<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR COMMISSION
ENDED JUNE 30, 1995 FILE NO. 0-9996
DOTRONIX, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1387074
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 FIRST STREET S. E.
NEW BRIGHTON, MINNESOTA 55112-7894
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 633-1742
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK,
$.05 PAR VALUE
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 .
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $16,039,896
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of September 8, 1995 was approximately $8,065,640 (based on the
last sale price of such stock as reported by NASDAQ Stock Market).
The number of shares outstanding of the registrant's common stock, as of
September 8, 1995 was 4,176,885 shares.
A portion of the Registrant's Proxy Statement for the 1995 Annual Meeting of
Shareholders is incorporated into Part III as set forth therein.
Page 1
<PAGE>
PART I
Item 1. BUSINESS
General
-------
Dotronix, Inc. (the "Company") was founded in 1980 for the purpose of designing,
manufacturing and marketing cathode ray tube ("CRT") displays and closed circuit
television ("CCTV") monitors. Such displays and monitors are used to display
alphanumeric information, graphics and images in a broad range of applications.
These applications range from use in relatively simple information systems, such
as airline flight information displays, to much more sophisticated systems such
as computer-aided design, manufacturing and engineering ("CAD/CAM/CAE") systems
and medical diagnostic imaging systems.
The image on a CRT display or CCTV monitor is produced by magnetically guiding
an interruptible stream of electrons against the back of a phosphorescent
screen. This stream of electrons scans a series of horizontal lines from the
top to the bottom of the screen. When the stream of electrons strikes the back
of the screen a bright area is produced, and when it is interrupted a dark area
appears. In a medium-resolution unit the stream of electrons scans the screen
in a series of 525 horizontal lines 30 times per second, so that the series of
light and dark areas produced appears as a steady coherent image to the viewer.
High-resolution displays scan a greater number of lines, in some instances at a
greater speed, thus producing a clearer image on the screen.
Products
--------
The Company primarily designs, manufactures and markets products for the medical
diagnostic, work station, and the multimedia presentation and display markets.
The medical market products consist primarily of high resolution monochrome and
color displays marketed to the major OEMs within the market. This OEM base
serves x-ray, CT scan, MRI and other instrumentation uses. The medical products
are used in diagnostic and work station applications and for fixed and portable
instrumentation devices. CRT sizes range from 5" to 21".
The Company also markets a product line of large screen color displays in the
multimedia arena. Product uses include video walls, displays for flight
information systems, and other public information displays. Products range from
20" to 27".
The Company continues to selectively market to the federal government and its
agencies, offering high quality, medium resolution, color and monochrome
displays.
Although the Company has developed standardized CRT displays in order to provide
cost-effective products, it also works closely with customers in order to adapt
existing designs and to develop new products to meet customers' specific
requirements.
Marketing
---------
The Company believes that the market for CRT displays and CCTV monitors is
extensive and diverse. As described above, CRT displays and CCTV monitors are
used in a wide variety of computer-based information systems and video-based
systems. The Company's principal marketing
Page 2
<PAGE>
effort is directed toward the OEMs of the various systems in which displays and
monitors are used. Company personnel work with these OEMs in order to determine
the OEMs' technical needs and cost objectives and to adapt the Company's
standard designs accordingly. This adaptation process typically entails
specification of the components to be used within the Company's standard design
in order to meet these needs and objectives. Greater degrees of customization
are required, however, for certain display applications.
The Company's present customer base consists of approximately 200 OEMs located
predominantly in the United States, with 6% of the Company's revenues during the
year ended June 30, 1995 consisting of sales to customers in Europe. Sales to
the Company's five largest customers accounted for 52% of its revenues during
the year ended June 30, 1995. Five separate customers have accounted for more
than 10% of revenues during one or more of the last three fiscal years. Their
respective percentages of revenue by fiscal year are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A 19% 16%
Customer B 11% 14% 19%
Customer C 14%
Customer D 17%
Customer E 11%
</TABLE>
In order to meet the diverse requirements of OEMs, the Company markets its
products directly to such manufacturers through its own technically trained
sales employees. The Company employs salespersons in St. Paul, Minnesota, Eau
Claire, Wisconsin, Los Angeles, California, Eatontown, New Jersey, Atlanta,
Georgia and Seattle, Washington. The Company also distributes CCTV monitors to
end-users through a network of 45 authorized dealers located throughout the
United States. The Company's CRT displays and CCTV monitors are priced in the
range from $100 to $10,000; depending on size and other specifications, degree
of adaptation required and quantity.
Competition
-----------
The Company believes that competition in the market for CRT displays and CCTV
monitors is generally based on price, product performance, product availability
and customer service. A number of other domestic and foreign companies,
including Panasonic Company, Sony, Tatung Company, Conrac Corporation,
Tektronix, Inc., Electrohome Electronics, Philips Electronics, Ltd., and
Mitsubishi Electronic Corporation, presently manufacture CRT displays and CCTV
monitors and market them to OEMs. In addition, some OEMs produce their own CRT
displays and CCTV monitors. Many of the companies in the CRT display and CCTV
monitor market have substantially greater resources than the Company.
The Company also faces potential competition from other, non-CRT based
information display technologies, such as liquid crystal displays and other
flat-panel displays. The Company believes, however, that such alternative
technologies have not yet proven economical and effective in most applications
in which the Company's products are used. The development of an economical and
effective flat-panel display could have an adverse effect on the Company's
business therefore, the Company is following developments closely and evaluating
the potential use of this technology in its product lines.
Manufacturing and Suppliers
---------------------------
The Company purchases the components of its CRT displays and CCTV monitors from
outside suppliers and manufactures, assembles, and tests these components at its
New Brighton, Minnesota and Eau Claire, Wisconsin facilities.
Page 3
<PAGE>
The components of CRT displays and CCTV monitors include standardized CRTs,
magnetic deflection yokes and transformers, power sources and other standardized
electronic components as well as printed circuit boards and chassis manufactured
to the Company's specifications. The Company believes that such standardized
components generally are available from more than one source of supply and that
numerous manufacturers of components to specification are available. In the
manufacturing process, transistors, capacitors and other electronic components
are inserted into holes drilled in a printed circuit board. The components are
then flow-soldered to the circuit board and then the CRT, deflection yoke and
power source are mounted on the chassis and hand wired. The completed units are
then put through a series of alignment and other quality control tests plus a
burn-in period before they are shipped to the purchaser.
Governmental Regulations
------------------------
The Company's products, or the products into which they are incorporated, must
be certified by officials of the Department of Health and Human Services as
complying with regulations limiting the amount of radiation that may be emitted
by CRT displays and CCTV monitors. The Company has been able to obtain such
approvals without material delay. The Company has received exemption from
certain of the certification procedures under an exception contained in the
regulations which reduces the administrative burden of such certification
procedures. In addition, the Company's products are subject to Federal
Communications Commission regulations limiting the amount of radio noise
emissions from computing devices. The Company has been able to obtain the
necessary certifications in a timely manner.
Personnel
---------
At June 30, 1995 the Company had 180 full-time employees. The Company believes
that its relationship with its employees is satisfactory. None of the Company's
employees are covered by collective bargaining agreements.
Sales Backlog; Research and Development
----------------------------------------
The Company's sales backlog expected to be shipped by the end of the next fiscal
year was approximately $8 million at June 30, 1995 and approximately $10 million
at June 30, 1994. The Company believes that the dollar amount of backlog at a
given date is not necessarily indicative of sales for any succeeding period.
For example, certain regular customers of the Company place frequent orders on a
short term basis only.
Research and development costs totaled approximately $284,000 for fiscal 1995,
$351,000 for fiscal 1994 and $513,000 for fiscal 1993. Research and development
costs have decreased due to consolidation of personnel to one location and focus
on product lines.
Item 2. PROPERTIES
The Company's corporate offices and certain manufacturing operations are located
in a building that is approximately 17,000 square feet in New Brighton,
Minnesota. The Company also leases in New Brighton, under a five year lease
expiring March 1998, approximately 22,000 square feet of warehouse space from a
company wholly owned by William S. Sadler, president of the Company, at a rental
rate of $5,457 per month. The lease has a renewal option for five additional
years at the same rate. The Company utilizes, on a month to month rental basis,
approximately 4,500 square feet in New Brighton, Minnesota at $1,750 per month,
from another company wholly owned by William S. Sadler.
Page 4
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Dotronix' offices and manufacturing facility in Eau Claire, Wisconsin are
located in an approximately 33,600 square foot building owned by the Company.
Dotronix, Inc. is also leasing, on a month to month basis, from an unaffiliated
party, an additional 6,000 square feet of space at $780 per month used for
storage.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Page 5
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been quoted on the NASDAQ Stock Market since
October 21, 1986 under the symbol "DOTX." The following table sets forth the
range of high and low closing sales prices of the common Stock in the NASDAQ
Stock Market as reported by NASDAQ.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1994 HIGH LOW
<S> <C> <C>
First Quarter........... 1 3/16 1/2
Second Quarter.......... 1 1/2 3/4
Third Quarter........... 1 7/16 1 1/16
Fourth Quarter.......... 1 5/16 1 1/16
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1995: HIGH LOW
<S> <C> <C>
First Quarter........... 1 1/4 1
Second Quarter.......... 1 3/4 1 1/16
Third Quarter........... 3 1 1/8
Fourth Quarter.......... 2 15/16 1 3/4
</TABLE>
At June 30, 1995 there were 446 record holders of the Company's Common Stock.
The Company has not paid dividends on its Common Stock and does not expect to
pay cash dividends for the foreseeable future. As of June 30, 1995, the
Company's borrowing arrangement prohibited the payment of cash dividends. The
Company's current policy is to retain any earnings to finance operations and
growth.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations:
----------------------
The Company's revenues increased $1,427,029 (10%) during the fiscal year ended
June 30, 1995 and decreased $2,735,101 (16%) during the fiscal year ended June
30, 1994 from the respective preceding fiscal years. The increase for fiscal
1995 was due to the very favorable acceptance of large screen color displays for
the multi-media market. The decrease for fiscal 1994 was mainly due to
decreased units shipped in medical products, particularly to Europe.
Five separate customers have accounted for more than 10% of revenues during one
or more of the last three fiscal years. Their respective percentages of revenue
by fiscal year are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A 19% 16%
Customer B 11% 14% 19%
Customer C 14%
Customer D 17%
Customer E 11%
</TABLE>
Page 6
<PAGE>
The Company's gross margin percentage was 32% in fiscal 1995, 24% in fiscal
1994, and 25% in 1993. The increase in fiscal 1995 was due primarily to the
growth in sales explained above, favorable product mix, and product and overhead
cost containment efforts put in place during fiscal 1994. In 1994 the margin was
maintained at substantially the same level as 1993 despite the decrease in sales
due to changes in facilities and personnel to match revenue levels.
Selling, general, and administrative expenses decreased 7% and 2% in fiscal
1995 and 1994, from their respective preceding years. The decrease in fiscal
1995 was due to reduced payroll costs due to personnel cutbacks in all
administrative areas and lower amortization of costs related to intangibles
partially offset by expenses incurred under the Company's bonus plans.
Interest expense increased 38% during the year ended June 30, 1995 and decreased
34% during the year ended June 30, 1994 from the respective preceding years. The
fiscal 1995 increase was due to increases in interest rates and higher
borrowing levels on the Revolving Working Capital Loan. The 1994 decrease was
due to the reduction in the average monthly balance of notes payable and long-
term debt.
As of June 30, 1995, the Company had available income tax operating loss
carryforwards of approximately $920,000 that can be used to offset future
taxable income.
Effects of Inflation:
---------------------
The Company believes that its revenues and results of operations have not been
significantly affected by inflation during the three years ended June 30, 1995.
Financial Condition, Liquidity and Capital Resources:
-----------------------------------------------------
On October 3, 1994, the Company entered into Amendment Number Three to the
Revolving Working Capital Loan commitment which had been in effect since October
10, 1991. This amendment provided for the payoff of all of the Company's other
existing debt and consolidated it into two demand loans totalling $657,000 and
a revolving loan with a maximum availability of $4,000,000. The loans continue
to bear interest at 3% over the base rate (12% at June 30, 1995) and are secured
by all assets of the Company. The monthly principal payment on the demand loans
is $10,950. The amendment also provides for a total minimum monthly interest
payment based on the higher of the average daily outstanding principal balance
or $2,000,000. This agreement has an expiration date of October 11, 1997.
The loan agreement contains covenants which, among other things, prohibit the
payment of dividends. The Company was in compliance with the covenants on June
30, 1995.
The Company believes the amended agreement and consolidation of debt improved
the Company's liquidity and resources through more favorable payment terms than
its previous debt structure. Future amounts available to it under this agreement
should be adequate to meet both short and long term capital needs.
If this agreement had been effective at June 30, 1994, current liabilities would
have increased $433,141, there would have been no long term debt, and working
capital would have been reduced to $4,342,822.
Warrants to purchase a total of 180,000 shares of common stock, issued in fiscal
1992, expired in
Page 7
<PAGE>
November, 1994. On October 6, 1994, the expiration date on warrants to purchase
140,000 shares of common stock, also issued in fiscal 1992, was extended to
December 31, 1997 in conjunction with renegotiation of the president's
employment contract (90,000 of which remained outstanding at June 30, 1995).
During fiscal year 1995 a total of 380,000 shares of common stock were issued
upon exercise of warrants that were issued in fiscal 1992. In addition, 21,518
shares of common stock were issued upon exercise of stock options. Total
proceeds from these stock issues were $403,240.
Cash Flow
---------
During fiscal year 1995 operations provided approximately $983,000 due mainly to
its net income for the year. Financing activities, primarily proceeds from the
exercise of warrants and options for common shares, provided approximately
$512,000. Property, plant and equipment purchases used approximately $45,000.
Overall, cash increased $1,450,000.
During fiscal year 1994 operations used approximately $589,000 due mainly to
the net loss for the year. Financing activities provided a net of $62,000 and
property, plant, and equipment purchases used $98,000. Overall, cash decreased
$613,000.
During fiscal year 1993, operations generated cash of approximately $2,455,000.
Debt reductions used $1,806,000 and $144,000 was used to purchase equipment.
Overall, cash increased by $505,000.
At June 30, 1995, working capital was $5,907,269.
The Company has no material commitments for capital expenditures.
Item 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company are included (with an index
listing all such statements) in a separate financial section at the end of this
Annual Report on Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 8
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
See Part I of this Report. Pursuant to General Instruction E(2), reference is
made to information contained under the heading "Election of Directors" in the
Company's definitive proxy statement for its 1995 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before October 6,
1995, which information is incorporated herein.
Executive Officers of the Company
---------------------------------
The executive officers of the Company who are not also directors of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert J. Andrews 53 Vice President, Operations
Warren M. White 52 Vice President, Finance
Michael J. Hopkins 49 Vice President, Sales & Marketing
</TABLE>
Robert J. Andrews has been Vice President, Operations of the Company since 1986.
He has been employed by the Company since 1982 as Operations Manager. Prior to
joining the Company Mr. Andrews was the Director of Operations of Audiotronics
Corporation.
Warren M. White has been Vice President, Finance of the Company since 1986 and
has been its Controller since 1983. Prior to joining the Company, Mr. White was
Controller and Treasurer of Emmer Brothers Company, a wholesale lumber
distributor.
Michael J. Hopkins joined the Company as Vice President, Sales and Marketing in
September 1993. Prior to joining the Company Mr. Hopkins was Vice President,
Sales and Marketing for ADC Telecommunications.
Item 10. EXECUTIVE COMPENSATION
Pursuant to General Instruction E(2), reference is made to information
contained under the heading "Executive Compensation" in the Company's
definitive proxy statement for its 1995 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or before October 6, 1995,
which information is incorporated herein.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction E(2), reference is made to information contained
under the heading "Voting Securities and Principal Holders" in the Company's
definitive proxy statement for its 1995 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or before October 6, 1995,
which information is incorporated herein.
Page 9
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction E(2), reference is made to information contained
under the heading "Certain Transactions" in the Company's definitive proxy
statement for its 1995 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission on or before October 6, 1995, which
information is incorporated herein.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation, as amended to date of this report
(incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1988).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1991).
4.1 Specimen certificate representing the Company's Common Stock
(incorporated by reference to Exhibit 3 (a) to Amendment No. 2
to the Company's Registration Statement on Form S-18, File No.
2-71333C).
10.1 Amended and Restated Employment Agreement of William S. Sadler
dated January 1, 1995 (filed herewith).
10.2 Lease for land and building located at 60 Cleveland Avenue S.E.,
New Brighton, Minnesota (incorporated by reference to exhibit
10.10 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1988).
10.3 Amendment of lease for land and building located at 50 Cleveland
Ave S.E., New Brighton, Minnesota (incorporated by reference to
exhibit 10.5 to the Company's Annual Report on Form 10-KSB for
the year ended June 30, 1993).
10.4 Dotronix, Inc. 1989 Stock Option and Restricted Stock Plan
(incorporated by reference to exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990).
10.5 Form of Revolving Working Capital Loan Agreements (incorporated
by reference to exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991). Amendment No. 1 of
Revolving Working Capital Loan Agreements (incorporated by
reference to exhibit 10.7 to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1993).
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Exhibit
Number Description
------- -----------
10.6 Amendment No. 2 to Revolving Working Capital Loan Agreement
(filed herewith). Amendment No. 3 to Revolving Working Capital
Loan Agreement (filed herewith).
10.7 Dotronix, Inc. Non-employee Director Stock Option Plan
(incorporated by reference to exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1992).
23 Independent Auditors' Consent (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the quarter ended June
30, 1995.
Page 11
<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.
DOTRONIX, INC.
Date: September 15, 1995 By /s/ William S. Sadler
__________________________________
William S. Sadler, President
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 and on the dates indicated.
Date Signature
---- ---------
September 15, 1995 By /s/ William S. Sadler
__________________________________
William S. Sadler, President,
Treasurer and Director
September 15, 1995 By /s/ Warren M. White
__________________________________
Warren M. White,
Vice President, Finance
September 15, 1995 By /s/ Ray L. Bergeson
__________________________________
Ray L. Bergeson,
Director
September 15, 1995 By /s/ Robert J. Snow
__________________________________
Robert J. Snow,
Director
September 15, 1995 By /s/ Edward L. Zeman
__________________________________
Edward L. Zeman,
Director
September 15, 1995 By /s/ L. Daniel Kuechenmeister
__________________________________
L. Daniel Kuechenmeister,
Director
Page 12
<PAGE>
DOTRONIX, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent auditors' report..................... F-2
Consolidated balance sheets...................... F-3
Consolidated statements of operations............ F-5
Consolidated statements of stockholder's equity.. F-6
Consolidated statements of cash flows............ F-7
Notes to consolidated financial statements....... F-8
</TABLE>
F-1
Page 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS
DOTRONIX, INC.
NEW BRIGHTON, MINNESOTA
We have audited the accompanying consolidated balance sheets of Dotronix, Inc.
and subsidiary (the Company) as of June 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1995. 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 audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Dotronix, Inc. and subsidiary as of
June 30, 1995 and 1994, and the results of their operations and cash flows for
each of the three years in the period ended June 30, 1995 in conformity with
generally accepted accounting principles.
/S/ Deloitte & Touche LLP
August 18, 1995
Minneapolis, Minnesota
F-2
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<PAGE>
CONSOLIDATED BALANCE SHEETS
DOTRONIX, INC. AND SUBSIDIARY
ASSETS
<TABLE>
<CAPTION>
June 30
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 2,028,371 $ 578,592
Accounts receivable, less allowance for doubtful
accounts of $49,000 and $162,000, respectively.... 2,377,797 2,288,382
Inventories (Note A)................................ 4,682,154 4,671,733
Prepaid expenses.................................... 87,775 71,939
----------- -----------
TOTAL CURRENT ASSETS........................... 9,176,097 7,610,646
PROPERTY, PLANT AND EQUIPMENT (Notes A, B, C and D)... 1,276,073 1,519,823
OTHER ASSETS:
Excess of cost over fair value of net assets
acquired, less amortization (Note A).............. 845,973 917,970
Non-compete agreements, less amortization (Note A).. 12,500 27,500
Other............................................... 67,226 3,155
----------- -----------
$11,377,869 $10,079,094
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
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<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30
------------------------------
1995 1994
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving loan (Note C)................................................. $ 1,752,797 $ 791,029
Accounts payable........................................................ 833,898 1,188,170
Salaries, wages and payroll taxes....................................... 569,902 262,577
Other accrued liabilities............................................... 112,231 173,106
Current portion of long-term obligations (Notes C, D, E and I.)......... 419,801
----------- -----------
TOTAL CURRENT LIABILITIES............................................. 3,268,828 2,834,683
LONG-TERM OBLIGATIONS (Notes C, D, E and I)............................... 433,141
COMMITMENTS AND CONTINGENCIES (Notes E and I).............................
STOCKHOLDERS' EQUITY (Note F):
Common stock, $.05 par value; 12,000,000 shares authorized,
4,173,214 and 3,771,696 shares issued and outstanding,
respectively........................................................... 208,661 188,585
Additional paid-in capital.............................................. 10,940,929 10,557,765
Accumulated deficit..................................................... (3,040,549) (3,935,080)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........................................ 8,109,041 6,811,270
----------- -----------
$11,377,869 $10,079,094
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
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<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
DOTRONIX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year ended June 30
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES (Note H)..................... $16,039,896 $14,612,867 $17,347,968
COSTS AND EXPENSES:
Cost of sales........................ 10,984,090 11,087,411 13,081,179
Selling, general and administrative.. 3,917,238 4,205,451 4,291,509
Interest............................. 244,037 176,534 267,508
----------- ----------- -----------
15,145,365 15,469,396 17,640,196
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX....... 894,531 (856,529) (292,228)
INCOME TAX (Note G).................. 68,000
----------- ----------- -----------
NET INCOME (LOSS)..................... $ 894,531 $ (856,529) $ (360,228)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE............... $ .22 $ (.23) $ (.10)
=========== =========== ===========
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING.......................... 4,117,410 3,770,025 3,761,696
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
Page 17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOTRONIX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Common stock Additional
-------------------- paid-in Accumulated
Shares Amount capital deficit Total
--------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCES AT
JUNE 30, 1992 3,761,696 $188,085 $10,552,015 $(2,718,323) $8,021,777
Net loss (360,228) (360,228)
--------- -------- ----------- ----------- ----------
BALANCES AT
JUNE 30, 1993 3,761,696 188,085 10,552,015 (3,078,551) 7,661,549
Common stock
issued 10,000 500 5,750 6,250
Net loss (856,529) (856,529)
--------- -------- ----------- ----------- ----------
BALANCES AT
JUNE 30, 1994 3,771,696 188,585 10,557,765 (3,935,080) 6,811,270
Common stock
issued 401,518 20,076 383,164 403,240
Net income 894,531 894,531
--------- -------- ----------- ----------- ----------
BALANCES AT
JUNE 30, 1995 4,173,214 $208,661 $10,940,929 $(3,040,549) $8,109,041
========= ======== =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
Page 18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOTRONIX, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Year ended June 30,
------------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $ 894,531 $ (856,529) $ (360,228)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization................................. 375,683 541,055 700,585
Provision for loss on note and accounts receivable 120,000 49,500
Changes in assets and liabilities:
Accounts receivable........................................ (89,415) (545,914) 1,207,380
Inventories................................................ (10,421) 34,907 1,777,946
Prepaid expenses........................................... (15,836) (36,034) 14,653
Other assets............................................... (64,071) 6,366 174
Accounts payable and accrued liabilities................. (415,147) 230,354 (849,852)
Salaries, wages and payroll taxes payable.................. 307,325 (83,425) (84,862)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES..................................... 982,649 (589,220) 2,455,296
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment....................... (45,435) (97,600) (144,240)
Proceeds from disposal of equipment.............................. 500 11,414
------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES..................................... (44,935) (86,186) (144,240)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........................... 403,240 6,250
Borrowings on revolving loan..................................... 17,216,445 14,573,646 17,081,230
Repayments on revolving loan..................................... (16,254,678) (14,094,959) (18,363,586)
Payments on other long-term obligations.......................... (132,942) (62,841) (163,878)
Payments on bank loans........................................... (720,000) (360,000) (360,000)
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES..................................... 512,065 62,096 (1,806,234)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................................ 1,449,779 (613,310) 504,822
CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR................................... 578,592 1,191,902 687,080
------------ ------------ ------------
CASH AND CASH
EQUIVALENTS AT END OF YEAR......................................... $ 2,028,371 $ 578,592 $ 1,191,902
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
Page 19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOTRONIX, INC. AND SUBSIDIARY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
The Company designs, manufactures and markets monochrome and color cathode ray
tube (CRT) displays and closed circuit television (CCTV) monitors for a broad
range of applications. CRT displays are used to display alphanumeric information
and graphics in market quotation systems, word processing systems, computer-
aided design, manufacturing and engineering (CAD/CAM/CAE) systems, desktop
publishing systems and other computer-based information systems. CCTV monitors
are used to display video images generated by medical imaging systems, closed-
circuit surveillance systems, studio monitor systems and other video-based
systems.
RECOGNITION OF REVENUE:
The Company recognizes revenue upon shipment of products to the customer.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Video Monitors Incorporated (VMI) (VMI was merged
into Dotronix Inc. effective July 1, 1993). All material intercompany
transactions and balances have been eliminated.
INVENTORIES:
Inventories are valued at the lower of cost (first-in, first-out method) or
market. Inventories include material, direct labor and overhead and consist of
the following:
June 30,
------------------------
1995 1994
---------- ----------
Raw materials.................... $3,850,551 $3,659,875
Work-in-process.................. 480,723 643,546
Finished goods................... 350,880 368,312
---------- ----------
$4,682,154 $4,671,733
========== ==========
PROPERTY, PLANT AND EQUIPMENT:
Depreciation is provided using the straight-line method over estimated useful
lives of 25 years for buildings, five years for laboratory equipment, eight
years for machinery, office furniture and fixtures and data processing equipment
and three years for transportation equipment. Building improvements are
depreciated over the remaining useful life of the building at the time of the
improvement.
AMORTIZATION OF INTANGIBLE ASSETS:
Excess of cost over fair value of net assets acquired is being amortized using
the straight-line method over a 20 year period. The Company evaluates impairment
of this intangible asset, related to the acquisition of a subsidiary which was
merged into Dotronix, Inc., by considering the future cash flows and
profitability of the products and technologies acquired in this business
combination. Non-compete agreements are being amortized using the straight-line
method over their respective terms of three to ten years. Trademark, license and
related technology was amortized over a four-year period. Accumulated
amortization relating to excess of cost over fair value of net assets acquired
was $594,000 and $522,000, and accumulated amortization of non-compete
agreements was $573,000 and $558,000 at June 30, 1995 and 1994, respectively.
Trademark, license and related technology was fully amortized at June 30, 1994.
F-8
Page 20
<PAGE>
NET INCOME (LOSS) PER SHARE:
Net income (loss) per share has been computed by dividing the net income (loss)
by the weighted average number of common and common equivalent shares
outstanding during each period. Outstanding stock options and warrants have not
been considered in the calculations for 1994 and 1993 as they have an
antidilutive effect. Net income (loss) per share assuming full dilution would be
the same.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
B. PROPERTY, PLANT AND EQUIPMENT:
June 30,
-------------------------
1995 1994
---------- ----------
Cost:
Land................................... $ 182,509 $ 182,509
Building and building improvements..... 1,344,005 1,341,465
Machinery and laboratory equipment..... 3,333,863 3,303,290
Office furniture and fixtures.......... 629,920 623,991
Data processing equipment.............. 758,177 758,469
Transportation equipment............... 38,060 38,060
---------- ----------
6,286,534 6,247,784
Less accumulated depreciation
and amortization....................... 5,010,461 4,727,961
---------- ----------
$1,276,073 $1,519,823
========== ==========
Included in the above is cost related to assets acquired under capitalized
leases of $680,000 at June 30, 1995 and 1994, and accumulated amortization of
$341,000 and $322,000, respectively.
F-9
Page 21
<PAGE>
C. FINANCING ARRANGEMENTS:
On October 3, 1994 the Company entered into Amendment Number Three to the
Revolving Working Capital Loan commitment which had been in effect since October
10, 1991. This amendment provided for the payoff of all of the Company's other
existing debt and consolidated it into two demand loans totalling $657,000 and a
revolving loan with a maximum availability of $4,000,000. The loans continue to
bear interest at the base rate plus 3% (12% at June 30, 1995) and are secured by
all assets of the Company. The monthly principal payment on the demand loans is
$10,950. The amendment also provides for a total minimum monthly interest
payment based on the higher of the average daily outstanding principal balance
or $2,000,000. This agreement has an expiration date of October 11, 1997. Based
on the value of pledged assets at June 30, 1995, the Company had available an
additional amount of approximately $303,000.
The loan agreement contains covenants which, among other things, prohibit the
payment of dividends. The Company was in compliance with the covenants on June
30, 1995.
If this agreement had been effective at June 30, 1994, current liabilities would
have increased $433,141, there would have been no long term debt, and working
capital would have been reduced to $4,342,822.
D. LONG-TERM OBLIGATIONS:
All long-term debt was paid off as part of the loan refinancing discussed
in Note C.
<TABLE>
<CAPTION>
June 30,
1994
--------
<S> <C>
Term loan, payable in monthly installments of $30,000 through
October, 1994 with the remaining balance due at that time plus
interest at the bank's base rate plus 4% (11.25% at June 30,
1994).............................................................. $720,000
Capital lease obligations (Note I).................................... 97,014
Other................................................................. 35,928
--------
Less current maturities............................................... 852,942
Long-term portion..................................................... 419,801
--------
$433,141
========
</TABLE>
The term loan was secured by certain assets of the Company.
F-10
Page 22
<PAGE>
E. COMMITMENTS AND CONTINGENCIES:
The Company has no capital leases liabilities at June 30, 1995. Warehouse
facilities, office equipment and vehicles are leased under operating leases.
Total operating lease rent expense for the Company for the years ended June 30,
1995, 1994, and 1993 was $150,000, $145,000 and $202,000, respectively. Minimum
future obligations on these operating leases at June 30, 1995 are as follows:
<TABLE>
<S> <C>
Year ending June 30:
1996.......................................... $ 95,900
1997.......................................... 86,100
1998.......................................... 57,500
--------
$239,500
========
</TABLE>
F. STOCKHOLDERS' EQUITY:
The Company has an incentive stock option plan for key employees for the
granting of options to purchase up to 250,000 shares of the Company's stock. At
the annual meeting of stockholders to be held in November 1995, the stockholders
will be asked to approve an increase in the number of shares available to
500,000. The grant of options issued in June 1995 is subject to the approval of
this increase.
The Company also has a Nonemployee Director Stock Option Plan for the granting
of options to purchase up to 100,000 shares of the Company's common stock. Each
nonemployee director is automatically granted an option to purchase 2,500 shares
of stock on the first business day following the Company's annual meeting after
an initial grant of an option to purchase 5,000 shares following the 1991 annual
meeting in November 1991. New directors will receive an initial grant of an
option to purchase 5,000 shares of common stock following the first board
meeting or shareholders meeting at which such director is elected
The following schedule summarizes activity in the plans for the years ended
June 30, 1995, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
Stock Exercise
Options Price
------- -------------
<S> <C> <C>
Outstanding June 30, 1992.. 112,734 $1.19 - $2.34
Granted.................... 94,884 $ .78 - $1.56
Cancelled.................. (12,037) $1.19 - $2.13
-------
Outstanding June 30, 1993.. 195,581 $ .78 - $2.34
Granted.................... 10,000 $1.25
Cancelled.................. (9,694) $ .78 - $2.13
-------
Outstanding June 30, 1994.. 195,887 $ .78 - $2.34
Granted.................... 136,109 $1.06 - $2.54
Cancelled.................. (22,948) $ .78 - $2.13
Exercised.................. (21,518) $ .86 - $1.30
-------
Outstanding June 30, 1995.. 287,530 $ .78 - $2.54
=======
</TABLE>
F-11
Page 23
<PAGE>
Options become exercisable in varying amounts beginning six months to five years
after the date of grant. Options to purchase 130,289 shares are exercisable at
June 30, 1995.
During fiscal 1992, the Company sold an aggregate of 475,000 shares of Common
Stock in a private placement for net proceeds of $564,139. In connection with
the sale of stock, the Company issued warrants to purchase an additional 480,000
shares of stock. 300,000 of these warrants were exercised in November, 1994 at
an exercise price of $1.00 per share. The remaining 180,000 warrants expired
November 22, 1994.
The president of the Company also personally guaranteed up to $150,000 of the
Company's October, 1991 bank loan. In consideration of this guarantee, the
Company issued the president warrants to purchase an additional 50,000 shares of
the Company's Common Stock. These warrants were exercised in June, 1995 at an
exercise price of $1.00 per share.
In addition, the president of the Company privately purchased during fiscal
1992, 120,000 shares of the Company's Common Stock, together with warrants to
purchase an additional 120,000 shares, for an aggregate cash consideration of
$150,000. 30,000 of these warrants were exercised in October 1994 at an exercise
price of $1.00 per share. On October 6, 1994, the expiration of warrants to
purchase 140,000 shares was extended to December 31, 1997 in conjunction with
renegotiation of the president's employment contract, of which 90,000 remain
outstanding at June 30, 1995.
G. INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and income tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
A reconciliation of the Company's income tax provision to taxes that would be
provided based on a statutory federal income tax rate of 34% to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
Year ended June 30
------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Computed tax (benefit) provision at federal
tax rate................................... $ 304,000 $(290,000) $(99,000)
Change in valuation allowance................ (338,000) 264,000 75,000
State income tax expense..................... 68,000
Permanent differences related to
property and excess of cost over fair value
of net assets acquired..................... 34,000 26,000 24,000
--------- --------- --------
$ 0 $ 0 $ 68,000
========= ========= ========
</TABLE>
F-12
Page 24
<PAGE>
Deferred income taxes are provided for the temporary differences between the
financial reporting and income tax basis of the Company's assets and
liabilities. Temporary differences, net operating loss carryforwards and
valuation allowances comprising the net deferred taxes on the balance sheets are
as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------------------------
ASSETS LIABILITIES TOTAL
--------- ----------- ------------
<S> <C> <C> <C>
Tax depreciation greater than book depreciation. $ $(33,690) $ (33,690)
Net operating loss carryforward................. 312,882 312,882
Accrual for obsolete inventory.................. 298,492 298,492
Inventory costs capitalized..................... 227,149 227,149
Tax credit carryforward......................... 82,145 82,145
Allowance for doubtful accounts................. 16,614 16,614
Accrual for warranty reserve.................... 7,380 7,380
Prepaid insurance............................... (26,543) (26,543)
Accrual for vacation............................ 30,226 30,226
Accrual for health insurance.................... 23,767 23,767
Other........................................... 9,549 (3,193) 6,356
Valuation allowance............................. (944,778) (944,778)
--------- --------- --------
$ 63,426 $(63,426) $ 0
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------------------------
ASSETS LIABILITIES TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Tax depreciation greater than book depreciation. $ $(58,392) $ (58,392)
Net operating loss carryforward................. 469,304 469,304
Accrual for obsolete inventory.................. 362,594 362,594
Inventory costs capitalized..................... 305,217 305,217
Tax credit carryforward......................... 82,146 82,146
Allowance for doubtful accounts................. 55,231 55,231
Accrual for warranty reserve.................... 12,188 12,188
Prepaid insurance............................... (23,312) (23,312)
Accrual for vacation............................ 30,671 30,671
Accrual for health insurance.................... (1,369) (1,369)
Other........................................... 7,803 (4,121) 3,682
Valuation allowance............................. (1,237,960) (1,237,960)
----------- -------- -----------
$ 87,194 $(87,194) $ 0
=========== ======== ===========
</TABLE>
At June 30, 1995, the Company has federal income tax net operating loss
carryforwards of approximately $920,000 which will expire from 2006 through
2009 and has available for state income tax purposes net operating loss
carryforwards ranging from $135,000 to $707,000 which will expire from fiscal
2004 through 2009. The Company also has general business tax credit
carryforwards of approximately $82,000 which will expire from fiscal 2002
through 2006.
F-13
Page 25
<PAGE>
H. SIGNIFICANT CUSTOMERS AND OTHER INFORMATION ON OPERATIONS:
Five separate customers have accounted for more than 10% of revenues during one
or more of the last three fiscal years. Their respective percentages of revenue
by fiscal year are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A 19% 16%
Customer B 11% 14% 19%
Customer C 14%
Customer D 17%
Customer E 11%
</TABLE>
Revenues include interest income from investments of approximately $37,000,
$16,000, and $25,000 for the years ended June 30, 1995, 1994 and 1993,
respectively.
Costs and expenses include research and development costs and advertising of
approximately $284,000 and $106,000, $351,000 and $99,000, and $513,000 and
$72,000 for the years ended June 30, 1995, 1994 and 1993, respectively.
I. RELATED-PARTY TRANSACTIONS:
The Company conducted a portion of its operations at a manufacturing facility
owned by a company in which the president and major stockholder of Dotronix is
also president and sole shareholder. That facility closed in February 1993. In
addition, the Company is leasing warehouse facilities owned by companies which
are owned by the president and major stockholder of Dotronix. During the years
ended June 30, 1995, 1994 and 1993, Dotronix incurred approximately $86,000,
$86,000 and $125,000, respectively, for rental of these manufacturing and
warehousing facilities. Operating lease commitments as of June 30, 1995 (Note E)
include $180,000 of obligations to the president and major stockholder of
Dotronix.
The Company leased its Wisconsin offices and production facilities from a
partnership comprised of certain former officers and shareholders of VMI. The
terms of the capital lease called for monthly installments of $4,800 through May
31, 1996 at which time the Company would receive title to the building. In
conjunction with the refinancing in October 1994, the Company paid off the lease
balance and received title to the property.
J. RETIREMENT PLANS:
The Company has a 401(k) retirement plan for all Dotronix employees who elect to
participate once certain eligibility requirements are met. Each eligible
employee may elect to defer 1% to 15% of his or her compensation. The Company
may contribute an amount on behalf of each participant equal to a percentage of
each participant's compensation or an amount as determined each year by the
Board of Directors. Contributions to the plan by the Company were approximately
$25,000, $28,000 and $32,000 for the years ended June 30, 1995, 1994 and 1993,
respectively.
F-14
Page 26
<PAGE>
The Company has renegotiated and extended the employment agreement with its
president and major shareholder which was to expire on December 31, 1994. The
Amended and Restated Employment Agreement now expires June 30, 1998 and provides
for a base compensation of $15,000 per month. In addition, subject to the
Company's pretax earnings levels, a minimum bonus of $150,000 each fiscal year
is to be paid in cash or, at the option of the president, up to 50% in the form
of warrants to purchase common stock. The Company incurred and expensed,
relative to the bonus provision, $150,000 for the year ended June 30, 1995 and
$34,000 each for the years ended June 30, 1994 and 1993.
K. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION:
Supplemental disclosures of cash flow activities are as follows:
Year ended June 30,
-----------------------------------
Cash paid during the year for: 1995 1994 1993
-------- -------- --------
Interest......................... $250,000 $196,000 $290,000
Income taxes..................... -- $ 45,000 $ 30,050
F-15
Page 27
<PAGE>
DOTRONIX, INC.
EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-KSB
FOR YEAR ENDED JUNE 30, 1995
Exhibit Page
Number in Form
------- -------
3.1 Articles of Incorporation, as amended to date of
this report (incorporated by reference to the
Company's Annual Report on Form 10-K for the year
ended June 30, 1988).
3.2 Bylaws of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991).
4.1 Specimen certificate representing the Company's
Common Stock (incorporated by reference to Exhibit
3(a) to Amendment No. 2 to the Company's Registration
Statement on Form S-18, File No. 2-71333C)
10.1 Amended and Restated Employment Agreement with 30
William S. Sadler dated January 1, 1995 (filed
herewith).
10.2 Lease for land and building located at 60 Cleveland
Avenue S.E., New Brighton, Minnesota (incorporated
by reference to exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended
June 30, 1988).
10.3 Amendment of lease for land and building located at
50 Cleveland Ave S.E., New Brighton, Minnesota
(incorporated by reference to exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the year
ended June 30, 1993).
10.4 Dotronix, Inc. 1989 Stock Option and Restricted Stock
Plan (incorporated by reference to exhibit 10.9 to the
Company's Annual Report on Form 10-K for the year ended
June 30, 1990).
Page 28
<PAGE>
Exhibit Page
Number in Form
------- -------
10.5 Form of Revolving Working Capital Loan Agreements
(incorporated by reference to exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year
ended June 30, 1991). Amendment of Revolving Working
Capital Loan Agreements (incorporated by reference
to exhibit 10.7 to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1993).
10.6 Amendment No. 2 to Revolving Working Capital Loan 35
Agreement (filed herewith). Amendment No. 3 to
Revolving Working Capital Loan Agreement
(filed herewith).
10.7 Dotronix, Inc. Nonemployee Director Stock Option
Plan (incorporated by reference to exhibit 10.9 to
the Company's Annual Report on Form 10-K for the
year ended June 30, 1992).
23 Independent Auditors' Consent (filed herewith). 46
27 Financial Data Schedule (filed Herewith). 47
Page 29
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January 1,
1995, amends and restates in its entirety that employment agreement entered into
January 2, 1981, by and between Dotronix, Inc., a Minnesota corporation
(hereinafter "Dotronix") and William S. Sadler, a resident of the State of
Minnesota (hereinafter "Sadler"), as such agreement was previously amended and
extended by addendums dated December 30, 1985 and November 19, 1991.
WITNESSETH THAT:
WHEREAS, Dotronix desires to employ the services of Sadler by reason of his
ability and experience in the business of Dotronix; and
WHEREAS, Sadler desires to continue to be employed by Dotronix and is
willing to accept employment in accordance with the provisions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Duties. Dotronix hereby employs Sadler as President of Dotronix to
supervise and direct the operation of the business conducted and to be conducted
by Dotronix, subject always to the direction and control of the Board of
Directors of Dotronix, and Sadler does hereby accept such employment.
2. Term. This Agreement and Sadler's employment shall commence on the date
hereof and expire on June 30, 1998, unless sooner terminated as provided for
herein.
3. Base Compensation. Dotronix shall pay, and Sadler shall accept, as base
compensation for the services to be performed by Sadler hereunder, a monthly
salary of fifteen thousand dollars ($15,000) adjusted annually at the same rate
as the average annual salary adjustment of all Dotronix employees; provided,
however, that such salary shall at no time be less than fifteen thousand dollars
($15,000) per month.
4. Incentive Compensation.
(a) In addition to the base compensation described in Section 3, Sadler
shall be paid a one-time cash incentive payment of $125,000 on July 31, 1998, if
the conditions set forth in both (i) and (ii) below have been satisfied:
1
Page 30
<PAGE>
(i) A designated successor to Sadler as chief executive officer, acceptable
to the Board of Directors, shall have been employed by Dotronix on or before
June 30, 1997, and shall remain employed by Dotronix at June 30, 1998. The
designated successor to Sadler need not have actually succeeded Sadler at June
30, 1997 or June 30, 1998, in order for this condition to be satisfied.
(ii) Dotronix' corporate pre-tax earnings for the fiscal years ending June
30, 1996, 1997 and 1998 shall have aggregated at least $2 million. Any pre-tax
loss during such fiscal years shall be included in the calculation of aggregate
earnings for the three fiscal years as a negative number. The calculation of
pre-tax earnings or loss for such fiscal years shall take into account the
accrual or payment of any bonuses payable under Section 5 below and any amount
payable under this Section 4.
(b) If a Change of Control, as defined in Section 12 below, shall occur,
Sadler shall immediately be paid a one-time cash payment of $125,000 pursuant to
this Section 4, regardless of whether the conditions set forth in (a) above have
been satisfied.
5. Bonus Compensation.
(a) In addition to the base compensation described in Section 3, Sadler
shall be paid a bonus of $150,000 in each of fiscal years 1995, 1996, 1997 and
1998; provided, however, that the bonus in any one year cannot exceed twenty
percent (20%) of corporate pre-tax earnings before the payment of such bonus. In
the event the bonus is restricted by the 20% limitation in one year, it will be
made up in a subsequent year, provided that the sum of the bonus payments does
not exceed twenty percent (20%) of corporate pre-tax earnings before the payment
of such bonuses.
(b) Sadler shall participate in Dotronix' incentive plan for salaried
employees as the same may be structured from time to time on the same basis as
other salaried employees. Payments received by Sadler under the salaried
employee incentive plan for a given fiscal year shall be credited against the
amount payable to Sadler under (a) above for such fiscal year. If the amount
payable to Sadler under the salaried employee incentive plan for a fiscal year
exceeds the amount payable to him under (a) above for such fiscal year, Sadler
shall be entitled to receive the greater amount.
(c) At Sadler's option, up to fifty percent (50%) of the bonus payable
pursuant to (a) above for any fiscal year may be paid in the form of warrants to
purchase Dotronix common stock. Such warrants shall have an exercise price of
$1.00 per share and a term of 3 years from the date of issuance, and shall
otherwise be in form and substance reasonably satisfactory to Dotronix and
Sadler. If Sadler chooses to be
2
Page 31
<PAGE>
paid a portion of his bonus in the form of such warrants, a warrant to purchase
one share of Dotronix common stock shall be issued for each dollar of bonus
compensation paid in the form of warrants.
6. Existing Warrants. Dotronix agrees that the expiration date of the
warrants to purchase 140,000 shares of Dotronix common stock presently held by
Sadler shall be extended to December 31, 1997.
7. Severance Benefit.
(a) In the event Sadler's employment terminates due to his death or
disability pursuant to Section 11(b) below, he (or, in the case of his death,
his estate) shall be paid a severence benefit equal to one hundred percent
(100%) of the base compensation which would be due under Section 3 (as adjusted,
if applicable pursuant to Section 3) for the twelve full calendar months
immediately following such termination. This severance benefit shall be due and
payable 30 days subsequent to such termination of employment.
(b) In the event Sadler's employment terminates following a Change of
Control as defined in Section 12 below, he shall be paid a severence benefit
equal to one hundred percent (100%) of the base compensation which would be due
under Section 3 (as adjusted, if applicable, pursuant to Section 3) through the
expiration date set forth in Section 2. This severance benefit shall be due and
payable immediately upon such termination of employment.
(c) Sadler shall not be entitled to a severance benefit pursuant to this
Section 7 in the event of his termination for "cause" as defined in Section 11
below or in the event of his resignation (other than a resignation following a
Change of Control, as contemplated by the last sentence of Section 12).
8. Activities During Employment. Sadler does hereby warrant and represent
to Dotronix that he is not subject to any agreement or arrangement which would
preclude him from carrying out the terms of this Agreement. Sadler and Dotronix
acknowledge and agree that Sadler shall be permitted, during the term of this
Agreement, to devote such time as is necessary to the fulfillment of his
obligations as President of Dynetic Systems, Inc., a Minnesota corporation.
Sadler agrees that he shall at all times devote his full time, energy and skill
during reasonable business hours to the performance of his duties as President
of Dotronix and as President of Dynetic Systems, but that the majority of his
time and efforts shall be devoted to the business affairs of Dotronix.
9. Benefits. Sadler shall be entitled to participate in any insurance,
pension and other benefits which may be afforded by Dotronix to its employees
engaged in a supervisory or management position.
3
Page 32
<PAGE>
10. Covenant Not to Compete. Sadler agrees that, during the term of this
Agreement and for a period ending three (3) years after the termination of his
employment with Dotronix for any reason, he will not, directly or indirectly, on
his own behalf or as a partner, officer, employee, consultant, stockholder,
director, or trustee of any person, firm or corporation solicit, accept or
service any customers of Dotronix, nor engage in any business which would
compete with, or be of a similar nature to, the business being carried on by
Dotronix. The parties hereto hereby recognize that money damages would not be an
adequate remedy for the breach of this covenant and Sadler hereby agrees to the
grant of specific performance of this covenant or other appropriate equitable
relief by a court of competent jurisdiction in the event of its breach.
11. Termination. Notwithstanding any other provision contained herein, this
Agreement may be terminated by (a) the mutual agreement of the parties hereto;
(b) the death of Sadler, or the disability of Sadler which prevents him from
performing his normal duties for a period of six consecutive months or more; or
(c) Dotronix for cause. For purposes of this Agreement, the term "cause" shall
mean deliberate misconduct on the part of Sadler which is seriously injurious to
the interests of Dotronix, which misconduct shall be specified in a written
notice of termination delivered to Sadler by the Board of Directors of Dotronix.
12. Change of Control. A "Change of Control" shall have occurred if
(a) any person other than Sadler, or any group of persons acting in concert
other than a group of which Sadler is a part, shall acquire beneficial ownership
of 35% or more of the outstanding voting stock of Dotronix, or
(b) Dotronix shall be party to a merger, consolidation, share exchange or
other business combination transaction as a result of which any person other
than Sadler, or any group of persons acting in concert other than a group of
which Sadler is a part, shall acquire or hold beneficial ownership of 35% or
more of the outstanding voting stock of the surviving entity, or
(c) a majority of the Board of Directors shall cease to be composed of the
persons who are presently members of the Board (i.e., Sadler, Ray L. Bergeson,
Robert J. Snow, Edward L. Zeman, and L. Daniel Kuechenmeister) or who were
appointed or nominated with the affirmative vote of at least three of such
persons,
and, in the case of (a), (b) or (c) above, either
(i) Sadler's employment with Dotronix thereafter is terminated (other than
(A) for "cause" as defined in Section 11 above, or (B) by virtue of the death or
disability of Sadler, or (C) by means of the resignation of Sadler), or
4
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<PAGE>
(ii) Sadler's responsibilities with Dotronix thereafter are materially
reduced without his agreement, or Sadler is required to relocate without his
agreement.
A resignation by Sadler following the occurrence of an event specified in (ii)
above shall not be deemed a resignation by Sadler for purposes of (i)(C) above
or for purposes of Section 7(c).
13. Entire Agreement and Governing Law. This Agreement contains the entire
agreement between the parties hereto and it shall be amended or modified only by
written instruments signed by both parties hereto. This Agreement shall in all
respects be governed, enforced and interpreted in accordance with the laws of
the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
DOTRONIX, INC.
By /s/ Warren M. White
-------------------
Warren M. White
VP Finance
/s/ William S. Sadler
----------------------
William S. Sadler
Page 34
<PAGE>
Exhibit 10.6
AMENDMENT NO 2
TO
ACCOUNTS FINANCE AGREEMENT (SECURITY AGREEMENT)
THIS AMENDMENT NO 2 dated as of September 22, 1994, is hereby entered into
by and between Dotronix,Inc.,a Minnesota corporation ("Debtor"), and Congress
Financial Corporation (Midwest), a Wisconsin corporation ("Congress), as
assignee of Congress Financial Corporation (Central)
WHEREAS, Debtor and Congress have entered into that certain Accounts Financing
Agreement [Security Agreement], as amended (the "Loan Agreement"); that certain
Inventory Security Agreement Supplement To Accounts Financing Agreement
[security Agreement], as amended that certain letter addressed to Congress
concerning loans from Congress to Debtor with respect to inventory of Debtor, as
amended; and that certain Rider No l To Accounts Financing Agreement [Security
Agreement], Inventory Security Agreement Supplement To Accounts Financing
Agreement [Security Agreement] and Letter re: Inventory Loans, as amended
("Rider No . 1") each of which is dated as of October 11, 1991 (collectively,
the "Financing Agreements");
WHEREAS, Debtor has requested that the terms of the financing arrangements
between Debtor and Congress be amended to, among other things, extend the term
of such financing arrangements, and Congress has agreed to such amendments,
pursuant to the terms and conditions contained herein;
NOW, THEREFORE, Debtor and Congress agree as follows:
1 Definitions. Capitalized terms defined in the Financing Agreements and
used in this Amendment No 2 shall have the meaning ascribed to such terms
therein unless otherwise defined in this Amendment No 2.
2 Amendments to the Loan Agreement. The Loan Agreement is hereby amended as
follows:
(a) The first sentence of section 3.1 of the Loan Agreement is hereby
amended and restated in its entirety as follows:
Interest on all outstanding unpaid obligations shall be payable by us to
you on the first day of each calendar month on the higher of (i) the average
daily utstanding principal amount of the non-contingent obligations for the
preceding month or (ii) $2,000,000, at the rate of three percent (3.00%) per
annum in excess of the prime commercial interest rate from time to time,
publicly announced by Philadelphia National Bank, incorporated as CoreStates
Bank, N A , Philadelphia, Pennsylvania,
Page 35
<PAGE>
whether or not such announced rate is the best rate available at such bank.
(b) Section 9.1 of the Loan Agreement is hereby amended and restated in its
entirety as follows:
9.1 This Agreement shall become effective upon acceptance by you and
shall continue in full force and effect for a term ending October 11, l995 (the
"Renewal Date") and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof provided that, we hereby agree that you may, with
our consent, extend the Renewal Date to October 11, 1996, by giving to us notice
at least sixty (60) days prior to October 11, 1995. Either party may terminate
this Agreement on the Renewal Date or on the anniversary Of the Renewal Date in
any year by giving the other party at least sixty (60) days prior written notice
by registered or certified mail, return receipt requested, and, in addition, you
shall have the right to terminate this Agreement immediately at any time upon
the occurrence Of an Event of Default. No termination of this Agreement,
however, shall relieve or discharge us of our duties, obligations and covenants
hereunder until all Obligations have been paid in full, and your continuing
security interest in the Collateral shall remain in effect until such
obligations have been full discharged.
(c) Section 9.2 of the Loan Agreement is hereby amended and restated in its
entirety as follows:
9.2 If you terminate this agreement upon the occurrence of an Event Of
Default or at our request (other than a termination request made pursuant to
section 9.1), in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of your lost profits as a result thereof, we hereby agree
that we shall pay to you, upon the effective date of such terminations, an early
termination fee in an amount equal to (a) two percent (2.00%) of the Maximum
Credit if such termination occurs on or prior to October 11, 1995 and (b) one
percent (1.00%) of the maximum credit if such termination occurs after October
ll, 1995, but prior to the end of the then effective renewal term. Such
termination fee shall be presumed to be the amount of damages sustained by said
early termination and we agree that it is reasonable under the circumstances
currently existing. The early termination fee provided for in this paragraph 9.2
shall be deemed included in the obligations.
-2-
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<PAGE>
3. References All references in any agreements, instruments and documents
executed by Debtor with, or in favor of, Congress, to the Loan Agreement shall
be deemed to include the amendments contained herein.
4. Representations and Warranties. Debtor hereby represents and warrants
that all of the representations and warranties contained in the Loan Agreement,
the Financing Agreements and the other Loan Documents (as defined in Rider No.
1) are true and correct as of the date hereof and that no "Event of Default"
exists under the Loan Documents.
5. Effectiveness of Amendqent. The amendments contemplated herein shall
become effective upon the execution by each of the parties hereto.
6 Ratification. Except as amended hereby, the Loan Agreement, the Financing
Agreements and all of the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed in all respects.
7 Miscellaneous
(a) Expenses. Debtor agrees to pay, on demand, all costs and expenses of
Congress (including the reasonable fees and expenses of outside counsel for
Congress) in connection with the preparation, negotiation, execution, delivery
and administration of (i) this Amendment No. 2 and all other instruments or
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith and (ii) the amendments contemplated by that certain
Proposal Letter dated August 24, 1994 executed by Congress and accepted on
August 25, 1994 by Debtor and all other instruments or documents provided for
therein or delivered or to be delivered thereunder or in connection therewith,
whether or not such amendment is consummated. All obligations provided in this
paragraph 7(a) shall survive any termination of the Loan Agreement as amended
hereby.
(b) Governing Law .This Amendment No. 2 shall be a contract made under and
governed by the internal laws of the State of Illinois
(c) Counterparts. This Amendment No 2 may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same amendment.
(d) Succession.This Amendment No. 2 shall be binding upon Debtor, Congress and
their respective successors and assigns, and shall inure to the benefit of
Debtor, Conqress and their respective successors and assigns.
-3-
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.2 as
of the date first set forth above.
DOTRONIX, INC.
By /s/ Warren White
----------------
Its V.P. & Secretary
----------------
CONGRESS FINANCIAL
CORPORATION(MIDWEST)
By /s/ Ronald R. Smith
--------------------
Its Sr. Vice President
------------------
-4-
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<PAGE>
AMENDMENT NO 3
TO
ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT],
INVENTORY SECURITY AGREEMENT SUPPLEMENT TO
ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT]
AND RIDER NO. 1
THIS AMENDMENT NO.3 dated as of September 30, 1994, is hereby entered into by
and between Dotronix, Inc, a Minnesota corporation ("Debtor"), and Congress
Financial Corporation (Midwest), a Wisconsin corporation ("Congress"), as
assignee of Congress Financial Corporation (Central)
WHEREAS, Debtor and Congress have entered into that certain Accounts
Financing Agreement [Security Agreement], as amended (the "Loan Agreement");
that certain Inventory Security Agreement Supplement To Accounts Financing
Agreement [Security Agreement], as amended (the "Original Security Agreement");
that certain letter addressed to Congress concerning loans from Congress to
Debtor with respect to inventory of Debtor, as amended; and that certain Rider
No.1 To Accounts Financing Agreement [Security Agreement], Inventory Security
Agreement Supplement To Accounts Financing Agreement [Security Agreement] and
Letter re: Inventory Loans, as amended ("Rider No.1"), each of which is dated as
of October 11, 1991;
WHEREAS, Debtor has requested that the terms of the financing arrangements
between Debtor and Congress be amended to, among other things, create a term
loan facility and to increase the amount and extend the term of such financing
arrangements, and Congress has agreed to such amendments, pursuant to the terms
and conditions contained herein;
NOW, THEREFORE, Debtor and Congress agree as follows:
1 Definitions Capitalized terms defined in the Loan Agreement, the Security
Agreement (as defined herein), the Inventory Letter and Rider No.1 and used in
this Amendment No.3 shall have the meaning ascribed to such terms therein unless
otherwise defined in this Amendment No.3.
2 Amendments to the Loan Agreement. The Loan Agreement is hereby amended as
follows:
(a) Section 1.7 of the Loan Agreement is hereby amended and restated
in its entirety as follows
1.7 "MAXIMUM CREDIT" shall mean the amount of
$4,657,000
(b) New Sections 1.12, 1.13 and 1.14 are hereby added to the Loan
Agreement after Section 1.11 as follows:
Page 39
<PAGE>
1.12 "TERM LOANS" shall mean, collectively, (i) the term loan made by you to
us in the original principal amount of $229,950, evidenced by Term Note A and
(ii) the term loan made by you to us in the original principal amount of
$427,050, evidenced by Term Note B.
1.13 "TERM NOTE A" shall mean that certain Term Note A executed by us in
favor of you on September 30, 1994 in the original principal amount of $229,950.
1.13 "TERM NOTE B" shall mean that certain Term Note B executed by us in
favor of you on September 30, 1994 in the original principal amount of $427,050.
(c) The second sentence of section 2.1 of the Loan Agreement is hereby
amended and restated in its entirety as follows:
Commencing on the earlier of (i) February 1, 1998 or (ii) the first day of
the month following the repayment of Term Note B. you shall establish a reserve
against the loan availability described in this Section 2.1 and in Section 2 of
the Agreement re:Inventory Loans of even date herewith, by reducing such loan
availability by the amount of $10,950 each month In addition, you may in your
discretion from time to time, establish additional reserves by further reducing
such loan availability.
(d) Section 2.3 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
2.3 Except in your sole discretion, the outstanding aggregate amount of all
loans, excluding the Term Loans, by you to us hereunder, under any supplement
hereto or evidenced by any promissory note, shall not exceed $4,000,000 at any
time. Without limiting your right to demand payment of the obligations, or any
portion thereof, in accordance with any other terms of this Agreement, or any
supplement hereto, in the event that the outstanding aggregate principal amount
of loans, excluding the Term Loans, by you to us exceeds (i) $4,000,000 or (ii)
the formulae set forth in Section 2.1 hereof and Section 3 of the Agreement re:
Inventory Loans (as such formulae have been reduced by any and all reserves
established by Congress reducing loan availability), we shall remain liable
therefor and the entire amount of such excess(es) shall, at your option, become
immediately due and payable upon your demand.
(e) Section 3.5 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
-2-
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<PAGE>
3.5 If the average outstanding daily principal balance of all loans,
excluding the Term Loans, by you to us under this Agreement or any supplement
hereto in any calendar month shall be less than $4,000,000, we shall pay to you
on or before the tenth (10th) day of the next succeeding calendar month an
unused line fee equal to one-half percent (.5%) per annum upon the amount by
which $4,000,000 exceeds the greater of (i) the average outstanding daily
principal balance of all such loans in respect of such month and (ii)
$2,000,000.
(f) Section 5.1 of the Loan Agreement is-hereby amended to delete the
phrase "immediately available funds" at the end of such section and to replace
it with the phrase "a wire transfer of federal funds and three (3) business days
after receipt of all other remittances "
(g) Section 9.1 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
9.1 This Agreement shall become effective upon acceptance by you and shall
continue in full force and effect for a term ending October 11, 1997 (the
"RENEWAL DATE") and from year to year thereafter, unless sooner terminated
pursuant to the terms hereof; provided that, we hereby agree that you may, with
our consent, extend the Renewal Date to October 11, 1998, by giving to us notice
at least sixty (60) days prior to October 11, 1997. Either party may terminate
this Agreement on the Renewal Date or on the anniversary of the Renewal Date in
any year by giving the other party at least sixty (60) days prior written notice
by registered or certified mail, return receipt requested, and, in addition, you
shall have the right to terminate this Agreement immediately at any time upon
the occurrence of an Event of Default. No termination of this Agreement, however
shall relieve or discharge us of our duties, obligations and covenants hereunder
until all obligations have been paid in full, and your continuing security
interest in the Collateral shall remain in effect until such obligations have
been full discharged.
(h) Section 9.2 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
9.2 If you terminate this Agreement upon the occurrence of an Event of
Default or at our request (other than a termination request made pursuant to
Section 9.1), in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of your lost profits as a result thereof, we hereby agree
that we shall pay to you, upon the effective date of such
-3-
Page 41
<PAGE>
terminations, an early termination fee in an amount equal to (a) two percent
(2.00%) of the Maximum Credit if such termination occurs on or prior to October
ll, 1995 and (b) one percent (1.00%) of the Maximum Credit if such termination
occurs after October 11, 1995, but prior to the end of the then effective
renewal term. Such termination fee shall be presumed to be the amount of damages
sustained by said early termination and we agree that it is reasonable under the
circumstances currently existing The early termination fee provided for in this
paragraph 9.2 shall be deemed included in the obligations
3 Amendments to Rider No.1
(a) The title of Rider No.1 is hereby amended and restated in its
entirety to read "Rider No.1 To Accounts Financing Agreement [Security
Agreement] Inventory and Equipment Security Agreement Supplement To Accounts
Financing Agreement [Security Agreement] and Letter re Inventory Loans".
(b) The second "WHEREAS" paragraph of Rider No.1 is hereby amended and
restated in its entirety as follows:
WHEREAS, Debtor and Congress have entered into that certain Inventory and
Equipment Security Agreement Supplement to Accounts Financing Agreement
[Security Agreement] dated September 30, 1994 (the "Security Agreement")
pursuant to which, among other things, Debtor has granted to Congress a security
interest in certain of Debtor's personal property;
(c) Section 3 of Rider No.1 is hereby amended to delete the phrase
"Section 2.6" in the second line of such section and to replace it with the
phrase "Section 2.8"
(d) Section 4 of Rider No.1 is hereby amended to delete the phrase
"immediately available funds from the Collecting Banks," in the twenty-seventh
line of such section and to replace it with the phrase "a wire transfer of
federal funds from the Collecting Banks and three (3) Business Days after
receipt by Congress of all other remittances,"
(e) Section 6 of Rider No.1 is hereby amended as follows:
i. Subsection (d) of section 6 is hereby amended to delete the phrase "the
NCB Loan, (iii) trade obligations, and (iv)" in the eighth line of such
subsection and to replace it with the phrase "trade obligations, and (iii)"
-4-
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<PAGE>
ii. Subsection (u) of section 6 is hereby deleted in its entirety.
(f) Section 8 of Rider No.1 is hereby amended to delete including the NCB Loan
Documents" in the sixth line (a) of such section.
4. Amendment to the Security Agreement The Original Security Agreement
is hereby amended and restated in its entirety by substituting therefor the
Inventory and Equipment Security Agreement Supplement To Accounts Financing
Agreement [Security Agreement] dated as of September 30, 1994, in form and
substance of Exhibit A hereto (the "Security Agreement").
5 Fee Debtor shall pay to congress a closing fee in the amount of Six
Thousand Five Hundred Seventy Dollars ($6,570), such fee being fully earned and
payable upon the execution of this Amendment No.3.
6 References All references in any agreements, instruments and
documents executed by Debtor with, or in favor of, Congress, to the Loan
Agreement, the Original Security Agreement and Rider No.1, shall be deemed to
include the amendments contained herein
7 Representations and Warranties Debtor hereby represents and warrants
that all of the representations and warranties contained in the Loan Agreement,
the Security Agreement, Rider No.1 and the other Loan Documents (as defined in
Rider No. 1) are true and correct as of the date hereof and that no "Event of
Default" exists under the Loan Documents.
8 Conditions Precedent to Amendment The amendments contemplated herein
shall not become effective until all of the following conditions have been
satisfied.
(a) Debtor shall have delivered an executed (i) Real Property Mortgage
with respect to Debtor's real property located in Eau Claire, Wisconsin and (ii)
Real Property Mortgage with respect to Debtor's real property located in New
Brighton, Minnesota (collectively, the "Real Property Mortgages").
(b) Congress, shall have received a title insurance policy from
Chicago Title Insurance Company with respect to each of the Real Property
Mortgages, containing endorsements in form and substance satisfactory to
Congress.
(c) Debtor shall have executed and delivered to Congress Term Note A
and Term Note B. each in form and substance satisfactory to Congress.
(d) Debtor shall have executed and delivered to Congress the Security
Agreement.
-5-
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<PAGE>
(e) Congress shall have received an opinion of counsel of Debtor in
form and substance satisfactory to Congress.
(f) Congress shall have received from Debtor the fee described in
paragraph 5 above.
(g) Congress shall have received, in form and substance satisfactory
to Congress, a certificate of the Secretary of Debtor with respect to
resolutions authorizing the transactions contemplated by this Amendment No. 3,
the incumbency of officers executing this Amendment No. 3, and related
documents, and Debtor's Certificate of Incorporation and By-Laws.
(h) Congress shall have received, in form and substance satisfactory
to Congress, certificates of good standing, Uniform Commercial Code financing
statements and such other agreements, instruments, documents and certificates as
Congress shall deem appropriate.
9 Ratification Except as amended hereby, the Loan Agreement, the
Security Agreement, Rider No. l and all of the other Loan Documents shall remain
in full force and effect and are hereby ratified and confirmed in all respects.
10 Miscellaneous.
(a) Expenses. Debtor agrees to pay, on demand, all costs and expenses
of Congress (including the reasonable fees and expenses of outside counsel for
Congress) in connection with the preparation, negotiation, execution, delivery
and administration of this Amendment No. 3 and all other instruments or
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith. All obligations provided in this paragraph 10(a) shall
survive any termination of the Loan Agreement as amended hereby.
(b) Governing Law This Amendment No. 3 shall be a contract made under
and governed by the internal laws of the State of Illinois.
(c) Counterparts This Amendment No. 3 may be executed in any number
of counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same amendment.
(d) Successors This Amendment No. 3 shall be binding upon Debtor,
Congress and their respective successors and assigns, and shall inure to the
benefit of Debtor, Congress and their respective successors and assigns.
-6-
Page 44
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 as of
the date first set forth above.
DOTRONIX, INC
By William S. Sadler
------------------
Its President
-------------
CONGRESS FINANCIAL
CORPORATION (MIDWEST)
By Ronald R. Smith
---------------
Its Sr. Vice President
------------------
-7-
Page 45
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-33702 of Dotronix, Inc. on Form S-8 and in Registration Statement No. 33-
46456 of Dotronix, Inc. on Form S-3 of our report dated August 18, 1995
appearing in the Annual Report on Form 10-KSB of Dotronix, Inc. for the year
ended June 30, 1995.
/s/ Deloitte & Touche LLP
September 15, 1995
Minneapolis, Minnesota
Page 46
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-START> APR-01-1995 JUL-01-1994
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 2,028,371 0
<SECURITIES> 0 0
<RECEIVABLES> 2,426,797 0
<ALLOWANCES> (49,000) 0
<INVENTORY> 4,682,154 0
<CURRENT-ASSETS> 9,176,097 0
<PP&E> 6,286,534 0
<DEPRECIATION> (5,010,461) 0
<TOTAL-ASSETS> 11,377,869 0
<CURRENT-LIABILITIES> 3,268,828 0
<BONDS> 0 0
<COMMON> 208,661 0
0 0
0 0
<OTHER-SE> 7,900,380 0
<TOTAL-LIABILITY-AND-EQUITY> 11,377,869 0
<SALES> 3,719,520 15,328,552
<TOTAL-REVENUES> 3,979,025 16,039,896
<CGS> 2,615,567 10,984,090
<TOTAL-COSTS> 3,612,167 14,901,328
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 64,865 244,037
<INCOME-PRETAX> 301,993 894,531
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 301,993 894,531
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 301,993 894,531
<EPS-PRIMARY> .07 .22
<EPS-DILUTED> .07 .22
</TABLE>
