and replacing them with the words
"occurrence of a Trigger Event."
7. The last sentence of Section 11.4.1 of the Rights Agreement is
hereby amended by deleting the words ", by a majority of the Continuing
Directors then in office, or if there are no Continuing Directors."
8. The following new Section 11.14 is hereby added to the Rights
Agreement in its proper place to read in its entirety as follows:
"11.14 ADJUSTMENT OF RIGHTS ASSOCIATED WITH COMMON SHARES.
Notwithstanding anything contained in this Agreement to the contrary,
in the event that the Company shall at any time after the date hereof
and prior to the Distribution Date (i) declare or pay any dividend on
the outstanding Common Shares payable in Common Shares, (ii) effect a
subdivision or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by the payment of dividends payable
in Common Shares), or (iii) combine the outstanding Common Shares into
a greater or lesser number of Common Shares, then in any such case,
the number of Rights associated with each Common Share then
outstanding, or issued or delivered thereafter but prior to the
Distribution Date or in accordance with Section 22 shall be
proportionately adjusted so that the number of Rights thereafter
associated with each Common Share following any such event shall equal
the result obtained by multiplying the number of Rights associated
with each Common Share immediately prior to such event by a fraction,
the numerator of which shall be the total number of Common Shares
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of Common Shares
outstanding immediately following the occurrence of such event. The
adjustments provided for in this Section 11.14 shall be made
successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected."
9. Section 13.3 of the Rights Agreement is hereby amended to
read in its entirety as follows:
"13.3 APPROVED ACQUISITIONS. Notwithstanding anything
contained herein to the contrary, upon the consummation of any merger
or other acquisition transaction of the type described in clause (A),
(B) or (C) of Section 13.1 involving the Company pursuant to a merger
or other acquisition agreement between the Company and any Person (or
one or more of such Person's Affiliates or Associates) which agreement
has been approved by the Board of Directors of the Company prior to
any Person becoming an Acquiring Person, this Agreement
2
<PAGE>
and the rights of holders of Rights hereunder shall be terminated in
accordance with Section 7.1."
10. The second sentence of Section 22 of the Rights Agreement is
hereby amended to read in its entirety as follows:
"In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the Expiration Date, the
Company shall, with respect to Common Shares so issued or sold
pursuant to the exercise of stock options or under any employee plan
or arrangement, granted or awarded, or upon exercise, conversion or
exchange of securities hereinafter issued by the Company, in each case
existing prior to the Distribution Date, issue Right Certificates
representing the appropriate number of Rights in connection with such
issuance or sale; PROVIDED, HOWEVER, that (i) no such Right
Certificate shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company
or the Person to whom such Right Certificate would be issued and
(ii) no such Right Certificate shall be issued if, and to the extent
that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof."
11. Section 23.1 of the Rights Agreement is hereby amended and
restated in its entirety as follows:
"23.1 RIGHT TO REDEEM. The Board of Directors of the Company
may, at its option, at any time prior to a Trigger Event, redeem all
but not less than all of the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend, recapitalization or similar transaction
occurring after the date hereof (such redemption price being
hereinafter referred to as the "REDEMPTION PRICE"), and the Company
may, at its option, pay the Redemption Price in Common Shares (based
on the "current per share market price," determined pursuant to
Section 11.4, of the Common Shares at the time of redemption), cash or
any other form of consideration deemed appropriate by the Board of
Directors. The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and subject to such
conditions as the Board of Directors in its sole discretion may
establish."
12. Section 26 of the Rights Agreement is hereby amended by (a)
deleting clause (ii) of the second sentence thereof in its entirety, renumbering
clause (iii) of the second sentence to (ii), adding the word "or" immediately
prior to the new clause (ii) and deleting the words "or the Redemption Date" and
substituting therefor the words "pursuant to the second sentence of Section 3.1"
in the second proviso and (b) deleting the last sentence thereof.
3
<PAGE>
13. The fourth paragraph of Exhibit A to the Rights Agreement ("Form
of Right Certificate) is hereby amended and restated in its entirety as follows:
"Subject to the provisions of the Agreement, the Board of
Directors may, at its option, (i) redeem the Rights evidenced by this
Right Certificate at a redemption price of $.01 per Right or (ii)
exchange Common Shares for the Rights evidenced by this Certificate,
in whole or in part."
14. The ninth paragraph of Exhibit B to the Rights Agreement (SUMMARY
OF RIGHTS TO COMMON SHARES), is hereby amended to (a) delete the words "close of
business on the tenth business day following the first date of public
announcement that a Person has become an Acquiring Person" and replace them with
the words "time that an Acquiring Person has become such" and (b) delete the
second and third sentences in their entirety.
15. The eleventh paragraph of Exhibit B to the Rights Agreement is
hereby amended to add after the word "Rights" and before the period the words
"(other than an Acquiring Person or an affiliate or associate of an Acquiring
Person)."
16. This First Amendment shall be effective as of the date hereof
and, except as expressly set forth herein, the Rights Agreement shall remain in
full force and effect and be otherwise unaffected hereby.
17. This First Amendment may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all such counterparts shall together constitute one and the same document.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date first written above.
IN FOCUS SYSTEMS, INC.
By:
----------------------------
Name:
Title:
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By:
----------------------------
Name:
Title:
5
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. In Focus Systems FSC, Inc.
2. In Focus Systems Asia Pte Ltd
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent public accountants, we hereby consent to the incorporation of
our reports dated January 19, 1999, included in this Form 10-K into the
Company's previously filed registration Statements Nos. 33-82522, 333-15235
and 333-53085 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon,
March 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,786
<SECURITIES> 11,805
<RECEIVABLES> 85,792
<ALLOWANCES> 7,094
<INVENTORY> 31,279
<CURRENT-ASSETS> 155,817
<PP&E> 43,500
<DEPRECIATION> 30,444
<TOTAL-ASSETS> 171,931
<CURRENT-LIABILITIES> 36,330
<BONDS> 0
0
0
<COMMON> 53,895
<OTHER-SE> 81,706
<TOTAL-LIABILITY-AND-EQUITY> 171,931
<SALES> 306,663
<TOTAL-REVENUES> 306,663
<CGS> 242,123
<TOTAL-COSTS> 242,123
<OTHER-EXPENSES> 67,940
<LOSS-PROVISION> 1,175
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (2,448)
<INCOME-TAX> (1,777)
<INCOME-CONTINUING> (671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (671)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
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