10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2002

Commission file number 0-13394

VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)

Georgia	58-1217564
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1868 Tucker Industrial Drive, Tucker, Georgia 30084
(address of principal executive offices and zip code)

Registrant's telephone number, including area code: (770) 938-2080

Securities Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act:

Title of each class	Name of each exchange of which registered
Common stock (no par value)	NASDAQ/NMS

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        The aggregate market value of the voting stock held by non-affiliates of the registrant at May 13, 2002 is $17,023,000.

        The number of shares outstanding of the registrant's Common Stock as of May 13, 2002 is 4,748,748.

DOCUMENTS INCORPORATED BY REFERENCE HEREIN

        Certain exhibits which were filed with the Securities and Exchange Commission as part of the registrant's Registration Statement on Form S-18 (Commission File No. 2-94626-A) are incorporated by reference into Part IV.

        Portions of the proxy statement for the annual 2002 shareholders meeting are incorporated by reference into Part III.

PART I

ITEM 1.    BUSINESS

General

        Video Display Corporation (the "Company") is a leading supplier of a complete range of display products and component parts for the display industry. Its product line consists of a wide variety of electron optic parts for original equipment manufacturers ("OEMs"), cathode ray tubes ("CRTs") and monitor manufacturers. The Company manufactures monochrome and color CRTs for medical, military, industrial and television applications and high and low-end monochrome and color CRT and AMLCD monitor displays for specialty high-performance and ruggedized requirements. The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have subsidiary operations located in Mexico and the United Kingdom.

Description of Principal Business

        The Company began operations in 1975 in Stone Mountain, Georgia manufacturing and recycling replacement CRTs for color and black/white television sets. Beginning in 1983, with the growth of the computer industry, the Company expanded to meet the needs of the replacement market for computer monitors and other data display screens by acquiring production equipment and customers from other smaller CRT remanufacturers. Today, the Company with its plants in Louisiana, Pennsylvania, Georgia, Texas, New York, Connecticut, Florida, Massachusetts, Kentucky, California, Mexico, and Lye, U.K. combine to form an international display manufacturing and display replacement parts distribution network for military, medical, training simulation and other niche market display applications.

        In November 2001, the Company acquired the Marquee™ line of CRT projectors from Christie Digital Systems Canada Inc. ("Christie"). These assets were transferred to the Company's subsidiary, VDC Display Systems ("Display Systems") of Cape Canaveral, Florida and compliment Display System's position in the simulation, virtual reality, home theater and other specialized markets.

        In June 2001, the Company acquired the common stock of XKD Corporation ("XKD") of San Jose, California. XKD is a manufacturer of high-resolution displays used for training, simulation, ruggedized military/industrial, and instrumentation applications.

        In May 2000, the Company acquired the common stock of Lexel Imaging Systems, Inc. ("Lexel") of Lexington, Kentucky. Lexel manufactures a wide range of CRT storage tubes and other complete visual displays for commercial and military programs.

        In June 2000, the Company acquired certain assets of the Electro Optical division of Imaging and Sensing Technology ("IST") in Horseheads, New York. IST provides a product line that includes specialty CRTs and complete visual displays used to produce computer-generated graphics, high quality photography and medical diagnostic images. The acquired assets of IST were integrated into Lexel's Lexington, Kentucky facility.

        In September and December 2000, the company acquired the CRT operations of the Raytheon Corporation and the assets of the former Datagraphix business unit of Anacomp, respectively. These operations were consolidated into Lexel's facility in the latter part of fiscal 2001.

        During fiscal 2000, in order to support the data display segment, the Company opened offices in Cape Canaveral, Florida and Wolcott, Connecticut. The Florida location, Display Systems, provides custom CRT solutions for training rooms, board rooms, teleconferencing, flight training simulators, command and control centers, air traffic control, ship simulators, process status displays and integrated home theater. The Wolcott, Connecticut location ("VDC Wolcott") offers high-resolution monochrome displays for use in medical and military applications.

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        During fiscal 1999, the Company acquired the assets and assumed certain liabilities of the U.S. and U.K. Display Divisions of Aydin Corporation ("Aydin"); acquired 100% of the outstanding common stock of Mengel Industries, Inc. ("MII"); and acquired the net assets of both Wintron, Inc. ("Wintron") and MegaScan Corporation ("MegaScan"). Aydin offers a complete line of high-resolution commercial and ruggedized CRT monitors, AMLCD flat panel displays and monitors used by the public and private sector industries including medical diagnostic or treatment centers, utility and financial companies, and the military industry. MII supplies independent, OEM and hospital service personnel with CRTs, camera tubes and other components for medical imaging within the healthcare industry. Wintron manufactures high quality, custom-designed deflection components, high voltage power supplies, coils and flyback transformers and other CRT drive circuitry for airborne, commercial and military applications. MegaScan offers a specialty line of high-resolution monochrome CRT monitors to the medical display industry.

        In fiscal 1996, the Company acquired the assets and assumed certain of the liabilities of Teltron Technologies, Inc. ("Teltron") and the stock of Z-Axis, Inc. ("Z-Axis"). Teltron is involved in the development and production of new and recycled camera and CRTs and special purpose sensors. Teltron's products are used in camera tube applications including nuclear inspection, UV sensing, x-ray and astronomy; military applications including avionics instrument displays, marine radar displays, helmet mounted displays, vehicular displays, and target monitoring image tubes; and in CRT applications including OEM displays, flying spot scanners, photo typesetting and electrostatic deflection tube applications. Z-Axis is involved in the design and production of color and monochrome video display monitors. Z-Axis' monitors are used in industrial control, medical instruments, test equipment, visual aid devices, on-board tracking systems, point-of-sale terminals and naval tactical displays.

        The Company, through Southwest Vacuum Devices, Inc. ("Southwest Vacuum") located in Tucker, Georgia, is involved in the manufacturing, marketing and distribution of electron guns and related hardware. The electron gun is a main component of a CRT and Southwest Vacuum provides the Company the ability to supply virtually all of its internal electron gun requirements.

        In the late 1980's, the Company entered the market of wholesale distribution of consumer electronic parts and consumer products and accessories with the acquisition of Fox International Ltd., Inc. ("Fox International") of Cleveland, Ohio. Fox International is involved in the wholesale distribution of consumer electronic parts for most major U.S. and foreign electronic manufacturers.

        The Company continues to explore opportunities to expand the products offered in the display industry. This expansion will be achieved by adding new products to its inventory or by acquiring existing companies that would enhance the Company's position in the display industry. Research and development primarily consists of establishing the interchangeability of products from various manufacturers and, when advantageous, manufacturing products to replace original electronic parts.

Segment Information

        This information is provided in the notes to the consolidated financial statements, Note 12.

Products

Cathode Ray Tubes ("CRTs")

        Since its organization in 1975, Video Display Corporation has been engaged in the distribution and manufacture of CRTs using new and recycled CRT glass bulbs, primarily in the replacement market, for use in data display screens, including computer terminal monitors, medical monitoring equipment and various other data display applications and in television sets. The Company currently markets CRTs in over 3,000 types and sizes.

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        The Company's CRT operations are conducted at its facilities near Atlanta, Georgia, and at facilities located in White Mills, Pennsylvania (Chroma); Bossier City, Louisiana (Novatron); Monterrey, Mexico (Video Electronics); Dallas, Texas (Magna View); Lexington, Kentucky (Lexel) San Jose, California (XKD); and Lye, England (VDC, Ltd.). At each North American facility, the Company manufactures new or recycles CRTs to meet original specifications. The European location is a sales and distribution facility.

        The recycling process for monochrome CRTs involves the cleaning and reconditioning of the glass bulb and the insertion of new electronic components, which are purchased from OEMs and the Company's electron gun subsidiary. The Company's Atlanta, Georgia and Monterrey, Mexico facilities also assemble monochrome CRTs using new glass bulbs obtained from suppliers in standard sizes where customer requirements warrant the higher cost of new glass. The recycling of color CRTs involves the insertion of new electronic components, while leaving the original display screen intact. All CRTs manufactured by the Company are tested for quality in accordance with standards approved by UL and are shipped to customers or warehoused to meet future customer demand. The Company provides one-year limited warranties on its computer and other data display CRTs and two-year limited warranties on its color television components. Management believes that the Company is the largest recycler of CRTs in the domestic replacement markets for both television and data display uses.

        The Company also distributes new CRTs and other electronic tubes purchased from original manufacturers, both domestic and international. Some of these manufacturers offer large quantities of overstocked original manufactured tubes from time to time at significant price reductions. The Company acquires these tubes when the existing replacement market demonstrates adequate future demand and the purchase price allows a reasonable profit for the risk. However, these purchased inventories sometimes do not turn as quickly as other inventories.

        The Company markets its products through approximately 200 independent wholesale electronics distributors located throughout the U.S. and sells directly to OEMs and their service organizations. The Company also supplies, under private-brand labeling, many of the replacement tubes marketed by several national brand name television manufacturers.

        In addition to factors affecting the overall market for such products, the Company's sales volumes in both the color television and the data display CRT replacement markets are dependent upon the Company's ability to provide prompt response to customers' orders, while maintaining quality control and competitive pricing. While the Company's manufacturing activities are scheduled primarily around orders received, it also manufactures a wide variety of CRTs for stock inventory in anticipation of customer demand.

Monitor Displays

        With its most recent acquisitions, the Company continues to position itself to compete in the design and manufacture of complete monitor units for use in the healthcare, military and industrial sectors.

        The Company's monitor operations are conducted at Phelps, New York (Z-Axis); Birdsboro, Pennsylvania (Teltron); Horsham, Pennsylvania (Aydin); Billerica, Massachusetts (MegaScan); Wolcott, Connecticut (VDC Wolcott); Cape Canaveral, Florida (Display Systems), Lexington, Kentucky (Lexel); and San Jose, California (XKD).

        The Company's monitor segment involves the design, engineer and manufacture of complete monochrome and color monitor units using new CRTs or flat panel displays. The Company will customize these monitors for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications. Because of the Company's

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flexible and cost efficient manufacturing, it is able to handle low volume orders that generate higher margins.

Electron Guns and Components

        The Company, through its electron gun manufacturing subsidiary Southwest Vacuum, manufactures electron gun assemblies comprised of small metal and ceramic parts in a glass housing. The assembly process is highly labor intensive. While the particular electron guns being sold are of the Company's own design, most are replacements for electron guns previously designed for original equipment CRTs used in television sets and computer monitors. Therefore, the total amount of research and development expense is not significant and is not segregated in the consolidated financial statements, but is instead included in cost of sales. Raw materials consist of glass and metal stamped parts.

        The electron gun division markets electron gun component parts to OEMs who manufacture high resolution and specialty tubes for unique applications. The majority of electron guns produced by the Company are consumed internally among the Company's own CRT manufacturing facilities. Sales to these related divisions, which have been eliminated in the consolidated financial statements, amounted to approximately $549,000, $434,000, and $483,000 for fiscal 2002, 2001 and 2000, respectively.

        Electron gun sales are historically dependent upon the demand by domestic and foreign television CRT remanufacturers. The Company continues to seek alternative, growth-oriented markets to fully utilize its electron gun and component assembly facility.

        The Company, through its subsidiary Wintron located in Howard, Pennsylvania, produces flyback transformers, coils and power transformers. Intercompany sales transactions were $210,000, $85,000 and $14,000 for fiscal 2002, 2002 and 2001, respectively; and may become more significant as the Company's monitor segment grows.

Flat Panel Technology

        The Company anticipates that AMLCD and Plasma Display products, due to their lower space and power requirements, will eventually become the display of choice in many new display applications. To date, this has not had a significant effect on the Company's operations due to the nature of the Company's business primarily emphasizing replacement and service parts and specialty niche markets. In anticipation of long-term trends toward flat panel display usage, the Company has focused its R&D efforts as well as its acquisition strategy toward flat panel technologies for niche market applications in the medical, simulation, training and military markets. The Company will continue to monitor these trends and continue to make adjustments to its CRT inventory levels and operating facilities to reflect these changes in demand.

Electronic Parts

        Fox International distributes consumer electronic parts of most major consumer electronics manufacturers, both foreign and domestic. This subsidiary resells these products to major electronic distributors; retail electronic repair facilities; third-party contractual repair shops; and directly to consumers. In its relationship with consumer electronic manufacturers, Fox International receives the right, often exclusively, to ship parts to authorized dealers. Many of the manufacturers also direct inquiries for replacement parts to Fox International. Each manufacturer requires a distributor to stock its most popular parts and monitors the order fill ratio to ensure that their customers have access to sufficient replacement parts. Fox International maintains very high fill ratios in order to secure favored distributor status from the manufacturers, requiring a significant investment in inventories. To a limited extent, Fox International has the ability to rotate its stock with certain vendors to mitigate any risk of investment in inventories.

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Patents and Trademarks

        The Company holds certain patents with respect to some of its products and markets its services and products under various trademarks and tradenames. Additionally, in fiscal 2001 the Company began licensing certain electronic technology to other manufacturing companies, which generated royalty revenues of approximately $155,000 in fiscal 2002. Although the Company believes that the patents and trademarks owned are of value, the Company believes that success in its industry will be dependent upon new product introductions, frequent product enhancements, and customer support and service. However, the Company intends to protect its rights when, in its view, these rights are infringed upon. The Company's key patents expire in 2014.

Seasonal Variations in Business

        Historically, there have not been any seasonal variations in the Company's CRT operating subsegments. The wholesale electronic parts distribution segment has experienced minimally higher sales during the Company's third quarter, which includes the impact of higher repair parts sales during the beginning of the new fall television season.

Working Capital Practices

        Information contained under the caption "Management's Discussion and Analysis" ("MD&A") in this Report is incorporated herein by reference in response to this item.

Concentration of Customers

        The Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the medical, military, television and avionics industries. The Company's CRT division had net sales to the U.S. government that comprised approximately 15%, 17% and 15% of CRT segment net sales and 13%, 13% and 11% of consolidated net sales in fiscal 2002, 2001 and 2000, respectively. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer that comprised approximately 20%, 22% and 19% of that subsidiary's net sales in fiscal 2002, 2001 and 2000, respectively. Other subsidiaries have a few concentrated customers and vendors that could, if lost, negatively affect sales. The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.

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Backlog

        The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. The Company's backlog was approximately $22,312,000 at February 28, 2002 and $25,623,000 at February 28, 2001. The Company's Lexel division comprised $15,810,000 (71%) and $16,400,000 (64%) of the February 28, 2002 and 2001 backlog, respectively. It is anticipated that more than 95% of the February 28, 2002 backlog is expected to ship during fiscal 2003.

Government Contracts

        The Company, primarily through its Aydin, Teltron, Lexel, Wolcott and Display Systems subsidiaries, had contracts with the U.S. government which generated revenues of approximately $9,098,000, $9,282,000 and $7,134,000 for the fiscal years ended 2002, 2001 and 2000, respectively. The Company's costs and earnings in excess of billings on these contracts were approximately $924,000 at February 28, 2002 and $158,000 at February 28, 2001. The Company's billings in excess of costs and earnings on these contracts were approximately $0 at February 28, 2002 and $164,000 at February 28, 2001.

Environmental Matters

        The Company's operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on the Company's financial condition or results of operations in the past and are not expected to have a material adverse impact in the foreseeable future.

Research and Development

        The objectives of the Company's research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to enhance its products by implementing new developments in cathode ray and electron optic technology. The Company's commercial and military divisions continue their research and development in advanced infrared imaging ("FLIR"). The Company has funded additional FLIR research in partnership with the University of Rhode Island. Potential future markets for FLIR include military and security surveillance, target acquisition, fire fighting, and industrial and medical thermography. Through fiscal 2002, the Company has not incurred significant costs for basic research or new product development and, therefore, has not segregated these costs as a separate item but has included such costs in the consolidated financial statements as a part of costs of goods sold. As the Company continues to increase its development of new technology, these costs will be monitored and separately categorized, if material. Research and development costs amounted to approximately $550,000 in fiscal 2002.

Employees

        As of February 28, 2002, the Company employed a total of 584 persons on a full time basis. Of these, 181 are employed in executive, administrative, and clerical positions, 63 are employed in sales and distribution, and 340 are employed in manufacturing operations. Of the Company's 584 employees, 78 are employed at the Company's Mexican subsidiary and 9 are employed at the Company's other foreign locations. A union represents 13 employees. The Company believes its employee relations to be satisfactory.

Competition

        Although the Company believes that it is the largest domestic recycler and distributor of recycled CRTs in the United States CRT replacement market, it competes with other CRT manufacturers, as

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well as OEMs, many of which have greater financial resources than the Company. The Company believes it is the only company that offers complete service in replacement markets with its manufacturing and recycling capabilities. As a wholesale distributor of original equipment purchased from other manufacturers, the Company also competes with numerous other distributors, as well as the manufacturers' own distribution centers, many of which are larger and have substantially greater financial resources than the Company. The Company's ability to compete effectively in this market is dependent upon its continued ability to respond promptly to customer orders and to offer competitive pricing. The Company expects that competition may increase, especially in the computer and other display replacement markets, should domestic and foreign competitors expand their presence in the domestic replacement markets.

        Compared to domestic manufacturing prices on new CRTs, the Company's prices are competitive due to lower manufacturing costs associated with recycling the glass portion of previously used tubes, which the Company obtains at a fraction of the cost of new glass. The Company has to date been able to maintain competitive pricing with respect to imported CRTs because, generally, the CRT replacement market is characterized by customers requiring a variety of types of CRTs in quantities not sufficiently large enough to absorb the additional transportation costs incurred by foreign CRT manufacturers.

        The Company believes it has a competitive advantage and is a sole source in providing many of its CRTs to the customer base of its Teltron and Lexel subsidiaries as these operations have been providing reliable products and services to these customers for more than 30 years.

        The Company believes that it has a competitive advantage in the monitor industry due to its flexibility to handle lower volume orders as well as its ability to provide internally produced component parts. As a result, the Company can offer more customization in the design and engineering of new products.

        With the Company's acquisition of Lexel and the relatively new operations of Display Systems and XKD Corp., the Company has become one of the leading suppliers within the specialty CRT and monitor markets, especially in the military and medical imaging industries.

        The Company's competition in the consumer electronics parts segment comes primarily from other parts distributors. Many of these distributors are smaller than the Company but a few are of equal or greater sales size. Prices for major manufacturers' products can be directly affected by the manufacturers' suggested resale price. The Company believes that its service to customers and warehousing and shipping network give it a competitive advantage.

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ITEM 2.    PROPERTIES

        The Company leases its corporate headquarters at 1868 Tucker Industrial Drive in Tucker, Georgia (within the Atlanta metropolitan area) and occupies approximately 10,000 square feet of the total 59,000 square feet at this location. The remainder is utilized as warehouse and assembly facilities. This location, as well as several others, is leased from related parties at current market rates. See "Item 13—Certain Relationships and Related Transactions". The following table details manufacturing, warehouse, and administrative facilities:

Location	Square Feet	Lease Expires
CRT, Monitor and Electron Gun Manufacturing and Warehouse Facilities
Tucker, Georgia	59,000	October 31, 2003
Stone Mountain, Georgia	45,000	December 31, 2007
Tucker, Georgia	40,000	January 2, 2006
White Mills, Pennsylvania	110,000	Company Owned
Bossier City, Louisiana	26,000	Company Owned
Dallas, Texas	24,000	January 31, 2003
Monterrey, Mexico	129,000	Month to Month
Lye, England	4,800	February 28, 2003
Birdsboro, Pennsylvania	40,000	Company Owned (a)
Phelps, New York	32,000	Company Owned
Howard, Pennsylvania	19,000	Company Owned
Horsham, Pennsylvania	84,000	August 31, 2002
Billerica, Massachusetts	7,900	Month to Month
Wolcott, Connecticut	21,000	Company owned
Cape Canaveral, Florida	15,600	January 17, 2003
Lexington, Kentucky	152,000	March 31, 2005
San Jose, California	10,500	March 31, 2006
Atlanta, Georgia	500	September 30, 2002
Wholesale Electronic Parts Distribution
Bedford Heights, Ohio	60,000	Company Owned (b)
Richardson, Texas	13,000	April 30, 2007
New York, New York	—	Month to Month

(a)

The Birdsboro, Pennsylvania property secures a mortgage to a bank with a principal balance of $509,000 as of February 28, 2002. The mortgage bears interest at a rate of prime (4.75% as of February 28, 2002) plus 0.5%. Monthly principal and interest payments of $5,000 commenced in May 2002 and are payable through October 2021.

(b)

The Bedford Heights, Ohio property secures a mortgage to a bank with a principal balance of $627,000 as of February 28, 2002. The mortgage bears interest of 7.5% and monthly principal and interest payments of $4,000 are payable through December 2003 with a final payment of $539,000 due in December 2003.

ITEM 3.    LEGAL PROCEEDINGS

        The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. There are no material proceedings to which the Company is a party and management is unaware of any significant contemplated actions against the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

        The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") national market system under the symbol VIDE.

        The following table shows the range of prices for the Company's common stock as reported (and as adjusted for the stock dividend discussed below) by the NASDAQ for each quarterly period beginning on March 1, 2000.

	For Fiscal Years Ended
	February 28, 2002				February 28, 2001
Quarter Ended
	High		Low		High		Low
May	$	8.250	$	4.600	$	9.583	$	3.229
August		5.950		4.050		6.458		4.479
November		6.000		4.700		7.136		5.313
February		6.150		4.400		6.979		5.052

        There were approximately 825 holders of record of the Company's common stock as of May 13, 2002.

        The Company has not paid cash dividends in the past. Payment of cash dividends in the future will be dependent upon the earnings and financial condition of the Company and other factors which the Board of Directors may deem appropriate. The Company is restricted by certain loan agreements regarding the payout of cash dividends, as further described in the notes to the consolidated financial statements.

        In March 2001, the Company's Board of Directors declared a stock dividend of 0.20 shares of common stock for each common share outstanding. The stock dividend was issued on April 16, 2001 to all common stock shareholders of record as of March 31, 2001. All per share data for all periods presented in this Report, including the consolidated financial statements, reflect the increase in the amount of common stock outstanding due to the stock dividend.

ITEM 6.    SELECTED FINANCIAL DATA

        The following table sets forth certain selected financial data with respect to the Company's last five fiscal years.

        Data relating to the five fiscal years ended February 28, 2002 are derived from the Consolidated Financial Statements appearing elsewhere in this Report or in previous reports, which have been audited by BDO Seidman, LLP, independent certified public accountants. The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by reference to,

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management's discussion and analysis, the consolidated financial statements of the Company, the notes thereto and the report thereon included elsewhere in this Report.

	For Fiscal Years Ended
	Feb. 28, 2002 (b)		Feb. 28, 2001 (b)		Feb. 29, 2000 (b)		Feb. 28, 1999		Feb. 28, 1998
	(In Thousands, Except Per Share Data)
Income Statement Data
Net sales	$	72,366	$	70,806	$	63,838	$	58,889	$	57,913
Gross profit		22,912		20,883		20,316		19,992		21,962
Goodwill amortization expense		320		318		310		240		278
Operating profit		3,651		2,489		2,713		3,594		6,941
Net income		1,182		31		705		1,122		3,541
Net income per share—basic (a)	$	0.25	$	0.01	$	0.15	$	0.24	$	0.75
Net income per share—diluted (a)	$	0.24	$	0.01	$	0.15	$	0.23	$	0.68
Average number of shares outstanding— basic (a)		4,701		4,552		4,708		4,729		4,705
Average number of shares outstanding— diluted (a)		5,073		4,639		5,233		5,337		5,346
Cash dividends	$	—	$	—	$	—	$	—	$	—
Balance Sheet Data (at year end)
Total assets	$	61,841	$	56,882	$	49,851	$	51,641	$	40,582
Working capital		27,569		26,311		21,862		26,564		16,441
Long-term obligations		14,957		14,020		8,644		13,987		2,791

(a)

Includes the effects of a 20% stock dividend declared in March 2001 and issued on April 16, 2001 for all periods presented.

(b)

Includes the impact of the Lexel acquisition in 2001, the Vanco International disposition in 2000 and the Aydin acquisition in 1999.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Safe Harbor Statement under the Private Securities Litigation Reform Act:    Except for the historical information contained herein, the matters discussed herein are forward-looking statements that involve risk and uncertainties, including but not limited to (i) economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and (ii) other factors discussed in the Company's filings with the Securities and Exchange Commission.

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Operations

        The following table sets forth, for the fiscal years indicated, the percentages which selected items in the Company's consolidated statements of income bear to total revenues:

		2002					2001					2000
		Amount			%		Amount			%		Amount			%
		(in thousands, except percentages)
Sales:
CRT segment
	Data display CRTs	$	11,028		15.2	%	$	10,476		14.8	%	$	10,319		16.2	%
	Entertainment CRTs		6,558		9.1			7,544		10.6			9,350		14.6
	Electron guns and components		1,607		2.2			1,943		2.7			2,029		3.2
	Monitors		39,697		54.9			36,275		51.3			25,430		39.8
Total CRT Segment			58,890		81.4			56,238		79.4			47,128		73.8
Wholesale distribution segment
	Consumer electronic parts		13,476		18.6			14,568		20.6			16,710		26.2
			72,366		100.0			70,806		100.0			63,838		100.0
Costs and expenses:
Cost of goods sold			49,454		68.3			49,923		70.5			43,522		68.2
Selling and delivery			6,109		8.4			6,314		8.9			5,058		7.9
General and administrative			13,152		18.2			12,080		17.1			12,545		19.6
			68,715		94.9			68,317		96.5			61,125		95.7
Operating profit			3,651		5.1			2,489		3.5			2,713		4.3
Interest expense			(1,585	)	(2.2	)		(2,092	)	(2.9	)		(1,515	)	(2.4	)
Other income (expense), net			104		0.1			(73	)	(0.1	)		(178	)	(0.3	)
Income before taxes on income			2,170		3.0			324		0.5			1,020		1.6
Taxes on income			988		1.4			293		0.4			315		0.5
Net income		$	1,182		1.6	%	$	31		0.1	%	$	705		1.1	%

Fiscal 2002 Compared to Fiscal 2001

Net Sales

        Consolidated net sales for fiscal 2002 increased $1,560,000 or 2.2% over fiscal 2001 net sales. CRT division segment sales increased $2,652,000 or 4.7% over fiscal 2001 while the wholesale parts segment declined $1,092,000 or (7.5)%.

        The net increase in CRT segment sales can be attributed to growth within the monitor subsegment, primarily at Display Systems and Lexel. These locations added $2,622,000 and $4,852,000, respectively to fiscal 2002 sales. The offsetting declines are primarily attributed to the decline in revenues in the entertainment subsegment and declines at the Aydin and Z-Axis locations. The monitor division increased $3,422,000 or 9.4%, data display CRT sales increased $552,000 or 5.3%; entertainment CRT sales decreased $986,000 or (13.1)%; and the electron gun/component parts segment decreased $336,000 or (17.3)%.

        The increase in monitor division sales was impacted in several ways. The Lexel operations integrated the fiscal 2001 acquisitions of IST and Raytheon product lines, which contributed approximately $6,000,000 in additional sales in fiscal 2002, and streamlined processes to allow for better delivery times, thereby decreasing the amount of backlog. The successful integration of the acquired

11

product lines into the Lexel facility were not completed until late in the fourth quarter of fiscal 2001. Offsetting sales declines in the monitor division occurred at Aydin and Z-Axis in the amount of approximately $2,600,000. Aydin's government sales were down slightly due to completion of pre-existing contracts, which were not replaced at the same rate with new contracts. Commercial sales of monitors were negatively impacted as well. Certain customers had been lost during the previous year's change of production facilities from Aydin to Z-Axis. Additionally, there has been a slight impact as some commercial customers have changed to flat panel technology.

        In November 2001, Displays Systems in Florida began shipping the Marquee™ product line acquired from Christie and recognized sales of $2,269,000 from this product line during the third and fourth quarters of fiscal 2002.

        The Company is the primary supplier of replacement CRTs to the entertainment market. A majority of the entertainment segment's sales (41%) are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to the economics of lower retail sales prices for mid-size television sets (25" to 30"), fewer extended warranties are sold. The Company remains the primary supplier of the manufacturer's standard warranties. Growth in this division will be impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Due to the fact that the Company is in the replacement market, it has the ability to track retail sales trends and accordingly, can adjust quantities of certain size CRTs carried in stock and reduce the exposure to obsolescence.

        Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there has been an impact by flat panel technology. The Company has made adjustments internally and several of the subsidiaries within these subsegments currently produce flat panel products. As noted above, being in the replacement market, the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

        The decline in the wholesale consumer parts segment of $1,092,000 is attributed primarily to the decline in consumer retail sales during the comparative periods. Sales to larger distributors have declined slightly as well. General economic conditions have had a direct, negative impact on this segment. To help offset these declines, Fox International signed a distribution agreement in fiscal 2002 with Applica, Inc. ("Applica"), authorizing Fox International to distribute parts and accessories for Applica's Black & Decker Toaster Oven, Profinish, Quick & Easy, and Spacemaker product lines. Sales earned pursuant to this agreement were $718,000 in fiscal 2002.

Gross Margins

        Consolidated gross margins increased from 29.5% to 31.7% for the year ended February 28, 2002 as compared to the year ended February 28, 2001. CRT division margins increased from 28.3% to 30.2% and wholesale electronic parts division margins increased from 33.9% to 38.0% for the same comparative period.

        The increase in margins within the CRT division resulted from increases in sales volume at Lexel and Display Systems while manufacturing overhead remained stable. Margins at Lexel increased from 9.9% to 16.8%, or $1,538,000. Display System's gross margins increased in dollars by $1,117,000, while its gross margin percentage remained essentially flat. Additionally, margins have improved in the data display subsegment as sales of higher margin high-resolution color tubes have increased in comparison to lower margin monochrome tubes.

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        Margins in the wholesale consumer parts segment have increased due primarily to higher margins obtained on Black & Decker distribution sales. Additionally, margins have improved on sales to this segment's primary electronics retailer.

Operating Expenses

        Operating expenses as a percentage of sales increased from 26.0% for the year ended February 28, 2001 to 26.6% for the year ended February 28, 2002.

        The CRT division operating expenses increased $297,000 for the year ended February 28, 2002 as compared to February 28, 2001. Included in these increases were expenses within the monitor subsegment for the new California operations of $318,000 that were not present in the previous year. Also, expenses increased at Display Systems by $587,000, due to the increase in business with the Christie product line. Despite its significant increase in sales volume, Lexel's operating expenses increased only $41,000, as the existing administrative infrastructure was able to absorb the increased sales volume. Included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable.

        The wholesale consumer parts segment increased operating expenses $543,000, (11.2%) in the year ended February 28, 2002 as compared to a year ago. This segment incurred costs to shut down its warehouse in Solon, Ohio and to open a warehouse in New York for the Black & Decker product line. Additionally, when Fox International acquired the Black & Decker distribution agreement with Applica, there were outstanding coupon offers the Company had to honor that included free shipping. The segment's delivery expense increased $310,000 despite an overall decrease in sales. The Company believes that the majority of these coupons have been utilized and, going forward, that Fox International will be able to charge its customers for shipping costs related to this product line.

        In fiscal 2003, management expects certain operating expenses to decline as a result of steps taken to reduce costs at its Mexican subsidiary. The monthly lease on the operating facility has been decreased by $20,000 per month, while anticipated headcount reductions of approximately 50 employees, once fully implemented, will provide additional savings of $40,000 per month.

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Interest Expense

        Interest expense decreased $507,000 to $1,585,000 for the comparative fiscal periods due primarily to decreases in variable interest rates through fiscal 2002. A gradual decrease throughout the period at rates from 8.25% to 4.37% was realized on the Company's Primary line of credit. The notes payable to officer have interest rates of prime plus 1%, which varied from 9.5% to 5.75% during fiscal 2002, and LIBOR plus 2.4%, respectively, which varied from 7.58% to 4.37% during fiscal 2002. The Company's debt levels increased in fiscal 2002, which can be attributed primarily to the increase in the Primary line of credit from $8,500,000 to $9,285,000 and the increase in notes payable to an officer of $3,000,000 relating to the Christie product line acquisition in the third quarter of fiscal 2002.

Income Taxes

        The effective tax rate for fiscal 2002 is 45.4% as compared to 92.4% for fiscal 2001. The decrease in the effective rate is attributable to higher income before income taxes in 2002 compared to 2001, as expenses that are not deductible for tax purposes remained relatively constant. The Company had expenses of $467,000 and $438,000 that were not deductible for tax purposes in fiscal 2002 and 2001, respectively.

Fiscal 2001 Compared to Fiscal 2000

Net Sales

        Consolidated net sales for fiscal 2001 increased $6,968,000 or 10.9% over fiscal 2000 net sales. CRT division segment sales increased $9,110,000 or 19.3% over fiscal 2000 while the wholesale parts segment declined $2,142,000 or 12.8%.

        Within the CRT segment, data display CRT sales increased $157,000 or 1.5%; entertainment CRT sales decreased $1,806,000 or 19.3%; the electron gun/component parts segment decreased $172,000 or 8.5%; and the monitor division increased $10,931,000 or 43.0%.

        The net increase in CRT division sales was primarily attributed to growth within the monitor segment. The Company's newest locations within this segment, Display Systems in Florida and Lexel in Kentucky, contributed $2,687,000 and $10,268,000, respectively, for the year ended February 28, 2001. Excluding these sales, overall CRT division sales were down $3,845,000. With data display and electron gun component parts sales being relatively flat, the decline excluding new locations was attributed primarily to the entertainment and monitor divisions.

        The Company is the primary supplier of replacement CRTs to the entertainment market. Due to the continued decrease in retail sales prices of mid-size television sets (25" to 30"), declines in extended warranty sales by major television retailers continued to occur. In turn, the Company's entertainment division sales were negatively impacted as a majority of their sales within this division are for warranty related repairs. Extended warranties on the larger size television sets (32" and up) were anticipated to increase both in volume and dollars as the demand for these sets have increased and the CRT costs are more expensive than the smaller sized sets. The Company continued to supply manufacturer warranty replacements in the smaller size range (up to 25"). Additionally, being in the replacement market, the Company has the ability to track retail sales trends. Accordingly, the Company adjusted quantity levels of CRT sizes thereby reducing the impact of obsolete inventory exposure.

        Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there was an impact by flat panel technology. The Company made adjustments internally and several of the subsidiaries within these subsegments began producing flat panel products. As noted above, being in the replacement market,

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the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

        The monitor division sales, net of sales at the newest locations, declined $2,024,000 from the same period a year ago. Sales within the monitor segment included military contracts, which vary from year to year. While the Company did not lose a military contract in the past year, the completed contracts were not immediately being replaced with new contracts. Additionally, during the transition of manufacturing processes between Aydin and Z-Axis during fiscal 2000, the Company lost business to competitors within the commercial market. The transition was done so that Aydin could focus primarily on ruggedized monitors used for military applications and Z-Axis could continue to focus on the commercial monitor market. Extended lead times during the transition period caused former Aydin commercial customers to seek other procurement alternatives. Z-Axis took steps to address these issues and was successful in reducing lead times. The Company also allocated marketing personnel to these areas in an attempt to reclaim the lost sales.

        The decline in the wholesale consumer parts segment of $2,142,000 was attributed primarily to the sale of Vanco International ("Vanco") in September 1999. Vanco had sales of $2,130,000 for the year ended February 29, 2000.

Gross Margins

        Consolidated gross margins decreased from 31.8% to 29.5% for the year ended February 28, 2001 as compared to the year ended February 29, 2000. CRT division margins decreased from 30.5% to 28.2% and wholesale electronic parts division margins decreased from 35.6% to 33.9% for the same comparative period.

        The decline in margins within the CRT division resulted from the increases in the monitor segment due to the Company's recent acquisition, Lexel, whose gross margin rates were lower than the other CRT division locations. Lexel's reduced margins were a reflection of higher quality requirements, including more expensive materials and increased labor demanded by the products' intended use. These uses include military applications. Also included in the reduced margins were costs incurred due to the integration of the IST business acquired in June 2000 into the Lexel facility. The Company incurred additional expenses in the fourth quarter with the incorporation of the Raytheon and Anacomp businesses into Lexel, but on a much smaller scale than the IST integration.

        The wholesale consumer parts division margins were down in part due to the exclusion of Vanco in fiscal 2001. Additionally, there were declines in margins realized on the fire and safety product line as selling prices were reduced to move some older, slower moving merchandise. Lastly, margins on the increased volume sales to the major electronics distributor are lower than to other retail customers.

Operating Expenses

        Operating expenses as a percentage of sales decreased from 27.6% for the year ended February 29, 2000 to 26.0% for the year ended February 28, 2001.

        The CRT division operating expenses increased $2,217,000 for the year ended February 28, 2001 as compared to February 29, 2000. Included in these increases were expenses for the new Florida and Kentucky operations of $1,382,000 that were not present in the previous year. Additionally, included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable. The Company held an unsecured note receivable as a result of a litigation settlement. The note had an original face value of $1,500,000 due in monthly installments of $15,000 over a term of 100 months. During 2001, monthly payments on the note were delinquent and payments made were less than the required contractual amounts. Payments eventually ceased in the fourth quarter of 2001. As of February 28, 2001, the Company believed that it was probable that they would be unable to collect any

15

of the outstanding amounts due under the contractual terms of the loan agreement and considered the loan impaired. In accordance with SFAS No. 114, "Accounting by Creditor's of Impairment of a Loan", the Company wrote off the remaining $514,000 balance of the note.

        The wholesale consumer parts division reduced operating expenses $1,426,000 in the year ended February 28, 2001 as compared to a year ago. Included in this reduction was the elimination of operating expenses from Vanco of $866,000. Additionally, Fox International reduced its operating expenses by approximately $334,000 by eliminating two locations and reducing personnel at its headquarter location in Cleveland, Ohio. Also, reductions in delivery expense of $148,000 incurred as a result of more cost effective packaging and a switch by Fox International to a more cost competitive shipping provider.

Interest Expense

        Interest expense increased $577,000 to $2,092,000 for the comparative fiscal period due to increases in overall debt and changes in variable interest rates through fiscal 2001. The increase in debt can be attributed primarily to the increase in the Primary line of credit from $3,040,000 to $5,500,000; the $3,000,000 loan in conjunction with the Lexel acquisition; and the increase in notes payable to an officer of $1,400,000 relating to the IST acquisition. The Primary line was a gradual increase throughout the period at a fixed rate of 7.25%. The Lexel acquisition loan was funded in May 2000 and has an interest rate based on LIBOR plus up to 2%. During the ten months outstanding in fiscal 2001, the Lexel loan's interest rate fluctuated from 9.0% at inception to 9.5% in November 2000 and to 8.5% by February 28, 2001. The note payable to officer has an interest rate of prime plus 1%, which varied from 9.5% at its June 2000 inception to 8.5% by February 28, 2001.

Income Taxes

        The effective tax rate for fiscal 2001 was 92.4% as compared to 31.5% for fiscal 2000. The increase in the effective rate was attributable to the non-deductibility of amortization on certain intangible assets combined with lower income before income taxes. Also, the fiscal 2000 rate was positively impacted by foreign effective rates in the amount of $80,000.

Management's Discussion of Liquidity and Capital Resources

        As of February 28, 2002, the Company had total cash and cash equivalents of $1,615,000. The Company's working capital was $27,569,000 and $26,311,000 at February 28, 2002 and 2001, respectively. The increase in working capital can be attributed primarily to the purchase of Christie's Marquee™ projector product line and the acquisition of 100% of the common stock of XKD Corporation. In the XKD acquisition, net current assets of $403,000 were acquired and long-term debt of $702,000 was assumed. In conjunction with the $3,700,000 Christie product line purchase, debt financing was used to obtain the assets, of which approximately $1,500,000 have maturities in excess of one year.

        Cash used in operations for fiscal 2002 was $2,544,000 as compared to cash provided by operations of $973,000 in fiscal 2001. Fiscal 2002 net income adjusted for non-cash items provided cash of $3,798,000. Increases in accounts receivable, inventories and prepaid expenses and decreases in customer advances used cash of $6,980,000. The changes in working capital exclude the effects of the assets purchased and liabilities assumed related to the XKD acquisition in fiscal 2002. During fiscal 2001, operating cash flows were provided primarily by net income adjusted for non-cash items of $2,314,000, and an increase in customer advances of $1,652,000. Offsetting increases in accounts receivable, inventories, prepaid expenses, and other assets, and declines in accounts payable used cash of $2,993,000.

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        The increase in accounts receivable of $2,349,000 during 2002 was due primarily to an 11% increase in sales in the fourth quarter of fiscal 2002 as compared to the same period in fiscal 2001. Fourth quarter sales benefited from the late third quarter purchase of the Marquee™ product line. The increase in inventories of $2,092,000 was also primarily attributable to the purchase of the Marquee™ product line from Christie. Inventory purchased from Christie amounted to approximately $2,500,000 at the end of the third quarter of fiscal 2002. Absent the current year Christie purchase and XKD acquisition, there was an overall slowdown in purchasing, as existing stock levels were being utilized. Increases in prepaid expenses and other assets were primarily attributed to an increase in costs in excess of billings of $765,000 over the same period a year ago. This increase is attributable to the contractual timing of customer billings. Decreases in customer advances received in the prior fiscal year accounted for a reduction in cash of $1,408,000 as a significant portion of the related CRTs were manufactured and shipped to customers in fiscal 2002. The decrease in accounts payable and accrued liabilities was due to a reduction in trade accounts payable in the comparative periods, due primarily to a reduction in fourth quarter purchasing. The acquisition of the Christie product line included significant materials used in fourth quarter shipments, which reduced purchasing requirements and corresponding accounts payable. Additionally, fourth quarter shipments of Christie product generated cash that was used to pay down trade payables. The Christie acquisition was funded by new debt.

        Investing activities used cash of $3,441,000 and $6,686,000 in fiscal 2002 and 2001, respectively. Amounts paid for capital expenditures were $3,156,000 in fiscal 2002 as compared to $1,466,000 in fiscal 2001. The new addition to the facility in Birdsboro, PA was $1,334,000, which was financed with a construction loan of $509,000 with the remainder paid in cash. The Company purchased fixed assets and intangible assets in the amount of $1,248,000 from Christie to assist in the integration of the projector line and to acquire the Marquee™ trademark.

        Financing activities provided $3,375,000 and $5,664,000 in fiscal 2002 and 2001, respectively. During fiscal 2002, the Company paid cash for the Christie Marquee™ product line. The purchase was funded by short-term debt with the Company's CEO at an interest rate of LIBOR plus 2.4%. In fiscal 2001, the Company borrowed $3,000,000 from a bank to finance the Lexel acquisition. That note was consolidated into the Company's $10,000,000 credit facility with the same bank in May 2001. The credit facility bears interest at a floating rate of LIBOR based on a debt to EBITDA ratio, as defined. Depending on the ratio, the LIBOR adjustment can fluctuate from 1.5% (for a ratio less than 1.75) to 3.0% (for a ratio greater than 4.25). The note matures on July 1, 2003. The amount of credit available for advance was reduced by $500,000 on July 1, 2001, and will be reduced by an additional $500,000 on July 1, 2002. During fiscal 2002, the Company increased its borrowings under its revolving credit facility to fund operations. In both fiscal years 2002 and 2001, the Company paid $1,250,000 of principal payments on the Aydin loan in accordance with its terms.

        The Company established a stock repurchase program, pursuant to which it is authorized to repurchase up to 462,500 shares of the Company's common stock in the open market. No shares were repurchased in fiscal 2002 and 2001.

Transactions with Related Parties, Contractual Obligations and Commitments

        At February 28, 2000 the Company had outstanding borrowings in the form of a demand note from its CEO in the amount of $2,200,000. In June 2000, the Company borrowed an additional $1,400,000 from the CEO to assist with the acquisition of certain assets of the electro optics division of IST. This borrowing was combined with the existing demand note and, as of February 28, 2001, the outstanding balance was $3,600,000. During 2002, the Company borrowed an additional $3,000,000 from the CEO to finance the product line acquisition from Christie. This borrowing is a one-year agreement with interest due monthly based on LIBOR (1.9% at February 28, 2002) plus 2.4%. Additionally, the Company borrowed $500,000 from the CEO during 2002 for short-term financing purposes. As of February 28, 2002, the cumulative outstanding balance due the CEO was $7,100,000.

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        Subsequent to year-end, the Company borrowed an additional $740,000 and repaid $340,000 from the CEO of the Company for short-term operating purposes, increasing the balance due the CEO to $7,500,000.

        During fiscal 2002, the Company borrowed an additional $98,000 from a Director, resulting in a balance of $241,000 at February 28, 2002. Yearly principal payments of $24,000 are payable through 2007 with a final payment of $121,000 due in 2008. These borrowings bear interest at 10%.

        The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997. The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of debentures plus accrued interest were converted into 186,068 common shares. In May 2001, the Company's CEO, in accordance with the provisions of the subordinated debt agreement, elected to extend the maturity date of his remaining $1,000,000 debentures to May 31, 2003.

Contractual Obligations

        Future maturities of long-term debt and future minimum rental payments due under operating leases are as follows (in thousands):

	Years
															Footnote Ref.
	Total		1		2		3		4		5		>5
Long-term debt	$	6,398	$	1,443	$	1,988	$	1,386	$	754	$	99	$	728	6
Lines of credit		12,564		3,779		8,785		—		—		—		—	7
Operating leases		5,618		1,838		1,401		1,240		584		424		131	14
Total contractual obligations	$	24,580	$	7,060	$	12,174	$	2,626	$	1,338	$	523	$	859

        Included in the above operating lease commitments are leases for four of the Company's manufacturing facilities and certain warehouse space from shareholders and officers. Future minimum rental payments due under these leases with related parties are as follows (in thousands):

	Years
															Footnote Ref.
	Total		1		2		3		4		5		>5
Related party leases	$	1,569	$	488	$	401	$	240	$	220	$	120	$	100	14

Other Commercial Commitments (in thousands)

	Years
															Footnote Ref.
	Total		1		2		3		4		5		>5
Letters of credit	$	479	$	479	$	—	$	—	$	—	$	—	$	—

Off-Balance Sheet Arrangements

        Historically, the Company has not relied upon off-balance sheet arrangements (such as sale-leasebacks), transactions or relationships that would materially affect liquidity or the availability of, or requirements for, capital resources.

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Critical Accounting Policies

        Management's Discussion and Analysis of Results of Operations and Financial Condition are based upon the Company's consolidated financial statements. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, the allowance for bad debts and warranty reserves. The company uses the following methods and assumptions in determining its estimates:

Reserves on inventories

        Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company's investment in inventories for declines in value and establishes reserves when it is apparent that the expected realizable value of the inventory falls below its original cost. The age of the inventory is not as significant as is the projected demand for CRTs. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company's replacement market develops. Management is also able to observe the production trends of the OEMs and the new products that are being promoted.

Allowance for bad debts

        The allowance is determined by reviewing known customer exposures and applying historical credit loss experience to the current receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors and overall trends in past due accounts compared to established thresholds. The company monitors credit exposure and assesses the adequacy of the allowance for bad debts on a regular basis.

Warranty reserves

        The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

Use of estimates

        The company incorporates many years of historical data into the determination of each of these estimates. The company has a proven history of using accurate estimates and sound assumptions to calculate and record appropriate reserves. Actual results may differ from these estimates under different assumptions or conditions.

Other Accounting Policies

        Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties.

        Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements.

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Policies related to revenue recognition and impairment of long-lived assets require difficult judgments on matters that are often subject to multiple sources of authoritative accounting guidance. See also Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies, which discusses accounting policies that must be selected by management when there are acceptable alternatives.

Forward-Looking Information

        This report contains forward-looking statements and information that is based on management's beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "intends," "will," and "expect" and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions, rapid or unexpected technological changes, product development, inventory risks due to shifts in product demand, competition, domestic and foreign government relations, fluctuations in foreign exchange rates, rising costs for components or unavailability of components, the timing of orders booked, lender relationships, and the risk factors listed from time to time in the Company's reports filed with the Commission.

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations," and eliminates the pooling-of-interest method of accounting for business combinations. SFAS No. 141 also changes the criteria for recognizing intangible assets apart from goodwill and states the following criteria should be considered in determining the recognition of intangible assets: (1) whether the intangible asset arises from contractual or other rights, or (2) whether the intangible asset is separable or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged.

        SFAS No. 142, generally effective January 1, 2002, supersedes APB No. 17, "Intangible Assets," and requires goodwill and other acquired intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company currently amortizes goodwill over its estimated useful life of five to fifteen years. The Company recorded $320,000, or $0.07 per share on a pre-tax basis, of goodwill amortization in 2002. The Company's management is currently evaluating the impact the adoption of this statement will have on the financial statements.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 30, 2002. The Company does not anticipate the adoption of this statement will have a material impact on the financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: (1) recognition and measurement of the impairment of long-lived assets to be held and used and (2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after

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December 15, 2001. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

Impact of Inflation

        Inflation has not had a material effect on the Company's results of operations to date.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's primary market risks include fluctuations in interest rates and variability in interest rate spread relationships, such as prime to LIBOR spreads. Approximately $25,228,000 of outstanding debt at February 28, 2002 related to long-term indebtedness under variable rate debt. Interest on the outstanding balance of this debt will be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company's interest rate is subject to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in an decrease of approximately $252,000 in pre-tax net income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at February 28, 2002. The Company does not trade in derivative financial instruments.

        The Company reports its Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales and purchases are with the parent with accounts receivable and accounts payable settled in U.S. dollars. Additionally, the subsidiary leases its facilities and incurs rent based upon U.S. dollars. Any exchange gains or losses due to the actual exchange of pesos and U.S. dollars are minimal. The Company also has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency. Due to its limited operations outside of the U.S., the Company's exposure to changes in foreign currency exchange rates between the U.S. dollar and foreign currencies or to weakening economic conditions in foreign markets is not expected to significantly effect the Company's financial position.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements listed on page F-1 of this Report are filed as part of this Report on the pages indicated.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

        None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to directors and executive officers of the Company, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to executive compensation and transactions, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to certain relationships and related transactions, is incorporated herein by reference in response to this item.

22

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this Report:

1.	Financial Statements:
	Index to Consolidated Financial Statements.	F-1
2.	Financial Statement Schedule:
	Index to Consolidated Financial Statements Schedule.	F-25

(b)

Reports on Form 8-K:

The Registrant filed no reports on Form 8-K during the last quarter of the fiscal year covered by this Report.

(c)

Exhibits

Exhibit Number		Exhibit Description
*3(a	)	Articles of Incorporation of the Company.
*3(b	)	By-Laws of the Company.
*10(f	)	Employee Stock Option Plan. **
*10(i	)	Lease dated January 1, 1992 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4601 Lewis Road, Stone Mountain, Georgia.
*10(j	)	Lease dated November 1, 1993 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia.
*10(k	)	Lease dated January 1, 1996 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4701 Granite Drive, Tucker, Georgia.
10(l	)	$10,000,000 amended and restated promissory note dated May 4, 2001 between Registrant (Maker) and SouthTrust Bank (Holder).
21		Subsidiary companies—see page F-30 herein.

*

Incorporated by reference to other documents on file with the Securities and Exchange Commission which were previously filed.

**

Indicates executive compensation plans and arrangements.

23

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:	VIDEO DISPLAY CORPORATION
May 28, 2002	By:	/s/  RONALD D. ORDWAY Ronald D. Ordway Chairman of the Board and Chief Executive Officer

POWER OF ATTORNEY

        Know all men by these presents, that each person whose signature appears below constitutes and appoints Ronald D. Ordway as attorney-in-fact, with power of substitution, for him in any and all capacity, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature—Name	Capacity	Date
/s/  RONALD D. ORDWAY Ronald D. Ordway	Chief Executive Officer, Treasurer and Director	May 28, 2002
/s/  ERV KUCZOGI Erv Kuczogi	President and Director	May 28, 2002
/s/  MURRAY FOX Murray Fox	Director	May 28, 2002
/s/  CARLETON E. SAWYER Carleton E. Sawyer	Director	May 28, 2002
/s/  RONALD G. MOYER Ronald G. Moyer	Director	May 28, 2002
Carolyn Howard	Director	May     , 2002
/s/  CAROL D. FRANKLIN Carol D. Franklin	Chief Financial Officer, and Secretary	May 28, 2002

24

Video Display Corporation and Subsidiaries

Index to Consolidated Financial Statements

Report of Independent Certified Public Accountants	F-2
Consolidated Balance Sheets as of February 28, 2002 and 2001	F-3
Consolidated Statements of Income for the years ended February 28, 2002, February 28, 2001 and February 29, 2000	F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended February 28, 2002, February 28, 2001 and February 29, 2000	F-6
Consolidated Statements of Cash Flows for the years ended February 28, 2002, February 28, 2001 and February 29, 2000	F-7
Notes to Consolidated Financial Statements	F-8

F-1

Report of Independent Certified Public Accountants

Board of Directors and Shareholders of
Video Display Corporation
Tucker, Georgia

        We have audited the accompanying consolidated balance sheets of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and comprehensive income and cash flows for each of the three years in the period ended February 28, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2002, in conformity with accounting principles generally accepted in the United States of America.

BDO Seidman, LLP

Atlanta, Georgia
May 17, 2002

F-2

Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

		February 28, 2002			February 28, 2001
Assets (Notes 6 and 7)
Current
	Cash and cash equivalents	$	1,615,000		$	4,137,000
	Accounts receivable, net of allowance of $343,000 and $289,000 (Note 5)		12,712,000			10,511,000
	Inventories, net of reserves of $1,640,000 and $1,643,000 (Note 4)		31,920,000			29,778,000
	Prepaid expenses and other (Notes 3 and 11)		3,276,000			1,995,000
Total current assets			49,523,000			46,421,000
Property, plant and equipment
	Land		600,000			600,000
	Buildings		6,814,000			5,453,000
	Machinery and equipment		18,845,000			17,850,000
			26,259,000			23,903,000
	Accumulated depreciation		(16,891,000	)		(15,651,000	)
Net property, plant and equipment			9,368,000			8,252,000
Other assets (Notes 2, 5 and 11)			2,950,000			2,209,000
		$	61,841,000		$	56,882,000

See accompanying notes to consolidated financial statements.

F-3

Video Display Corporation and Subsidiaries

Consolidated Balance Sheets

		February 28, 2002			February 28, 2001
Liabilities and Shareholders' Equity
Current liabilities
	Accounts payable	$	4,808,000		$	5,252,000
	Accrued liabilities		4,556,000			3,208,000
	Customer advances		244,000			1,652,000
	Lines of credit (Note 7)		3,779,000			3,017,000
	Notes payable to shareholders (Note 8)		7,124,000			3,736,000
	Current maturities of long-term debt (Note 6)		1,443,000			1,470,000
	Convertible subordinated debentures (Note 9)		—			1,775,000
Total current liabilities			21,954,000			20,110,000
Lines of credit (Note 7)			8,785,000			8,500,000
Long-term debt, less current maturities (Note 6)			4,955,000			5,520,000
Notes payable to shareholders, less current maturities (Note 8)			217,000			—
Convertible subordinated debentures (Note 9)			1,000,000			—
Deferred income taxes (Note 11)			113,000			—
Total liabilities			37,024,000			34,130,000
Minority interests			158,000			153,000
Commitments (Notes 13 and 14)
Shareholders' equity (Notes 7 and 10)
Preferred stock; no par value—2,000,000 shares authorized, none issued and outstanding			—			—
Common stock; no par value—10,000,000 shares authorized; 4,749,000 and 4,559,000 shares issued and outstanding			3,826,000			3,034,000
Additional paid-in capital			92,000			92,000
Retained earnings			22,134,000			20,952,000
Accumulated other comprehensive income (loss)			(1,393,000	)		(1,479,000	)
Total shareholders' equity			24,659,000			22,599,000
		$	61,841,000		$	56,882,000

See accompanying notes to consolidated financial statements.

F-4

Video Display Corporation and Subsidiaries

Consolidated Statements of Income

		Fiscal Year Ended
		February 28, 2002			February 28, 2001			February 29, 2000
Net sales (Note 15)		$	72,366,000		$	70,806,000		$	63,838,000
Cost of goods sold			49,454,000			49,923,000			43,522,000
Gross profit			22,912,000			20,883,000			20,316,000
Operating expenses
Selling and delivery			6,109,000			6,314,000			5,058,000
General and administrative			12,874,000			11,495,000			12,241,000
Provision for losses on accounts and notes receivable (Note 5)			278,000			585,000			304,000
			19,261,000			18,394,000			17,603,000
Operating profit			3,651,000			2,489,000			2,713,000
Other income (expense)
	Interest expense		(1,585,000	)		(2,092,000	)		(1,515,000	)
	Gain on sale of subsidiary		—			—			433,000
	Loss on investment in equity investee		—			—			(482,000	)
	Other, net		109,000			(80,000	)		(148,000	)
			(1,476,000	)		(2,172,000	)		(1,712,000	)
Income before income taxes and minority interests			2,175,000			317,000			1,001,000
Taxes on income (Note 11)			988,000			293,000			315,000
Income before minority interests			1,187,000			24,000			686,000
Minority interests			(5,000	)		7,000			19,000
Net income		$	1,182,000		$	31,000		$	705,000
Net income per share—basic		$	0.25		$	0.01		$	0.15
Net income per share—diluted		$	0.24		$	0.01		$	0.15
Average shares outstanding—basic			4,701,000			4,552,000			4,708,000
Average shares outstanding—diluted			5,073,000			4,639,000			5,233,000

See accompanying notes to consolidated financial statements.

F-5

Video Display Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss)

			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Current Year Comprehensive Income (Loss)
Balance, February 28, 1999			$	3,591,000		$	92,000	$	20,216,000	$	(1,536,000	)
	Net income for the year			—			—		705,000		—		$	705,000
	Unrealized gain on marketable equity securities			—			—		—		22,000			22,000
	Realized loss on marketable equity securities			—			—		—		100,000			100,000
	Foreign currency translation adjustment			—			—		—		13,000			13,000
		Total comprehensive income											$	840,000
	Issuance of common stock under stock option plan			100,000			—		—		—
Repurchase of common stock				(697,000	)		—		—		—
Balance, February 29, 2000				2,994,000			92,000		20,921,000		(1,401,000	)
	Net income for the year			—			—		31,000		—		$	31,000
	Unrealized loss on marketable equity securities			—			—		—		(29,000	)		(29,000	)
	Foreign currency translation adjustment			—			—		—		(49,000	)		(49,000	)
		Total comprehensive loss											$	(47,000	)
	Issuance of common stock under stock option plan			40,000			—		—		—
Balance, February 28, 2001				3,034,000			92,000		20,952,000		(1,479,000	)
	Net income for the year			—			—		1,182,000		—		$	1,182,000
	Unrealized loss on marketable equity securities			—			—		—		(2,000	)		(2,000	)
	Foreign currency translation adjustment			—			—		—		88,000			88,000
		Total comprehensive income											$	1,268,000
	Issuance of common stock under stock option plan			17,000			—		—		—
	Conversion of subordinated debentures to common stock			775,000			—		—		—
Balance, February 28, 2002			$	3,826,000		$	92,000	$	22,134,000	$	(1,393,000	)

See accompanying notes to consolidated financial statements.

F-6

Video Display Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Year ended			February 28, 2002			February 28, 2001			February 29, 2000
Operating Activities
Net income			$	1,182,000		$	31,000		$	705,000
Adjustments to reconcile net income to net cash (used in) provided by operating activities
	Depreciation and amortization			1,660,000			1,474,000			1,438,000
	Provision for losses on accounts and notes receivable			278,000			585,000			304,000
	Provision for inventory reserves			350,000			438,000			909,000
	Deferred income taxes			323,000			(140,000	)		(355,000	)
	Net income (loss) allocated to minority interests			5,000			(7,000	)		(19,000	)
	Net (gains) losses in investing activities			—			(67,000	)		143,000
	Changes in working capital items, net of effect of acquisitions:
		Accounts receivable		(2,349,000	)		(1,441,000	)		(654,000	)
		Inventories		(2,092,000	)		(65,000	)		1,040,000
		Prepaid expenses and other assets		(1,131,000	)		(196,000	)		463,000
		Accounts payable and accrued liabilities		638,000			(1,291,000	)		726,000
		Customer advances		(1,408,000	)		1,652,000			—
Net cash (used in) provided by operating activities				(2,544,000	)		973,000			4,700,000
Investing Activities
	Capital expenditures			(3,156,000	)		(1,466,000	)		(1,374,000	)
	Disposal of fixed assets			—			100,000			274,000
	Net cash paid for acquisitions			—			(5,357,000	)		—
	Proceeds from sale of subsidiary			—			—			1,784,000
	Other investing activities			(285,000	)		37,000			24,000
Net cash (used in) provided by investing activities				(3,441,000	)		(6,686,000	)		708,000
Financing Activities
	Proceeds from long-term debt and lines of credit			27,303,000			32,714,000			23,493,000
	Repayments of long-term debt and lines of credit			(23,945,000	)		(27,090,000	)		(26,232,000	)
	Proceeds from stock option exercises			17,000			40,000			100,000
	Purchases and retirements of common stock			—			—			(697,000	)
Net cash provided by (used in) financing activities				3,375,000			5,664,000			(3,336,000	)
Effect of exchange rates on cash				88,000			(49,000	)		13,000
Net change in cash and cash equivalents (Note 16)				(2,522,000	)		(98,000	)		2,085,000
Cash and cash equivalents, beginning of year				4,137,000			4,235,000			2,150,000
Cash and cash equivalents, end of year			$	1,615,000		$	4,137,000		$	4,235,000

See accompanying notes to consolidated financial statements.

F-7

Video Display Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note 1.    Summary of Significant Accounting Policies

Nature of Business

        Video Display Corporation (the "Company") principally manufactures and distributes cathode ray tubes ("CRTs") in the worldwide replacement market for use in television sets and data display screens for medical, military and industrial monitoring systems as well as manufacturing and distributing electron optic parts, which are significant components in new and recycled CRTs and monitors. The Company also manufactures low and high-end monochrome and color CRT and AMLCD monitor displays for use in specialty high performance and ruggedized applications. The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have subsidiary operations located in the U.K. and Mexico.

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of all intercompany accounts and transactions.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Examples include provisions for returns, bad debts, inventory reserves, valuations on deferred tax assets and the length of product life cycles and fixed asset lives. Actual results could vary from these estimates.

Revenue Recognition

        Revenue from product sales is recognized when goods are shipped. The Company does not offer rights of return to customers; however, it does offer one-year and two-year limited warranties on certain products. Warranty expense is not material to the Company's consolidated financial statements.

        Revenue from contracts that are long-term in nature at the Company's Aydin subsidiary is recognized by the percentage of completion method. Profit estimates are revised periodically based upon changes in facts. Any losses identified on contracts are recognized immediately. Revenue related to all other contracts is recognized upon shipment of product.

        In the consolidated income statements, revenues from shipping and handling fees charged to customers are included under the caption "Net sales" and shipping costs incurred are included under the caption "Selling and delivery."

Cash and Cash Equivalents

        Cash and cash equivalents include cash on account, demand deposits and certificates of deposit with maturities of less than three months.

F-8

Financial Instruments

        Fair values of cash and cash equivalents, accounts receivable, short-term investments and short-term debt approximate cost due to the short period of time to maturity. The recorded amounts of long-term debt and convertible debentures are considered to approximate fair value due to either rates which fluctuate with the market or are otherwise commensurate with the current market. Fair values of investments are based on quoted market prices or pricing models using current market rates, which approximate carrying value.

Inventories

        Inventories consist primarily of CRTs, electron guns, monitors and electronic parts. Inventories are stated at the lower of cost (first-in, first-out) or market.

Property, Plant and Equipment

        Property, plant and equipment are stated at cost. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings — ten to twenty-five years; Machinery and Equipment — five to ten years. Depreciation expense totaled approximately $1,240,000, $1,079,000 and $1,056,000 for the three years ended 2002, 2001 and 2000, respectively. Substantial betterments to property, plant and equipment are capitalized and routine repairs and maintenance are expensed as incurred.

        Management reviews and assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset.

Goodwill and Other Intangibles

        Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method. Goodwill is amortized on a straight-line basis over the periods benefited, principally five to fifteen years. Goodwill amounted to $1,227,000 and $1,547,000 at February 28, 2002 and 2001, respectively, net of accumulated amortization of $2,376,000 and $1,814,000, respectively. Goodwill is included in the consolidated balance sheets under the caption "Other assets." Goodwill amortization expense was $320,000, $318,000 and $310,000 for the years ended 2002, 2001 and 2000, respectively. Total amortization expense, including goodwill, was $420,000, $395,000 and $382,000 for the years ended 2002, 2001 and 2000, respectively,

        The Company's operational policy for the assessment and measurement of any impairment in goodwill which is other than temporary is to evaluate the recoverability and remaining life and determine whether it should be completely written off or the amortization period accelerated. The Company will recognize an impairment if undiscounted estimated future operating cash flows of the acquired business are determined to be less than the carrying amount. The amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds.

F-9

Taxes on Income

        The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date.

Investments

        The Company owns certain marketable equity securities which are recorded at fair value based upon quoted market prices and classified as available-for-sale securities under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Changes in fair value of these marketable equity securities are reflected in the accompanying statements of shareholders' equity. Investments are included under the captions "Prepaid expenses and other" and "Other assets" in the accompanying balance sheets.

Foreign Currency Translations

        Assets and liabilities of foreign subsidiaries are translated using the exchange rate in effect at the end of the year. Revenues and expenses are translated using the average of the exchange rates in effect during the year. Translation adjustments and transaction gains and losses related to long-term intercompany transactions are accumulated as a separate component of shareholders' equity. The Company reports its Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales and purchases are with the parent with accounts receivable and accounts payable settled in U.S. dollars. Additionally, the subsidiary leases its facilities and incurs rent based upon U.S. dollars. Any exchange gains or losses due to the actual exchange of pesos and U.S. dollars are minimal. The Company also has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency.

Earnings Per Share

        Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of shares outstanding during each year. Shares issued during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all dilutive potential common shares that were outstanding during the period.

        In March 2001, the Company's Board of Directors declared a stock dividend of 0.20 shares of common stock for each common share outstanding. The stock dividend was issued on April 16, 2001 to all common stock shareholders of record as of March 31, 2001. In accordance with SFAS No. 128, "Earnings per Share," all per share data for all periods presented in the consolidated financial statements reflect the increase in the amount of common stock outstanding resulting from the stock dividend. Additionally, information regarding the Company's stock option plan includes the effect of the dividend (see Note 10).

F-10

        The following is a reconciliation from basic earnings per share to diluted earnings per share for each of the last three years.

		Net Income		Weighted Average Shares Outstanding	Earnings Per Share
2002
Basic		$	1,182,000	4,701,000	$	0.25
Effect of dilution:
	Options		—	71,000
	Convertible debt		59,000	301,000
Diluted		$	1,241,000	5,073,000	$	0.24
2001
Basic		$	31,000	4,552,000	$	0.01
Effect of dilution:
	Options		—	87,000
Diluted		$	31,000	4,639,000	$	0.01
2000
Basic		$	705,000	4,708,000	$	0.15
Effect of dilution:
	Options		—	32,000
	Convertible debt		88,000	493,000
Diluted		$	793,000	5,233,000	$	0.15

        Stock options in the amount of 20,000, 23,000 and 94,000 shares for the years ended 2002, 2001 and 2000, respectively, were excluded from the diluted earnings per share calculation due to their anti-dilutive effect. Also, convertible debentures in the amount of 479,000 shares were excluded from the 2001 diluted earnings per share calculation due to their anti-dilutive effect.

Segment Reporting

        The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" to report information about operating segments in annual and interim financial reports. An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the executive officers in order to make decisions about allocating resources, and for which discrete financial information is available (see Note 12).

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations," and eliminates the pooling-of-interest method of accounting for business combinations. SFAS No. 141 also changes the criteria for recognizing intangible assets apart from goodwill and states the following criteria should be considered in determining the recognition of intangible assets: (1) whether the intangible asset arises from contractual or other rights, or (2) whether the intangible asset is separable

F-11

or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged.

        SFAS No. 142, generally effective March 1, 2002, supersedes APB No. 17, "Intangible Assets," and requires goodwill and other acquired intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company currently amortizes goodwill over its estimated useful life of five to fifteen years. The Company's management is currently evaluating the impact the adoption of this standard will have on the financial statements.

        The Company recorded $320,000, or $0.07 per share on a pre-tax basis, of goodwill amortization in 2002.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 30, 2002. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: (1) recognition and measurement of the impairment of long-lived assets to be held and used and (2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

Fiscal Year

        All references herein to "2002", "2001" and "2000" mean the fiscal years ended February 28, 2002, February 28, 2001 and February 29, 2000, respectively.

Reclassification

        Certain balances have been reclassified in the 2001 and 2000 consolidated financial statements to conform to the 2002 presentation.

Note 2.    Business Acquisitions

        In June 2001, the Company acquired the outstanding common stock of XKD Corporation ("XKD"), a manufacturer of high-resolution displays used in training, simulation, ruggedized military and industrial applications. The Company acquired assets of $968,000 and assumed liabilities of $968,000; accordingly, no goodwill was recognized from the acquisition. The transaction was accounted for under the purchase method of accounting and the results of operations of XKD since its acquisition date have been included in the Company's consolidated financial statements. The purchase agreement includes potential royalty payments of up to $2,000,000 based on specific future revenues of XKD, options to acquire 10,000 shares of the Company's common stock, and the release of corporate indemnification of the seller of certain personal obligations.

F-12

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in connection with the XKD acquisition:

Accounts receivable		$	130,000
Inventory			400,000
Property and equipment			100,000
Prepaid expenses			139,000
Other assets			199,000
	Total assets acquired		968,000
Accounts payable and other accrued expenses			(266,000	)
Note payable			(702,000	)
	Total liabilities assumed		(968,000	)
	Net assets acquired	$	—

        In May 2000, the Company purchased the common stock of Lexel Imaging Systems, Inc. ("Lexel") located in Lexington, Kentucky. Lexel has developed specialized processes used in manufacturing a wide range of monochrome CRTs for commercial and military programs. The Company paid $3,000,000, financed by short-term debt. The transaction was accounted for under the purchase method of accounting and the results of operations of Lexel since its acquisition date have been included in the Company's consolidated financial statements.

        The following tables summarize the fair values of the assets acquired, liabilities assumed and consideration paid in connection with the Lexel acquisition:

Inventory		$	2,690,000
Property and equipment			1,474,000
Accounts payable and accrued expenses			(760,000	)
Other liabilities			(404,000	)
	Cash paid	$	3,000,000

        The following table summarizes the unaudited pro forma consolidated results of operations of the Company for 2001 and 2000, assuming the Lexel acquisition had occurred at the beginning of the fiscal periods. The pro forma financial information is not necessarily indicative of what would have occurred had the acquisition been made as of those dates, nor is it indicative of future results of operations. The pro forma amounts give effect to appropriate adjustments for the fair value of the net assets acquired, depreciation, interest expense and income taxes.

	2001		2000
	(unaudited)		(unaudited)
Pro forma net sales	$	71,767,000	$	73,131,000
Pro forma income from operations		2,656,000		3,567,000
Pro forma net income		286,000		1,571,000
Pro forma basic earnings per share	$	0.06	$	0.33
Pro forma diluted earnings per share	$	0.06	$	0.32

F-13

        In June 2000, the Company purchased certain assets of the electro optical division of Imaging and Sensing Technology ("IST") in Horseheads, New York. The Company paid $1,598,000 financed by a demand note payable to the CEO of the Corporation with a stated interest rate of prime plus 1.0%. IST provides a product line that includes specially CRTs used to produce computer generated graphics, high quality photography and medical diagnostic images. The acquired assets of IST were integrated into the Lexel facility in Lexington, Kentucky.

        Also in 2001, the Company acquired certain assets, principally inventory, of two CRT operations for cash consideration of $759,000, funded by its Primary line of credit. These operations were also integrated into the Lexel facility. These acquisitions were accounted for under the purchase method of accounting and the results of operations of these entities since their acquisition dates have been included in the Company's consolidated financial statements. No goodwill resulted from these transactions.

Note 3.    Costs and Earnings in Excess of Billings on Contracts

        Information relative to contracts in progress consisted of the following:

	2002			2001
Costs incurred to date on uncompleted contracts	$	2,949,000		$	4,600,000
Estimated earnings recognized to date on these contracts		2,239,000			2,573,000
		5,188,000			7,173,000
Billings to date		(4,264,000	)		(7,179,000	)
Costs and earnings in excess of billings, net	$	924,000		$	(6,000	)
Costs and earnings in excess of billings	$	924,000		$	158,000
Billings in excess of costs and earnings		—			(164,000	)
	$	924,000		$	(6,000	)

        Costs and earnings in excess of billings are classified in the consolidated balance sheets under the caption "Prepaid expenses and other" while billings in excess of costs and earnings are included under the caption "Accrued liabilities."

Note 4.    Inventories

        Inventories consisted of the following:

	2002			2001
Raw materials and work-in-process	$	14,478,000		$	13,299,000
Finished goods		19,082,000			18,122,000
		33,560,000			31,421,000
Reserves for obsolescence		(1,640,000	)		(1,643,000	)
	$	31,920,000		$	29,778,000

Note 5.    Note Receivable

        The Company holds an unsecured note receivable as a result of a litigation settlement. The note had an original face value of $1,500,000 due in monthly installments of $15,000 over a term of 100 months. The note was non-interest bearing for the first 50 payments and interest bearing, at prime (8.5% at February 28, 2001) plus 1%, over the remaining 50 payments. During 2001, monthly payments on the note were delinquent and payments made were less than the required contractual amounts.

F-14

Payments eventually ceased in the fourth quarter of 2001. As of February 28, 2001, the Company believed that it was probable that they would be unable to collect any of the outstanding amounts due under the contractual terms of the loan agreement and considered the loan impaired. In accordance with SFAS No. 114, "Accounting by Creditor's of Impairment of a Loan", the Company wrote off the remaining $514,000 balance of the note.

Note 6.    Long-Term Debt

        Long-term debt consisted of the following:

	2002			2001
Term loan facility; floating interest rate based on an adjusted LIBOR rate (4.4% as of February 28, 2002); quarterly principal payments of $313,000 payable through November 2005; collateralized by assets of Aydin Displays, Inc.	$	4,375,000		$	5,625,000
Note payable to bank; interest rate of prime (4.75% as of February 28, 2002) plus 1.5%; monthly principal payments of $9,000 payable through May 2010; collateralized by assets of XKD Corporation		656,000			—
Mortgage payable to bank; interest not to exceed 7.5%; monthly principal and interest payments of $4,000 payable through December 2003 with a final principal payment of $539,000 in December 2003; collateralized by land and building of Fox International, Inc.		627,000			671,000
Mortgage payable to bank; interest rate of prime plus 0.5%; monthly principal and interest payments of $5,000 commencing in May 2002 and payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.		509,000			—
Other		231,000			694,000
		6,398,000			6,990,000
Less current maturities		(1,443,000	)		(1,470,000	)
	$	4,955,000		$	5,520,000

        Future maturities of long-term debt are as follows:

Year	Amount
2003	$	1,443,000
2004		1,988,000
2005		1,386,000
2006		754,000
2007		99,000
Thereafter		728,000
	$	6,398,000

F-15

Note 7.    Lines of Credit

        At February 28, 2001, the Company had a $5,500,000 primary line of credit (the "Primary Line") and a $3,500,000 secondary line of credit (the "Secondary Line") secured by substantially all of the assets of the Company. The Primary Line's interest rate was at a fixed rate of 7.25% and the Secondary Line's interest rate is at Prime (4.75% as of February 28, 2002) plus one percent. Both lines were secured by substantially all of the assets of the Company and were limited by eligible accounts receivable and inventory, as defined by the agreements. As of February 28, 2001 the outstanding balances on the Primary and Secondary lines was $5,500,000 and $3,017,000, respectively.

        In May 2000, the Company entered into a $3,000,000 note payable (the "Lexel note") with its primary bank to finance the acquisition of Lexel. The note bore interest at LIBOR plus 2% and was guaranteed by the CEO of the Company.

        In May 2001, the Company and its primary bank agreed to consolidate the existing Primary Line and the $3,000,000 Lexel note into a $10,000,000 credit facility (the "amended Primary Line"). Accordingly, the combined outstanding amount of $8,500,000 related to the Primary Line ($5,500,000) and the Lexel note ($3,000,000) was classified as long-term as of February 28, 2001 in the accompanying consolidated balance sheet. The Secondary Line was to expire on December 31, 2001. On February 28, 2002, the Company negotiated an amendment to the Secondary Line. The term was extended until July 31, 2002 with principal reductions to $3,150,000 on March 31, 2002 and additional monthly principal payments of $100,000 from April through July 2002. The interest rate is based on the prime rate plus 2%. All other terms of the agreement remain essentially the same.

        As of February 28, 2002, the outstanding balance on the Primary Line was $9,285,000, of which $500,000 is classified as current, and the outstanding balance on the Secondary Line (all of which is classified as current) was $3,279,000.

        The interest rate on the amended Primary Line is based on a floating LIBOR rate (4.4% at February 28, 2002), based on a ratio of debt to EBITDA, as defined. The note matures on July 1, 2003. The amount of credit available for advance was reduced by $500,000 on July 1, 2001 and will be reduced by an additional $500,000 on July 1, 2002. Advance rates remain the same as under the previous line, including a commitment fee of 0.25% for the unused portion. The new agreement contains affirmative and negative covenants, including requirements related to tangible net worth and debt service coverage. Additionally, dividend payments, capital expenditures and acquisitions have certain restrictions. Substantially all of the Company's retained earnings are restricted based upon these covenants.

Note 8.    Notes Payable to Officers and Directors

        At February 28, 2000 the Company had outstanding borrowings in the form of a demand note from its CEO in the amount of $2,200,000. In June 2000, the Company borrowed an additional $1,400,000 from the CEO to assist with the acquisition of certain assets of the electro optics division of IST. This borrowing was combined with the existing demand note and, as of February 28, 2001, the outstanding balance was $3,600,000. During 2002, the Company borrowed an additional $3,000,000 from the CEO to finance the product line acquisition from Christie Digital. This borrowing is a one-year agreement with interest due monthly based on LIBOR (1.9% at February 28, 2002) plus 2.4%. Additionally, the Company borrowed $500,000 from the CEO during 2002 for short-term financing purposes. As of February 28, 2002, the aggregate outstanding balance due the CEO was $7,100,000.

        Subsequent to year-end, the Company borrowed an additional $740,000 and repaid $340,000 from the CEO of the Company for short-term operating purposes.

F-16

        During fiscal 2002, the Company borrowed an additional $98,000 from a Director, resulting in a balance of $241,000 at February 28, 2002. Yearly principal payments of $24,000 are payable through 2007 with a final payment of $121,000 due in 2008. These borrowings bear interest at 10%.

Note 9.    Convertible Subordinated Debentures

        The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997. The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of debentures plus accrued interest were converted into 186,068 common shares. In May 2001, the Company's CEO, the holder of the remaining debentures, in accordance with the provisions of the subordinated debt agreement, elected to extend the maturity date of his remaining $1,000,000 debentures to May 31, 2003.

Note 10.    Stock Options

        The Company has an incentive stock option plan whereby total options to purchase 600,000 shares may be granted to key employees at a price not less than fair market value at the time the options are granted and are exercisable beginning on the first anniversary of the grant date for a period not to exceed ten years. The stock option plan stipulates that, in the event of a stock dividend, all outstanding grants will be proportionally adjusted both in number of options and exercise price. Information

F-17

regarding the stock option plan is as follows, which includes the effect of the 20% stock dividend issued on April 16, 2001 for all periods presented:

		Number of Shares		Weighted Average Exercise Price
Outstanding at February 28, 1999		264,000		$	3.29
	Granted	6,000			3.96
	Exercised	(60,000	)		1.67
	Forfeited or expired	(24,000	)		4.07
Outstanding at February 29, 2000		186,000		$	3.74
	Granted	6,000			5.31
	Exercised	(12,000	)		3.48
	Forfeited or expired	—			—
Outstanding at February 28, 2001		180,000		$	3.81
	Granted	42,000			4.65
	Exercised	—			—
	Forfeited or expired	(2,000	)		7.40
Outstanding at February 28, 2002		220,000		$	3.93

Options exercisable	Number of Shares	Weighted Average Exercise Price
February 28, 2002	220,000	$	3.93
February 28, 2001	162,000		3.58
February 29, 2000	174,000		3.56

	Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding and Exercisable at February 28, 2002	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
	(in years)
$2.29–3.96	151,000	4.5	$	3.13
4.40–5.50	48,000	7.6		4.73
7.29–8.44	21,000	5.2		8.00
	220,000	5.3	$	3.93

        The weighted average fair value of options, calculated using the Black-Scholes option pricing model, granted during the years 2002, 2001 and 2000 was $4.33, $1.17 and $0.14, respectively. The weighted average remaining life of options outstanding at February 28, 2002, 2001 and February 29, 2000 was 5.3, 5.7 and 6.6 years, respectively. At February 28, 2002 and 2001, the Company had approximately 298,000 and 338,000 shares, respectively, available for the granting of options under the stock option plan.

F-18

        The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for stock options granted. Had compensation cost been determined based on the fair value at the grant date for awards in 2002, 2001 and 2000, consistent with the provisions of the Standard, the Company's net earnings and earnings per share would have changed as indicated by the pro forma amounts below:

	Fiscal Year Ended
	2002		2001		2000
Net income—as reported	$	1,182,000	$	31,000	$	705,000
Net income—pro forma		1,156,000		24,000		704,000
Basic earnings per common share—as reported		$0.25		$0.01		$0.15
Basic earnings per common share—pro forma		$0.25		$0.01		$0.15
Diluted earning per common share—as reported		$0.24		$0.01		$0.15
Diluted earning per common share—pro forma		$0.24		$0.01		$0.15

        The fair value of stock options used to compute pro forma net income applicable to common shareholders and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 2002, 2001 and 2000, respectively: expected volatility of 60%, 50% and 35%; a risk-free interest rate of 4.50%, 6.50% and 5.65%; expected lives of 3.5, 2.0 and 5.0 years; and dividend yield of 0.00% for all years.

Note 11.    Taxes on Income

        Provisions for federal, state and foreign income taxes in the consolidated statements of income consisted of the following components:

		Fiscal Year Ended
		2002			2001			2000
Current:
	Federal	$	560,000		$	361,000		$	781,000
	State		105,000			72,000			134,000
	Foreign		—			—			(245,000	)
			665,000			433,000			670,000
Deferred:
	Federal		369,000			(24,000	)		(57,000	)
	State		24,000			(4,000	)		(10,000	)
	Foreign		(70,000	)		(112,000	)		(288,000	)
			323,000			(140,000	)		(355,000	)
Total		$	988,000		$	293,000		$	315,000

        Income before taxes and minority interests on income consisted of the following:

	2002			2001			2000
U.S. operations	$	2,359,000		$	598,000		$	2,153,000
Foreign operations		(184,000	)		(281,000	)		(1,152,000	)
	$	2,175,000		$	317,000		$	1,001,000

F-19

        The effective income tax rate differed from the statutory federal income tax rate as follows:

	Fiscal Year Ended
	2002		2001			2000
Taxes at statutory federal income tax rate	$	740,000	$	108,000		$	340,000
State income taxes, net of federal benefit		86,000		45,000			47,000
Tax rates attributable to foreign operations		—		(8,000	)		(80,000	)
Non-deductible amortization of certain fixed and intangible assets		135,000		151,000			138,000
Non-deductible expenses (income)		23,000		19,000			(8,000	)
Change in valuation allowance		—		(47,000	)		(25,000	)
Other		4,000		25,000			(97,000	)
Taxes at effective income tax rate	$	988,000	$	293,000		$	315,000

        Deferred income taxes as of February 28, 2002 and 2001 reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards.

        The sources of the temporary differences and their effect on the net deferred tax asset consisted of the following:

		2002			2001
Deferred tax assets:
	Investment capital loss carryforwards	$	240,000		$	240,000
	Foreign net operating loss carryforwards		470,000			400,000
	Uniform capitalization costs		382,000			333,000
	Inventory reserve		391,000			606,000
	Accrued vacation		71,000			102,000
	Allowance for doubtful accounts		122,000			103,000
	Other		34,000			107,000
			1,710,000			1,891,000
	Valuation allowance		(240,000	)		(240,000	)
Deferred tax liabilities:
	Basis difference of property, plant and equipment		(363,000	)		(218,000	)
	Other		(45,000	)		(48,000	)
Net deferred tax assets		$	1,062,000		$	1,385,000
Current			1,175,000			1,164,000
Non-current			(113,000	)		221,000
		$	1,062,000		$	1,385,000

        Current deferred tax assets are included in the consolidated balance sheets under the caption "Prepaid expenses and other." As of February 28, 2001, non-current deferred tax assets are included under the caption "Other assets." Investment loss carryforwards consist primarily of investment losses, which may be utilized to offset any future taxable gains on the sale of investments. The investment loss carryforwards expire in 2005. The Company has provided a valuation allowance on these loss carryforwards, as realization of these assets is not considered likely. The foreign net operating loss carryforwards expire at various times through 2016.

F-20

        Undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

Note 12.    Segment Information

        SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in their financial statements. The standard defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker aggregates operating segments based on the type of products produced by the segment. Based on the quantitative thresholds specified in SFAS 131, the Company has determined that it has two reportable segments with subsegments within one of the main segments. The two reportable segments are as follows: (1) the manufacture and distribution of cathode ray tubes and electron guns in the replacement market and (2) the distribution of electronic parts from foreign and domestic manufacturers. The subsegments within the CRT segment consists of data display CRTs, entertainment (television and projection) CRTs, monitors and component parts. Foreign operations account for less than 10% of consolidated sales and consolidated assets.

        The accounting policies of the operating segments are the same as those described in Summary of Significant Accounting Policies. Segment amounts disclosed reflect elimination entries made in consolidation. The chief operating decision maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of interest expense and income taxes.

        The following table sets forth net sales, operating profit, depreciation and amortization, capital expenditures, and identifiable assets for each industry segment and applicable subsegments:

		Fiscal Year Ended
		2002		2001		2000
		(in thousands)
Net Sales
CRT segment
	Data display	$	11,028	$	10,476	$	10,319
	Entertainment		6,558		7,544		9,350
	Monitors		39,697		36,275		25,430
	Component parts		1,607		1,943		2,029
			58,890		56,238		47,128
Wholesale Distribution segment			13,476		14,568		16,710
		$	72,366	$	70,806	$	63,838

F-21

Operating Profit (Loss)
CRT segment
	Data display	$	(2,272	)	$	(2,105	)	$	(2,110	)
	Entertainment		2,088			2,814			4,306
	Monitors		4,326			1,884			1,194
	Component parts		(46	)		(48	)		(211	)
			4,096			2,545			3,179
Wholesale Distribution segment			(445	)		(56	)		(466	)
		$	3,651		$	2,489		$	2,713
Depreciation and Amortization
CRT segment
	Data display	$	338		$	228		$	238
	Entertainment		150			151			166
	Monitors		691			553			417
	Component parts		72			76			86
			1,251			1,008			907
Wholesale Distribution segment			409			466			531
		$	1,660		$	1,474		$	1,438
Capital Expenditures**
CRT segment
	Data display	$	120		$	117		$	351
	Entertainment		—			4			28
	Monitors		3,033			2,421			588
	Component parts		16			31			34
			3,169			2,573			1,001
Wholesale Distribution segment			87			43			181
		$	3,256		$	2,616		$	1,182
Identifiable Assets
CRT segment
	Data display	$	20,854		$	18,926		$	17,824
	Entertainment		3,305			3,679			4,445
	Monitors		30,924			25,936			16,331
	Component parts		2,343			2,212			2,590
			57,426			50,753			41,190
Wholesale Distribution segment			4,415			6,129			8,661
		$	61,841		$	56,882		$	49,851

**

Includes deletions from fixed assets through business divestitures in 2000 and additions to fixed assets through business acquisitions in 2001 and 2002

F-22

Note 13.    Benefit Plan

        The Company has a defined contribution plan that covers substantially all U.S. employees. Employees may contribute up to 15% of their compensation, as allowed by IRS regulations. At the Company's discretion, employee contributions of up to 4% of their compensation can be matched at 50% by the Company. The Company's contributions to the Plan amounted to $98,000 and $100,000 in 2001 and 2000, respectively. No contributions were made in 2002.

Note 14.    Commitments

Operating Leases

        The Company leases various manufacturing facilities and transportation equipment under leases classified as operating leases. These leases provide that the Company pays taxes, insurance and other expenses on the leased property and equipment. Rent expense under these leases was approximately $2,340,000, $2,546,000 and $2,109,000 in 2002, 2001 and 2000, respectively.

        Future minimum rental payments due under these leases are as follows:

Fiscal Year	Amount
2003	$	1,838,000
2004		1,401,000
2005		1,240,000
2006		584,000
2007		424,000
Thereafter		131,000
	$	5,618,000

        The Company leases four of its manufacturing facilities and certain warehouse space from shareholders and officers under net operating leases expiring at various dates through 2006. Rent expense under these leases totaled approximately $491,000, $439,000 and $597,000 in 2002, 2001 and 2000, respectively.

        Future minimum rental payments due under these leases with related parties are as follows:

Fiscal Year	Amount
2003	$	488,000
2004		401,000
2005		240,000
2006		220,000
2007		120,000
Thereafter		100,000
	$	1,569,000

Note 15.    Concentrations of Risk and Major Customers

        Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. At times, such cash in banks are in excess of the FDIC insurance limit.

        The Company's CRT segment had net sales to the U.S. government that comprised approximately 15% and 17% of CRT segment net sales and 13% of consolidated net sales both in fiscal 2002 and 2001, respectively. The Company's wholesale electronic parts distributor had net sales to one customer

F-23

that comprised approximately 20%, 22% and 19% of that subsidiary's net sales in 2002, 2001 and 2000, respectively. Other subsidiaries have a few concentrated customers and vendors that could, if lost, negatively affect sales. The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Note 16.    Supplemental Cash Flow Information

		2002		2001		2000
Cash paid (received) for:
	Interest	$	1,852,000	$	2,146,000	$	1,426,000
	Income taxes, net of refunds	$	464,000	$	1,470,000	$	(121,000	)

Non-cash investing and financing activities:

        During 2002, three holders of subordinated debentures converted $775,000 into 186,068 shares of the Company's common stock.

        During 2002, the Company acquired $960,000 of assets and assumed $960,000 of liabilities in the acquisition of the outstanding common stock of XKD, Corp. No cash was exchanged in this transaction.

Note 17.    Quarterly Data (unaudited)

        The following table sets forth selected quarterly consolidated financial data for the years ended February 28, 2002 and 2001, respectively. The summation of quarterly earnings per share may not agree with annual earnings per share.

	2002
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Net Sales	$	17,479	$	18,821	$	17,034	$	19,032
Gross profit		5,401		5,809		5,786		5,916
Net income		234		352		453		143
Basic and diluted earnings per share	$	0.05	$	0.07	$	0.10	$	0.03

	2001
	First Quarter		Second Quarter(a)		Third Quarter		Fourth Quarter(b)
	(in thousands, except per share amounts)
Net Sales	$	16,620	$	18,061	$	18,959	$	17,166
Gross profit		5,165		5,707		5,295		4,716
Net income (loss)		240		302		156		(667	)
Basic and diluted earnings (loss) per share	$	0.05	$	0.07	$	0.03	$	(0.15	)

(a)

In May 2000 and June 2000, respectively, the Company acquired the operations of Lexel and IST.

(b)

The fourth quarter of fiscal 2001 included the write off of a note receivable of approximately $514,000.

F-24

Video Display Corporation and Subsidiaries

Index to Consolidated Financial Statements Schedule

Report of Independent Certified Public Accountants on Financial Statement Schedule	F-26
Schedule II—Valuation and Qualifying Accounts	F-27

F-25

Report of Independent Certified Public Accountants

Video Display Corporation
Tucker, Georgia

        The audits referred to in our report dated May 17, 2002 relating to the consolidated financial statements of Video Display Corporation and subsidiaries, which are contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying schedule. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits.

        In our opinion, such schedule presents fairly, in all material respects, the information set forth therein.

BDO Seidman, LLP

Atlanta, Georgia
May 17, 2002

F-26

VIDEO DISPLAY CORPORATION AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Column A		Column B			Column C				Column D			Column E
					Additions
Description		Balance at Beginning of Period			Charged to Costs and Expenses		Charged to Other Accounts		Deductions			Balance at End of Period
Allowance for doubtful accounts:
	February 28, 2002	$	289,000		$	278,000	$	—	$	224,000		$	343,000
	February 28, 2001	$	522,000	(b)	$	585,000	$	—	$	818,000	(a)	$	289,000
	February 29, 2000	$	581,000	(b)	$	304,000	$	—	$	363,000	(a)	$	522,000	(b)
Reserves for inventory:
	February 28, 2002	$	1,643,000		$	350,000	$	—	$	353,000		$	1,640,000
	February 28, 2001	$	1,337,000		$	438,000	$	—	$	132,000	(c)	$	1,643,000
	February 29, 2000	$	713,000		$	909,000	$	—	$	285,000	(c)	$	1,337,000

(a)

Uncollectible accounts written off.

(b)

Includes a $221,000 allowance on a note receivable.

(c)

Inventory written down or written off.

F-27

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PART I
PART II
PART III
PART IV
SIGNATURES
Video Display Corporation and Subsidiaries Index to Consolidated Financial Statements
Video Display Corporation and Subsidiaries Consolidated Balance Sheets
Video Display Corporation and Subsidiaries Consolidated Balance Sheets
Video Display Corporation and Subsidiaries Consolidated Statements of Income
Video Display Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
Video Display Corporation and Subsidiaries Consolidated Statements of Cash Flows
Video Display Corporation and Subsidiaries Notes to Consolidated Financial Statements
Video Display Corporation and Subsidiaries Index to Consolidated Financial Statements Schedule
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

EX-10.(L)

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Exhibit 10(l)

THIRD AMENDED AND RESTATED

REVOLVING CREDIT AND TERM LOAN AGREEMENT

dated as of May 4, 2001

between

VIDEO DISPLAY CORPORATION, a Georgia corporation,
APEX ELECTRONICS, INC., a New Jersey corporation,
SOUTHWEST VACUUM DEVICES, INC., an Arizona corporation,
TELTRON TECHNOLOGIES, INC., a Georgia corporation,
Z-AXIS, INC., a Georgia corporation,
MENGEL INDUSTRIES, INC., a Pennsylvania corporation,
AYDIN DISPLAYS, INC., a Georgia corporation,
LEXEL IMAGING SYSTEMS, INC., a Delaware corporation

and

SOUTHTRUST BANK,
an Alabama banking corporation

THIRD AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT

        THIS THIRD AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT is dated as of May 4, 2001 among VIDEO DISPLAY CORPORATION, a Georgia corporation, APEX ELECTRONICS, INC., a New Jersey corporation, SOUTHWEST VACUUM DEVICES, INC., an Arizona corporation, TELTRON TECHNOLOGIES, INC., a Georgia corporation, Z-AXIS, INC., a Georgia corporation, MENGEL INDUSTRIES, INC., a Pennsylvania corporation, AYDIN DISPLAYS, INC., a Georgia corporation, and LEXEL IMAGING SYSTEMS, INC., a Delaware corporation (collectively the "Borrower"), and SOUTHTRUST BANK, an Alabama banking corporation, successor by conversion to SouthTrust Bank, N.A. (the "Bank"). The parties hereto hereby agree as follows:

W I T N E S S E T H:

        WHEREAS, Bank and some of the entities comprising Borrower are parties to that certain Second Amended and Restated Revolving Credit and Term Loan Agreement by and between certain of those entities comprising Borrower, Fox International Ltd., Inc., Vanco International, Inc. and Bank dated as of August 26, 1994, as amended by Amendment No. 1 dated as of August 1, 1995, by Amendment No. 2 dated as of January 15, 1996, by Amendment No. 3 dated as of April 19, 1996, by Amendment No. 4 dated as of August 31, 1996, by Amendment No. 5 dated as of October 31, 1996, by Amendment No. 6 dated as of December 31, 1996, by Amendment No. 7 dated as of February 18, 1997, by Amendment No. 8 dated as of March 6, 1997, by Amendment No. 9 dated as of March 18, 1997, by Amendment No. 10 dated as of July 31, 1997, by Amendment No. 11 dated as of March 31, 1998, by Amendment No. 12 dated as of November 17, 1998, and by Amendment No. 13 dated as of May 20, 1999 (collectively, the "Second Amended Loan Agreement"), pursuant to which Bank has extended to Borrower a $5,500,000.00 revolving line of credit (the "$5,500,000 Line of Credit");

        WHEREAS, Bank has previously extended to Borrower Video Display Corporation a $3,000,000.00 term loan, evidenced by that certain Commercial Promissory Note dated May 1, 2000 (the "$3,000,000 Term Loan");

        WHEREAS, pursuant to the Second Amended Loan Agreement, Bank has previously extended to some of the entities comprising Borrower a $7,500,000.00 term loan, evidenced by that certain Aydin Term Note dated November 17, 1998 (the "Aydin Term Loan");

        WHEREAS, Borrower has requested Bank, on the terms and conditions as hereinafter set forth to consolidate the $5,500,000 Line of Credit and the $3,000,000 Term Loan into a new revolving credit facility in the principal amount of $10,000,000;

        WHEREAS, Bank is willing to extend this new $10,000,000.00 revolving line of credit, subject to the terms and conditions as hereinafter set forth; and

        NOW, THEREFORE, for and in consideration of the sum of $10.00 in hand paid by Bank to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

        1.01.    Defined Terms.    As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have the same meaning, when used in the plural and vice versa):

        "Account Debtor" any Person who is or may become obligated under or on account of an Account.

        "Accounts" all accounts, accounts receivable, chattel paper, chattel mortgages, leases, instruments, documents, promissory notes, contracts for receipt of money, conditional sales contracts, and evidences of debt of or owing to or acquired by Borrower whether now existing or

hereafter arising, including, without limitation, (i) all accounts and other rights to payment of money which arise or result from Borrower's selling or other disposition of Borrower's goods or the providing of services by Borrower, (ii) the proceeds of any insurance covering any collateral, and (iii) the return of unearned insurance premiums.

        "Advance" shall mean a Revolving Credit Advance.

        "Affiliate" shall mean any Person (a) which directly or indirectly controls, or is controlled by, or is under common control with, Borrower; (b) which directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of Borrower; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

        "Agreement" shall mean this Third Amended and Restated Revolving and Term Loan Agreement, as amended, supplemented or modified from time to time.

        "Agreement Date" shall mean May 4, 2001.

        "Aydin Term Loan" shall mean the term loan made to some of the entities comprising Borrower, Vanco International, Inc., and Fox International Ltd., Inc., as more fully and particularly described in Section 2.10 of this Agreement.

        "Aydin Term Note" shall mean that certain Aydin Term Note in the original principal amount of $7,500,000.00, by some of the entities comprising Borrower, Vanco International, Inc., and Fox International Ltd., Inc., in favor of Bank, dated November 17, 1998, which evidences the indebtedness of the Aydin Term Loan.

        "Base Rate" shall mean the per annum rate of interest designated from time to time by Bank to be its Base Rate, with any change in the rate of interest resulting from a change in the Base Rate to be effective as of the opening of business of Bank on the day of such change. The Base Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any borrower. Bank may make commercial loans or any other loans at rates of interest at, above or below the Base Rate.

        "Base Rate Advance" shall mean any Advance accruing interest at the Base Rate.

        "Base Rate Loan" shall mean a Revolving Credit Advance accruing interest at the Base Rate.

        "Borrowing Base" shall mean (i) eighty-five percent (85%) of Eligible Accounts, plus (ii) forty percent (40%) of Eligible Inventory, not to exceed $6,500,000.00, plus (iii) seventy percent (70%) of the orderly liquidation value of equipment, plus (iv) seventy-five percent (75%) of the appraised value of approved real estate conveyed to Bank as collateral. The orderly liquidation value of equipment is to be determined by appraisals of equipment to be completed by an appraiser chosen by Bank. Equipment will be added to the Borrowing Base only to the extent required to provide for a minimum excess availability of $2,000,000.00. In order for real estate to qualify as "approved real estate conveyed to Bank as collateral," (a) it must be owned by an entity comprising Borrower, (b) Bank must have a first priority, perfected lien, security interest and/or security title in and to such real estate pursuant to duly executed and delivered mortgage, deed of trust, or deed to secure debt, and (c) Bank must have received an acceptable mortgagee's title insurance policy insuring Bank's interest in said real estate in an amount acceptable to Bank.

        "Borrowing Base Certificate" shall mean a certificate, substantially in the form attached hereto as Exhibit C and otherwise satisfactory to Bank, setting forth in detail the Borrowing Base and certified by Borrower to be true and correct as of its date.

2

        "Business Day" shall mean, with respect to a LIBOR Advance or a LIBOR Loan, any day other than a Saturday, Sunday, or a day on which commercial banks are authorized or required to close for business, including dealings in Dollar deposits, in London, England and Atlanta, Georgia, and with respect to all other matters, any day other than a Saturday, Sunday or a day on which commercial banks are required or authorized to close in Atlanta, Georgia.

        "Capital Lease" shall mean all leases which have been or should be capitalized on the books of the lessee in accordance with GAAP.

        "Change of Control Date" shall mean the first day on which (a) any Person, or group of related Persons, has beneficial ownership of a majority in interest of the outstanding Voting Stock of any entity comprising Borrower, (b) any Person, or group of related Persons, shall acquire all or substantially all of the assets of any entity comprising Borrower, or (c) any event shall occur which is defined as a "Change of Control" or similar transaction or transactions relating to the ownership or control of any entity comprising Borrower, in any instrument creating or evidencing debt enabling any holder or holders of debt instruments to require any entity comprising Borrower to prepay, purchase or redeem such debt, provided that a Change of Control Date as specified in clause (a) above shall not be deemed to have occurred if such entity shall have merged with another corporation, provided that such entity shall be the continuing or surviving corporation and the surviving corporation shall be engaged in a line of business related to that of such entity Borrower and no Person or group of related Persons shall have beneficial ownership of a majority in interest of the outstanding Voting Stock of such successor corporation.

        "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations and published interpretations thereof.

        "Collateral" shall mean (i) the collateral as defined in the Security Agreements, and (ii) all proceeds thereof, all as more fully set forth in the Security Agreements, all of which is given to secure the Secured Obligations.

        "Debt" shall mean (1) indebtedness or liability for borrowed money; (2) obligations evidenced by bonds, debentures, notes or other similar instruments; (3) obligations for the deferred purchase price of property or services (including trade obligations); (4) obligations as lessee under Capital Leases; (5) current liabilities in respect of unfunded vested benefits under Plans covered by ERISA; (6) obligations under acceptance facilities; (7) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person or entity, or otherwise to assure a creditor against loss; and (8) obligations secured by any Liens whether or not the obligations have been assumed.

        "Default" shall mean any of the events specified in Section 9.01 hereof, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

        "Default Rate" shall mean the "Default Rate" as described and defined in Section 3.07 hereof.

        "EBITDA" shall mean Borrower's earnings before interest, taxes, depreciation and amortization, as determined by generally accepted accounting principles, consistently applied.

        "Eligible Account" shall mean an Account arising in the ordinary course of Borrower's business from the sale of goods or rendition of services which Bank, in its sole discretion, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if: (i) it arises out of a sale made by Borrower to an Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower; or (ii) it is unpaid for more than sixty (60) days after the original due date shown on the invoice; or (iii) it is due or unpaid more than ninety

3

(90) days after the original invoice date; or (iv) fifty percent (50%) or more of the Accounts from the Account Debtor are not deemed Eligible Accounts hereunder; or (v) the total unpaid Accounts of the Account Debtor exceed twenty-five percent (25%) of the net amount of all Accounts, to the extent of such excess; or (vi) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; or (vii) the Account Debtor is also Borrower's or an Affiliate's creditor or supplier, or has disputed liability with respect to such Account, or has made any claim with respect to any other Account due from such Account Debtor to Borrower or an Affiliate, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor or an Affiliate of the Account Debtor; or (viii) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (ix) unless approved in writing by Bank, it arises from a sale to an Account Debtor outside the United States or to an Account Debtor who is not a resident of the United States or involves a shipment to an address outside of the United States; or (x) it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; or (xi) Bank believes, in its sole discretion, that collection of such Account is insecure or that payment thereof is doubtful or will be delayed by reason of the Account Debtor's financial condition; or (xii) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless Borrower assigns its right to payment of such Account to Bank, in form and substance satisfactory to Bank, so as to comply with the Assignment of Claims Act of 1940, as amended; or (xiii) the Account is subject to a Lien; or (xiv) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or (xv) the total unpaid Accounts of the Account Debtor exceed a credit limit determined by Bank, in its sole discretion, to the extent such Account exceeds such limit; or (xvi) the Account is evidenced by chattel paper, a note, or an instrument of any kind, or has been reduced to judgment; or (xvii) Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; or (xviii) Borrower has made an agreement with the Account Debtor to extend the time of payment thereof; or (xix) the Account arises from a retail sale of goods to a Person who is purchasing same primarily for personal, family or household purposes; or (xx) an account of Fox International, Ltd., Video Display Europe B.V., Video Electronics S.A. de C.V., or Video Display Ltd; or (xxi) the Account is deemed ineligible by Bank in its sole discretion. In addition, Eligible Account shall not include any portion of an Account which consists of service charges, late charges or penalties, interest of Account Debtors, or other charges relating to the extension of credit by Borrower or the timing of payment by Account Debtor. In determining the aggregate amount of Eligible Accounts, there shall be excluded from consideration any credit balance of an Account Debtor which is more than 90 days old as measured from the date of original posting of said credit balance to Borrower's books and records.

        "Eligible Inventory" shall mean Inventory valued at the lesser of cost or current market value, all of which Inventory is, at any given time, (a) not damaged or defective in any way; (b) not sold or segregated for sale and reflected as an Account of Borrower; (c) not consigned Inventory; (d) not inventory-in-transit; (e) not work-in-process Inventory; (f) not constituting packaging materials and supplies; (g) not Inventory evidenced by negotiable warehouse receipts or by non-negotiable warehouse receipts or documents of title which have not been issued in the name

4

of Bank; (h) not subject to a document of title such as a warehouse receipt or bill of lading; (i) not Inventory held by Fox International Ltd., Inc., Video Display Europe B.V., Video Electronics S.A. de C.V., or Video Display Ltd.; and (j) not Inventory deemed ineligible by Bank in its sole discretion.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereof.

        "ERISA Affiliate" shall mean, as of any date, any trade or business (whether or not incorporated) which together with Borrower is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

        "Event of Default" shall mean any of the events specified in Section 9.01 hereof, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

        "Interest Period" shall mean with respect to a LIBOR Advance and a LIBOR Loan, a period of one (1), three (3) or six (6) months, as Borrower may elect as provided in this Agreement; provided that (1) the first day of an Interest Period must be a Business Day; (ii) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, unless such Business Day falls in the next calendar month, in which case the Interest Period shall end on the next preceding Business Day; (iii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of an Interest Period) shall end on the last Business Day of a calendar month; (iv) with respect to a LIBOR Loan, each principal installment shall have an Interest Period ending on an installment payment date and the remaining principal balance, if any, on such LIBOR Loan shall have an Interest Period as set forth above and (iv) no Interest Period with respect to any LIBOR Advance shall extend beyond the Revolving Credit Termination Date, [and with respect to the LIBOR Loans,] beyond their respective Maturity Dates.

        "Inventory" all inventory of whatever kind or nature of Borrower, now owned or hereafter acquired by Borrower, and wherever located, including, without limitation, all goods held for sale or lease or furnished or to be furnished under contracts, and any raw materials, goods in transit, work in process or finished goods, supplies, returned or repossessed goods, together with all goods and materials used or consumed in Borrower's business.

        "LIBOR" shall mean, for any Interest Period, a per annum rate of interest equal to the London Interbank Offered Rate (LIBOR) for contracts with a maturity date corresponding to the applicable Interest Period, as quoted in the MONEY RATES section of The Wall Street Journal as effective for contracts entered into on the first day of the applicable Interest Period (expressed as a decimal).

        "LIBOR Advance" shall mean any Advance accruing interest based on LIBOR.

        "LIBOR Adjustment" shall mean the percentage to be added to LIBOR in determining the per annum rate of interest accruing on LIBOR Advances, as determined in Article II hereof.

        "LIBOR Loan" shall mean a Revolving Credit Advance accruing interest based on LIBOR.

        "Lien" shall mean any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the

5

foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing).

        "Loan" shall mean the revolving loan evidenced by the Revolving Credit Note.

        "Loan Documents" shall mean this Agreement, the Note, the Security Agreement, and any certificates or other documents delivered hereunder or pursuant hereto.

        "Maturity Date" shall mean, with respect to each Revolving Credit Advance, July 1, 2003.

        "Minimum Debt Service Coverage Ratio" shall mean the ratio in which the initial number is the sum of the net income (after provision for federal and state taxes and excluding any extraordinary income) of Borrower calculated based upon the 12 month period preceding the applicable date plus the interest expenses of Borrower for said period, plus the sum of all federal and state taxes paid, plus the sum of non-cash expenses or allowances for Borrower for such period (including, without limitation, amortization or write-down of intangible assets, depreciation, depletion, and deferred taxes), and the second number is the sum of the current portion of all outstanding principal due under all debt owed by Borrower as of the applicable date plus the interest expenses of Borrower for the 12 month period preceding the applicable date.

        "Multiemployer Plan" shall mean a "multiemployer plan" as defined in section 400(a)(3) of ERISA.

        "Note" or "Notes" shall mean collectively the Revolving Credit Note and the Aydin Term Note.

        "Notice of Borrowing" shall have the meaning set forth in Section 2.03 hereof.

        "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

        "Person" shall mean an individual, partnership, corporation, business trust, joint stock company, limited liability company, trust, unincorporated association, joint venture or other entity or a government (or a political subdivision or agency thereof).

        "Plan" shall mean any "employee benefit plan" as defined in Section 3(3) of ERISA maintained by or on behalf of Borrower or any ERISA Affiliate, including, but not limited to any defined benefit pension plan, profit sharing plan, money purchase pension plan, savings or thrift plan, stock bonus plan, employee stock ownership plan, Multiemployer Plan, or any plan, fund, program, arrangement or practice providing for medical (including post-retirement medical), hospitalization, accident, sickness, disability or life insurance benefits.

        "Prohibited Transaction" shall mean any transaction set forth in Section 406 of ERISA or Section 4975 of the Code.

        "Reportable Event" shall mean any of the events set forth in Section 4043 of ERISA.

        "Reserve Percentage" shall mean, for any day, the stated maximum rate (expressed as a decimal) of all reserves required to be maintained with respect to liabilities or assets consisting of or including "eurocurrency liabilities", as prescribed by Regulation D of the Board of Governors of the Federal Reserve System (or by any other governmental body having jurisdiction with respect thereto), including without limitation any basic, marginal, emergency, supplemental, special, transitional or other reserves, the rate so determined to be rounded upward to the nearest whole multiple of 1/100 of 1%.

        "Revolving Credit Advance" shall mean an advance under the Revolving Credit Commitment.

        "Revolving Credit Commitment" shall have the meaning set forth in Section 2.01(a) hereof.

6

        "Revolving Credit Note" shall mean the $10,000,000 Amended and Restated Revolving Note as described in Section 2.01(b) hereof.

        "Revolving Credit Notice of Borrowing" shall have the meaning set forth in Section 2.03 hereof.

        "Revolving Credit Termination Date" shall have the meaning set forth in Section 2.01(d).

        "Secured Obligations" shall mean all indebtedness, liabilities, and obligations of Borrower of any nature whatsoever which Bank may now or hereafter have, own or hold, and which are now or hereafter owing to Bank regardless of however and whenever created, arising or evidenced, whether now, heretofore or hereafter incurred, whether now, heretofore or hereafter due and payable, whether alone or together with another or others, whether direct or indirect, primary or secondary, absolute or contingent, or joint or several, and whether as principal, maker, endorser, guarantor, surety or otherwise, and also regardless of whether such Secured Obligations are from time to time reduced and thereafter increased or entirely extinguished and thereafter reincurred including, without limitation, all such indebtedness, liabilities or obligations which may now or hereafter arise under any of the Notes, the Security Agreements or on account of the Loan, as well as all Bank's fees, charges and expenses of or incidental to the preparation, renewal, modification or enforcement of Borrower's obligations arising out of the Loans and any and all extensions or renewals thereof in whole or in part; and any indebtedness, liabilities or obligations of Borrower to Bank under any later or future advances or loans made by Bank to Borrower, and any obligation or other indebtedness owing by Borrower to Bank under any interest rate swap agreement.

        "Security Agreement" shall mean, collectively, the agreements of Borrower creating security interests in favor of Bank in the Collateral, including, without limitation, any security agreements, deeds of trust, mortgages, or deeds to secure debt, as security for the Secured Obligations.

        "Senior Funded Debt" shall mean all Debt which has not been subordinated to Debt owed to Bank.

        "Senior Funded Debt to EBITDA Ratio" shall mean the ratio of Borrower's Senior Funded Debt to EBITDA, measured at the end of each fiscal quarter for the rolling twelve (12) month period then ended, as determined by generally accepted accounting principles.

        "Tangible Net Worth" of an entity shall mean the total of all items and categories of property of such entity, which, in accordance with generally accepted accounting principles in the United States, would be included in determining total assets as shown on the assets side of such entity's balance sheet at the date as of which such total assets are determined (excluding any value for receivables owing by officers, directors, employees or affiliates of such entity, and any value for intangible assets, including, without limitation, good will, trademarks, patents, copyrights, going concern value, organization expense and other similar items), plus any LIFO reserve, if applicable, less the total of all items and categories of indebtedness, obligations and liabilities of such entity which, in accordance with generally accepted accounting principles in the United States, would be included in determining total liabilities as shown on the liabilities side of such entity's balance sheet at the date as of which such total liabilities are to be determined, but excluding the indebtedness of such entity, if any, payment of which has been subordinated to the payment in full of all amounts owed to Bank under to the Loan Documents, pursuant to a written instrument in form and substance satisfactory to Bank.

        "Voting Stock" shall mean securities of any class or classes of a Person, the holders of which are entitled to vote in the election of directors, managers or trustees (or Persons performing similar functions) of such Person.

7

        1.02.    Accounting Terms.    All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 6.08 hereof, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles.

ARTICLE II
AMOUNT AND TERMS OF THE REVOLVING CREDIT COMMITMENT AND THE AYDIN TERM LOAN FACILITY

        2.01.    Revolving Credit Advances and the Revolving Credit Note.

        (a) Subject to and upon the terms and conditions set forth in this Agreement, Bank agrees to make available to Borrower from time to time until the Revolving Credit Termination Date, Revolving Credit Advances in aggregate principal amounts at any one time outstanding not to exceed Ten Million Dollars ($10,000,000) (the "Revolving Credit Commitment"). Within the limits of the Revolving Credit Commitment, Borrower may borrow, repay and reborrow under the terms of this Agreement a maximum aggregate amount of Revolving Credit Advances not to exceed the lesser of (i) the Revolving Credit Commitment or (ii) the Borrowing Base minus the outstanding principal balance of the Aydin Term Loan; provided, however, that Borrower may neither borrow nor reborrow should there exist a Default or an Event of Default under this Agreement. If at any time the outstanding principal balance of the Revolving Credit Note exceeds the Borrowing Base minus the outstanding principal balance of the Aydin Term Loan, Borrower shall pay Bank immediately, without notice or demand, the amount of such excess, regardless of the stipulated date of maturity, if not payable on demand.

        (b) All Revolving Credit Advances shall be evidenced by the records of Bank and by the Revolving Credit Note payable to Bank in the form of Exhibit A attached hereto with appropriate insertions. The Revolving Credit Note shall be dated the date hereof, shall be payable to the order of Bank in a principal amount equal to Ten Million Dollars ($10,000,000), shall bear interest as hereinafter provided and shall mature on the Revolving Credit Termination Date or sooner should the principal and accrued interest thereon be declared immediately due and payable as provided for hereinafter. The Bank shall have no obligation to advance funds in excess of the amount of the Revolving Credit Commitment.

        (c) The Revolving Credit Commitment available for advance shall reduce to $9,500,000.00 on July 1, 2001, and to $9,000,00.00 on July 1, 2002 (the "Reduced Commitment Amount"). After July 1, 2001, Borrower shall not reborrow beyond the then applicable Reduced Commitment Amount. Notwithstanding the foregoing, all accrued interest and outstanding principal shall be due in full on the Maturity Date.

        (d) All outstanding principal amounts under the Revolving Credit Commitment shall be due and payable in full on July 1, 2003, unless sooner accelerated in accordance with Section 9.02 hereof (the "Revolving Credit Termination Date").

        2.02.    Interest on Revolving Credit Note.    Interest shall accrue on the unpaid principal amount of each Revolving Credit Advance at the following per annum rates (referred to in the Revolving Credit Note as "Adjusted Libor"), which shall be determined applying Borrower's Senior Funded Debt to EBITDA Ratio for each fiscal quarter end, based on Borrower's financial statements, for the rolling twelve (12) month period immediately preceding the first day of an Interest Period selected by

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Borrower, as hereafter provided), by adding to LIBOR the applicable LIBOR Adjustment shown below:

Senior Funded Debt to EBITDA Ratio	LIBOR Adjustment
Less than or equal to 1.75	1.50	%
Greater than 1.75 but less than or equal to 2.25	1.75	%
Greater than 2.25 but less than or equal to 2.75	2.00	%
Greater than 2.75 but less than or equal to 3.25	2.25	%
Greater than 3.25 but less than or equal to 3.75	2.50	%
Greater than 3.75 but less than or equal to 4.25	2.75	%
Greater than 4.25	3.00	%

        2.03.    Method of Borrowing.    The Borrower shall give Bank written (including by telecopy) or telephonic notice (promptly confirmed in writing) of any requested Revolving Credit Advance (a "Revolving Credit Notice of Borrowing") specifying (i) the principal amount of such Advance, (ii) the date such Advance is to be made (which shall be a Business Day), (iii) the duration of the initial Interest Period applicable thereto. Each Revolving Credit Notice of Borrowing shall be given to Bank, not later than 11:00 A.M. (Atlanta, Georgia time) on the second Business Day preceding the date of such requested Advance and with respect to a Base Rate Advance, not later than 11:00 A.M. (Atlanta, Georgia time) on the day of such requested Revolving Credit Advance. The Bank shall be entitled to rely on any telephonic Revolving Credit Notice of Borrowing which it believes in good faith to have been given by a duly authorized officer or employee of Borrower and any such Advances made by Bank based on such telephonic notice, when credited to Borrower in accordance with Borrower's instructions, shall be Revolving Credit Advances for all purposes hereunder.

        2.04.    Selection of Successive Interest Periods.    If Bank does not receive timely notice with respect to any Revolving Credit Advance of any succeeding Interest Period selected by Borrower as provided for herein or if Borrower selects an interest rate for an Interest Period which is not available under Section 2.02, the next succeeding Interest Period shall have a duration of one (1) month. If a Default or Event of Default shall exist at the end of an Interest Period applicable thereto, any such outstanding Advance shall be converted to a Base Rate Advance.

        2.05.    Interest Payment Dates.    Interest on the Revolving Credit Note shall be payable in arrears (a) on the last day of each calendar month and (b) on the Revolving Credit Termination Date.

        2.06.    Prepayment of Revolving Credit Advances.    The Borrower shall have the right to prepay Revolving Credit Advances, in whole at any time or in part from time to time, without premium or penalty but with accrued interest on the principal amount prepaid to the date of such prepayment; provided, that (a) Borrower gives Bank at least two Business Days' prior written notice of any such prepayment, specifying the date such prepayment will occur and the Revolving Credit Advance to be prepaid, (b) each partial prepayment shall be in an amount of not less than $100,000 or a greater integral multiple of $10,000, and (iii) a LIBOR Advance may only be prepaid on the last day of the then current Interest Period with respect thereto. Notwithstanding the foregoing, if (i) Borrower is acquired and the Loan is either repaid or not assumed by the acquiring entity or is not assumable, given the current financial covenants between Borrower and Bank and Bank's credit criteria or (ii) the Loan is refinanced at any time during the term of the Loan with another financial institution, then the following prepayment premiums shall be due and payable:

1.

2.0% of the then applicable Revolving Credit Commitment or Reduced Commitment Amount if the Loan is repaid prior to March 31, 2002; and

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2.

1.0% of the outstanding principal balance if the Loan is repaid after March 31, 2002 but prior to March 31, 2003.

        2.07.    Use of Proceeds.    The proceeds of each Revolving Credit Advance will be used by Borrower for general working capital and corporate purposes.

        2.08.    Commitment/Unused/Underwriting Fees.    The Borrower shall pay to Bank (a) a commitment fee on the date hereof in the amount of $25,000.00, and (b) an unused commitment fee equal to 0.25% per annum on the average daily unused Revolving Credit Commitment during each quarter in arrears on the last day of each March, June, September and December, commencing on June 30, 2001; and on the Revolving Credit Termination Date.

        2.09.    Cash Management Practices.    Notwithstanding any provision of this Agreement governing or restricting Revolving Credit Advances or LIBOR Advances to the contrary, Borrower and Bank acknowledge and agree that Bank may, in its sole and absolute discretion, repay and disburse Revolving Credit Advances on a daily basis in accordance with Bank's standard cash management practices, based on excess or deficient cash positions in Borrower's operating accounts maintained by Bank.

        2.10.    Aydin Term Loan.    Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made in the agreements evidencing, securing and otherwise relating to the indebtedness evidenced by the Aydin Term Note, Bank made the Aydin Term Loan to some of the entities comprising Borrower, Vanco International, Inc., and Fox International Ltd., Inc. on November 17, 1998, in accordance with the terms and conditions set forth in the Aydin Term Note. Borrower acknowledges and agrees that the indebtedness evidenced by the Aydin Term Note is, and shall always be, a part of the Secured Obligations.

ARTICLE III
GENERAL PAYMENT PROVISIONS

        3.01.    Illegality.    Notwithstanding any other provisions of this Agreement, if the introduction of, or any change in or in the interpretation or application of, any applicable law, regulation or directive shall make it unlawful or impossible for Bank to make, maintain or fund any LIBOR Advance or any LIBOR Loan, as the case may be, the obligation of Bank hereunder to make, maintain or fund such LIBOR Advances, or such LIBOR Loans, as the case may be, shall forthwith be cancelled, and Borrower shall, at its option, prepay all such LIBOR Advances or convert such Advances to Base Rate Advances, subject to Section 3.03 hereof, and in the case of the LIBOR Loans, prepay the LIBOR Loans in full or in part or convert the LIBOR Loans in full or in part to Base Rate Loans, subject to Section 3.03 hereof.

        3.02.    Increased Costs.    In the event that the introduction of, or any change in or in the interpretation of or application of, any applicable law, treaty or governmental regulation, or the compliance by Bank with any guideline, request or directive (whether or not having the force of law) from any central bank or other U.S. or foreign financial, monetary or other governmental authority, shall: (a) subject Bank to any tax of any kind whatsoever with respect to this Agreement, any Advances or the Aydin Term Loan or change the basis of taxation of payments to Bank of principal, interest, or any other amount payable hereunder (except for changes in the rate of tax in the overall net income of Bank); (b) impose, modify, or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by or committed to be extended by any office of Bank (other than any change by way of imposition or increase of reserve requirements under Regulation D of the Board of Governors of the Federal Reserve System included in the Reserve Percentage); or (c) impose on Bank or on the London interbank market any other condition with respect to this Agreement, the Notes or any Advances and the Aydin Term Loan made thereunder; and the result of any of the foregoing is to increase the cost to Bank of making or committing to make, renewing or maintaining any Advance or

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the Aydin Term Loan or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of any Advance or the Aydin Term Loan, THEN, IN ANY CASE, Borrower shall promptly pay from time to time, upon demand of Bank, such additional amounts as will compensate Bank for such additional cost or such reduction, as the case may be. The Bank shall certify the amount of such additional cost or reduced amount to Borrower, including a description of the calculation thereof in reasonable detail, and such certification shall be conclusive absent manifest error.

        3.03.    Indemnity.    The Borrower hereby agrees to indemnify, Bank and hold Bank harmless from any loss, cost or expense it may sustain or incur as a consequence of (a) the failure by Borrower to complete any LIBOR Advance, as a LIBOR Loan after notice thereof has been given to Bank, or (b) the payment of any LIBOR Advance or the payment of any LIBOR Loan on a day other than the last day of the Interest Period applicable thereto, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired or deemed acquired by Bank to fund such LIBOR Advance or such LIBOR Loan. The Bank shall certify the amount of its loss or expense to Borrower, and such certification shall be conclusive absent manifest error.

        3.04.    Capital Adequacy.    If. after the date of this Agreement, Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein. or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Bank's capital as a consequence of its obligations hereunder to a level below that which Bank could have achieved but for such adoption, change or compliance (taking into consideration Bank's policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, promptly upon demand by Bank, Borrower shall pay Bank such additional amount or amounts as will compensate Bank for such reduction. A certificate of Bank setting forth the additional amount or amounts to be paid to it hereunder, providing a description of the calculation thereof in reasonable detail, shall be conclusive absent manifest error. In determining any such amount, Bank may use any reasonable averaging and attribution methods. Notwithstanding the foregoing, Bank shall determine the applicability of this Section 3.04 and shall calculate the amounts payable to it hereunder in a manner which, in Bank's reasonable judgment, is consistent with the manner in which it applies similar provisions and calculates similar compensation in similar agreements to comparable borrowers.

        3.05.    Survival.    The obligations of Borrower under Sections 3.02, 3.03 and 3.04 shall survive the termination of this Agreement and the payment of the Notes.

        3.06.    Making of Payments.    All payments of principal of, or interest on, the Notes shall be made in immediately available funds to Bank at its principal office in Atlanta, Georgia. All such payments shall be made not later than 11:00 A.M. (Atlanta, Georgia time) and funds received after that hour shall be deemed to have been received by Bank on the next following Business Day.

        3.07.    Default Rate of Interest.    If Borrower shall fall to pay on the due date therefor, whether by acceleration or otherwise, any principal owing under any Note then interest shall accrue on such unpaid principal, and to the extent allowed by law, other amounts due, at the option of Bank, from the due date until and including the date on which such principal or other amount is paid in full at (i) the then applicable interest rate with respect to Revolving Credit Advances until the end of the Interest Period applicable thereto plus an additional two percent (2%) per annum and (ii) thereafter, a rate of interest equal to the Base Rate plus two percent (2%) per annum (the "Default Rate").

        3.08.    Calculation of Interest.    Interest payable on LIBOR Advances and LIBOR Loans shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed, and

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interest payable on Base Rate Advances and Base Rate Loans shall be calculated on the basis of a year of 360 days and paid for the actual number of days elapsed.

ARTICLE IV
CONDITIONS PRECEDENT

        4.01.    Conditions Precedent.    The obligation of Bank to make the initial Revolving Credit Advance to Borrower is subject to the conditions precedent that Bank shall have received each of the following, in form and substance satisfactory to Bank and its counsel:

(a)

A duly executed version of this Agreement, all Security Agreements and related documents on all real property and UCC-1 financing statements in forms acceptable to Bank.



(b)

Duly executed Revolving Credit Note.



(c)

A copy of the Articles of Incorporation and Bylaws of each entity comprising Borrower, certified as true and correct by Borrower and, a certificate of existence with respect to each Borrower from the Secretary of State of the state in which each Borrower is incorporated.



(d)

A certificate of Borrower certifying (i) the names and true signatures of the officers of each Borrower authorized to execute this Agreement, the Note and the other Loan Documents to be delivered hereunder, and (ii) the resolutions of Borrower approving this Agreement, the Revolving Credit Note and the Revolving Credit Advances thereunder.



(e)

A favorable written opinion of Meadows Ichter & Trigg, P.C., counsel for Borrower, in form and content reasonably satisfactory to Bank, addressed to Bank.



(f)

A duly executed Borrower's Closing Certificate substantially in the form of Exhibit B attached hereto.



(g)

All company and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all Loan Documents and other documents incident thereto, or delivered in connection therewith, shall be satisfactory in form and substance to Bank.

        4.02.    Conditions Precedent to Each Advance.    At the time of the making by Bank of each Advance hereunder (including the initial Revolving Credit Advance), (a) the following statements shall be true (and each of the giving by Borrower of a Notice of Borrowing in accordance with a Revolving Credit Notice of Borrowing in accordance with Section 2.03 hereof and the acceptance by Borrower of the proceeds of each Advance shall constitute a representation and warranty by Borrower that on the date of such Advance, before and after giving effect thereto and to the application of the proceeds therefrom, such statements are true):

(i)

The representations and warranties contained in Article V hereof and in any other Loan Document are true and correct on and as of the date of such Advance as though made on and as of such date, and



(ii)

No Default or Event of Default exists or would result from such Advance or from the application of the proceeds therefrom; and

        (b) Bank shall have received such other approvals, opinions or documents as it may reasonably request.

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ARTICLE V
REPRESENTATIONS AND WARRANTIES

        The Borrower represents and warrants to Bank that:

        5.01.    Formation.    Each entity comprising Borrower is a corporation duly incorporated and existing under the laws of the state of its incorporation, and is qualified to do business in all jurisdictions in which it conducts its business, except where the lack of such qualification would not have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of Borrower.

        5.02.    Authorization.    The execution, delivery, and performance by Borrower of the Loan Documents have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of the shareholders of Borrower; (b) contravene Borrower's Articles of Incorporation or Bylaws; (c) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to Borrower; (d) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which it or its properties may be bound or affected; (e) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by Borrower (except for the Liens created under the Loan Documents; or (f) cause Borrower to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument.

        5.03.    Legally Enforceable Agreement.    This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, legal, valid, and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally.

        5.04.    Financial Statements.    Borrower has furnished to Bank financial statements dated November 30, 2000 (the "Financial Statements"), which Financial Statements are true and correct in all material respects. Such Financial Statements fairly and accurately present the financial condition of Borrower as of the date indicated. Since the date of the latest Financial Statements referred to above, there has been no material adverse change in the financial condition, business, operations or prospects of Borrower, and, to the knowledge of Borrower, there exist no material contingent liability or obligation assertable against Borrower that is not identified and disclosed to Bank in the Financial Statements.

        5.05.    Labor Disputes and Acts of God.    Neither the business nor the properties of Borrower are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hall, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance) materially and adversely affecting such business or properties or the operations of Borrower.

        5.06.    Other Agreements.    The Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction which could have a material adverse effect on the business, properties, assets, operations, or condition (financial or otherwise) of Borrower, or the ability of Borrower to carry out its obligations under the Loan Documents. The Borrower is not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any such agreement or instrument material to its business to which it is a party.

        5.07.    Litigation.    There is no pending or threatened action or proceeding against or affecting Borrower before any court, governmental agency, or arbitrator, which may, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties, or business of

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Borrower or the ability of Borrower to perform its obligation under the Loan Documents, except as set forth in Schedule 5.07 attached hereto.

        5.08.    No Defaults on Outstanding Judgments or Orders.    The Borrower has satisfied all judgments, and is not in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or any governmental authority, commission, board, bureau, agency, or instrumentality, domestic or foreign.

        5.09.    Ownership and Liens.    The Borrower has title to, or valid leasehold interests in, all of its properties and assets, real and personal (other than any properties or assets disposed of in the ordinary course of business), and none of the properties and assets owned by Borrower and none of its leasehold interests is subject to any Lien, except such as may be permitted pursuant to Section 7.01 of this Agreement.

        5.10.    ERISA.    Except as disclosed on Schedule 5.10 attached hereto:

        (a) Identification of Plans. Neither Borrower nor any ERISA Affiliate maintains or contributes to, or has maintained or contributed to, any Plan.

        (b) Liabilities. Neither Borrower nor any Subsidiary is currently or will become subject to any liability (other than routine Plan expenses or contributions, if timely paid), tax or penalty whatsoever to any Person whomsoever, which liability, tax or penalty is directly or indirectly related to any Plan including, but not limited to, any penalty or liability arising under Title I or Title IV of ERISA, any tax or penalty resulting from a loss of deduction under Section 404 or 419 of the Code, or any tax or penalty under Chapter 43 of the Code, except such liabilities, taxes or penalties (when taken as a whole) as would not have a material adverse effect on the business, properties, assets, operations or condition (financial or otherwise) of Borrower; and

        (c) Funding. The Borrower and each ERISA Affiliate has made full and timely payment of all amounts (i) required to be contributed under the terms of each Plan and applicable law and (ii) required to be paid as expenses of each Plan. No Plan would have an "amount of unfunded benefit liabilities" (as defined in Section 4001(a)(18) of ERISA) if such Plan were terminated as of the date on which this representation and warranty is made.

        5.11.    Operation of Business.    The Borrower possesses all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its respective businesses substantially as now conducted and as presently proposed to be conducted, and, to the knowledge of Borrower, Borrower is not in violation of any valid rights of others with respect to any of the foregoing.

        5.12.    Taxes.    All federal, state and other tax returns of Borrower required by law to be filed have been completed in full and have been duly filed, and all taxes, assessments and withholdings shown on such returns or billed to Borrower have been paid, and Borrower maintains adequate reserves and accruals in respect of all such federal, state and other taxes, assessments and withholdings. There are no unpaid assessments pending against Borrower or any taxes or withholding, and Borrower knows of no bases therefor.

        5.13.    Debt.Schedule 5.13 is a complete and correct list of all credit agreements, indentures, purchase agreements, guaranties, Capital Leases, and other investments, agreements, and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which Borrower is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule.

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        5.14.    Pollution and Other Laws and Regulations.    The Borrower is in compliance in all material respects with all laws and regulations relating to pollution and environmental control, equal employment opportunity and employee safety and other Federal, State and local laws with respect to its operations and the conduct of its business in each jurisdiction in which Borrower is presently doing business.

ARTICLE VI
AFFIRMATIVE COVENANTS

        So long as the Note or any Advance thereunder shall remain unpaid, Borrower will:

        6.01.    Maintenance of Existence.    Preserve and maintain its company existence and good standing in the jurisdiction of its formation, and qualify and remain qualified, and to qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required, except where the lack of such qualification would not have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of Borrower.

        6.02.    Maintenance of Records.    Keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principals, consistently applied, reflecting all financial transactions of Borrower.

        6.03.    Maintenance of Properties.    Maintain, keep and preserve all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear expected.

        6.04.    Conduct of Business.    Continue to engage in an efficient and economical manner in a business of the same general type as now conducted by it on the date of this Agreement.

        6.05.    Maintenance of Insurance.    Maintain and keep in force insurance of the type and amounts customarily carried in lines of business similar to Borrower's, including, without limitation, fire, public liability, property damage, worker's compensation insurance, which insurance shall be carried with companies in an amount reasonably satisfactory to Bank, and Borrower shall deliver to Bank from time to time at Bank's request schedules setting forth all insurance in effect and if applicable, certificates showing the Bank as loss payee or an additional insured thereunder.

        6.06.    Compliance With Laws.    Comply in all material respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property.

        6.07.    Right of Inspection.    At any reasonable time and from time to time, permit Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, Borrower and to discuss the affairs, finances and accounts of Borrower with any of its respective officers and directors and Borrower's independent accountants.

        6.08.    Reporting Requirements.    Furnish to Bank:

        (a) Quarterly Financial Statements. As soon as practicable and in any event within forty five (45) days after the end of each quarter in each year, a statement (consolidated for each entity comprising Borrower) of results of operations, reconciliation of surplus statement and statement of changes in cash flow of Borrower for the period from the beginning of the current fiscal year to the end of such quarter, an accounts receivable aging report, a Borrowing Base Certificate and a balance sheet of Borrower as at the end of such quarter, setting forth in each case in comparative figures for the corresponding period in the preceding fiscal year all in reasonable detail and certified by an authorized financial officer of Borrower, subject to changes resulting from year-end adjustments.

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        (b) Annual Audited Financial Statements. As soon as practicable and in any event within 90 days after the end of each fiscal year, a statement (consolidated for each entity comprising Borrower) of results of operations, reconciliation of surplus statement and statement of changes in cash flow of Borrower for such year, an income statement and a balance sheet of Borrower (consolidated for each entity comprising Borrower) as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all being in unqualified form and in reasonable detail and satisfactory in scope to Bank and, as to the statements, certified to Borrower by independent public accountants of recognized standing selected by Borrower whose certificate shall be in scope and substance satisfactory to Bank;

        (c) Management Letters. Promptly upon receipt thereof, copies of any reports submitted to Borrower by its independent certified public accountants in connection with examination of the financial statements of Borrower made by such accountants;

        (d) Compliance Certificate. Simultaneously with the delivery of the financial statements referred to in Sections 6.08(a) and (b) hereof, a certificate of the chief financial officer of Borrower (a) certifying that to the best of her knowledge no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto and (b) with computations demonstrating compliance with the covenants contained in Article VIII;

        (e) Accountant's Report. Simultaneously with the delivery of the annual financial statements referred to in Section 6.08(b), a certificate of the independent public accountants who audited such statements to the effect that, in making the examination for the audit of such statements, they have obtained no knowledge of any condition or event which constitutes a Default or Event of Default, or if such accountants shall have obtained knowledge of any such condition or event, specifying in such certificate each such condition or event of which they have knowledge and the nature and status thereof;

        (f) Projections. As soon as practicable and in any event, within 60 days after the end of each fiscal year, (i) a projected income statement of Borrower for the next succeeding fiscal year, and (ii) a projected capital expenditure budget for the next succeeding fiscal year, each setting forth in detail reasonably satisfactory to Bank the assumptions which form the basis of such projections;

        (g) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting Borrower which, if determined adversely to Borrower, could have a material adverse effect on the business, properties, assets, operations or condition (financial or otherwise) of Borrower;

        (h) Notice of Defaults and Events of Default. As soon as possible and in any event within ten (10) days after the occurrence of any Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken by Borrower with respect thereto;

        (i) ERISA Reports. As soon as possible, and in any event within thirty (30) days after Borrower knows or has reason to know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to Borrower or any ERISA Affiliate, and promptly but in any event within two (2) Business Days of receipt by Borrower or any ERISA Affiliate of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within five (5) Business Days of the receipt of notice concerning the imposition of withdrawal liability with respect to Borrower or any ERISA Affiliate, Borrower will deliver to Bank a certificate of the chief financial officer of

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Borrower setting forth all relevant details and the action which Borrower proposes to take with respect thereto;

        (j) Reports to Other Creditors. Promptly after the furnishing thereof, copies of any statement or report furnished to any other party pursuant to the terms of any indenture, loan, credit, or similar agreement and not otherwise required to be furnished to Bank pursuant to any other clause of this Section 6.08;

        (k) Proxy Statements, etc. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements, and reports which Borrower sends to its stockholders, and copies of all regular, periodic, and special reports, and all registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or with any national securities exchange; and

        (l) Further Assurances. The Borrower shall execute and deliver to Bank such further instruments, provide it with such further data and information and take such further action as Bank may reasonably request, including without limitation any changes to the projections delivered pursuant to subsection (f) which could materially affect such projections, and a quarterly covenant compliance certificate in the form and content reasonably acceptable to Bank.

        6.09.    Environment.    Be and remain in compliance with the provisions of all federal, state, and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder except as noted in Schedule 6.09; notify Bank immediately of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify Bank immediately of any hazardous discharge from or affecting its premises; immediately contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith; permit Bank to inspect the premises, to conduct tests thereon, and to inspect all books, correspondence, and records pertaining thereto, and at Bank's request, and at Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to Bank, and such other and further assurances reasonably satisfactory to Bank that the condition has been corrected.

        6.10.    Change of Control.    The Borrower covenants that, so long as Bank (for the purpose of this paragraph the term "Bank" shall include Bank's subsidiaries and affiliates) shall be the holder of any of the Notes in the event that a Change of Control Date shall occur relative to Borrower, Borrower will, within 10 days after such Change of Control Date, give Bank written notice thereof and shall describe in reasonable detail the facts and circumstances giving rise thereto. Upon the occurrence of a Change of Control Date relative to Borrower, Borrower will prepay, if Bank shall so request, all outstanding principal under the Notes plus interest accrued to the date of prepayment and Bank may terminate the Revolving Credit Commitment and the Line of Credit Commitment. Such request (the "Prepayment Notice") shall be made by Bank in writing not later than 60 days after receipt by Bank of written notice from Borrower of such Change of Control Date and shall specify the date upon which Borrower shall prepay the Notes, which date shall be not less than 30 days nor more than 60 days from the date of the Prepayment Notice. On the date fixed for prepayment Borrower shall prepay the outstanding principal under the Notes plus interest accrued on the Notes, to the date fixed for prepayment.

        6.11.    Prompt Payment of Taxes and Indebtedness.    Promptly pay and discharge, or cause to be paid and discharged, prior to the earliest date on which any penalty or interest is incurred or begins to accrue, all lawful taxes, assessments and governmental charges or levies imposed upon any of its income, profits, property or business; provided, that any such tax, assessment, charge or levy need not be paid (a) if the same shall currently be contested in good faith by appropriate proceedings, (b) if Borrower shall have set aside on its books adequate reserves with respect thereto, and (c) if no proceedings shall have been commenced to foreclose any Lien which may have attached as security therefore. The Borrower will promptly pay when due all its other Debt and dividends declared by it.

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ARTICLE VII
NEGATIVE COVENANTS

        So long as the Note or any Advance thereunder shall remain unpaid, Borrower will not:

        7.01.    Liens.    Create, assume or suffer to exist any Lien upon any of its assets (including, without limitation, the Collateral) whether now owned or hereafter acquired, except:

        (a) Liens in favor of Bank given to secure any Debt, whether now owing or hereafter coming into existence, owed from Borrower to Bank;

        (b) Liens for taxes or assessments or other governmental charges or levies not yet due or which are being actively contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Borrower or any subsidiary in accordance with generally accepted accounting principles;

        (c) Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained;

        (d) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (other than obligations for the payment of borrowed money);

        (e) Easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of Borrower or any of its subsidiaries or any of their respective properties; and

        (f) Existing Liens set forth on Schedule 7.01 attached hereto. For purposes of this Agreement, a negative pledge constitutes a Lien.

        7.02.    Debt.    Create, incur, assume, or suffer to exist any Debt in excess of $250,000 (including lease obligations of any description whatsoever not existing as of the date of this Agreement, except (a) Debt incurred under this Agreement; (b) any trade indebtedness incurred in the ordinary course of business payable within 90 days of its incurrence, or (c) with the prior written consent of Bank, which consent shall not be unreasonably withheld, Debt owing to Ronald D. Ordway.

        7.03.    Mergers, Etc.    Wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person without the prior written consent of Bank, which consent shall not be unreasonably withheld.

        7.04.    Leases.    Create, incur, assume, or suffer to exist any obligation as lessee for the rental or hire of any real or personal property, except: (a) leases existing on the date of this Agreement set forth on Schedule 7.04 attached hereto and any extensions or renewals thereof; and (b) leases (other than Capital Leases) which do not in the aggregate require Borrower on a consolidated basis to make payments (including taxes, insurance, maintenance, and similar expenses which Borrower is required to pay under the terms of any lease) in any fiscal year of Borrower in excess of Five Hundred Thousand Dollars ($500,000).

        7.05.    Sale and Leaseback.    Sell, transfer, or otherwise dispose of any real or personal property to any Person and thereafter directly or indirectly lease back the same or similar property.

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        7.06.    Capital Expenditures.    Without the prior written consent of Bank, which consent shall not be unreasonably withheld, make any additional investment and fixed assets in any one fiscal year in excess of a yearly aggregate of $2,000,000.00.

        7.07.    Sale of Assets.    Sell, lease, assign, transfer, or otherwise dispose of any of its now owned or hereafter acquired assets (including without limitation, receivables and leasehold interests) except: (a) inventory disposed of in the ordinary course of business; and (b) the sale or other disposition of assets no longer used or useful in the conduct of its business.

        7.08.    Investments.    Make any loans, advances, or extensions of Credit to any Person in excess of $100,000.00, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person (without the prior written consent of Bank, which consent shall not be unreasonably withheld), or participate as a partner or joint venturer with any other Person, except: (a) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition; (b) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (c) certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank having capital and surplus in excess of Five Hundred Million Dollars ($500,000,000); and (c) stock, obligations, or securities received in settlement of debts (created in the ordinary course of business) owing to Borrower.

        7.09.    Guaranties, Etc.    Assume, guaranty, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, or otherwise to assure the creditors of any Person against loss) for obligations of any Person, except: guaranties by endorsement of negotiable instruments for deposits or collection or similar transactions in the ordinary course of business.

        7.10.    Transactions With Affiliates.    Enter into any transaction, including without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, including without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate.

        7.11.    Use of Proceed.    Use the proceeds of any Advance under the Revolving Credit Note except for the purposes stated herein.

ARTICLE VIII
FINANCIAL COVENANTS

        So long as the Note or any Advances thereunder shall remain unpaid, Borrower will:

        8.01.    Minimum Tangible Net Worth.    Maintain at all times a tangible net worth of not less than Twenty Million and No/100 Dollars ($20,000,000.00), measured at May 31, 2000, and increasing by seventy-five percent (75%) of net income at the end of each fiscal quarter thereafter.

        8.02.    Minimum Debt Service Coverage Ratio.    As of the end of each calendar quarter commencing on June 30, 2001, Borrower's Minimum Debt Service Coverage Ratio will equal or exceed 1.25 to 1.00, calculated for the rolling four (4) quarters then ended.

        8.03.    Senior Funded Debt to EBITDA Ratio.    Maintain at all times a Senior Funded Debt to EBITDA Ratio of not greater than 4:50 to 1:00 as of May 31, 2000, 4:00 to 1:00 as of February 28, 2001, and 3.50 to 1.00 as of February 28, 2002.

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ARTICLE IX
EVENTS OF DEFAULT

        9.01.    Events of Default.    Any one or more of the following shall constitute an Event of Default hereunder:

        (a) The Borrower should fail to pay the principal of, or any interest on the Note, or any fee, within three (3) days after the date when due and payable;

        (b) Any representation or warranty made or deemed made by Borrower in this Agreement or in any other Loan Document or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made;

        (c) The Borrower shall fail to perform or observe any term, covenant, or agreement contained in Articles VI, VII or VIII hereof;

        (d) The Borrower shall (i) fail to pay any indebtedness for borrowed money (other than the Note) which individually as to a single creditor, or in the aggregate as to all creditors, equals more than $1,000,000.00 or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise), or (ii) fail to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;

        (e) The Borrower (i) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made, and which remains undismissed for a period of sixty (60) days or more; or (v) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (vi) shall suffer any such custodianship, receivership, or trusteeship to continue undismissed for a period of sixty (60) days or more;

        (f) One or more judgments, decrees, or orders for the payment of money in excess of One Hundred Thousand Dollars ($100,000) in the aggregate shall be rendered against Borrower, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal;

        (g) Any of the following events shall occur or exist with respect to Borrower and any ERISA Affiliate under ERISA: any Reportable Event shall occur; complete or partial withdrawal from any Multiemployer Plan shall take place; any Prohibited Transaction shall occur; a notice of intent to terminate a Plan shall be filed, or a Plan shall be terminated; or circumstances shall exist which constitute grounds entitling the PBGC to institute proceedings to terminate a Plan, or the PBGC

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shall institute such proceedings; and in each case above, such event or condition, together with all other events or conditions, if any, could subject Borrower to any tax, penalty, or other liability which in the aggregate may exceed One Hundred Thousand Dollars ($100,000); or

        (h) If Bank receives its first notice of a hazardous discharge or any environmental complaint from a source other than Borrower, and Bank does not receive notice (which may be given in oral form, provided same is followed with all due dispatch by written notice given by certified mail, return receipt requested) of such hazardous discharge or environmental complaint from Borrower within twenty-four (24) hours of the time Bank first receives said notice from a source other than Borrower; or if any federal, state, or local agency asserts or creates a Lien upon any or all of the assets, equipment, property, leaseholds, or other facilities of Borrower by reason of the occurrence of a hazardous discharge or an environmental complaint; or if any federal, state, or local agency asserts a claim against Borrower and/or its assets, equipment, property, leaseholds, or other facilities for damages or cleanup costs relating to a hazardous discharge or any environmental complaint; provided, however, that such claim shall not constitute a default if, within five (5) Business Days of the occurrence giving rise to the claim, (i) Borrower can prove to Bank's satisfaction that Borrower has commenced and is diligently pursuing either: (A) a cure or correction of the event which constitutes the basis for the claim, and continues diligently to pursue such cure or correction to completion or (B) proceedings for an injunction, a restraining order, or other appropriate emergent relief preventing such agency or agencies from asserting such claim, which relief is granted within ten (10) Business Days of the occurrence giving rise to the claim and the injunction, order, or emergent relief is not thereafter resolved or reversed on appeal; and (ii) in either of the foregoing events, Borrower has posted a bond, letter of credit, or other security satisfactory in form, substance, and amount to both Bank and the agency or entity asserting the claim to secure the proper and complete cure or correction of the event which constitutes the basis for the claim.

        9.02.    Remedies on Default.

        (a) Upon the occurrence and during the continuation of an Event of Default (other than an Event of Default described in Section 9.01(e), Bank may (i) terminate its obligations to Borrower, including, without limitation, all obligations to make Advances under the Revolving Credit Commitment, (ii) declare the Notes, including, without limitation, principal, accrued interest and costs of collection (including, without limitation, reasonable attorneys' fees actually incurred if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are expressly waived.

        (b) Upon occurrence of an Event of Default under Section 9.01(g), (i) all obligations of Bank to Borrower, including, without limitation, all obligations to make Advances under the Revolving Credit Commitment, shall terminate automatically and (ii) the Notes, including, without limitation, principal, accrued interest and costs of collection (including, without limitation, reasonable attorneys' fees actually incurred if collected by or through an attorney at law or in bankruptcy, receivership or other judicial proceedings) shall be immediately due and payable, without presentment, demand, protest, or any other notice of any kind, all of which are expressly waived.

        (c) Upon the occurrence of an Event of Default and the acceleration of the Notes as provided in (a) or (b) above, and in the case of an Event of Default under Section 9.01(c) involving a breach of covenant only, after not less than thirty (30) days notice and opportunity to cure such Event, Bank may pursue any remedy available under this Agreement, under the Notes or under any other Loan Document, or available at law or in equity, all of which shall be cumulative. The order and manner in which the rights and remedies of Bank under the Loan Documents and otherwise may be exercised shall be determined by Bank.

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        (d) Upon the occurrence and during the continuance of any Event of Default, Bank is hereby authorized at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Bank to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under this Agreement, the Notes, or any other Loan Document, irrespective of whether or not Bank shall have made any demand under this Agreement, the Notes or any other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

ARTICLE X
MISCELLANEOUS

        10.01.    Amendments, Etc.    No amendment, modification, termination, or waiver of any provision of any Loan Document to which Borrower is a party, nor consent to any departure by Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        10.02.    Notices, Etc.    All notices and other communications provided for under this Agreement and under the other Loan Documents to which Borrower is a party shall be in writing and mailed, telecopied or delivered by hand or overnight courier,

if to Borrower, at its address:

VIDEO DISPLAY CORPORATION
1868 Tucker Industrial Drive
Tucker, Georgia 30084
Attn: Ronald D. Ordway

if to Bank, at its address:

SOUTHTRUST BANK
600 West Peachtree Street
27th Floor
Atlanta, Georgia 30308
Attn: Jon R. Hauseman, Corporate Lending Department

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 10.02. Except as otherwise provided in this Agreement all such notices and communications shall be effective (i) if mailed, upon the earlier of receipt or the third Business Day after such communication is deposited in the United States mail, registered or certified with first class postage prepaid, addressed as aforesaid, (ii) if telecopied, when sent, and (iii) if delivered by hand or by courier, when received at the address specified herein, except that notices to Bank pursuant to the provisions of Article II shall not be effective until received by Bank.

        10.03.    No Waiver.    No failure or delay on the part of Bank in exercising any right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise.

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        10.04.    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of Borrower and Bank and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights under any Loan Document to which Borrower is a party without the prior written consent of Bank.

        10.05.    Costs, Expenses, and Taxes.    The Borrower agrees to pay all costs and expenses (a) incurred by Bank in connection with the preparation, execution and delivery of this Agreement and the other Loan Documents, including without limitation the reasonable cost's and expenses of counsel (including in-house counsel) to Bank, (b) incurred by Bank in connection with the administration of the Advances and the Loan Documents in accordance with the provisions thereof which would not be considered in the ordinary course of business and the preparation, execution and delivery of any waiver, amendment or consent by Bank relating to the Loan Documents, including without limitation the reasonable costs and expense of counsel (including in-house counsel) for Bank; and (c) incurred by Bank in enforcing the Loan Documents, including, without limitation, reasonable costs and expenses of counsel (including in-house counsel) of Bank. In addition, Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and other documents to be delivered under any such Loan Documents, and agrees to hold Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement.

        10.06.    Integration.    This Agreement and the Loan Documents contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto.

        10.07.    Indemnity.    The Borrower hereby agrees to defend, indemnify, and hold Bank and its directors, officers, agents and employees harmless from and against any and all claims, damages, judgments, penalties, costs, and expenses (including attorneys' fees and court costs now or hereafter arising from the aforesaid enforcement of this clause) arising directly or indirectly from the activities of Borrower, its predecessors in interest, or third parties with whom it has a contractual relationship, or arising directly or indirectly from the violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other person. This indemnity shall survive termination of this Agreement.

        10.08.    GOVERNING LAW.    THIS AGREEMENT AND EACH OF THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.

        10.09.    Severability of Provisions.    Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction.

        10.10.    Headings.    Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose.

        10.11.    Entire Agreement.    This Agreement and the other Loan Documents executed and delivered contemporaneously herewith, together with the exhibits and schedules attached hereto and thereto, constitute the entire understanding, of the parties with respect to the subject matter hereof, and any prior or contemporaneous agreements, whether In writing or oral, with respect thereto including, without limitation, any loan commitment from Bank to Borrower, are expressly superseded hereby. The execution of this Agreement and the other Loan Documents by Borrower was not based upon any facts

23

or materials provided by Bank, nor was Borrower induced to execute this Agreement or any other Loan Document by any representation, statement or analysis by Bank.

        10.12.    JURY TRIAL WAIVER.    TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BANK AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

[SIGNATURES COMMENCE ON NEXT PAGE]

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        IN WITNESS THEREOF, the parties have caused this Agreement to be executed and delivered under seal by their respective officers thereunto duly authorized, as of the date first above written.

VIDEO DISPLAY CORPORATION, a Georgia corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
SOUTHWEST VACUUM DEVICES, INC., an Arizona corporation
By:
	Ronald D. Ordway, Chief Executive Officer
	[CORPORATE SEAL]
TELTRON TECHNOLOGIES, INC., a Georgia corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
Z-AXIS, INC., a Georgia corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
MENGEL INDUSTRIES, INC., a Pennsylvania corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]

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AYDIN DISPLAYS, INC., a Georgia corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
LEXEL IMAGING SYSTEMS, INC., a Delaware corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
APEX ELECTRONICS, INC., a New Jersey corporation
By:
	Ronald D. Ordway Chief Executive Officer
	[CORPORATE SEAL]
SOUTHTRUST BANK, an Alabama banking corporation
By:
	Jon R. Hauseman Group Vice President

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Schedule 5.07

Litigation

27

Schedule 5.10

ERISA Plans

The Company maintains/contributes to the "                         RETIREMENT SAVINGS PLAN"

28

Schedule 5.13

Debt

Lender:

LOAN NUMBER:

Date:

Due:

Loan Amount:

29

Schedule 6.09

Environmental Liabilities

30

Schedule 7.01

Existing Liens

31

Schedule 7.04

Existing Leases

32

Exhibits To Be Attached

Exhibit A—Form of Revolving Credit Note.

Exhibit B—Borrower's Closing Certificate.

Exhibit C—Form of Borrowing Base Certificate

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QuickLinks

Exhibit 10(l)

EX-21

Exhibit 21

Video Display Corporation
Subsidiary Companies

Lexel Imaging Systems, Inc. 1501 Newtown Pike Lexington, Kentucky	Aydin Displays, Inc. 700 Dresher Road Horsham, Pennsylvania
Fox International Ltd., Inc. 23600 Aurora Road Bedford Heights, Ohio	Mengel Industries, Inc. 3110 West Ridge Pike Sanatoga, Pennsylvania
Southwest Vacuum Devices, Inc 1868 Tucker Industrial Drive Tucker, Georgia	XKD Corporation 18450 Technology Drive Morgan Hill, California
Video Display (Europe), Ltd. Unit 5 Old Forge Trading Estate Dudley Road, Stourbridge West Midlands DY9 8EL England
Video Electronics, S.A. de C.V. Calle Zinc Sin No. Garza Garcia N.L. Mexico
Magna View, Inc. 1240 Profit Drive Dallas, Texas
Z-Axis, Inc. 15 Eagle Street Phelps, New York
Teltron Technologies, Inc. 2 Riga Lane Birdsboro, PA