UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission File Number 0-15224
ADVANCE DISPLAY TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0969445
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(State of incorporation) (I.R.S. Identification No.)
1251 S. Huron, Unit C, Denver, Colorado 80223
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(Address of principle executive offices) (Zip Code)
(303) 733-5339
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(Registrant's telephone number including area code)
Securities registered under Section 12 (b) of the Exchange Act:
None
Securities registered under Section 12 (g) of the Exchange Act:
Title of Class
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 past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the 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. [ ]
The issuer reported revenues of $97,755 for the fiscal year ended June 30,
1997.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed as the average of the closing bid and asked prices as
of October 10, 1997 was $4,156,670. As of October 10, 1997 registrant had
outstanding 21,343,923 shares of Common Stock.
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Table of Contents
Page
Part I.
Item 1. Business......................................................... 1
Item 2. Description of Property.......................................... 9
Item 3. Legal Proceedings................................................10
Item 4. Submission of Matters to a Vote of Security Holders..............11
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.........................................11
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................12
Item 7. Financial Statements and Supplementary Data......................16
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................16
Part III.
Item 9. Directors and Executive Officers of the Registrant and
Compliance with Section 16(a) of the Exchange Act............17
Item 10. Executive Compensation............................................21
Item 11. Security Ownership of Certain Beneficial Owners
and Management..............................................24
Item 12. Certain Relationships and Related Transactions....................27
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................28
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Special Note Regarding Forward Looking Statements
Certain statements contained herein constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements include, without limitation, statements regarding
Advance Display Technologies, Inc.'s ("ADTI" or the "Company") anticipated
marketing and production, need for working capital, future revenues and results
of operations. Factors that could cause actual results to differ materially
include, among others, the following: the ability of the Company to obtain
sufficient capital, to further develop and improve the manufacturing process for
its product, to manufacture its product at a cost that would result in
profitable sales, to sell a sufficient number of screens at a sufficient price
to result in positive operating margins, to complete a marketing study and
implement a marketing plan, to attract and retain qualified management and other
personnel, and generally to successfully execute a business plan that will take
the Company from a development stage entity to a profitable operating company.
Many of these factors are outside the control of the Company. Investors are
cautioned not to put undue reliance on forward looking statements. The Company
disclaims any intent or obligation to update publicly these forward looking
statements, whether as a result of new information, future events or otherwise.
Statements in this Report are qualified in their entirety by reference to
contracts, agreements, and other exhibits filed or incorporated with this Report
(See Item. 13, Exhibits, Financial Statement Schedules and Reports on Form 8-K).
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PART I
Item 1. BUSINESS
Introduction
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Advance Display Technologies, Inc. ("ADTI" or the "Company") is a
development stage company, incorporated under the laws of the State of Colorado
on October 7, 1983. ADTI was formed to engage in the business of manufacturing
full color display video screen systems. ADTI completed its initial public
offering in April 1986, selling five million shares of its Common Stock for net
proceeds of $4.2 million. Since that date, ADTI's Common Stock has been split
such that each 50 shares previously outstanding are now equal to one share. ADTI
has not received material revenues from the sale of its products, as its
activities since inception have been primarily focused on research and
development of its technology and raising capital. The Common Stock of ADTI is
currently traded over the counter and is quoted on the electronic bulletin board
under the symbol, "ADTI".
In December, 1993, ADTI organized a limited partnership to continue
research and development and limited manufacturing and marketing of its
products. Display Optics, Ltd. ("DOL" or the"Partnership") is a Colorado limited
partnership of which ADTI serves as a general partner and Display Group, LLC
("Display Group") acts as the managing general partner. ADTI transferred its
technology, including patent rights and a non-exclusive license agreement to the
Partnership in exchange for a then-majority interest in the Partnership. ADTI's
majority interest was subject to a reduction upon conversion of rights granted
to additional investors.
Effective May 21, 1997, the Company experienced a change in control as a
result of an exchange transaction (the "Exchange") in which the operations of
DOL and Display Group were consolidated with those of the Company. The Company
acquired DOL and Display Group in the Exchange for issuance of Common and
Preferred Stock in ADTI. The Partnership and Display Group now serve as
wholly-owned subsidiaries of the Company. The investors participating in the
Exchange transferred assets including Series B Preferred Stock of the Company,
equity interests in DOL and Display Group, together with promissory notes
representing loans previously made to such entities, in exchange for an
aggregate direct interest in the Company equal to approximately eighty-two
percent (82%) of the Company's issued and outstanding Common Stock, as well as
shares of a newly created class of Series C Preferred Stock. (See "Current
Developments" below) The Exchange was designed to simplify administration of the
Company's affairs and public reporting to its shareholders and the Securities
and Exchange Commission.
The Company's product (the "FiberVision(TM) Screen" or "Screen") uses a
light source to project images through optical fibers to a screen designed so
that the image is enlarged approximately thirty-six (36) times. Possible
applications include video display systems for indoor stadiums and arenas,
point-of-purchase advertising in such markets as shopping malls, department
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stores and supermarkets, as well as providing information and advertising in
such locations as airports, trade shows and race tracks.
Since its inception, ADTI has directed its activities to refining the
FiberVision technology, manufacturing and marketing on a limited scale, and
obtaining investment capital. The Company is in the development stage, has not
commenced principal operations and has not sold significant products to date.
In July 1997, ADTI was appointed the exclusive, continental United States
sales representative for the Toshiba GiantVision(TM) outdoor video display
product for a six month term, which is renewable by mutual agreement. In
addition to providing the Company with an outdoor product to sell, this
relationship also enables the Company to obtain valuable information relating to
the outdoor display market (See "Toshiba Relationship" below).
The Product
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The FiberVision Screen is a passive image transfer and magnification
device. The Screen is currently constructed by assembling a multitude of 6"x 6"
screen modules to form a screen of virtually any size. For example, 432 modules
can be assembled to form one 9' x 12' Screen containing 442,368 fibers, each
representing a picture element ("pixel"). The number of pixels per module can be
changed by simply changing the space between fibers, by adding or subtracting a
number of fibers or by using different sizes of fiber to obtain the desired
screen resolution.
The quality of a video image depends upon two key factors. One is the
number of dots or pixels which form the picture and create the resolution of a
screen. The Company's Screen may contain up to twenty times the number of pixels
as competitive large screen displays. Secondly, the contrast ratio depends upon
the amount of ambient light reflected back to the viewer's eyes by the screen
surface. Since the FiberVision Screen surface is black in appearance, very
little ambient light is reflected, resulting in a greater contrast ratio.
Management believes that the Company's FiberVision Screen technology
possesses unique features when compared to other display screen technologies.
The FiberVision Screen's most unique feature is a viewing angle of up to 170
degrees, both horizontally and vertically. Further, the Screen is mainly
constructed of very durable plastic materials. The FiberVision Screen itself has
no electrical or moving parts which will wear out or need replacement.
Therefore, replacement of the Screen itself is generally not necessary in
permanent installations.
FiberVision Screens are less costly to produce than some competitive
systems due to the simplicity of the FiberVision design as compared to the more
complex, and expensive components and wiring of competitive systems. The Screen
itself is a "passive" display system and contains no electrical components or
moving parts and the electrical components of a FiberVision Screen are limited
to third party image projection systems.
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At this time, the Company plans to incorporate projection products
manufactured by a number of third party electronics companies to illuminate the
Screen. As image projectors continue to become higher in quality, brighter and
lower in cost, replacing projectors (the light source) is more easily
accomplished.
The Partnership previously developed a method for combining the fiber optic
modules with a Light Emitting Diode ("LED") image emitter array board. DOL
produced an engineering proof of concept demonstrating the feasibility of
combining the technologies. Due to the expense and complexity of manufacturing
this technology, along with the recent emergence of extremely bright
conventional video projection products, and conventional LED matrix screens,
ongoing development of the LED image emitter array board has been suspended.
Current Developments
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Sales: During the fiscal year ended June 30, 1997, the Company, through the
Partnership, sold and installed one 9'x12' Screen at the National Western Event
Center in Denver, Colorado in January, 1997. In addition to providing the
Company with its first revenues from the sale (via DOL) of the Product since
1986, this installation continues to serve as a marketing showpiece, along with
a 7'x9' Screen completed by the Company in August, 1997.
The Exchange: Effective May 21, 1997, the Company experienced a change in
control as a result of an exchange transaction (the "Exchange"). The Exchange
was completed pursuant to an agreement (the "Exchange Agreement") dated May 21,
1997, by and between the Company, the Partnership, Display Group, LLC, and
certain individuals and two privately held general partnerships (all of the
individual investors together with the foregoing general partnerships are
hereinafter referred to collectively as the "Investors").
The Company issued 17,509,868 shares of Common Stock and 1,843,900 shares
of a newly created class of Series C Preferred Stock in exchange for equity
securities and convertible notes originally acquired by the Investors for
$2,302,567. The number of shares issued to the Investors was based on a
conversion rate of $.1315 per share, the estimated fair market value for the
Common Stock at the time of the Exchange. The conversion rate was determined by
the Company's Board of Directors and confirmed in a Fairness Opinion received by
the Company in connection with the Exchange. All of the stock issued in the
Exchange was issued pursuant to exemptions from the registration requirements of
the Securities Act of 1933, as amended. However, the Company granted to the
Investors piggyback registration rights with regard to the Common Stock.
The assets transferred by the Investors include Series B Preferred Stock in
the Company and equity interests in the Partnership and Display Group, together
with promissory notes representing loans previously made to the Partnership and
Display Group. The capital stock was distributed among the Investors in
accordance with their interest in the assets transferred to the Company. The
Exchange Agreement and the distribution of capital stock was designed to
approximate the economic benefits held by the Investors in the Series B
Preferred Stock and the Partnership prior to the Exchange. The Series C
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Preferred Stock pays dividend and liquidation preferences which, if paid by the
Company, would provide the Investors an economic return comparable to that which
they were entitled under the terms of the original Partnership Agreement.
Acquisition or Disposition of Assets: In connection with the Exchange, the
Company acquired all of the assets and liabilities of the Partnership and
Display Group. In connection with the Exchange Agreement, the Company became the
owner of all the equity interests of both the Partnership and Display Group,
effectively making those entities wholly-owned subsidiaries of the Company.
The assets of the Partnership prior to the Exchange included patents to the
display screen technology, together with associated intangibles and agreements
associated with the manufacturing, marketing and selling of display screens. The
assets of Display Group consisted of rights in two matters of pending
litigation, as well as 350,000 shares of Common Stock of the Company acquired in
connection with a settlement agreement.
Management Changes. Subsequent to fiscal year end 1997 and in connection
with the Exchange, ADTI increased its board of directors from three (3) to seven
(7) members and hired a new President and Chief Executive Officer. (See Part
III, Item 9. Directors, Executives, Officers, Promoters and Control Persons of
the Registrant; Compliance with Section 16(a) of the Exchange Act).
Management efforts during the fiscal year ended June 30, 1997 were
primarily focused on raising additional capital, developing and demonstrating
the technology, completing the Exchange transaction and the consolidation of
operations, and taking steps necessary to preserve and protect the technology.
Mitsubishi Relationship
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In December of 1985, ADTI executed a letter of intent with Mitsubishi Rayon
of Japan outlining a number of interests which led to an ongoing active
relationship for more than three years. Pursuant to additional agreements
entered into with Mitsubishi Rayon, ADTI a) licensed its technology to
Mitsubishi Rayon, exclusive in Japan and non-exclusive throughout the world
(excluding North America and products for the home television market) for an
eleven year period; b) sold them 600,000 shares of Common Stock of ADTI; and, c)
sold product to Mitsubishi Rayon. ADTI received payments of $4,400,000 and
future royalties based on a percentage of sales (as specified) under these
agreements. Minimum annual royalties, as defined, were prepaid in the amount of
$350,000 in December of 1988. Mitsubishi experienced many of the same
difficulties with the projection brightness aspect of the product as did ADTI.
To the best knowledge of management, Mitsubishi currently is not pursuing
further development of the Company's products. Management is not aware of any
additional royalty fees due ADTI. The license agreement expires on December 22,
1997.
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Toshiba Relationship
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Commencing on July 1, 1997, ADTI entered into a Sales Representative
Agreement with Toshiba Lighting America, Inc. ("TLAI") to be the exclusive sales
representative in the continental United States for the Toshiba GiantVision(TM)
outdoor display screens. ADTI will receive the greater of (i) a 50% commission
on gross margin or (ii) 3% of the selling price for GiantVision systems sold in
the continental U.S.A. by the Company. In addition, ADTI entered into a Service
Agreement with Toshiba Lighting and Technology Corporation ("TLT") also
effective July 1, 1997. The purpose of this Service Agreement is to provide
technical support for GiantVision products sold in the continental U.S.A. and to
provide market research information for Toshiba in consideration of payment to
ADTI of $5,000 per month for six months ending in December 1997, unless mutually
extended by the parties.
Manufacturing
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The Company has developed and patented a semi-automated manufacturing
system for production of the Screen. This system automatically aligns the
optical fibers allowing the fiber optics and plastic spacers to be bonded into
screen blocks. The screen blocks are then manually cut at an angle so that each
fiber has a larger opening at the point where light exits the fiber. The spacer
block becomes two 6"x 6" screen modules. The screen modules are then assembled
in rows and columns to create the Screen's front faceplate. This manufacturing
process is currently completed by the Company but on a larger scale may be
subcontracted to third parties, either totally or in part. The Company is
currently investigating the hiring of an engineering/manufacturing firm to
assist the Company in the redesigning of the Screen in order to improve the
manufactured quality of the Screen and to prepare the Screen technology for more
fully automated production.
The FiberVision Screen is illuminated by projecting an image into a
coherently bundled series of fiber optic strands that form the input matrix. The
input matrix is 36 times smaller than the Screen's front faceplate. For
instance, a 9' x 12' Screen has an image input matrix 18" x 24" in size. The
projected image travels through the fibers and exits the Screen's front
faceplate at 36 times the size of the projected input image. Focusing and
projecting an image into the Screen's input matrix significantly reduces the
throw distance necessary for projection displays. Management believes this
offers an advantage for large screen display applications.
Manufacturing has not been a material part of the business to date.
However, the Company manufactured a 9'x12' screen which was installed at the
National Western Event Center in Denver Colorado during fiscal 1997 and an
additional 7' x 9' FiberVision Screen in August 1997. Screen modules were
manufactured by Company employees. Final assembly of the Screen was also
completed by Company employees. The Screen structure was contracted to a third
party.
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Raw Materials
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Procurement of raw materials has not been a significant factor in the
Company's operations due to the early stages of manufacturing in which the
Company is engaged. Raw materials required to produce the Screen consist
primarily of optical fibers and plastic spacers. The Company currently obtains
its fibers from Mitsubishi Rayon of Japan. The Company is aware of two
additional fiber suppliers with comparable quality and pricing. The plastic
spacers are manufactured by a plastics molding company in Colorado. Spacers
could be obtained from a number of alternate sources. Other components such as
glue, steel, aluminum, etc. are readily available.
Marketing
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The Company has concentrated its immediate marketing efforts to sell
products in the large screen market. In this market, the Company has initially
targeted sports facilities, convention and transportation centers, casinos,
users of message boards, and users of signage for advertising and information
applications. The Company will also target the audio visual rental display
market for video reinforcement at concerts and other special events. The Company
also plans to investigate the small screen video display market in the future.
The Company has made only one commercial sale of the FiberVision Screen
since 1986 (see "Sales" above) due to multiple factors. Such factors include the
previous lack of adequate projection systems, the working capital necessary to
aggressively market its products and certain deficiencies relating to the Screen
surface. Less than ideal overall quality of the Screen has been primarily due to
the number of manual vs. automated processes that have been employed during the
Company's limited manufacturing history. However, the quality of the Screen as
produced at year end is adequate to utilize as a demonstration unit for limited
marketing purposes and may also be adequate to be sold for some applications.
Nevertheless, it is the Company's goal to address and resolve these limiting
factors.
The Company plans to develop a current marketing study and a detailed
marketing plan. Through this effort, management intends to determine the optimal
manufacturing capacity needed to satisfy the estimated market demand. As the
manufacturing process is more fully developed and automated, ADTI may then
expand its marketing efforts to further explore new and existing markets.
However, there can be no assurance that sufficient capital will be obtained to
undertake these activities or that the manufacturing process will be
significantly improved.
Competition
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Fiber Optic Systems: Management is not aware of any other products on the
market which are based on the same technology as the FiberVision Screens.
However, InWave, Inc. of Eugene, Oregon also manufactures a fiber optic display
screen. The Company believes that InWave is currently selling its product for
advertising applications. The fiber optic display sold by InWave has a lower
resolution and a narrower viewing angle than the FiberVision product and it is
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manufactured using a significantly different method. To the best of the
Company's knowledge, the InWave product is made entirely by a manual process and
does not utilize an automated manufacturing method. In addition, the Company is
aware that Toray Industries, Inc. is currently experimenting in the development
of fiber optic video displays.
Light Bulb or CRT Systems: Several companies, including Sony, Panasonic,
Toshiba, and Mitsubishi, manufacture large video screens which are based on
light bulb or CRT technology. These systems are competitive with the FiberVision
Screen and currently represent the majority of the large screen market.
Notwithstanding the competitive advantage of these companies, in the opinion of
management, the drawbacks of such systems in comparison with the FiberVision
Screen are lower resolution, higher maintenance costs, higher consumption of
electricity, and higher purchase price.
Projection Systems: Front and rear screen projection systems are currently
useful only in controlled ambient light environments. Limited viewing angle, low
contrast ratio, and need for a long throw distance are drawbacks to front and
rear screen projection systems. However, these projection systems represent a
majority of the market in the video and display market segments consisting of
conference rooms, schools, sports bars, and casinos. Currently, numerous front
and rear screen projection systems are manufactured and marketed by many major
corporations, including Digital Projection, Inc., Barco, Sony, and Hughes.
Videowalls: Videowalls are assembled using multiple rear screen projection
televisions. These rear screen projection televisions are stacked one upon
another in columns and side by side in rows to form one giant screen. Less
expensive and higher in resolution than the CRT and light bulb displays, the
Videowall is an alternative for video reinforcement. Videowalls are mainly used
for sports events, concerts, trade shows, conventions and other special events
for information and amusement. Also, in the last several years, Videowalls have
been used quite successfully for video merchandising in retail stores and malls.
Limitations of this technology include a limited viewing angle, visible seams,
non-uniform color and brightness, lack of contrast ratio, and lack of necessary
brightness for outdoor use.
LED Systems: The recent development of blue light emitting diodes ("LEDs")
has resulted in the emergence of full color LED video displays. This technology
has higher resolution than competing light bulb and CRT displays. While LEDs
last significantly longer and require less power than light bulb and CRT display
technologies, LED brightness fades with usage resulting in lack of color and
brightness uniformity in the display. Management believes the FiberVision Screen
has many advantages over the LED display products currently being introduced.
However, LED displays represent a major new competitive challenge for the
FiberVision Screen. Although the FiberVision Screen has some unique advantages
over LED technology, the LED displays are being marketed by major electronics
manufacturers, including Sony, Mitsubishi and Panasonic. These and other
companies have begun selling LED displays into large screen markets, such as
sports arenas and advertising marquees.
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In summary, the Company is subject to active competition from various
companies in the video display industry. Most of these companies have
substantially greater financial and human resources and production capabilities
than those of the Company. These competitors have more well-established products
in the market. The Company is at a substantial competitive disadvantage because
of the new technology upon which its products are based and the limited track
record for those products.
Research and Development
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During fiscal 1997, the Company continued to make improvements to the
Screen. Most improvements were focused on the integration of new projection
technology to the fiber optic screen. In addition, many cosmetic improvements
related to the Screen to make it more efficient and uniform in appearance have
been made during 1997. Approximately $130,000 was spent on research and
development by the Company and DOL during the fiscal year ended June 30, 1997.
Proprietary Rights
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The Company's product is predicated on a proprietary fiber optic display
module with coherently ordered fibers which can be designed and configured in a
variety of sizes, shapes and resolution to provide large and small display
screen products. Since its inception, the Company has been issued various
patents covering its technology, products, components, assembly methods and
processes, primarily relating to the fiber optic module. The first patent for
the Screen and manufacturing method for the Screen was filed in February 1984
and subsequently issued in March, 1987. The Company acquired this patent and all
technology, processes, formula and know how, that relate directly or indirectly
to fiber optics display technology from the original holder, in exchange for a
limited profit interest in the Company. However, it is Management's belief that
this profit interest has been relinquished based upon the review of the original
assignment and other documents executed with the original patent holder.
The Company has subsequently been granted or assigned five additional
patents covering the design and manufacturing process for the FiberVision
Screen. One of the additional patents which was considered by management to be
non-essential has expired. The Company has an additional patent pending with the
U.S. Patent and Trademark Office. The Company intends to file for new patents on
proprietary developments as they occur. The Company believes these patents to be
material to its business objectives.
LED technology licensed from a third party , which was under development by
the Company (via the Partnership) in fiscal years 1994 through 1997, was
intended to refine the light source for the fiber optic screen and was the
subject of a legal dispute during fiscal 1997. ADTI, the Partnership and Display
Group reached a settlement in that litigation whereby Visual Optics Inc., holder
of the patent, assigned to the Company, the patent in dispute by the parties.
The Visual Optics, Inc. patent was previously licensed on a non-exclusive basis
to ADTI and transferred to the Partnership at its formation. Pursuant to the
Exchange, this patent was reassigned to ADTI, along with other intangibles and
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consideration. The Company has subsequently suspended further development of
this technology due to feasibility and cost issues. (See "The Product" under
Item 1. Business)
The Company seeks to protect and develop its technology for manufacturing
FiberVision Screens in strict confidence.
Government Regulations
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Certain manufacturing processes used by the Company required small
quantities of toxic materials consisting of glues and cleaning solvents. These
materials are standard compounds and are commonly used in many industries.
However, these materials are subject to regulation, therefore, the Occupational
Safety and Health Administration requires the Company to educate its employees
and maintain procedures for the safe storage, handling, and use of such
materials. Minimal equipment or facilities are required to conform to
environmental regulations. The Company will collect all waste solvents and solid
materials and may use hazardous materials ("HAZMAT") subcontractors to destroy
toxic chemicals. Management estimates the cost of safety procedures and HAZMAT
subcontractors will average less than $2,000 per year subject to the volume of
production in the Company's manufacturing facility.
Employees
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Prior to the Exchange, ADTI had no full or part time employees as all
operations were conducted by the Partnership. In June 1997, employees of the
Partnership became employees of ADTI. As of October 10, 1997, ADTI employed nine
full-time employees and one part-time employee, who conducted research and
development, production, marketing and administrative functions. The Company may
employ additional staff as manufacturing requirements dictate and working
capital permits. The officers of ADTI were not paid by ADTI until completion of
the Exchange. They were employees of and paid by the Partnership through the
first eleven months of fiscal 1997 and are currently paid by ADTI. The Company
also retains various consultants on a contract basis as needed for management,
legal, and accounting services.
Item 2. DESCRIPTION OF PROPERTY
ADTI currently occupies office, R & D and manufacturing space at 1251 South
Huron, Units A, B and C, Denver, Colorado 80223. The facility has a total of
approximately 6,300 square feet at a current rental cost of $2,628 per month. Of
the total space, approximately 40 percent is office space and 60 percent is R &
D and manufacturing area. Occupancy is currently on a month-to-month basis.
Management deems the current space to be adequate for its present operations,
however, as working capital permits and operations dictate, the Company may
consider additional space in the future.
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In June of 1995, Display Optics, Ltd. entered into a sub-lease for
additional office space at 5251 DTC Parkway, Suite 1210, Englewood, CO 80111.
The facility had a total of 4,150 square feet, of which DOL occupied
approximately 475 square feet exclusively and shared common areas comprising
approximately 1,050 square feet. The rent to DOL for this facility was
approximately $1,600 per month. Other office expenses were shared based on
percentage of usage. The sub-lease expired and the premises were vacated on June
30, 1997.
Item 3. LEGAL PROCEEDINGS
DISPLAY GROUP, LLC vs. AMERICAN CONSOLIDATED GROWTH CORPORATION.
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This civil action involves ownership of Common Stock of ADTI. Plaintiff
Display Group, LLC filed a civil action dated July 19, 1996 against American
Consolidated Growth Corporation ("ACGC") and AGT Sports, Inc. in the Arapahoe
County District Court, Civil Action No. 96- CV1560, seeking ownership of
approximately 1,400,000 shares of Common Stock of ADTI pursuant to a security
interest owned by Display Group. That security interest was acquired from the
Resolution Trust Corporation ("RTC") pursuant to a public sale.
Pursuant to an order of the District Court dated October 9, 1996, the
Common Stock which is the subject of this dispute was released to Display Group.
Pursuant to the Court's Order, Display Group is entitled to possess, use and
exercise voting rights of the Common Stock pending final judgement on its claim
for possession. However, Display Group may not transfer, sell, or otherwise
assign the stock pending the outcome of the case. Trial was originally set for
September 29, 1997, but was continued due to Court docket considerations until
August, 1998.
In the event this civil action is successfully concluded in favor of
Display Group, the Company intends to cause the shares recovered to be canceled
and returned to the Company's treasury. However, there is no assurance that
Display Group will prevail at trial or that a settlement will be achieved.
DISPLAY GROUP, LLC vs CORPORATE PARTNERS, INC. and JEFFREY S. ROBINSON
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This civil action arises from the same loan package acquired by Display
Group, LLC from the RTC that is described above regarding the claim on the
collateral against American Consolidated Growth Corporation. Plaintiff Display
Group, LLC filed a civil action against Corporate Partners, Inc. ("CPI") and
Jeffrey S. Robinson in the District Court of Lubbock County, Texas, the 140th
Judicial District, Civil Action No. 96-557024. This civil action seeks judgment
on a promissory note dated September 19, 1990 (the "Note") and against Jeffrey
Robinson under a Guarantee and Confirmation of Guarantee of that Note.
In defense of this civil action, defendants have raised an alleged
agreement dated October 21, 1992 between ACGC and the Company as an affirmative
defense and counterclaim. According to defendants, the Company was obligated to
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relieve ACGC from liability on a debenture in the amount of $2,175,000 and
implicitly contend that this would have discharged defendants' liability to
Display Group on the Note and Guarantee. The counterclaim does not address how,
if at all, Display Group is obligated on such agreement.
Display Group filed a Motion for Summary Judgment in this action seeking to
expedite a decision in its favor prior to trial. The Motion is currently pending
before the Court. However, there can be no assurance that Display Group will
prevail in this action, either on a Motion or at trial.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the fourth
quarter of ADTI's fiscal year.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows the range of high and low bids for ADTI's Common
Stock for the last two fiscal years. Since completion of its public offering in
1986, ADTI 's securities have traded over the counter and the Common Stock is
currently quoted on the electronic bulletin board maintained by the NASD and is
listed in the pink sheets maintained by members of the NASD and published by the
National Quotation Bureau. Trading in the Common Stock of ADTI is very limited
at present. The quotations represent prices between dealers as shown on the
electronic bulletin board, do not include retail markup, markdown or
commissions, and may not necessarily represent actual transactions.
Fiscal Quarter Ended High Low
---- ---
1996
September 30, 1995 $0.3125 $0.1250
December 31, 1995 .2500 .1250
March 31, 1996 .1875 .1250
June 30, 1996 .1875 .1250
1997
September 30, 1996 $0.1250 .0625
December 31, 1996 .0625 .0625
March 31, 1997 .2500 .0313
June 30, 1997 .2500 .1250
11
<PAGE>
As of October 13, 1997 there were approximately 1,733 record holders of
ADTI's Common Stock. No dividends have been paid with respect to ADTI's Common
Stock and ADTI has no present plans to pay dividends in the foreseeable future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Special Note Regarding Forward Looking Statements
Certain statements contained herein constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements include, without limitation, statements regarding the
Company's anticipated marketing and production, need for working capital, future
revenues and results of operations. Factors that could cause actual results to
differ materially include, among others, the following: the ability of the
Company to obtain sufficient capital, to further develop and improve the
manufacturing process for its product, to manufacture its product at a cost that
would result in profitable sales, to sell a sufficient number of screens at a
sufficient price to result in positive operating margins, to complete a
marketing study and implement a marketing plan, to attract and retain qualified
management and other personnel, and generally to successfully execute a business
plan that will take the Company from a development stage entity to a profitable
operating company. Many of these factors are outside the control of the Company.
Investors are cautioned not to put undue reliance on forward looking statements.
The Company disclaims any intent or obligation to update publicly these forward
looking statements, whether as a result of new information, future events or
otherwise.
General
- -------
During December 1993, the Company and other individual investors organized
a limited partnership, Display Optics, Ltd. (the "Partnership" or "DOL"), to
obtain capital and to continue development of the fiber optic video technology.
The Company acts as a general partner and the Partnership is managed by Display
Group, LLC. Display Group was formed by the limited partners of the Partnership
and other individuals and entities to manage and partially fund operations of
the Partnership.
The Company conducted substantially all of its business through the
Partnership until the completion of the Exchange effective May 21, 1997 (see
below). Based on an analysis of the Partnership Agreement and generally accepted
accounting principles, a research and development arrangement existed between
the Partnership and the Company which required ADTI to record the expenses
incurred by the Partnership as a liability.
12
<PAGE>
Effective May 21, 1997, the Company acquired the Partnership and Display
Group (the "Exchange") in which the operations of the Partnership were
consolidated with those of the Company. The Company issued 17,509,868 shares of
Common Stock and 1,843,900 shares of a newly created class of Series C Preferred
Stock in exchange for equity securities and convertible notes originally
acquired by a group of investors. (See "The Exchange" under Item 1. Business,
above) The Exchange resulted in those investors acquiring in the aggregate a
direct interest in Common Stock equal to approximately eighty two percent (82%)
of the Company's issued and outstanding Common Stock.
The Exchange was accounted for using the purchase method of accounting. As
the former members of Display Group acquired a majority of the Company's Common
Stock, for financial statement reporting purposes, the Exchange was treated as a
reverse acquisition whereby Display Group was considered the acquiring entity.
Therefore, the financial statements for periods prior to May 31, 1997 have been
restated to reflect only the results of operations of Display Group. Subsequent
to May 31, 1997, the financial statements reflect the combined operations of the
Company, DOL and Display Group.
Results of Operations
- ---------------------
For the fiscal year ended June 30, 1997, the Company reported a net loss of
($2,718,839) as compared to ($24,430) for fiscal 1996. The increase in 1997 from
1996 is primarily due to the research and development (R&D) write down of
$2,536,494 reported in 1997 in connection with the Exchange. This amount
represents the excess of the purchase price over the net liabilities acquired
which was expensed in the current fiscal year due to the purchase of incomplete
research and development.
The Company reported total revenue of $97,755 and $59,671 for the fiscal
years ended June 30, 1997 and 1996, respectively, which consisted entirely of
interest income from loans made by Display Group to the Partnership.
The Company reported no revenue from the sale of its product for the fiscal
year ended June 30, 1997 due to the accounting treatment of the Exchange
transaction described above. There was one sale of the Company's product for
$110,000 and other revenues received of $22,000 (through DOL) during the fiscal
year ended June 30, 1997. The Company manufactured the one screen it sold
internally and installed this 9' x 12' fiber optic screen at the National
Western Event Center in Denver, Colorado. This installation represents the first
sale of the Company's product since the late 1980's.
The Company reported general and administrative expenses of $134,102 and
$5,018 for the years ended June 30, 1997 and 1996, respectively. These increases
in fiscal 1997 from amounts reported in fiscal 1996 were primarily due to the
restatement of the financial statements reporting only Display Group activity
13
<PAGE>
through May 31, 1997 and the inclusion of operational activity of the combined
entities for the last month of the current fiscal year. The Company has also
recorded $8,446 in research and development expense since the Exchange.
Interest income increased to $97,755 in the current fiscal year from
$59,671 for the same fiscal period of the prior year primarily due to the
increase in funds advanced from Display Group to DOL during the current fiscal
year. Interest expense increased to $137,552 in the current fiscal year from
$79,083 for the same fiscal period of the prior year primarily due to an
increase in funds advanced from outside investors to Display Group during the
current fiscal year.
Liquidity and Capital Resources
- -------------------------------
Due to significant costs associated with development and marketing of the
Company's products and the lack of material sales to date, the Company has
experienced a continuing need for financing since inception. This need became
particularly acute beginning in 1989, following protracted litigation over the
Company's technology. The Company's operations were essentially dormant from
approximately 1990 to 1993. In fiscal 1994, ADTI formed the Partnership to
obtain capital to continue development of its technology. (See General, above)
The Company and its subsidiaries have been totally dependent on financing
from outside sources to fund operations for more than four years. At June 30,
1997, the Company reported negative net worth of $266,864 and negative working
capital of $871,893. The Company will require additional capital for
administrative expenses, continued development of the product, further
automation of the manufacturing process and marketing costs. Management believes
that the Company's continued existence is dependent upon its ability to: 1)
perfect and further automate the manufacturing process; 2) successfully market
the product; 3) obtain additional sources of funding through outside sources;
and 4) achieve and maintain profitable operations. Although management is
optimistic the Company will be able to achieve these objectives, there can be no
assurance that the Company will be able to obtain sufficient additional capital
or manufacture or sell its products on terms and conditions satisfactory to the
Company.
During the fiscal year ended June 30, 1997, the Company and its
subsidiaries (prior to the Exchange) borrowed an additional, $5,000 and
$651,535, respectively, from the Investors. (See General, above)
The Company completed a private placement of its Common Stock to a single
qualified investor. The Company sold 10% convertible promissory notes in the
aggregate principal amount of $550,000, of which $500,000 was received during
fiscal 1997 and $50,000 was received subsequent to fiscal year end. These notes
are convertible into shares of the Company's Common Stock at the rate of $0.1315
per share and are payable upon the earliest to occur of completion of a
subsequent private placement or December 31, 1997. In August, 1997, the same
accredited investor loaned the Company an additional $50,000 at 10% per annum
due the earlier to occur of completion of a subsequent private placement or
14
<PAGE>
November 6, 1997. In September and October 1997, a current shareholder loaned
the Company $91,000. Proceeds from the loans received in fiscal 1997 were used
for manufacturing of the 9'x12' screen sold and a 7'x9' screen, ongoing product
development, marketing efforts, operating expenses and working capital. On
October 14, 1997, the Company received notice from the noteholder to convert the
$550,000 of convertible notes into Common Stock.
On October 10, 1997, the Company initiated an additional limited private
placement to be offered to qualified investors. The private placement provides
for the issuance of a minimum of $550,000 and a maximum of $1,000,000 of 10%
convertible promissory notes issuable in increments of $10,000. The Notes will
be due October 15, 2000 and will be convertible, at the option of the
noteholder, into shares of the Company's Common Stock at the rate of $0.1615 per
share. The Company will have the right to call these notes after one year and
the note holders will have 30 days in which to convert if these notes are called
by the Company. The Company may elect to pay interest on any of these notes
converted in cash or by issuance of additional shares of the Company's Common
Stock.
ADTI reported a working capital deficit position at June 30, 1997. Current
liabilities exceeded current assets by $871,893. At June 30, 1997, current
liabilities consisted of trade payables and accrued expenses of $669,634
primarily due to litigation costs and the costs of the Exchange, (See Item 3.
Legal Proceedings, above) and current 10% convertible notes payable totaling
$500,000. As noted above, these notes will be converted into Common Stock.
Cash flows from financing activities for the fiscal year ended June 30,
1997 consisted entirely of a single loan to Display Group from a member. The
Company also reported cash flows from investing activities in connection with
the Exchange of $303,812. Cash flows from financing and investing activities for
1997 were used for investments in capital equipment of approximately $15,099 and
operating activities and were partially advanced to DOL prior to the Exchange.
In fiscal 1996, cash flows from financing activities were entirely related
to loans or equity investments made to Display Group , or loan guarantees on
behalf of Display Group by its members. These funds were primarily advanced to
DOL and were also used to purchase the promissory note from the RTC. (See Item
3. Legal Proceedings, above)
The Company's efforts will continue to be focused on further development of
the FiberVision Screen and pursuing engineering expertise for the design and
development of a further automated manufacturing system. The Company is also
planning to create a current marketing study and a detailed marketing plan. In
addition, the Company will continue efforts on raising additional capital
through private placements or other sources. There can be no assurances that
management will be able to acquire the capital needed or be successful in
achieving these objectives.
15
<PAGE>
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards 128, "Earnings per Share" and Statement of
Financial Accounting Standards 19, "Disclosure of Information About an Entity's
Capital Structure." Statement 128 provides a different method of calculation of
earnings per share than is currently used in accordance with Accounting
Principles Board Opinion 15, "Earnings per Share". Statement 128 provides for
the calculation of "basic" and "diluted"earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
Common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. Statement 129 establishes standards for disclosing
information about an entity's capital structure. Statements 128 and 129 are
effective for financial statements issued for periods ending after December 15,
1997.
The Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standards 130, "Reporting Comprehensive Income."
Statement 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, Statement 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other financial
statements. Statement 130 is effective for financial statements for periods
beginning December 15, 1997 and require comparative information for earlier
years to be restated.
Because of the recent issuance of these standards, management has been
unable to fully evaluate the impact, if any, the standards may have on the
future financial statement disclosures. Results of operations and financial
position, however , will be unaffected by implementation of these standards.
Item 7. FINANCIAL STATEMENTS
See index to financial statements on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table sets forth certain information as to each director and
executive officer of ADTI as of October 10, 1997:
Directors and Officers Age Position with ADTI
- ---------------------- --- ------------------
Gene W. Schneider 71 Chairman of the Board and Director
Kenneth P. Warner 42 President and Chief Executive Officer
Darrell D. Avey 41 Vice President and Director
John D. Kilgore 44 Vice President of Marketing and
Director
Matthew W. Shankle 37 Vice President
Rebecca L. McCall 40 Secretary
David J. Babiarz, Esq. 42 Assistant Secretary
Vincent D. Bradshaw 56 Director
Bruce H. Etkin 46 Director
Keith A. Hancock 41 Director
Mark L. Schneider** 42 Director
* Matthew W. Shankle is the son-in-law of Gene W. Schneider and the
brother-in-law of Mark L. Schneider.
** Mark L. Schneider is the son of Gene W. Schneider and the brother-in-law of
Matthew W. Shankle.
17
<PAGE>
Business Experience for Executive Officers and Directors:
- ---------------------------------------------------------
Gene W. Schneider -Mr. Schneider was appointed a Director effective September
16, 1997 and as Chairman of the Board of Directors on October 3, 1997. Since
1989, Gene W. Schneider has served as Chairman and/or Chief Executive Officer of
United International Holdings, Inc. ("UIH"), a NASDAQ publicly traded Company
that provides multichannel television services in Europe, Asia/Pacific, and
South America. Prior to that, Mr. Schneider was a Director and Officer of United
Cable Television Corporation, a NYSE publicly-traded company, and its
predecessors since inception. United Cable merged with several entities
including United Artists Communications to form United Artists Entertainment
Company ("UAEC"), a publicly-traded company, where Mr. Schneider was Chairman
until 1991, when UAEC merged with Tele-Communications, Inc. Mr. Schneider is
currently on the board of five private corporations in addition to being on the
board of UIH.
Kenneth P. Warner-Mr. Warner was appointed President and Chief Executive Officer
of the Company effective September 17, 1997. He is responsible for the overall
day-to-day operations of the Company. He is also responsible for the overall
day-to-day strategic direction of the Company in conjunction with the Board of
Directors. From 1995 to 1997, Mr. Warner worked as a consultant, assisting
various start-up companies and performing investment reviews. From 1994 to 1995,
he was President of Cable Audit Associates, a company auditing the cable
television operators on behalf of the cable television programmers. Mr. Warner
was a Regional Vice President of UIH from 1993 to 1994. In 1988, he started and
served as President until 1993 of a company that opened and operated 112
franchised Blockbuster Video(R) stores. Prior to that, Mr. Warner was an
executive in the cable television industry for approximately nine (9) years. He
began his career with Arthur Andersen & Co., a Big 6 CPA firm.
Darrell D. Avey - Mr. Avey has been continuously affiliated with the Company
since joining it in September 1985 and has held numerous positions throughout
his tenure. In January of 1990, Mr. Avey was named Chairman of the Board of
Directors and was appointed President on March 7, 1997 where he continued to
serve until October 3, 1997, when he was named a Vice President of the Company.
As Chairman and President, he was in charge of creating new opportunities for
the Company to exploit its fiber optic technologies and overseeing production
and assembly. Prior to his appointment as Chairman, Mr. Avey was the production
manager, supervising the Company's assembly, quality control and machine shop
facilities. Mr. Avey's other positions with the Company have been as project
scheduler and purchasing agent.
John D. Kilgore - Mr. Kilgore was appointed a director effective May 12, 1997
and was named Vice President of Marketing on October 3, 1997. Since May, 1996,
he has been Vice President of Sales of Display Optics, Ltd., a privately held
limited partnership presently wholly owned by the Company. In his capacity, Mr.
Kilgore has been responsible for sales and marketing of the Company's video
display products. Previously, Mr. Kilgore was employed by Toshiba America
Consumer Products, Inc. from 1994 to 1996, as Manager of Sales responsible for
market development and sale of large screen display products. From 1992 to 1994,
Mr. Kilgore was employed by Phillips Consumer Electronics Company as a Regional
Sales Specialist. Mr. Kilgore was employed by the Company from 1984 to 1990 as
Vice President of Marketing and was responsible for marketing and investor
relations during the Company's initial public offering.
18
<PAGE>
Matthew W. Shankle - Mr. Shankle was appointed as a Vice President of the
Company on October 3, 1997. From June 1996 to September 1997, he served as a
consultant to the Company for product research and development (R&D). Mr.
Shankle is responsible for sales and marketing of the Toshiba GiantVision(TM) in
the United States pursuant to the Company's agreements with Toshiba affiliates.
He is also responsible for leading the effort to refine and further automate the
Company's manufacturing process. From 1995 to 1997, Mr. Shankle served as an
operations consultant for several high tech R&D/manufacturing subsidiaries of
Telxon Corporation, a NASDAQ publicly- traded company. From 1992 to 1995, Mr.
Shankle was employed by Virtual Vision, Inc. as the R&D/manufacturing facility
development specialist. Mr. Shankle began his career at Lockheed Missiles and
Space in the San Diego area.
Rebecca L. McCall - Ms. McCall was appointed Secretary of the Company on March
7, 1997. She is also the Company's Controller responsible for the Company's
accounting and reporting functions. Previously she served as the accountant for
the Company and Display Optics, Ltd., a privately held limited partnership
presently wholly-owned by the Company. From 1993 to the present, Ms. McCall
provided general accounting services for several small companies. From 1990 to
1993, she served as the Controller for Television Technology Corporation in
Louisville, Colorado, a small manufacturer of radio and television station
transmission equipment. From 1985 to 1990, Ms. McCall held various accounting
positions with the Company, including Vice President of Administration,
Secretary and Director of Accounting.
David J. Babiarz, Esq. - Mr. Babiarz was appointed Assistant Secretary on
October 3, 1997. He has been President and Director of the law firm of Overton,
Babiarz & Sykes, P.C. (OB&S) of Englewood, CO since 1994. From 1992 to 1994, Mr.
Babiarz served as a Vice President of OB&S and from 1986 to 1992, as the
Secretary and a Director. Mr. Babiarz practices corporate and securities law.
Vincent D. Bradshaw -Mr. Bradshaw was appointed a Director effective May 12,
1997. Mr. Bradshaw has been Vice President of Online System Services, Inc., a
publicly-traded Company that provides Internet services, since June, 1996. In
his capacity, Mr. Bradshaw develops and directs sales programs. Previously, Mr.
Bradshaw had been Director of Marketing for Source One Management, Inc., from
1993 to 1996, where he developed and implemented marketing programs for
technical and professional services. From 1987 to 1993, Mr. Bradshaw was a
management consultant. Mr. Bradshaw has also been employed by US West, from 1981
to 1986, as a Vice President for Sales and Director of Government Services, as
well as Division Marketing Manager for AT&T.
19
<PAGE>
Bruce H. Etkin - Mr. Etkin was appointed a Director effective September 16,
1997. Mr. Etkin has been President and Director of Etkin Equities, Inc., a
privately-held real estate development corporation, since 1982. In his capacity,
Mr. Etkin has participated in the development and acquisition of over three
million square feet of commercial, industrial, and retail real estate space in
the Denver, Colorado metropolitan area.
Keith A. Hancock - Mr. Hancock was appointed a Director effective September 16,
1997. Mr. Hancock is President and Chief Executive Officer of Castle Pines
Associates, LLC, a Colorado limited liabiity company that provides management
consulting and other services for start-up and early stage companies. Both Mr.
Hancock and Castle Pines Associates, LLC have also served as a consultant to the
Partnership and the Company for marketing, corporate finance, and strategic
planning since 1995. Mr. Hancock has been President and Chief Executive Officer
of Reserve Battery Cell, L.P., a privately-held Colorado limited partnership,
since 1993. Reserve Battery Cell, L.P. developed, manufactured and distributed
reserve battery products. Mr. Hancock is also a Manager of Display Group, LLC,
the Managing General Partner of Display Optics, Ltd., and in his capacity
oversaw financing for the Partnership. Prior to 1993, Mr. Hancock was Managing
Director for HSA Associates, a high tech marketing consulting and services firm.
Mark L. Schneider - Mr. Schneider was appointed a Director effective September
16, 1997. Mr. Schneider is currently Executive Vice President of UIH where he is
responsible for international investments, a position he has occupied since
December, 1996. He has also been a Director of UIH since its inception. From
1989 to December, 1996, Mr. Schneider served as President or a consultant to
UIH. Mr. Schneider is also currently President and Chief Executive Officer of
United Phillips Communications, a European private corporation which provides
enhanced video, data communication and voice telephoning services. Prior to
1989, Mr. Schneider was a Vice President of Corporate Development of United
Cable Television Corporation in international and domestic acquisitions. Mr.
Schneider also held numerous positions as legislative counsel in Washington,
D.C.
COMPLIANCE WITH SECTION 16.
The following sets forth each director, officer or beneficial owner of more
than ten percent of any class of equity securities of the registrant registered
pursuant to Section 12 that failed to file on a timely basis, Forms 3, 4 or 5 as
required by Section 16(a) during the most recent fiscal year or prior years.
Based upon a review of Forms 13D submitted to the issuer, the Company
believes certain beneficial owners of more than 10% of the Common Stock of ADTI
required to file Forms 3, 4 or 5 pursuant to section 16a have not timely filed
these reports.
The numbers of late Form 3, Form 4 and Form 5 reports, and the late Form 4
transactions reported are as follows:
20
<PAGE>
<TABLE>
<CAPTION>
Name of Reporting Person Late Form 3 Late Form 4 Late Form 5 Transactions
- ------------------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
GS Holdings 1 7 1 12
Display Group 1 12 1 24
Jan E. Helen 1 1 1 1
William W. Becker 1 1 1 1
Mark L. Schneider 1 7 1 9
William J. Elsner 1 1 1 1
Peregrine Investments 1
Daryl H. Owen 1
Lindsay D. Hooper 1
James C. Gould 1
Keith A. Hancock 1 1 1 1
Bruce H. Etkin 1 6 1 8
John Seiver 1 1 1
John Cole 1 1 1
J. Timothy Brittan 1 4 1 4
Display Optics 1 12 1 24
</TABLE>
Item 10. EXECUTIVE COMPENSATION
Compensation
- ------------
The following table sets forth the compensation paid, or to be paid, by the
Company for the services rendered during the fiscal year ended June 30, 1997 to
(a) the Chief Executive Officer of the Company, and (b) each of the four most
highly compensated executive officers who served as executive officers at the
end of the fiscal year and whose total annual salary and bonus exceeded
$100,000.
SUMMARY COMPENSATION
Other Annual
Name Year Salary Bonus Compensation Total
---- ---- ------ ----- ------------ -----
Darrell D. Avey (5) 1997 (1)$77,846 -0- -0- -0-
Former Chairman, 1996 (2)$80,000 -0- -0- -0-
President, Secretary, 1995 (3)$65,000 -0- -0- -0-
Current Vice President
Michael A. Nixon (6) 1997 (4)$ 923 -0- -0- -0-
Former President, 1996 (2)$80,000 -0- -0- -0-
Treasurer 1995 (3)$65,000 -0- -0- -0-
(1) Includes $71,692 in salary paid by Display Optics, Ltd.
21
<PAGE>
(2) Includes $80,000 in salary paid by Display Optics, Ltd.
(3) Includes $65,000 in salary paid by Display Optics, Ltd.
(4) Includes $923 in salary paid by Display Optics, Ltd.
(5) Mr. Avey served as Chairman and Secretary until March 7, 1997 when he
resigned as Secretary and was appointed President. Mr. Avey served as
Chairman and President until October 3, 1997 when Mr. Avey was appointed a
Vice President.
(6) Mr. Nixon resigned as an officer and director effective March 5, 1997.
There were no stock options granted or exercised by any executive officer
during the current fiscal year ended June 30, 1997. Rebecca McCall is the
Company's Secretary and currently holds options to purchase 30,000 shares of the
Company's Common Stock at $.25 per share. These options are currently
exercisable and expire in 2000.
Employment Contract
- -------------------
The current President and Chief Executive Officer signed a three year
employment contract effective September 17, 1997. The contract provides for an
initial annual base salary of $150,000 per year and reimbursement of expenses
incurred on behalf of the Company. The contract can be terminated at will by
either party upon advance written notice. If the executive is terminated by the
Company without cause, he will receive severance payments equal to 25% of his
annual salary if terminated during the first year of the contract; 50% if
terminated during the second year of the contract; and, 75% if terminated in the
last year of the contract.
The executive also received non-qualified stock options for 1,500,000
shares of the Company's Common Stock at an exercise price of $0.1315 per share
pursuant to an option agreement as part of the employment contract. Of that
amount, 437,500 of these options vested upon signing of the contract and 31,250
shares vest on the 16th of each month beginning October 16, 1997 until fully
vested.
Compensation of Directors
- -------------------------
During the fiscal year ended June 30, 1997, fees were paid to directors for
attendance at meetings of the Board of Directors. However, members are
reimbursed for expenses to attend the meetings.
22
<PAGE>
Incentive Plans
Non-qualified Incentive Stock Option Plan
- -----------------------------------------
Effective February 6, 1990, ADTI's Board of Directors adopted a
Non-qualified Incentive Stock Option Plan and reserved 100,000 shares of ADTI's
Common Stock for issuance under this plan. The purpose of this plan is to
provide incentives to key employees, directors and consultants of ADTI. The Plan
is to be administered by ADTI's Board of Directors (the "Board") or a committee
(the "Committee") consisting of not less that three persons. The Board or
Committee has the power under the Plan to grant stock options, discount stock,
stock appreciation rights and related benefits such as loans, tax benefits,
surrender and other rights (each of which is referred to as an "Award").
Eligibility to receive Awards pursuant to the Plan is limited to individuals who
render services which tend to contribute materially to the success of ADTI or
its subsidiaries or which may reasonably be anticipated to contribute materially
to the future success of ADTI or its subsidiaries. The Board or Committee has
discretion as to the number and nature of the Awards granted to any individual.
No option granted under the plan shall have a term in excess of ten years from
the grant date.
Pursuant to this plan, ADTI's Board of Directors, effective February 6,
1990, granted an aggregate of 65,000 options to purchase shares of ADTI's Common
Stock for a per share exercise price of $3.50. All of these options are still
outstanding, exercisable and expire in 2000.
Non-qualified Options
- ---------------------
Prior to fiscal 1997, the Company granted options to purchase 61,500 shares
at $.25 to $10.00 per share. These Non-qualified Options were granted at fair
market value. None of these options have a term in excess of ten years. These
options were outstanding at June 30, 1997, have not been exercised and expire
from 1999 to 2000.
Equity Incentive Plan
- ---------------------
On September 18, 1997, the Board adopted, subject to shareholder approval,
an Equity Incentive Plan and reserved 2,500,000 shares of the Company's Common
Stock for issuance under this plan. The purposes of this plan are to provide
those who are selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such persons a
more direct interest in the future success of the operations of the Company by
relating incentive compensation to increases in shareholder value, so that the
income of those participating in the Plan is more closely aligned with the
income of the Company's shareholders. The Plan is also designed to provide a
financial incentive that will help the Company attract, retain and motivate the
most qualified employees and consultants. The Plan permits the grant of
Incentive Stock Options, Non-qualified Stock Options, Restricted Stock Awards,
Stock Appreciation Rights, Stock Bonuses, Stock Units and other stock grants.
There were no options outstanding under this plan at June 30, 1997.
23
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 10, 1997, certain information
regarding the voting securities of ADTI beneficially owned of record by each
officer, director, each person known by ADTI to own 5% or more of the voting
securities of ADTI, and all officers and directors as a Group. Information
regarding certain beneficial ownership was derived from Schedule 13D, as
amended, received by ADTI from the reporting persons pursuant to requirements of
the Securities and Exchange Commission. As of October 10, 1997, the Company had
outstanding 21,343,923 shares of Common Stock. The voting securities of the
Company consist of i) Common Stock which is entitled to one vote per share; and,
ii) Series C Preferred Stock which have no voting rights with respect to matters
on which the holders of shares of Common Stock are entitled to vote, and one
vote with respect to those matters on which holders of Series C Preferred Stock
are alone entitled to vote, except as provided by law.
Title of Name and address of Amount and nature Percent
Class Beneficial owners of Beneficial Ownership of Class
----- ----------------- ----------------------- --------
Common American Consolidated 1,249,750 5.9%
$.001 Par Growth Corporation (1) Direct
8100 E. Arapahoe Rd., Suite 309
Englewood, CO 80112
Common Darrell D. Avey (2) 296,950 1.4%
$.001 Par 1251 South Huron, Unit C Direct
Denver, CO 80223
Common David J. Babiarz, Esq. (2) 0 0%
$.001 Par 7720 E. Belleview Ave., Suite 200
Englewood, CO 80223
Common William W. Becker 1,873,288 8.8%
$.001 Par Box 143 Direct
Grand Cayman Island,
British West Indies
Common Vincent D Bradshaw (2) 0 0%
$.001 Par 8280 W. Laurel Place, Unit B
Littleton, CO 80123
Common Lawrence F. DeGeorge (3) 4,182,509 16.39%
$.001 Par 3127 Casseckey Island Road Indirect
Jupiter, Florida 33477
24
<PAGE>
Common Display Group, LLC (4)(5) 1,715,030 8.0%
$.001 Par c/o ADTI Direct
1251 S. Huron Street, Unit C
Denver, CO 80223
Common William J. Elsner 1,126,812 5.3%
$.001 Par 83 Glenmoor Place Direct
Englewood, CO 80110
Common Bruce H. Etkin (2) 3,247,457 15.2%
$.001 Par 1512 Larimer St., No. 325 Direct
Denver, CO 80202
Common John D. Kilgore (2) 42,013 0.2%
$.001 Par 1251 South Huron, Unit C Direct
Denver, CO 80223
Common Keith A. Hancock (2) 76,045 0.4%
$.001 Par 200 S. Wilcox St., No.420 Direct
Castle Rock, CO 80104
Common Jan E. Helen 1,126,797 5.3%
$.001 Par 5251 DTC Parkway, Suite 1010 Direct
Englewood, CO 80111
Common Rebecca L. McCall (2)(6) 37,930 0.2%
$.001 Par 1251 S. Huron, Unit C Direct
Denver, CO 80223
Common G. Schneider Holdings, Co. 4,941,959 23.2%
$.001 Par 4643 S. Ulster St., Suite 1300 Direct
Denver, CO 80237
Common Gene W. Schneider (2)(7) 4,941,959 23.2%
$.001 Par 4643 S. Ulster, Suite 1300 Indirect
Denver, CO 80237
Common Mark L. Schneider (2) 2,509,132 11.8%
$.001 Par 4643 S. Ulster St., Suite 1300 Direct
Denver, CO 80237
25
<PAGE>
Common Kenneth P. Warner (2)(8) 1,500,000 6.6%
$.001 Par 1251 S. Huron, Unit C Direct
Denver, CO 80223
Common All current officers 12,651,526 55.3%
directors as a group Direct and
Indirect
(1) See Legal Proceedings
(2) Officer or director.
(3) Includes 4,182,509 shares underlying a convertible promissory note owned by
the reporting person. The note is convertible at the rate of $0.1315 per
share until December 31, 1997.
(4) Includes 1,365,030 shares of Common Stock which the reporting person has
the right to vote pursuant to a court order pending resolution of a civil
proceeding regarding ownership of those shares. Also includes 350,000
shares (Settlement Shares from Michael A. Nixon) to be returned to the
Company as a part of the Exchange Agreement and which will be retired by
the Company.
(5) The Company is owner of 100% of Display Group, LLC as a result of the
Exchange Agreement.
(6) Includes options to purchase 30,000 shares of Common Stock. All of these
options are currently exercisable at $.25 per share and expire in 2000.
(7) Includes 4,941,959 shares of Common Stock owned by G. Schneider Holdings
Co. of which Gene W. Schneider is the general partner. Mr. Schneider holds
no Common Stock directly.
(8) Includes 1,500,000 options to purchase Common Stock at $0.1315 per share.
As of October 10,1997, 437,500 of these options are exercisable.
Changes in Control
- ------------------
In connection with the Exchange Agreement, (See "The Exchange" under Item
1. Business, above) the Company issued to the Investors 17,509,868 shares of
Common Stock. Consequently, the Investors own a total of 17,673,868 shares of
Common Stock of the total issued and outstanding shares of Common Stock of the
Company. As of September 18, 1997, four additional members were approved and
appointed to the Company's Board of Directors, which is now composed of seven
members. The new directors were appointed in accordance with the Exchange
26
<PAGE>
Agreement following delivery of the Schedule 14f-1 to all shareholders of record
and filing with the Securities and Exchange Commission. As a result of these
transactions, the Company has experienced an effective change in control. The
Company knows of no other arrangement or events, the happening of which will
result in a change in control.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended June 30, 1997 and 1996, certain individuals
and entities advanced money to DOL, for which the Company acts as general
partner. Display Group, LLC, the Managing General Partner of Display Optics,
Ltd., together with certain of its former members, have advanced an aggregate of
$1,670,046 and $963,425 to DOL as of the years ended June 30, 1997 and 1996,
respectively. Proceeds from those loans were utilized by the Partnership to
continue research, development, manufacturing and marketing of the Company's
fiber optic display technology.
In conjunction with the loans, the Company entered into certain agreements
with the Investors. Effective May 21, 1997, these loans, together with certain
equity interests in the Company, the Partnership and Display Group, were
exchanged for a total of 17,673,868 shares of the Company's Common Stock and
1,843,900 shares of a newly created Series C Preferred Stock. Further, in
connection with the Exchange Agreement, the parties contributed certain assets,
including the security interest in the Company's technology, and all debt and
equity of the Partnership and Display Group to the Company for an economic
equivalent of equity in the Company.
Darrell D. Avey and Michael A. Nixon, as officers of ADTI were paid salary
by the Partnership for services rendered in connection with administrative,
research and development activities during the fiscal years ended 1997 and 1996.
Messrs. Avey and Nixon were paid total compensation of $71,962 and $923,
respectively, by DOL in fiscal 1997. Messrs. Avey and Nixon were each paid total
compensation of $80,000 by DOL in fiscal 1996.
In connection with a dispute regarding rights to certain technology, the
Company commenced a civil action in July 1996 against Mr. Nixon, a former
officer and director of the Company and certain other entities. In connection
with the settlement of that litigation, Display Group has made payments of
$41,000 to or on behalf of Mr. Nixon and certain other defendants for payment of
legal fees associated with this case.
During the fiscal years ended June 30, 1997 and 1996, DOL and the Company
paid or accrued certain administrative fees to individuals or entities listed as
officers, directors or principal shareholders of the Company. During the fiscal
years ended June 30, 1997 and 1996, DOL and the Company paid $45,500 and
$17,500, respectively, to Keith Hancock for management services rendered. Also
during the fiscal years ended June 30, 1997 and 1996, DOL and the Company
incurred net fees of approximately $5,100 and $42,500, respectively, for
management consulting, rent, furniture and other administrative expenses, to
Reserve Battery Cell, L.P., a Colorado limited partnership. During the fiscal
years ended June 30, 1997 and 1996, DOL and the Company incurred approximately
27
<PAGE>
$6,200 and $0, respectively, in management and administrative fees to Castle
Pines Associates, LLC, a Colorado limited liability company. Mr. Hancock is a
Director of the Company and is the President, Chief Executive Officer and
Manager of Castle Pines Associates, LLC.and the President and Chief Executive
Officer of Reserve Battery Cell, LP. Joan C. Hancock, wife of Keith Hancock,
received payments totaling approximately $3,100 for services to the Company.
Mark L. Schneider and Gene W. Schneider are Directors of ADTI. Gene W. Schneider
and G. Schneider Holdings are limited partners of Reserve Battery Cell. Mark
Schneider is the son of Gene Schneider and a limited partner of G. Schneider
Holdings.
During the years ended June 30, 1997 and 1996, DOL and the Company also
incurred rent and other administrative expenses to two entities in which Gene
and Mark Schneider are members. During the year ended June 30, 1997, DOL and the
Company incurred expenses of approximately $6,100 each to Schneider Investments,
LLC and Wild West Development, LLC. During the year ended June 30, 1996, DOL and
the Company paid approximately $ 19,900 and $7,600 to these companies,
respectively, a portion of which related to an accrued balance carried forward
from the fiscal year ended June 30, 1995.
Matthew W. Shankle was appointed a Vice President of the Company on October
3, 1997. During the fiscal year ended June 30, 1997, Mr. Shankle received
$25,343 in consulting fees. Carla G. Shankle received payments totaling
approximately $32,910 in wages and consulting fees during the fiscal year ended
June 30, 1997, a portion of which related to an accrued balance carried forward
from the fiscal year ended June 30, 1996. Ms. Shankle is the wife of Matt
Shankle, daughter of Gene Schneider and sister of Mark Schneider.
Management of the Company is of the opinion that the terms and conditions
of the foregoing transactions are no less favorable than could be obtained from
unaffiliated third parties.
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
-----------------------------------
The Financial Statements and Schedules filed herein are described in the
Index to Financial Statements included in Item 8 and indexed on page F-1.
(b) Exhibits.
--------
The following exhibits are filed or incorporated herein by reference, as
indicated below:
Exhibit No.
- -----------
3.1 Amended and Restated Articles of Incorporation of ADTI dated December 5,
1985 (incorporated by reference, Registration Statement on Form S-18, File
No. 2-164-D-33).
3.2 Amended and Restated Bylaws of ADTI (incorporated by reference,
Registration Statement on Form S-18, File No. 2-164-D-33 and Annual Report
on Form 10-K for the fiscal year ended September 30, 1986).
28
<PAGE>
3.3 Form of Certificate of Designation and Determination of Preference of
Series A Convertible Preferred Stock as filed with the Colorado Secretary
of State on January 4, 1990 (incorporated by reference, Annual Report Form
10-K for the fiscal year ended September 30, 1989).
3.4 Corrected Articles of Amendment to the Articles of Incorporation dated
August 5, 1994. (incorporated by reference, Annual Report Form 10-KSB for
the fiscal year ended June 30, 1995).
3.5 Articles of Amendment to the Company's Articles of Incorporation regarding
designation of the Series C Preferred Stock (incorporated by reference,
Form 8-K dated May 21, 1997.)
4.1 Specimen certificate for Common Stock, par value $.001 per share of ADTI
(incorporated by reference, Annual Report Form 10-K for the fiscal year
ended September 30, 1987).
4.2 (Reference is made to Exhibit Nos. 3.1, 3.2, 3.3 and 4.1 above).
5. Not applicable.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10.1 ADTI's 1984 Non-Employee Incentive Plan (incorporated by reference, Annual
Report Form 10-K for the fiscal year ended September 30, 1987).
10.2 ADTI's 1997 Equity Incentive Plan (filed herewith).
10.3 Asset acquisition Agreement dated May 15, 1991 by and between American
Consolidated Growth Corporation and ADTI (incorporated by reference, Annual
Report Form 10-KSB for the fiscal year ended June 30, 1994).
10.4 Exchange Agreement by and between the Company, the Partnership, Display
Group and the Investors, dated May 21, 1997 without exhibits (incorporated
by reference to Form 8-K dated May 21, 1997).
10.5 Form of Indemnification Agreement between the Company and its Officers and
Directors (filed herewith).
10.6 Executive Employment Agreement between Kenneth P. Warner and the Company
effective September 17, 1997 including: Exhibit A, Non-Qualified Stock
Option Agreement between Kenneth P. Warner and the Company (effective
September 17, 1997), and Exhibit B, Covenant Not to Compete between Kenneth
P. Warner and the Company effective September 17, 1997 (filed herewith).
29
<PAGE>
11. Not applicable.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
22. List of Subsidiaries of the Company (filed herewith).
23. Not applicable.
24. Not applicable.
25. Not applicable.
26. Not applicable.
27. Not applicable
28. Not applicable.
29. Not applicable.
Reports on Form 8-K.
--------------------
ADTI filed a Form 8-K dated May 21, 1997 to report a Change in Control of
the Registrant. The Company filed an amendment on Form 8K- A/1 on September 29,
1997.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADVANCE DISPLAY TECHNOLOGIES, INC.
/s/ Kenneth P. Warner Date: October 24, 1997
- ----------------------------------- -----------------
By: Kenneth P. Warner,
President and Chief Executive Officer
(Chief Executive and Financial Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Gene W. Schneider Date: October 24, 1997
- ---------------------- -----------------
By: Gene W. Schneider
Chairman of the Board and Director
/s/ Darrell D. Avey Date: October 24, 1997
- ------------------- -----------------
By: Darrel D. Avey
Vice President and Director
/s/ John D. Kilgore Date: October 24, 1997
- ------------------- -----------------
By: John D. Kilgore
Vice President of Marketing and Director
/s/ Vincent D. Bradshaw Date: October 24, 1997
- ----------------------- -----------------
By: Vincent D. Bradshaw
Director
/s/ Bruce H. Etkin Date: October 24, 1997
- ------------------ -----------------
By: Bruce H. Etkin
Director
/s/ Keith A. Hancock Date: October 24, 1997
- -------------------- -----------------
By: Keith A. Hancock
Director
/s/ Mark L. Schneider Date: October 24, 1997
- ---------------------- -----------------
By: Mark L. Schneider
Director
31
<PAGE>
Advance Display Technologies, Inc.
(A Development Stage Company)
Financial Statements
June 30, 1997
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report............................................F-2
Consolidated Balance Sheet - June 30, 1997 .............................F-3
Consolidated Statements of Operations - For the Years
Ended June 30, 1997 and 1996, and
Cumulative from Inception (March 15, 1995)
through June 30, 1997 .........................................F-4
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) - For the Period
from Inception (March 15, 1995) to June 30, 1997...............F-5
Consolidated Statements of Cash Flows - For the Years
Ended June 30, 1997 and 1996, and
Cumulative from Inception (March 15, 1995)
through June 30 1997...........................................F-6
Notes to Consolidated Financial Statements..............................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Advance Display Technologies, Inc.
Denver, Colorado
We have audited the consolidated balance sheet of Advance Display Technologies,
Inc. and subsidiaries as of June 30, 1997 and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years ended June 30, 1997 and 1996 and for the period from
inception (March 15, 1995) to June 30, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Advance Display
Technologies, Inc. and subsidiaries as of June 30, 1997 and the results of their
operations and their cash flows for the years ended June 30, 1997 and 1996 and
for the period from inception (March 15, 1995) to June 30, 1997 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred substantial losses from
operations, has negative working capital and is in the development stage. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 10, 1997
F-2
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
------
CURRENT ASSETS:
Cash $ 235,731
Inventory 51,819
Other current assets 10,191
-----------
Total current assets 297,741
PROPERTY AND EQUIPMENT, net 75,414
INTANGIBLE ASSETS, net of accumulated
amortization of $42,750 529,615
-----------
TOTAL ASSETS $ 902,770
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 558,140
Convertible notes payable 500,000
Other accrued liabilities 111,494
-----------
Total current liabilities 1,169,634
COMMITMENT AND CONTINGENCY (Note 5)
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 100,000,000
shares authorized, 1,843,900
shares issued and outstanding
(liquidation preference of $2,765,850) 1,844
Common Stock, $.001 par value, 100,000,000
shares authorized, 21,343,923 shares
issued and outstanding 21,344
Additional paid-in capital 2,453,503
Deficit accumulated during the development stage (2,743,555)
-----------
Total stockholders' deficit (266,864)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 902,770
===========
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
CUMULATIVE
FROM
INCEPTION
FOR THE FOR THE (MARCH 15, 1995)
YEAR ENDED YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME - RELATED PARTY $ 97,755 $ 59,671 $ 162,761
COSTS AND EXPENSES:
General and administrative 134,102 5,018 139,355
Research and development 2,544,940 -- 2,544,940
Interest expense - related party 137,552 79,083 222,021
----------- ----------- -----------
Total costs and expenses 2,816,594 84,101 2,906,316
----------- ----------- -----------
NET LOSS $(2,718,839) $ (24,430) $(2,743,555)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (1.09) $ (.03)
=========== ===========
WEIGHTED AVERAGE SHARES OF 2,497,543 773,343
COMMON STOCK OUTSTANDING ============ ============
See accompanying notes to these consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 15, 1995 (INCEPTION)
THROUGH JUNE 30, 1997
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 15, 1995
(Inception) -- $ -- -- $ -- $ -- $ -- $ --
Capital contributions -- -- 697,095 697 90,971 -- 91,668
Net loss -- -- -- -- -- (286) (286)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1995 -- -- 697,095 697 90,971 (286) 91,382
Capital contributions -- -- 87,141 87 11,372 -- 11,459
Net loss -- -- -- -- -- (24,430) (24,430)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1996 -- -- 784,236 784 102,343 (24,716) 78,411
Conversion of debt to
common stock and
issuance of preferred
stock pursuant to
acquisition of Display
Group, LLC and Display
Optics, Ltd. 1,843,900 1,844 20,559,687 20,560 2,351,160 -- 2,373,564
Net loss -- -- -- -- -- (2,718,839) (2,718,839)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1997 1,843,900 $ 1,844 21,343,923 $ 21,344 $ 2,453,503 $(2,743,555) $ (266,864)
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
CUMULATIVE
FROM
FOR THE INCEPTION
YEAR FOR THE (MARCH 15, 1995)
ENDED YEAR ENDED THROUGH
JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Net loss $(2,718,839) $ (24,430) $(2,743,555)
Adjustments to reconcile net loss to
net cash used in operating activities:
Acquired research and development
expense 2,536,494 -- 2,536,494
Depreciation and amortization 49,849 -- 49,849
(Increase) decrease in:
Inventory (45,771) -- (45,771)
Accrued interest payable to members 137,552 62,742 203,124
Interest receivable (97,755) (43,329) (141,863)
Increase (decrease) in:
Accounts payable 112,298 -- 112,298
Other accrued liabilities (30,665) -- (30,665)
----------- ----------- -----------
Net cash used in operating activities (56,837) (5,017) (60,089)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,099) -- (15,099)
Advances to affiliates (55,500) (659,507) (932,925)
Purchase of note receivable and security
interest -- (225,000) (225,000)
Cash received in acquisition 303,812 -- 303,812
----------- ----------- -----------
Net cash provided by (used in) investing 233,213 (884,507) (869,212)
activities -- -- --
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions -- 11,459 103,127
Proceeds from notes payables to stockholders 5,000 757,400 762,400
Proceeds from line-of-credit -- 129,505 299,505
----------- ----------- -----------
Net cash flows provided by financing 5,000 898,364 1,165,032
activities -- -- --
INCREASE IN CASH 181,376 8,840 235,731
CASH, at beginning of period 54,355 45,515 --
----------- ----------- -----------
CASH, at end of period $ 235,731 $ 54,355 $ 235,731
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -
Cash paid for:
Interest $ 25,824 $ -- $ --
=========== =========== ===========
Taxes $ -- $ -- $ --
=========== =========== ===========
Issuance of common stock for
acquisition of Display Group, LLC
and Display Optics, Ltd. and
conversion of convertible debt $ 2,199,026 $ -- $ 2,199,026
=========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Organization and Nature of Operations - The Company's business activity is
to develop and manufacture full color video display systems. In May 1997,
Advance Display Technologies, Inc. (ADTI) acquired the equity interests of
Display Optics, Ltd. (DOL), and Display Group, LLC (Group) whereby DOL and
Group became wholly-owned subsidiaries of ADTI (the Acquisition). Prior to
the Acquisition, ADTI was a general partner and Group was the managing
general partner in DOL, and both ADTI and Group conducted substantially all
of their business through DOL. The Acquisition was accounted for using the
purchase method of accounting, however, as the former members of Group
owned a majority of ADTI's common stock after the acquisition, Group is
considered to be the acquiring entity for purposes of purchase accounting
and financial statement reporting. Therefore, the financial statements for
periods prior to May 31, 1997, have been restated to reflect only the
results of operations of Group. Subsequent to May 31, 1997, the financial
statements reflect the combined operations of ADTI, Group, and DOL. For
legal purposes, however, ADTI is the acquiring entity.
Prior to May 31, 1997, the operating activity presented reflects the
activities of Group, which was engaged primarily in raising capital
(primarily from its members) which was loaned to DOL to fund its research
and development activities and to purchase a note from the Resolution Trust
Corporation (see Note 5).
Principles of Consolidation - The consolidated financial statements include
the accounts of ADTI and its subsidiaries (the Company), as discussed
above. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Development Stage Company/Going Concern - The accompanying financial
statements have been prepared on a going concern basis, which contemplates
the realization of assets and the liquidation of liabilities in the normal
course of business. The Company is in the development stage, as it has not
yet commenced principal operations and has not yet realized significant
revenues from its planned operations. Since inception, the Company has
devoted most of its efforts on raising capital and research and development
efforts. Its proposed operations are subject to all of the risks inherent
in the establishment of a new business enterprise and the Company has
incurred losses since inception and has a working capital deficit of
$871,893 as of June 30, 1997. The Company has also received notice from the
State of Colorado alleging past due sales tax and related accrued interest
totaling approximately $174,000. Based on prior discussions with state
personnel, the Company has accrued the amount it believes it will
ultimately pay. However, there can be no assurance as to the ultimate
amount of any settlement with the State of Colorado. These issues raise
substantial doubt about the Company's ability to continue as a going
concern.
Management is currently exploring the hiring of an
engineering/manufacturing consultant to assist ADTI in improving and
further automating its manufacturing process. On a parallel path,
management also plans to develop a marketing study in conjunction with an
outside marketing research firm. Upon the completion of these projects,
management feels it will have the input needed to prepare a business plan
F-7
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
to take ADTI from the development stage to the operating company stage. The
Company's continued existence is dependent upon its ability to: improve and
further automate its manufacturing process; successfully market the
product; obtain additional sources of funding through outside sources; and
achieve and maintain profitable operations.
Inventory - Inventory, which consists of raw materials used in the
construction of its video display systems, is stated at the lower of cost
(first-in, first-out method) or market.
Cash and Cash Equivalents - For purposes of the statements of cash flows,
the Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are provided principally on the straight-line
method over the estimated useful lives (ranging from 3 to 5 years) of the
respective assets. Depreciation expense for the years ended June 30, 1997
and June 30, 1996 was $2,260 and $-0-, respectively.
Intangibles - Intangibles include patents and technology related to the
Company's video display systems and the costs incurred primarily to protect
DOL's interest in certain existing technology (see Note 5). These
intangibles are being amortized over 5 to 7.5 years.
Income Taxes - Income taxes are accounted for under the liability method,
whereby deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax basis of assets and
liabilities and the tax rates which will be in effect when these
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance which reflects expectations of the extent to which such
assets will be realized.
Acquired Technology - In connection with the Acquisition, certain
technology was acquired. The excess of the net liabilities assumed over the
net carrying value of assets acquired in the combination of the Companies
was $2,536,494, which has been recorded as research and development (R&D)
expense. This amount was recorded as an expense as the research and
development related to the acquired technology is not yet complete. This
amount also approximated the R&D costs previously incurred by DOL.
Research and Development - Research and development for new products or
product improvements are charged to expense as incurred. Since the
Acquisition in May 1997, the Company recorded $8,446 of R&D expense.
Impairment of Long-Lived Assets - In fiscal 1997, the Company adopted
Financial Accounting Standards Board Statement No. 121 "Accounting for
Impairment of Long-Lived Assets" (FAS 121). In the event that facts and
circumstances indicate that the cost of assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
F-8
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
write-down to market value or discounted cash flow value is required. The
adoption of FAS 121 had no effect on the Company's June 30, 1997 financial
statements.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company's financial statements are based upon a significant estimate in
regards to the recoverability of its intangible assets. Due to potential
changes in technology and the uncertainties inherent in the estimation
process, it is at least reasonably possible that these estimates will be
further revised in the near term and such revisions could be material.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures About Fair value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which includes cash, accounts payable,
note payable, and other debt, approximate the carrying value in the
financial statements at June 30, 1997.
Stock-Based Compensation - In fiscal 1997, the Company adopted FAS No. 123
"Accounting for Stock- Based Compensation" (FAS 123). FAS 123 encourages,
but does not require, companies to recognize compensation expense for
grants of stock, stock options, and other equity instruments to employees
based on fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the notes to
the financial statements. Transactions in equity instruments with
non-employees for goods or services must be accounted for on the fair value
method. The Company has elected not to adopt the fair value accounting
prescribed by FAS 123 for employees, and will be subject only to the
disclosure requirements prescribed by FAS 123. Adoption of FAS 123 had no
effect on the Company's financial statements.
Net Loss Per Common Share - Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding during the period. Outstanding preferred stock, convertible
notes, and stock options were not considered in the loss per common share
computation since their inclusion would be anti-dilutive.
Impact of Recently Issued Standards - The Financial Accounting Standards
Board has recently issued Statement of Financial Accounting Standards 128,
"Earnings per Share" and Statement of Financial Accounting Standards 129,
"Disclosure of Information About an Entity's Capital Structure." Statement
128 provides a different method of calculating earnings per share than is
currently used in accordance with Accounting Principles Board Opinion 15,
"Earning per Share." Statement 128 provides for the calculation of "basic"
and "diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
F-9
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. Statement 129 establishes standards for
disclosing information about an entity's capital structure. Statements 128
and 129 are effective for financial statements issued for periods ending
after December 15, 1997.
The Financial Accounting Standards Board has also recently issued Statement
of Financial Accounting Standards 130, "Reporting Comprehensive Income."
Statement 130 establishes standards for reporting of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, Statement 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that displays with the same prominence as other
financial statements. Statement 130 is effective for financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated.
Because of the recent issuance of these standards, management has been
unable to fully evaluate the impact, if any, the standards may have on the
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
2. EXCHANGE AGREEMENT:
------------------
In May 1997, ADTI entered into an exchange agreement with Group, DOL, and
the owners of Group and DOL. Under the terms of the exchange and pursuant
to previously existing agreements, all member interests in Group,
partnership interests in DOL, convertible notes totaling $1,799,026, and
Series B preferred stock held by certain investors were exchanged for
17,509,868 shares of ADTI common stock and 1,843,900 shares of Series C
Preferred Stock issued to investors, thereby resulting in Group and DOL
becoming wholly-owned subsidiaries of ADTI.
The Acquisition was accounted for under the purchase method of accounting,
however, as the former members of Group will own a majority of ADTI's
common stock after the Acquisition, Group is considered to be the acquiring
entity for purposes of purchase accounting. Therefore, for financial
statement reporting purposes, the Acquisition was treated as a reverse
acquisition whereby Group was considered the surviving reporting entity.
Therefore, the financial statements for periods prior to May 31, 1997 have
been restated to reflect only the results of operations of Group.
Subsequent to May 31, 1997, the financial statements reflect the combined
operations of ADTI, Group, and DOL. The excess of the purchase price over
the net liabilities acquired of approximately $2,536,494 was expensed
F-10
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
in the current fiscal year due to the research and development nature of
these costs. All other assets and liabilities were recorded at book values,
which approximated fair value. Unaudited pro forma financial information is
provided below:
Fiscal Year
------------------------
1997 1996
---------- ----------
Net revenues $ 122,000 $ --
Net loss (1,485,597) (1,001,072)
Net loss per share (.07) (.05)
The above pro forma financial information assumes the acquisition occurred
at the beginning of the period presented. This information is not
necessarily indicative of the financial results which would have resulted
if the Acquisition had occurred at such earlier date nor of future
financial operating results.
3. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following at June 30, 1997:
Equipment $ 56,134
Office furniture 21,540
---------
77,674
Less accumulated depreciation and amortization (2,260)
---------
Property and equipment, net $ 75,414
=========
4. NOTES PAYABLE:
-------------
At June 30, 1997, the Company had $500,000 of notes payable to an investor
which mature on December 31, 1997 and accrue interest at 10% per annum.
These notes are convertible into shares of the Company's common stock, at
the option of the holder, at a rate of $.1315 per share.
Subsequent to year end, the Company received $50,000 from the same investor
in the form of a convertible note payable. This note matures December 31,
1997, accrues interest at 10% per annum and is convertible at the option of
the holder at a rate of $.1315 per share. Also subsequent to year-end, the
Company received $50,000 from the same investor in the form of a note
payable due the earlier of November 6, 1997 or from the proceeds of the
next private placement. In addition, subsequent to year-end, the Company
received loans totaling $91,000 from a stockholder for working capital.
F-11
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In October 1997, the Company began soliciting $550,000 to $1,000,000 of
financing in the form of a private placement of convertible debt. The notes
to be issued under this private placement are due October 15, 2000, bear
interest at 10%, and are convertible into common stock of the Company, at
the option of the holder, at a rate of $.1615 per share for a period of
three years. The Company has the option of calling these notes any time
after one year and paying the interest in cash or with common stock valued
at $.1615 per share, if these notes are converted.
5. COMMITMENT AND CONTINGENCY:
--------------------------
Legal Actions - During fiscal 1997, Group brought an action in Colorado
against American Consolidated Growth Corporation (ACGC) seeking ownership
of Company Common Stock owned by that entity under the default provisions
of a debenture which serves as collateral for a promissory note in the
principal amount of $2,175,000. This note was purchased by Group from the
Resolution Trust Corporation (RTC) for $225,000. Because the purchase of
the note by Group protected the ownership of the technology from
unaffiliated parties, Group has capitalized the costs to acquire this note
as an intangible which will be amortized over five years.
In a complex series of transactions, the RTC acquired this note which was
executed by a Texas corporation and guaranteed by the sole shareholder of
that corporation. The debenture, which served as collateral for the note,
was acquired by Group and was initially collateralized by ADTI's
technology. In connection with its action against ACGC and pending final
judgment, Group has been awarded temporary ownership rights of
approximately 1,400,000 shares of the Company's common stock held by ACGC.
Group contends that these shares were the proceeds from the exchange of the
technology from ACGC to ADTI.
Group also brought action in Texas against the Texas corporation and
guarantor seeking payment on the note in the principal amount of
$2,175,000, plus interest (18% per annum default rate). In defense of this
civil action, the defendants have raised as an affirmative defense and
counterclaim an alleged agreement which the defendants claim obligated ADTI
to relieve ACGC from liability on a debenture in the amount of $2,175,000
and implicitly contend that this would have discharged defendants'
liability to Group on the Note and Guarantee. Management believes that ADTI
only entered into exploratory discussions with ACGC which never resulted in
an obligation of Group or the Company. The Company believes the claim is
without merit and intends to vigorously contest it and pursue the
collection of the note.
Employment Contract - Subsequent to year-end, the Company entered into a
three-year contract with an officer of the Company. If this officer is
terminated without cause, he will receive severance pay of approximately
$38,000, $75,000, or $113,000 if terminated in year one, two, or three,
respectively.
F-12
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. STOCKHOLDERS' DEFICIT:
---------------------
Non-Qualified Options - The Non-Qualified Options were issued at fair
market value. No option can have a term in excess of ten years and all
options are non-transferrable. In January 1995, ADTI granted 60,000 options
to employees for $.25 per common share which expire in the year 2000. At
June 30, 1997, options were outstanding to purchase 61,500 shares. These
options expire in the years 1999 through 2000, and are exercisable at $.25
to $10 per share.
Non-Qualified Incentive Stock Option Plan - In 1990, the Company's Board of
Directors adopted a Non- Qualified Incentive Stock Option Plan (NQI Plan)
and reserved 100,000 shares of the Company's common stock for issuance
under this plan. Under the NQI Plan, the Company can grant stock options,
stock, stock appreciation rights and related benefits such as loans, tax
benefits, and other rights (each of which is referred to as an "Award").
Eligibility to receive Awards under the NQI Plan is limited to individuals
who render services which tend to contribute materially to the success of
the Company or which may reasonably be anticipated to contribute materially
to the future success of the Company or its subsidiaries. No option granted
under the NQI Plan shall have a term in excess of ten years from the grant
date.
In 1990, the Company granted an aggregate of 65,000 options under the NQI
plan to purchase shares of the Company's common stock at an exercise price
of $3.50 per share. These options have not been exercised and expire in the
year 2000.
Equity Incentive Plan - On September 18, 1997, the Board adopted, subject
to shareholder approval, the Equity Incentive Plan (the Plan) and reserved
2,500,000 shares of the Company's common stock for issuance under the Plan.
The purposes of the Plan are to provide those who are selected for
participation in the Plan with added incentives to continue in the
long-term service of the Company and to provide a financial incentive that
will help the Company attract, retain, and motivate the most qualified
employees and consultants. The Plan permits the grant of Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock Awards, Stock
Appreciation Rights, Stock Bonuses, Stock Units and other stock grants.
There were no options outstanding under the Plan at June 30, 1997.
Subsequent to June 30, 1997, the Company issued Non-Qualified Options for
the purchase of 1,500,000 shares of the Company's common stock to an
officer of the Company at a price of $.1315 per share under the Plan.
Options for the purchase of 437,500 common shares vested immediately and
the remaining options vest at a rate of 31,250 shares of common stock per
month beginning October 16, 1997. These options expire in September 2007.
Preferred Stock - The Company has the authority to issue 100,000,000 shares
of preferred stock. The Board of Directors has the authority to issue such
preferred shares in series and determine the rights and preferences of the
shares.
F-13
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1997, the Company has issued 1,843,900 shares of Series C
Preferred Stock (the Preferred Stock) (see Note 2). The Preferred Stock entitles
holders to receive dividends, if declared by the Board of Directors, totaling,
in the aggregate, $.83 per share. Dividends on the Preferred Stock shall be paid
before any dividends or other distributions shall be declared or paid on ADTI's
common stock. ADTI may elect to redeem, in cash, some or all the Preferred
Stock, at its option, at the Preferred Stock's liquidation value of $.67 plus
any unpaid dividends. Holders may require ADTI to redeem the Preferred Stock any
time after ADTI has fully paid the dividend of $.83 per share or at any time
after a change in control of ADTI, as defined. If the Preferred Stock is
redeemed at the election of the holder, ADTI has the option to redeem the
Preferred Stock by issuance of either cash or ADTI's common stock at market
value based on a value of $1.50 per preferred share, less dividends previously
paid.
7. INCOME TAXES:
------------
A long-term deferred tax asset totaling $3,917,000 is the result of the
Company's net operating loss carryforward, which the Company has fully
reserved through a valuation allowance.
The Company's valuation allowance decreased $1,397,000 from June 30, 1996
to June 30, 1997 primarily due to an increase in the negative capital basis
of ADTI in DOL.
The Company has had no taxable income under Federal or state laws.
Therefore, no provision for income taxes was included in net loss.
As of June 30, 1997, the Company has accumulated net operating loss
carryforwards of approximately $11,520,000 for income tax purposes subject
to reduction or limitation of use as a result of limitations relating to a
50% change in ownership in prior years. These amounts expire periodically
through 2012 if not utilized sooner.
F-14
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1997
EXHIBIT 10.2
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
EQUITY INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - INTRODUCTION...........................................1
1.1 Establishment..........................................1
1.2 Purposes...............................................1
ARTICLE II - DEFINITIONS...........................................1
2.1 Definitions............................................1
2.2 Gender and Number.......................................3
ARTICLE III - PLAN ADMINISTRATION..................................4
ARTICLE IV - STOCK SUBJECT TO THE PLAN.............................4
4.1 Number of Shares.......................................4
4.2 Other Shares of Stock..................................5
4.3 Adjustments for Stock Split, Stock Dividend, Etc.......5
4.4 Other Distributions and Changes in the Stock...........5
4.5 General Adjustment Rules...............................5
4.6 Determination by the Committee, Etc....................6
ARTICLE V - CORPORATE REORGANIZATION...............................6
5.1 Reorganization.........................................6
5.2 Required Notice........................................6
5.3 Acceleration of Exercisability.........................7
5.4 Limitation on Payments.................................7
ARTICLE VI - PARTICIPATION.........................................7
ARTICLE VII - OPTIONS..............................................8
7.1 Grant of Options.......................................8
7.2 Stock Option Certificates..............................8
7.3 Restrictions on Incentive Options.....................12
7.4 Shareholder Privileges................................12
ARTICLE VIII - RESTRICTED STOCK AWARDS............................12
8.1 Grant of Restricted Stock Awards......................12
8.2 Restrictions..........................................13
8.3 Privileges of a Stockholder, Transferability..........13
8.4 Enforcement of Restrictions...........................13
ARTICLE IX - STOCK UNITS..........................................13
ARTICLE X - STOCK APPRECIATION RIGHTS.............................14
i
<PAGE>
10.1 Persons Eligible.....................................14
10.2 Terms of Grant.......................................14
10.3 Exercise.............................................14
10.4 Number of Shares or Amount of Cash...................14
10.5 Effect of Exercise...................................14
10.6 Termination of Services..............................15
ARTICLE XI - STOCK BONUSES........................................15
ARTICLE XII - OTHER COMMON STOCK GRANTS...........................15
ARTICLE XIII - RIGHTS OF PARTICIPANTS.............................15
13.1 Service..............................................15
13.2 Nontransferability...................................15
13.3 No Plan Funding......................................16
ARTICLE XIV - GENERAL RESTRICTIONS................................16
14.1 Investment Representations...........................16
14.2 Compliance with Securities Laws......................16
14.3 Changes in Accounting Rules..........................17
ARTICLE XV - OTHER EMPLOYEE BENEFITS..............................17
ARTICLE XVI - PLAN AMENDMENT, MODIFICATION AND TERMINATION.........17
ARTICLE XVII - WITHHOLDING........................................18
17.1 Withholding Requirement..............................18
17.2 Withholding With Stock...............................18
ARTICLE XVIII - REQUIREMENTS OF LAW...............................18
18.1 Requirements of Law..................................18
18.2 Federal Securities Law Requirements..................18
18.3 Governing Law........................................19
ARTICLE XIX - DURATION OF THE PLAN................................19
ii
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
EQUITY INCENTIVE PLAN
ARTICLE I
INTRODUCTION
1.1 Establishment. Advance Display Technologies, Inc., a Colorado
corporation (hereinafter referred to, together with its Affiliated Corporations
(as defined in subsection 2.1(a)) as the "Company" except where the context
otherwise requires), hereby establishes the ADTI Equity Incentive Plan (the
"Plan") for certain key employees, directors, consultants and other persons
rendering substantial service to the Company. The Plan permits the grant of
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), non-qualified
stock options ("Non-Qualified Options"), Restricted Stock Awards, Stock
Appreciation Rights, Stock Bonuses, Stock Units and other stock grants to
certain key employees of the Company.
1.2 Purposes. The purposes of the Plan are to provide those who are
selected for participation in the Plan with added incentives to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating
incentive compensation to increases in shareholder value, so that the income of
those participating in the Plan is more closely aligned with the income of the
Company's shareholders. The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees and consultants.
ARTICLE II
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) that is affiliated with the Company
through stock ownership or otherwise and is designated as an "Affiliated
Corporation" by the Board, provided, however, that for purposes of Incentive
Options granted pursuant to the Plan, an "Affiliated Corporation" means any
parent or subsidiary of the Company as defined in Section 424 of the Code.
(b) "Award" means an Option, a Restricted Stock Award, a Stock Appreciation
Right, a Stock Unit, grants of Stock pursuant to Article XI or other issuances
of Stock hereunder.
1
<PAGE>
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
(e) "Committee" means a committee consisting of members of the Board who
are empowered hereunder to take actions in the administration of the Plan. The
Committee shall be so constituted at all times as to permit the Plan to comply
with Rule 16b-3 or any successor rule promulgated under the Securities Exchange
Act of 1934 (the "1934 Act") and the provisions of section 162(m) of the Code
and the regulations promulgated thereunder. Members of the Committee shall be
appointed from time to time by the Board, shall serve at the pleasure of the
Board and may resign at any time upon written notice to the Board. The Committee
shall select Participants from Eligible Employees and Eligible Consultants of
the Company, and shall determine the awards to be made pursuant to the Plan and
the terms and conditions thereof.
(f) "Disabled" or "Disability" shall have the meaning given to such terms
in Section 22(e)(3) of the Code.
(g) "Effective Date" means the effective date of the Plan, August 1, 1997.
(h) "Eligible Employees" means those key employees, (including, without
limitation, officers, directors (whether or not they are also employees of the
Company) consultants and other individuals or entities providing substantial
service) of the Company or any subsidiary or division thereof, upon whose
judgment, initiative and efforts the Company is, or will become, largely
dependent for the successful conduct of its business. For purposes of the Plan,
an employee is an individual whose wages are subject to the withholding of
federal income tax under Section 3401 of the Internal Revenue Code.
(i) "Eligible Consultants" means those consultants to the Company who are
determined, by the Committee, to be individuals whose services are important to
the Company and who are eligible to receive Awards, other than Incentive
Options, under the Plan.
(j) "Fair Market Value" means the closing price of the Stock on a
securities exchange, national market system, automated quotation system or
bulletin board on which the Stock is traded or reported on a particular date. If
there are no Stock transactions on such date, the Fair Market Value shall be
determined as of the immediately preceding date on which there were Stock
transactions. If the price of the Stock is not reported or quoted in any such
medium, the Fair Market Value of the Stock on a particular date shall be as
determined by the Committee; provided, however, that even if the Stock is traded
or reported in a recognized medium, if the number of transactions reported in
that medium is such that the Committee determines that the closing price is not
indicative of the price of the Stock, it may nonetheless determine the Fair
Market Value in its discretion. If, upon exercise of an Option, the exercise
price is paid by a broker's transaction as provided in subsection 7.2(g)(ii)(D),
Fair Market Value, for purposes of the exercise, shall be the price at which the
Stock is sold by the broker.
2
<PAGE>
(k) "Incentive Option" means an Option designated as such and granted in
accordance with Section 422 of the Code.
(l) "Non-Qualified Option" means any Option other than an Incentive Option.
(m) "Option" means a right to purchase Stock at a stated or formula price
for a specified period of time. Options granted under the Plan shall be either
Incentive Options or Non-Qualified Options.
(n) "Option Certificate" shall have the meaning given to such term in
Section 7.2 hereof.
(o) "Option Holder" means a Participant who has been granted one or more
Options under the Plan.
(p) "Option Price" means the price at which shares of Stock subject to an
Option may be purchased, determined in accordance with subsection 7.2(b).
(q) "Participant" means an Eligible Employee or Eligible Consultant
designated by the Committee from time to time during the term of the Plan to
receive one or more of the Awards provided under the Plan.
(r) "Restricted Stock Award" means an award of Stock granted to a
Participant pursuant to Article VIII that is subject to certain restrictions
imposed in accordance with the provisions of such Section.
(s) "Share" means a share of Stock.
(t) "Stock" means the $0.001 par value Common Stock of the Company.
(u) "Stock Appreciation Right" means the right, granted by the Committee
pursuant to the Plan, to receive a payment equal to the increase in the Fair
Market Value of a Share of Stock subsequent to the grant of such Award.
(v) "Stock Bonus" means either an outright grant of Stock or a grant of
Stock subject to and conditioned upon certain employment or performance related
goals.
(w) "Stock Unit" means a measurement component equal to the Fair Market
Value of one share of Stock on the date for which a determination is made
pursuant to the provisions of this Plan.
2.2 Gender and Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
3
<PAGE>
ARTICLE III
PLAN ADMINISTRATION
3.1 The Plan shall be administered by the Committee, or in the absence of
appointment of a Committee, by the entire Board of Directors. All references in
the Plan to the Committee shall include the entire Board of Directors if no such
Committee is appointed.
3.2 In accordance with the provisions of the Plan, the Committee shall, in
its sole discretion, select the Participants from among the Eligible Employees
and Eligible Consultants, determine the Awards to be made pursuant to the Plan,
the number of Stock Units, Stock Appreciation Rights or shares of Stock to be
issued thereunder and the time at which such Awards are to be made, fix the
Option Price, period and manner in which an Option becomes exercisable,
establish the duration and nature of Restricted Stock Award restrictions,
establish the terms and conditions applicable to Stock Bonuses and Stock Units,
and establish such other terms and requirements of the various compensation
incentives under the Plan as the Committee may deem necessary or desirable and
consistent with the terms of the Plan. The Committee shall determine the form or
forms of the agreements with Participants that shall evidence the particular
provisions, terms, conditions, rights and duties of the Company and the
Participants with respect to Awards granted pursuant to the Plan, which
provisions need not be identical except as may be provided herein; provided,
however, that Eligible Consultants shall not be eligible to receive Incentive
Options. The Committee may from time to time adopt such rules and regulations
for carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Committee
shall be liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. The number of Shares that are authorized for issuance
under the Plan in accordance with the provisions of the Plan and subject to such
restrictions or other provisions as the Committee may from time to time deem
necessary shall not exceed [__________], subject to the provisions regarding
changes in capital described below. The Shares may be either authorized and
unissued Shares or previously issues Shares acquired by the Company. This
authorization may be increased from time to time by approval of the Board and by
the stockholders of the Company if, in the opinion of counsel for the Company,
stockholder approval is required. Shares of Stock that may be issued upon
exercise of Options, or Stock Appreciation Rights, that are issued as Restricted
Stock Awards or Stock Bonuses, that are issued with respect to Stock Units, and
that are issued as incentive compensation or other Stock grants under the Plan
shall be applied to reduce the maximum number of Shares remaining available for
4
<PAGE>
use under the Plan. The Company shall at all times during the term of the Plan
and while any Options or Stock Units are outstanding retain as authorized and
unissued Stock at least the number of Shares from time to time required under
the provisions of the Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.
4.2 Other Shares of Stock. Any Shares that are subject to an Option that
expires or for any reason is terminated unexercised shall automatically become
available for use under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall
at any time increase or decrease the number of its outstanding Shares or change
in any way the rights and privileges of such Shares by means of the payment of a
stock dividend or any other distribution upon such shares payable in Stock, or
through a stock split, subdivision, consolidation, combination, reclassification
or recapitalization involving the Stock, then in relation to the Stock that is
affected by one or more of the above events, the numbers, rights and privileges
of the following shall be increased, decreased or changed in like manner as if
they had been issued and outstanding, fully paid and nonassessable at the time
of such occurrence: (i) the Shares as to which Awards may be granted under the
Plan and (ii) the Shares then included in each outstanding Award granted
hereunder.
4.4 Other Distributions and Changes in the Stock. If:
(a) the Company shall at any time distribute with respect to the Stock
assets or securities of persons other than the Company (excluding cash or
distributions referred to in Section 4.3), or
(b) the Company shall at any time grant to the holders of its Stock rights
to subscribe pro rata for additional shares thereof or for any other securities
of the Company, or
(c) there shall be any other change (except as described in Section 4.3) in
the number or kind of outstanding Shares or of any stock or other securities
into which the Stock shall be changed or for which it shall have been exchanged,
and if the Committee shall in its discretion determine that the event described
in subsection (a), (b), or (c) above equitably requires an adjustment in the
number or kind of Shares subject to an Option or other Award, an adjustment in
the Option Price or the taking of any other action by the Committee, including
without limitation, the setting aside of any property for delivery to the
Participant upon the exercise of an Option or the full vesting of an Award, then
such adjustments shall be made, or other action shall be taken, by the Committee
and shall be effective for all purposes of the Plan and on each outstanding
Option or Award that involves the particular type of stock for which a change
was effected. Notwithstanding the foregoing provisions of this Section 4.4,
pursuant to Section 8.3 below, a Participant holding Stock received as a
Restricted Stock Award shall have the right to receive all amounts, including
cash and property of any kind, distributed with respect to the Stock upon the
Participant's becoming a holder of record of the Stock.
4.5 General Adjustment Rules. No adjustment or substitution provided for in
this Article IV shall require the Company to sell a fractional share of Stock
under any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option and other Award shall be
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limited by deleting any fractional share. In the case of any such substitution
or adjustment, the total Option Price for the shares of Stock then subject to an
Option shall remain unchanged but the Option Price per share under each such
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed, and appropriate adjustments shall
be made to other Awards to reflect any such substitution or adjustment.
4.6 Determination by the Committee, Etc. Adjustments under this Article IV
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties thereto.
ARTICLE V
CORPORATE REORGANIZATION
5.1 Reorganization. Upon the occurrence of any of the following events, if
the notice required by Section 5.2 shall have first been given, the Plan and all
Options then outstanding hereunder shall automatically terminate and be of no
further force and effect whatsoever, and other Awards then outstanding shall be
treated as described in Sections 5.2 and 5.3, without the necessity for any
additional notice or other action by the Board or the Company: (a) the merger or
consolidation of the Company with or into another corporation or other
reorganization (other than a reorganization under the United States Bankruptcy
Code) of the Company (other than a consolidation, merger, or reorganization in
which the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Stock); or (b) the sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety (other than a sale or conveyance in which the Company continues as
holding company of an entity or entities that conduct the business or business
formerly conducted by the Company); or (c) the dissolution or liquidation of the
Company.
5.2 Required Notice. At least 30 days' prior written notice of any event
described in Section 5.1 shall be given by the Company to each Option Holder and
Participant unless (a) in the case of the events described in clauses (a) or (b)
of Section 5.1, the Company, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the outstanding Options or
the substitution of new options for the outstanding Options on terms comparable
to the outstanding Options except that the Option Holder shall have the right
thereafter to purchase the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
upon exercise of the Option immediately prior to such merger, consolidation,
sale or conveyance (assuming such holder of Stock failed to exercise any rights
of election and received per share the kind and amount received per share by a
majority of the non-electing shares), or (b) the Company, or the successor or
purchaser, as the case may be, shall make adequate provision for the adjustment
of outstanding Awards (other than Options) so that such Awards shall entitle the
Participant to receive the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
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with respect to such Award immediately prior to such merger, consolidation,
other reorganization, sale or conveyance (assuming such holder of Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a majority of the non-electing shares). The provisions of
this Article V shall similarly apply to successive mergers, consolidations,
reorganizations, sales or conveyances. Such notice shall be deemed to have been
given when delivered personally to a Participant or when mailed to a Participant
by registered or certified mail, postage prepaid, at such Participant's address
last known to the Company.
5.3 Acceleration of Exercisability. Participants notified in accordance
with Section 5.2 may exercise their Options at any time before the occurrence of
the event requiring the giving of notice (but subject to occurrence of such
event), regardless of whether all conditions of exercise relating to length of
service, attainment of financial performance goals or otherwise have been
satisfied. Upon the giving of notice in accordance with Section 5.2, all
restrictions with respect to Restricted Stock and other Awards shall lapse
immediately, all Stock Units shall become payable immediately and all Stock
Appreciation Rights shall become exercisable. Any Options, Stock Appreciation
Rights or Stock Units that are not assumed or substituted under clauses (a) or
(b) of Section 5.2 that have not been exercised prior to the event described in
Section 5.1 shall automatically terminate upon the occurrence of such event.
5.4 Limitation on Payments. If the provisions of this Article V would
result in the receipt by any Participant of a payment within the meaning of
Section 280G of the Code and the regulations promulgated thereunder and if the
receipt of such payment by any Participant would, in the opinion of independent
tax counsel of recognized standing selected by the Company, result in the
payment by such Participant of any excise tax provided for in Sections 280G and
4999 of the Code, then the amount of such payment shall be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the imposition
of such excise tax; provided, however, that the Committee, in its sole
discretion, may authorize the payment of all or any portion of the amount of
such reduction to the Participant.
ARTICLE VI
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the
judgment of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company or an Affiliated Corporation, and significantly
contribute, or are expected to significantly contribute, to the achievement of
long-term corporate economic objectives. Eligible Consultants shall be selected
from those non-employee consultants to the Company who are performing services
important to the operation and growth of the Company. Participants may be
granted from time to time one or more Awards; provided, however, that the grant
of each such Award shall be separately approved by the Committee and receipt of
one such Award shall not result in automatic receipt of any other Award. Upon
determination by the Committee that an Award is to be granted to a Participant,
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written notice shall be given to such person, specifying the terms, conditions,
rights and duties related thereto. Each Participant shall, if required by the
Committee and, enter into an agreement with the Company, in such form as the
Committee shall determine and which is consistent with the provisions of the
Plan, specifying such terms, conditions, rights and duties. Awards shall be
deemed to be granted as of the date specified in the grant resolution of the
Committee, which date shall be the date of any related agreement with the
Participant. In the event of any inconsistency between the provisions of the
Plan and any such agreement entered into hereunder, the provisions of the Plan
shall govern.
ARTICLE VII
OPTIONS
7.1 Grant of Options. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Options. The
Committee in its sole discretion shall designate whether an Option is an
Incentive Option or a Non-Qualified Option; provided, however, that only
Non-Qualified Options may be granted to Eligible Consultants. The Committee may
grant both an Incentive Option and a Non-Qualified Option to an Eligible
Employee at the same time or at different times. Incentive Options and
Non-Qualified Options, whether granted at the same time or at different times,
shall be deemed to have been awarded in separate grants and shall be clearly
identified, and in no event shall the exercise of one Option affect the right to
exercise any other Option or affect the number of shares for which any other
Option may be exercised, except as provided in subsection 7.2(j). An Option
shall be considered as having been granted on the date specified in the grant
resolution of the Committee.
7.2 Stock Option Certificates. Each Option granted under the Plan shall be
evidenced by a written stock option certificate (an "Option Certificate"). An
Option Certificate shall be issued by the Company in the name of the Participant
to whom the Option is granted (the "Option Holder") and in such form as may be
approved by the Committee. The Option Certificate shall incorporate and conform
to the conditions set forth in this Section 7.2 as well as such other terms and
conditions that are not inconsistent as the Committee may consider appropriate
in each case.
(a) Number of Shares. Each Option Certificate shall state that it covers a
specified number of shares of Stock, as determined by the Committee.
(b) Price. The price at which each share of Stock covered by an Option may
be purchased shall be determined in each case by the Committee and set forth in
the Option Certificate, but in no event shall the price be less than 100 percent
of the Fair Market Value of the Stock on the date an Incentive Option is
granted.
(c) Duration of Options; Restrictions on Exercise. Each Option Certificate
shall state the period of time, determined by the Committee, within which the
Option may be exercised by the Option Holder (the "Option Period"). The Option
Period must end, in all cases, not more than ten years from the date the Option
is granted. The Option Certificate shall also set forth any installment or other
restrictions on Option exercise during such period, if any, as may be determined
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by the Committee. Each Option shall become exercisable (vest) over such period
of time, if any, or upon such events, as determined by the Committee.
(d) Termination of Services, Death, Disability, Etc. The Committee may
specify at the time of granting the Option but not thereafter the period, if
any, after which an Option may be exercised following termination of the Option
Holder's services. The effect of this subsection 7.2(d) shall be limited to
determining the consequences of a termination and nothing in this subsection
7.2(d) shall restrict or otherwise interfere with the Company's discretion with
respect to the termination of any individual's services. If the Committee does
not otherwise specify, the following shall apply:
(i) If the services of the Option Holder are terminated within the
Option Period for "cause", as determined by the Company, the Option shall
thereafter be void for all purposes. As used in this subsection 7.2(d),
"cause" shall mean a gross violation, as determined by the Company, of the
Company's established policies and procedures.
(ii) If the Option Holder becomes Disabled, the Option may be
exercised by the Option Holder within one year following the Option
Holder's termination of services on account of Disability (provided that
such exercise must occur within the Option Period), but not thereafter. In
any such case, the Option may be exercised only as to the shares as to
which the Option had become exercisable on or before the date of the Option
Holder's termination of services because of Disability.
(iii) If the Option Holder dies during the Option Period while still
performing services for the Company or within the one year period referred
to in (ii) above or the three-month period referred to in (iv) below, the
Option may be exercised by those entitled to do so under the Option
Holder's will or by the laws of descent and distribution within one year
following the Option Holder's death, (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the shares as to which the Option had
become exercisable on or before the date of the Option Holder's death.
(iv) If the services of the Option Holder are terminated (which for
this purpose means that the Option Holder is no longer performing services
for the Company or for Affiliated Corporation) by the Company within the
Option Period for any reason other than cause, Disability or the Option
Holder's death, the Option may be exercised by the Option Holder within
three months following the date of such termination (provided that such
exercise must occur within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the shares as to which
the Option had become exercisable on or before the date of termination of
services.
(e) Transferability. Each Option shall not be transferable by the Option
Holder except by will or pursuant to the laws of descent and distribution. Each
Option is exercisable during the Option Holder's lifetime only by him or her, or
in the event of Disability or incapacity, by his or her guardian or legal
representative.
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(f) Intentionally omitted
(g) Exercise, Payments, Etc.
(i) Manner of Exercise. The method for exercising each Option granted
hereunder shall be by delivery to the Company of written notice specifying
the number of Shares with respect to which such Option is exercised. The
purchase of such Shares shall take place at the principal offices of the
Company within thirty days following delivery of such notice, at which time
the Option Price of the Shares shall be paid in full by any of the methods
set forth below or a combination thereof. Except as set forth in the next
sentence, the Option shall be exercised when the Option Price for the
number of shares as to which the Option is exercised is paid to the Company
in full. If the Option Price is paid by means of a broker's loan
transaction described in subsection 7.2(g)(ii)(D), in whole or in part, the
closing of the purchase of the Stock under the Option shall take place (and
the Option shall be treated as exercised) on the date on which, and only
if, the sale of Stock upon which the broker's loan was based has been
closed and settled, unless the Option Holder makes an irrevocable written
election, at the time of exercise of the Option, to have the exercise
treated as fully effective for all purposes upon receipt of the Option
Price by the Company regardless of whether or not the sale of the Stock by
the broker is closed and settled. A properly executed certificate or
certificates representing the Shares shall be delivered to or at the
direction of the Option Holder upon payment therefor. If Options on less
than all shares evidenced by an Option Certificate are exercised, the
Company shall deliver a new Option Certificate evidencing the Option on the
remaining shares upon delivery of the Option Certificate for the Option
being exercised.
(ii) The exercise price shall be paid by any of the following methods
or any combination of the following methods at the election of the Option
Holder, or by any other method approved by the Committee upon the request
of the Option Holder:
(A) in cash;
(B) by certified, cashier's check or other check acceptable to
the Company, payable to the order of the Company;
(C) by delivery to the Company of certificates representing the
number of shares then owned by the Option Holder, the Fair Market
Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Company;
provided however, that no Option may be exercised by delivery to the
Company of certificates representing Stock, unless such Stock has been
held by the Option Holder for more than six months; for purposes of
this Plan, the Fair Market Value of any shares of Stock delivered in
payment of the purchase price upon exercise of the Option shall be the
Fair Market Value as of the exercise date; the exercise date shall be
the day of delivery of the certificates for the Stock used as payment
of the Option Price; or
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(D) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions to a broker to deliver
to the Company promptly the amount of the proceeds of the sale of all
or a portion of the Stock or of a loan from the broker to the Option
Holder required to pay the Option Price.
(h) Date of Grant. An Option shall be considered as having been granted on
the date specified in the grant resolution of the Committee.
(i) Withholding.
(i) Non-Qualified Options. Upon exercise of an Option, the Option
Holder shall make appropriate arrangements with the Company to provide for
the amount of additional withholding required by Sections 3102 and 3402 of
the Code and applicable state income tax laws, including payment of such
taxes through delivery of shares of Stock or by withholding Stock to be
issued under the Option, as provided in Article XV.
(ii) Incentive Options. If an Option Holder makes a disposition (as
defined in Section 424(c) of the Code) of any Stock acquired pursuant to
the exercise of an Incentive Option prior to the expiration of two years
from the date on which the Incentive Option was granted or prior to the
expiration of one year from the date on which the Option was exercised, the
Option Holder shall send written notice to the Company at the Company's
principal place of business of the date of such disposition, the number of
shares disposed of, the amount of proceeds received from such disposition
and any other information relating to such disposition as the Company may
reasonably request. The Option Holder shall, in the event of such a
disposition, make appropriate arrangements with the Company to provide for
the amount of additional withholding, if any, required by Sections 3102 and
3402 of the Code and applicable state income tax laws.
(j) Issuance of Additional Option. If an Option Holder pays all or any
portion of the exercise price of an Option with Stock, or pays all or any
portion of the applicable withholding taxes with respect to the exercise of an
Option with Stock that has been held by the Option Holder for more than a
period, not shorter than six months, to be determined by the Committee, the
Committee may, in its sole discretion, grant to such Option Holder a new Option
covering the number of shares of Stock used to pay such exercise price and/or
withholding tax. The new Option shall have an Option Price per share equal to
the Fair Market Value of a share of Stock on the date of the exercise of the
Option and shall have the same terms and provisions as the exercised Option,
except as otherwise determined by the Committee in its sole discretion.
7.3 Restrictions on Incentive Options.
(a) Initial Exercise. The aggregate Fair Market Value of the Shares with
respect to which Incentive Options are exercisable for the first time by an
Option Holder in any calendar year, under the Plan or otherwise, shall not
exceed $100,000. For this purpose, the Fair Market Value of the Shares shall be
determined as of the date of grant of the Option.
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(b) Ten Percent Stockholders. Incentive Options granted to an Option Holder
who is the holder of record of 10% or more of the outstanding Stock of the
Company shall have an Option Price equal to 110% of the Fair Market Value of the
Shares on the date of grant of the Option and the Option Period for any such
Option shall not exceed five years.
7.4 Shareholder Privileges. No Option Holder shall have any rights as a
shareholder with respect to any shares of Stock covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in Article IV.
ARTICLE VIII
RESTRICTED STOCK AWARDS
8.1 Grant of Restricted Stock Awards. Coincident with or following
designation for participation in the Plan, the Committee may grant a Participant
one or more Restricted Stock Awards consisting of Shares of Stock. The number of
Shares granted as a Restricted Stock Award shall be determined by the Committee.
8.2 Restrictions. A Participant's right to retain a Restricted Stock Award
granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by or performance of
services for the Company or an Affiliated Corporation for a restriction period
specified by the Committee or the attainment of specified performance goals and
objectives, as may be established by the Committee with respect to such Award.
The Committee may in its sole discretion require different periods of service or
different performance goals and objectives with respect to different
Participants, to different Restricted Stock Awards or to separate, designated
portions of the Stock shares constituting a Restricted Stock Award. In the event
of the death or Disability of a Participant, or the retirement of a Participant
in accordance with the Company's established retirement policy, all required
periods of service and other restrictions applicable to Restricted Stock Awards
then held by him shall lapse with respect to a pro rata part of each such Award
based on the ratio between the number of full months of employment or services
completed at the time of termination of services from the grant of each Award to
the total number of months of employment or continued services required for such
Award to be fully nonforfeitable, and such portion of each such Award shall
become fully nonforfeitable. The remaining portion of each such Award shall be
forfeited and shall be immediately returned to the Company. In the event of a
Participant's termination of employment or consulting services for any other
reason, any Restricted Stock Awards as to which the period for which services
are required or other restrictions have not been satisfied (or waived or
accelerated as provided herein) shall be forfeited, and all shares of Stock
related thereto shall be immediately returned to the Company.
8.3 Privileges of a Stockholder, Transferability. A Participant shall not
posses or exercise any voting, dividend, liquidation or other rights with
respect to Stock granted under the Plan unless and until any restrictions issued
in connection with the Stock have been satisfied by the Participant. Upon the
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satisfaction of those conditions, if any, the Participant shall be entitled to
exercise and possess voting, dividend, liquidation and other rights with respect
to the Stock in accordance with its terms received by the Participant under this
Article VIII.
8.4 Enforcement of Restrictions. The Committee shall cause a legend to be
placed on the Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions provided by Sections 8.2 and 8.3 and, in addition,
may in its sole discretion require one or more of the following methods of
enforcing the restrictions referred to in Sections 8.2 and 8.3:
(a) Requiring the Participant to keep the Stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in effect;
or
(b) Requiring that the Stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
ARTICLE IX
STOCK UNITS
A Participant may be granted a number of Stock Units determined by the
Committee. The number of Stock Units, the goals and objectives to be satisfied
with respect to each grant of Stock Units, the time and manner of payment for
each Stock Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
ARTICLE X
STOCK APPRECIATION RIGHTS
10.1 Persons Eligible. The Committee, in its sole discretion, may grant
Stock Appreciation Rights to Eligible Employees or Eligible Consultants.
10.2 Terms of Grant. The Committee shall determine at the time of the grant
of a Stock Appreciation Right the time period during which the Stock
Appreciation Right may be exercised and any other terms that shall apply to the
Stock Appreciation Right.
10.3 Exercise. A Stock Appreciation Right shall entitle a Participant to
receive a number of shares of Stock (without any payment to the Company, except
for applicable withholding taxes), cash, or Stock and cash, as determined by the
Committee in accordance with Section 10.4 below. If a Stock Appreciation Right
is issued in tandem with an Option, except as may otherwise be provided by the
Committee, the Stock Appreciation Right shall be exercisable during the period
that its related Option is exercisable. A Participant desiring to exercise a
Stock Appreciation Right shall give written notice of such exercise to the
Company, which notice shall state the proportion of Stock and cash that the
Participant desires to receive pursuant to the Stock Appreciation Right
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exercised. Upon receipt of the notice from the Participant, the Company shall
deliver to the person entitled thereto (i) a certificate or certificates for
Stock and/or (ii) a cash payment, in accordance with Section 10.4 below. The
date the Company receives written notice of such exercise hereunder is referred
to in this Article X as the "exercise date". The delivery of Stock or cash
received pursuant to such exercise shall take place at the principal offices of
the Company within 30 days following delivery of such notice.
10.4 Number of Shares or Amount of Cash. Subject to the discretion of the
Committee to substitute cash for Stock, or Stock for cash, the amount of Stock
which may be issued pursuant to the exercise of a Stock Appreciation Right shall
be determined by dividing: (a) the total number of shares of Stock as to which
the Stock Appreciation Right is exercised, multiplied by the amount by which the
Fair Market Value of the Stock on the exercise date exceeds the Fair Market
Value of a share of Stock on the date of grant of the Stock Appreciation Right,
by (b) the Fair Market Value of the Stock on the exercise date; provided,
however, that fractional shares shall not be issued and in lieu thereof, a cash
adjustment shall be paid. In lieu of issuing Stock upon the exercise of a Stock
Appreciation Right, the Committee in its sole discretion may elect to pay the
cash equivalent of the Fair Market Value of the Stock on the exercise date for
any or all of the shares of Stock that would otherwise be issuable upon exercise
of the Stock Appreciation Right.
10.5 Effect of Exercise. If a Stock Appreciation Right is issued in tandem
with an Option, the exercise of the Stock Appreciation Right or the related
Option will result in an equal reduction in the number of corresponding Options
or Stock Appreciation Rights which were granted in tandem with such Stock
Appreciation Rights and Options.
10.6 Termination of Services. Upon the termination of the services of a
Participant, any Stock Appreciation Rights then held by such Participant shall
be exercisable within the time periods, and upon the same conditions with
respect to the reasons for termination of services, as are specified in Section
7.2(d) with respect to Options.
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ARTICLE XI
STOCK BONUSES
The Committee may award Stock Bonuses to such Participants, subject to such
conditions and restrictions, as it determines in its sole discretion. Stock
Bonuses may be either outright grants of Stock, or may be grants of Stock
subject to and conditioned upon certain employment or performance related goals.
ARTICLE XII
OTHER COMMON STOCK GRANTS
From time to time during the duration of this Plan, the Board may, in its
sole discretion, adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Stock,
whether by purchase, outright grant, or otherwise. Any such arrangements shall
be subject to the general provisions of this Plan and all shares of Stock issued
pursuant to such arrangements shall be issued under this Plan.
ARTICLE XIII
RIGHTS OF PARTICIPANTS
13.1 Service. Nothing contained in the Plan or in any Award, or other Award
granted under the Plan shall confer upon any Participant any right with respect
to the continuation of his employment by, or consulting relationship with, the
Company or any Affiliated Corporation, or interfere in any way with the right of
the Company or any Affiliated Corporation, subject to the terms of any separate
employment agreement or other contract to the contrary, at any time to terminate
such services or to increase or decrease the compensation of the Participant
from the rate in existence at the time of the grant of an Award. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute a termination of service shall be determined by the Committee at the
time.
13.2 Nontransferability. No right or interest of any Participant in an
Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the
completion of the restriction period applicable thereto), a Stock Unit, or other
Award granted pursuant to the Plan, shall be assignable or transferable during
the lifetime of the Participant, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of a Participant's death, a Participant's rights and
interests in Options, Stock Appreciation Rights, Restricted Stock Awards, other
Awards, and Stock Units shall, to the extent provided in Articles VII, VIII, IX,
X and XI, be transferable by will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options may be made by, the Participant's legal representatives, heirs or
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legatees. If in the opinion of the Committee a person entitled to payments or to
exercise rights with respect to the Plan is disabled from caring for his affairs
because of mental condition, physical condition or age, payment due such person
may be made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence satisfactory to the Committee of such status.
13.3 No Plan Funding. Obligations to Participants under the Plan will not
be funded, trusteed, insured or secured in any manner. The Participants under
the Plan shall have no security interest in any assets of the Company or any
Affiliated Corporation, and shall be only general creditors of the Company.
ARTICLE XIV
GENERAL RESTRICTIONS
14.1 Investment Representations. The Company may require any person to whom
an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock Bonus is granted, as a condition of exercising such Option or Stock
Appreciation Right, or receiving such Restricted Stock Award, Stock Unit, or
Stock Bonus, to give written assurances in substance and form satisfactory to
the Company and its counsel to the effect that such person is acquiring the
Stock for his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with Federal and
applicable state securities laws. Legends evidencing such restrictions may be
placed on the Stock Certificates.
14.2 Compliance with Securities Laws. Each Option, Stock Appreciation
Right, Restricted Stock Award, Stock Unit, and Stock Bonus grant shall be
subject to the requirement that, if at any time counsel to the Company shall
determine that the listing, registration or qualification of the shares subject
to such Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock Bonus grant upon any securities exchange or under any state or federal
law, or the consent or approval of any governmental or regulatory body, is
necessary as a condition of, or in connection with, the issuance or purchase of
shares thereunder, such Option, Stock Appreciation Right, Restricted Stock
Award, Stock Unit or Stock Bonus grant may not be accepted or exercised in whole
or in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained on conditions acceptable to the Committee.
Nothing herein shall be deemed to require the Company to apply for or to obtain
such listing, registration or qualification.
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ARTICLE XV
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or Stock Appreciation Right, the sale of
shares received upon such exercise, the vesting of any Restricted Stock Award,
receipt of Stock Bonuses, distributions with respect to Stock Units, or the
grant of Stock shall not constitute "earnings" or "compensation" with respect to
which any other employee benefits of such employee are determined, including
without limitation benefits under any pension, profit sharing, life insurance or
salary continuation plan.
ARTICLE XVI
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or
modify the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Company, on the advice of
counsel, determines that shareholder approval is otherwise necessary or
desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Options, Stock Appreciation Rights, Restricted Stock
Awards, Stock Units, Stock Bonuses or other Award theretofore granted under the
Plan, without the consent of the Participant holding such Options, Stock
Appreciation Rights, Restricted Stock Awards, Stock Units, Stock Bonuses or
other Awards.
ARTICLE XVII
WITHHOLDING
17.1 Withholding Requirement. The Company's obligations to deliver shares
of Stock upon the exercise of any Option, or Stock Appreciation Right, the
vesting of any Restricted Stock Award, payment with respect to Stock Units, or
the grant of Stock shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
17.2 Withholding With Stock. At the time the Committee grants an Option,
Stock Appreciation Right, Restricted Stock Award, Stock Unit, Stock Bonus, other
Award, or Stock, it may, in its sole discretion, grant the Participant an
election to pay all such amounts of tax withholding, or any part thereof, by
electing to transfer to the Company, or to have the Company withhold from shares
otherwise issuable to the Participant, shares of Stock having a value equal to
the amount required to be withheld or such lesser amount as may be elected by
17
<PAGE>
the Participant. The value of shares of Stock to be withheld shall be based on
the Fair Market Value of the Stock on the date that the amount of tax to be
withheld is to be determined (the "Tax Date"). Any such elections by
Participants to have shares of Stock withheld for this purpose will be subject
to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company within the
meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must
satisfy the requirements of such Section 16 and any applicable Rules thereunder
with respect to the use of Stock to satisfy such tax withholding obligation.
ARTICLE XVIII
REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
18.2 Federal Securities Law Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, Awards granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule promulgated under the 1934 Act, to qualify the Award for any
exception from the provisions of Section 16(b) of the 1934 Act available under
that Rule. Such conditions shall be set forth in the agreement with the
Participant which describes the Award or other document evidencing or
accompanying the Award.
18.3 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.
ARTICLE XIX
DURATION OF THE PLAN
Unless sooner terminated by the Board of Directors, the Plan shall
terminate on July 31, 2007, and no Option, Stock Appreciation Right, Restricted
Stock Award, Stock Unit, Stock Bonus, other Award or Stock shall be granted, or
offer to purchase Stock made, after such termination. Options, Stock
Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units
outstanding at the time of the Plan termination may continue to be exercised, or
become free of restrictions, or paid, in accordance with their terms.
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<PAGE>
Dated:
----------------------
ADVANCE DISPLAY TECHNOLOGIES, INC.
ATTEST:
- ------------------------------- By:
---------------------------------
19
<PAGE>
APPENDIX
Exhibits Description of Exhibit
-------- ----------------------
Appendix "A" Form of Option Certificate
Appendix "B" Number of Shares Subject to the Plan
20
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1997
EXHIBIT 10.5
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
this ______ day of ________________, 199___, by and between Advance Display
Technologies, Inc. (the "Company"), and _________________ (the "Executive").
RECITALS
WHEREAS, the Executive performs a valuable service for the Company in his
capacity as _______________________; and
WHEREAS, the Executive does not consider the existing provisions of the
Articles of Incorporation and Bylaws regarding indemnification to be sufficient
and has requested additional consideration; and
WHEREAS, the Bylaws, by their non-exclusive nature, permit contracts
between the Company and its agents, officers, employees and other agents with
respect to indemnification of such persons; and
WHEREAS, in order to induce Executive to continue serving as a director of
the Company, the Company is willing to indemnify the Exeuctive to the extent set
forth below.
NOW, THEREFORE, in consideration of Executive's service as a director after
the date hereof, the parties hereto agree as follows:
1. Indemnity. The Company will indemnify the Executive, his executors,
administrators or assigns, for any Expenses (as defined below) which the
Executive is or becomes legally obligated to pay in connection with any
Proceeding. As used in this Agreement the term "Proceeding" includes any
threatened, pending or completed claim, action, suit or proceeding, whether
brought by or in the right of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which the Executive may be
or may have been involved as a party or otherwise, by reason of the fact that
Executive is or was a director or officer of the Company, by reason of any
actual or alleged error or misstatement or misleading statement made or suffered
by the Executive, by reason of any action taken by him or of any inaction on his
part while acting as such director or officer, or by reason of the fact that he
was serving at the request of the Company as a director, trustee, officer,
fiduciary, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise; provided, that in each such case Executive acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the Company, and, in the case of a criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful. As used in
this Agreement, the term "other enterprise" includes (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" includes (without limitations) any excise tax assessed with respect to
any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" includes,
without limitation, damages, judgments, fines, penalties, settlements and costs,
reasonable attorneys' fees and disbursements and costs of attachment or similar
bonds, and investigations in connection with investigating, defending, being a
witness or participating in any Proceeding, and any expenses of establishing a
right to indemnification under this Agreement.
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3. Enforcement. If a claim or request under this Agreement is not paid by
the Company, or on its behalf, within thirty days after a written claim or
request has been received by the Company, the Executive may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Executive shall be
entitled to be paid also the Expenses of prosecuting such suit.
4. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Executive, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights; provided, however, that neither this right of subrogation
nor the exclusion set forth in Section 5(b) below shall apply to any right of
recovery of the Executive or any payment received by the Executive from an
entity that is the primary employer of the Executive or on whose behalf the
Executive serves as a director and/or officer of the Company or an affiliate of
any such entity.
5. Exclusions. The Company shall not be liable under the Agreement to make
any payment in connection with any claim made against the Executive:
(a) to the extent that payment is actually made to the Executive under
a valid, enforceable and collectible insurance policy;
(b) to the extent that the Executive is indemnified and actually paid
otherwise than pursuant to this Agreement, subject to Section 4;
(c) in connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the Executive
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless, and only to the extent that,
any court in which such action was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, the Executive is fairly and reasonably entitled
to indemnity for such expenses as such court shall deem proper;
(d) if it is proved by final judgment in a court of law or other final
adjudication to have been based upon or attributable to the Executive's
having gained any personal profit or advantage to which he was not legally
entitled;
(e) for a disgorgement of profits made from the purchase and sale by
the Executive of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
state statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Executive; provided, however, notwithstanding the foregoing, the Executive
shall be protected under this Agreement as to any claims upon which suit
may be brought against him by reason of any alleged dishonesty on his part,
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<PAGE>
unless a judgment or other final adjudication thereof adverse to the
Executive shall establish that he committed (i) acts of active and
deliberate dishonesty, (ii) with actual dishonest purpose and intent, (iii)
which acts were material to the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is prohibited
by applicable law from paying as indemnity or for any other reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of this Agreement, to the extent that the Executive has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Executive shall be indemnified against any and all Expenses incurred in
connection therewith.
7. Partial Indemnification. If the Executive is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
any Expenses, but not for the total amount thereof, the Company shall indemnify
the Executive for the portion of such Expenses to which the Executive is
entitled.
8. Advance of Expenses. Expenses reasonably and necessarily incurred by the
Executive in connection with any Proceeding, except the amount of any
settlement, shall be paid by the Company in advance upon request of the
Executive that the Company pay such Expenses. The Executive hereby undertakes to
repay to the Company the amount of any Expenses theretofore paid by the Company
to the extent that it is ultimately determined that such Expenses were not
reasonable or that the Executive is not entitled to indemnification in respect
thereof.
Such advances shall be made by the Company unless: (a) the Board of
Directors determines, by a majority vote of a quorum of disinterested directors
based on clear and convincing evidence known to the Board of Directors at the
time such determination is made, that the Executive would not be entitled to
indemnification under applicable law, or (b) if such a quorum is not obtainable
or a quorum of disinterested directors so directs, independent legal counsel
determines, based on clear and convincing evidence known to the counsel at the
time such determination is made, that Executive would not be entitled to
indemnification under applicable law.
9. Notice and Defense of Claim. The Executive, as a condition precedent to
his right to be indemnified under this Agreement, shall give to the Company
notice in writing as soon as practicable of any claim made against him for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be given at its principal office, shall be directed to the Corporate
Secretary (or such other address as the Company shall designate in writing to
the Executive) and shall be effective only upon actual receipt. In addition, the
Executive shall give the Company such information and cooperation as it may
reasonably require and as shall be within the Executive's power.
With respect to any such Proceeding: (a) the Company will be entitled to
participate therein at its own expense; and (b) except as otherwise provided
below ' to the extent that it may wish, the Company jointly with any other
indemnifying party similarly notified will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Executive. After notice from
the Company to Executive, given within a reasonable time, of its election so to
assume the defense thereof, the Company will not be liable to Executive under
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<PAGE>
this Agreement for any legal or other expenses subsequently incurred by
Executive in connection with the defense of such Proceeding except as otherwise
provided below. Executive shall have the right to employ his own counsel in such
Proceeding but the fees and expenses of such counsel incurred after notice from
the Company of its assumption of the defense thereof shall be at the expense of
Executive unless (i) the employment of counsel by Executive has been authorized
by the Company, or (ii) Executive shall have obtained the written opinion of
refutable counsel with expertise in such matters (such counsel to be reasonably
satisfactory to a majority of disinterested directors) that there may be one or
more defenses available to Executive that could reasonably be expected to result
in a conflict of interest between the Company and Executive in the conduct of
the defense of such action, in each of which cases the reasonable fees and
expenses of Executive's counsel shall be at the expense of the Company. The
Company shall not be entitled to assume the defense of any Proceeding- brought
by or on behalf of the Company or that is the subject of the opinion provided by
Executive under clause (ii) above.
The Company shall not be liable to indemnify Executive under this Agreement
for any amounts paid in settlement of any Proceeding effected without its prior
written consent. Executive shall execute and deliver such agreements, releases
and other documents as the Company may reasonably request to effect a settlement
of any Proceeding. Without Executive's consent, the Company shall not enter into
any settlement that provides for any action by Executive other than the payment
of amounts against which Executive is entitled to indemnification hereunder. In
the event that the Company proposes to settle any Proceeding by the payment of
damages against which Executive is entitled to indemnification hereunder and in
an amount that the plaintiff has indicated would be acceptable, and the
Executive refuses to enter into a reasonable settlement agreement, the Company
shall not thereafter be responsible for any costs of defense or the amount by
which any judgement or settlement thereafter paid exceeds the damages that the
Company proposed to pay in settlement. Neither the Company nor Executive will
unreasonably withhold their consent to any proposed settlement.
10. No Employment Agreement. Nothing contained herein shall be deemed to
create a contract of employment between the Company and Executive.
11. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall be deemed
to diminish or otherwise restrict the Executive's right to indemnification under
any provision of the Articles of Incorporation or Bylaws of the Company and
amendments thereto or under law.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with Colorado law without giving effect to the principles of
conflicts of laws.
14. Coverage. The provisions of this Agreement shall apply with respect to
the Executive's service in any of the capacities described in Section I above
prior to as well as after the date of this Agreement. The right of Executive to
be indemnified hereunder shall continue after the termination of Executive's
service as an officer and/or director of the Company with respect to all periods
prior to such termination.
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15. Amendments; Waivers. No supplement, modification or amendment of this
Agreement shall be binding- unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
16. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by both of the parties hereto and their respective
successors, assignees (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company), heirs, executors and personal and legal
representatives.
17. Severability. If any provision of this Agreement (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid. void or otherwise unenforceable in any
respect, the validity and enforceability of any such provision in every other
respect and of the remaining provisions of this Agreement shall not be in any
way impaired and shall remain enforceable to the full extent permitted by law.
18. Notices. All notices, requests, demands and other communications which
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given when delivered in person (by express courier
or otherwise), by telecopier or three days after being deposited in the United
States mail, certified mail, return receipt requested, first class postage
prepaid, as follows:
If to the Company: Advance Display Technologies, Inc.
1251 South Huron, Unit C
Denver, Colorado 80223
If to the Executive:
----------------------------------
----------------------------------
----------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
COMPANY: EXECUTIVE:
ADVANCE DISPLAY TECHNOLOGIES, INC.
By: By:
------------------------------- -------------------------------
5
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1997
EXHIBIT 10.6
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made to be effective this
17th day of September, 1997, by and between Advance Display Technologies, Inc.,
a Colorado corporation (the "Company") located at 1251 S. Huron Street, Unit C,
Denver, Colorado 80223 and Kenneth P. Warner (the "Executive) (individually
referred to as the "Party" and collectively as the "Parties").
RECITALS
WHEREAS, the Executive possesses certain knowledge and skills that are
beneficial to the business of the Company;
WHEREAS, the Company desires to retain the services of the Executive to act
as its President and Chief Executive Officer.
NOW THEREFORE, to execute and deliver this Agreement and for good and
valuable consideration, including Executive's continued employment with the
Company and such corresponding compensation and benefits as outlined hereunder,
the receipt and sufficiency of which are hereby acknowledged by the Parties, the
Parties hereby agrees as follows:
1. The Services. Executive shall timely perform for the Company the
services described herein and any other such other matters as determined by the
Company in connection with the Company's businesses. Executive is engaged as the
President and Chief Executive Officer of the Company. In such capacity, the
Executive shall exercise detailed supervision over the operations of the Company
subject, however, to control by the Board of Directors. The Executive shall
perform all duties incident to the title of President and Chief Executive
Officer and such other duties as from time to time may be assigned to him by the
Board of Directors.
2. Best Efforts of Executive. The Executive shall devote his full time
efforts as required by the business of the Company and to all of the duties that
may be required by the terms of this Agreement to the reasonable satisfaction of
the Board of Directors of the Company. The Executive shall at all times
faithfully, with diligence and to the best of his ability, experience and
talents, perform all the duties that may be required of and from him pursuant to
the express and implicit terms hereof to the reasonable satisfaction of the
Company. Such services shall be rendered at such place or places as the Company
shall in good faith require or as the interest, needs, business or opportunity
of the Company shall require. The Executive agrees not to engage in any
employment or consulting work or any trade or business for his account or for or
on behalf of any other person, firm or corporation during the term hereof,
unless the Executive obtains prior written consent from the Board of Directors
of the Company. Executive acknowledges and agrees that he owes a fiduciary duty
of loyalty to the Company and, is obligated to conduct himself on behalf of the
Company in a manner which reflects the best interest of the Company.
3. Working Facilities. The Executive shall be furnished with all such
facilities and services suitable to his position and adequate for the
performance of his duties.
<PAGE>
4. Expenses. The Executive is authorized to incur reasonable and necessary
expenses for promoting the business of the Company, including his out-of-pocket
expenses for entertainment, travel and similar items. The Company shall
reimburse the Executive for all such expenses on the presentation by the
Executive, from time to time, of an itemized account of such expenditures. The
itemized account of such expenditures shall be prepared in accordance with the
guidelines set forth by the Internal Revenue Service. Reasonable travel expense
shall include business class air travel when traveling internationally and first
class upgrades not to exceed $100 per one way trip for domestic travel.
5. Employment-At-Will. In consideration of the opportunity to work for the
Company, as well as such compensation and benefits earned (as defined below),
Executive agrees and acknowledges that Company may terminate Executive at any
time, without notice and without cause, subject to the provisions for severance
set forth in Section 10 herein. Executive further agrees that the Company has
not offered, promised or implied that such employment is guaranteed for any set
period of time. In addition, Executive shall not rely on any offers, promises or
implications made or suggested by the Company, whether orally or in writing,
that would conflict with or contradict the foregoing, unless such writing amends
this Agreement according to the terms and conditions hereunder.
6. Term. The term of employment herein (the "Term") commenced on September
17, 1997 (the "Commencement Date") and shall continue for a term of three years
thereafter until September 17, 2000, unless terminated in accordance with the
terms and conditions of Section 10, herein.
7. Executive Compensation and Benefits.
(a) Salary. The Company shall pay the Executive bi-weekly compensation
on the basis of $150,000 annual salary. The Board of Directors shall review
Executive's compensation annually during the Term hereof to determine
whether a cost of living increase is appropriate. Notwithstanding the
compensation being paid on the basis of an annual salary, the Term of the
employment of this Agreement can be terminated in accordance with Section 5
and 10 herein, and all amounts due at termination are in accordance with
Section 10, herein. All compensation payable to the Executive herein is
stated in gross amounts and shall be subject to all applicable withholding
taxes and any other amounts required by law to be withheld.
(b) Benefits. The Company shall provide the Executive regular Company
benefits, such as health insurance, that are made available to other
Company employees.
8. Vacation. The Executive shall be entitled to four (4) weeks of paid
vacation per year. The Executive shall also be entitled to all legal holidays
that the Company grants to Company employees.
9. Stock Option.
(a) The Executive shall be entitled to receive a non-qualified stock
option from the Company to purchase 1,500,000 common shares of stock of the
Company for the price of $0.1315 per share (the "Stock Option"), which
Stock Option shall vest as provided herein.
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Upon execution of this Agreement, the Executive shall have fully vested a
stock option for 437,500 common shares of stock of the Company. The
remaining options (up to 1,062,500) shall vest at the rate of 31,250 common
shares of stock of the Company on the sixteenth (16th) day of each month
that the Executive is employed by the Company, commencing October 16, 1997
and continuing until this Agreement is terminated or the Executive is fully
vested, whichever comes first.
(b) The Stock Options shall be governed in accordance with and subject
to a Non- Qualified Stock Option Agreement prepared by the Company, in form
and substance as attached Exhibit "A". The options shall be exercisable for
a period of ten (10) years from the Commencement Date, subject to
provisions on termination set forth in Stock Option Agreement. In the event
of a public offering of the Company's stock, all issued shares of stock of
the Company shall be registered. The Company in its sole discretion, can
subject the shares to reasonable and customary lock up provisions.
(c) The Stock Option shall be issued pursuant to the terms of the
Advance Display Technologies, Inc. Equity Incentive Plan ("Plan") adopted
by the Board of Directors on September 18, 1997, which shall govern the
terms of the Option except as modified by the Non-Qualified Stock Option
Agreement attached as Exhibit "A". In the event the Plan is not approved by
the Company's shareholders on or before March 31, 1998, the Stock Option
shall be deemed issued outside the Plan but shall none-the-less be governed
by those provisions, as modified by the Non- Qualified Stock Option
Agreement.
10. Termination and Severance.
--------------------------
(a) Termination by the Company With Cause. The Company may terminate
this Agreement with cause at any time in accordance with the terms and
conditions herein, upon immediate notice to the Executive. For the purpose
of this section, "cause" shall be defined as meaning conduct by the
Executive which constitutes in fact or law a breach of fiduciary duty or
felonious conduct having the effect, in the opinion of the Board of
Directors, of materially adversely affecting the Company or its reputation.
In the event of termination by the Company with cause, the Executive shall
be entitled to receive compensation based upon his prorated salary, up to
the date of termination, and no severance pay or benefits of any kind.
(b) Termination by Company Without Cause. The Company may terminate
this Agreement without cause at any time, in accordance with the terms and
conditions herein, upon immediate notice to the Executive. In the event of
termination by the Company without cause, the Executive shall be entitled
to receive compensation based upon his prorated salary, up until the date
of termination, paid in accordance with the payroll schedule in existence
at the time of termination, in accordance with the terms and conditions of
Section 7 herein, plus severance pay as follows:
(i) In the event the Executive is terminated
without cause at any time during the first 12 months
following the Commencement Date, the Executive shall be
entitled to 3 months severance pay;
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(ii) In the event the Executive is terminated
without cause at any time in months 13 through 24
following the Commencement Date, the Executive shall be
entitled to 6 months severance pay; and
(iii) In the event the Executive is terminated
without cause at any time in months 25 through 36
following the Commencement Date, the Executive shall be
entitled to 9 months severance pay; and
(iv) The Executive shall be entitled to this
severance pay, paid in accordance with the payroll
schedule in existence at the time of termination, in
accordance with the terms and conditions of Section 7
herein. By receipt of this severance pay the Executive
acknowledges that he has received all compensation due
the Executive from the Company and releases the
Company, of any and all claims for compensation that
the Executive may have against the Company.
(c) The Company may deliver notification of termination to the
Executive in writing, including facsimiles, and shall be effective
immediately upon such delivery.
(d) Termination by Executive. Executive shall provide the Company with
at least fourteen (14) days written notice of his election to resign and
terminate this Agreement. In the event of termination by the Executive, the
Executive shall be entitled to receive compensation based upon his prorated
salary, paid in accordance with the payroll schedule in existence at the
time of termination, up to the date of termination, and no severance pay or
benefits, except as provided in (e) below.
(e) Benefits Upon Termination. Effective immediately upon termination
of the Executive, by either party with or without cause, all benefits
programs then in place shall cease and terminate immediately except as
required by applicable law, and all unvested stock options shall become
null and void in accordance with the provisions herein.
(f) Return of Company Records and Material. Immediately upon
termination, the Executive shall return any and all records, material and
tangible things to the Company.
11. Records. Executive agrees to maintain accurate records concerning all
business, strategic and marketing plans, designs, information and data
concerning the Company or the Company's products, subsystems and processes
(collectively, the "Proprietary Information") developed by Executive during the
Term of this Agreement. Executive agrees to make all Proprietary Information
available to the Company and its affiliated entities, agents, contractors and
representatives (as requested by the Company) during the Term of this Agreement.
Executive expressly acknowledges and agrees that all such Proprietary
Information is the property of the Company and/or the appropriate affiliated
entity (as designated by the Company) and will immediately deliver to the
Company all Proprietary Information, in whatever form, including, but not
limited to all intellectual property, such as patents and trademarks pending
and/or granted throughout the world, upon the termination of this Agreement by
either Party.
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12. Confidentiality. Executive agrees that:
----------------
(a) All Proprietary Information which is furnished or disclosed by or
on behalf of the Company to the Executive (whether orally or in writing)
shall be maintained in strict confidence and not disclosed to any third
parties, directly or indirectly, by the Executive without Company's prior
written consent, nor used by the Executive except for the purposes for
which it is disclosed or received;
(b) All Proprietary Information and technology acquired or developed
by or on behalf of Executive hereunder shall be and remain the sole
property of the Company. Any information acquired or developed by the
Executive hereunder shall be returned to the Company upon request, or at
the termination of this Agreement;
(c) In the event that the Executive receives a request or is required
(by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process) to disclose all or any part of the
Proprietary Information, Executive agrees to notify the Company of the
existence of and the terms and circumstances surrounding such a request or
requirement so that the Company may seek a protective order or other
appropriate remedy. In the event that such protective order or other remedy
is not obtained or that the Company waives compliance with the provisions
hereof, (i) Executive may disclose to any tribunal only that portion of the
Proprietary Information which Executive, as advised by counsel, is legally
required to disclose and shall seek assurance that confidential treatment
shall be accorded such Proprietary Information, and (ii) Executive shall
not be liable for such disclosure unless disclosure to any such tribunal
was caused or resulted from a previous disclosure by Executive not
permitted by this Agreement; and
(d) The terms of this Section shall survive termination of this
Agreement without regard to the cause of termination.
13. Covenant Not To Compete. In consideration of the Company hiring the
Executive for the services described herein and in acknowledgment of the
confidential nature of the Company's business interests, Executive agrees to
execute the "Covenant Not To Compete", attached as Exhibit "B", as a condition
of employment. The Restrictive Period of the Covenant Not To Compete shall last
only so long as the Executive is receiving severance pay as provided in Section
10, herein.
14. Modification; Waiver; Construction. No modification to, addition to or
waiver of any of the provisions of this Agreement shall be binding upon either
Party unless in writing signed by the Executive and an authorized representative
of the Company. No waiver by either Party of any breach by the other Party of
any the provisions of this Agreement shall be construed as a waiver of any
subsequent breach, whether of the same or of a different provision in this
Agreement. Further, no presumption shall be deemed to exist in favor or against
either Party hereto as a result of the preparation, drafting and/or negotiation
of this Agreement.
5
<PAGE>
15. Opportunity to Consult Counsel. The Parties hereto represent and agree
that, prior to executing this Agreement, each has had the opportunity to consult
with independent counsel concerning the terms of this Agreement.
16. Notice. Unless specified otherwise, all notices required or permitted
by this Agreement shall be in writing and shall be hand-delivered, sent by
courier or certified mail, return receipt requested, postage prepaid, addressed
as set forth below (except that either Party may from time to time give notice
changing its address for that purpose) and shall be effective when personally
delivered, one day following delivery to a recognized courier service, or if
mailed, on the third day after mailing.
If to the Company: Gene W. Schneider, Chairman
c/o United International Holdings, Inc.
4643 South Ulster, Suite 1300
Denver, Colorado 80237
with a copy to:
David J. Babiarz, Esq.
Overton, Babiarz & Sykes, P.C.
7720 East Belleview Ave., Suite 200
Englewood, Colorado 80111
If to the Executive: Kenneth P. Warner
7756 South Forest Street
Littleton, Colorado 80122
with a copy to:
Richard Judd, Esq.
1660 Lincoln, Suite 2800
Denver, Colorado 80264
17. Survival. Notwithstanding the termination of this Agreement, any duty
or obligation which has been incurred and which has not been fully observed,
performed, or discharged, and any right, unconditional or conditional, which has
been created and has not been fully enjoyed, enforced, observed, performed or
satisfied (including, but not limited to the duties, obligations and rights with
respect to Confidentiality and/or the Covenant Not To Compete) shall survive
such expiration or termination until such duty or obligation has been fully
observed, performed, or discharged and such right has been enforced, enjoyed or
satisfied.
18. Severability. If any provision or Attachment of this Agreement shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect
by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or Attachment of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or Attachment had never been contained herein.
6
<PAGE>
19. Waiver. All the rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies
provided by law. No delay or failure on the part of either party in the exercise
of any right or remedy arising from a breach of this Agreement shall operate as
a waiver of any subsequent right or remedy arising from a subsequent breach of
this Agreement. The consent of any party where required hereunder to any act of
occurrence shall not be deemed to be a consent to any other act of occurrence.
20. Remedies. Executive acknowledges that compliance with all provisions
herein is necessary to protect the business and good will of the Company and
that a breach of any provision can irreparably and continuously damage the
Company, for which money damages may not be adequate. Consequently, the
Executive agrees that, in the event the Executive breaches any provision of this
Agreement or the Covenant Not To Compete, the Company shall be entitled to
preliminarily or permanently enjoin the Executive from violating this Agreement
or the Covenant Not To Compete, in order to prevent the continuation of such
harm, and take any other legal or equitable actions available to the Company.
21. Alternative Dispute Resolution. Any dispute between the parties with
respect to this Agreement with the exception of the Covenant not to Compete,
shall be submitted to binding arbitration in Denver, Colorado before and
pursuant to the rules of the American Arbitration Association. Each party shall
be responsible to pay its own attorneys fees, costs and expenses, however the
prevailing party shall be entitled to an award of reasonable attorneys fees,
costs and expenses. The arbitrators shall have the power to award any legal or
equitable remedies that would be available in proceedings conducted before a
state or federal court of competent jurisdiction in Denver, Colorado. Judgment
on the award of the arbitrators may be entered in any court of competent
jurisdiction. All arbitration proceedings and the results thereof shall be
confidential, except to the extent that any party is required to make disclosure
concerning such proceedings under applicable law.
22. Attorney Fees. In the event of any dispute, arbitration, litigation
between the Parties or proceeding before any court of competent jurisdiction,
the prevailing party shall be entitled to reasonable attorney fees, costs and
expenses.
23. Governing Law. The validity, interpretation, and enforcement of this
Agreement shall be governed by the laws of the State of Colorado.
24. Entire Agreement. This Agreement sets forth the full and complete
understanding of the Parties hereto as of the date hereof relating to the
subject matter hereof and supersedes any and all prior negotiations and
dealings.
25. Binding Upon Successors. This contract may not be assigned by the
Executive without the Company's consent. Executive agrees that this Agreement
shall be binding upon and shall inure to the benefit of the Company's
successors, and assigns.
7
<PAGE>
[SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement effective as
of the Commencement Date of employment.
COMPANY:
ADVANCE DISPLAY TECHNOLOGIES, INC.
By:
----------------------------------
Gene W. Schneider, Chairman
EXECUTIVE:
--------------------------------------
Kenneth P. Warner
9
<PAGE>
EXHIBIT "A"
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement (the "Agreement") is made
effective as of the 17th day of September, 1997, between Advance Display
Technologies, Inc., a Colorado corporation (the "Company"), and Kenneth P.
Warner (the "Optionee"). For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Option Grant. Pursuant to the Executive Employment Agreement dated
September 17, 1997 between the Company and the Optionee (the "Employment
Agreement") and subject to the terms and conditions of this Agreement, the
Company grants to the Optionee the right and option (the "Option") to purchase
up to an aggregate of 1,500,000 shares (the "Optioned Shares") of its common
stock, $.001 par value ("Common Stock"). Of that amount, options to acquire
437,500 shares of Common Stock shall be vested immediately; the remaining
options (up to 1,062,500) shall vest at the rate of 31,250 shares on the
sixteenth (16th) day of each month that the Optionee is employed by the Company,
commencing October 16, 1997 and continuing until the Employment Agreement with
Optionee is terminated or the Optionee is fully vested, whichever first occurs.
2. Stock Option Price. The purchase price of the Optioned Shares is $0.1315
per share (the "Stock Option Price").
3. Exercisability. The Option shall be exercisable beginning with the date
of vesting and until 5:00 p.m., Mountain Daylight Time, September 17, 2007. The
foregoing provisions regarding exercisability are expressly subject to the
provisions of Paragraph 8 regarding termination of Optionee's employment with
the Company.
4. Manner of Exercise. The Option is exercisable by written notice to the
Company, signed by the Optionee or other authorized person, in the form attached
to this Option. Such notice must be accompanied by payment in full of the Stock
Option Price of the Optioned Shares being purchased. Such notice and payment
must either be actually delivered to the Company or sent by certified mail to
the Company at 1251 South Huron, Suite C, Denver, Colorado 80223 (or at such
other address as the Company may direct). Within a reasonable time after receipt
of such notice and payment, the Company shall deliver to the Optionee
certificates representing the Optioned Shares purchased, registered in the name
of the Optionee (or such other name as the Optionee may designate in such
notice), free and clear of any liens, claims, encumbrances or restrictions. Upon
such exercise, the Optioned shall be deemed the record owner of the Optioned
Shares purchased upon such exercise without regard to the date on which the
related certificate is issued.
5. Payment of Stock Option Prices. The Stock Option Price of any Optioned
Shares purchased hereunder may be paid in any of the following ways:
(a) by check;
1
<PAGE>
(b) by delivery of certificates representing a number of shares of
outstanding Common Shock having a fair market value (based on the closing
price or, if the closing price is not reported, the average of the bid and
asked prices of the Common Stock on the last trading day before the date
said notice is sent by the Optionee) equal to the Stock Option Price, duly
endorsed for transfer to the Company and free and clear of any lien, claim,
encumbrance or restriction;
(c) any combination of the foregoing.
At the request of the Optionee, the Company shall cooperate in arranging a
so-called "broker- assisted cashless exercise" of the Option, including entering
into any agreement reasonably requested by a broker agreeing to forward the
certificate representing the Optioned Shares directly to the broker.
6. Securities Law Matters. The Company shall include the Option Shares on
the first registration statement filed subsequent to the date hereof, which
registration statement is an appropriate form for registration of the Option
Shares. If the Option is exercised prior to effective date of such registration,
at the time of exercise Optionee shall execute and deliver to the Company an
investment letter containing such representations ad warranties as the Company
may reasonably request to establish the availability of exemptions from the
registration requirements of federal and applicable state securities laws, and
the certificates representing the Optioned Shares shall bear an appropriate
legend. The Optionee understands that until the registration statement is
effective, the Option Shares received upon exercise of this Option shall be
"restricted" within the meaning of Rule 144 of the 1933 Act.
7. Nonassignable Option. Neither the Option nor any other rights acquired
by the Optionee under this Agreement are assignable or transferable by the
Optionee. Any sale, assignment, transfer, pledge or other disposition of any
Option contrary to the provisions of this Agreement, and any levy or any
attachment or similar process upon any Option, will be null and void. The Option
may be exercised only by the Optionee during the Employee's lifetime, except as
otherwise specifically provided in Section 8.
8. Employment Termination. If the Optionee's employment with the Company is
terminated prior to the expiration or exercise in full of the Option:
(a) If such termination is by the Company for cause (as defined in the
Employment Agreement), the Option may be exercised by the Optionee for a
period of ninety (90) days following termination to the extent that it was
exercisable on the date of termination, but otherwise shall expire.
(b) If such termination results from the Optionee's death or
disability (defined as Optionee's inability, by virtue of illness or
physical or mental incapacity or disability from any cause or causes
whatsoever, to perform Optionee's essential functions under the Employment
Agreement, whether with or without reasonable accommodation, for a period
exceeding 180 days), or is by the Optionee the Option may be exercised by
the Optionee or his representative for a period of one (1) year following
said termination to the extent that it was exercisable on the date of
termination, but otherwise shall expire.
2
<PAGE>
(c) If such termination is by the Company for any other reason other
than cause, or for no reason, the Option shall become or continue to be
exercisable as to all of the Optioned Shares from and after the date of
such termination and through and including the expiration date stated in
Section 3.
9. Adjustments in Certain Events.
(a) Stock Splits. In the event of a stock dividend, stock split or
other transaction as a result of which the outstanding shares of Common
Stock are divided into a larger number of shares or combined into a small
number of shares, the number of Optioned Shares and the Stock Option Price
shall be proportionately adjusted.
(b) Merger, Etc. In the event of a merger, consolidation, sale of all
or substantially all of the property of the Company, or reclassification,
recapitalization or reorganization of the Common Stock or of the Company,
in each case which results in the holders of the Company's Common Stock
receiving, in exchange for or upon conversion of or in addition to their
shares of Common Stock, securities, cash or other property, the Optionee
shall be entitled to receive, upon any exercise of the Option after the
effective date of such transaction, the securities (including Common
Stock), cash or other property he would have owned or been entitled to
receive had he exercised the Option immediately prior to the effective date
of such transaction. If the transaction is a merger or consolidation, as a
condition to the transaction, the Company shall cause the surviving or
resulting entity to agree in writing for the benefit of the Optionee to
deliver such securities, cash or other property upon exercise of the
Option.
10. Fractional Shares. No fractional shares shall be issued upon exercise
of this Option. In lieu of any fractional shares otherwise issuable, the Company
shall pay the Optionee the fair market value thereof.
11. Withholding. When compensation income is recognized by the Optionee
with respect to the Option, the Company may require (as a condition of Option
exercise) the Optionee to make a withholding tax payment to the Company. The
amount of such payment shall equal the amount of federal and state income tax
that the Company is required to withhold with respect to the issuance of such
stock. To the extent the required withholding tax payment is not timely made by
the Optionee, the Company may either withhold such payment from the Optionee's
cash compensation or make such other arrangements as the Board determined.
12. General Provisions.
(a) Delivery. Delivery of any notice or document shall occur upon
actual delivery to the recipient (including receipt of telecopy or
facsimile transmission), and shall be deemed delivered the third day
following mailing by U.S. certified mail, postage prepaid, return receipt
required, addressed to the recipient's then current mailing address. Any
corporate officer or other authorized agent may receipt for any notice or
document on behalf of the Company.
3
<PAGE>
(b) Equity Incentive Plan. To the extent not inconsistent with the
provisions hereof, this Agreement shall be governed by the provisions of
the Advance Display Technologies, Inc. Equity Incentive Plan adopted by the
Board of Directors on September 18, 1997..
(c) Amendment. This Agreement may be amended only in a written
instrument signed by both parties.
(d) Binding Effect. This Agreement is binding upon, and inures to the
benefit of, the parties and their respective heirs, legal representatives
and permitted successors and assigns.
(e) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to its subject matter, and it supersedes
all prior written and oral agreement.
(f) No Waiver. No waiver of any default under this Agreement will be
considered valid unless in writing, and no such waiver will be deemed as a
waiver of any subsequent default of the same or similar nature.
(g) Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of Colorado.
COMPANY:
ADVANCE DISPLAY TECHNOLOGIES, INC.
By:
------------------------------
Gene W. Schneider, Chairman
OPTIONEE:
----------------------------------
Kenneth P. Warner
4
<PAGE>
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
The undersigned ("Optionee") hereby elects to exercise the Option (as
defined in the Non-Qualified Stock Option Agreement effective September 17,
1997) as to __________ shares of the Common Stock, $.001 par value ("Common
Stock"), of Advance Display Technologies, Inc. (the "Company"), at a price of
$0.1315 per share. The undersigned is enclosing with this Notice payment in full
of the purchase price in the following form:
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
The certificate for the shares issuable as a result of this exercise shall
be registered in the name of the Optionee (unless otherwise indicated in a
writing accompanying this Notice) and delivered to the following address:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
The Optionee will pay the Company any amount that the Company is required
to withhold as a result of this exercise.
-------------------------------
Kenneth P. Warner
-------------------------------
Social Security Number
-------------------------------
Date
<PAGE>
EXHIBIT "B"
COVENANT NOT TO COMPETE
In consideration of the employment, compensation, and any and all
additional compensation and benefits paid to Kenneth P. Warner (the "Executive")
by Advance Display Technologies, Inc., a Colorado corporation (the "Company"),
the Executive understands and specifically covenants the following:
A. Statutory Authorization.
1. The Company is primarily engaged in the design, production,
development, manufacture, market and sale of fiber optic display screen products
for a wide variety of commercial and consumer applications in the worldwide
marketplace.
2. Employment by the Company and the compensation paid to Executive by
it are at least in part dependent upon the earnings or profits which accrue to
the Company through its ownership of assets relating to "know how", trade
secrets, inventions, patents, trademarks and copyrights.
3. This Covenant Not To Compete ("Covenant") is necessary because
Executive shall be in a position whereby he will be privy to valuable trade
secrets and proprietary information owned by the Company.
4. Executive acknowledges that he has read and understands the
following Colorado Law (C.R.S. Section 8-2-113) and he agrees that this Covenant
pertains to sub-sections (2)(b) and (2)(d) thereof, to wit:
(2) Any covenant not to compete which restricts the right of
any person to receive compensation for performance of
skilled or unskilled labor for any employer shall be void,
but this sub-section (2) shall not apply to:
(b)...Any contract for the protection of trade
secrets, and
(d)...Executive and management personnel and
officers and employees who constitute professional
staff to executive and management personnel.
B. Term. The term of this Covenant Not to Compete shall commence on the
Commencement Date of the Employment Agreement by and Between the Executive and
the Company, dated September 17, 1997 (the "Employment Agreement") and shall
terminate upon the final payment of any severance pay due under the Employment
Agreement (the "Term"). During Term the Executive agrees not to compete with the
Company in the State of Colorado (the "Restricted Area").
C. Restrictions. Executive understands and agrees that:
1. He will not, directly or indirectly, own, operate, join, control,
or mange, or be a director, shareholder, employee, or consultant for any
business, firm, corporation, or entity which is conducting or developing
any business which competes with the business of the Company in the design,
<PAGE>
construction, manufacturing, production, marketing or selling of fiber
optic display screens and its related line for a wide variety of consumer
and commercial applications (the "Product") if that business is located in
the Restricted Area, with the exception that the Executive may be a less
than 5% shareholder in a public company.
2. Executive will not, directly or indirectly, under any
circumstances, solicit, notify, or come in initial contact with any
employee or customer of Employer during the term of this Covenant for the
purposes of soliciting business or personnel away from the Company and/or
its Affiliate(s).
3. This covenant is necessary to provide the Company and its
Affiliates with protection for its aforesaid valuable trade secrets which
it now has or may acquire during the Executive's term of employment.
D. Damages. The Employment Agreement regarding Remedies shall control in
the event that Executive breaches the obligations agreed upon in this
attachment.
E. Modification of Terms. In the event that a court of competent
jurisdiction finds the terms of this Covenant to be unreasonable, unlawful or
unenforceable, the Parties expressly agree that any such term shall be modified
by the court to the extent necessary in order that such term shall be legally
enforceable to the fullest extent of the law.
F. Attorney Fees. In the event of a dispute, arbitration or litigation
between the parties, the prevailing party shall be entitled to reasonable
attorney fees, costs and expenses.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective as
of September 17, 1997.
COMPANY:
ADVANCE DISPLAY TECHNOLOGIES, INC.
By:
------------------------------
Gene W. Schneider, Chairman
EXECUTIVE:
----------------------------------
Kenneth P. Warner
ADVANCE DISPLAY TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED
JUNE 30, 1997
EXHIBIT 22
<PAGE>
ADVANCE DISPLAY TECHNOLOGIES, INC.
List of Subsidiaries
Display Optics, Ltd., a limited partnership organized and operating under the
laws of the state of Colorado.
Display Group, LLC, a limited liability company organized and operating under
the laws of the state of Colorado.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 235,731
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 51,819
<CURRENT-ASSETS> 297,741
<PP&E> 77,674
<DEPRECIATION> 2,260
<TOTAL-ASSETS> 902,770
<CURRENT-LIABILITIES> 1,169,634
<BONDS> 0
0
1,844
<COMMON> 21,344
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 902,770
<SALES> 0
<TOTAL-REVENUES> 97,755
<CGS> 0
<TOTAL-COSTS> 2,816,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,552
<INCOME-PRETAX> (2,718,839)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,718,839)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
