-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PBbfjld9GTd0bVH/HujK6h2LHFkGI+t6zPTchqigj/QaWyQz9wSOyVdduYsqtji9 nsrVr/8FXd192ATkSQR/Ng== 0000912057-96-024576.txt : 19961106 0000912057-96-024576.hdr.sgml : 19961106 ACCESSION NUMBER: 0000912057-96-024576 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961104 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IN FOCUS SYSTEMS INC CENTRAL INDEX KEY: 0000845434 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 930932102 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18908 FILM NUMBER: 96653671 BUSINESS ADDRESS: STREET 1: 27700B SW PARKWAY AVE CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5036858888 MAIL ADDRESS: STREET 1: 27700B SW PARKWAY AVE CITY: WILSONVILLE STATE: OR ZIP: 97070 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-Q -------------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission file number 000-18908 -------------------- IN FOCUS SYSTEMS, INC. (Exact name of registrant as specified in its charter) Oregon 93-0932102 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 27700B SW Parkway Avenue, Wilsonville, Oregon 97070 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 503-685-8888 ------------------ The index to exhibits appears on page 9 of this document. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock without par value 10,670,573 (Class) (Outstanding at November 1, 1996) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- IN FOCUS SYSTEMS, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheets -September 30, 1996 and December 31, 1995 2 Consolidated Statements of Operations - Three Month and Nine Month Periods Ended September 30, 1996 and 1995 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II - OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 1 PART II - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IN FOCUS SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) September 30, December 31, 1996 1995 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 6,645 $ 30,165 Marketable securities - held to maturity 17,939 16,563 Accounts receivable, net of allowances of $2,892 and $2,089 51,947 49,363 Inventories, net 27,147 10,767 Income taxes receivable 2,993 - Deferred income taxes 3,230 1,624 Other current assets 2,010 2,167 --------- --------- Total Current Assets 111,911 110,649 Restricted cash - 1,000 Marketable securities - held to maturity - 2,056 Property and equipment, net of accumulated depreciation of $11,996 and $8,412 15,465 12,201 Other assets, net 1,711 1,397 --------- --------- Total Assets $ 129,087 $ 127,303 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Income taxes payable $ - $ 2,128 Accounts payable 20,780 21,476 Payroll and related benefits payable 1,593 2,076 Marketing cooperative payable 1,495 1,596 Other current liabilities 1,796 1,959 --------- --------- Total Current Liabilities 25,664 29,235 Note payable 352 - Deferred income taxes 605 541 Shareholders' Equity: Common stock, 30,000,000 shares authorized; shares issued and outstanding: 10,647,554 and 10,925,474 47,421 46,405 Additional paid-in capital 9,990 7,727 Retained earnings 45,055 43,395 --------- --------- Total Shareholders' Equity 102,466 97,527 --------- --------- Total Liabilities and Shareholders' Equity $ 129,087 $ 127,303 --------- --------- --------- --------- The accompanying notes are an integral part of these balance sheets. 2
IN FOCUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, exept shares and per share amounts) Three months ended September 30, Nine months ended September 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Revenue $ 59,080 $ 54,448 $ 185,347 $ 141,791 Cost of sales 43,118 34,710 132,649 88,073 --------- ---------- ---------- ---------- Gross profit 15,962 19,738 52,698 53,718 Operating expenses: Marketing and sales 7,190 6,038 22,167 17,789 Engineering 4,225 3,305 14,315 8,041 General and administrative 1,349 1,626 5,564 4,602 ---------- ---------- ---------- ---------- 12,764 10,969 42,046 30,432 ---------- ---------- ---------- ---------- Income (loss) from operations 3,198 8,769 10,652 23,286 Other income (expense): Interest expense (8) - (11) - Interest income 330 422 1,273 1,394 Other, net 13 (75) 126 171 ---------- ---------- ---------- ---------- 335 347 1,388 1,565 ---------- ---------- ---------- ---------- Income (loss) before equity in income (loss) of joint venture and provision for income taxes 3,533 9,116 12,040 24,851 Provision for (benefit from) income taxes 1,148 3,134 4,168 8,500 ---------- ---------- ---------- ---------- Income (loss) before equity in income (loss) of joint venture 2,385 5,982 7,872 16,351 Equity in income (loss) of joint venture (7) - 349 (431) ---------- ---------- ---------- ---------- Net income (loss) $ 2,378 $ 5,982 $ 8,221 $ 15,920 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share $ 0.22 $ 0.53 $ 0.72 $ 1.39 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shares used in per share calculations 10,816,854 11,236,689 11,378,168 11,457,801 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these statements. 3 IN FOCUS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine months ended September 30, 1996 1995 -------- --------- Cash flows from operating activities: Net income $ 8,221 $ 9,938 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 3,651 1,656 Equity in (income) loss of joint venture (349) 431 (Increase) decrease in: Accounts receivable, net (2,584) (7,918) Inventories, net (16,380) (2,735) Income taxes receivable (2,993) - Deferred income taxes (1,542) 55 Other current assets 157 (847) Increase (decrease) in: Income taxes payable (2,128) (320) Accounts payable (696) 8,173 Payroll and related benefits payable (483) (261) Marketing cooperative payable (101) Other current liabilities (163) 306 -------- -------- Net cash provided by (used in) operating activities (15,390) 8,478 Cash flows from investing activities: Restricted cash 1,000 - Purchase of marketable securities-held to maturity (10,742) (15,689) Sale of marketable securities-held to maturity 11,422 29,289 Payments for purchase of property and equipment (6,496) (3,636) Investment in joint venture 349 (431) Other assets, net (381) (193) -------- -------- Net cash provided by (used in) investing activities (4,848) 9,340 Cash flows from financing activities: Payments on long-term debt - Proceeds from sale of common stock 3,240 1,277 Income tax benefit of non-qualified stock option exercises and disqualifying dispositions 2,263 819 Stock repurchase (8,785) (18,000) -------- -------- Net cash provided by (used in) financing activities (3,282) (15,904) Increase (decrease) in cash and cash equivalents (23,520) 1,914 Cash and cash equivalents: Beginning of period 30,165 15,176 -------- -------- End of period $ 6,645 $ 17,090 -------- -------- -------- --------
The accompanying notes are an integral part of these statements. 4 IN FOCUS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS) (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The financial information included herein for the three-month and nine month periods ended September 30, 1996 and 1995 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 1995 is derived from In Focus Systems, Inc.'s (the Company's) Annual Report to Shareholders which is incorporated by reference into the Company's 1995 Form 10-K. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1995 Annual Report to Shareholders. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. NOTE 2: INVENTORIES Inventories are valued at the lower of cost (using average costs, which approximates the first in, first-out (FIFO) method), or market, and include materials, labor and manufacturing overhead. September 30, 1996 December 31, 1995 ------------------ ----------------- Raw materials and components $ 12,405 $ 4,786 Work-in-process 2,437 1,166 Finished goods 12,305 4,815 -------- -------- $ 27,147 $10,767 -------- -------- -------- -------- NOTE 3: SUPPLEMENTAL CASH FLOW INFORMATION Supplemental disclosure of cash flow information is as follows: Nine months ended September 30, ------------------ 1996 1995 -------- ------- Cash paid during the period for income taxes $ 8,571 $ 6,467 Cash paid during the period for interest 9 -- Property acquired through debt 352 -- Reclass of joint venture reserve to note payable (a non-cash financing activity) -- 3,232 NOTE 4: LINE OF CREDIT In September 1996, the Company entered into an unsecured $10.0 million line of credit with a commercial bank. The line of credit bears interest, at the Company's election, at one of the following: 1) the bank's prime rate, 2) LIBOR plus .65 percent, or 3) at a fixed rate as quoted to the borrower by the bank on the date of borrowing. The line of credit expires on April 30, 1997. The line of credit agreement contains certain liquidity, tangible net worth and pre-tax profit covenants. At September 30, 1996 the Company was in compliance with all of the covenants and had no outstanding balance under the line of credit. NOTE 5: RECLASSIFICATIONS Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This Form 10-Q includes forward-looking statements which are denoted with an "*". Investors are cautioned that all forward-looking statements involve risks and uncertainties and several factors could cause actual results to differ materially from those in the forward-looking statements. This Form 10-Q includes forward-looking statements relating to anticipated gross margins, availability of products manufactured on behalf of the Company, backlog and new product introductions, and the following factors, among others, could cause actual results to differ from those indicated in the forward-looking statements: 1) in regards to gross margins, uncertainties associated with market acceptance of and demand for the Company's products, impact of competitive products and pricing and dependence on third party suppliers; 2) in regards to product availability and backlog, uncertainties associated with manufacturing capabilities and dependence on third party suppliers; and 3) in regards to new product introductions, uncertainties associated with the development of technology and the establishment of full manufacturing capabilities, dependence on third party suppliers and intellectual property rights. Investors are directed to the Company's filings with the Securities and Exchange Commission, including the Company's 1995 Form 10-K, which are available from the Company without charge, for a more complete description of the risks and uncertainties relating to the material in this Form 10-Q as well as to other aspects of the Company's business. RESULTS OF OPERATIONS Revenue increased to $59.1 million in the third quarter of 1996 from $54.4 million in the third quarter of 1995, and to $185.3 million for the nine months ended September 30, 1996 from $141.8 million for the comparable period of 1995. The increase in revenue is mainly a result of growth in unit sales of the Company's complete line of LitePro projection products, offset by a decrease in projector average selling prices. International sales represented 39 percent of total revenues in the first nine months of 1996 compared to 40 percent in the first nine months of 1995. The Company achieved gross margins of 28 percent in the first nine months of 1996, with 27 percent achieved in the third quarter of 1996, compared to 38 percent in the first nine months of 1995 and 36 percent in the third quarter of 1995. The decline in gross margins in 1996 resulted primarily from a) new competition entering the market, resulting in additional pricing pressures market wide, b) reserves established for price protection provided to customers on sales of LitePro 580s during the second quarter of 1996, c) the Company incurred higher than anticipated costs as a result of expediting parts to support a steeper ramp up in production for the LitePro 210 and 620 and d) in conjunction with new product launches in the second quarter, the Company repositioned mature products in the market. This process included providing additional discounts for volume purchases, price protection and stock rotation coverage in certain situations, along with writing down slower moving inventory to the lower of cost or market. 6 The Company expects the cost of projection technologies to continue to decrease market wide, resulting in pricing pressures which are leading to decreased average selling prices for the Company's products*. In an effort to protect its gross margins, the Company has introduced new, internally developed and manufactured products. The Company's customers generally order products for immediate delivery with product shipment within 30 days after receipt of an order. As a result of not being able to procure adequate supplies of SVGA glass for the LitePro 220 and orders on credit hold at the end of the quarter, backlog at September 30, 1996 was approximately $20.3 million. Backlog at December 31, 1995 was approximately $33.1 million. Backlog at September 30, 1995 was approximately $15.7 million. Given current supply and demand estimates, it is anticipated that most of the current backlog will turn over by the end of 1996*. There is minimal seasonal influence relating to the Company's order backlog. The stated backlog is not necessarily indicative of Company sales for any future period nor is a backlog any assurance that the Company will realize a profit from filling the orders. Marketing and sales expense increased to $7.2 million and $22.2 million, respectively (12 percent and 12 percent of revenue, respectively) for the three month and nine month periods ended September 30, 1996 compared to $6.0 million and $17.8 million, respectively (11 percent and 13 percent of revenue, respectively) for the comparable periods of 1995. The increases are primarily a result of growth in revenues, demand creation programs and brand recognition efforts, offset by a reduction in the workforce at the beginning of the third quarter and cost containment efforts during the third quarter that focused resources on those areas that most directly contributed to revenue growth, quality and customer satisfaction. Engineering expense increased to $4.2 million and $14.3 million, respectively (7 percent and 8 percent of revenue, respectively) for the three month and nine month periods ended September 30, 1996 compared to $3.3 million and $8.0 million, respectively (6 percent and 6 percent of revenue, respectively) for the comparable periods of 1995. The increase is primarily a result of increased research and development efforts to support the Company's product introduction plans as well as investments in engineering and mechanical computer aided design systems. In addition, the Company incurred additional costs associated with the introduction of new products during the second quarter. The increases in engineering expense were partially offset by a reduction in the workforce at the beginning of the third quarter and cost containment efforts. General and administrative expense was $1.3 million and $5.6 million, respectively (2 percent and 3 percent of revenue, respectively) for the three month and nine month periods ended September 30, 1996 compared to $1.6 million and $4.6 million, respectively (3 percent and 3 percent of revenue, respectively) for the comparable periods of 1995. The increase in the year to date amount is primarily attributable to increased investment in training and information systems and severance reserves recorded as part of the reduction in force at the end of the second quarter. At the end of the second quarter, the Company reevaluated workload requirements and reduced the workforce by 8 percent, implementing a flatter organization structure, which is intended to significantly reduce operating expense for the second half of 1996*. The decrease in the third quarter is a result of the workforce reduction mentioned above, as well as the reversal of approximately $0.4 million in accrued 7 severance and incentive accruals no longer required in 1996. Without the reversal of the accruals, general and administrative expense would have been 3 percent of revenue in the third quarter of 1996 and relatively flat in amount with the prior year's third quarter. Income from operations decreased to $3.2 million and $10.7 million, respectively (5 percent and 6 percent of revenue, respectively) for the three month and nine month periods ended September 30, 1996 from $8.8 million and $23.3 million (16 percent and 16 percent of revenue, respectively) for the comparable periods of 1995, primarily as a result of lower gross margins as discussed above. The Company's effective tax rate in the third quarter of 1996 was 32.5 percent and for the nine months ended September 30, 1996 was 34.6 percent, compared to 34 percent for the year ended December 31, 1995. The decrease in the third quarter of 1996 is primarily a result of the reinstatement of the research and development tax credit effective July 1, 1996 through May 31, 1997. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996 working capital was $86.2 million, including $6.6 million of cash and cash equivalents and $17.9 million of marketable securities. In the first nine months of 1996, working capital increased by $4.8 million and the current ratio increased to 4.4:1 from 3.8:1. Cash and cash equivalents decreased $23.5 million from December 31, 1995 primarily due to $15.4 million used in operations, $6.5 million used for purchases of property and equipment and $8.8 million for the repurchase of the Company's Common Stock, offset by $1.0 million release of restricted cash, the net sale of $0.7 million of marketable securities, $3.2 million provided by the sale of common stock through the exercise of employee stock options and $2.3 million provided by the income tax benefit of nonqualified stock option exercises and disqualifying dispositions. Accounts receivable increased to $51.9 million at September 30, 1996 from $49.4 million at the end of 1995. The growth in receivables is primarily attributable to increased aging of receivables on sales of the LitePro 580. During the third quarter, the Company focused collection efforts in order to collect on the sell through of the LitePro 580s. Cash receipts associated with the sell through of the LitePro 580 began late in the third quarter and are expected to completely turn during the fourth quarter of 1996.* Accordingly, days sales outstanding has increased to 80 days at September 30, 1996 from 74 days at December 31, 1995, but decreased from 90 days at June 30, 1996. The Company expects to see working capital constrained in the channels for the duration of 1996 as new competitors and products enter the market*. In addition to providing alternative forms of financing, the Company is creating additional channels of distribution for its products. Inventories increased $16.4 million to $27.1 million at September 30, 1996 from $10.8 million at December 31, 1995 due primarily to growth in parts stock and finished goods to support the shift in production to products that the Company manufactures, unfilled orders for certain customers on credit hold at the end of the quarter and the shortage of a key 8 component which caused a slower than anticipated product introduction ramp and fewer shipments of a new SVGA projector during the third quarter. Inventory turns have decreased to approximately 6 in the first nine months of 1996 on an annualized basis compared to approximately 11 times during 1995 when the Company primarily distributed an OEM product. Income taxes receivable increased to $3.0 million at September 30, 1996 from a payable of $2.1 million at December 31, 1995 due to the prescribed calculation methods and the timing of estimated federal and state tax payments. The $3.3 million increase in property and equipment is primarily a result of $6.8 million of expenditures primarily for new product tooling, information systems and plant floor layout redesign to accommodate available to promise and assemble to order production lines, offset by $3.6 million of depreciation. Total expenditures for property and equipment in 1996 are expected to be approximately $8.6 million, primarily for the projects mentioned above.* In July 1996, the Company completed its repurchase of a total of 500,000 shares of its Common Stock for at an average price of $17.60 for a total of $8,785,000, which was paid out of existing cash balances. In September 1996, the Company entered into an unsecured $10.0 million line of credit with a commercial bank. The line of credit bears interest, at the Company's election, at one of the following: 1) the bank's prime rate, 2) LIBOR plus .65 percent, or 3) at a fixed rate as quoted to the borrower by the bank on the date of borrowing. The line of credit expires on April 30, 1997. The line of credit agreement contains certain liquidity, tangible net worth and pre-tax profit covenants. At September 30, 1996 the Company was in compliance with all of the covenants and had no outstanding balance under the line of credit. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits filed as part of this report are listed below: EXHIBIT NO. AND DESCRIPTION 10 Line of Credit Agreement between the Company and Wells Fargo Bank, National Association, dated September 30, 1996. 11 Calculations of Net Income Per Share 27 Financial Data Schedule (b) Reports on Form 8-K: 1. Form 8-K under Item 5., Other Events, dated July 31, 1996. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 4, 1996 IN FOCUS SYSTEMS, INC. By: /s/ JOHN V. HARKER -------------------------------------- John V. Harker Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By: /s/ MICHAEL D. YONKER -------------------------------------- Michael D. Yonker Vice President, Information Services and Chief Financial Officer (Principal Financial and Accounting Officer) 10 EX-10 2 EXHIBIT 10 CREDIT AGREEMENT THIS AGREEMENT is entered into as of September 30, 1996, by and between IN FOCUS SYSTEMS, INC., an Oregon corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodation described below, and Bank has agreed to provide said credit accommodation to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDIT SECTION 1.1. LINE OF CREDIT. (a) LINE OF CREDIT. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including April 30, 1997, not to exceed at any time the aggregate principal amount of Ten Million Dollars ($10,000,000.00) ("Line of Credit"), the proceeds of which shall be used for working capital. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) BORROWING AND REPAYMENT. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. INTEREST/FEES. (a) INTEREST. The outstanding principal balance of the Line of Credit shall bear interest at the rate of interest set forth in the Line of Credit Note. (b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note. (c) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to Two Thousand Five Hundred Dollars ($2,500.00), which fee shall be due and payable in full upon the execution and delivery to Bank of this Agreement. (d) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to one-eighth percent (1/8%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a calendar quarter basis by Bank and shall be due and payable by Borrower in arrears within fifteen (15) days after each billing is sent to Bank. SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest and fees due under the Line of Credit by charging Borrower's demand deposit account number 003-0068772 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of Oregon, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of Credit Note, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") -2- have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated June 30, 1996, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year outside normal course of business. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, -3- franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this -4- Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) DOCUMENTATION. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Line of Credit Note. (ii) Corporate Borrowing Resolution. (iii) Certificate of Incumbency. (iv) Such other documents as Bank may require under any other Section of this Agreement. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) COMPLIANCE. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) DOCUMENTATION. Bank shall have received all additional documents which may be required in connection with such extension of credit. (c) FINANCIAL CONDITION. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. -5- ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include balance sheet, income statement, statement of cash flow and 10-K's; (b) not later than 45 days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower, to include balance sheet, income statement, statement of cash flow and 10-Q's; (c) contemporaneously with each annual and quarterly financial statement of Borrower required hereby, a certificate of the president or chief financial officer of Borrower that said financial statements are accurate and that there exists no Event of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event of Default; (d) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply -6- with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with a claim in excess of $500,000.00. SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending September 30, 1996: (a) Liquidity Ratio not at any time less than 2.0 to 1.0, with "Liquidity" defined as the sum of cash, marketable securities and trade account receivables, and with "Liquidity Ratio" defined as Liquidity divided by total current liabilities. (b) Tangible Net Worth not at any time less than $75,000,000.00, with "Tangible Net Worth" defined as the -7- aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Pre-tax profit not less than $1.00, measured on a rolling four fiscal quarter (i.e., each period of four consecutive fiscal quarters) basis, determined as of each fiscal quarter end, beginning with the four fiscal quarter period ending September 30, 1996. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $100,000.00. ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any -8- substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank and additional guaranties in amounts not to exceed an aggregate of $500,000.00. SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof in amounts not to exceed an aggregate of $500,000.00 at any time. SECTION 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing which are existing, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. -9- (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) The filing of a notice of judgment lien against Borrower; or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower. (f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) The dissolution or liquidation of Borrower; or Borrower, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers -10- and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit accommodation from Bank subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: IN FOCUS SYSTEMS, INC. 27700 B SW Parkway Wilsonville, OR 97070-9215 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Portland Regional Commercial Banking Office 1300 S.W. Fifth Ave., 19th Flr. Portland, OR 97201 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full -11- amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents to a maximum of $1,000.00, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit extended by Bank to Borrower, Borrower or its business, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to any extension of credit by Bank subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. -12- SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon. SECTION 7.11. ARBITRATION. (a) ARBITRATION. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) GOVERNING RULES. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in Oregon selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any -13- such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law. (c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration hereunder. (d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be active members of the Oregon State Bar or retired judges of the state or federal judiciary of Oregon, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of Oregon, (ii) may grant any remedy or relief that a court of the state of Oregon could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Oregon Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. -14- (e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of Oregon, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of Oregon. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of Oregon. (f) MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE. -15- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, IN FOCUS SYSTEMS, INC. NATIONAL ASSOCIATION By: /s/ Michael D. Yonker By: /s/ Dave Goode ------------------------ ------------------------- Michael D. Yonker Dave Goode Title: CFO, Secretary & Treasurer Vice President -------------------------- -16- REVOLVING LINE OF CREDIT NOTE $10,000,000.00 Portland, Oregon September 30, 1996 FOR VALUE RECEIVED, the undersigned IN FOCUS SYSTEMS, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 1300 S.W. Fifth Ave., 19th Flr., Portland, Oregon, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Ten Million Dollars ($10,000,000.00), or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined: (a) "Business Day" means any day except a Saturday, Sunday or any other day on which commercial banks in Oregon are authorized or required by law to close. (b) "Fixed Rate Term" means a period commencing on a Business Day and continuing for one (1), two (2) or three (3) months, as designated by Borrower, during which all or a portion of the outstanding principal balance of this Note bears interest determined in relation to LIBOR; provided however, that no Fixed Rate Term may be selected for a principal amount less than Five Hundred Thousand Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. (c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - LIBOR Reserve Percentage (i) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. (d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate. (e) "SAF Rate" means such rate as may be quoted by Bank to Borrower on the date of each advance bearing interest in relation to such rate. (f) "SAF Interest Period" means a period commencing on a Business Day, selected by Borrower, and terminating on the next Business Day. INTEREST: (a) INTEREST. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) either (i) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time; (ii) at a fixed rate per annum determined by Bank to be sixty-five one- hundredths percent (0.65%) above LIBOR in effect on the first day of the applicable Fixed Rate Term; or (iii) at the SAF Rate quoted by Bank to Borrower on the first day of the applicable SAF Interest Period. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. With respect to each LIBOR or SAF selection hereunder, Bank is hereby authorized to note the date, principal amount, interest rate and Fixed Rate Term or SAF Interest Period applicable thereto and any payments made thereon on Bank's books -2- and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. (b) SELECTION OF INTEREST RATE OPTIONS. At any time any portion of this Note bears interest determined in relation to LIBOR or SAF Rate, it may be continued by Borrower at the end the Fixed Rate Term or SAF Interest Period applicable thereto so that all or a portion thereof bears interest determined in relation to the SAF Rate, Prime Rate or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion of this Note bears interest determined in relation to the Prime Rate, Borrower may convert all or a portion thereof so that it bears interest determined in relation to LIBOR for a Fixed Rate Term, or to the SAF Rate, as designated by Borrower. At such time as Borrower requests an advance hereunder or wishes to select a LIBOR or SAF Rate option for all or a portion of the outstanding principal balance hereof, and at the end of each Fixed Rate Term and SAF Interest Period, Borrower shall give Bank notice specifying: (i) the interest rate option selected by Borrower; (ii) the principal amount subject thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed Rate Term. Any such notice may be given by telephone so long as, with respect to each LIBOR selection, (A) Bank receives written confirmation from Borrower not later than three (3) Business Days after such telephone notice is given, and (B) such notice is given to Bank prior to 10:00 a.m., California time, on the first day of the Fixed Rate Term. For each LIBOR or SAF Rate option requested hereunder, Bank will quote the applicable rate to Borrower at approximately 10:00 a.m., California time, on the first day of the Fixed Rate Term or SAF Interest Period. If Borrower does not immediately accept the rate quoted by Bank, any subsequent acceptance by Borrower shall be subject to a redetermination by Bank of the applicable rate; provided however, that if Borrower fails to accept any such rate by 11:00 a.m., California time, on the Business Day such quotation is given, then the quoted rate shall expire and Bank shall have no obligation to permit a LIBOR or SAF Rate, as applicable, option to be selected on such day. If no specific designation of interest is made at the time any advance is requested hereunder or at the end of any Fixed Rate Termor SAF Interest Period, Borrower shall be deemed to have made a Prime Rate interest selection for such advance or the principal amount to which such Fixed Rate Term or SAF Interest Period applied. (c) ADDITIONAL LIBOR PROVISIONS. (i) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected by -3- Borrower, and (B) any portion of the outstanding principal balance hereof which bears interest determined in relation to LIBOR, subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest determined in relation to the Prime Rate. (ii) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (A) to make LIBOR options available hereunder, or (B) to maintain interest rates based on LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined in relation to the Prime Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (iii) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (A) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (C) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options -4- hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (d) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on the last day of each month, commencing October 31, 1996. (e) DEFAULT INTEREST. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) BORROWING AND REPAYMENT. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on April 30, 1997. (b) ADVANCES. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) John Harker or Mike Yonker or Jeff Bouchard or Timothy Carrasco, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that -5- persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. All payments credited to principal shall be applied first, to the outstanding principal balance of this Note which bears interest determined in relation to the Prime Rate, if any, and second, to the outstanding principal balance of this Note which bears interest determined in relation to LIBOR, with such payments applied to the oldest Fixed Rate Term first, and finally, to the outstanding principal balance of this Note which bears interest at the SAF Rate. PREPAYMENT: (a) PRIME RATE. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to the Prime Rate at any time, in any amount and without penalty. (b) LIBOR. Borrower may prepay principal on any portion of this Note which bears interest determined in relation to LIBOR at any time and in the minimum amount of Five Hundred Thousand Dollars ($500,000.00); provided however, that if the outstanding principal balance of such portion of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if any such portion of this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) DETERMINE the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) SUBTRACT from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. -6- (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount may result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4%) above the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed). Each change in the rate of interest on any such past due prepayment fee shall become effective on the date each Prime Rate change is announced within Bank. (c) SAF RATE. Borrower has no right to prepay principal on any portion of this Note which bears interest at the SAF Rate. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of September 30, 1996, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS: (a) REMEDIES. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all reasonable costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory -7- relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of Oregon. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. IN FOCUS SYSTEMS, INC. By: /s/ Michael Yonker ------------------------------- Title: CFO, Secretary and Treasurer ---------------------------- -8- WELLS FARGO BANK CERTIFICATE OF INCUMBENCY - -------------------------------------------------------------------------------- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION The undersigned, Michael D. Yonker, Secretary of IN FOCUS SYSTEMS, INC., a corporation created and existing under the laws of the state of OREGON, hereby certifies to Wells Fargo Bank, National Association ("Bank") that the following named persons are those duly elected officers of this corporation specified in the Corporate Resolution attached hereto and that the signatures opposite their names are their true signatures: Title Name Signature Chairman of the Board - ------------------------ ------------------------ ------------------------ President and Chief Executive Officer John V. Marker /s/ John V. Marker - ------------------------ ------------------------ ------------------------ Chief Financial Officer Michael D. Yonker /s/ Michael D. Yonker - ------------------------ ------------------------ ------------------------ Secretary and Treasurer - ------------------------ ------------------------ ------------------------ - ------------------------ ------------------------ ------------------------ The undersigned further certifies that should any of the above-named officers change, or should the signature requirements of said Corporate Resolution change, this corporation shall provide Bank immediately with a new Certificate of Incumbency. Bank is hereby authorized to rely on this Certificate until a new Certificate certified by the Secretary of this corporation is received by Bank. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed the corporate seal of said corporation as of September 30, 1996. /s/ Michael Yonker ------------------------- Secretary (SEAL) EX-11 3 EXHIBIT 11 IN FOCUS SYSTEMS, INC. CALCULATIONS OF NET INCOME PER SHARE
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------------------------- ------------------------------------------------- 1996 1995 1996 1995 ------------------------ ------------------------ ------------------------ ------------------------ Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted ------------------------ ------------------------ ------------------------ ------------------------ Weighted Average Shares Outstanding for the Period 10,728,595 10,728,595 10,746,044 10,746,044 10,922,934 10,922,934 10,968,744 10,968,744 Dilutive Common Stock Options Using the Treasury Stock Method 88,259 88,281 490,645 491,977 455,234 463,325 489,057 495,131 ------------------------ ------------------------ ------------------------ ------------------------ Total Shares Used for Per Share Calculations 10,816,854 10,816,876 11,236,689 11,238,021 11,378,168 11,386,259 11,457,801 11,463,875 ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ Net Income $2,378,000 $2,378,000 $5,982,000 $5,982,000 $8,221,000 $8,221,000 $15,920,000 $15,920,000 ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ Net Income Per Share $ 0.22 $ 0.22 $ 0.53 $ 0.53 $ 0.72 $ 0.72 $ 1.39 $ 1.39 ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------ ------------------------
EX-27 4 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1996 SEP-30-1996 6,545 17,939 51,947 2,892 27,147 111,911 15,465 11,996 111,911 25,664 352 0 0 47,421 55,045 129,087 185,347 185,347 132,849 132,849 42,046 300 11 12,040 4,166 8,221 0 0 0 8,221 0.72 0.72
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