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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the fiscal year ended: Commission file number:
June 30, 1999 0-14427
DISPLAY TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 38-2286268
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
5029 Edgewater Drive, Orlando, FL 32810 (407) 521-7477
(Address, including zip code, of principal executive offices and telephone
number, including area code of Issuer)
Securities registered under Section 12(b) of the Act: None
Securities Registered under Section 12(g) of the Exchange Act: Common
Stock, $.001 Par Value
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the last 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 past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not 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. [ ]
Issuer's revenues for its most recent fiscal year: $66,135,714
On September 23, 1999 the bid and ask prices of the common stock were $3.47
and $3.56, respectively, according to NASDAQ Stock Market quotations furnished
by the National Quotation Bureau, Inc. The aggregate market value of the voting
stock of the Issuer held by non-affiliates based on the average of the bid and
ask prices on September 23, 1999 was $16,678,520.
As of September 23, 1999, 7,294,464 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 9 through 12 of Part III of this
Report is incorporated by reference from the Issuer's definitive proxy statement
filed in accordance with Rule 14a-01, Schedule 14A, in connection with the
Issuer's November 18, 1999 meeting of shareholders which involves the election
of directors.
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PART I
ITEM 1. BUSINESS.
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Display Technologies, Inc., a Nevada corporation, was originally incorporated
under the name La-Man Corporation in Michigan on November 2, 1979 and remained
substantially inactive until the autumn of 1980. On February 4, 1983, La-Man
Corporation, a Nevada corporation, was formed and, pursuant to a Certificate of
Merger filed on May 16,1983, the Michigan corporation was merged into the Nevada
corporation. On October 29, 1999, we changed our name from La-Man Corporation
to Display Technologies, Inc. Our executive office is located at 5029 Edgewater
Drive, Orlando, Florida 32810. Our telephone number is (407) 521-7477.
Our direct wholly-owned subsidiaries include Ad Art Electronic Sign
Corporation, a Florida corporation ("Ad Art"), Nevada SEMCO, Inc., a Nevada
corporation ("SEMCO"), Don Bell Industries, Inc., a Florida corporation ("Don
Bell"), Lockwood Sign Group, Inc., a Florida corporation ("Lockwood"), JM
Stewart Manufacturing, Inc., a Florida corporation ("Stewart Manufacturing"),
La-Man Corporation, a Florida corporation ("La-Man), Vision Trust Marketing,
Inc., a Florida corporation ("Vision") and Certified Maintenance Service, Inc.,
a Florida Corporation ("Certified"). The Company's indirect wholly-owned
subsidiaries include J.M. Stewart Industries, Inc., a Florida corporation
("Stewart Industries"), and J.M. Stewart Corporation, a Florida corporation
("Stewart Corporation"), each of which is directly owned by SEMCO, and E.S.C. of
Nevada, Inc., a Nevada corporation ("ESC Nevada), owned directly by Ad Art..
Unless the context otherwise requires, the terms "We", "Our" and "Company"
refers to Display Technologies, Inc. and our direct and indirect subsidiaries.
Acquisition of Lockwood Sign Group, Inc.
Effective July 1, 1999, we acquired Lockwood Sign Group, Inc., a commercial
sign manufacturer with facilities located in Marietta, Georgia, Charlotte, North
Carolina and Beltsville, Maryland. The purchase price included $1,900,000 in
cash and 415,000 shares of Display Technologies, Inc. $.001 par value common
stock valued at $1,909,000. Additional common stock is contingently issuable
should the market price of our common stock not exceed $4.60 per share for any
consecutive 20-day period through July 30, 2000. In addition, the acquisition
provides for an additional contingent share earn-out under which the prior
shareholders of Lockwood will receive up to 285,000 additional shares of our
common stock, on a pro-rata basis, if Lockwood's net income for the year ending
June 30, 2000 is between $350,000 and $625,000. Lockwood designs, manufactures,
installs and services illuminated letters and logos, monument and pylon signs,
neon lighting, awnings and vinyl graphics and banners
Acquisition of Ad Art Electronic Sign Corporation
On February 18, 1998, we acquired all of the outstanding capital stock of
Electronic Sign Corporation dba Ad Art, a California corporation, through the
merger of the California corporation into a wholly-owned Florida subsidiary,
whose name was subsequently changed to Ad Art Electronic Sign Corporation. In
consideration of the merger, shareholders of the California corporation
initially received a combination of $3,000,000 cash and 810,000 shares of our
common stock. In September,
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1999, the shareholders of the California corporation received an additional
560,464 shares that were contingently issuable upon the attainment by Ad Art of
certain annual net operating income levels for the fiscal year ending June 30,
1999. Ad Art designs and manufactures high quality electronic message centers
and video display boards with sophisticated animation and instant replay
capabilities. It is a major manufacturer of traditional and electronic signage
across a broad range of industries and countries.
Acquisition of Certified Maintenance Services, Inc.
On July 1, 1997, we acquired all of the outstanding shares of Certified in
exchange for the assumption of Certified's net liabilities. Certified services
indoor and outdoor signage and lighting. Through a network of subcontractors, as
well as its own service fleet and staff, Certified specializes in providing
service nationwide to multi-store retail outlets such as department stores,
grocery stores, gas stations, office complexes and clothing outlets. Following
the acquisition, the operations of Certified were merged with the installation
and service operations of Don Bell to form a single operating division.
Acquisition of Don Bell Industries, Inc.
On September 7, 1995, we acquired all of the outstanding shares of Don Bell, a
Port Orange, Florida manufacturer of commercial signs, in exchange for 275,000
shares of common stock, a $750,000 convertible note and cash of $360,000. The
note, which is convertible into the Company's common stock at $4.53 per share,
was paid down to $250,000 in September 1999. The remaining balance is payable
in September, 2000. Interest is payable semi-annually and we have a call
feature at 105% of principal in year one reducing annually to 100% in year five.
As an adjustment to the purchase price, additional notes payable totaling
$626,477 were issued on January 31, 1997 to the previous owners of Don Bell.
These notes were paid in full and retired with the proceeds of a refinancing of
our indebtedness on August 28, 1997.
Acquisition of J.M. Stewart Corporation and J. M. Stewart Industries, Inc.
On January 6, 1994, we acquired Stewart Corporation and Stewart Industries
through a merger of their parent company into SEMCO, in exchange for 316,923
shares of our common stock valued at $824,000 and $214,312 cash. We
simultaneously completed a registered public offering of units of the Company's
common stock and common stock purchase warrants for net proceeds of $1,353,431,
of which $1,000,020 was used to retire debt of the acquired companies with the
remainder applied to working capital.
Principal Products
Image Enhancement Displays. Our display segment accounted for 98% and 94% of
consolidated sales for 1999 and 1998, respectively, and includes products and
services for both the commercial display market and the institutional display
market. The commercial display market is served by Ad Art, Don Bell and
Lockwood while the institutional display market is served primarily by Stewart
Corporation and Stewart Industries.
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Electronic Products Our electronic products include both video and single
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color LED products, wedge-based products and incandescent monochrome message
centers. The LED and wedge-based products are manufactured by Ad Art while Don
Bell manufactures some monochrome incandescent products. However, all
electronics products are marketed by all of our display segment subsidiaries.
LED Products Our video LED products are marketed under the brand names
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StadiaVision(R), ArenaVision(R) and InfoVision(R) and provide a picture that
exceeds the quality of historical, conventional outdoor CRT (television)
displays. These products are used by a variety of commercial and entertainment
enterprises including sports stadiums and arenas, convention centers, airports,
shopping malls, casinos and concert venues. Frequently, commercial customers
use the video display both as a sign to identify and advertise their own
products, and also as a profit center on which they sell advertising time to
other commercial entities - essentially as an electronic billboard with
changeable messages.
The displays are produced in modular format with red, green and blue light-
emitting diodes (LEDs) arranged to form pixels. The clarity of the picture is
governed by the viewing distance and the density of the pixels. Pixel density
is typically determined via a measurement from the center of one pixel to the
center of the adjacent pixel. Currently, our product line includes pixel
configurations of 15.8 millimeters, 19.0 millimeters, 25.0 millimeters and 50.0
millimeters. We work with each of our customers to determine which pixel
configuration will be most effective for the location and intended use of each
display. We also offer other pixel configurations to our customers - as tight
as 8.0 millimeters - through third party vendors.
The displays are controlled by a dedicated personal computer with Windows(R)
based software. In some cases, the customer programs the sign. However, more
frequently, the customer enters into a service and maintenance contract which
includes our programing services. Each display is accessible via remote modem
connections and this programming is conducted by our graphics art department in
our Las Vegas, Nevada facility. The software that controls the video display is
able to brighten and dim each LED to 256 levels of color. With 256 different
levels of red, blue and green LEDs, the video displays are capable of producing
in excess of 16.7 million different colors.
The video displays can be produced in any variety of sizes and consist of
assembled modules. The module sizes vary, depending upon the pixel
configuration, but are either 12 inches square or 16 inches square. Each module
consists of the configured LEDs connected to a computer circuitry board. These
modules are produced in our Stockton, California manufacturing facility with
some of the routine manufacturing processes being outsourced. The modules are
then assembled in a metal cabinet to produce the complete display. Finally, for
outdoor displays, a louver is installed above each row of pixels to improve
viewing in direct sunlight and various weather-proofing measures are taken to
ensure the display's durability in a variety of climates.
In addition to the full color video LED products, we also offer single color
(typically red or amber) LED message centers to our customers. These products
are used to display static or scrolling text and computer generated graphics -
typically in a single or double line display.
Wedge-Based Products Our wedge-based products provide a lower-cost
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alternative to our full color LED products. These products consist of wedge-
shaped light bulbs that are inserted into parabolic reflectors similar to those
found in an automobile tail light. The clear bulb is then covered with a red,
green or blue translucent, plastic lense to produce bright, vivid colors. These
assemblies
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are then arranged into pixels and controlled by Windows(R) based software in the
same manner as our LED products.
The individual wedge-based lamps are considerably larger than the individual
LEDs. Therefore, pixel configuration is considerably wider for our wedge-based
products than for our LED products. Our current product line for wedge-based
products includes pixel configurations of 2 inches, 3 inches and 4 inches. With
these pixel configurations, some video capabilities are possible. However, the
quality of the video pictures is significantly less than that of our LED
products. As a result, these wedge-based products are generally used by
commercial enterprises to display text and computer-generated graphics in
bright, vibrant colors. Therefore, while the wedge-based and LED products use
similar technologies and manufacturing methods, the wedge-based products are
really used more often as a replacement of or substitute for our incandescent
monochrome message center displays than as a substitute for our LED displays.
Incandescent Monochrome Message Centers We expect that our LED and wedge-
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based color displays will eventually replace our incandescent monochrome message
centers. However, our incandescent message centers continue to be an effective
low-cost alternative to our customers who need the flexibility of an
electronically changeable message on their signs. A black and white
incandescent message center has an initial cost approximately one-third the cost
of a similarly sized color wedge-based display.
Incandescent systems have been used for several years by a variety of
commercial enterprises including restaurants and hotels, auto dealers, banks,
churches, schools, tourist gift shops and general retailers. The displays
typically consist of a single or double line text display that can be programed
with Windows(R) based software to scroll, flash, fade or perform a variety of
other functions. Some are also capable of displaying computer generated
graphics.
Other Commercial Display Products Other products sold to the commercial
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market include backlit cabinet displays, channel letters, pylon identification
displays, decorative neon displays and non-lighted signs and sculptures.
Backlit Cabinet Displays Backlit cabinets are a staple product for us. These
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displays can either be a standard rectangular cabinet or a more custom designed
shape. Standard cabinets are used by a wide variety of enterprises including
banks, hotels, gas stations, national retailers and restaurants. Custom designed
cabinets can also be used by all of those enterprises, but are more typically
used by themed enterprises including theaters, theme parks and casinos.
The displays are typically constructed with a metal frame and either a plastic
or vinyl (flexible) face. The signs can either be one-sided (single faced) or
two sided (double faced) and are illuminated with either flourescent tube lights
or halogen bulbs placed within the cabinet, behind the face. The displays can
either be wall mounted or placed atop a metal pole.
Channel Letters Channel letters are metal fabricated letters mounted either
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directly on a wall (or on raceways) or mounted on a larger sign. Channel
letters are used by virtually all types of businesses, but are most prominent in
strip malls, national retailers and shopping complexes. The letters can be
virtually any size and are bent into the appropriate shapes either by hand, or
by automated bending machinery. Typically, the letters are internally
illuminated with neon light tubes. The letters can either have a translucent
face that allows the light to shine through the front of the
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sign, or an open back allowing the neon light to produce a backlit halo effect
around the letter. A reverse-cut letter has an open front that allows the neon
light to be exposed and viewed directly.
Pylon Identification Displays Pylon signs are designed to be placed in high
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traffic areas near business entrances to identify the business location and
attract customers. The signs can be virtually any size, and height is
occasionally restricted by zoning, but pylon displays typically stand from 15 to
50 feet high. The signs are constructed of metal and decorated with paint,
lights, neon, channel letters and a variety of other products. The display can
either be a relatively standard sign on a single pole or double poles, or can be
a more customized display where the sign essentially become an architectural
structure in itself.
Decorative Neon Neon displays consist of either a sign that has been designed
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with bent neon tubes, or neon trim around various parts of a building, such as
the roof line. Decorative neon signs are typically used by themed facilities
such as restaurants and movie theaters - particularly when attempting to create
a nostalgic theme. Neon trim is used by a wide variety of business enterprises
as a method to attract attention to their business during twilight and evening
hours.
Non-Lighted Signs and Sculptures Other display products include everything
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from small wooden or metal signs to large, complex, custom-designed, three
dimensional metal or foam sculptures. Small non-lighted signs are typically
sold as part of a larger image enhancement order that may include various pylon
signs and channel letters, as well as smaller signs used to compliment the
larger signs and create an overall consistent business image throughout the
business property. Sculptures are used by business enterprises that desire a
truly unique identity sign, such as a three-dimensional sculpture of the
company's logo, to draw customers' attention to its property. The sculpture may
stand alone, or may be part of a larger display that includes various other
display products.
Sign and Lighting Service and Maintenance All of our commercial display
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subsidiaries offer service and maintenance on the signs that they sell.
Typically, maintenance contracts are sold in conjunction with the electronic
products that we sell and, occasionally, on other display products.
In addition to servicing our own signs, Don Bell has expanded its maintenance
services to include services on signs installed by other sign companies as well
as service on parking lot lighting and other exterior lighting. This profit
center was expanded in July 1997 with the acquisition of Certified. The
operations of Certified, which consisted solely of service and maintenance, were
merged with the service and maintenance operations of Don Bell to form a single
operating division. Through a network of subcontractors, and its own fleet of
service trucks in Port Orange, Orlando and Tampa, Florida and Atlanta, Georgia,
Don Bell specializes in providing service nationwide to multi-store retail
outlets such as department stores, grocery stores, gas stations, office
complexes and other retail outlets. Service is performed both under long-term
contracts as well as individually billed time and materials jobs.
Institutional Display Products Our institutional display products have
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historically been marketed specifically to churches and schools. In recent
years, we have expanded our focus to also market these displays to civic
organizations and government and military institutions. Occasionally, our
institutional products will be sold into other markets such as nursing homes and
funeral homes. While all of our display subsidiaries have occasional sales to
the institutional market, Stewart Corporation has identified this market niche
and sells exclusively to this market.
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Stewart Corporation's institutional displays are standard backlit cabinet
signs in a variety of standard sizes. The sign cabinets are constructed of
heavy gauge aluminum or steel extrusions which are welded at mitered corners.
The exteriors are painted in various selected customer colors utilizing high
quality automotive paints. The formed faces of the signs are constructed of a
polycarbonate product principally manufactured by General Electric under the
product name Lexan. Lexan provides a sign face which is long lasting, weather
and hazard resistant and extremely shatterproof.
The signs are internally illuminated by fluorescent lamps for night
visibility, and have facing which permits the user to customize the message or
announcement on the signs. The signs utilize a steel base plate that can be
bolt mounted on a concrete, stone or steel pylon base, and are designed for ease
of installation by the customer.
Stewart Corporation does not manufacture the signs that they sell. The
majority of the sign manufacturing is completed by one unaffiliated company,
with a limited amount of manufacturing being fulfilled by affiliated companies.
Drawings and specifications are submitted to the manufacturer, prices are
negotiated and Stewart Corporation places individual orders with the vendor
based on the agreed upon prices. Products are shipped directly to the customer
from the third-party manufacturer and, consequently, Stewart Corporation does
not maintain an inventory of stock signs at its facilities. The manufacturing
process utilizes molds, the engineering and design of which are proprietary to
Stewart Corporation.
Other Products. Our other segment, which accounted for 2% and 6% of
consolidated sales for 1999 and 1998, respectively, is comprised of the
manufacture and sale by La-Man of a line of products which, when installed in
compressed air lines, substantially reduce or totally eliminate water and
condensate problems and most foreign contaminants, such as moisture, oil, dust,
rust, and the like, in the air line. This extractor dryer is used in a wide
variety of industries from automobile paint and repair shops to large power
plants.
Recently, new and experienced management has been placed at La-Man. This new
management is embarking on a program to introduce new products that will
compliment our existing air filtration products. Over the next twelve months,
we expect to introduce a variety of new products including a complete line of
filters, regulators and lubricators (FRLs), a series of refrigerated extractor
dryers, and a line of extractor dryer purifiers with hoses and masks that will
supply breathable air. We expect that this new management and new product
introduction will enable this division to show significant growth over the next
several years.
Patent and Trademark Protection
La-Man is the owner of 10 U.S. patents: U.S. Reg. No. 4,464,186 relating to
the Pneumatic Liquid Evaporator/Extractor (expires in the year 2001); No.
4,483,417 relating to the Pneuguard(R) Lubricator (expires in 2001); No.
4,487,618 relating to the Extractor/Dryer (R) (expires in 2001); No. 4,810,272
relating to the Air Inlet Valve Arrangement for Pneumatic Equipment (expires in
2006); No. Re32,989 (Reissue of No. 4,600,416) relating to the Air Line Vapor
Trap (expires in 2003); No. 4,874,408 relating to a Liquid Drain Assembly
(expires in 2006); No. 4,925,466 relating to a Filter Cartridge Assembly
(expires in 2007); No. 5,030,262 relating to the Air Vapor Trap and Drain
(expires in 2008); No. 5,114,443 relating to the Air Line Vapor Trap (expires in
2009) and No. 5,261,946 relating to the Air Line Vapor Trap With Air Warming
System (expires in 2010).
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La-Man also is the owner of seven foreign patents: Canadian patent nos.
1,197,477 relating to the Air Line Vapor trap (expires 2002), 1,206,889 relating
to the Pneumatic Liquid Evaporator/Extractor (expires 2003), 1,207,674 relating
to the Pneuguard(R) Lubricator (expires 2003), 1,267,057 relating to the
Extractor/Dryer(R) (expires 2007), and 2,064,401 relating to the Air Line Vapor
Trap With Air Warming System (expires 2014); Chinese Patent No. UM-55136
relating to the Air Inlet Valve Arrangement for Pneumatic Equipment (expires
2000); and European patent no. 0101861 relating to the Pneuguard(R) Lubricator
(expires 2003).
The Company is the owner of U.S. Reg. No. 1,287,666 for the trademark LA-
MAN(R), Reg. No. 1,328,054 for PNEUGUARD(R), Reg. No. 1,596,100 for
EXTRACTOR/DRYER(R), and Reg. No. 1,790,935 for ENCAPULATOR(R), and Reg No.
1,844,119 for "We Make Compressed Air Work," all on the Principal Register of
the U.S. Patent and Trademark Office, and Reg. No. 1,359,880 for the mark
EXTRACTOR(R) on the Supplemental Register. Federal trademark protection is
perpetual, but the Company must renew its trademarks every 10 years.
Ad Art is the owner of U.S. Reg. No. 2,200,932 for the trademark
STADIAVISION(R), Reg. No. 2,206,932 for the trademark AD ART Design(R), and Reg.
No. 2,235,618 for the trademark INFOVISION(R), all on the Principal Register of
U.S. Patent and Trademark Office. Ad Art presently has received approval of the
trademark ARENAVISION(R), but a registration number has not yet been issued.
We believe that our filtration and lubrication products are proprietary assets
of La-Man's filtration segment. We intend to maintain all patents and
trademarks material to our business for their complete respective terms.
Patents generally are granted for 17-year terms and are nonrenewable; trademarks
are renewable for 10-year terms. The products and services of Ad Art, SEMCO,
Stewart Corporation, Stewart Industries, Lockwood and Don Bell are non-
proprietary and, as a result, trademarks and patents are not deemed material to
our signage segment.
Marketing and Distribution
Marketing is handled autonomously by each of our subsidiaries. Each of our
subsidiaries represents a recognizable brand name in the signage and display
industry and each has its own historically established customer relationships.
We have made a strategic decision to continue to have each subsidiary market
under its own name to its own contacts so as to preserve these brand-name images
that have been established. However, sales representatives from each of our
subsidiaries frequently conduct joint sales calls or exchange sales leads. In
addition, when appropriate for the circumstance, our sales representatives
explain that they are part of the Display Technologies, Inc. family of companies
and enumerate the benefits that we, as a national company, can provide to the
customer. Those advantages include both the wide geographic presence we provide
as well as the wide variety of products and services that we have available.
Ad Art, Don Bell and Lockwood market all U.S. products through staffs of
commissioned salespersons and commissioned independent sales contractors. Ad
Art markets its products outside the United States through commissioned sales
persons and independent sales representatives. The companies also participate
in conventions, advertising programs and trade associations. Their long-time
reputations as quality manufacturers are valued sources of sales leads.
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Stewart Corporation markets its signs by direct marketing efforts which
include direct mail, telephone calls on prospective church, school and
institutional customers, and direct calls made upon the procurement personnel of
various national churches and church denominations, school board officials and
school procurement personnel. Stewart Corporation also participates in church,
school and governmental/military conventions, denominational meetings and other
events attended by representatives of potential church, school and
governmental/military customers. It advertises its products and services
through church denominational publications and bulletins, and publications of
schools, school boards and school administrative personnel.
Stewart Corporation also markets products through joint venture and similar
arrangements with the denominational headquarters of various organized churches.
Under the joint venture marketing strategy, Stewart Corporation products are
presented in denominational publications which are disseminated to member
churches. Stewart Corporation is presented as an appointed supplier of the
signs and related products and member churches are encouraged to purchase such
products from Stewart Corporation. Stewart Corporation remits a commission to
the denominational headquarters based upon product sales.
Don Bell and Certified market service agreements through direct sales calls as
well as the sale of service agreements on signs manufactured by Don Bell.
Through a network of subcontractors, as well as their own fleet of service
trucks in Port Orange, Orlando, and Tampa, Florida, as well as Atlanta, Georgia,
Don Bell and Certified specialize in providing service nationwide to multi-store
retail outlets such as department stores, grocery stores, gas stations, office
complexes and other retail outlets. As a result, a significant portion of
marketing is dedicated to direct sales calls on the corporate or regional
headquarters of national retailers. In addition to national and regional sales,
the companies market service to local retailers such as automobile dealers and
shopping malls. They also cross market signage and lighting services to provide
a full range of services to customers.
La-Man uses various techniques in marketing its products, such as trade media
advertising, direct mail, attendance at trade shows and direct customer contact.
Backlog
Customers of Ad Art, Don Bell and Lockwood place orders on an as-needed basis.
Deposits of up to 50% with the orders are negotiated with customers. Delivery
and installation are dependent on the size and customization required of the
order and are usually completed within two months, except for long-term
contracts. Ad Art, Don Bell and Lockwood do not have backlog orders which they
are not able to fill in accordance with their usual practice. However, they did
have contracts in process exceeding $15,700,000 in contract value as of June 30,
1999.
Stewart Corporation's customers place orders on an as-needed basis. Stewart
Corporation authorizes the manufacture of the sign when it obtains a deposit,
customarily 50% of the order, from the customer. The completed sign is shipped
to the customer approximately 6-8 weeks after the deposit is received. As of
June 30, 1999, Stewart Corporation did not have any firm orders for products
which it had not been able to fill in accordance with its usual practice.
Most of La-Man's customers place orders on an as-needed basis, which
generally are filled within one to five days after receipt and in accordance
with the delivery requirements of our customers. For the fiscal year ending
June 30, 1999, we did not have any firm orders for products
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which it had not been able to fill in accordance with its usual practice. La-
Man's larger customers provide "blanket orders," i.e., scheduled orders, at
designated prices over the course of six-month or twelve-month periods. These
orders are subject to modification by the customer from time to time.
Employees
We presently have 620 full-time employees. The following table shows the
breakdown of employees:
Signage Segment:
Commercial Signage 482
Institutional Signage 50
Installation and Service 65
Graphic Arts and Screen Printing 6
Executive Offices 5
Other 12
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620
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Competition
We encounter significant competition in the sale of our commercial products.
However, the competition varies depending upon the type of product, the customer
and the geographic location of the sale. Overall, we are not aware of any other
signage or display company that is able to provide the variety of products
throughout the United States that we are able to through our subsidiaries.
There are now several companies throughout the United States, and
internationally, that offer LED video display units and other electronic
products. Many of these competitors have introduced products in the past twelve
months and have yet to firmly establish their marketing processes. Each of the
companies in this market that does have an established marketing process tends
to market its products to a specific market. We have identified nine major
markets for LED products, including shopping centers / retail, convention
centers, sports venues, auto malls, airports, outdoor media, resorts/casinos,
theaters, and large churches. We have identified very little competition in
sales to convention centers, auto malls, airports, theaters and churches.
Competition is wide-spread in the resort/casino market - particularly in the Las
Vegas market - where we compete most frequently against Whiteway Sign and
Maintenance Company of Chicago, Illinois, Young Electric Sign Corporation of Las
Vegas, Nevada and Mikohn Gaming Corporation of Las Vegas, Nevada. In the sports
venue market, we compete most frequently against Daktronics, Inc. of Brookings,
South Dakota. Competition in the shopping center / retail market is very
widespread with different competition from essentially all companies with an LED
product. The outdoor media market is a developing market with various potential
competitors with both LED, and alternative technologies, reviewing the market's
potential.
Competition for our other display products and services (including electronic
message centers, backlit cabinets, channel letters, pylon signs, neon and non-
lighted signs as well as service and maintenance) is significant and diverse.
There are over 3,500 sign companies in the United States producing illuminated
signs. If all sign companies are included (such as banner shops and one-day
sign franchises), the number grows to 25,000. There are no true national
companies that we compete
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against on a regular basis across this broad market. Rather, competition is
regionalized and dependent upon the type of product and scope of work that is
being performed. Sales are typically secured based upon existing relationships
and our ability to design, manufacture, install and service the products that
the customer requests.
Competition in the institutional market (schools, churches, civic
organizations and government and military establishments) also comes from a
myriad of 3,500 local signage companies which operate throughout the United
States. The principal factors in such competition are product pricing, service,
quality, design, production and delivery time, and product warranties. Stewart
Corporation products contain materials of high quality. A 20-year sign warranty
is also provided. We believe that the comparative quality of the Stewart
Corporation sign products, together with related services provided and the
extensive product warranty, enable us to effectively compete with other sign
companies. Additionally, Stewart Corporation's joint venture marketing strategy
provides access to potential church and school customers that is generally not
available to local competitors.
11
<PAGE>
Government Regulation
We have no knowledge of any U.S. governmental regulations which adversely
affect our business operations. In the manufacture of our products for
governmental agencies, we are required to meet certain governmental
specifications. To date, we have experienced no difficulty in satisfying these
requirements.
Environmental Protection Compliance
We have no knowledge of any federal, state or local environmental compliance
regulations which materially affect our current business activities. We have
not expended any material capital to comply with environmental protection
statutes and do not anticipate that material expenditures will be necessary in
the future with respect to our products.
Engineering and Product Development
The majority of our product development costs relate to our hi-tech electronic
products. The technology related to our LED video display boards is rapidly
changing and we continue to anticipate and respond to changes both in the
current technology as well as emerging technologies.
Historically, we have been able to minimize product development expenses by
developing new products as needed for specific customers and by using existing
display installations for testing new techniques and technologies. As a result,
our product development expenses for 1999 and 1998 were not material.
ITEM 2. PROPERTIES.
- --------------------
We maintain our corporate offices in a 5,250 square foot leased facility in an
office and retail complex in Orlando, Florida under a five year lease expiring
in 2000.
Ad Art owns a 100,000 square foot manufacturing facility in Stockton,
California which is situated on a 10-acre site and is suitable for plant
expansion and multiple shifts.
Ad Art also leases branch offices in San Francisco, Carson and Fresno,
California, Las Vegas, Nevada and Irving, Texas. The San Francisco lease is
for 4,953 square feet of office space for a term that expires January 31, 2002.
The Carson lease is for approximately 10,510 square feet of office space for a
term ending February 28, 2001. The Fresno lease is for 1,000 square feet for a
term ending February 28, 2001. The Las Vegas lease is for 11,200 square feet of
space for a term ending August 1, 2001. The Irving lease is for 4,500 square
feet for a term expiring June 19, 2004.
Don Bell operates in its owned manufacturing facilities; a 38,000 square foot
structure in Port Orange, Florida. This building, situated on eight acres of
land owned by Don Bell, is a one and one half-story, steel frame structure with
a metal roof and slab floor. Don Bell also leases an adjacent 13,500 square
foot structure on a one-acre site for rent of $2,750 per month for a term ending
April 30, 2000, with an option to purchase the parcel for $400,000. In addition
to the above-mentioned facilities, Don Bell and Certified operate service
branches out of the corporate headquarters in Orlando, Florida. Service trucks
are stationed at facilities in Atlanta, Georgia and Tampa, Florida.
12
<PAGE>
Stewart Corporation leases approximately 9,175 feet of office space in
Sarasota, Florida for a five-year term that ends on December 31, 2000. Stewart
Industries leases, for its graphics and screen print operations, space in
Sarasota, Florida for a one-year term that ends on January 31, 1999. SEMCO does
not have separate offices and conducts its business from the offices of Stewart
Corporation.
La-Man operates in its owned manufacturing facilities; an 8,750 square foot
structure in Port Orange, Florida. This building, situated on approximately one
acre of land adjacent to the Don Bell property, is a one-story, steel frame
structure with a metal roof, slab floor, heat and partial central air
conditioning.
Lockwood owns a 26,000 square foot manufacturing facility in Charlotte, North
Carolina, which is encumbered by a deed of trust securing certain indebtedness
of Lockwood. Lockwood also leases a 14,000 square foot manufacturing facility
in Beltsville, Maryland for a term ending on May 30, 2002 and a 26,000 square
foot manufacturing facility in Marietta, Georgia for terms ending November 30,
2000 (16,000 square feet) and September 30, 2002 (10,000 square feet).
We recently acquired an additional facility for expansion of our commercial
sign production. The facility is approximately 18,000 square feet and is
adjacent to both the Don Bell and La-Man facilities.
All properties currently owned by us (except those of Lockwood), are mortgaged
as collateral against our debt obligations to SouthTrust Bank.
ITEM 3. LEGAL PROCEEDINGS.
- ---------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
- ---------------------------------------------------------------------------
MATTERS.
- --------
The Company's common stock is quoted on the NASDAQ National Market under the
trading symbol "DTEK" but is not traded on any exchange. The following table
indicates the range of high and low closing prices for the common stock for each
full quarterly period within the two most recent fiscal periods ended June 30,
1999 and June 30, 1998 as such quotes were supplied by the NASDAQ Stock Market
to the National Quotation Bureau, Inc. and reported to the Company by the
National Quotation Bureau, Inc. The market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
13
<PAGE>
Common Stock Prices
Fiscal Year -------------------
Ending Quarter Ending High Low
----------- -------------- ---- ---
June 30, 1998 September 30, 1997 $3.13 $2.19
December 31, 1997 3.63 2.50
March 31, 1998 4.69 3.06
June 30, 1998 3.53 2.81
June 30, 1999 September 30, 1998 $3.63 $2.80
December 31, 1998 7.44 2.86
March 31, 1999 7.47 4.25
June 30, 1999 5.00 3.50
As of September 27, 1999 there were approximately 661 holders of record of the
common stock.
The Company has never paid and does not anticipate paying any cash dividends
on its common stock in the foreseeable future, but instead intends to retain
working capital and earnings for use in the Company's business operations and in
the expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS.
- ----------------------
Results of Operations
Display Technologies' consolidated financial statements include the accounts
of Display Technologies, Inc. and its subsidiaries, Ad Art Electronic Sign
Corporation (since February 18, 1998), SEMCO, J.M. Stewart Corporation, J.M.
Stewart Industries, Don Bell Industries, J.M. Stewart Manufacturing, and La-Man
Corporation.
Except for the historical information contained herein, certain matters
addressed in this Annual Report on Form 10-KSB may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
Such forward looking statements are subject to a variety of risks and
uncertainties that could cause actual results to be different materially from
those anticipated by the Company's management. The Private Securities
Litigation Reform Act of 1995 (the "1995 Act") provides certain "safe harbor"
provisions for forward-looking statements. All forward-looking statements made
in this Annual Report on Form 10-KSB are made pursuant to the 1995 Act.
Year ended June 30, 1999 compared with year ended June 30, 1998
Our sales for the fiscal year ended June 30, 1999 increased by $33,658,000, or
104% over last year. This increase is entirely due to increases in sales from
the sign and image enhancement display segment (the "display segment"), which
accounted for 97.6% of consolidated sales. The increase in display segment
sales of $33,855,000, or 110%, is offset by decreases in other segments of
$198,000, or 11%. The sales growth in the display segment can be broken down
between commercial image enhancement displays and related products and services,
and institutional signage
14
<PAGE>
displays. Commercial displays accounted for increases of $32,659,000, or 144%,
while institutional displays accounted for increases of $1,196,000, or 15%.
A majority of the increased sales in commercial displays relates to the
February 18, 1998 acquisition of Ad Art. Only four and one-half months of Ad
Art's activity is included for the year ended June 30, 1998. Exclusive of the
Ad Art acquisition, sales for our other commercial display operations increased
by $1,224,000, or 14%.
A majority of the increased sales in institutional displays relates to sales
to the government and military market, which increased by $855,000, or 361%. We
also saw increased sales to schools by $263,000, or 11%, and increased sales to
municipal and civic organizations by $169,000, or 56%, offset by decreased sales
to churches by $90,000, or 2%. This decrease was partially the result of
shifting experienced sales personnel from church sign sales to government and
military sign sales to develop those new markets.
Our overall gross profit margin dropped by 5.8%, to 33.6% of sales for the
fiscal year ended June 30, 1999 compared to 39.4% last year. Margins on the
display segment decreased by 5.1%, to 33.1% of sales compared to 38.2% last
year, while margins on other segments decreased by 4.1%, to 55.1% from 59.2%
last year. The drop in display segment margins is attributable to the change in
the sales mix resulting from the Ad Art acquisition. Ad Art's products were
sold at overall margins of 28.4%, which is slightly lower than margins on other
commercial displays of 30.8%, but significantly lower than the 58.3% margins
realized on institutional displays, which is just a 0.3% decrease since last
year. Overall, margins on consolidated commercial displays decreased by 2.3%, to
28.8% from 31.1% last year. Generally, we expect margins on commercial displays
to average 30% to 31%. During 1999, margins were eroded to 28.8% due to
significant costs overruns on 4 specific jobs. Had those cost overruns been
avoided, margins on commercial displays for fiscal 1999 would have been 29.7% -
more in line with our historical experience. We have identified and corrected
the causes of the cost overruns on these 4 specific jobs and should be able to
avoid similar overruns in the future.
Our selling expenses for the year ended June 30, 1999 increased by $5,268,000,
or 106%, over the prior year. They were 15.5% of sales for the current year
compared to 15.3% of sales in the prior year. This change, like the change in
gross profit margins, is related to the changing sales mix resulting from the
acquisition of Ad Art. Selling expenses on display segment sales were 15.4%,
compared to13.8% for last year, while selling expenses for other segments were
18.3% of sales for both this year and last year. Within the display segment,
selling expenses on commercial displays were 14.1% of sales, compared to 12.8%
last year, while selling expenses on institutional displays were 23.0%, compared
to 23.3% last year. The increase in selling expenses as a percentage of display
segment sales was due to the effect of Ad Art's selling expenses, which were
14.2% of sales for fiscal 1999. Ad Art incurred significant selling expenses in
fiscal 1999 which should benefit future periods and result in selling expenses
being a smaller percentage of sales. These expenses include additional sales
staff, a new sales office in Dallas, Texas and costs associated with our mobile
LED (light emitting diode) video board which has been displayed for potential
customers throughout the United States and was sold in June, 1999.
Our general and administrative (G&A) expenses for the year ended June 30, 1999
increased by $1,877,000, or 35.4%, over the prior year. A majority of this
increase relates to the increase in G&A costs in the display segment by
$1,402,000, or 36.2%, while other segments saw increases of
15
<PAGE>
$32,000, or 12.8%, and the corporate office saw an increase of $443,000, or
37.5%. The increase in the display segment relates to increases in G&A costs for
commercial displays of $1,133,000, or 52.9%, and increases in institutional
displays of $269,000, or 13.7%. The increase in costs associated with commercial
displays relates mostly to the acquisition of Ad Art, which contributed an
additional $1,330,000 in G&A costs over last year.
Corporate general and administrative expenses primarily consist of executive
compensation and benefits, occupancy costs of the corporate office, and other
compliance costs incurred as a result of being a public company. They include
legal fees, director fees, SEC and NASDAQ filing costs and investor relations
costs. Approximately $156,000 of the increase in corporate G&A expenses related
to increased salary and bonus compensation to executives whose compensation and
bonuses are calculated under a formula based upon the financial performance of
the Company. Additionally, the corporate division hired two new employees for
our in-house legal department during the first quarter of fiscal 1999. Other
significant expense increases include an increase of $98,000, or 77.7%,
resulting from an expansion in investor relations services, and an increase of
$99,000, or 131%, resulting from increased filing costs, including a $65,000
filing fee to NASDAQ for our national market listing that was obtained in March.
Our non-operating expenses (net) for the year ended June 30, 1999 increased by
$809,000 over the prior year. The main component of this increase is interest
expense, which increased by $749,000, or 154%, over the prior year. This
increase is primarily attributable to the Ad Art acquisition. Specifically,
interest expense incurred during the year ended June 30, 1999 on debt assumed in
the acquisition increased by $491,000, or 229%, compared to the prior year.
Additionally, interest incurred on debt acquired to finance the acquisition,
increased by $231,000, or 268%, over the prior year.
Income tax expense for the fiscal year ended June 30, 1999 was $1,438,000 (a
39% effective tax rate) compared to $615,000 (a 28% effective tax rate) for the
fiscal year ended June 30, 1998 - a net increase of $823,000. The low effective
rate for fiscal 1998 was the result of the recognition of tax benefits derived
from tax net operating losses incurred in prior years. All benefits of these
historical tax net operating losses have now been realized and future tax
expenses should approximate statutory rates.
Liquidity, Cashflow and Capital Resources
Net cash used for operating activities for the fiscal year ended June, 30,
1999 was $5,037,000. Net income for the period provided cash of $4,949,000, net
of non-cash charges for depreciation and amortization, gains on fixed asset
sales, stock contributions to our 401(k) plan, the change in deferred income
taxes, and other non-cash items. This cash provided was offset by a net change
of $9,986,000 in our operating assets and liabilities, consisting primarily of
increases in receivables of $6,490,000 and inventories of $4,595,000, and
partially offset by increases in accounts payable of $2,016,000.
Net cash used for investing activities for fiscal 1999 was $1,962,000, of
which $1,543,000 was used for capital expenditures, $500,000 was used for an
investment in equity securities, and $7,000 was used to maintain certain
patents. These uses were partially offset by $88,000 provided from the sale of
fixed assets.
16
<PAGE>
Net cash provided by financing activities for the year ended June 30, 1999 was
$6,541,000. This amount consists of $2,343,000 that was received through net
advances on lines of credit, $3,224,000 received from new debt issuances, and
$2,821,000 received upon the exercise of outstanding stock options and warrants.
Offsetting financing activities included net payments on long term debt and
capital lease obligations of $1,550,000 and $266,000, respectively, along with
the payment of fees on the new debt issuance of $30,000.
In June 1999, we refinanced our lines of credit and the mortgage debt on our
Stockton, California facilities. The new revolving bank line of credit is $10
million. Advances on the credit line carry an interest rate of either (a) 3/4%
over prime or (b) 325 basis points over LIBOR. At September 3, 1999 the
interest rate on the line of credit was 8.35%. The line of credit, which is
renewable, matures June 30, 2002 and is collateralized by property, accounts
receivable and inventory, and subsidiary guarantees. The loan agreement
contains covenants which require the Company to maintain certain financial and
operating ratios. At June 30, 1999, we were in compliance with these covenants.
At September 3, 1999, $3,825,566 was outstanding against this line of credit.
The old mortgage debt was refinanced through a $2,500,000 note payable,
secured by a letter of credit with a national bank. This debt incurs interest
at a variable interest rate (5.46% at September 3, 1999), plus a 1% letter of
credit fee. Interest is payable monthly, while principal payments are due
annually. The note is collateralized by substantially all of the assets of the
Company, and cross-collateralized with and covered by the same covenants as the
line of credit from the same national bank. As of September 3, 1999, the entire
principal balance was outstanding.
In addition, we acquired a $1,000,000 term note, secured by a letter of credit
with the same national bank. This debt incurs interest at 1 3/4% over prime,
with monthly principal payments of $27,778, plus interest, due monthly. At
September 3, 1999 the interest rate on the term loan was 9.5%. The note is
collateralized by substantially all of the assets of the Company, and cross-
collateralized with and covered by the same covenants as the line of credit from
the same national bank. As of September 3, 1999, $944,444 was outstanding on
this note.
Inflation
Although inflation has slowed in recent years, it continues to be a factor in
our operations. In recent years, we have taken steps to counteract the effects
of inflation by price increases and by careful cost controls. There are no
other significant factors which are expected to cause a material increase in our
general and administrative expenses.
Year 2000
Many existing computer programs only use two digits to identify a year in the
date field, with the result that data referring to the Year 2000 and subsequent
years may be misinterpreted by these programs. If present in our computer
applications or our suppliers and not corrected, this problem could cause
computer applications to fail or to create erroneous results and could cause a
disruption in operations and have an adverse effect on our business and results
of operations.
17
<PAGE>
Over the last few years, we have analyzed and evaluated all internal
information technology systems, equipment and operations to ensure their Year
2000 compliance. We have been actively implementing new systems over the last
few years, and believe that all of our major information technology, including
our computer operated electronic display products, are Year 2000 complaint.
Letters of compliance have been requested from each vendor and, when the need is
identified, we intend to work with our vendors in determining appropriate
testing and compliance processes. Expenditures to remediate Year 2000 issues
have not been material and are not expected to be material in the future.
We do not assess as high the risks to operations of Year 2000 noncompliance by
vendors, since numerous alternate sources of suppliers exist. However, despite
this fact and our efforts to ensure our Year 2000 compliance and that of our
vendors, we could potentially experience a disruption in our operations as a
result of Year 2000 noncompliance of certain vendors, financial institutions,
governmental agencies or other third parties or external systems. Such a
disruption could potentially affect various aspects of business operations, such
as the timeliness of completion and delivery of major electronic display
products.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. FAS 133 is effective for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect the Company's
financial statements.
ITEM 7. FINANCIAL STATEMENTS.
- ------------------------------
Financial statements are included at the end of this report starting at page
F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS, ETC.
- ------------------------------------------------------------
None.
PART III
THE INFORMATION REQUIRED BY ITEMS 9 THROUGH 12 OF THIS PART III IS INCORPORATED
BY REFERENCE FROM THE COMPANY'S DEFINITIVE PROXY STATEMENT TO BE FILED IN
CONNECTION WITH THE NOVEMBER 18, 1998 MEETING OF SHAREHOLDERS OF THE COMPANY,
WHICH WILL INVOLVE THE ELECTION OF DIRECTORS.
18
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- --------------------------------------------------------------------------
FORM 8-K.
- ----------
(a) The following documents are filed as part of this Report:
<TABLE>
<CAPTION>
<S> <C>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants - BDO Seidman, LLP............. F-2
Consolidated Balance Sheet as of June 30, 1999.................................... F-3
Consolidated Statements of Income for the years ended June 30, 1999 and 1998...... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1999 and 1998.......................................................... F-5
Consolidated Statement of Cash Flows for the years ended June 30, 1999 and 1998... F-6
Notes to Consolidated Financial Statements........................................ F-7
</TABLE>
Exhibit
Number Title of Exhibit
- ------ ----------------
<TABLE>
<CAPTION>
<S> <C>
2.1 Stock Purchase and Sale Agreement dated as of September 7, 1995 among
Registrant, Don Bell Industries, Inc., Worrell Enterprises, Inc. and Gary D.
Bell /26/
---
2.2 Agreement for Purchase of Assets dated as of August 27, 1996 between
Heritage Packaging Services, Inc. and Midwest Packaging Products, Inc./33/
---
2.3 Stock Purchase and Sale Agreement among Registrant, Certified Maintenance
Service, Inc. and Mark Manfredi dated as of July, 1, 1997/34/
---
2.4 Agreement and Plan of Merger and Reorganization dated as of February 17,
1998 among Registrant, Displays Acquisitions, Inc., a wholly owned Florida
subsidiary of Registrant, Electronic Sign Corporation d/b/a Ad Art, a
California corporation, and Terry J. Long, Daniel G. O'Leary, individually and
in his capacity as Trustee of the Daniel O'Leary Trust Dated April 18, 1993,
Betty E. Papais, individually and in her capacity as Trustee of the Papais
Trust Dated January 29, 1991, and Lou A. Papais/35/
---
2.5 Agreement and Plan of Merger and Reorganization dated as of July 1, 1999
among Registrant, Lockwood Acquisitions Corp., a wholly owned Florida
subsidiary of Registrant, Lockwood Sign Group, Inc., a Georgia corporation,
and Larry L. Johnson and Kurt R. Johnson/43/
---
3.1 Articles of Incorporation of Registrant/1/
--
3.2 Certificate of Merger/1/
--
3.4 Amendment to Articles of Incorporation/9/
--
3.9 Articles of Incorporation of Nevada SEMCO, Inc., a Nevada corporation/20/
---
3.10 By-Laws of Nevada SEMCO, Inc./20/
---
3.13 Articles of Incorporation of Vision Trust Marketing, Inc., a Florida
corporation/29/
---
3.14 Bylaws of Vision Trust Marketing, Inc./29/
---
3.15 Articles of Incorporation of Don Bell Industries, Inc., a Florida
corporation/29/
---
3.16 Bylaws of Don Bell Industries, Inc./29/
---
3.17 Articles of Incorporation of Don Bell Industries of Nevada, Inc./29/
---
3.18 Bylaws of Don Bell Industries of Nevada, Inc./29/
---
3.19 Articles of Incorporation of Certified Maintenance Service, Inc./34/
---
3.20 Bylaws of Incorporation of Certified Maintenance Service, Inc./34/
---
3.21 Articles of Incorporation of Displays Acquisitions Corp. (n/k/a Ad Art
Electronic Sign Corporation)/37/
---
3.22 Articles of Merger of Electronic Sign Corporation into Displays
Acquisition Corp. (with the surviving corporation, Displays Acquisitions Corp.
changing its name to Ad Art Displays, Inc.)/37/
---
3.23 Articles of Amendment to Articles of Incorporation of Ad Art Displays,
Inc. (changing the corporate name to Ad Art Electronic Sign Corporation)/37/
---
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.24 Bylaws of Ad Art Electronic Sign Corporation f/k/a Ad Art Displays, Inc./37/
---
3.25 Articles of Incorporation of ESC of Nevada, Inc./37/
---
3.26 Bylaws of ESC of Nevada, Inc./37/
---
3.27 Restated Articles of Incorporation of Registrant/39/
---
3.28 Amended and Restated Bylaws of Registrant/39/
---
3.29 Articles of Incorporation of La-Man Corporation, a Nevada corporation/39/
---
3.30 Bylaws of La-Man Corporation/39/
---
3.31 Articles of Incorporation of Lockwood Acquisitions Corp. (n/k/a Lockwood
Sign Group, Inc.), a Florida corporation/43/
---
3.32 Articles of Merger of Lockwood Sign Group, Inc., a Georgia corporation, into
Lockwood Acquisitions Corp. (with the surviving corporation, Lockwood Acquisitions
Corp. changing its name to Lockwood Sign Group, Inc.)/43/
---
3.33 Bylaws of Lockwood Sign Group, Inc. f/k/a Lockwood Acquisitions Corp/43/
---
4.14 8% Convertible Note of Registrant, dated September 7, 1995, in principal amount of $750,000 to
Worrell Enterprises, Inc./28/
---
4.15 Amendment No. 2 to Warrant Agreement, dated as of January 10,1997, between Registrant and
Continental Stock & Transfer Company, as Warrant Agent/34/
---
4.16 Convertible Loan Agreement Dated March 2, 1998 by and between Registrant and Renaissance Capital
Growth & Income Fund III, Inc., Renaissance US Growth & Income Trust PLC and Renaissance Capital
Group, Inc./36/
---
4.17 8.75% Convertible Debenture Due March 2, 2005 issued to Renaissance Capital Growth & Income Fund
III, Inc./36/
---
4.18 8.75% Convertible Debenture Due March 2, 2005 issued to Renaissance US Growth & Income Trust PLC/36/
---
4.19 Stock Purchase Warrant issued to Renaissance Capital Growth & Income Fund III, Inc./36/
---
4.20 Stock Purchase Warrant issued to Renaissance US Growth & Income Trust PLC/36/
---
4.22 J. Melvin Stewart Lock-Up Agreement/36/
---
4.23 Amendment No. 3 to Warrant Agreement, dated as of May 27, 1997, between Registrant and Continental
Stock Transfer & Trust Company, as Warrant Agent/37/
---
4.24 Amendment No. 4 to Warrant Agreement, dated as of March 20, 1998, between Registrant and
Continental Stock Transfer & Trust Company, as Warrant Agent/40/
---
4.25 Amendment No. 5 to Warrant Agreement, dated as of November 4, 1998, between Registrant and
Continental Stock Transfer & Trust Company, as Warrant Agent/40/
---
4.26 Redemption Notice to Warrant Holders dated December 29, 1998/40/
---
4.27 Unit Purchase Option Amendment dated as of January 4, 1999 between Registrant and Peter D. Mathews/40/
---
4.28 Stock Option Agreement dated March 18, 1997 between Registrant and Halyx Partners, Inc. d/b/a The Howell Group/41/
---
4.29 Stock Option Agreement dated August 29, 1997 between Registrant and Halyx Partners, Inc. d/b/a The Howell Group/41/
---
4.30 Stock Purchase Warrant dated as of March 2, 1998 issued to Croft & Bender LLC by Registrant/41/
---
4.31 Stock Option Agreement dated July 1, 1998 between Registrant and Pacific Consulting Group, Inc./41/
---
4.32 Press release dated January 6, 1999 announcing the redemption date for the Registrant's common stock purchase warrants/42/
---
4.32 Certificate of Designation of the Series A Preferred Stock/43/
---
4.33 Form of Stock Purchase Warrant issued to Raymond James Capital Partners, L.P., Renaissance Capital
Growth & Income Fund III, Inc. and Renaissance U.S. Growth & Income Trust PLC /43/
---
4.34 Trust Indenture dated June 1, 1999 between the Registrant and SouthTrust Bank, National Association/43/
---
4.35 Form of $2,500,000 Variable/Fixed Rate Secured Notes/43/
---
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.36 Rights Agreement, dated as of September 21, 1999 between Display Technologies, Inc. and
Continental Stock Transfer & Trust Company, including the Certificate of Designation, the form
of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C, respectively/44/
---
4.37 Certificate of Designation of the Series B Junior Participating Preferred Stock
9 Voting Trust Agreement dated as of May 19, 1998 among J. Melvin Stewart, as Trustee, and Rebecca
Stewart Brooks, Bonnie Stewart Knox, J. Melvin Stewart as Trustee for the Emily Stewart Michelsen
Irrevocable Trust dated May 6, 1998, Susan Stewart Michelsen, Elizabeth Stewart Ricci, Deborah Stewart, John
M. Stewart and Mary Stewart/38/
---
10.1 Royalty Agreement Re: U.S. Patent No. 4,116,650/1/
--
10.2 License Agreement Re: U.S. Patent No. 4,116,650/1/
--
10.3 Assignment of U.S. Patent No. 4,116,650/1/
--
10.9 License Agreement between Registrant and J & M/1/
--
10.14 License Agreement dated November 9, 1987 between Registrant and J & M
Company, Ltd./6/
--
10.15 Agreement to Purchase Patents and Applications for Patents, Trademarks
and Applications for Trademarks and International Marketing and Sales Rights
between Registrant and J & M Company Ltd. dated November 9, 1987/6/
--
10.16 Assignment of Patents and Applications for Patents, Trademarks and
Applications for Trademarks and International Marketing and Sales Rights to J
& M Company, Ltd. dated November 9, 1987/6/
--
10.36 Merger Agreement between Nevada SEMCO, Inc. and Stewart Eleemosynary
Marketing Corporation, dated August 19, 1993/19/
---
10.37 Amendment to J & M Agreement dated May, 1992/16/
---
10.46 1988 Incentive Stock Option Plan/17/
---
10.47 1992 Stock Option and Appreciation Rights Plan/17/
---
10.60 Employment Agreement dated August 19, 1993, between J.M. Stewart
Corporation and J. Melvin Stewart/20/
---
10.61 Agreement dated January 17, 1992, between J.M. Stewart Corporation and
the Sunday School Board of the Southern Baptist Convention/21/
----
10.62 Agreement dated March 24, 1993, between J.M. Stewart Corporation and
Gospel Publishing House/21/
---
10.63 Endorsement Agreement dated May 21, 1992, between J.M. Stewart
Corporation and Florida Association of School Administrators/21/
---
10.64 Employment Agreement dated as of April 28, 1994 between Registrant and
J. William Brandner/23/
---
10.65 Stock Option Agreement dated as of September 6, 1994 between Registrant
and J. William Brandner/25/
---
10.97 Amendment No. 1, dated as of August 31, 1995 to Employment Agreement
between Registrant and J. William Brandner/29/
---
10.99 Amendment No. 1, dated as of August 31, 1995 to Employment Agreement
between Registrant and J. Melvin Stewart/29/
---
10.100 Stock Option Agreement dated as of September 1, 1995 between
Registrant and J. William Brandner/29/
---
10.103 Stock Option Agreement dated as of September 1, 1995 between
Registrant and J. Melvin Stewart/29/
---
10.106 Employee Stock Option Agreement dated as of September 7, 1995 between
Registrant and Gary D. Bell/28/
---
10.107 La-Man Corporation 1994 Amended and Restated Employee and Consultant
Stock Compensation Plan, as amended by Amendment No. 1 thereto dated as of
August 31, 1995/28/
---
10.109 $2,570,000 Irrevocable Letter of Credit No. SB 1326 issued by
SouthTrust Bank, National Association, on August 28, 1997 for the account of
Registrant./34/
---
10.110 Form of La-Man Corporation $2,500,000 Variable/Fixed Rate Credit
Enhanced Notes./34/
---
10.111 Trust Indenture dated August 1, 1997 between Registrant and SouthTrust
Bank, National Association/34/
---
10.112 Remarketing Agent Agreement dated as of August 1, 1997 among
Registrant, SouthTrust Bank, National Association, as Trustee and SouthTrust
Securities, Inc., as Remarketing Agent/34/
---
10.121 Employment Agreement dated February 18, 1998 between and among
Registrant, Ad Art Displays, Inc. and Terry J. Long/35/
---
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.122 Employee Stock Option Agreement dated February 18, 1998 by and between
Registrant and Terry J. Long/35/
---
10.123 Consulting Agreement dated February 18, 1998 between and among Ad Art
Displays, Inc. and Lou A. Papais/35/
---
10.124 Pledge Agreement dated March 2, 1998 between Registrant and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth &
Income Trust PLC/36/
---
10.125 Security Agreement dated March 2, 1998 between Registrant and
Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US Growth &
Income Trust PLC/36/
---
10.126 Form of Subsidiary Continuing Guaranty/36/
---
10.127 Form of Subsidiary Security Agreement/36/
---
10.128 Amendment No. 2 to La-Man Corporation 1992 Stock Option and
Appreciation Rights Plan, as amended/36/
---
10.129 Amendment No. 3 to La-Man Corporation 1992 Stock Option and
Appreciation Rights Plan, as amended/36/
---
10.130 Amendment No. 2 to La-Man Corporation Amended and Restated 1994
Employee and Consultant Stock Compensation Plan, as amended/36/
---
10.131 Employment Agreement dated as of February 17, 1998 among Registrant,
Don Bell Industries, Inc. and Gary D. Bell/37/
---
10.132 Employment Agreement dated as of September 1, 1998 between Registrant
and Marshall S. Harris/38/
---
10.133 Employee Stock Option Agreement dated as of August 28, 1998 between
Registrant and Marshall S. Harris/39/
---
10.134 Promissory Note and Mortgage Modification Agreement dated as of
December 31, 1998, by Registrant, Don Bell Industries, Inc., Vision Trust
Marketing, Inc., Don Bell Industries of Nevada, Inc., La-Man Corporation,
Nevada SEMCO, Inc., J.M. Stewart Corporation, J.M. Stewart Industries, Inc.,
and Certified Maintenance Service, Inc. to and for the benefit of SouthTrust
Bank, National Association/40/
---
10.135 Security Agreement dated January 5, 1999 between La-Man Corporation
and Renaissance Capital Growth & Income Fund III, Inc. and Renaissance US
Growth & Income Trust PLC/40/
---
10.136 Securities Purchase Agreement dated as of July 30, 1999 between
Registrant, Raymond James Capital Partners, L.P., Renaissance Capital Growth &
Income Fund III, Inc. and Renaissance U.S. Growth & Income Trust PLC/43/
---
10.137 Loan and Security Agreement dated June 2, 1999 between Registrant and
SouthTrust Bank, National Association/43/
---
10.138 Employment Agreement dated July 30, 1999 between and among Registrant,
Lockwood Sign Group, Inc. and Larry L. Johnson/43/
---
10.139 Employment Agreement dated July 30, 1999 between and among Registrant,
Lockwood Sign Group, Inc. and Kurt R. Johnson/43/
---
10.140 Agreement dated as of June 28, 1999 between and among Registrant,
AmeriVision Outdoor, Inc., AmeriVision Outdoor, LLC, Michael T. Barr, Joe W.
Brown, William W. Byrd and George Whitlow
21 Subsidiaries/43/
---
23.1 Consent of BDO Seidman, LLP/41/
---
27 Financial Data Schedule
99.3 U.S. Patent No. 4,483,417/1/
--
99.4 Trademark Registration No. 1,287,666/1/
--
99.5 U.S. Patent No. 4,487,618/2/
--
99.6 Trademark Registration No. 1,328,054/2/
--
99.7 Trademark Registration No. 1,359,880 (Supplemental Register)/4/
--
99.8 Canadian Patent No. 1,197,477/16/
---
99.9 U.S. Patent Number 4,600,416 for the Extractor Dryer/16/
---
99.10 Canadian Patent Number 1,206,889 for the Pneumatic Dryer/16/
--
99.11 Trademark Registration Number 1,372,359/16/
--
99.12 Canadian Patent Number 1,207,674/16/
---
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
99.14 U.S. Patent Number 4,865,815 for the In-Line Compressed Air Carbon
Monoxide Filter/11/
---
99.15 Chinese Patent Certificate Number UM 55136 for the Air Inlet Valve
Arrangement for Pneumatic Equipment/14/
---
99.16 U.S. Patent Number 5,030,262 for the Air Vapor Trap and Drain
Therefore/14/
---
99.17 U.S. Patent Number 5,114,443 for the Air Line Vapor Trap With Air
Warming System/16/
---
99.19 Trademark Registration Number 1,790,935 for Encapulator(R)/21/
---
- --------------------------
/1/ Incorporated by reference from Registrant's Pre-Effective Amendment
- --- No. 1 to the Registrant's Registration Statement on Form S-18
(Registration No. 2-89341).
/2/ Incorporated by reference from Registrant's Pre-Effective Amendment
- --- No. 2 to the Registrant's Registration Statement on Form S-18
(Registration No. 2-8934 1).
/4/ Incorporated by reference from Registrant's Post-Effective Amendment
- --- No. 1 to Registrant's Registration Statement on Form S-18
(Registration No. 2-89341).
/6/ Filed as an exhibit to Registrant's Current Report on Form 8-K filed
- --- on December 23, 1987 (File No. 0-14427), and incorporated by
reference.
/9/ Filed as an exhibit to Registrant's Form 10-K for the period ended
- --- September 30, 1988 (File No. 0-14427), and incorporated by reference.
/11/ Filed as an exhibit to Registrant's Form 10-K for the period ended
- ---- September 30, 1989 (File No. 0-14427), and incorporated by reference.
/14/ Filed as an exhibit to Registrant's Form 10-K for the period ending
- --- September 30, 1991 (File No. 0-14427), and incorporated by reference.
/16/ Filed as an exhibit to Registrant's Form 10-K for the transition
- --- period ending June 30, 1992 (File No. 0-14427), and incorporated by
reference.
/17/ Filed as an exhibit to Registrant's Registration Statement on Form S-1
- --- (Registration No. 33-54230), and incorporated by reference.
/19/ Filed as an Exhibit to Registrant's Form 8-K dated August 19, 1993
- ---- (File No. 0-14427) and incorporated by reference.
/20/ Filed as an exhibit to Registrant's Post Effective Amendment No. 2 to
- --- Registration Statement on Form S-1 (Registration No. 33-54230), and
incorporated by reference.
/21/ Filed as an exhibit to Registrant's Post Effective Amendment No. 3 to
- --- Registration Statement on Form S-1 (Registration No. 33-54230), and
incorporated by reference.
/23/ Filed as an exhibit to Registrant's Form 8-K dated June 23, 1994 filed
- --- on June 28,1994 (File No. 0-14427), and incorporated by reference.
/25/ Filed as an exhibit to Registrant's Form 10-K for the period ending
- --- June 30, 1994 (File No. 0-14427), and incorporated by reference.
/26/ Filed as an exhibit to Registrant's Form 8-K dated November 14, 1994
- --- and filed on January 27, 1995 (File No. 0-14427), and incorporated by
reference.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/28/ Filed as an exhibit to Registrant's Form 8-K dated September 7, 1995
- --- and filed effective September 22, 1995 (File No. 0-14427), and
incorporated by reference.
/29/ Filed as an exhibit to Registrant's Form 10-KSB for the period ending
- --- June 30, 1995 (File No. 0-14427), and incorporated by reference.
/33/ Filed as an exhibit to Registrant's Form 8-K dated August 28, 1996
- --- (File No. 0-14427), and incorporated by reference.
/34/ Filed as an exhibit to Registrant's Form 10-KSB for the period ending
- --- June 30, 1997 (File No. 0-14427), and incorporated by reference.
/35/ Filed as an exhibit to Registrant's Form 8-K dated February 18, 1998
- ---- and filed March 2, 1998 (File No. 0-14427), and incorporated by
reference.
/36/ Filed as an exhibit to Registrant's Form 8-K dated March 2, 1998 and
- --- filed March 12, 1998 (File No. 0-144227), and incorporated by
reference.
/37/ Filed as an exhibit to Registrant's Registration Statement on Form S-3
- --- (Registration No. 333-51835), and incorporated by reference.
/38/ Filed as an exhibit to Registrant's Form 10-KSB for the period ending
- --- June 30, 1998 (File No. 0-14427), and incorporated by reference.
/39/ Filed as an exhibit to Registrant's Form 8-K dated August 28, 1998 and
- --- filed December 7, 1998 (File No. 0-144227), and incorporated by
reference.
/40/ Filed as an exhibit to Registrant's Form 8-K dated December 29, 1998
- --- and filed January 15, 1999 (File No. 0-144227), and incorporated by
reference.
/41/ Filed as an exhibit to Registrant's Registration Statement on Form S-3
- --- (Registration No. 333-71705), and incorporated by reference.
/42/ Filed as an exhibit to Registrant's Form 8-K dated January 28, 1999
- --- and filed February 5, 1999 (File No. 0-144227), and incorporated by
reference.
/43/ Filed as an exhibit to Registrant's Form 8-K dated July 30, 1999 and
- --- filed August 10, 1999 (File No. 0-144227), and incorporated by
reference.
/44/ Filed as an exhibit to Registrant's Form 8-A filed September 21, 1999,
- --- and incorporated by reference.
</TABLE>
(b) No reports on Form 8-K were filed by the Registrant during the three-month
period ended June 30, 1999, the last quarter of the period covered by this
Annual Report on Form 10-KSB.
(c) Exhibits:
4.37 Certificate of Designation of the Series B Junior Participating
Preferred Stock
10.140 Agreement dated as of June 28, 1999 between and among Registrant,
AmeriVision Outdoor, Inc., AmeriVision Outdoor, LLC, Michael T.
Barr, Joe W. Brown, William W. Byrd and George Whitlow
24
<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 amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
By: /s/ J. William Brandner
--------------------------------------
J. William Brandner, President
(Chief Executive Officer) and Director
September 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report had been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: By: /s/ Lester Jacobs
----------------------------------- --------------------------
J. Melvin Stewart, Chairman of Lester Jacobs, Director
the Board and Director September 28, 1999
September , 1999
By: /s/ Gary J. Arnold By: /s/ Terry J. Long
----------------------------------- --------------------------
Gary J. Arnold, Director Terry J. Long, Director
September 28, 1999 September 27, 1999
By: /s/ Gary D. Bell By: /s/ Lou A. Papais
----------------------------------- --------------------------
Gary D. Bell, Director Lou A. Papais, Director
September 28, 1999 September 27, 1999
By: /s/ Edwin M. Freakley By: /s/ William A. Retz
----------------------------------- --------------------------
Edwin M. Freakley, Director William A. Retz, Director
September 27, 1999 September 28, 1999
By: By:
----------------------------------- --------------------------
Thomas N. Grant, Director Robert M. Smither, Jr., Director
September , 1999 September , 1999
By: By: /s/ Todd D. Thrasher
----------------------------------- --------------------------
Kevin L. Jackson, Director Todd D. Thrasher
September 28, 1999 Vice President and Treasurer
(Chief Financial Officer)
September 27, 1999
By: /s/ Larry L. Johnson
-----------------------------------
Larry Johnson, Director
September 27, 1999
25
<PAGE>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
Index to Financial Statements
<TABLE>
<CAPTION>
<S> <C>
DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants.............................. F-2
Consolidated Balance Sheet as of June 30, 1999.................................. F-3
Consolidated Statements of Income for the years ended June 30, 1999 and 1998.... F-4
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1999 and 1998........................................................ F-5
Consolidated Statement of Cash Flows for the years ended June 30, 1999 and 1998. F-6
Notes to Consolidated Financial Statements...................................... F-7
</TABLE>
F-1
<PAGE>
Display Technologies, Inc.
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Display Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Display
Technologies, Inc. and subsidiaries as of June 30, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the two years in the period ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Display
Technologies, Inc. and subsidiaries as of June 30, 1999, and the results of
their operations and their cash flows for each of the two years in the period
ended June 30, 1999 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Orlando, Florida
August 24, 1999
F-2
<PAGE>
Display Technologies, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30 1999
- --------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Current Assets
Cash $ 79,832
Accounts receivable:
Trade, less allowance for doubtful accounts of $309,543 10,977,251
Other 1,747,635
Inventories 6,084,709
Costs and estimated earnings in excess of billings on uncompleted contracts in progress 4,442,012
Prepaid expenses 859,371
Deferred income tax 133,000
- --------------------------------------------------------------------------------------------------------
24,323,810
- --------------------------------------------------------------------------------------------------------
Property, plant and equipment, less accumulated depreciation 7,947,010
- --------------------------------------------------------------------------------------------------------
Other assets
Intangibles, less accumulated amortization 11,283,095
Equity investments 500,000
Other 1,301,729
- --------------------------------------------------------------------------------------------------------
13,084,824
- --------------------------------------------------------------------------------------------------------
$45,355,644
========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 4,833,042
Customer deposits 785,391
Accrued expenses 2,762,897
Billings in excess of costs and estimated earnings on uncompleted contracts in progress 191,304
Current maturities of long-term debt 781,926
Current portion of obligations under capital leases 336,096
- --------------------------------------------------------------------------------------------------------
9,690,656
- --------------------------------------------------------------------------------------------------------
Non-current liabilities
Line of credit 5,302,630
Long-term debt, less current maturities 9,108,519
Obligations under capital leases, less current portion 962,483
Deferred income taxes 170,000
Other 169,876
- --------------------------------------------------------------------------------------------------------
15,713,508
- --------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock; $.001 par value; authorized 50,000,000 shares; issued and outstanding
6,302,544 shares 6,303
Additional paid-in capital 18,999,292
Retained earnings 945,885
- --------------------------------------------------------------------------------------------------------
19,951,480
- --------------------------------------------------------------------------------------------------------
$45,355,644
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
Display Technologies, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $66,135,714 $32,478,018
Cost of sales 43,912,587 19,688,873
- --------------------------------------------------------------------------------------------------------
Gross profit 22,223,127 12,789,145
Operating expenses
Selling expenses 10,241,634 4,973,451
General and administrative expenses 7,182,385 5,305,649
- --------------------------------------------------------------------------------------------------------
17,424,019 10,279,100
- --------------------------------------------------------------------------------------------------------
Income from operations 4,799,108 2,510,045
Other income (expense)
Interest income 72,156 94,812
Interest expense (1,235,483) (486,460)
Gain on disposal of property and equipment 46,872 4,649
Miscellaneous income - 79,895
- --------------------------------------------------------------------------------------------------------
(1,116,455) (307,104)
- --------------------------------------------------------------------------------------------------------
Income before income taxes 3,682,653 2,202,941
Income tax expense 1,438,000 615,000
- --------------------------------------------------------------------------------------------------------
Net income $ 2,244,653 $ 1,587,941
========================================================================================================
Earnings per common share
Basic $ 0.40 $ 0.38
Diluted $ 0.33 $ 0.30
========================================================================================================
Weighted average number of shares outstanding
Basic 5,632,633 4,163,208
Diluted 7,555,053 5,658,925
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
Display Technologies, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained Earnings Total
Number Par Paid-In (Accumulated Stockholders'
Of Shares Value Capital Deficit) Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 3,310,869 $3,311 $ 5,809,832 $ (989,140) $ 4,824,003
Issuance of five percent stock dividend 167,885 168 577,356 (577,524) -
Issuance of stock for acquisition of Ad Art 810,000 810 3,336,390 - 3,337,200
Sales of common stock, net 231,482 232 969,768 - 970,000
Exercise of stock options and warrants, net 322,396 322 548,398 - 548,720
Issuance of stock options and warrants - - 124,250 - 124,250
Stock contributed to 401(k) plan 35,845 36 101,812 - 101,848
Stock issued for employee bonuses 13,047 13 33,387 - 33,400
Net income - - - 1,587,941 1,587,941
- --------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 4,891,524 4,892 11,501,193 21,277 11,527,362
Issuance of five percent stock dividend 248,596 249 1,319,796 (1,320,045) -
Contingent stock earn-out for acquisition - - 2,206,827 - 2,206,827
Exercise of stock options and warrants, net 1,086,254 1,086 2,818,975 - 2,820,061
Tax benefit on exercise of options and warrants - - 743,000 - 743,000
Issuance of stock options - - 76,950 - 76,950
Stock contributed to 401(k) plan 58,015 58 271,295 - 271,353
Stock issued for employee bonuses 18,155 18 61,256 - 61,274
Net income - - - 2,244,653 2,244,653
- --------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 6,302,544 $6,303 $18,999,292 $945,885 $19,951,480
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Display Technologies, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,244,653 $ 1,587,941
Adjustments to reconcile net income to net cash used for operating activities:
Depreciation and amortization 1,068,896 666,941
Gain on disposal of property, plant and equipment (46,872) (4,649)
Contribution of common stock to 401(k) plan 271,353 101,848
Change in deferred income taxes 733,000 (137,656)
Tax benefit on options and warrants exercised 743,000 -
Other (64,901) -
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (4,098,419) (1,992,004)
Other receivables (1,139,886) (43,655)
Inventories (4,595,192) (550,953)
Prepaid expenses 131,261 (240,100)
Accounts payable 2,015,944 (1,079,715)
Customer deposits (461,665) 754,520
Accrued expenses (864,790) (88,771)
Sales-type lease receivable (1,251,602) -
Other 278,147 -
- -----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (5,037,073) (1,026,253)
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (1,542,694) (882,813)
Business acquisitions, net of cash acquired - (3,004,568)
Proceeds from sale of property, plant and equipment 87,926 19,470
Investment in equity securities (500,000) -
Other (7,114) -
- -----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,961,882) (3,867,911)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net change in line of credit borrowings 2,343,435 (62,048)
Proceeds from issuance of long term debt 3,223,817 3,827,077
Principal payments on long term debt (1,550,407) (114,458)
Proceeds from sales of stock (including option and warrant exercises), net 2,821,316 1,518,720
Payments on capital lease obligations (265,886) (108,265)
Payment of fees for long-term debt (29,795) (142,630)
Other financing activities (1,257) 282,019
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,541,223 5,200,415
- -----------------------------------------------------------------------------------------------------------
Net increase(decrease) in cash (457,732) 306,251
Cash, beginning of year 537,564 231,313
- -----------------------------------------------------------------------------------------------------------
Cash, end of year $ 79,832 $ 537,564
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Nature of Business
The Company designs, manufactures, installs and services hi-tech electronic
computer driven video displays, message centers, scoreboards, and business
identity signs.
Principles of Consolidation
The consolidated financial statements include the accounts of Display
Technologies, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Inventories are valued at the lower of first-in, first-out (FIFO) cost or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line method.
Intangible Assets
Intangible assets are amortized using the straight-line method over their
estimated useful lives.
Impairments
Assets are evaluated for impairment when events change or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. When any such impairment exists, the related assets are written
down to fair value.
Revenue Recognition
The Company recognizes revenue on long-term construction contracts under the
percentage-of-completion method, measured by the percentage of contract costs
incurred to estimated total costs for each contract. Contract costs include all
direct material and labor costs and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Profit is included in revenues when its realization is reasonably assured.
Leasing Activities
The Company leases certain of its signs to customers under long-term
noncancellable leases which are accounted for as sales-type leases. The present
value of the minimum rentals to be received under such leases is recorded
currently as net sales revenue. The cost of the leased property is charged
against income at the time the sale is recorded.
Income Taxes
Income tax expense or benefit includes both current and deferred state and
federal income taxes. Deferred income taxes are provided for temporary
differences in the recognition of income and expense for financial reporting and
income tax purposes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets, liabilities
and tax carry forwards that will result in taxable or deductible amounts in
future periods based upon enacted tax laws and rates applicable to the periods
in which the differences are expected to affect taxable income. Deferred tax
liabilities are recognized when incurred; deferred tax assets, when necessary,
are reduced by a valuation allowance and recognized when it is more likely than
not that the asset will be realized.
Stock Based Compensation
The Company accounts for stock based compensation under the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As permitted by SFAS 123, the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for stock based compensation to employees.
Stock options granted to non-employees are valued using a Black-Scholes option
pricing model with appropriate assumptions for risk free investment rates,
expected lives, dividend yields and volatility factors. The value of options
granted to non-employees is charged to appropriate asset or expense accounts
when the options are granted.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of June 30, 1999. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash, trade
receivables, accounts payable and accrued expenses. The fair value of the
Company's long-term debt is estimated based upon the quoted market prices for
the same or similar issues or on the current rates offered to the Company for
debt of the same remaining maturities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Note 2. Acquisitions
On February 18, 1998, the Company acquired all of the outstanding common stock
of Electronic Sign Corporation (dba Ad Art) ("Ad Art") in exchange for 810,000
shares of the Company's $.001 par value common stock valued at $3,337,200 and
$3,000,000 in cash. Other costs of the acquisition, including legal and other
fees, totaled $277,800. An additional 560,464 shares of the Company's $.001 par
value common stock (the "contingent shares") were issued to certain former
owners of Ad Art subsequent to June 30, 1999. These contingent shares were
issuable at a rate of approximately 49,000 shares for each $100,000 of after tax
income for fiscal 1999 in excess of $1.4 million up to the maximum of 567,000
shares to be issued for after tax income of $2.4 million or higher. The value
of the contingent shares was accounted for in additional paid in capital until
they were issued in September 1999. The acquisition was recorded using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market values. The
excess of the purchase price over the estimated fair value of the net assets
acquired amounted to $8,206,827, which has been accounted for as goodwill and is
being amortized over its estimated life of 40 years. The operating results of
Ad Art are included in the Company's consolidated results of operations from the
date of acquisition.
The following unaudited pro-forma summary presents the consolidated results of
operations as if the acquisition of Ad Art had occurred at the beginning of the
period presented and does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or of results which may
occur in the future.
<TABLE>
<CAPTION>
Year ended June 30 1998
<S> <C>
- -------------------------------------------------
Net sales $52,546,000
Net income $ 1,170,000
Earnings per share
Basic $ .22
Diluted $ .19
=================================================
</TABLE>
Note 3. Inventories
Inventories at June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------
<S> <C>
Raw materials $3,849,215
Work in process 2,089,337
Finished goods 146,157
- -------------------------------------------------
$6,084,709
=================================================
</TABLE>
Note 4. Property, Plant and Equipment
Property, plant and equipment at June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives
<S> <C> <C>
- ---------------------------------------------------------
Land $ 1,518,635
Buildings and improvements 15-30 years 3,352,258
Machinery and equipment 5-10 years 2,613,966
Office equipment and furniture 5-10 years 2,186,310
Transportation equipment 3-5 years 885,534
Signs held for lease 11 years 255,527
- ---------------------------------------------------------
10,812,230
Less accumulated depreciation (2,865,220)
- ---------------------------------------------------------
$ 7,947,010
=========================================================
</TABLE>
Depreciation expense for the years ended June 30, 1999 and 1998 was $786,089 and
$507,088, respectively.
Note 5. Intangible Assets
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
Estimated Lives
- ----------------------------------------------------
<S> <C> <C>
Patents 5 years $ 227,528
Debt fees 7 - 15 years 689,213
Goodwill 40 years 11,155,787
- ----------------------------------------------------
12,072,528
Less accumulated amortization (789,433)
- ----------------------------------------------------
$11,283,095
====================================================
</TABLE>
Amortization expense for the years ended June 30, 1999 and 1998 was $282,807 and
$159,853, respectively.
Note 6. Net Investment in Sales-Type Leases
The Company is the lessor of a variety of signs and advertising display units
under agreements expiring through 2005. The Company accounts for these leases as
sales-type leases. At June 30, 1999, the net investment in sales-type leases
consists of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
<S> <C>
Total minimum lease payments to be received $1,656,968
Less unearned income 305,722
- ---------------------------------------------------------
Net investment in sales-type leases $1,351,246
=========================================================
</TABLE>
The following is a schedule of minimum lease payments to be received as of June
30, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
<S> <C>
2000 $ 401,869
2001 351,594
2002 311,275
2003 303,424
2004 266,806
Thereafter 22,000
- ---------------------------------------------------------
$1,656,968
=========================================================
</TABLE>
F-8
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Note 7. Costs and Estimated Earnings in Excess of Billings on Uncompleted
Contracts in Progress
Costs and estimated earnings on uncompleted contracts consists of the following
at June 30, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------
<S> <C>
Costs incurred on uncompleted contracts $ 5,851,502
Estimated earnings 3,441,933
- ------------------------------------------------------
9,293,435
Billings to date (5,042,727)
- ------------------------------------------------------
$ 4,250,708
======================================================
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<S> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts in progress $4,442,012
Billings in excess of costs and estimated earnings
on uncompleted contracts in progress (191,304)
- -----------------------------------------------------------------
$4,250,708
=================================================================
</TABLE>
Note 8. Accrued Expenses
Accrued expenses at June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
<S> <C>
Payroll and benefits $1,759,310
Warranty 371,646
Taxes 174,867
Professional fees 121,709
Other 335,365
- ----------------------------------------------------------------
$2,762,897
================================================================
</TABLE>
Note 9. Lines of Credit
The Company has a $10 million revolving line of credit with a national bank.
The line of credit bears interest, at the Company's option, at either (a) three
quarters of a percent over the bank's prime rate or (b) 325 basis points over
LIBOR and matures June 30, 2002. At June 30, 1999, the interest rate was 8.35%.
The line of credit is secured by eligible receivables and inventory and is
cross-collateralized with the two letters of credit from the same lender and the
$4,890,000 in notes payable secured by the letters of credit. As of June 30,
1999, $5,302,630 was borrowed against this line of credit. This line of credit
contains certain financial and operating covenants. The Company was in
compliance with all covenants at June 30, 1999.
Note 10. Long-Term Debt
Long term debt at June 30, 1999 is summarized as follows:
<TABLE>
- -----------------------------------------------------------------
<S> <C>
Notes payable secured by a letter of credit with
a national bank, variable interest rate plus 1%
letter of credit fee (effective rate at June 30,
1999 was 6.21%), secured by substantially all
the assets of the Company, and cross
collateralized with and covered by the same
covenants as the line of credit with the same
national bank, interest due monthly with annual
principal payments due in varying amounts
each May through 2014. $ 2,500,000
Notes payable secured by a letter of credit with
a national bank, variable interest rate plus 1%
letter of credit fee (effective rate at
June 30, 1999 was 6.31%), secured by
substantially all assets of the Company,
subsidiary guarantees, and cross-collateralized
with and covered by the same covenants as
the line of credit with the same national bank,
interest due monthly with annual principal
payments due in varying amounts each August
through 2012. 2,390,000
Term note payable to a national bank, variable
interest rate at prime plus 1 3/4% (effective
rate at June 30, 1999 was 9.75%), secured by
substantially all the assets of the Company,
subsidiary guarantees and cross collateralized
with and covered by the same covenants as
the line of credit with the same national bank,
monthly principal payments of $27,778, plus
interest , matures June 2002. 972,222
8.75% convertible subordinated debentures,
convertible into the Company's $.001 par value
common stock at $4.52 per share, secured by
substantially all assets of the Company and
subsidiary guarantees, but subordinated to
bank debt, interest due monthly, monthly
principal payments begin March 2, 2001 at the
rate of 1% of the outstanding principal balance,
final balloon payment due March 2, 2005. 3,500,000
8% unsecured convertible note payable,
convertible into the Company's $.001 par value
common stock at $4.31 per share, interest due
semi-annually with annual principal payments
of $250,000 due September 1999 and 2000. 500,000
Other 28,222
- -----------------------------------------------------------------
9,890,444
Less current portion (781,926)
- -----------------------------------------------------------------
Total $9,108,519
=================================================================
</TABLE>
F-9
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Aggregate maturities of long-term debt over future years are as follows: 2000 -
$781,926; 2001 - $980,257; 2002 - $1,015,376; 2003 - $695,298; 2004 - $712,588
and thereafter - $5,705,000.
Note 11. Commitments
Leases
The Company conducts its operations partially from leased facilities. These
leases are classified as operating leases and expire on various dates through
2005.
The Company also leases equipment under capital leases which expire on various
dates through 2004. The total capitalized cost for this equipment is $1,572,335
with accumulated depreciation of $274,324 as of June 30, 1999.
As of June 30, 1999, future net minimum lease payments under capital leases and
future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending June 30 Leases Leases
- ----------------------------------------------------------
<S> <C> <C>
2000 $ 478,308 $1,314,851
2001 464,352 1,177,700
2002 388,056 809,133
2003 195,845 530,338
2004 94,076 461,395
Thereafter - 107,926
- ----------------------------------------------------------
1,620,637 $4,401,343
==========
Less amount representing interest 322,058
- ----------------------------------------------
Present value of minimum
lease payments $1,298,579
==============================================
</TABLE>
Rental expense for the years ended June 30, 1999 and 1998 was approximately
$1,348,000 and $736,000, respectively.
Employment Agreements
The Company has entered into employment agreements expiring at various dates
through the year 2001. As of June 30, 1999, the Company's total noncancellable
obligation under all employment contracts is approximately $1,100,000.
Note 12. Income Taxes
The components of deferred tax assets and liabilities consist of the following
as of June 30, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
<S> <C>
Deferred tax assets
Accruals and reserves $ 357,000
Accounts receivable 32,000
Net operating loss and other tax carry forwards 727,000
Customer deposits 37,000
Intangible assets 6,000
- -------------------------------------------------------------
Total deferred tax assets 1,159,000
Deferred tax liabilities
Sales-type lease receivables (111,000)
Inventory (524,000)
Plant and equipment (561,000)
- -------------------------------------------------------------
Net deferred tax liability $ (37,000)
=============================================================
</TABLE>
Significant components of the income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Current
Federal $ 610,000 $ 632,000
State 95,000 120,000
- -------------------------------------------------------------
705,000 752,000
- -------------------------------------------------------------
Deferred
Federal 669,000 (117,000)
State 64,000 (20,000)
- -------------------------------------------------------------
733,000 (137,000)
- -------------------------------------------------------------
$1,438,000 $ 615,000
=============================================================
</TABLE>
At June 30, 1999, the Company had unused federal tax net operating losses (NOLs)
to carry forward against future years' taxable income of approximately
$2,140,000 expiring in various amounts from 2006 to 2013. As a result of the
consummation of the Company's public offering and certain acquisitions, the use
of these NOLs will be limited each year under the provisions of Section 382 of
the Internal Revenue Code of 1986, as amended and the provisions of Treasury
Regulation 1.1502-21 regarding Separate Return Limitation years as follows:
<TABLE>
<CAPTION>
Maximum NOL
Year ending June 30 Available
- -------------------------------------------------------------
<S> <C>
2000 $ 801,000
2001 316,000
2002 316,000
2003 316,000
2004 316,000
Thereafter 75,000
- -------------------------------------------------------------
$2,140,000
=============================================================
</TABLE>
F-10
<PAGE>
The following summary reconciles the difference between the federal statutory
rate and the reported effective rate:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Federal taxes on income at statutory rates 34% 34%
Goodwill 2% 2%
State taxes 3% 2%
Reduction of deferred tax asset
valuation allowance - (14%)
Other - 4%
- -------------------------------------------------------------
Taxes on income at effective rates 39% 28%
=============================================================
</TABLE>
Note 13. Capital Stock
On June 29, 1994, the Board of Directors adopted the amended and restated 1994
Employee and Consultant Stock Compensation Plan ("the 1994 plan"). The 1994 plan
provides for the issuance of up to 2,546,775 shares of the Company's common
stock to employees and consultants of the Company. Options granted under the
plan are not permitted to have a term in excess of ten years.
On November 4, 1992, the Board of Directors adopted the 1992 Stock Option and
Appreciation Rights Plan ("the 1992 plan"). The 1992 plan provides for the
issuance of up to 665,635 shares of the Company's common stock to employees,
officers, directors and consultants of the Company. Options granted to
employees or directors under this plan must have an exercise price equal to or
greater than 85% of the fair value of the stock on the date of grant and cannot
have a term in excess of 10 years.
On April 25, 1988, the Company adopted the 1988 Incentive Stock Option Plan
("the 1988 plan"). The 1988 plan provides for the issuance of up to 192,937
shares of the Company's common stock to employees of the Company. Options
granted under this plan must have an exercise price equal to or greater than the
fair value of the stock on the date of grant and are not exercisable until 18
months from the date of grant.
On July 1, 1998, the Company entered into an agreement with an investor
relations firm, and separate from each of the above established plans, issued an
option to purchase up to 78,750 shares of the Company's common stock at a price
of $3.10 per share, 31,500 shares at a price of $3.57 per share, and 31,500
shares at a price of $4.29 per share. As of June 30, 1999, all 141,750 options
were exercisable.
On March 2, 1998, in connection with the issuance of the 8.75% convertible note
payable, the Company issued a stock purchase warrant to the lender separate from
each of the above agreements. The stock purchase warrant entitles the holder to
purchase up to 210,000 shares of the Company's common stock at a price of $4.11
per share. As of June 30, 1999, all 210,000 warrants were exercisable.
Also on March 2, 1998, in connection with consulting services received for the
acquisition of Ad Art, the Company issued a stock purchase warrant to a
consulting firm separate from each of the above agreements. The stock purchase
warrant entitles the holder to purchase up to 78,750 shares of the Company's
common stock at a price of $4.11 per share. As of June 30, 1999, all 78,750
warrants were exercisable.
On March 18, 1997, the Company entered into an agreement with an investor
relations firm and, separate from each of the above established plans, issued an
option to purchase up to 55,125 shares of the Company's common stock at an
exercise price of $1.40 per share. On August 29, 1997, the Company extended
the agreement with this investor relations firm and issued an option to purchase
up to an additional 55,125 shares of the Company's common stock at an exercise
price of $2.50 per share. As of June 30, 1999, all 110,250 of the options
issued to this investor relations firm were exercisable.
On November 22, 1996 the Company entered into an agreement with an investment
banking firm and, separate from each of the above established plans, issued
warrants to purchase up to 210,000 shares of the Company's common stock at an
exercise price of $1.74 per share. These warrants were exercised during fiscal
1998 for total proceeds to the Company of $365,400.
All stock options and warrants issued during 1999 and 1998 pursuant to the above
plans and agreements were issued with an exercise price that approximated the
fair market value of the stock on the date of grant. A summary of the status of
the Company's stock options and warrants for the plans and agreements discussed
above as of June 30, 1999 and 1998 and changes during the years ended on those
dates (as restated for stock dividends) is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
- ---------------------------------------------------
<S> <C> <C>
Outstanding - June 30, 1997 1,718,357 $0.87
Granted 604,800 3.72
Exercised (342,368) 1.41
Forfeited (13,661) 1.02
- --------------------------------------------------
Outstanding - June 30, 1998 1,967,128 1.65
Granted 797,750 3.76
Exercised (479,394) 0.69
Forfeited (28,471) 1.70
- --------------------------------------------------
Outstanding - June 30, 1999 2,257,013 $2.60
==================================================
</TABLE>
F-11
<PAGE>
Notes to Consolidated Financial Statements
The following table summarizes stock options and warrants issued under the plans
and agreements discussed above outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Average Average
Exercise Exercise Remaining
Price Outstanding Price Contractual Life
- -------------------------------------------------------
<S> <C> <C> <C>
$0.44-0.91 695,991 $0.60 1.1 years
1.13-2.91 290,772 1.88 3.3 years
3.10-3.84 840,000 3.47 7.1 years
4.11-6.00 430,250 4.61 3.6 years
- -------------------------------------------------------
$0.44-6.00 2,257,013 $2.60 4.1 years
=======================================================
</TABLE>
As of June 30, 1998 1,928,540 options and warrants were exercisable under the
plans and agreements discussed above at a weighted average exercise price of
$1.62. As of June 30, 1999 1,385,760 options and warrants were exercisable
under the plans and agreements discussed above at a weighted average exercise
price of $1.83 as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Average Average
Exercise Exercise Remaining
Price Exercisable Price Contractual Life
- -------------------------------------------------------
<S> <C> <C> <C>
$0.44-0.91 695,988 $0.60 1.1 years
1.13-3.10 369,522 2.14 3.0 years
4.11-4.32 320,250 4.17 3.6 years
- -------------------------------------------------------
$0.44-4.32 1,385,760 $1.83 2.2 years
=======================================================
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
stock based compensation to employees. Accordingly, no compensation expense has
been recognized for stock based compensation issued to employees. Had
compensation cost for the Company's stock based compensation issued to employees
been determined based upon the fair value at the grant date consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the Company's proforma net
income for 1999 and 1998 would have been $1,761,228 and $1,406,357,
respectively. Proforma basic earnings per share would have been $.31 for 1999
and $.33 for 1998 and diluted earnings per share would have been $.26 and $.27
for 1999 and 1998, respectively.
The weighted average fair value of options granted during 1999 and 1998 was
estimated at $1.17 and $0.86 per share, respectively, based upon the Black-
Scholes option-price model with the following weighted average assumptions: 5%
dividend yield, expected volatility of 40%, risk-free interest rate of 6% and
expected life of 6.9 years for 1999 and 2.9 years for 1998.
On January 13, 1994 in conjunction with a public offering of the Company's
common stock, the Company issued 620,000 common stock purchase warrants with an
exercise price of $4.32 per share. During fiscal 1999, 537,370 of these warrants
were exercised, resulting in proceeds to the Company of $2,315,281, net of
$6,157 in redemption costs on the unexercised warrants.
In conjunction with the same public offering, the Company issued an option to
purchase 35,887 "units", each unit consisting of two shares of common stock and
two nonredeemable common stock purchase warrants, for a price of $6.86 per unit.
Each common stock purchase warrant obtainable under this option entitles the
holder to purchase one share of common stock at a price of $4.95. During fiscal
1999, these units were exercised resulting in proceeds to the Company of
$245,826. The purchase warrants included in the units expire on December 31,
1999. As of June 30, 1999 71,774 warrants were exercisable.
Note 14. Employee Benefit Plan
The Display Technologies, Inc. 401(k) profit sharing plan covers all employees
with more than six months of service and allows employees to defer up to 15% of
their income and contribute to the plan. The Company contributes to the plan at
a discrectionary matching rate of 50% of the first six percent contributed by
the employee. Company contributions to the plan are in the form of the Company's
common stock. The Company issued to the 401(k) plan in fiscal years 1999 and
1998, 58,015 and 35,845 shares of the Company's common stock at an average price
of $4.68 and $2.84 per share, respectively.
Note 15. Earnings Per Share
Diluted earnings per share for 1999 and 1998 (as restated for stock dividends)
is calculated as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Net Income $2,244,653 $1,587,941
Convertible debt interest, net 225,932 119,177
- ---------------------------------------------------------
Net income for purposes of
calculating diluted
earnings per share $2,470,585 $1,707,118
=========================================================
Basic weighted average shares 5,632,633 4,163,208
Convertible securities 890,077 431,736
Dilutive options and warrants 887,879 1,063,981
Other 144,464 -
- ---------------------------------------------------------
Diluted weighted average shares 7,555,053 5,658,925
=========================================================
Diluted earnings per share $ .33 $ 0.30
=========================================================
</TABLE>
F-12
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Note 16. Industry Segments
The Company's operations are classified into two business segments: image
enhancement displays ("displays") and other.
The display segment markets and produces custom designed and stock sign products
which are specifically designed for internal and external use by institutional,
governmental and commercial enterprises. The display segment also provides
peripheral services on the sign products such as installation, maintenance and
service.
Operations within the other segment include the manufacture and sale of a line
of products which, when installed in compressed air lines, substantially reduce
or totally eliminate water and condensate problems and most foreign contaminants
in the air line.
The following table shows sales and operating income from continuing operations
and other financial information by segment as of and for the years ended June
30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
Sales to External Customers
Displays $64,541,680 $30,686,361
Other 1,594,034 1,791,657
- ---------------------------------------------------------------
$66,135,714 $32,478,018
===============================================================
Operating Income
Displays $ 6,118,084 $ 3,201,907
Other 306,783 490,792
Corporate expenses (1,625,759) (1,182,654)
- ---------------------------------------------------------------
$ 4,799,108 $ 2,510,045
===============================================================
Depreciation and Amortization
Displays $ 965,359 $ 590,443
Other 44,388 43,187
Corporate 59,149 33,311
- ---------------------------------------------------------------
$ 1,068,896 $ 666,941
===============================================================
Interest Income
Displays $ 72,156 $ 94,812
Other - -
Corporate - -
- ---------------------------------------------------------------
$ 72,156 $ 94,812
===============================================================
Interest Expense
Displays $ 620,318 $ 189,908
Other 35 632
Corporate 615,130 295,920
- ---------------------------------------------------------------
$ 1,235,483 $ 486,460
===============================================================
Identifiable Assets
Displays $41,850,698 $28,418,273
Other 1,007,339 1,053,464
Corporate 2,497,607 1,322,871
- ---------------------------------------------------------------
$45,355,644 $30,794,608
===============================================================
Capital Expenditures
Displays $ 2,631,509 $ 836,230
Other 25,118 39,509
Corporate 46,465 7,074
- ---------------------------------------------------------------
$ 2,703,092 $ 882,813
===============================================================
</TABLE>
F-13
<PAGE>
Display Technologies, Inc.
Notes to Consolidated Financial Statements
Note 17. Supplemental Cash Flow Information
The Company paid $1,232,301 and $511,753 for interest and $1,552,389 and $4,440
for income taxes for the years ended June 30, 1999 and 1998, respectively.
The following summarizes noncash investing and financing transactions:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------
<S> <C> <C>
Equity issued for acquisition
of Ad Art $2,206,827 $3,372,450
Debt refinancing $ - $2,005,318
Issuance of five percent stock
dividend $1,320,045 $ 577,524
Non-cash purchase of fixed assets $1,160,398 $ -
Fees on long-term debt paid from
debt proceeds $ 276,183 $ 167,605
Common stock contributed to
401(k) plan $ 271,353 $ 101,848
Issuance of stock warrants for fees
on long-term debt $ - $ 73,000
Stock issued for employee bonuses $ 61,274 $ 33,400
Issuance of stock options for
prepaid investment services $ 76,950 $ 16,000
==============================================================
</TABLE>
Note 18. Stock Dividend
On October 29, 1998, the Company authorized a five percent stock dividend to be
issued November 30, 1998 to holders of record on November 16, 1998. The
dividend resulted in the issuance of an additional 248,596 shares of the
Company's $.001 par value common stock, plus cash payments of $1,257 in lieu of
issuing fractional shares. Earnings per share for the year ended June 30, 1998
has been retroactively restated to reflect the effects of the stock dividend.
On October 30, 1997, the Company authorized a five percent stock dividend to be
issued December 1, 1997 to holders of record on November 14, 1997. The dividend
resulted in the issuance of an additional 167,885 shares of the Company's $.001
par value common stock. Earnings per share reflects the effects of this stock
dividend.
Note 19. Subsequent Events
On July 30, 1999, the Company acquired all of the outstanding common stock of
Lockwood Sign Group, Inc. ("Lockwood") in exchange for 415,000 shares of the
Company's $.001 par value common stock valued at $1,909,000 and $1,900,000 in
cash. Additional common stock will be contingently issuable should the market
price of the Company's common stock not exceed $4.60 per share for any
consecutive 20-day period through July 30, 2000. The highest consecutive 20-day
average share price through August 23, 1999 was $3.86 per share, and the
contingent liability was approximately 80,000 shares. An additional 285,000
shares of the Company's $.001 par value common stock (the "contingent shares")
are issuable on a pro-rata basis if Lockwood's net income for the year ending
June 30, 2000 is between $350,000 and $625,000. The contingent shares are
issuable at a rate of approximately 25,909 shares for each $25,000 of net income
in excess of $350,000 up to the maximum of 285,000 shares to be issued for net
income of $625,000 or higher. The acquisition will be recorded using the
purchase method of accounting. Accordingly, the purchase price will be allocated
to the net assets acquired based upon their estimated fair market values. The
excess of the purchase price over the estimated fair value of the net assets
acquired will be accounted for as goodwill and will be amortized over its
estimated life of 40 years.
On July 27, 1999, the Company sold 50,000 shares of its preferred stock in a
private placement for a total of $5,000,000. The preferred shares pay a
dividend of 5 1/4%, are convertible into the Company's $.001 par value common
stock at $3.50 per share and are redeemable on July 30, 2004.
Note 20. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. FAS 133 is effective for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivative
contracts. Accordingly, FAS 133 is not expected to affect the Company's
financial statements.
F-14
<PAGE>
Exhibit 4.37
------------
DISPLAY TECHNOLOGIES, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES B JUNIOR PARTICIPATING
PREFERRED STOCK
(Pursuant to Section 78.1955
of the Nevada General Corporation Law)
We, J. William Brandner, the President and Chief Executive Officer and
Marshall S. Harris, Vice President, Secretary and General Counsel of Display
Technologies, Inc., a corporation organized and existing under the General
Corporation Law of the State of Nevada (the "Corporation"), in accordance with
the provisions of Section 78.1955 thereof, do hereby certify;
That pursuant to the authority conferred upon the Board of Directors by the
Corporation's Restated Articles of Incorporation (the "Articles of
Incorporation"), the Board of Directors, at a meeting held on September 8, 1999,
adopted the following resolution creating a series 500,000 shares of Preferred
Stock designated as Series B Junior Participating Preferred Stock;
WHEREAS, the Articles of Incorporation provide that the Corporation is
authorized to issue 50,000,000 shares of Preferred Stock, par value $.001 per
share, of the Corporation ("Preferred Stock"), of which 50,000 shares
designated as Series A Convertible Preferred Stock are issued and outstanding,
now therefore it is:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article IV of the Articles of Incorporation (as defined
below), a series of Preferred Stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Series B Junior Participating
Preferred Stock (the "Participating Preferred Stock"), to consist of 500,000
shares, par value $.001 per share, of which the preferences and relative and
other rights, and the qualifications, limitations or restrictions thereof, shall
be as follows:
1. Future Increase or Decrease. Subject to paragraph 4(e) of this
---------------------------
resolution, the number of shares of said series may at any time or from time to
time be increased or decreased by the Board of Directors notwithstanding that
shares of such series may be outstanding at such time of increase or decrease.
<PAGE>
2. Dividend Rate.
-------------
(a) The holders of shares of Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of each January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
(the "First Issuance") of a share or fraction of a share of Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (i) $0.10 or (ii) 100 times the aggregate per share amount of all
cash dividends and 100 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions, other than a dividend or
distribution payable in shares of Common Stock, par value $.001 per share, of
the Corporation ("Common Stock") or by way of a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Participating Preferred Stock.
In the event the Corporation shall at any time after the First Issuance declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of
Participating Preferred Stock were entitled immediately prior to such event
under the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(b) On or after the First Issuance, no dividend on Common Stock shall
be declared unless concurrently therewith a dividend or distribution is declared
on the Participating Preferred Stock as provided in paragraph (a) above; and the
declaration of any such dividend on the Common Stock shall be expressly
conditioned upon payment or declaration of and provision for a dividend on the
Participating Preferred Stock as above provided. In the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $0.10 per share on the Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2
<PAGE>
(c) Whenever quarterly dividends or other dividends payable on the
Participating Preferred Stock as provided in paragraph (a) above are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Participating Preferred Stock outstanding shall
have been paid in full, the Corporation shall not redeem or purchase or
otherwise acquire for consideration shares of any stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Participating Preferred Stock, provided that the Corporation may at any time
--------
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (as to
dividends and upon dissolution, liquidation or winding up) to the Participating
Preferred Stock.
(d) Dividends shall begin to accrue and be cumulative on outstanding
shares of Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. The Board of Directors
may fix a record date for the determination of holders of shares of
Participating Preferred Stock entitled to receive payment of a dividend
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
3. Dissolution, Liquidation and Winding Up. In the event of any
---------------------------------------
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation (hereinafter referred to as a "Liquidation"), the holders of
Participating Preferred Stock shall be entitled to receive the greater of (a)
$10.00 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment and
(b) the aggregate amount per share equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock (the "Participating Preferred
Liquidation Preference"). In the event the Corporation shall at any time after
the First Issuance declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Participating Preferred Stock were entitled
immediately
3
<PAGE>
prior to such event under the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
4. Voting Rights. The holders of shares of Participating Preferred Stock
-------------
shall have the following voting rights:
(a) Each share of Participating Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
shareholders of the Corporation. In the event the Corporation shall at any time
after the First Issuance declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate number of votes to which holders of shares of Participating Preferred
Stock were entitled immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, or by law, the Corporation's
Restated Articles of Incorporation ("Articles of Incorporation") or the Bylaws
of the Corporation (the "Bylaws"), the holders of shares of Participating
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of shareholders of the Corporation.
(c) If and whenever dividends on the Participating Preferred Stock
shall be in arrears in an amount equal to six quarterly dividend payments, then
and in such event the holders of the Participating Preferred Stock, voting
separately as a class (subject to the provisions of subparagraph (d) below),
shall be entitled at the next annual meeting of the shareholders or at any
special meeting to elect two (2) directors. Each share of Participating
Preferred Stock shall be entitled to one vote, and holders of fractional shares
shall have the right to a fractional vote. Upon election, such directors shall
become additional directors of the Corporation and the authorized number of
directors of the Corporation shall thereupon be automatically increased by such
number of directors. Such right of the holders of Participating Preferred Stock
to elect directors may be exercised until all dividends in default on the
Participating Preferred Stock shall have been paid in full, and when so paid and
set apart, the right of the holders of
4
<PAGE>
Participating Preferred Stock to elect such number of directors shall cease, the
term of such directors shall thereupon terminate, and the authorized number of
directors of the Corporation shall thereupon return to the number of authorized
directors otherwise in effect, but subject always to the same provisions for the
vesting of such special voting rights in the case of any such future dividend
default or defaults. The fact that dividends have been paid and set apart as
required by the preceding sentence shall be evidenced by a certificate executed
by the President and the Chief Financial Officer of the Corporation and
delivered to the Board of Directors. The directors so elected by holders of
Participating Preferred Stock shall serve until the certificate described in the
preceding sentence shall have been delivered to the Board of Directors or until
their respective successors shall be elected or appointed and qualify.
At any time when such special voting rights have been so vested in the
holders of the Participating Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of 10% or more of the
number of shares of the Participating Preferred Stock then outstanding addressed
to such Secretary at the principal office of the Corporation in the State of
Florida, shall, call a special meeting of the holders of the Participating
Preferred Stock for the election of the directors to be elected by them as
hereinabove provided, to be held in the case of such written request within
forty (40) days after delivery of such request, and in either case to be held at
the place and upon the notice provided by law and in the Bylaws of the
Corporation for the holding of meetings of shareholders; provided, however, that
-------- -------
the Secretary shall not be required to call such a special meeting (i) if any
such request is received less than ninety (90) days before the date fixed for
the next ensuing annual or special meeting of shareholders or (ii) if at the
time any such request is received, the holders of Participating Preferred Stock
are not entitled to elect such directors by reason of the occurrence of an event
specified in the third sentence of subparagraph (d) below.
(d) If, at any time when the holders of Participating Preferred Stock
are entitled to elect directors pursuant to the foregoing provisions of this
paragraph 4, the holders of any one or more additional series of Preferred Stock
are entitled to elect directors by reason of any default or event specified in
the Articles of Incorporation, as in effect at the time of the certificate of
designation for such series, and if the terms for such other additional series
so permit, the voting rights of the two or more series then entitled to vote
shall be combined (with each series having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Participating Preferred Stock and of all such other series then
entitled so to vote, voting as a class, shall elect such directors. If the
holders of any such other series (if designated) have elected such directors
prior to the happening of the default or event permitting the holders of
Participating Preferred Stock to elect directors, or prior to
5
<PAGE>
a written request for the holding of a special meeting being received by the
Secretary of the Corporation from the holders of not less than 10% of the then
outstanding shares of Participating Preferred Stock, then such directors so
previously elected will be deemed to have been elected by and on behalf of the
holders of Participating Preferred Stock as well as such other series, without
prejudice to the right of the holders of Participating Preferred Stock to vote
for directors if such previously elected directors shall resign, cease to serve
or fail to stand for reelection while the holders of Participating Preferred
Stock are entitled to vote. If the holders of any such other series are entitled
to elect in excess of two (2) directors, the Participating Preferred Stock shall
not participate in the election of more than two (2) such directors, and those
directors whose terms first expire shall be deemed to be the directors elected
by the holders of Participating Preferred Stock; provided that, if at the
--------
expiration of such terms the holders of Participating Preferred Stock are
entitled to vote in the election of directors pursuant to the provisions of this
paragraph 4, then the Secretary of the Corporation shall call a meeting (which
meeting may be the annual meeting or special meeting of shareholders referred to
in subparagraph (c)) of holders of Participating Preferred Stock for the purpose
of electing replacement directors (in accordance with the provisions of this
paragraph 4) to be held on or prior to the time of expiration of the expiring
terms referred to above.
(e) Except as otherwise set forth herein or required by law, the
Articles of Incorporation or the Bylaws, holders of Participating Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for the taking of any corporate action. No consent
of the holders of outstanding shares of Participating Preferred Stock at any
time outstanding shall be required in order to permit the Board of Directors to:
(i) increase the number of authorized shares of Participating Preferred Stock or
to decrease such number to a number not below the sum of the number of shares of
Participating Preferred Stock then outstanding and the number of shares with
respect to which there are outstanding rights to purchase; or (ii) issue
Preferred Stock which is senior to the Participating Preferred Stock, junior to
the Participating Preferred Stock or on a parity with the Participating
Preferred Stock.
5. Consolidation, Merger, etc. In case the Corporation shall enter into
---------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of
Participating Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
6
<PAGE>
In the event the Corporation shall at any time after the First Issuance declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Participating Preferred
Stock shall be adjusted by multiplying such amount by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
6. Redemption. The shares of Participating Preferred Stock shall not be
----------
redeemable.
7. Conversion Rights. The Participating Preferred Stock is not
-----------------
convertible into Common Stock or any other security of the Corporation.
8. Ranking. The Participating Preferred Stock shall rank junior to all
-------
other classes and series of the Corporation's Preferred Stock as to payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned President and Chief Executive Officer
and Secretary and General Counsel of the Corporation each declares under penalty
of perjury the truth, to the best of his knowledge, of this Certificate of
Designation, Preferences and Rights of Series B Junior Participating Preferred
Stock.
Executed this 20th day of September, 1999.
By: /s/ J. William Brandner
-----------------------
Name: J. William Brandner
Title: President and
Chief Executive Officer
Attest:
/s/ Marshall S. Harris
----------------------
Name: Marshall S. Harris
Title: Vice President, Secretary
and General Counsel
STATE OF FLORIDA )
) ss.:
COUNTY OF ORANGE )
This instrument was acknowledged before me on September 20, 1999, by J.
William Brandner, as President of Display Technologies, Inc. and by Marshall S.
Harris, as Secretary of Display Technologies, Inc. They are personally known to
me and did not take an oath.
______________________________________
Name: ________________________________
Notary Public - State of Florida
My Commission Expires:
8
<PAGE>
Exhibit 10.140
AGREEMENT
This Agreement ("Agreement") is made and entered into as of June 28, 1999
(the "Effective Date") between and among Display Technologies, Inc., a Nevada
corporation ("DTEK"), AmeriVision Outdoor, Inc., a Florida corporation
("NEWCO"), AmeriVision Outdoor, LLC, a Nevada limited liability company ("LLC"),
and Michael T. Barr, Joe W. Brown, William W. Byrd and George Whitlow
(individually, "Founder" and, collectively, "Founders").
RECITALS:
A. The Founders are the owners of all of the outstanding equity interests
of LLC ("LLC Equity") in the percentages set forth on Schedule A hereto and have
----------
invested equity ("LLC Equity") in or loans ("Founder Loans") to LLC in the
amounts set forth on Schedule A;
----------
B. DTEK intends to purchase and acquire from NEWCO certain newly issued
shares of preferred stock of NEWCO;
C. NEWCO intends to use part of the proceeds from the DTEK investment to
purchase and acquire from LLC substantially all of LLC's assets and liabilities;
D. Upon receipt of the above proceeds from NEWCO, LLC intends to
distribute such proceeds to the Founders in repayment of the Founder Loans and
as distributions on their LLC Equity;
E. Upon receipt of the liquidating proceeds from LLC, the Founders intend
to reinvest part of such proceeds in newly issued shares of common stock of
NEWCO;
F. Following the consummation of the foregoing transactions, the parties
desire to provide for certain purchase options and other rights relating to
ownership of the outstanding stock of NEWCO; and
G. The parties intend to effectuate the foregoing transactions all
pursuant to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. DTEK INVESTMENT IN NEWCO. Simultaneously with the execution and
delivery of this Agreement, DTEK will make a cash capital contribution of
$500,000 to NEWCO in consideration of the issuance by NEWCO to DTEK of 8,000
newly issued shares of preferred stock, par value $.001 per share, of NEWCO
designated as Series A 9% Cumulative Convertible Non-Voting Preferred Stock (the
"Series A Preferred Stock"). As additional consideration, NEWCO will also issue
to DTEK warrants to purchase up to 8,000 newly issued shares of common stock,
par value $.001 per share, of NEWCO ("Common Stock"). The warrants shall be
exerciseable for a
<PAGE>
period of 30 days following July 1, 2001 and will be payable in shares of Series
A Preferred Stock on a 1-for-1 basis. The warrants will terminate upon
conversion of all outstanding shares of the Series A Preferred Stock.
2. ACQUISITION OF LLC ASSETS AND LIABILITIES. In consideration of the
payment by NEWCO to LLC of $465,750 (the "Purchase Price"), payable as provided
in Section 3 below, LLC hereby sells, conveys, assigns and transfers to NEWCO
the assets listed on Schedule B hereto (the "Assets") and NEWCO hereby assumes
----------
and agrees to pay, perform and discharge the liabilities of LLC listed on
Schedule C (the "Assumed Liabilities"). Any obligations or liabilities not
- -----------
listed on Schedule C ("Excluded Liabilities") are expressly not assumed by NEWCO
----------
from LLC.
3. DISTRIBUTIONS TO FOUNDERS.
(a) Simultaneously with the execution of this Agreement, NEWCO will
pay to LLC $393,500 of the Purchase Price and LLC will distribute such proceeds
to the Founders in the respective amounts set forth on Schedule A hereto.
----------
Subject to the receipt of such funds by the Founders, each of the Founders, for
himself and any person claiming by, through or under him, hereby completely and
forever releases and discharges LLC from any and all Founder Loans, whether or
not set forth on Schedule A, and any and all other obligations, liabilities or
----------
claims of any nature whatsoever, whether fixed or contingent or known or
unknown. The Founders further acknowledge and agree that they have no direct or
indirect ownership interest in any of the Assets or any tangible or intangible
assets of NEWCO, except for the stock ownership interests of the Founders in
NEWCO provided for elsewhere in this Agreement.
(b) Within 90 days following the date of this Agreement, NEWCO will
pay the remaining $196,750 of the Purchase Price to the Founders in the
respective amounts set forth on Schedule D hereto.
----------
4. PURCHASE OF NEWCO COMMON STOCK. Simultaneously with the execution and
delivery of this Agreement, each of the Founders shall purchase from NEWCO newly
issued shares of Common Stock for the purchase or subscription price of $62.50
per share of Common Stock. The number of shares of Common Stock to be purchased
by each Founder, and the aggregate purchase price therefor, are set forth on
Schedule E hereto.
- ----------
5. REPRESENTATIONS AND WARRANTIES OF LLC AND FOUNDERS. In order to
induce DTEK and NEWCO to enter into this Agreement and to consummate the
transactions contemplated hereby, LLC and the Founders hereby jointly and
severally represent and warrant to DTEK and NEWCO as follows:
5.1 Corporate Status; Ownership of Stock.
(a) LLC is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Nevada. LLC has
all requisite corporate power and authority to own, operate and lease its
properties and assets, to carry on its business as it is now
2
<PAGE>
being conducted, to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. LLC is duly
qualified to do business, and is in good standing, in each of those
jurisdictions where the ownership, operation or leasing of its properties and
assets or the conduct of its business requires such qualification.
(b) LLC has no direct or indirect interest by stock ownership or
otherwise in any corporation, partnership, joint venture or other entity.
(c) The Founders own good and merchantable title to 100% of the
outstanding ownership or equity interests in LLC, free and clear of any and all
liens, security interests, pledges or other encumbrances or restrictions of any
nature.
5.2 Authority. The execution, delivery and performance by LLC and
the Founders of this Agreement and of each and every document and instrument
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized and approved by all necessary
corporate action of LLC. This Agreement is valid and binding upon LLC and the
Founders and enforceable against them in accordance with its respective terms.
5.3 Conflict With Instruments; No Consents Required. Neither the
execution or delivery by LLC and the Founders of this Agreement nor the
consummation by LLC and the Founders of the transactions contemplated hereby,
nor compliance by LLC and the Founders with any of the provisions hereof, will
(i) conflict with or result in a breach of any provision of the articles or
certificate of incorporation or organization, or bylaws, of LLC, (ii) result in
the breach of, or conflict with, any of the terms and conditions of, or
constitute a default (or an event which, with or without the giving of notice or
the lapse of time or both would constitute a default) with respect to, or result
in the cancellation, modification or termination of, or the acceleration of the
performance of any obligations required by, or of any indebtedness under, any
contract, lease, agreement, commitment, indenture, mortgage, note, bond, license
or other instrument or obligation to which LLC or any Founder is a party, or by
which LLC, any Founder or any of the Assets may be bound or affected, (iii)
result in the creation or imposition of a lien, security interest, charge or
encumbrance upon any of the Assets, or (iv) violate any law or any rule or
regulation of any administrative agency or governmental body, or any order,
writ, injunction or decree of any court, administrative agency or governmental
body to which LLC, any Founder or the Assets is subject. No approval,
authorization, consent or other order or action of, or filing by LLC or the
Founders with any court, administrative agency, other governmental authority or
any other person or entity is required for the execution and delivery by LLC or
the Founders of this Agreement or the consummation of the transactions
contemplated hereby.
5.4 Litigation. There has not been at any time since January 1,
1989, nor is there currently, any litigation, suit, proceeding, action, claim or
investigation, at law or in equity, pending or, threatened against or affecting
(as plaintiff or defendant) in any way LLC, the Assets or LLC's ability to own
or operate its business and, to the best of the Founders' knowledge, there is no
valid basis for any such litigation, proceeding, action, claim or investigation.
Neither LLC, nor any of the
3
<PAGE>
Founders or the Assets is subject to any judgment, order, writ, injunction or
decree of any court or any federal, state, municipal or other governmental
authority, department, commission, board, bureau, agency or other
instrumentality.
5.5 Taxes.
(a) All federal, state, local and foreign tax returns (including
information returns) and tax reports required by any applicable law, rule,
regulation or procedure of any federal, state, local or foreign government,
agency, authority or body to be filed with respect to the business and Assets of
LLC have been duly filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed, all of
the foregoing as filed are true, correct and complete, and reflect accurately
all liability for taxes of LLC for the periods for which such returns relate and
all amounts shown as owing thereon (and all interest and penalties thereon, if
any) have been fully paid;
(b) LLC has paid all federal, state, local and foreign taxes,
including, without limitation, income, estimated, withholding, profits,
franchise, sales, use, gross receipts, occupation, property, excise, employment,
payroll related, export and other taxes and changes (including interest and
penalties) (hereinafter "Taxes" or individually a "Tax"), payable by LLC or
relating to or chargeable against its assets, revenues or income required to be
paid by it through the date hereof. All Taxes and other assessments and levies
required to be withheld by LLC with respect to its business from employees for
income taxes, social security taxes and unemployment taxes have been collected
or withheld, and either paid to the respective governmental agencies, or set
aside in accounts and held for such purpose.
(c) No claims or deficiencies had or have been asserted against
LLC with respect to any taxes or other governmental charges or levies of LLC and
there exists no basis for the making of any such claims; and
(d) LLC has not signed any waiver of any statute of limitations
with respect to the assessment or collection of any taxes or executed or filed
any agreement with the Internal Revenue Service or any other federal, state,
local or foreign taxing authority extending the period for the assessment or
collection of taxes.
5.6 Compliance with Laws; Environmental.
(a) LLC's business has at all times been conducted in compliance
with all federal, state, local or foreign laws, ordinances, regulations and
orders applicable to the business or properties of LLC, including, without
limitation, matters relating to anti-competitive practices, discrimination,
employment, health and safety, and the present uses by LLC of its properties do
not violate any such laws, ordinances, regulations and orders in any respect.
LLC has all federal, state, local and foreign governmental licenses and permits
necessary to the conduct of its business, all such licenses and permits are in
full force and effect, no violations are recorded in respect of any thereof, and
no proceeding was or is pending or threatened to revoke or limit any thereof.
Schedule 5.6
- ------------
4
<PAGE>
contains a list of all such licenses and permits. There are, no consents,
orders, decrees or other compliance agreements relating to LLC under which LLC
was or is operating or bound on the applicable date.
(b) All real property owned or occupied by LLC and used in its
businesses and operations and the buildings, fixtures, equipment and other
improvements located thereon, and the present use thereof, comply in all
respects with all applicable zoning, pollution, toxic waste and other laws, fire
codes, building codes, health codes, ordinances and regulations. All real
property owned or occupied by LLC and used in its business and operations and
the buildings, fixtures and other improvements located thereon, and the present
use thereof, comply on the date hereof in all respects with all applicable
environmental laws, codes, ordinances and regulations. The business and
operations of LLC are in strict compliance with all applicable laws, statutes,
regulations, ordinances, decrees or orders of governmental authorities relating
to substances treated, stored or handled by LLC. There has been no spillage,
leakage, contamination or release of or by any such substances by Seller. None
of the real property owned or occupied by LLC is contaminated with or contains
any hazardous substance or wastes, whether or not currently a hazard, and the
waters below and adjacent thereto have not received organic or inorganic
material from such real property as a result of LLC's operations thereon.
5.7 Title to and Condition of Assets. Except as set forth in
Schedule 5.7 attached hereto (which schedule sets forth in detail both the lien
- ------------
and the debt instrument to which it relates), LLC has good, valid and marketable
title to each and every one of the Assets, whether tangible or intangible, real
or personal, free and clear of any and all liens, encumbrances, mortgages,
security interests, pledges, claims, or other restrictions or charges
whatsoever. Subject to ordinary wear and tear and maintenance, the Assets used
in the operations of LLC are in operating condition and are adequate and
suitable for their present uses. Except for the leasehold interests and leased
properties specifically identified on Schedule 5.7, there are no assets owned by
------------
any third party which are used in the operations of the business of LLC, as
presently conducted or proposed to be conducted.
5.8 Material Commitments. Schedule 5.8 attached hereto sets forth a
------------
true, correct and complete list of all written contracts, agreements, personal
property leases and other obligations and written summaries of all oral
agreements relating to the business and operations of LLC which are assigned to
and assumed by NEWCO. Except for agreements listed on Schedule 5.8, LLC is not
------------
a party to or otherwise bound by any (i) contracts and agreements which provide
for aggregate payments by LLC in excess of $1,000 for the purchase or lease of
goods, materials, equipment, supplies or capital assets, or for the performance
of services; (ii) contracts and agreements for the sale or distribution of goods
or services produced by LLC; (iii) management or employee contracts (except
those that are terminable without penalty, severance or other payment on 30 days
or less notice), consulting contracts, distributor agreements, broker
agreements, union contracts, termination and severance agreements, health and
welfare plans, life or hospitalization insurance plans, pension, retirement,
profit, bonus or other similar benefits plans or deferred compensation plans,
formal or informal, providing benefits to any current or former director,
officer, shareholder or employee of LLC; (iv) notes, mortgages, loan agreements,
security agreements, letters
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of credit, guarantees, credit agreements and other evidences of indebtedness;
(v) contract or commitment for expenditures involving more than $1,000 in any
instance; (vi) guaranty of the obligations of a third party; (vii) agreement
which restricts LLC from engaging in any line of business or from competing with
any other person or entity anywhere in the world; (viii) agreement or
arrangement for the sale of any of the assets, property or rights of LLC outside
the ordinary course of business or requiring the consent of any party to the
transfer and assignment of such assets, property and rights; or (ix) any
agreement, contract or arrangement with the Founders or any affiliates of LLC or
the Founders. All such contracts, agreements and other executory obligations set
forth on Schedule 5.8 (collectively the "Assumed Agreements") are valid, binding
------------
and enforceable in accordance with their respective terms and are in full force
and effect, and were entered into in the ordinary course of business on an
"arms-length" basis and consistent with past practices. LLC has performed all
the obligations required to be performed by it as of such date and is not in
breach of, nor has defaulted under any of the Assumed Agreements and there
exists no event, condition or occurrence which, after notice or lapse of time or
both, would constitute such a default under any of the Assumed Agreements. As of
the date hereof, no occurrence or circumstance exists which constitutes (with or
without the giving of notice or the lapse of time or both) a breach or default
by the other party thereto and none of such parties has indicated to LLC or any
of the Founders an intention to terminate such contract or materially reduce the
volume of its transactions with LLC. Except as otherwise set forth on Schedule
--------
5.8, all of the Assumed Agreements are assignable to NEWCO without affecting any
- ---
of the material terms thereof.
5.9 Furniture, Fixtures, etc. Schedule 5.9 attached hereto
------------
contains a true, correct and complete list of all supplies, equipment,
furniture, fixtures, vehicles, leasehold improvements, office equipment, and
signs owned by LLC or used by LLC in connection with its business.
5.10 Intangible Personal Property. Set forth on Schedule 5.10
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attached hereto is a true, correct and complete list of all franchises, non-
competition covenants, trademarks, service marks, brands, copyrights, trade
names, licenses, patents and other items of intangible property which as of the
date hereof are owned, used by or accrued to the benefit of Seller. LLC owns
the entire right, title and interest in and to each of the scheduled items of
intangible personal property (including, without limitation, the exclusive right
to use and license the same), free and clear of any claim or conflict with the
rights of others and no royalties, honorariums or fees are payable by LLC to any
person or entity by reason of the ownership or use of such intangible personal
property. Neither LLC nor any Founder knows of any third party infringement
thereof. As of the date hereof, LLC has taken all steps necessary to maintain
its interest in the scheduled intangible property and to protect its interests
from infringement by third parties. There are no facts known to LLC or any
Founder which might reasonably serve as the basis of any claim that any part of
the business carried on by LLC infringes on the rights of any other person or
entity, or of any claim that LLC has not performed the obligations required to
be performed by it, or of any claim that LLC is in default with respect to any
of such items of intangible personal property. All of the intangible personal
property listed on Schedule 5.10 is assignable to NEWCO without alteration or
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impairment. Neither LLC nor any Founder is aware of any pending or threatened
cancellation or revocation of any agreement
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granting to LLC's rights under patents, trademarks, trade names, copyrights or
"know-how" of others.
5.11 Insider Interests. Except as set forth on Schedule 5.11 attached
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hereto, none of the Founders nor any affiliate of LLC or any Founder:
(a) owns, or within the past three (3) years has owned, directly
or indirectly, any interest in any corporation, partnership, firm, association
or business organization, entity or enterprise which is a competitor or
potential competitor of LLC, or of a supplier or customer of LLC, except for up
to a five percent (5%) equity interest in an entity whose interests are publicly
traded on a national securities exchange;
(b) owns, or within the past three (3) years has owned, directly
or indirectly, in whole or in part, any property, asset or right, real, personal
or mixed, tangible or intangible, which is associated with the business of LLC;
or
(c) has, or within the past three (3) years had, an interest in
any contract or agreement pertaining or relating to LLC.
For the purposes of this Agreement, the term "affiliate" means with respect
to another person or entity (i) any person or entity directly or indirectly
owning, controlling or holding ten percent (10%) or more of the outstanding
voting securities of such other entity; (ii) any entity, ten percent (10%) or
more of whose outstanding securities are directly or indirectly owned,
controlled or held with power to vote by such other person or entity; (iii) any
person or entity directly or indirectly controlling, controlled by or under
common control with such other person or entity; (iv) any officer, director,
employee or partner of such other person or entity; (v) if such other person is
an officer, director, employee or partner, any company for which such person
acts in any such capacity; and (vi) any relative or spouse of such other person.
5.12 Customers, Distributors and Suppliers. Schedule 5.12 attached
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hereto sets forth a true and complete list of LLC's customers and suppliers
during the period January 1, 1999, through June 30, 1999 and such Schedule sets
forth with respect to each, the name and address, dollar volume involved and
nature of the relationship (including the principal categories of products
bought, sold or distributed). Schedule 5.12 further sets forth the names and
-------------
addresses of any sole source suppliers of significant goods or services with
respect to which alternative sources of supply are not available on comparable
terms and conditions. LLC is not required to provide any bonding or other
financial security arrangements in connection with any transactions with any of
its customers, distributors or suppliers in the ordinary course of LLC's
business. Since February 28, 1999, no such customer, distributor, or supplier
(i) has canceled, suspended or otherwise terminated its relationship with LLC or
(ii) has advised LLC of its intent to cancel, suspend or otherwise terminate
such relationship, or, with respect to suppliers, to materially decrease its
service or supplies of products to LLC or to materially increase the price or
change the terms on which it supplies services or products to LLC and, with
respect to customers and distributors, to materially decrease the amount of
products purchased or to materially change the terms which it purchases
products.
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5.13 Receivables. Schedule 5.13 attached hereto is a true, correct
-------------
and complete list of unpaid accounts and notes receivable owing to LLC from
third parties as of June 30, 1999. Except as set forth on Schedule 5.13 all such
-------------
accounts and notes receivable are bona fide receivables, represent arms-length
transactions actually made in the ordinary course of LLC's business, are
recorded correctly on the applicable books and records of LLC, collected or to
be collected in full within thirty (30) days after the respective dates thereof
(or, if the term for collection of any note receivable is more than thirty (30)
days, within the time period so indicated in Schedule 5.13), subject to no
-------------
defenses, counterclaims or setoffs, at the aggregate recorded amount thereof;
subject, however, to reserves established for uncollectible amounts consistent
with past practices, which reserves, as set forth in Schedule 5.13, are fully
-------------
adequate to cover losses of LLC with respect thereto.
5.14 Trade Payables. Schedule 5.14 attached hereto contains a true,
-------------
correct and complete list of all trade payables of LLC as of June 30, 1999 All
of the trade payables of LLC listed on Schedule 5.14 and all trade payables of
-------------
LLC incurred after June 30, 1999 were incurred by LLC in the ordinary course of
its business consistent with past practice.
5.15 No Undisclosed Liabilities. There is no basis for assertion
against LLC of any claim, liability, commitment or obligation of any nature
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due), other than (i) those disclosed in this Agreement or any of the
schedules hereto, and (ii) those incurred in the ordinary course of business
consistent with past practice.
5.16 Bank Accounts. Schedule 5.16 attached hereto sets forth the name
-------------
of each bank or financial institution (including account numbers, where
applicable) with which LLC has an account, credit line, safety deposit box or
vault and the names of all persons authorized to draw thereon or have access
thereto.
5.17 Insurance. Schedule 5.17 attached hereto sets forth a true and
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complete list and description of all policies of insurance covering the Assets
and LLC's business that are now in effect. Such insurance is in full force and
effect and is sufficient for compliance with all requirements of law and all
agreements to which LLC is a party; and will not terminate or lapse by reason of
the transactions contemplated hereby. There is no breach or default with
respect to any provision contained in any such policy or binder, and all
premiums, to the extent due and payable, have been paid or the liability
therefor properly accrued. Since February 28, 1999, LLC has not been denied
insurance, nor been offered insurance only at a commercially prohibitive
premium. Except as set forth on Schedule 5.17 attached hereto, no claims
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involving an amount in excess of $10,000 have been asserted under any of the
foregoing insurance policies.
5.18 Labor Matters.
(a) LLC is not a party to and is not otherwise bound by any labor
or collective bargaining agreement. LLC is in compliance in all material
respects with all federal, state and local laws, rules and regulations affecting
employment and employment practices of LLC, including terms and conditions of
employment, age and sex discrimination and wages and hours.
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LLC is not engaged in any unfair labor practices. There have been no complaints
against LLC in connection with the business of LLC pending before the National
Labor Relations Board or any similar state or local labor agency; there have
been no labor strikes, slow-downs or stoppages or other labor troubles pending
or threatened with respect to the employees of LLC; there have been no
grievances asserted which might have a material adverse effect on the business
of LLC; and LLC has not experienced any work stoppage.
(b) Except as set forth on Schedule 5.18 attached hereto, all of
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LLC's employees are employed "at will," and LLC is not a party to any employment
agreement that is not terminable without penalty, severance or other payment on
30-days' or less notice. In addition, the consummation of the transactions
contemplated by this Agreement will not entitle any current or former employee
of LLC to any severance pay. There has not been, and to the best of the
Founders' knowledge there will not be, any material adverse change in relations
with employees of LLC as a result of any announcement of or the consummation of
the transactions contemplated by this Agreement.
(c) Except as set forth on Schedule 5.18 attached hereto, LLC
-------------
does not maintain any employee benefit plan (a "Plan") within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), stock purchase plan, stock option plan, fringe benefit plan, bonus
plan or any other deferred compensation agreement or plan or funding arrangement
(including a simplified employee pension plan) sponsored, maintained or to which
contributions are made by Seller.
With respect to each Plan, LLC has delivered or made available to Purchaser
copies of the most recent general notification to employees of their rights
under Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code") and form of letter(s) distributed upon the occurrence of a qualifying
event described in Code Section 4980B, in the case of a Plan that is a "group
health plan" as defined in Code Section 5000(b).
With respect to each Plan: (i) there are no actions, suits, proceedings,
investigations or claims pending, or to the knowledge of LLC, threatened, and
LLC has no knowledge of any facts which could give rise to any such actions,
suits, proceedings, investigations or claims; (ii) the Plan and LLC have
complied with all applicable requirements of ERISA and the Code; and (iii) all
insurance premiums related to the Plans required as of the Closing Date have
been paid;
With respect to any Plan which is an employee welfare benefit plan (within
the meaning of ERISA Section 3(1)) (a "Welfare Plan") and which is a group
health plan (as such term is defined in Code Section 5000(b), no penalties have
been assessed and no action, suit, proceeding, investigation or claim is pending
or threatened against LLC for failure to comply with the requirements of Code
Section 4980B or Part 6 of Title I of ERISA ("Part 6"), and Seller has complied
with said Code Sections and Part 6.
5.19 Personnel. Schedule 5.19 attached hereto contains a true and
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complete list of:
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(a) the names, length of employment with LLC, salary, bonus and
information regarding other forms of compensation paid or payable to LLC's key
managerial employees or any employee whose compensation exceeds $25,000 per
year, on the applicable date, including, without limitation, information
regarding any executive compensation plans, deferred compensation agreements,
deferred vacation or severance pay arrangements; and
(b) the wage rates for LLC's non-salaried and non-executive
salaried employees, by classification on the applicable date.
LLC had no unaccrued and unpaid liability for any arrears of wages, bonuses
or other employee benefits (including, without limitation, termination or
severance pay, vacation pay, sick pay, personal days and holiday pay) for any of
its employees.
5.20 Brokers. Neither LLC nor any Founder has employed any financial
advisor, broker or finder and none of them has incurred nor will any of them
incur any broker's, finder's, investment banking or similar fees, commissions or
expenses in connection with the transactions contemplated by this Agreement.
5.21 Accuracy of Documents and Information. All information provided
to DTEK by LLC and the Founders with respect to LLC's business, including the
representations and warranties made in this Agreement, the schedules and
exhibits attached hereto, and all other financial information and projections
provided to DTEK in connection with its investigation of LLC, do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements or facts contained herein or therein necessary in order
to provide a prospective purchaser of the Assets with full and proper
information as to the business or prospects or the financial condition or the
results of operations of LLC, and the value of its properties.
6. REPRESENTATIONS AND WARRANTIES OF DTEK AND NEWCO. In order to induce
LLC and the Founders to enter into this Agreement and to consummate the
transactions contemplated hereby, DTEK and NEWCO represent and warrant to LLC
and the Founders as follows:
6.1 Authorization. DTEK and NEWCO have full right, power and
authority to enter into this Agreement. The execution, delivery and performance
of this Agreement by DTEK and NEWCO and the consummation by them of the
transactions contemplated hereby and thereby have been duly and effectively
authorized by all requisite corporate action and this Agreement constitutes the
legal, valid and binding obligations of DTEK and NEWCO, enforceable in
accordance with its terms.
6.2 No Violation or Conflict. The execution and delivery of this
Agreement by DTEK and NEWCO and the consummation by them of the transactions
contemplated hereby and compliance by DTEK and NEWCO with the provisions hereof:
(i) do not and will not violate or conflict with any provision of law or
regulation, or any writ, order or decree of any court, governmental or
regulatory authority or agency; and (ii) do not and will not, with or without
the
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passage of time or the giving of notice, result in the breach of, or constitute
a default or require any consent under, or result in the creation of any lien,
charge or encumbrance upon any property or assets of DTEK and NEWCO pursuant to
any instrument or agreement to which DTEK and NEWCO is a party or by which DTEK
and NEWCO or their properties may be bound or affected.
7. INDEMNITY.
7.1 Obligations of LLC and the Founders. LLC and the Founders hereby
jointly and severally agree to defend, indemnify and hold harmless DTEK, NEWCO
and their Affiliates from, against and in respect of any and all demands,
claims, actions or causes of action, losses, liabilities, damages, assessments,
deficiencies, taxes, costs and expenses, including without limitation, interest,
penalties reasonable attorneys' fees and expenses, asserted against, imposed
upon or paid, incurred or suffered by DTEK, NEWCO and their Affiliates:
(a) as a result of, arising from, in connection with or incident
to (i) any breach or inaccuracy of any representation, warranty, covenant or
agreement of LLC or the Founders in this Agreement, or in any exhibit or
schedule to this Agreement;
(b) as a result of, or with respect to, any and all obligations
or liabilities of LLC, whether known or unknown, asserted or unasserted,
absolute, contingent or otherwise, not expressly included in the Assumed
Liabilities (including, but not limited, to all losses and liabilities arising
by reason of LLC's failure to satisfy and discharge, as same become due, any
Excluded Liabilities);
(c) as a result of, arising from or in connection with any claim
by any taxing authority for any Taxes of LLC or the Founders, including all
Taxes attributable to the business and operations of LLC prior to the Effective
Date;
(d) as a result of, arising from or in connection with any and
all loss or liability, including the costs and expenses of prosecution or
defense incurred by DTEK, NEWCO or any of their Affiliates as a consequence of
any litigation currently pending (i) against LLC, (ii) relating to the Assets or
(iii) relating to the Assumed Liabilities; and
(e) as a result of, or with respect to, any and all claims
asserted in whole or in part in respect of the conduct of the business,
ownership or operation of the Assets by LLC prior to the Effective Date without
regard to whether such claims exist on the Effective Date or arise at any time
thereafter.
7.2 Indemnity Procedure. LLC, the Founders and their Affiliates are
sometimes collectively referred to herein as the "Indemnifying Party" and NEWCO
is referred to as the "Indemnified Party." An Indemnified Party under this
Agreement shall, with respect to claims asserted against such party by any third
party, give written notice to the Indemnifying Party of any liability which
might give rise to a claim for indemnity under this Agreement within twenty (20)
business days of the receipt of any written claim from any such third party, and
with respect to other
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matters for which the Indemnified Party may seek indemnification, give prompt
written notice to each Indemnifying Party of any liability which might give rise
to a claim for indemnity; provided, however, that any failure to give such
notice will not waive any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are materially prejudiced.
7.3 Survival. Each and every one of the representations, warranties,
covenants, agreements and indemnities of the parties hereto contained in this
Agreement or any exhibit to this Agreement shall survive the Closing and any
investigation at any time made by or on behalf of any party hereto until:
(a) with respect to tax matters, for a period of six months after
the expiration of the applicable statute of limitations; and
(b) with respect to all other matters, for a period of three (3)
years after the Effective Date.
7.4 Interest on Indemnification Payments. Indemnification payments
due hereunder shall accrue interest at the rate of 10% per annum from (i) the
later of the date of the loss, liability, damage or expense to which such
payment relates, or is incurred by an Indemnified Party, or the date written
notice of such occurrence is given to the Indemnifying Party, to (ii) the date
of the Indemnifying Party's payment of indemnification for such damages.
7.5 Statements as Representations. All statements contained in this
Agreement or in any Schedule or Exhibit shall be deemed to be representations
and warranties for all purposes of this Agreement.
8. CERTAIN ADDITIONAL COVENANTS OF LLC AND THE FOUNDERS. LLC and the
Founders covenant and agree as follows:
8.1 Name Change. LLC and the Founders hereby represent and warrant
that the corporate name of LLC is as set forth on the signature page hereof and
further agree and acknowledge that such name is included within the Assets and
that the exclusive right to use such name will be transferred to NEWCO on the
Effective Date. As soon as practicable following the Effective Date, the
Founders shall cause LLC to file an appropriate amendment to its articles or
certificate of incorporation changing its name to a name which shall in no way
be similar to its present name and shall furnish such written consents as NEWCO
shall have reasonably requested and may thereafter reasonably request in
connection therewith.
8.2 Board of Directors. For so long as any shares of Series A
Preferred Stock are outstanding, the Board of Directors of NEWCO shall be
comprised of four (4) members, one of whom shall be a designee of DTEK as
provided in Section 12.1 hereof.
8.3 Further Assurances. LLC and the Founders covenant and agree that
LLC and the Founders will do, execute, acknowledge and deliver, or cause to be
done, executed,
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acknowledged and delivered, any and all such further acts, instruments, papers
and documents as may be necessary to carry out and effectuate the intent and
purposes of this Agreement.
8.4 Trademarks. Upon the request of NEWCO, LLC shall file any and
all necessary documents required to register any of the trademarks or service
marks being sold to NEWCO hereunder with the U.S. Patent and Trademark Office
and with the appropriate state agency in which any such trademark or service
marks are currently used.
9. NON-COMPETITION.
9.1 Covenant Not to Compete; Confidentiality; Use of Name.
(a) LLC and the Founders hereby jointly and severally agree on
behalf of themselves and their respective affiliates that each of them shall for
a period of five (5) years from the Effective Date (such aggregate period being
hereinafter referred to as the "Covenant Period"), refrain from, anywhere in the
United States of America NEWCO conducts business, directly or indirectly,
owning, managing, operating, controlling or financing, or participating in the
ownership, management, operation, control or financing of, or being connected
with or having any interest in, or otherwise taking any part as a the Founders,
director, officer, employee, consultant, independent contractor, partner or
otherwise in, any business engaged in by LLC on the Effective Date, including
but not limited to the owning or leasing of electronic or other outdoor
advertising displays or the selling of advertising with respect thereto.
(b) LLC and the Founders hereby jointly and severally agree not
to, at any time subsequent to the Effective Date, disclose, directly or
indirectly, to any person, firm, corporation, partnership, association or other
entity, or use or cause or authorize any person, firm, corporation, partnership,
association or other entity to use any proprietary or confidential information
relating to the Assets and business purchased by NEWCO hereunder or its
prospects, the compilation of information, records and specifications concerning
customers of all pricing techniques used by the business purchased by NEWCO
hereunder, NEWCO's source of leads and method of obtaining new business, the
design, development, manufacture, production or selling of NEWCO's products or
NEWCO's method of doing and operating its business (collectively the
"Confidential Information"). Confidential Information shall include information
which LLC or the Founders know or should know is regarded as confidential and
valuable by NEWCO (whether or not any of the foregoing information is actually
novel or unique or is actually known to others).
(c) LLC and the Founders hereby jointly and severally agree not
to at any time, directly or indirectly, use or authorize any person, firm,
corporation, partnership, association or entity to use any name, mark, logo or
other identifying words or images which are similar to those used currently or
in the past by LLC in connection with any business product or service, whether
or not competitive with any business then being carried on by NEWCO.
(d) In the event of a breach or violation of any of the
provisions of this Section, the running of the Covenant Period (but not of the
obligations under this Section) shall be
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tolled during the continuance of any actual breach or violation. In addition to
any other rights or remedies DTEK and NEWCO may have hereunder, they shall have
the right and remedy to require LLC and the Founders to account for and pay over
to NEWCO, as the case may be, all compensation, profits, monies, accruals or
other benefits derived or received by such party constituting a breach of this
Section.
(e) Each of LLC and the Founders acknowledges that it would be
very difficult or impossible to measure the damages resulting from the breach of
any provision of this Section. Each of LLC and the Founders further acknowledges
that the restrictions herein are reasonable, are reasonably necessary for the
protection of the business of NEWCO, and, by virtue of the circumstances of the
business of NEWCO, violation by LLC and the Founders of any such covenant will
cause irreparable damage to NEWCO. Therefore, LLC and the Founders hereby agree
that any breach or threatened breach by it on him of any provisions of this
Section shall entitle NEWCO, in addition to any other legal remedies available
to it, to apply to any court of competent jurisdiction for a temporary and
permanent injunction or any other appropriate decree of specific performance
(without any bond or security being required) in order to enjoin such breach or
threatened breach. It is the desire and intent of the parties that the
provisions of this Section shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular subparagraph or portion of
this Section shall be adjudicated to be invalid or unenforceable, this Section
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of this Section in that particular jurisdiction in which such
adjudication is made. In the event any provisions of this Section relating to
the time period and/or areas of restrictions shall be declared by a court of
competent jurisdiction to exceed the maximum time period or area such court
deems reasonable and enforceable, the time period and/or areas of restrictions
shall thereafter be deemed the maximum which such court deems reasonable and
enforceable.
10. DTEK OPTION.
10.1 Option to Purchase Common Stock. DTEK shall have the right and
option, exerciseable by written notice from DTEK to the Founders within 60 days
following the date of conversion of all outstanding Series A Preferred Stock
into shares of Common Stock, to purchase all or less than all of the Common
Stock owned by each of the Founders.
10.2 Option Price. In the event DTEK elects to exercise its option to
purchase the Common Stock of the Founders, the purchase price will be an amount
equal to (a) the annual net income (determined in accordance with generally
accepted accounting principles) of NEWCO for its then most recently completed
fiscal year, multiplied by (b) the percentage of the total number of shares of
Common Stock outstanding on a fully diluted basis (i.e., including the number of
shares issuable upon conversion of all preferred stock of NEWCO then
outstanding) represented by the number of shares of Common Stock of the Founders
being purchased by DTEK, multiplied by (c) the price earnings ratio at which the
common stock, par value $.001 per share of DTEK ("DTEK
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Stock) is trading on the date of the option notice from DTEK to the Founders, as
reported by The Nasdaq Stock Market.
EXAMPLE: If at the time of purchase there are 100 shares of Common
Stock outstanding, 80 of which are owned by DTEK, NEWCO's annual net income
is $10,000,000 and DTEK Stock is trading at a P/E ratio of 20, DTEK would
pay $40,000,000 ($10,000,0000 x 20% x 20) in shares of DTEK Stock, for the
remaining 20 shares of NEWCO Common Stock. (The foregoing assumes no other
outstanding series of NEWCO preferred stock.)
The purchase price shall be paid in the form of newly issued shares of DTEK
Stock. The number of shares of DTEK Stock to be issued to the Founders shall be
determined by dividing the purchase price payable to each Founder by the average
closing price of DTEK Stock for the 20 trading days prior to the closing date.
Such shares of DTEK Stock will not be registered under the Securities Act of
1933 (the "Securities Act") and, accordingly, each Founder selling shares of
Common Stock to DTEK under this Article 10 shall, at DTEK's request, furnish
DTEK such investment representations and other documents as DTEK may reasonably
request in order to confirm the availability of an exemption from registration
under the Securities Act of such shares of DTEK Stock.
10.3 Closing. The closing of any sale of Common Stock of the Founders
under this Article 10 shall take place within 90 days following the date of the
delivery of the notice specified in Section 10.1.
11. FOUNDERS' OPTION.
11.1 Option to Sell Common Stock. Each of the Founders shall have the
right and option, at any time upon written notice to NEWCO, to require NEWCO to
repurchase the shares of Common Stock then owned by such Founder.
11.2 Purchase Price. The purchase price payable by NEWCO under this
Article 11 shall be an amount in cash equal to 500% of the then earnings per
share (calculated in accordance with generally accepted accounting principles)
of NEWCO on a fully diluted basis (i.e., taking into account all outstanding
shares of common stock and all shares of common stock issuable upon all then
outstanding preferred stock of any series).
11.3 Closing. The closing of any purchase and sale of shares of
Common Stock pursuant to this Article 11 shall take place within 90 days
following date of delivery of the notice specified in Section 11.1.
12. MANAGEMENT OF NEWCO.
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12.1 Day-to-Day Business Operations. DTEK shall have the right to
designate a representative of DTEK or one of its subsidiaries to manage the day-
to-day business operations of NEWCO and to serve on the board of directors of
NEWCO.
12.2 Management Fee. In consideration of the management services of
the DTEK representative specified in Section 12.1 above, NEWCO shall pay to DTEK
a monthly management fee which will be determined based upon the cost to DTEK of
providing such services plus a 10% administrative charge, the amount of such
actual fee to be approved by the board of directors of NEWCO.
12.3 Limitations on Designee. The management designee of DTEK
provided for in this Article 12 shall not be entitled to participate in
negotiations, and shall abstain from voting as a member of the board of
directors of NEWCO, in connection with any transaction that could reasonably be
expected to materially increase the benefits, or decrease the losses, that DTEK
might recognize from the operations of NEWCO to an extent greater than such
transactions would benefit (or limit losses) any other lender or investor of
NEWCO.
13. RESTRICTIONS ON TRANSFERS OF COMMON STOCK. The Founders covenant and
agree that none of them shall sell, transfer or otherwise dispose of, or pledge
or otherwise encumber, any shares of Common Stock owned by them without the
prior written consent of DTEK and unless such transferee or pledgee agrees to be
bound by all terms and provisions of this Agreement as if an original party
hereto.
14. MISCELLANEOUS.
14.1 Entire Agreement. This Agreement and the Schedules to this
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
understandings, agreements, arrangements and understandings, both oral and
written, among the parties hereto with respect to such subject matter.
14.2 Amendment. This Agreement may not be amended or modified in any
respect, except by the mutual written agreement of the parties hereto.
14.3 No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
14.4 Waivers and Remedies. The waiver by any of the parties hereto of
any other party's prompt and complete performance, or breach or violation, of
any provision of this Agreement shall not operate nor be construed as a waiver
of any subsequent breach or violation, and the waiver by any of the parties
hereto to exercise any right or remedy which it may possess hereunder shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
16
<PAGE>
14.5 Severability. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
14.6 Descriptive Headings. Descriptive headings contained herein are
for convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
14.7 Counterparts. This Agreement may be executed in any numbers of
counterparts and by the separate parties hereto in separate counterparts, each
of which shall be deemed to be one and the same instrument.
14.8 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be in writing and shall be deemed to have been duly given,
when delivered by hand or, either when received or when the delivery thereof has
been attempted and acceptance has been refused, if deposited in the United
States mail, by registered or certified mail, return receipt requested, postage
prepaid, as follows:
If to DTEK: Display Technologies, Inc.
5 Thomas Mellon Circle, Suite 130
San Francisco, California 94134
Attn: Terry J. Long
With a copy to: Display Technologies, Inc.
5029 Edgewater Drive
Orlando, Florida 32810
Attn: Marshall S. Harris
If to NEWCO: AmeriVision Outdoor, Inc.
5 Thomas Mellon Circle, Suite 130
San Francisco, California 94134
Attn: Terry J. Long
If to Barr: Michael T. Barr
3230 Three Bridge Road
Powhatan, VA 23139
17
<PAGE>
If to Brown: Joe W. Brown
Third Floor
3773 Howard Hughes Parkway
Las Vegas, NV 89109
If to Byrd: William W. Byrd
20 Eureka St., Upstairs
Sutter Creek, CA 95685
If to Whitlow: George Whitlow
9703 Midlothian Pike
Richmond, VA 23235
or to such other address as any party hereto may from time to time designate in
writing delivered in a like manner.
14.9 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. LLC shall not assign any of its right or obligations hereunder
without the express written consent of NEWCO.
14.10 Expenses. Each of the parties hereto agrees to pay all of the
respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. Notwithstanding the prior
sentence, LLC agrees to pay the premium for the issuance of the Title Insurance
Policy and the documentary stamps applicable to the recording of the Deed.
14.11 Confidentiality. No party hereto shall divulge the existence of
the terms of this Agreement, the transactions contemplated hereby or any
information about another party that such party may have acquired in connection
with the transaction, without the prior written approval of all of the parties
hereto, except and as to the extent (i) obligated by law, (ii) necessary for
such party to defend or prosecute any litigation in connection with the
transactions contemplated hereby, (iii) rightfully received from third parties
without restriction or disclosure and without breach of this Agreement or (iv)
to any lender or its counsel in connection with the procurement or attempted
procurement by NEWCO of financing for the transactions contemplated by this
Agreement.
14.12 Investigation. The representations, warranties, covenants and
agreements of this Agreement shall not be affected or diminished in any way by
any investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties, covenants and
agreements were made. All statements contained herein or in any schedule,
certificate, exhibit, list or other document delivered pursuant thereto or in
connection with
18
<PAGE>
the transactions contemplated hereby shall be deemed to be representations and
warranties for purposes of this Agreement.
14.13 Knowledge of LLC and the Founders. Where any representation or
warranty contained in this Agreement is expressly qualified by reference to the
best knowledge or to the knowledge of either LLC or the Founders, LLC and the
Founders acknowledge and confirm that they have made inquiry as to the matters
that are the subject of such representations and warranties. Where any
representation or warranty contained in this Agreement is expressly qualified by
reference to the best of "their knowledge", the representation or warranty is
made by both LLC and the Founders.
14.14 Attorneys' Fees. In the event any suit or other legal proceeding
or arbitration is brought for the enforcement of any of the provisions of this
Agreement, the parties hereto agree that the prevailing party or parties shall
be entitled to recover from the other party or parties upon final judgment on
the merits reasonable attorneys' fees, including attorneys' fees for any appeal,
and costs incurred in bringing such suit, proceeding or arbitration.
14.15 Governing Law; Venue. This Agreement shall be governed by, and
shall be construed, interpreted and enforced in accordance with the internal
laws of the State of Florida. Any judicial proceeding brought against any of the
parties to this Agreement on any dispute arising out of this Agreement or any
matter related hereto may be brought in the courts of Orange County, Florida, or
in the United States District Court for the Middle District of the State of
Florida, and, by execution and delivery of this Agreement, each of the parties
to this Agreement accepts the exclusive jurisdiction of such courts, and agrees
to be bound by any judgment rendered thereby in connection with this Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.
DISPLAY TECHNOLOGIES, INC.
By: /s/ J. William Brandner
---------------------------------------
J. William Brandner, President & CEO
AMERIVISION OUTDOOR, INC.
By: /s/ William W. Byrd
---------------------------------------
William W. Byrd, President
AMERIVISION OUTDOOR, LLC
By: /s/ William W. Byrd
---------------------------------------
William W. Byrd, ______________
/s/ Michael T. Barr
------------------------------------------
MICHAEL T. BARR
/s/ Joe W. Brown
------------------------------------------
JOE T. BROWN
/s/ William W. Byrd
------------------------------------------
WILLIAM W. BYRD
/s/ George Whitlow
------------------------------------------
GEORGE WHITLOW
20
<PAGE>
SCHEDULES
---------
A - Equity Interests/Founder Loans
B - LLC Assets
C - Assumed Liabilities
D - Second Distribution
E - Share Purchase
5.6 - Compliance with Laws
5.7 - Title To and Condition of Assets
5.8 - Material Commitments
5.9 - Furniture, Fixtures, etc.
5.10 - Intangible Personal Property
5.11 - Insider Interests
5.12 - Customers, Distributors and Suppliers
5.13 - Receivables
5.14 - Trade Payables
5.16 - Bank Accounts
5.17 - Insurance
5.18 - Labor Matters
5.19 - Personnel
21
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name Ownership Founder Loans/LLC Equity
- ---- --------- ------------------------
<S> <C> <C>
Michael T. Barr 10.0% $ 25,000
Joe W. Brown 15.0% $ 37,500
William W. Byrd
& Family 32.5% $156,000
George Whitlow 42.5% $175,000
</TABLE>
22
<PAGE>
SCHEDULE B
LLC ASSETS
----------
1. Master Equipment Lease Agreement, dated December 17, 1998, with Thalman
Financial, Inc.(Frontier).
2. Master Equipment Lease Agreement, dated December 11, 1998, with Thalman
Financial, Inc (Roseville)
3. Space Lease, dated March 18, 1999, with TouchMedia Systems One Nevada,
Incorporated
4. Management Agreement, dated November 4, 1998, with Hyde Park, LLC
5. Management Agreement, dated December 1, 1998, with Roseville Auto Mall
Association
6. All office furniture, computer hardware and software and telephone
equipment
7. All accounts receiveable
8. All rights to any and all types of deposit refunds and similar items
9. The name "AmeriVision" and all trademark rights, copyrights, trade secrets
and any and all other intellectual property rights owned by AmeriVision
Outdoor, LLC
10. All other tangible and intangible properties and assets of LLC
23
<PAGE>
SCHEDULE C
ASSUMED LIABILITIES
-------------------
1. Obligations to be paid, performed or discharged after the date hereof by
AmeriVision Outdoor, LLC under the agreements listed on Schedule B.
2. Indebtedness of $20,000 to Display Technologies, Inc.
3. Indebtedness of $80,000 to Terry J. Long.
24
<PAGE>
SCHEDULE D
SECOND DISTRIBUTION
--------------------
<TABLE>
<CAPTION>
Name Amount Distributed
- ---- ------------------
<S> <C>
Michael T. Barr $12,500
Joe W. Brown $18,750
William L. Byrd & Family $78,000
George Whitlow $87,500
</TABLE>
25
<PAGE>
SCHEDULE E
SHARE PURCHASE
--------------
<TABLE>
<CAPTION>
Name No. of Shares Purchase Price
- ---- ------------- --------------
<S> <C> <C>
Michael T. Barr 200 $12,500
Joe W. Brown 200 $12,500
William W. Byrd
& Family 1,100 $68,750
George Whitlow 500 $31,250
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedue contains summary financial information extracted from 10-KSB and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 79,832
<SECURITIES> 0
<RECEIVABLES> 13,034,429
<ALLOWANCES> 309,543
<INVENTORY> 6,084,709
<CURRENT-ASSETS> 24,323,810
<PP&E> 10,812,230
<DEPRECIATION> 2,865,220
<TOTAL-ASSETS> 45,355,644
<CURRENT-LIABILITIES> 9,690,656
<BONDS> 9,108,519
0
0
<COMMON> 6,303
<OTHER-SE> 19,945,177
<TOTAL-LIABILITY-AND-EQUITY> 45,355,644
<SALES> 66,135,714
<TOTAL-REVENUES> 66,135,714
<CGS> 43,912,587
<TOTAL-COSTS> 17,424,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,235,483
<INCOME-PRETAX> 3,682,653
<INCOME-TAX> 1,438,000
<INCOME-CONTINUING> 2,244,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,244,653
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.33
</TABLE>
