10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2004

or

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

For the transition from                          to                         

Commission file number 0-8771

EVANS & SUTHERLAND COMPUTER CORPORATION

Utah	87-0278175
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
600 Komas Drive, Salt Lake City, Utah	84108
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 801-588-1000

Securities registered pursuant to section 12(b) of the Act:

NONE

Securities registered pursuant to section 12(g) of the Act:

	Title of Class
Common Stock, $0.20 par value
6% Convertible Debentures Due 2012
Preferred Stock Purchase Plan Rights

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

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 the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K.  o

Indicated by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).  o Yes  x No

The aggregate market value of the voting and non-voting Common Stock held by non-affiliates of the registrant as of July 2, 2004, the last business day of the registrants most recently completed second fiscal quarter was approximately $26,784,717 based on the closing market price of the Common Stock on such date as reported by The NASDAQ Stock Market.

The number of shares of the registrants Common Stock outstanding as of February 25, 2005 was 10,514,040.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2005 Annual Meeting of Shareholders to be held on May 26, 2005, are incorporated by reference into Part III hereof.

EVANS & SUTHERLAND COMPUTER CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004

PART I
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	9
ITEM 3.	LEGAL PROCEEDINGS	9
ITEM 4.	SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS	9
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	10
ITEM 6.	SELECTED FINANCIAL DATA	11
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	35
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE	64
ITEM 9A.	CONTROLS AND PROCEDURES	64
ITEM 9B.	OTHER INFORMATION	65
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS	66
ITEM 11.	EXCECUTIVE COMPENSATION	66
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	66
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	67
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	67
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	67
SIGNATURES		74

2

PART I

ITEM 1.BUSINESS

Throughout this document Evans & Sutherland Computer Corporation may be referred to as “Evans & Sutherland,” “E&S,” “we,” “us,” “our” or the “Company.” All dollar amounts are in thousands unless otherwise indicated.

E&S was incorporated in the state of Utah on May 10, 1968. Our principal offices are located at 600 Komas Drive, Salt Lake City, Utah 84108, and our telephone number is (801) 588-1000. Through a link on our website, www.es.com, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). We make our website content available for informational purposes only. The information provided on our website is not incorporated by reference into this Form 10-K. The above reports and other information are also available, free of charge, at www.sec.gov. Alternatively, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

General

Evans & Sutherland produces high-quality visual systems used to rapidly and accurately display computer-generated images of the real world. With a 37-year history in computer graphics, we are widely regarded as both a pioneer and a leader in providing the world’s most realistic visual systems. We design, manufacture, market and support our visual systems to provide simulation training for a wide range of military and commercial applications, as well as for planetariums, science centers, and entertainment venues. We use a wide range of hardware, from desktop personal computers (PCs) to what we believe are the most advanced image generation and display components in the world.

For more than 30 years, we have had a significant share of the overall market for visual systems. We estimate that our market share has ranged from 20% to 60%, depending on the specific market. We estimate that the size of the market for visual systems is approximately $300 million annually. Many visual system providers serve this market, but our most significant competitors are companies that build the entire simulator. These companies sometimes choose to follow a strategy of vertical integration by providing their own visual systems. Other competitors include a number of smaller companies that generally offer components rather than complete visual systems. In addition, large contractors and system integrators sometimes build visual systems from commercially available components.

Our visual systems are extremely important components of a complete simulator because the visual system is the most critical element in creating a realistic immersive environment—the visual system is, by definition, “what you see.” Most of our visual systems are used as part of vehicle simulators, which are models of actual vehicles, such as aircraft cockpits. These simulators are used for training operators as well as for practicing tactics or strategy, which may require the coordinated operation of multiple simulators. Simulators are used in both commercial and military settings and include all types of vehicles operating in space, air, ground, sea or undersea locations. The simulator itself may be built by one of many companies, often the same company that built the actual vehicle. We also produce visual systems for digital planetariums, which are based on the same technology as our visual systems for training simulation. These systems are essentially simulators of the larger universe, and can create simulated trips through other worlds or through parts of our own world not accessible to existing vehicles.

3

A “visual system” is made of three major components: a computer, a display system, and a visual database. E&S designs a range of these components at varying prices and performance levels.

The computer portion of an E&S visual system, the image generator, is a combination of hardware and software we design and either manufacture ourselves or source to a partner who assembles the image generator from commercially available components. Image generators create computer-generated images in real time and send these images to a display system.

The display portion consists of projectors, display screens, computer monitors and specialized optics that may include options such as full dome mosaics, collimated displays, rear projection systems, onboard instrument displays and domes offering a 360-degree field-of-view. The image may be projected by different types of equipment, including multiple projector types.

The visual database portion (often referred to as a synthetic environment) is the “content” that the system displays. Most customers desire more content (visual databases) to enhance the richness and variety of their training and simulations. In addition, visual databases are finding new applications in mission planning, damage assessment, intelligence, and other highly-time-sensitive defense and homeland security initiatives. We have developed a sophisticated set of tools to make the development of visual databases more efficient and less costly, whether built by us or by others. We have an extensive library of databases, including airports, vehicles, large geographic areas, oceans and seas with accurate wave dynamics, and special effects.

Description of Products

E&S offers a range of visual systems for simulation, strategic visualization and digital theaters, with the option to configure systems, subsystems or components for each customer. An E&S visual system consists of an image generator, display system, visual database, and optional tools to create visual databases. In addition, we offer installation, integration and customer support services along with each visual system. On occasion, we may sell subsystems and the individual components to our customers.

Description of Markets

We are an industry leader in providing visual systems to an international customer base in the military simulation, commercial simulation and digital theater markets. In each of these markets we face highly competitive conditions, where some competitors have substantial financial resources and technological capabilities. In all our markets we compete on features, performance and price. In the military and commercial simulation markets we additionally compete on service and product availability, while in the digital theater market we also compete on show content, access to customers, and distribution channels. We believe our range of visual systems and services at various price and performance levels, our research and development investments, and our ability to design and manufacture value-added visual systems enable us to compete effectively.

Military Simulation

The military simulation market includes several large competitors such as Lockheed Martin, Thales Training and Simulation, and CAE, Inc. Some of these large competitors not only provide visual systems, but also provide entire simulators and act as prime contractors. In such cases, these competitors provide their own visual system. To compete in this environment, our strategy is to provide the best performance possible at a competitive price.

Overall, this market has declined in size over the last several years. In addition, we believe the number of military contracts has also decreased. These two effects adversely affected our profitability and our sales have declined. However, we do expect to see market growth during 2005.

4

We believe our product strategy is succeeding in this declining market, as demonstrated by the success of our EPX based visual systems. Our EPX technology has captured significant contracts during 2004, and has assisted us in gaining international helicopter and fast jet customers. We have sold over two thousand channels of EPX technology and were awarded one of the largest ground warfare programs by the U.S. government in 2004, the Close Combat Tactical Trainer. One of the advantages of the EPX technology is that it can run across a full range of hardware platforms, using the same software and databases. This commonality offers customers the significant capability to match hardware performance and cost while maintaining software, database and training commonality. In addition, we continue to market and sell other visual systems in this market based on our Harmony 2, simFUSION and ESIG image generators.

Commercial Simulation

We are a market leader in supplying visual systems to the world’s commercial airlines, airframe manufacturers, and independent training providers for commercial pilot training. While the commercial simulation market is made up of a few large competitors, our main competitor is CAE. CAE has expanded into training services where only their products, including visual systems, are supplied to their training centers. Nevertheless, 2004 was a very successful orders year, with orders of 13 visual systems for new simulators and 15 visual systems as upgrades to existing simulators.

The overall market for commercial simulators was relatively flat in 2004 as a result of a decline in new simulators for commercial airlines, which was offset by growth in demand for visual system upgrades. We expect demand for new and upgraded visual systems to remain flat in 2005 and grow in 2006.

In 2004, we introduced and booked our first order for an airline visual system that will include a wide display version of our E&S Laser Projector (the “ESLP”), currently under development. While not expected to be in production until 2006, customers have already shown substantial interest in the ESLP wide display version because of its many benefits, including improved performance, its ability to replace three conventional projectors, and significant projected cost savings for maintenance and consumables. In addition, we introduced and sold a forward-looking infrared (“FLIR”) add-on option for incorporation into previously sold visual systems. We expect demand for this option will increase as FLIR-enhanced vision systems are introduced to the commercial aircraft fleet worldwide. Additionally, we successfully completed and received regulatory approval of a commercial helicopter simulator containing our EP based visual system.

Digital Theater

In the digital theater market our products compete with traditional optical-mechanical products and digital display systems offered by Konica-Minolta Planetarium Co. Ltd., GOTO Optical Mfg. Co., Carl Zeiss Inc., Spitz, Inc. and Sky-Skan, Inc. During 2004, the digital theater market grew and our products gained market share. We believe this was the result of a rebounding worldwide economy and positive customer response to our Digistar 3 Laser visual system that includes our ESLP projector. We believe the Digistar 3 Laser has the potential to broaden the market and further increase our market share, resulting in continued growth in 2005.

Sales of Digistar 3 visual systems in 2004 were strong, with Digistar 3 now sold to or installed in nearly 50 locations around the world. Revenues for Digistar content also grew in 2004.

Backlog

On December 31, 2004, our backlog was $84,232 compared with $64,684 on December 31, 2003. The 2004 ending backlog contains no government firm, unfunded orders. The 2003 ending backlog contained $9,810 of government firm, unfunded orders. We anticipate that approximately 55% of the 2004 backlog will be converted to sales in 2005.

5

Significant Customers

Worldwide customers using our products include U.S. and international armed forces, aerospace companies, major airlines, laboratories, museums, planetariums, and science centers. We measure and identify our significant customers based on direct sales.

Sales to two customers represented 12% and 11% of total sales during 2004. Sales to one customer represented 18% of total sales during 2003. Sales to three customers represented 29%, 16%, and 14% of total sales during 2002. Sales to no other customers represented 10% or more of our total sales during fiscal years 2004, 2003 and 2002.

Seasonality

We believe there is no consistent, inherent seasonal pattern to our business. Sales volume may fluctuate quarter-to-quarter because of relatively large and nonrecurring individual sales, timing of customer funding awards, and individual market driven shipping dates.

Intellectual Property

We own a number of patents and trademarks and we are a licensee under several others. Our portfolio of patents and trademarks is, as a whole, material to our business. However, no one piece of intellectual property is critical to our business, thus no individual piece of our intellectual property is discussed on its own. In the U.S. and internationally, we hold active patents that cover many aspects of our visualization technology. Several patent applications are presently pending in the U.S., Japan and several European countries, and other patent applications are in preparation. We actively pursue patents on our new technology and we intend to vigorously protect our patent rights. We routinely copyright software, documentation and chip masks designed by us and institute copyright registration when appropriate. During the history of the company we have been awarded 79 patents, of which 60 are still active. In addition, we have 19 patent applications currently on file with the U.S. Patent and Trademark Office.

Research & Development

We consider the timely development and improvement of our visual system technology to be essential to maintain a competitive position and to capitalize on market opportunities. We continue to fund essentially all research and development (“R&D”) efforts internally. We consider continued R&D key to ensuring that we maintain our technical excellence, leadership and market competitiveness.

As planned, we completed the EP (Environment Processor) software development for our visual systems utilizing our EPX-50 and EPX-500 PC image generator technology in 2004. Also, the first release of the associated toolset to complement these products, Environment Creation Tool, ECT™, was completed. We plan to continue enhancing our EP software technology and expect these enhancements to increase the industry leading performance and functionality of our EP and EPX visual systems in 2005.

In 2004, we initiated a project to lower cost and increase performance of our EP-1000CT hardware platform. We expect this effort to reduce costs by 10% and increase output quality. Completion of this effort is expected in 2005.

Also in 2004, we completed the design of the next generation simFUSION platform to use commercial off the shelf graphics cards in various combinations for improved performance. This platform will be the basis for the next generation EPX-500 PC image generator technology to be introduced in mid-2005.

Another significant focus for our R&D in 2004 was the development of our laser projector, the ESLP. In 2004, we completed the second generation prototype laser projector and began work on planetarium

6

and wide display applications. We expect to begin delivery of the ESLP to planetariums in 2005. We expect to complete the R&D efforts for wide display applications for the commercial simulation market in 2006.

Dependence on Suppliers

Most of our current parts and assemblies are readily available through multiple sources in the open market; however, a limited number are available only from a single source. In these cases, we either stock adequate inventory to cover the future product demands, or obtain the agreement of the vendor to maintain adequate stock for future demands, and/or attempt to develop alternative components or sources where appropriate.

Our cathode ray tube (“CRT”) based projectors; the ESCP and TargetView, previously built by us are now only available from a single source supplier, Video Display Corporation (“VDC”), as a result of VDC’s 2004 acquisition of the assets related to the development and manufacture of these projectors from us.

International Sales

International sales are calculated based on the location of the purchasing customer and were $40,399 in 2004, $45,196 in 2003 and $48,358 in 2002. International sales accounted for 58%, 53% and 39% of total sales in 2004, 2003 and 2002, respectively. We believe that any inherent risk that may exist in our foreign operations is not material. For additional information on international sales and long-lived assets, see Note 19 of Notes to Consolidated Financials Statements included in Part II of this annual report on Form 10-K.

Employees

As of December 31, 2004, Evans & Sutherland and its subsidiaries employed a total of 340 persons compared to 366 employees as of December 31, 2003. We believe our relations with our employees are good. None of our employees are subject to collective bargaining agreements.

Environmental Standards

We believe our facilities and operations are within standards fully acceptable to the Environmental Protection Agency and that all facilities and procedures are operated in accordance with environmental rules and regulations, and international, federal, state and local laws.

Strategic Relationships

In the normal course of business we develop and maintain various types of relationships with key customers and technology partners. In 2004, we entered into a limited number of teaming agreements and product development agreements. The teaming agreements are with industry partners and are intended to improve our position for the pursuit of key program opportunities. The product development agreements enhance our products by the cooperative development of new features and capabilities necessary to maintain our industry leading position. This philosophy will continue in 2005.

Acquisitions and Dispositions

In June 2004, we sold an office building that we determined was no longer needed for our operations for $8,288 in net proceeds. As part of the sale, we entered into a three-year rental guarantee with the buyer, obligating us to make certain monthly payments through June 2007 based on space available for lease in the building we sold. The rental guarantee may decrease as available space is leased by the buyer, based on terms of the rental guarantee. As of December 31, 2004, 100% of the rentable space was available. Further information concerning the sale of this building and the related rental guarantee is

7

provided in Note 22 of the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Position and Results of Operations included in Part II of this annual report on Form 10-K.

In October 2004, we sold our CRT based projector display system product line, the ESCP and TargetView, to VDC for $5,250. As a result, VDC has acquired the assets related to the development and manufacture of these projectors. We completed this disposition to focus our efforts and resources on the development and sale of visual displays based on our laser projector technology. We will continue to offer and support the CRT based visual displays with VDC as our supplier.

Business Subject to Government Contract Renegotiation

A significant portion of the visual simulation business is dependent on contracts and subcontracts associated with government business. The U.S. government and other governments may terminate any of our government contracts and, in general, subcontracts, at their convenience as well as for default based on lack of performance. If any of our government contracts were terminated for convenience, we generally would be able to recover our costs, receive allowable termination or cancellation costs, and receive a negotiated profit for work performed. Depending on the contract, if such an event were to occur, it could materially affect our sales, profits, and cash flow. Historically, our experience indicates that termination for convenience is a rare occurrence. In 2004, we had no contracts or subcontracts terminated.

U.S. government contracts also are conditioned upon the continuing availability of congressional appropriations. Long-term government contracts and related orders are subject to cancellation or restructuring if appropriations for subsequent performance periods become unavailable or are reduced from planned levels. As of December 31, 2004 all contracts subject to this continuing appropriation of funds were fully funded for their option year.

Recent Development

Since 2001, both our military and commercial markets have consistently decreased in size primarily as a result of diversion of military funds to other needs and reductions in commercial airline purchases of new aircraft. While we expect orders in these markets to increase in 2005 and 2006, we do not expect these market increases to be themselves sufficient to return the Company to profitability in 2005. In order to improve our profitability and cash flow based on our projections for 2005, we initiated a restructuring plan in March 2005 to reduce costs from cost of sales and operating expenses and to improve our cash flow from operations. The largest cost driver of our business is our labor and labor-related costs. As a result, we reduced our aggregate labor force by approximately 60 full-time equivalent employees, at an expected cost of $1,625 in severance benefits to be paid out over the next two years. We expect this action to reduce our labor and labor-related costs by approximately $5,140 per year. This plan has been fully executed as of the filing of this annual report on Form 10-K. Due to the timing of the restructuring, we expect to reduce our costs approximately $3,860 in 2005. Our labor reductions were executed primarily in program management, program engineering and R&D engineering.

Forward-Looking Statements and Associated Risks

This annual report, including all documents incorporated herein by reference, includes certain “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, including, among others, those statements preceded by, followed by or including the words “estimates,” “believes,” “expects,” “anticipates,” “plans,” “projects” and similar expressions. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this annual report for a list of some of

8

the forward-looking statements included in this Form 10-K and factors that may affect these forward-looking statements.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information regarding the executive officers of E&S as of February 25, 2005.

Name	Age	Position
James R. Oyler	58	President and Chief Executive Officer
Kevin A. Paprzycki	34	Chief Financial Officer and Corporate Secretary
Bob Morishita	54	Vice President Human Resources

James R. Oyler was appointed President and Chief Executive Officer of E&S and a member of the Board of Directors in November 1994. Earlier, Mr. Oyler served as a Senior Vice President for Harris Corporation. He has 10 years of service with E&S.

Kevin A. Paprzycki was appointed Chief Financial Officer and Corporate Secretary of E&S in August 2004. Mr. Paprzycki joined E&S in 1999 as Director of Finance, Manufacturing Controller and later served as Director of Financial Planning & Analysis. Mr. Paprzycki is a Certified Public Accountant, Certified Management Accountant, and Certified Financial Manager. He has five years of service with E&S.

Bob Morishita is Vice President of Human Resources. He joined Evans & Sutherland as Compensation Manager in 1982 and was appointed Human Resources Director in 1997 and Human Resources Vice President in 2000. He has 23 years of service with E&S.

ITEM 2. PROPERTIES

Our principal executive, engineering, manufacturing and operations facilities are located in the University of Utah Research Park in Salt Lake City, Utah, where we own four buildings totaling approximately 260,000 square feet. We currently occupy all four buildings with current plans to sell one of these buildings once we have moved out. The buildings are located on land leased from the University of Utah with an initial term of 40 years or longer.

We hold leases, including our subsidiaries, on several sales, operations, service and production facilities located throughout the United States, Europe, and Asia. None of these are material to our manufacturing, engineering or operating facilities. We believe that these properties are suitable for our immediate needs and we do not currently plan to expand our facilities or relocate.

ITEM 3.LEGAL PROCEEDINGS

In the normal course of business, we may have various legal claims and other contingent matters. Although the final outcome of such matters cannot be predicted, we believe the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition, liquidity or results of operations.

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 fiscal year 2004.

9

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NASDAQ Stock Market under the symbol “ESCC.” On February 25, 2005, there were 604 holders of record of our common stock. Because brokers and other institutions hold many of our shares on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.

We have never paid a cash dividend on our common stock, as previous retained earnings were used for the operation and expansion of our business. Currently we have an accumulated deficit. For the foreseeable future, we intend to follow our policy of retaining any future earnings to finance the development and growth of our business.

Additional information required by this item is incorporated by reference to the table captioned Quarterly Financial Data (Unaudited) in Item 6 and the table captioned Securities Authorized for Issuance Under Equity Compensation Plans in Item 12 of Part II of this annual report on Form 10-K.

10

ITEM 6.SELECTED FINANCIAL DATA

The following selected financial data for the most recent five fiscal years ended December 31 are derived from our consolidated financial statements. The selected financial data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 10-K. Also see Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	2004			2003			2002			2001			2000
	(in thousands, except per share amounts)
Sales	$	69,159		$	84,776		$	122,578		$	145,263		$	166,980
Cost of sales	44,119			53,252			78,052			115,823			137,532
Inventory impairment	—			14,566			1,392			—			—
Gross profit	25,040			16,958			43,134			29,440			29,448
Expenses:
Selling, general and administrative	23,786			27,039			27,131			31,374			34,406
Research and development	16,621			21,730			25,970			32,828			44,264
Restructuring charges (recoveries)	(491		)	3,416			4,492			2,843			(761		)
Impairment loss	—			1,151			311			220			—
Operating expenses	39,916			53,336			57,904			67,265			77,909
Gain on sale of assets held for sale	3,488			1,406			1,212			9,000			—
Gain on sale of assets	3,817			—			253			—			—
Gain on sale of business unit	—			—			—			774			1,918
Gain on curtailment of pension plan	—			—			3,575			—			—
Operating loss	(7,571		)	(34,972		)	(9,730		)	(28,051		)	(46,543		)
Other income (expense), net	(1,184		)	(1,987		)	(2,454		)	(2,578		)	(4,004		)
Loss before income taxes	(8,755		)	(36,959		)	(12,184		)	(30,629		)	(50,547		)
Income tax expense (benefit)	112			(971		)	(463		)	(3,172		)	19,023
Net loss	(8,867		)	(35,988		)	(11,721		)	(27,457		)	(69,570		)
Accretion of redeemable preferred stock	—			—			—			—			228
Net loss applicable to common stock	$	(8,867	)	$	(35,988	)	$	(11,721	)	$	(27,457	)	$	(69,798	)
Net loss per common share:
Basic and diluted	$	(0.84	)	$	(3.44	)	$	(1.12	)	$	(2.70	)	$	(7.45	)
Average weighted number of common shares outstanding:
Basic and diluted	10,498			10,471			10,422			10,169			9,372
At End of Year:
Total assets	$	73,771		$	93,382		$	127,576		$	177,353		$	216,078
Long-term debt, less current portion	18,015			18,015			20,685			18,086			25,563
Redeemable preferred stock	—			—			—			—			24,000
Stockholders’ equity	3,763			15,566			53,363			64,659			67,634

11

Quarterly Financial Data (Unaudited)

(In thousands, except per share information)

	Quarter Ended
	April 2			July 2			Oct. 1			Dec. 31(3)
2004
Sales	$	17,790		$	16,816		$	15,882		$	18,671
Gross profit	6,882			5,861			5,201			7,096
Net income (loss) before income taxes	(3,002		)	(2,240		)	(4,856		)	1,343
Net income (loss) applicable to common stock	(3,040		)	(2,298		)	(4,894		)	1,365
Basic and diluted income (loss) per share(1)	(0.29		)	(0.22		)	(0.47		)	0.13
Common stock price range(2)
High	6.25			5.49			5.49			7.74
Low	4.08			4.25			4.00			5.00

	Quarter Ended
	March 28			June 27			Sep. 26			Dec. 31(4)
2003
Sales	$	22,578		$	16,010		$	20,765		$	25,423
Gross profit	(6,986		)	6,086			7,393			10,465
Net income (loss) before income taxes	(24,543		)	(5,005		)	(8,228		)	817
Net income (loss) applicable to common stock	(24,275		)	(5,124		)	(8,040		)	1,451
Basic and diluted income (loss) per share(1)	(2.32		)	(0.49		)	(0.77		)	0.14
Common stock price range(2)
High	6.90			6.42			6.74			6.20
Low	5.00			3.30			5.25			3.92

(1)Net income (loss) per share is computed independently for each of the quarters presented and therefore may not sum to the total for the year.

(2)This is the range of the high and low bids per share of our common stock for the fiscal quarters indicated as reported by the NASDAQ Stock Market. Quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not necessarily reflect actual transactions.

(3)In the fourth quarter of 2004, we recorded a gain of $3,662 on the sale of our cathode ray tube (CRT) based projector display system product line, ESCP and TargetView. This transaction required that we transfer all assets related to the development and manufacture of these products. We continue support and sell these display systems.

(4)In the fourth quarter of 2003, we reversed $498 in restructuring charges that were originally charged as a result of our restructuring in the third quarter of 2003. This charge was related to a liability for a license agreement for a certain software tool that we determined to be of no future value to us as a result of the restructuring. However, in the fourth quarter of 2003, we were able to negotiate out of the liability related to this software tool license.

12

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

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with our consolidated financial statements and notes included herein under Item 8 of this annual report on Form 10-K. Information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements. See “Forward-Looking Statements” and “Factors That May Affect Future Results” for additional information concerning these items. All dollar amounts are in thousands unless otherwise indicated.

Executive Summary

We had several key accomplishments in 2004, the most significant being our improvement in new orders. The strong market performance of our EP, EPX, and Digistar 3 visual system technologies drove significant new orders and allowed us to increase our backlog during the year by 30%. With the increase in orders and backlog, we are now confident that 2004 was the low point in revenue, and that we will see revenue growth in 2005. We additionally made good progress in bringing our recently announced laser projector to market, and deliveries are expected to also contribute to revenue growth in both 2005 and beyond. Overall, we improved upon our 2003 net loss of $35,958 to finish 2004 with a net loss of $8,867. This was driven by the absence of impairments and our continued focus on reducing operating expenses. Our financial position also improved significantly in 2004 as we generated positive cash flow and completely repaid our short-term debt of $7,685. With our strong new products, higher backlog, and good customer acceptance of our visual systems, we believe that we will achieve growth and profitability in 2005.

Major Factors in Historical Performance

The three major factors affecting performance of the company in 2002, 2003 and 2004 were declines in the market following September 11, 2001, problems with several large military programs using an older technology called Harmony 1, and a migration to off-the-shelf PCs driven by military customers.

Following September 11, we received few orders from major North American airlines which were formerly large customers of our commercial simulation products. This market has not yet fully recovered, but has been partially offset by gains in other commercial markets. Additionally, military events following that time have also affected U.S. military markets, primarily because a number of large weapons programs have been either cancelled or delayed, causing reductions in the number of new military simulators needing visual systems.

With respect to the Harmony 1 product, during 1998 and 1999 we won six major military programs with total revenue of over $130 million. These “Big Six” programs” had a negative impact on our prior years’ financial results because we experienced difficulties completing the programs. The six programs fell behind schedule and required significantly more resources than expected. As a result, our gross margins were depressed in 2002 and 2001. We also incurred liquidated damages and late penalties on these programs. We had reserve balances of $562 in 2004, $1,734 in 2003 and $1,050 in 2002, to cover these potential costs. In 2003, we settled with one customer for approximately $1,200 in goods and services which were fully delivered in 2004. In addition, our actual incurred costs in 2003 and 2002 were $1,166 and $600, respectively.

At the end of 2002, costs and estimated earnings in excess of billings on uncompleted contracts relating to the Big Six programs was $8,000. Our collections in 2003 were $13,300. At the end of 2003, cost and estimated earnings in excess of billings on uncompleted contracts relating to the Big Six programs was

13

$2,100. Our collections in 2004 were $3,200. At the end of 2004, there were no costs and estimated earnings in excess of billings on uncompleted contracts relating to the Big Six programs. Related accounts receivable at the end of 2004 totaled $2,700 of which $2,000 was collected in February 2005.

We received acceptance on the remaining two Big Six programs during 2004 and our work is now very near completion. Deliverables scheduled for performance in 2004 on these programs have been fully performed and invoiced. A few minor deliverables scheduled in 2005 remain and their impact on our 2005 financial results is expected to be immaterial.

We have historically produced visual systems required by military customers with proprietary hardware. In the past few years, a few major military customers have been driving producers of visual systems to provide systems offering similar capabilities that are based on off-the-shelf PC hardware in order to reduce their acquisition and replacement costs. As a result, visual systems that were once sold for hundreds of thousands of dollars have been replaced by PC-based visual systems which are sold at much lower prices. We have been successful in this product transition; however, the volume of sales from off-the-shelf PC-based visual systems has not been sufficient to replace the revenue lost from these products’ lower prices. We expect this trend to continue.

Results of Operations

Our 2004 sales decreased by 18%, primarily as a result of the spending constraints by customers in our military market which have existed since 2001. However, strong new orders during the year drove a significant $19,548 increase in our backlog. This increase is expected to lead to growth in our 2005 sales and drive our return towards profitability. Our gross margins improved by 15% over 2003. This increase was primarily driven by the $14,566 inventory impairment we took in 2003

Continuing to focus on improving our cost structure, we reduced 2004 operating expenses by 25%. The major factor in this reduction was the execution of our 2003 restructuring plan. We also reduced costs through both headcount attrition and reductions in development expenditures as our laser projector technology nears production.

Lastly, we recognized gains of $7,305 on the sale of two assets in 2004. A building was sold for a gain of $3,488, and our cathode ray tube (“CRT”) based projector assets were sold for a gain of $3,817 as we shifted our focus towards our new laser projector technology.

More detailed explanations of our 2004 results are provided below.

Consolidated Sales

The following table summarizes our consolidated sales for fiscal year:

	2004		2003		2002
Sales	$	69,159	$	84,776	$	122,578

Fiscal 2004 vs. 2003

The primary reason for the 18% decrease in 2004 sales was a continued reduction in sales to military customers, which decreased by $15,071 from 2003. In addition, service and support sales decreased by $2,510 as a result of the continued depression in sales to military customers. These decreases were offset by a $2,197 increase in sales to planetarium customers as a result of the success of our Digistar 3 visual system technology. Sales to commercial customers remained relatively consistent with 2003 levels.

Military markets continued to shrink as military funds have been diverted to other needs. We believe this market will begin to improve in 2005 as military training requirements increase and we expect improvement in 2005 orders and sales from these customers. A few large prime contractors that are both

14

customers and competitors of ours have moved towards providing their own visual systems in an effort to protect their revenues and margins. We also believe that there has been an increase in military contracts awarded directly to incumbents and a corresponding reduction in contracts being placed for open bid. To compete against these trends, we strive to offer superior visual systems at competitive prices.

Airlines have reduced purchases of new aircraft, resulting in a decrease in the number of new simulators required for training. However, since many airlines are upgrading their current simulators, we have offset market trends as a result of the compatibility of our EP-1000CT product with our large installed visual system base. Our 2004 orders improved over 2003 levels and we expect this higher order volume to continue through 2005.

While our overall sales decreased in 2004, new orders received significantly increased during the year. As a result, backlog increased by 30% from $64,684 to $84,232. We believe this increase in backlog will result in higher revenues in 2005 and beyond.

Fiscal 2003 vs. 2002

Sales in 2003 declined 31% from $122,578 in 2002. This was primarily the result of a $35,096 reduction in sales from military customers due to military spending constraints from 2001 through 2003. We also had a $6,403 decrease in sales to commercial customers as a result of reductions in overall aircraft purchases and a $1,015 decrease in our service and support sales also resulting from military spending constraints. These decreases were offset by a $3,931 increase in sales to planetarium customers as a result of the successful introduction of our new Digistar 3 technology into our visual systems.

While sales decreased in 2003, backlog increased over 2002 from $59,672 to $64,684.

Gross Margin

The following table summarizes our gross margin and the percentage to total sales during for fiscal year:

	2004			2003			2002
Gross margin	$	25,040		$	16,958		$	43,134
Gross margin percentage	36.2		%	20.0		%	35.2		%

Fiscal 2004 vs. 2003

Our gross margin percentage improved to 36.2% in 2004, compared with 20.0% in 2003. Our 2003 gross margins were depressed as a result of a $14,566 inventory impairment loss. In 2004, gross margins from sales to our military customers decreased 7.5% due to a change in product mix. Significant deliveries were made in 2004 on large military contracts with a high proportion of subcontract pass-through sales resulting in lower gross margins. Gross margins from sales to our planetarium customers decreased 6.3% and our service and support gross margins decreased 6.1% in 2004. Both decreases were a result of unique, high-margin deliveries during 2003. We achieved a 1.7% gross margin increase in sales to commercial customers as a result of improved cost performance. Also offsetting these decreases was a 1.7% gross margin increase due to reductions in warranty expense as we improved product reliability.

Fiscal 2003 vs. 2002

Our gross margin percentage decreased to 20.0% in 2003, compared with 35.2% in 2002. This was primarily the result of a $14,566 of inventory impairment. Offsetting this impairment decrease was improvement in gross margins related to military customers as a result of progress made on the Big Six programs. Gross margin percentages on sales to commercial airline customers decreased by 13.9% in 2003 as a result of increased pricing pressure in the commercial simulation market and program cost overruns.

15

In addition, we experienced a 2.2% gross margin decrease as a result of increases in warranty and support costs due to two vendor part failures. These decreases were slightly offset by a 4.2% increase in our service & support gross margin percentages as a result of several high-margin spares shipments in 2003.

Operating Expenses

The following table summarizes our operating expenses during fiscal year:

	2004			2003		2002
Selling, general and administrative (“SG&A”)	$	23,786		$	27,039	$	27,131
Research and development (“R&D”)	16,621			21,730		25,970
Restructuring charges (recoveries)	(491		)	3,416		4,492
Impairment loss	—			1,151		311
Operating expenses	$	39,916		$	53,336	$	57,904

SG&A Expenses

Fiscal 2004 vs. 2003

SG&A expenses decreased 12% during 2004. As anticipated, we achieved $2,534 in SG&A expense reductions from reduced headcount, $543 in reduced equipment costs and the remainder from various cost reductions. We expect further reductions in SG&A expenses in 2005 as we continue to streamline our selling efforts and reduce overall expenses (see Recent Development).

Fiscal 2003 vs. 2002

In 2003, SG&A expenses remained relatively consistent with 2002. In 2003, we achieved $1,539 in labor savings which were offset by a $654 increase in net rent expenses due to a loss of rental income, and a $1,130 increase in bad debt expense resulting from the absence of favorable expense reversals recorded in 2002.

R&D Expenses

Fiscal 2004 vs. 2003

R&D expenses decreased 24% during 2004. We achieved reductions during 2004 of $3,800 in labor and associated overheads, $709 in development expenses as our laser projector nears completion, and $600 in software and miscellaneous expenses. We expect further reductions in R&D expenses in 2005 as we move our laser projector into production (see Recent Development).

Fiscal 2003 vs. 2002

R&D expenses decreased 16% during 2003 as a result of $2,921 reduction in labor costs and $1,447 reduction in development expenditures for materials and software.

Restructuring Charges (Recoveries)

Fiscal 2004 vs. 2003

We did not record any restructuring charges in 2004. Due to declines in our two primary markets and the resulting decrease in our 2001 through 2004 sales, we implemented restructuring plans in 2003 and 2002 to reduce our labor costs and drive down both cost of sales and operating expenses, therefore reducing our net losses. These plans were also implemented to reduce our labor cash outflows and improve our cash flow from operations.

16

During 2003, we recorded restructuring charges of $3,416 related to reductions in force of approximately 120 full-time equivalent employees. Our labor reductions were executed throughout the Company, with headcount reductions occurring in direct program management and program engineering, R&D engineering, marketing efforts and G&A support. This restructuring resulted in a reduction of approximately $7,500 per year in our labor costs, which was partially achieved in 2003 and entirely in 2004, through reductions in cost of sales and operating expenses.

Fiscal 2003 vs. 2002

During 2002, we recorded restructuring charges of $4,492 related to a reduction in force of approximately 230 employees. This labor reduction was also executed throughout the Company, with headcount reductions occurring in direct program management and program engineering, R&D engineering, marketing efforts and G&A support. This restructuring resulted in a reduction of approximately $14,000 per year in our labor costs, which was partially achieved in 2002, and entirely in 2003, through reductions in cost of sales and operating expenses.

Impairment Loss

Fiscal 2004 vs. 2003

During 2004, we did not incur any impairment charges. In 2003, we recognized an impairment loss of $1,151 on certain fixed assets specifically used to build, test and demonstrate our Harmony 1 product.

Fiscal 2003 vs. 2002

During 2002, we recognized an impairment loss of $311 on software licenses that were no longer used.

Gains

The following table summarizes our gains during fiscal year:

	2004		2003		2002
Gain on sale of assets	$	3,817	$	—	$	253
Gain on assets held for sale	3,488		1,406		1,212
Gain on curtailment of pension plan	—		—		3,575

In 2004, we recognized gains on the sale of two assets totaling $7,305. A building held for sale was sold resulting in a gain of $3,488. We sold our CRT based projector assets to VDC recognizing a gain of $3,817 as we shifted our focus to our new laser projector. In 2003, we also sold a building and recognized a gain of $1,406. We had no other sale of assets in 2003. During 2002, we recognized a gain on the amendment of our pension plan of $3,575. In order to match current market practices, the pension plan was amended to curtail accrual of future benefits. At the same time, the E&S 401(k) plan was amended to permit the Board of Directors to grant additional discretionary matching contributions based on profitability as well as other financial and operational considerations. Additionally, we recognized a gain on assets held for sale of $1,212 on the sale of a building during 2002.

Other Income and Expense

The following table summarizes our other income and expense during fiscal year:

	2004			2003			2002
Other income (expense), net	$	(1,184	)	$	(1,987	)	$	(2,454	)

17

We reduced our other expenses in 2004 by 40% due to the absence of a $500 loss recorded in 2003 for the write-off of an investment, a $192 reduction in interest expense due to reduced debt levels, and an increase in currency gains. The 2003 reduction of 19% was primarily a $575 reduction in interest expense due to reduced debt levels.

Income Taxes

The following table summarizes our income taxes during fiscal year:

	2004		2003			2002
Income tax expense (benefit)	$	112	$	(971	)	$	(463	)

The income tax expense in 2004 was primarily attributable to foreign income taxes. The income tax benefit in 2003 was primarily due to the favorable resolution of certain worldwide income tax contingencies. The 2002 income tax benefit was the result of a change in the U.S. tax law, which allows us to use additional net operating losses to offset taxable income. Deferred tax assets arising from net operating loss carryforwards are fully reserved through a valuation allowance.

Recent Development

Since 2001, both our military and commercial markets have consistently decreased in size primarily as a result of diversion of military funds to other needs and reductions in commercial airline purchases of new aircraft. While we expect orders in these markets to increase in 2005 and 2006, we do not expect these market increases to be themselves sufficient to return the Company to profitability in 2005. In order to improve our profitability and cash flow based on our projections for 2005, we initiated a restructuring plan in March 2005 to reduce costs from cost of sales and operating expenses and to improve our cash flow from operations. The largest cost driver of our business is our labor and labor-related costs. As a result, we reduced our aggregate labor force by approximately 60 full-time equivalent employees at an expected cost of $1,625 in severance benefits to be paid out over the next two years. We expect this action to reduce our labor and labor-related costs by approximately $5,140 per year. This plan has been fully executed as of the filing of this annual report on Form 10-K. Due to the timing of the restructuring, we expect to reduce our costs approximately $3,860 in 2005. Our labor reductions were executed primarily in program management, program engineering and R&D engineering.

Liquidity and Capital Resources

Summary information concerning our financial position as of fiscal year-end:

	2004			2003
Cash and cash equivalents	$	10,147		$	9,714
Restricted cash	3,414			765
Line of credit agreements	—			(7,685		)
Net short term cash (indebtedness)	13,561			2,794
Long-term debt	(18,015		)	(18,015		)
Net cash (indebtedness)	$	(4,454	)	$	(15,221	)
Stockholders’ equity	$	3,763		$	15,566

In 2004, we continued to improve our overall liquidity, paid off our lines of credit, reduced our reliance on short-term debt, and allowed our credit facilities to expire. We accomplished this by improving our cash flows from operations, selling an office building, and selling our CRT based projector assets. Our improved liquidity has assisted our ability to continue to issue letters of credit as required. In addition we believe our products are performing well and we expect to meet our delivery requirements. As a result, we do not foresee any liquidated damages or late delivery penalties in 2005.

18

Outlook

For 2005, we project operations will fund themselves as well as our investing activities because we expect our sales to increase as a result of our strong orders in 2004 and significant increase in backlog at year end and because of the restructuring we initiated in March 2005. See “Recent Development” for further information concerning this restructure. Circumstances that could materially affect liquidity in 2005 include, but are not limited to: (i) our ability to successfully deliver new technologies and products, (ii) our ability to meet 2005 forecasted sales levels, and (iii) our ability to continue to reduce costs and expenses.

For years beyond 2005, we believe cash from operations will be sufficient for our planned needs. We further believe our long-term investment in research and development and our current product strategy will allow our business to grow. We also expect to augment our cash position with the sale of an additional office building during 2005 or 2006. In addition, we may supplement our cash resources with additional credit facilities, if available with terms that are satisfactory to us.

Cash Flow

	Year ended December 31
	2004			2003			2002
Net cash provided by (used in):
Operating activities	$	(484	)	$	(771	)	$	12,039
Investing activities	11,536			997			(656		)
Financing activities	(10,619		)	2,113			(12,725		)
Increase (decrease) in cash and cash equivalents	$	433		$	2,339		$	(1,342	)

Cash and cash equivalents increased $433 to $10,147 during fiscal year 2004, primarily as a result of cash provided by investing activities. During 2004, we sold a building which was held for sale and our CRT based projector assets.

Operating Activities

Operating activities used $484 of cash during 2004. This primarily resulted from a net loss of $7,421 (adjusted for non-cash items of $1,446) offset by changes in working capital. Changes in working capital provided $6,847 of cash during 2004. Our accounts receivable decrease provided $6,870 mainly due to collections on several large contracts. Our inventory decrease provided $1,849 due to the sale of $1,090 of CRT based projector inventory in the sale to Video Display Corporation, and due to improved inventory management. Our net costs and estimated earnings in excess of billings on uncompleted contracts decrease provided $5,510, primarily due to the completion of the remaining two Big Six programs. Our accounts payable decrease used $1,991 as a result of our continued focus on reducing our outstanding trade payables and our improved liquidity. Our accrued expense decrease used $4,648. During 2004, we met the requirements of a settlement agreement we entered into at the end of 2003 with one of our customers concerning the delivery of Harmony 1 based visual systems. We had accrued $1,200 and our settlement costs were approximately $1,200. In addition we charged $1,007 against our warranty reserve, and our payments for severance benefits during 2004 related to prior years’ restructure plans was approximately $1,066.

Operating activities used $771 of cash during 2003. This primarily resulted from a net loss of $10,538 (adjusted for non-cash items of $25,450) offset by changes in working capital. Changes in working capital provided $9,660 of cash during 2003. Our net costs and estimated earnings in excess of billings on uncompleted contracts decrease provided $11,638 due to the completion and billing of all but two of the Big Six programs. Our accounts payables decrease used $1,225 as a result of improved liquidity in 2003 as well as due to a shrinkage of our business. Our accrued expense decrease used $3,320 of cash. This was the

19

result of warranty claims of $1,952 and the result of compensation and benefits accruals decreasing $1,816. Compensation and benefits accruals decreased partially, due to reduced headcounts in 2003 and 2002 as a result of restructurings implemented during that time. Also, our accrued liquidated damages and late penalties increased due to reaching a $1,200 settlement with one of our Big Six program customers. In addition, we had a net decrease of $414 in restructure charges, with approximately $3,830 in severance benefits paid.

Operating activities provided $12,039 of cash during 2002. This primarily resulted from a net loss of 4,033 (adjusted for non-cash items of $7,688) offset by changes in working capital. Changes in working capital provided $15,858 of cash during 2002. Our accounts receivable decrease provided $8,769 due primarily to collections on the Big Six programs and improved collections overall. Our decrease in inventories provided $3,898 due to a decrease in raw material requirements and a reduction in program related work-in-process. The decrease in raw material requirements and program related work-in-process were related to lower sales volume and improved inventory management during 2002. In addition, the decrease in work-in-process was also affected by progress made on the Big Six programs as these costs were converted to cost of sales. Our net costs and estimated earnings in excess of billings on uncompleted contracts provided $11,900 due to a decrease in costs and estimated earnings in excess of billings on uncompleted contracts of $25,678 and a decrease in billings in excess of costs and estimated earnings on uncompleted contracts of $13,779. The decrease in costs and estimated earnings in excess of billings was primarily a result of the successful near completion of the Big Six programs. The decrease in billings in excess of costs and estimated earnings on uncompleted contracts decreased $9,600 primarily due to deliveries made to customers in 2002 related to orders received in 2001. Our accrued expense decrease used $4,553 of cash. This was the result of warranty claims of $1,615 and the result of compensation and benefits accruals at year-end decreasing $3,140 partially due to reduced headcounts in 2002 and 2001 as a result of restructures during that time. This was offset by a net increase of $1,042 in restructure charges, with approximately $3,450 in severance benefits paid. Our accounts payables decreased $1,832 due an improvement in liquidity during 2002.

Investing Activities

Investing activities provided $11,536 of cash during 2004. This primarily resulted from the sale of assets. We sold one of our office buildings that was no longer in use for $8,288 in cash. We sold our CRT based projector assets, the ESCP and TargetView, for $5,250 in cash as a result of deciding to focus our efforts on the development of our new laser based projector. We sold an investment for $633 in cash. This was offset by the use of $1,827 of cash for the purchase of property, plant and equipment and the use of $871 of cash for a deposit. The deposit was required in relation to the sale of our office building and the rental guarantee we entered into with the buyer.

Investing activities provided $997 of cash during 2003. This primarily resulted from the sale of one of our office buildings that was no longer in use for $4,760 in cash. This was offset by the use of $3,767 of cash for the purchase of investments in property, plant and equipment.

Investing activities used $656 of cash during 2002. This was primarily the result of our investment in property, plant, and equipment of $3,394. This was offset by the cash provided by the sale of one of our office buildings that was no longer in use for $2,917.

Financing Activities

Financing activities used $10,619 of cash during 2004. This was primarily due to the paying off of our lines of credit during 2004 and due to an increase in restricted cash requirements in 2004. We are required under our credit agreements with our banks to collateralize any letter of credit we issue with cash equal to 100% of the value of the outstanding value of the letter of credit.

20

Financing activities provided $2,113 of cash during 2003. This was primarily a result of a restricted cash requirement under our line of credit agreements.

Financing activities used $12,725 of cash during 2002 primarily as a result of paying down our line of credit borrowings.

Credit Ratings

Our credit ratings were lowered by Moody’s Investor Services (“Moody’s”) during 2003. Our 6% Convertible Subordinate Debentures due 2012 credit rating was downgraded from B2 to Caa2. Our Long-Term Senior Implied Rating was downgraded from Ba to B3. These credit rating downgrades may affect our future ability to renew our credit facilities, negotiate new credit facilities, and issue debt and equity securities.

With respect to Moody’s, issuers with a Ba rating are judged to have speculative elements and are subject to substantial credit risk. Issuers with a B rating are judged to have speculative elements and are subject to high credit risk. Issuers with Caa ratings are subject to very high credit risk. The “1,2,3” modifiers show relative standing within the major categories, 1 being the highest, or best, modifier in terms of credit quality.

Moody’s Long-Term Senior Implied Ratings are generally employed for speculative grade corporate issuers. The Long-Term Senior Implied Rating is Moody’s opinion of a corporate family’s ability to honor its financial obligations and is assigned to a corporate family as if it had a single class of debt and a single consolidated legal entity structure.

Credit Facilities

Our credit facilities expired in December 2004 and we are currently in negotiations to obtain new line of credit facilities. However, there can be no assurances that we will be successful in negotiating lines of credit on terms that will be acceptable to us. While we currently do not believe we will require access to a line of credit facility in the next 12 months, our needs may change in the future.

During 2004, we had two secured line of credit facilities, one of which provided for borrowings and the issuance of letters of credit up to $25,000 and the other provided for borrowings up to $2,500. We were in compliance with all financial covenants and ratios required by these facilities in 2004.

The ability to issue letters of credit and bank guarantees has become more important to our business as sales in countries other than in North America and Western Europe have increased. Letters of credit and bank guarantees in many countries are required as part of any final contract. Letters of credit and bank guarantees are issued to ensure our performance to third parties.

We currently have one finance arrangement which facilitates the issuance of letters of credit and bank guarantees. Under the terms of the arrangement, we are required to maintain a balance in a specific cash account equal to or greater than the outstanding value of all letters of credit issued, plus other amounts necessary to adequately secure our obligations with the financial institution. The arrangement provides a first priority security interest in the specific cash account. Certain of the terms of the arrangement prohibit us from creating, incurring, assuming or permitting to exist any indebtedness or liabilities resulting from borrowings, loans or advances; merging into, consolidating with any other entity, or making any substantial change in the nature of our business; or making new loans or advances to or investments in any other entity without prior written consent from the financial institution.

As of December 31, 2004, our outstanding letters of credit totaled $3,144. Letters of credit that expire in 2005 total $2,736 and those that expire in 2006-2007 total $408.

21

6% Convertible Subordinated Debentures due 2012

As of December 31, 2004, we had approximately $18,015 of 6% Convertible Subordinated Debentures (the “6% Debentures”) outstanding that are due in 2012. The 6% Debentures are unsecured and are convertible at each bondholder’s option into shares of our common stock at a conversion price of $42.10 per share for an aggregate of 428,000 shares of our common stock if all outstanding 6% Debentures are converted, subject to adjustment. The 6% Debentures are redeemable at our option, in whole or in part, at par.

Rental Guarantee

During 2004, we entered into a three year building rental guarantee with the buyer of a building that was available for sale. Under terms of the rental guarantee, our maximum obligation will be reduced as the buyer leases out space in this building. As of December 31, 2004, we had accrued $1,755 for this obligation and 100% of the leasable space in this building was available.

Other

In 2005, we expect capital expenditures to be similar to 2004, or approximately $2,000 to $3,000. There were no material capital expenditure commitments at the end of 2004, nor do we anticipate any over the next several years.

Our Board of Directors has authorized the repurchase of 1,600,000 shares of our common stock. As of February 25, 2005, 463,500 shares remained available for repurchase under the plans approved by the Board of Directors. No shares were repurchased during 2004, 2003, or 2002. Stock may be acquired on the open market or through negotiated transactions depending on market conditions, share price and other factors.

We also maintain trade credit arrangements with certain of our suppliers. The unavailability of a significant portion of, or the loss of, these trade credit arrangements from suppliers would have a material adverse effect on our financial condition and operations.

In the event we were unable to make timely deliveries of products pursuant to the terms of various agreements with third parties or certain of our contracts were adversely impacted for failure to meet delivery requirements, we may be unable to meet our anticipated working capital needs, routine capital expenditures, and current debt service obligations on a short-term and long-term basis.

We believe our existing cash, restricted cash, letter of credit availability under our current arrangement, and expected cash from future operations will be sufficient to meet our anticipated working capital needs, routine capital expenditures and current debt service obligations. At December 31, 2004, our total indebtedness was $18,015 consisting of long-term debt. Both of our credit facilities expired in December 2004, and we are currently in renegotiations to extend one of these credit facilities. However, there can be no assurance that we will be successful in renegotiating this credit facility. Our cash and restricted cash, subject to various restrictions set forth in this annual report on Form 10-K, are available for working capital needs, capital expenditures, strategic investments, mergers and acquisitions, stock repurchases and other potential cash needs as they may arise

Effects of Inflation

The effects of inflation were not considered material during fiscal years 2004, 2003, and 2002, and are not expected to be material for fiscal year 2005.

22

Off-Balance Sheet Arrangements

As part of our ongoing business, we normally do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPE’s”), which can be established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

In 2000, we formed a joint venture with Quadrant Group plc (“Quadrant”) known as Quest Flight Training Limited. (“Quest”). Quest provides certain equipment, software, training, and other goods and services to the United Kingdom Ministry of Defence (“U.K. MOD”) and other related governmental entities with regard to an upgrade of the U.K. MOD E-3D Facility and E-3D Sentry Aircrew Training Services. We have a 50% interest in Quest which is accounted for as an investment under the equity method and therefore is not consolidated in our financial statements. The financial position and operating results of Quest are immaterial to our financial results.

In connection with the services of Quest to the U.K. MOD, during fiscal year 2000 we entered into guarantees of various obligations of Quest. As of December 31, 2004, we had four guarantees outstanding related to Quest. Pursuant to the first guarantee, we have guaranteed, jointly and severally with Quadrant, the performance of Quest in relation to its contract with the U.K. MOD. If Quest fails to meet its obligations under the contract then we (and Quadrant) are required to perform under the terms of the contract. Due to the length of the contract and the uncertainty of performance for which we would be liable if Quest fails to perform, we cannot estimate the maximum amount of possible future payments. This guarantee is in place until 2030. Pursuant to the second guarantee, we have guaranteed, jointly and severally with Quadrant, up to a maximum amount of £1,000 (approximately $1,903), the performance of Quest where not subcontracted, and the performance of Quest where subcontracted but where the subcontractor is not liable to meet its obligation due to any limitation of liability in the sub-contract agreement. This guarantee is in place until 2020. Pursuant to the third guarantee, we have pledged our equity shares in Quest to guarantee payment by Quest of a loan agreement executed by Quest. The loan agreement terminates in 2020. The pledge of our equity shares in Quest will expire at such time as Quest’s obligations under the loan agreement are satisfied or the date on which the loan agreement is otherwise terminated. In the event of default on this loan agreement, the lending institution can request that the trustee holding such equity shares surrender them to the lending institution in order to satisfy all amounts then outstanding under the loan agreement. As of December 31, 2004, the outstanding loan balance was £4,889 (approximately $9,304). Quadrant has made identical guarantees for this obligation of Quest. Pursuant to the fourth guarantee, we have guaranteed payment, up to a maximum of £125 (approximately $238), in the event that Quest has a default event, as defined by its loan agreement. This guarantee is in place until 2020. Quadrant has made identical guarantees for this obligation of Quest. As of December 31, 2004, no amounts have been accrued for any estimated losses under these guarantees because we believe that Quest will meet all of its performance and financial obligations in relation to its contract with the U.K. MOD. However, if we are required to perform under any or all of the four guarantees, it could have a material adverse impact on our operating results and liquidity.

23

Contractual Obligations

The impact that our contractual obligations as of December 31, 2004 are expected to have on our liquidity and cash flow in future periods is as follows:

	Payments due by period
			Less than									More than
	Total		1 year			1-3 years			3-5 years			5 years
Long-term debt, including current portion(1)	$	26,122		$	1,081		$	2,162		$	2,162		$	20,717
Operating lease obligations(2)	11,878			1,660			2,215			738			7,265
Purchase obligations(3)	5,265			3,823			1,442			—			—
Pension and post retirement plan obligations(4)	475			475			—			—			—
Total(5)	$	43,740		$	7,039		$	5,819		$	2,900		$	27,982

(1)Amounts represent the expected cash payments on our long-term debt, including interest payments, and do not include any fair value adjustments or bond premiums or discounts.

(2)The majority of the operating lease obligations are land leases for periods up to 40 years on the land underlying our buildings.

(3)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on E&S and that specify all significant terms, including: fixed or minimum quantities to be purchased and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Our maximum rental guarantee payments are included in purchase obligations.

(4)Our policy is to make contributions to pension and post-retirement plans only if required to by statutory funding requirements.

(5)Not included in the table above are our guarantees related to Quest. See “Off Balance Sheet Arrangements” for further information on these guarantees.

Restatement of 2003 Quarterly Financial Statements

In this annual report on Form 10-K and our prior year annual report on Form 10-K, the financial data for the first three quarters of 2003 reflects the restatement of amounts for the correction of certain accounting errors previously reported for the first three fiscal quarters of 2003. All information presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations in both the current and prior year annual reports reflects the restatement.

Restatement of Financial Information

The aggregate effect of the restatement increased previously reported net loss for the quarters ended March 28, 2003, June 27, 2003 and September 26, 2003 by $1,243, $2,552 and $1,883, respectively. The aggregate effect of the restatement increased previously reported basic and diluted loss per share for the quarters ended March 28, 2003, June 27, 2003 and September 26, 2003, by $0.12, $0.24 and $0.18, respectively.

24

Discussion of Accounting Principles

During our 2003 year-end close process and review of the financial statements of our wholly-owned subsidiary, Evans & Sutherland Computer Limited (“E&S Ltd.”), we identified errors in E&S Ltd.’s 2003 quarterly financial statements due to the misapplication of the percentage-of-completion methodology as prescribed in American Institute of Public Accountant’s Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts,” (“SOP 81-1”), percentage-of-completion method Alternative B as described in paragraphs 80 and 81 for recognition of revenue on our long-term projects. The following definitions, discussions, and calculations show the accounting treatments involved.

i)Earned revenue is the amount of gross profit earned on a contract for a period plus the costs incurred on the contract during the period.

ii)Cost of earned revenue is our actual cost incurred during the period, including materials, labor, subcontractors, and other costs.

iii)Gross profit earned on a contract is computed by multiplying the total estimated gross profit on the contract by the percentage of completion utilizing the cost-to-cost method. The excess of that amount over the amount of gross profit reported in prior periods is the earned gross profit recognized in the income statement for the current period.

Specifically, our percentage of completion, gross profit earned, and earned revenue are calculated with the following formulas:

a) Total Cost of Earned Revenue to Date	=	c) Percentage of Completion                   to Date
b) Total Estimated Cost at Completion
d) Total Estimated Earned Revenue                  at Completion	-	b) Total Estimated Costs               at Completion	=   e) Total Estimated Gross             Profit at Completion
c) Percentage of Completion to Date	×	e) Total Estimated Gross       Profit at Completion	=   f) Gross Profit Earned to                       Date
a) Total Cost of Earned Revenue                        to Date	+	f) Gross Profit Earned             to Date	=   g) Earned Revenue to Date

Discussion of Accounting Errors

The accounting errors identified in 2003 by management requiring adjustment in previously issued financial statements as a result of the misapplication of the percentage-of-completion methodology as prescribed in SOP 81-1 percentage-of-completion method Alternative B are described below.

i)Early Recognition of Costs.   During the first three quarters of 2003, costs were erroneously recorded to certain long-term projects before the underlying costs were actually incurred causing our Cost of Earned Revenue to Date to be overstated. These errors caused our a) Total Costs of Earned Revenue to Date numerator to be overstated, therefore overstating our c) Percentage of Completion to Date . This overstatement of the c) Percentage of Completion to Date then drove overstatements in both our f) Gross Profit Earned to Date and g) Earned Revenue to Date for these projects. These overstatements of sales, costs of sales, and gross profit occurred during 2003 and were included in the Company’s previously issued 10-Q filings for the first three quarters of 2003.

ii)Understatement of Total Estimated Costs at Completion.   During the first three quarters of 2003, b) Total Estimated Costs at Completion were underestimated therefore overstating our c) Percentage of Completion to Date. This overstated c) Percentage of Completion to Date then drove

25

overstatements in both our f) Gross Profit Earned to Date and g) Earned Revenue to Date for these projects. In these circumstances, our a) Total Cost of Earned Revenue to Date on these projects was accurately measured. These overstatements in sales and gross profit were included in the Company’s previously issued Form 10-Q filings for the first three quarters of 2003.

iii)Recognition of Revenue and Gross Profit Earned in Excess of Total Contract Amounts.   During the first three quarters of 2003, costs were recorded to certain long-term projects and not included in each of these project’s b) Total Estimated Costs at Completion. As a result, a) Total Costs of Revenue Earned to Date numerator exceeded the b) Total Estimated Cost at Completion denominator, deriving the c) Percentage of Completion to Date in excess of 100%. The application of this incorrect c) Percentage of Completion to Date resulted in the recognition of f) Gross Profit Earned to Date in excess of the e) Estimated Gross Profit at Completion and the recognition of g) Earned Revenue to Date in excess of Total Estimated Contract Value at Completion. In these circumstances, our a) Total Cost of Earned Revenue to Date on these projects was accurately measured. These overstatements of sales and gross margin were included in the Company’s previously issued Form 10-Q filings for the first three quarters of 2003.

Background on the Restatement

Our U.S. finance group discovered these errors as part of the 2003 year-end close process and application of our normal year-end internal control processes. In consultation with our audit committee, we then performed an in-depth review and analysis of E&S Ltd.’s percentage-of-completion calculations, its financial results and processes to determine how these errors occurred and which periods they affected.

To ensure that 2002 financial results were not distorted by similar errors, we performed a thorough review of all of our long-term contracts with E&S Ltd. for which revenue was recognized. We confirmed contract values, verified costs incurred, reviewed estimates of total costs, and recalculated percentage-of-completion ratios for each contract. Further, we confirmed that the operating results of E&S Ltd. during 2002 were subject to the normal close process and related controls of the U.S. finance group both on an interim and year-end basis (the same procedures applied during the 2003 year-end close which identified the errors). Based on these procedures, we concluded that during the 2002 interim and annual periods, all of our long-term contracts complied with the percentage-of-completion method of accounting prescribed by SOP 81-1 and sales, cost of sales, and gross profits were correctly stated.

As a result of the procedures performed for both 2003 and 2002, we identified two key factors underlying the errors in 2003 at E&S Ltd.:

i)The incorrect application of the percentage-of-completion method of accounting as outlined in SOP 81-1; and

ii)The inconsistent operation of internal controls to provide timely identification and correction of this error.

We believe both factors were caused by changes in key accounting personnel and financial reporting relationships at E&S Ltd. during the first three quarters of 2003:

i)At the beginning of 2003, financial reporting responsibilities were revised such that the E&S Ltd. Finance Director no longer reported directly to the US finance group and ultimately to our Chief Financial Officer, but rather reported primarily to the E&S Ltd. General Manager. This revision in reporting responsibilities, in part, resulted in the financial reporting process on long-term contracts not being subject to the timely performance of the US finance group’s internal control processes on an interim basis.

26

ii)In July 2003, a new CFO was appointed in the United States. As he started in his new position, the CFO concentrated initially on the United States operations, policies and procedures and deferred a similar analysis of E&S Ltd.’s operations to a later date.

These personnel-related items have been addressed as the E&S Ltd. Finance Director again reports directly to the CFO in the United States. Additionally, we performed an evaluation of the E&S Ltd. internal controls and procedures related to the restatement. Actions taken in response to our evaluation are more thoroughly described in Item 9A of Part III of this annual report on Form 10-K.

Application of Critical Accounting Estimates

The applications of accounting estimates discussed below are considered by management to be critical to an understanding of our financial statements. Their application places significant demands on management’s judgment, with financial reporting results relying on estimates about the effect of matters that are inherently uncertain. Specific risks for these critical accounting estimates are described in the following paragraphs. A summary of significant accounting policies can be found in Note 2 to the Consolidated Financial Statements in this annual report on Form 10-K. For all of these policies, management cautions that future results rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue Recognition

Revenue from long-term contracts requiring significant production, modification and customization is recorded using the percentage-of-completion method. This method uses the ratio of costs incurred to management’s estimate of total anticipated costs. Our estimates of total costs include assumptions, such as man-hours to complete, estimated materials cost, and estimates of other direct and indirect costs. Actual results may vary significantly from our estimates. If the actual costs are higher than management’s anticipated total costs, then an adjustment is required to reduce the previously recognized revenue as the ratio of costs incurred to management’s estimate was overstated. If actual costs are lower than management’s anticipated total costs, then an adjustment is required to increase the previously recognized revenue as the ratio of costs incurred to management’s estimate is understated. Adjustments for revisions of previous estimates are made in the period they become known.

Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts and Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts

Billings on uncompleted long-term contracts may be greater than or less than incurred costs and estimated earnings. As a result, these differences are recorded as an asset or liability on the balance sheet. Since revenue recognized on these long-term contracts includes management’s estimates of total anticipated costs, the amounts in costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts also include these estimates.

Inventories

Inventory includes materials at standard costs, which approximates average costs, as well as inventoried costs on programs (including material, labor, subcontracting costs, as well as an allocation of indirect costs). We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and then provide a reserve we consider sufficient to cover these items. Reserve adequacy is based on estimates of future sales, product pricing, and requirements to complete projects. Revisions of these estimates would result in adjustments to our operating results.

27

Contract Damages and Penalties

Accrued liabilities include amounts for liquidated damages and late delivery penalties. While current contracts could include additional liquidated damages and late delivery penalties, we have included all amounts we believe we are liable for as of December 31, 2004. These liquidated damages are based primarily on estimates of project completion dates. To the extent completion dates are not consistent with our estimates, these damage and penalty accruals may require additional adjustments.

Allowance for Doubtful Accounts

We specifically analyze accounts receivables and consider historical experience, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. Changes in these factors could result in material adjustments to the expense recognized for bad debts.

Income Taxes

As part of the process of preparing our consolidated financial statements we are required to estimate our actual income taxes in each of the jurisdictions in which we operate. This involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatments of items, such as accrued liabilities, for tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included in our consolidated balance sheets. We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include a corresponding adjustment within the income tax provision in the statement of operations. Significant judgment by management is required to determine our provision for income taxes, our deferred income tax assets and liabilities and any valuation allowance recorded against our net deferred income tax assets.

Impairment of Long- Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of an asset may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying balances, we determine the estimated fair value of such assets. The amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their estimated fair value. Assets held for sale are reported at the lower of their carrying amount or fair value less costs to sell.

Restructuring Charges

Restructuring charges that occurred prior to January 1, 2003 were recorded under EITF issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” As a result, restructuring charges, other than amounts for severance and benefits, can be recorded when a detailed restructuring plan to exit specific activities has been approved by management prior to the financial reporting date and the Company has the ability to reasonably estimate costs. Estimated amounts for severance and benefits are accrued once the potentially affected employees have been notified of the termination and severance benefits have been communicated. The communication must include, at a minimum, the number of impacted employees, the job functions and the locations that are affected. If actual costs differ from the estimated costs, adjustments to the restructuring charges are required.

28

Restructuring charges that occurred after December 31, 2002 were recorded under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” As a result, a liability for the estimated costs associated with an exit or disposal activity is recognized when the liability is incurred. Thus estimated amounts for severance and benefits are accrued once the affected employees have been notified of the termination; for contract terminations costs are accrued once the contract is terminated or the Company ceases receiving any benefit from the contract; and for leased property costs are accrued once the Company has exited the facility and is no longer receiving any benefit from the lease. If actual costs differ from the estimated costs, adjustments to the restructuring charges are required.

Depreciation and Amortization of Fixed Assets and Intangibles

Purchases of property and equipment are recorded at cost and major improvements are capitalized. Depreciation is included in cost of goods sold, research and development or selling, general and administrative expenses depending on the nature of the asset. Depreciation is expensed based on the straight-line method over the following estimated useful lives of the property:

Manufacturing machinery and equipment	3 - 8 years
Office furniture and equipment	8 years
Buildings and improvements	40 years

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard No. 151, “Inventory Costs—an amendment to ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” SFAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005 and earlier application is permitted. We do not expect the adoption of this statement to have a material impact on our financial statements.

In December 2004, FASB issued Financial Accounting Standard No. 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS 153 amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and earlier application is permitted. We do not expect the adoption of this statement to have a material impact on our financial statements.

In December 2004, FASB issued Financial Accounting Standard No. 123R (“SFAS 123R”), “Share-Based Payment.”  SFAS 123R is a revision of SFAS 123.  SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  Primarily, SFAS 123R focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  It also addresses transactions in which an entity incurs liabilities in

29

exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

SFAS 123R requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period).  No compensation cost is recognized for equity instruments for which employees do not render the requisite service.  Therefore, if an employee does not ultimately render the requisite service, the costs recognized related to unvested options will be reversed.   

SFAS 123R is effective for us as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.  Under these guidelines we will adopt SFAS 123R as of the beginning of the third quarter of 2005.  We do not expect the adoption of SFAS 123R to have a material impact on our financial position or cash flows; however it will have a material impact on our results of operations as we are required to recognize stock-based compensation to our employees as compensation expense over their service period.

Forward-Looking Statements

The foregoing contains “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and section 21E of the Exchange Act of 1934, as amended, including among others, those statements preceded by, followed by or including the words estimates, “believes”, “expects”, “plans”, “projects”, and similar expressions.

These forward looking statements include, but are not limited to, the following statements:

·Our belief that our range of visual systems and services at various price and performance levels, our research and development investments, and our ability to design and manufacture value-added visual systems will enable us to compete effectively.

·Our belief that 2004 was the low point in our revenues.

·Our belief that revenue will grow in 2005, that revenue growth is the start of a growth trend in revenue, and as a result of this and other actions we will return to profitability.

·Our belief that the progress we have made towards bringing our laser projector (ESLP) to market will result in deliveries in 2005, that these deliveries in 2005 will contribute to revenue growth, and that as a result our R&D costs will decrease.

·Our belief that the impact of the Big Six programs will be immaterial to our financial condition in 2005.

·Our belief that the restructuring plan initiated in March 2005 will reduce our labor and labor-related costs approximately $3,860 in 2005 and approximately $5,140 per year thereafter.

·Our belief and projections that the military markets will improve in 2005 resulting in increased orders and sales and that the commercial market will remain flat, but we will see higher order volume in 2005 than in 2004 from this market.

·Our belief that our Digistar 3 Laser visual system has the potential to broaden the digital theater market and further increase our market share, resulting in growth in 2005.

·Our belief that we can continue to reduce costs in our operating expenses.

·Our belief that our products are performing well, that we will meet all our delivery requirements, and as a result we will incur no liquidated damages or late delivery penalties in 2005.

30

·Our belief that for years beyond 2005 cash from operations will be sufficient for our planned needs, that our long-term investment in research and development and our current product strategy will allow our business to grow, and that we will augment our cash position with the sale of an additional office building, which we believe will occur during 2005 or 2006.

·Our belief that capital expenditures during 2005 will be similar to capital expenditures incurred during 2004.

·Our belief that our existing cash, restricted cash, borrowings available under our borrowing facilities, and expected cash from future operations will be sufficient to meet our anticipated working capital needs, routine capital expenditures and current debt service obligations.

·Our belief that we will make no contributions to our Pension Plan in fiscal year 2005, unless required by statutory funding requirements.

·Our belief there is no consistent, inherent seasonal pattern to our business.

·Our belief that any inherent risk that may exist in our foreign operations is not material.

·Our belief that our properties are suitable for our immediate needs.

·Our belief that the ultimate disposition of any legal claims asserted against us or other contingent matters will not have a material adverse effect on our consolidated financial condition, liquidity or results of operations.

·Our belief that we will perform under the conditions of our letters of credit and therefore incur no losses with respect to these letters of credit in 2005 or future years.

·Our belief that Quest will meet all of its performance and financial obligations in relation to its contract with the U.K. MOD and we will therefore incur no losses as a result of our guarantees.

·Our belief that the effects of inflation will not be material for fiscal year 2005.

·Our belief that a limited number of customers will account for a substantial portion of our international sales in the foreseeable future.

·Our belief that approximately 55% of our backlog will be converted to sales in 2005.

·Our belief that we will complete development of certain products, that we will lower the manufacture cost by 10% and increase the performance of our EP-1000CT hardware platform in 2005, and that we will introduce the next generation EPX-500 PC image generator technology in mid 2005.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Our actual results could differ materially from these forward-looking statements. In addition to the other risks described in “Factors That May Affect Our Future Results” discussed below, important factors to consider in evaluating such forward-looking statements include risks of product demand, market acceptance, economic conditions, competitive products and pricing, difficulties in product development, and product delays. In light of these risks and uncertainties, there can be no assurance that the events contemplated by the forward-looking statements contained in this annual report will, in fact, occur.

Factors That May Affect Our Future Results

Our domestic and international businesses operate in highly competitive markets that involve a number of risks, some of which are beyond our control. While we are optimistic about our long-term

31

prospects, the following discussion highlights some risks and uncertainties that should be considered in evaluating our growth outlook.

Our Business Model Is Changing and May Not Produce Consistent Earnings

Our success depends on our ability to compete in an industry that is highly competitive, with rapid technological advances and products that require constant improvement in both price and performance. In most of our markets we are experiencing increased competition, and we expect this trend to continue.

When new systems are ordered, prices are usually below our comparable, last generation systems. Success in this environment requires a business model that emphasizes smaller systems and associated hardware revenue, with greater dependence on software, databases, and support services.

We have made significant progress in adapting to this new business model and introducing products emphasizing the new factors for success. However, there is no assurance that this model will succeed and ensure profitability in the future.

Competitors May Infringe E&S Intellectual Property

Throughout its history E&S has been awarded 79 patents, with 60 still active. Another 19 applications are pending. While we have not had any significant intellectual property infringement by competitors, we are entering production stage of a new product, the E&S Laser Projector. We have a number of patents either issued or pending on this technology, but it represents a new field for us and may attract competitors with a risk of infringement and costly legal processes to defend our intellectual property rights.

Migration to PC’s in the Commercial Simulation Market May Negatively Impact our Revenues

Currently, off-the-shelf PC technology is not used in visual systems for Level D certification in the commercial simulation market. However, advances in technology could make it possible to attain Level D certification with such systems. If this occurs, E&S would expect to deliver a range of products at different prices, with the risk of lower average prices and lower total revenue for the mix of commercial systems.

Prime Contractors May Continue Bring Workshare into Their Own Company and Decrease the Demand for E&S Products

Large prime contractors in the defense and aerospace industry have encountered the same competitive pressures described earlier for simulation and training revenue. To protect their own revenue and margins, most have responded by putting pressure on smaller suppliers, as well as bringing work in-house to protect established engineering organizations wherever possible.

This trend has, in effect, created new competitors for our traditional business. These in-house engineering groups attempt to do only the most profitable work, such as software and databases, and leave less profitable hardware development to others. Often the costs of these efforts are not visible to the end customer because they are part of a much larger contract.

32

If these trends continue and the end customers accept the results, they could reduce demand for the most profitable future portions of our revenue stream and business model, software and databases.

Delays in New Product Introductions Could Negatively Affect Financial Performance

During 2005, we intend to introduce several important new products, including the simFUSION 7000 and the E&S Laser Projector. Delays in introducing and delivering these products could reduce their planned revenue and profit contribution.

Changes in Government Priorities May Further Impact the Military Simulation Market

During the last several years significant changes have taken place in budget priorities for both U.S. and international government spending, especially military spending. Some of these changes have resulted in delays or reductions of visual system purchases. While we have downsized our company in accordance with these changes, we have no assurance that such delays will not continue to occur or accelerate and cause further declines in our revenue from this market.

We Depend on Several Significant Customers and our Net Sales Could Suffer if Their Purchases Decline

We currently derive a significant portion of our sales from a limited number of non-U.S. government customers. The loss of any one or more of these customers could have a material adverse effect on our business, financial condition and results of operations. We were dependent on four of our non-U.S. government customers for approximately 25% of our consolidated sales in 2004. We expect that sales to a limited number of customers will continue to account for a substantial portion of our sales in the foreseeable future. We have no assurance that sales from this limited number of customers will continue to reach or exceed historical levels in the future. We do not have supply contracts with any of our significant customers.

Our Operations Could Be Hurt by Terrorist Attacks and Other Activities that Make Air Travel Difficult or Reduce the Willingness of Our Commercial Airline Customers to Purchase Our Simulation Products

During 2004, $22.3 million, or 32.3% of our total revenue generated, was derived from sales of our visual systems to commercial airline companies and other third parties in the commercial airline industry. The demand for our various commercial simulation products and services is heavily dependent upon new orders from these commercial airline customers. In the event terrorist attacks or other activities make air travel difficult or reduce the demand or willingness of our customers to purchase our commercial simulation products, our revenue may decline substantially.

Our Shareholders May Not Realize Certain Opportunities Because of the Anti-Takeover Effect of State Law

We may be subject to the Utah Control Shares Acquisition Act which provides that any person who acquires 20% or more of the outstanding voting shares of a publicly held Utah corporation will not have voting rights with respect to the acquired shares unless a majority of the disinterested shareholders of the corporation votes to grant such rights. This could deprive shareholders of opportunities to realize takeover premiums for their shares or other advantages that large accumulations of stock would provide because anyone interested in acquiring E&S could only do so with the cooperation of our board of directors and a majority of disinterested shareholders.

33

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks to which we are exposed are changes in foreign currency exchange rates and changes in interest rates. Our international sales, which in fiscal years 2004, 2003 and 2002 accounted for 58%, 53% and 39% of our totals sales, respectively, are concentrated in the United Kingdom, continental Europe, and Asia. In general, we enter into sale agreements with our international customers denominated in U.S. dollars. Foreign currency purchase and sale contracts may be entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. We do not enter into foreign currency contracts for trading purposes and do not use leveraged contracts. As of December 31, 2004, we had sales contracts in Euros with approximately €4,100 remaining to collect, sales contracts in GBP with approximately £1,200 remaining to invoice and collect, and we had entered into one foreign currency derivative contract. We recognized a loss of $34 related to the foreign currency derivative as of December 31, 2004. As no settlement provision is permitted under the contract, we recorded an amount due from a financial services company as prepaid expenses and deposits and a liability for the amount owed by us to the financial service company as accrued expense in the amounts of $368 and $402, respectively, as of December 31, 2004. The contract expires in January 2005.

We reduce our exposure to changes in interest rates by maintaining a high proportion of our debt in fixed-rate instruments. As of December 31, 2004, our fixed-rate instruments consist solely of our 6% convertible debentures due in 2012. The outstanding balance of the 6% convertible debentures as of December 31, 2004 was $18,015. The fair value of the 6% convertible debentures, based on quoted market prices was $12,250 as of December 31, 2004.

34

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

	December 31
	2004			2003
ASSETS
Current assets:
Cash	$	10,147		$	9,714
Restricted cash	3,414			765
Accounts receivable, net	15,102			22,298
Costs and estimated earnings in excess of billings on uncompleted contracts	5,616			10,922
Inventories, net	10,802			15,973
Prepaid expenses and deposits	4,655			4,731
Assets held for sale	—			2,463
Total current assets	49,736			66,866
Property, plant and equipment, net	20,753			24,115
Investments	1,933			2,011
Other assets	1,349			390
Total assets	$	73,771		$	93,382
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit agreements	$	—		$	7,685
Accounts payable	6,454			8,446
Accrued liabilities	11,032			12,526
Billings in excess of costs and estimated earnings on uncompleted contracts	11,703			11,499
Customer deposits	2,968			3,928
Total current liabilities	32,157			44,084
Convertible subordinated notes	18,015			18,015
Pension and retirement obligations	19,836			15,717
Total liabilities	70,008			77,816
Stockholders’ equity:
Preferred stock, no par value: 10,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $0.20 par value: 30,000,000 shares authorized; 10,864,042 and 10,836,072 shares issued, respectively	2,173			2,167
Additional paid-in-capital	49,707			49,575
Common stock in treasury, at cost 352,500 shares	(4,709		)	(4,709		)
Accumulated deficit	(38,015		)	(29,148		)
Accumulated other comprehensive loss	(5,393		)	(2,319		)
Total stockholders’ equity	3,763			15,566
Total liabilities and stockholders’ equity	$	73,771		$	93,382

See notes to consolidated financial statements.

35

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	Year ended December 31
	2004			2003			2002
Sales	$	69,159		$	84,776		$	122,578
Cost of sales	44,119			53,252			78,052
Inventory impairment	—			14,566			1,392
Gross profit	25,040			16,958			43,134
Expenses:
Selling, general and administrative	23,786			27,039			27,131
Research and development	16,621			21,730			25,970
Restructuring charges (recoveries)	(491		)	3,416			4,492
Impairment loss	—			1,151			311
Operating expenses	39,916			53,336			57,904
Gain on sale of assets	3,817			—			253
Gain on sale of assets held for sale	3,488			1,406			1,212
Gain on curtailment of pension plan	—			—			3,575
Operating loss	(7,571		)	(34,972		)	(9,730		)
Other income (expense):
Interest income	90			412			25
Interest expense	(1,296		)	(1,376		)	(1,839		)
Impairment of investment securities	—			(500		)	(16		)
Gain on sale of investment securities	133			—			27
Other	(111		)	(523		)	(651		)
Total other income (expense), net	(1,184		)	(1,987		)	(2,454		)
Loss before income taxes	(8,755		)	(36,959		)	(12,184		)
Income tax expense (benefit)	112			(971		)	(463		)
Net loss	$	(8,867	)	$	(35,988	)	$	(11,721	)
Basic and diluted net loss per common share	$	(0.84	)	$	(3.44	)	$	(1.12	)
Basic and diluted weighted average common shares outstanding	10,498			10,471			10,422

See notes to consolidated financial statements.

36

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS

(In thousands)

						Additional							Retained Earnings				Accumulated Other
	Common Stock					Paid-in			Treasury				(Accumulated				Comprehensive
	Shares		Amount			Capital			Stock				Deficit)				Loss				Total
Balance at December 31, 2001		10,740		$	2,148		$	49,030		$	(4,709	)		$	18,561			$	(371	)	$	64,659
Components of comprehensive loss:
Net loss		—		—			—			—				(11,721		)		—			(11,721		)
Unrealized gains on marketable securities		—		—			—			—				—				29			29
Total comprehensive loss																					(11,692		)
Issuance of common stock for cash		66		13			383			—				—				—			396
Balance at December 31, 2002		10,806		2,161			49,413			(4,709		)		6,840				(342		)	53,363
Components of comprehensive loss:
Net loss		—		—			—			—				(35,988		)		—			(35,988		)
Unrealized gains on marketable securities		—		—			—			—				—				444			444
Additional minimum pension liability		—		—			—			—				—				(2,421		)	(2,421		)
Total comprehensive loss																					(37,965		)
Issuance of common stock for cash		30		6			162			—				—				—			168
Balance at December 31, 2003		10,836		2,167			49,575			(4,709		)		(29,148		)		(2,319		)	15,566
Components of comprehensive loss:
Net loss		—		—			—			—				(8,867		)		—			(8,867		)
Unrealized gains on marketable securities		—		—			—			—				—				99			99
Foreign currency translation		—		—			—			—				—				244			244
Additional minimum pension liability		—		—			—			—				—				(3,417		)	(3,417		)
Total comprehensive loss																					(11,941		)
Issuance of common stock		28		6			132			—				—				—			138
Balance at December 31, 2004		10,864		$	2,173		$	49,707		$	(4,709	)		$	(38,015	)		$	(5,393	)	$	3,763

See notes to consolidated financial statements.

37

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year ended December 31
	2004			2003			2002
Net loss	$	(8,867	)	$	(35,988	)	$	(11,721	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	5,104			6,782			9,311
Gain on sale of assets	(3,817		)	—			(253		)
Gain on sale of assets held for sale	(3,488		)	(1,406		)	(1,212		)
Gain on curtailment of pension plan	—			—			(3,575		)
Inventory impairment	—			14,566			1,392
Impairment loss	—			1,151			311
Loss on disposal of property, plant, and equipment	35			16			40
Gain on sale of investment securities	(133		)	—			(27		)
Impairment of investment	—			500			16
Provision for losses on accounts receivable	326			68			(734		)
Provision for excess and obsolete inventory	2,231			1,499			1,802
Provision for warranty expense	1,188			2,274			617
Other	90			107			214
Change in operating assets and liabilities:
Decrease in accounts receivable	6,870			333			8,769
Decrease inventories	1,849			141			3,898
Decrease in costs and estimated earnings in excess of billings on uncompleted contracts, net	5,510			11,638			11,900
Decrease (increase) in prepaid expenses and deposits	218			(328		)	(181		)
Decrease in accounts payable	(1,991		)	(1,225		)	(1,832		)
Decrease in accrued liabilities	(4,648		)	(3,320		)	(4,553		)
(Decrease) increase in customer deposits	(961		)	2,421			(2,143		)
Net cash provided by (used in) operating activities	(484		)	(771		)	12,039
Cash flows from investing activities:
Proceeds from sale of assets	5,250			—			—
Proceeds from sale of investment securities	633			—			39
Purchases of property, plant and equipment	(1,827		)	(3,767		)	(3,394		)
Proceeds from sale of property, plant and equipment	63			4			—
Proceeds from sale of assets held for sale	8,288			4,760			2,917
Increase in other assets	(871		)	—			(218		)
Net cash provided by (used in) investing activities	11,536			997			(656		)
Cash flows from financing activities:
Net repayments on line of credit agreements	(7,685		)	(250		)	(12,965		)
Decrease (increase) in restricted cash	(3,057		)	2,195			(156		)
Proceeds from issuance of common stock	123			168			396
Net cash provided by (used in) financing activities	(10,619		)	2,113			(12,725		)
Net change in cash and cash equivalents	433			2,339			(1,342		)
Cash and cash equivalents at beginning of year	9,714			7,375			8,717
Cash and cash equivalents at end of year	$	10,147		$	9,714		$	7,375
Supplemental Disclosure of Cash Flow Information
Cash paid (received) during the year for:
Interest	$	1,295		$	1,376		$	1,839
Income taxes	140			(209		)	(534		)

See notes to consolidated financial statements.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All dollar amounts are in thousands unless otherwise indicated.

Note 1:   Business and Background

Description of Business

Evans & Sutherland Computer Corporation referred to in these notes as “E&S,” “we,” “us,” “our” or the “Company,” produces visual systems used to rapidly and accurately display images of the real world. We design, manufacture, market and support our visual systems to provide simulation training for a wide range of military and commercial applications, as well as for planetariums, science centers, and entertainment venues. Our products and solutions range from the desktop PC to what we believe are the most advanced visual systems in the world.

Note 2:   Summary of Significant Accounting Policies

Basis of Presentation

Evans & Sutherland has a fiscal year end which ends on December 31. The consolidated financial statements include the accounts of Evans & Sutherland and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made in the 2003 and 2002 consolidated financial statements and notes to conform to the 2004 presentations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition based on the percentage-of completion method, inventory reserves, accruals for liquidated damages and late penalties, allowance for doubtful accounts, income tax valuation allowance, restructuring charges, impairment of long-lived assets, and useful life of depreciable assets. Actual results could differ from those estimates.

Restricted Cash

Restricted cash that guarantees issued letters of credit that mature or expire within one year is reported as a current asset. Restricted cash that guarantees issued letters of credit that mature or expire in more than one year are reported as long-term other assets. Long-term restricted cash at December 31, 2004 was $408. There was no long-term restricted cash at December 31, 2003.

Trade Accounts Receivable

In the normal course of business, we provide unsecured credit terms to our customers. Accordingly, we maintain an allowance for doubtful accounts for possible losses on uncollectible accounts receivable. We routinely analyze accounts receivable and costs in excess of billings, and consider history, customer creditworthiness, facts and circumstances specific to outstanding balances, current economic trends, and payment term changes when evaluating adequacy of the allowance for doubtful accounts. Changes in these factors could result in material differences to bad debt expense. Past due balances are reviewed individually for collectibility.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For uncollectible accounts receivable we record a loss against the allowance for doubtful accounts only after exhaustive efforts have been made to collect and with management’s approval. Generally, realized losses have been within the range of management’s expectations.

The table below represents changes in our allowance for doubtful receivables during fiscal year:

	2004			2003
Beginning balance	$	351		$	856
Provision for losses on accounts receivable	326			68
Charges against the reserve	(27		)	(573		)
Ending balance	$	650		$	351

Inventories

Inventory includes materials at standard costs, which approximates average costs, as well as inventoried costs on programs and long-term contracts. Inventoried costs include material, direct engineering and production costs, and applicable overhead, not in excess of estimated realizable value. In accordance with industry practice, inventoried costs include amounts relating to programs and contracts with long production cycles, a portion of which is not expected to be realized within one year. Spare parts and general stock materials are stated at cost not in excess of realizable value. We periodically review inventories for excess supply, obsolescence, and valuations above estimated realizable amounts, and provide a reserve we consider sufficient to cover these items. Revisions of these estimates could result in the need for adjustments. See Note 3 and Note 23 for further information concerning inventory.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the related assets. Expenditures that materially increase values or capacities or extend useful lives of property and equipment are capitalized. Routine maintenance, repairs and renewal costs are expensed as incurred. When property is retired or otherwise disposed of, the book value of the property is removed from the fixed assets and the related accumulated depreciation accounts. Depreciation is included in cost of goods sold, research and development or selling, general and administrative expenses depending on the nature of the asset and is expensed based on the straight-line method over the following estimated useful lives of the property.

Software Development Costs

Software development costs, if material, are capitalized from the date technological feasibility is achieved until the product is available for general release to customers. Such costs have not been material during the periods presented.

Investments

We classify our marketable debt and equity securities as available-for-sale. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a component of accumulated other comprehensive income (loss) until realized. Dividend and interest income are recognized when earned. Realized gains and losses from the sale of securities are included in results of operations and are determined on the specific-

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

identification basis. A decline in the market value that is deemed other than temporary results in a charge to results of operations and the establishment of a new cost basis for the investment.

We account for our investments in nonmarketable securities using the cost and equity methods. In assessing the fair value cost method of such investments, we consider recent equity transactions that investees have entered into, the status of each investee’s technology and strategies in place to achieve their objectives, as well as the investee’s financial condition and results of operations. To the extent there are changes in these assessments, adjustments may need to be recorded. For our investment accounted for using the equity method, adjustments are made to the carrying amount of the investment to account for our equity in undistributed earnings (losses) of the investee. Investments are periodically evaluated for a decline in value that is considered other-than-temporary. Any such decline is recognized as a loss in the statement of operations. In 2003, we determined that the value of a nonmarketable investment had experienced a decline in value that was deemed to be other-than-temporary. As a result we recorded a loss on the write-down of this investment of $500 representing the total value of this investment.

Accounting for Impairment of Long- Lived Assets

Long-lived assets are reviewed for impairment when events or changes in circumstances indicate the book value of an asset may not be fully recoverable. When this occurs, we review the value assigned to long-lived assets by analyzing the anticipated, undiscounted cash flows they generate. When the expected future undiscounted cash flows from these assets do not exceed their carrying balances, the Company determines the estimated fair value of such assets. An impairment is recognized to the extent the carrying amount of the assets exceeds their estimated fair value. Assets held for sale are reported at the lower of their carrying amount or fair value less costs to sell.

Warranty Reserve

We provide a warranty reserve for estimated future costs of servicing products under warranty agreements extending for periods from 90 days to one year. Anticipated costs for product warranties are based upon estimates derived from experience factors and are recorded at the time of sale or over the period revenues are recognized for long-term contracts. Warranty reserves are classified as accrued liabilities in the accompanying financial statements.

The table below reflects changes in our warranty reserves during fiscal year:

	2004			2003
Beginning balance	$	1,290		$	968
Provision for warranty expense	1,188			2,274
Warranty charges against the reserve	(1,007		)	(1,952		)
Ending balance	$	1,471		$	1,290

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

Our sales include revenue from system hardware, software, database products and service contracts. The following table provides information on revenue by recognition method applied during fiscal years:

Revenue recognition method	2004		2003		2002
Percentage-of-completion	$	42,208	$	38,358	$	63,263
Completed contract	25,010		40,590		54,939
Time and materials	716		4,602		1,168
Other	1,225		1,226		3,208
Total sales	$	69,159	$	84,776	$	122,578

Percentage-of-Completion.   In arrangements that are longer in term and require significant production, modification or customization, revenue is recognized in accordance with the provisions of Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”), using the percentage-of-completion method. In applying the provisions of SOP 81-1, we utilize cost-to-cost methodology whereby we estimate the percent complete by calculating the ratio of costs incurred (consisting of material, labor and subcontracting costs, as well as an allocation of indirect costs) to management’s estimate of total anticipated costs. This ratio is then utilized to determine the amount of gross profit earned based on management’s estimate of total estimated gross profit at completion. We routinely review estimates related to percentage-of-completion contracts and adjust for changes in the period revisions are made. Billings on uncompleted percentage-of-completion contracts may be greater than or less than incurred costs and estimated earnings and are recorded as an asset or liability in the accompanying consolidated balance sheets.

Completed Contract.   Contract arrangements which typically require a relatively short period of time to complete the production, modification, and customization of our products are accounted for using the completed contract method. Accordingly, revenue is recognized upon delivery of the completed product, provided persuasive evidence of an arrangement exists, title and risk of loss has transferred, the fee is fixed and determinable, and collection is reasonably assured.

Time and Materials.   When services are sold to customers on a time and materials or cost-plus basis revenues are recognized as the related services and material costs are incurred.

Other.   Other revenue consists primarily of amounts earned under maintenance contracts that are generally sold as a single element to our customers. Revenue from product maintenance contracts, including separately priced extended warranty contracts, is deferred and recognized on a straight-line basis over the contract period. Revenue from research and development funding is recognized as we earn reimbursement from our efforts.

Anticipated Losses.   For contracts with anticipated losses at completion, a provision is recorded when the loss becomes known. After an anticipated loss is recorded, subsequent revenue and cost of sales are recognized in equal, offsetting amounts as contract costs are incurred and do not generate further gross profits (losses).

Multiple Element Arrangements.   Some of our contracts include multiple elements. Revenue earned on elements such as products, services and maintenance contracts are allocated to each element based on the relative fair values of the elements.

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation

We have adopted the footnote disclosure provisions of Statements of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation” (“SFAS 123”) and SFAS No. 148, “Accounting for Stock Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123” (“SFAS 148”). SFAS 123 encourages entities to adopt a fair value based method of accounting for stock options or similar equity instruments. However, it also allows an entity to continue measuring compensation cost for stock-based compensation using the intrinsic-value method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). We have elected to continue to apply the provisions of APB 25 and provide pro forma footnote disclosures required by SFAS 123 and SFAS 148.

Stock-based compensation granted to non-employees (consultants and independent contractors) is determined as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for these issuances is the earlier of either the date at which a commitment by the recipient to earn the equity instruments is reached or the date at which the recipient’s performance is complete.

We account for our stock options granted to employees under APB 25, whereby no compensation cost has been recognized as all options granted have an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Had compensation cost for these options been determined consistent with SFAS 123, our net loss and loss per common share would have been changed to the following pro forma amounts during fiscal year:

	2004			2003			2002
Net loss as reported	$	(8,867	)	$	(35,988	)	$	(11,721	)
Deduct: Total stock based employee compensation expense determined under the fair value method for all awards	(397		)	(442		)	(688		)
Pro forma net loss	$	(9,264	)	$	(36,430	)	$	(12,409	)
Basic and diluted net loss per common share—as reported	$	(0.84	)	$	(3.44	)	$	(1.12	)
Basic and diluted net loss per common share—pro forma	(0.88		)	(3.48		)	(1.19		)

Income Taxes

We use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases and operating loss and income tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the enactment date.

Derivatives

We enter into readily marketable forward contracts with financial institutions to minimize the impact of foreign currency fluctuations on certain sales contract. We do not enter into derivative instruments for speculative or trading purposes. Realized and unrealized gains or losses are recorded in results of operations. In 2004, we entered into one foreign currency hedge transaction. We recognized a loss of $34

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

as of December 31, 2004. As there is no net settlement provision in the contract, we recorded an amount due from a financial institution as prepaid expenses and deposits and a liability for the amount owed by us to the financial institutions as accrued expense in the amounts of $368 and $402, respectively, as of December 31, 2004. The contract expires in January 2005.

Other Comprehensive Loss

We have applied paragraph 36(b) of SFAS 109 (“SFAS 109”), “Accounting for Income Taxes,” to our gains and losses included in other comprehensive loss but excluded from our net loss. On a net basis for 2004, 2003 and 2002, there was a deferred income tax asset as a result of the items reflected in comprehensive income. However, in applying paragraph 17 of SFAS 109 we determined that it is more likely than not that we will not realize such net deferred income tax assets and have therefore established a valuation allowance against the full amount of the net deferred income tax asset. Accordingly, the net income tax effect of the items included in other comprehensive loss is zero. Therefore, we have included no income tax expense or benefit in relation to items reflected in other comprehensive loss.

The components of accumulated other comprehensive loss were as follows as of year end:

	2004			2003
Additional minimum pension liability	$	(5,838	)	$	(2,421	)
Net unrealized holding gain on available-for-sale securities	568			469
Net foreign currency translation	(123		)	(367		)
Total accumulated other comprehensive loss	$	(5,393	)	$	(2,319	)

Recent Accounting Pronouncements

In December 2004, FASB issued Financial Accounting Standard No. 123R (“SFAS 123R”), “Share-Based Payment.” SFAS 123R is a revision of SFAS 123. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Primarily, SFAS 123R focuses on accounting for transactions in which an entity obtains employee services in share-based payment transactions. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

SFAS 123R requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Therefore, if an employee does not ultimately render the requisite service, the costs recognized related to unvested options will be reversed.

SFAS 123R is effective for us as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Under these guidelines we will adopt SFAS 123R as of the beginning of the third quarter of 2005. We do not expect the adoption of SFAS 123R to have a material impact on our financial position or cash flows; however it will have a material impact on our results of operations as we are required to recognize stock-based compensation to our employees as compensation expense over their service period.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3:   Inventories

Inventories net of reserves at fiscal year-end were as follows:

	2004		2003
Raw materials	$	5,078	$	6,950
Work-in-process	1,300		3,301
Finished goods	4,424		5,722
Total inventory	$	10,802	$	15,973

Note 4:   Property, Plant and Equipment

The cost and estimated useful lives of property, plant and equipment and the total accumulated depreciation and amortization at fiscal year-end:

	Estimated useful lives	2004			2003
Buildings and improvements	40 years	$	29,300		$	29,249
Manufacturing machinery and equipment	3 to 8 years	53,134			73,231
Office furniture and equipment	8 years	4,902			5,454
Construction-in-process	—	1			1,702
		87,337			109,636
Less accumulated depreciation and amortization		(66,584		)	(85,521		)
Total property, plant and equipment, net		$	20,753		$	24,115

Note 5:   Impairments

Fiscal 2003

During the first quarter of 2003 customers canceled several significant orders that we expected to receive as of December 31, 2002 and in early 2003. We believe these cancellations were primarily the result of a re-alignment of military spending priorities which occurred during the first quarter of 2003. The future demand for our Harmony 1, ESIG, and TargetView inventory significantly decreased compared to our prior projections because of these cancellations. As a result, during fiscal 2003, we recorded a $14,566 impairment to specific inventory and a $1,151 impairment to certain fixed assets related to the manufacture of these types of visual systems.

Approximately $10,000 of the 2003 impairment related to our Harmony 1 inventory. Through the end of 2002 and into early 2003, we expected to finalize a sale of two Harmony 1 based visual systems, one as an option to a current U.S. government contract and another to a European prime contractor. During March 2003, we received notification from these customers that they would not purchase the Harmony 1 system, as had been forecasted, due to a decision to migrate to a more current technology, specifically commercial off-the-shelf PCs or our next-generation Harmony, the Harmony 2. Thus, the loss of these orders coupled with the overall shift in market demand resulted in our determination that we had excess Harmony 1 inventory on hand. We have extremely limited prospects to sell this excess Harmony 1 inventory, and these components cannot be used in the manufacture of our other products. Accordingly, we determined that $10,000 of inventory related to these systems was impaired. In addition, because we did not expect to sell any additional Harmony 1 based visual systems, we determined we had no further need for certain fixed assets specifically used to build, test, and demonstrate our Harmony 1 based visual systems

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and recorded an impairment of $1,151 related to these fixed assets, as we believe this equipment had no alternative use.

Approximately $3,300 of the 2003 impairment related to our ESIG inventory. Through the end of 2002 and into early 2003, we expected to finalize the sale of as many as nine ESIG based visual systems to a particular commercial customer. During 2003, we received notification from this customer that it would not purchase the ESIG based visual systems as had been forecasted due to its interest in our next-generation EP-1000CT based visual system, which provides enhanced functionality at a comparable price. While we continue to have ESIG related inventory on hand for other forecasted ESIG based visual systems, the loss of this order, coupled with the increased demand for our next-generation EP-1000CT based visual systems, caused us to determine that we had inventory in excess of our current purchase orders and forecasted demand. Therefore, we determined that $3,300 of inventory related to these systems was impaired.

Approximately $1,266 of 2003 impairment related to our TargetView 100 inventory. In 2003, we became convinced that the TargetView 100 technology had been superseded by newer technology. Accordingly, our business opportunities for TargetView 100 systems had been nearly eliminated and we determined that we had excess inventory on hand. Therefore, we determined that $1,266 of inventory related to these systems was impaired.

During the fourth quarter of 2004, our entire TargetView inventory, including impaired inventory, was sold along with our ESCP assets to Video Display Corporation (see Note 23).

Fiscal 2002

In 2002, we recorded an inventory impairment loss of $1,392 related to our decision to discontinue the simFUSION 4000 based visual system. This impairment encompassed the total value of the simFUSION 4000 inventory on hand. This decision was based on anticipated reduced demand as a result of customer migration to the next-generation simFUSION products.

In 2002, we recorded an impairment loss of $311 related to software licenses that were no longer being used.

While we continue to pursue opportunities to sell our Harmony 1, ESIG, and simFUSION 4000 inventory, we currently do not anticipate sales generating from these impaired inventories. We plan, however, to continue storing this inventory in the event a future opportunity was to arise. If and when we conclude that no opportunities are available, we plan to physically scrap the impaired inventory. Additionally, we will continue to hold the impaired Harmony 1 fixed assets in the event a future sales opportunity arises and drives a requirement for our fixed assets.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6:   Costs and Estimated Earnings on Uncompleted Contracts

Comparative information with respect to uncompleted contracts at fiscal year-end:

	2004			2003
Total accumulated costs and estimated earnings on uncompleted contracts	$	186,249		$	229,970
Less total billings on completed contracts	(192,336		)	(230,547		)
	$	(6,087	)	$	(577	)

The above amounts are reported in the consolidated balance sheet as follows:

	2004			2003
Costs and estimated earnings in excess of billings on uncompleted contracts	$	5,616		$	10,922
Billings in excess of costs and estimated earnings on uncompleted contracts	(11,703		)	(11,499		)
	$	(6,087	)	$	(577	)

Note 7:   Leases

We occupy real property and use certain equipment under lease arrangements that are accounted for as operating leases. Rental expenses for all operating leases for 2004, 2003 and 2002 were $1,807, $3,942 and $3,900, respectively.

Future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year are as follows:

Fiscal year
2005	$	1,767
2006	1,475
2007	787
2008	377
2009	369
Thereafter	7,265
Total	$	12,040

Lease rental income for all operating leases for 2004, 2003 and 2002 was $362, $840 and $1,300, respectively. At December 31, 2004, we had no future lease rental income from operating leases that have initial or remaining noncancelable lease terms.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8:   Investments

Marketable Securities Available-for-Sale

Marketable securities, consisting of equity securities, are recorded at fair value as follows:

				Gross			Gross			Estimated
	Adjusted			unrealized			unrealized			fair
	cost			gains			losses			value
December 31, 2004		$	88		$	568		$	—		$	656
December 31, 2003		88			469			—			557

Unrealized gains were due to market-price movement and foreign exchange movement related to one marketable security that is traded on a foreign exchange and priced in Euros.

Nonmarketable Securities

Each investment in nonmarketable securities was made either to enhance a current technology of E&S or to complement E&S’ strategic direction. Nonmarketable securities at fiscal year end:

	2004		2003
Quest Flight Training Limited	1,277		938
Total Graphics Solutions, N.V.	—		500
Other	—		16
Total nonmarketable securities	$	1,277	$	1,454

We have a 50% interest in Quest Flight Training Limited (“Quest”), a joint venture with Quadrant Group plc (“Quadrant”), providing aircrew training services for the United Kingdom Ministry of Defence (“U.K. MOD”) under a 30-year contract. The investment is accounted for under the equity method. The carrying value of Quest at December 31, 2004 and 2003 was $1,277 and $938, respectively. Equity in earnings of Quest of $95, $64 and $46 is recorded in other income (expense) in 2004, 2003, and 2002, respectively. In 2004, we recorded $244 of foreign currency translation in accumulated other comprehensive income on the investment in Quest. The financial position and operating results of Quest are immaterial to our financial results. Also one member of our board of directors is on the board of directors of Quest and Quadrant.

In connection with the services of Quest to the U.K. MOD, during fiscal year 2000, we entered into guarantees of various obligations of Quest. As of December 31, 2004, we had four guarantees outstanding related to Quest. Pursuant to the first guarantee, we have guaranteed, jointly and severally with Quadrant, the performance of Quest in relation to its contract with the U.K. MOD. If Quest fails to meet its obligations under the contract then we (and Quadrant) are required to perform under the terms of the contract. Due to the length of the contract and the uncertainty of performance for which we would be liable if Quest fails to perform, we cannot estimate the maximum amount of possible future payments. This guarantee is in place until 2030. Pursuant to the second guarantee, we have guaranteed, jointly and severally with Quadrant, up to a maximum amount of £1,000 (approximately $1,903), the performance of Quest where not subcontracted, and the performance of Quest where subcontracted but where the subcontractor is not liable to meet its obligation due to any limitation of liability in the sub-contract agreement   This guarantee is in place until 2020. Pursuant to the third guarantee, we have pledged our equity shares in Quest to guarantee payment by Quest of a loan agreement executed by Quest. The loan agreement terminates in 2020. The pledge of our equity shares in Quest will expire at such time as Quest’s

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

obligations under the loan agreement are satisfied or the date on which the loan agreement is otherwise terminated. In the event of default on this loan agreement, the lending institution can request that the trustee holding such equity shares surrender them to the lending institution in order to satisfy all amounts then outstanding under the loan agreement. As of December 31, 2004, the outstanding loan balance was £4,889 (approximately $9,304). Quadrant has made identical guarantees for this obligation of Quest. Pursuant to the fourth guarantee, we have guaranteed payment, up to a maximum of £125 (approximately $238), in the event that Quest has a default event, as defined by its loan agreement. This guarantee is in place until 2020. Quadrant has made identical guarantees for this obligation of Quest. As of December 31, 2004, no amounts have been accrued for any estimated losses under these guarantees because we believe that Quest will meet all of its performance and financial obligations in relation to its contract with the U.K. MOD. However, if we are required to perform under any or all of the four guarantees, it could have a material adverse impact on our operating results and liquidity.

Total Graphics Solutions, N.V. (“TGS”) develops and markets portable graphics software tools, which provide hardware independence for application developers. In 2004, we sold our investment in TGS for $633 and recognized a gain on the sale of $133.

Note 9:   Accrued Liabilities

Accrued liabilities at fiscal year-end were as follows:

	2004		2003
Compensation and benefits	$	4,275	$	3,924
Building rental guarantee (see Note 22)	1,755		—
Other	5,002		8,602
Total accrued liabilities	$	11,032	$	12,526

Note 10:   Employee Retirement Benefit Plans

Pension Plan

In 2002, the Board of Directors approved the redesign of our employee retirement plans to match contemporary market practices and to improve our competitive position by aligning future funding for employee retirement benefits into the 401(k) deferred savings plan. This action was implemented by amending the Pension Plan to curtail accrual of future benefits under the Pension Plan. At the same time, the 401(k) deferred savings plan was amended to permit the Board of Directors to grant additional discretionary matching contributions based on our profitability and other financial and operational considerations. This change to the Pension Plan had no effect on the benefits vested to current and previous employees for past service. Those benefits will be paid on retirement. Retirees receiving pension payments at the time of the curtailment were also unaffected. Benefits at normal retirement age (65) are based upon the employee’s years of service, as of the date of the curtailment for employees not yet retired, and the employee’s compensation prior to the curtailment. The Pension Plan is a funded noncontributory defined benefit pension plan. Our funding policy is to contribute amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Supplemental Executive Retirement Plan

We maintain an unfunded Supplemental Executive Retirement Plan (“SERP”). The SERP provides eligible executives defined pension benefits, outside our pension plan, based on average salary, years of service and age at retirement. The SERP was amended in 2002 to discontinue further SERP gains from future salary increases and close the SERP to new participants.

401(k) Deferred Savings Plan

We have a deferred savings plan that qualifies under Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all employees of the Company who have at least one year of service and who are age 18 or older. We make matching contributions on employee contributions. The 401(k) plan was amended in 2002 to permit the Board of Directors to grant additional discretionary matching contributions based on our profitability and other financial and operational considerations. Our contributions to 401(k) plan for 2004, 2003 and 2002 were $625, $647 and $907, respectively.

Executive Savings Plan

The Executive Savings Plan (“ESP”) is an unfunded deferred compensation plan that allows tax-deferred retirement savings beyond the amount that can be contributed to the 401(k) plan. The ESP, a nonqualified plan that does not have the same protections as a qualified 401(k) plan, covers a portion of the management employees. Participants earn matching amounts on their contributions with the same percentage limit as the qualified 401(k) plan. Consistent with the curtailment of the SERP, the ESP was amended in 2002 to permit the Board of Directors to grant additional discretionary contributions.

We purchase company-owned life insurance policies insuring the lives of participants in the ESP. The policies accumulate asset values and exist to cover the cost of employee supplemental retirement benefit liabilities. At December 31, 2004 and 2003, prepaid expenses and deposits included our investments in the policies of $2,260 and $2,233, respectively. Net life insurance expense was $160 in 2004, $340 in 2003, and $260 in 2002.

Obligations and Funded Status

E&S uses a December 31 measurement date for both the Pension Plan and SERP.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2004 and 2003 the projected benefit obligations related to our defined benefit pension plans were equal to the accumulated benefit obligations. Information concerning the obligations, plan assets and funded status of employee retirement defined benefit plans are provided below:

	Pension Plan						SERP
	2004			2003			2004			2003
Changes in benefit obligation
Accumulated benefit obligation at beginning of year	$	38,820		$	38,585		$	7,665		$	6,545
Service cost	—			—			519			451
Interest cost	2,498			2,533			508			480
Actuarial loss	2,050			3,591			—			135
Benefits paid	(2,041		)	(5,889		)	(419		)	(334		)
Assumption change	—			—			30			388
Accumulated benefit obligation at end of year	$	41,327		$	38,820		$	8,303		$	7,665
Changes in plan assets
Fair value of plan assets at beginning of year	$	31,028		$	36,663
Actual return on plan assets	929			254
Benefits paid	(2,041		)	(5,889		)
Fair value of plan assets at end of year	$	29,916		$	31,028
Net Amount Recognized
Funded (unfunded) status	$	(11,411	)	$	(7,792	)	$	(8,303	)	$	(7,665	)
Unrecognized net actuarial loss	5,838			2,421			693			615
Unrecognized net periodic benefit	—			—			(815		)	(875		)
Net amount recognized	$	(5,573	)	$	(5,371	)	$	(8,425	)	$	(7,925	)

Amounts recognized in the consolidated balance sheet consist of:

	Pension Plan						SERP
	2004			2003			2004			2003
Prepaid benefit cost	$	(11,411	)	$	(7,792	)	$	(8,425	)	$	(7,925	)
Accumulated other comprehensive income	5,838			2,421			—			—
Net amount recognized	$	(5,573	)	$	(5,371	)	$	(8,425	)	$	(7,925	)

Components of net periodic benefit cost

	Pension Plan									SERP
	2004			2003			2002			2004			2003			2002
Service cost	$	—		$	—		$	700		$	519		$	451		$	454
Interest cost	2,498			2,533			2,442			508			480			446
Expected return on assets	(2,362		)	(2,813		)	(3,462		)	—			—			—
Amortization of actuarial loss	67			—			—			—			—			—
Amortization of prior year service cost	—			—			(16		)	(59		)	(59		)	(59		)
Curtailment gain	—			—			(3,575		)	—			—			—
Amortization of transition	—			—			10			—			—			—
Net periodic benefit cost (benefit)	$	203		$	(280	)	$	(3,901	)	$	968		$	872		$	841

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Additional information

The increases to our minimum liability recorded in other comprehensive income of $3,417 and $2,421 during 2004 and 2003, respectively, arose from the difference between the return on Pension Plan assets during those periods and the benefits paid out of the Pension Plan during those periods.

Assumptions

The weighted average assumptions used to determine benefit obligations at December 31, 2004 and 2003, consisted of discount rate of assumptions of 6.00% and 6.25%, respectively, for the Pension Plan and SERP. The weighted average assumptions used to determine net periodic cost for years ended December 31, 2004 and 2003, consisted of discount rate assumptions of 6.25% and 6.75%, respectively, for the Pension and SERP and an expected long-term rate of return on Pension Plan assets of 8.00%.

The long-term rate of return on plan assets was determined as the weighted average of expected return of each of the asset classes in the target allocation of plan assets. The expected return of each asset class is the investment managers’ assessment of future returns. The expectations were compared to historical market returns to ensure that the expected return of each class was a conservative estimate.

Plan Assets

The Plan’s weighted-average asset allocations at fiscal year-end, weighted-average planned targeted asset allocations going forward, and expected long-term returns on plan assets:

			2004		2003		Expected
Asset allocation category of plan assets	Target%		Actual %		Actual %		Return %
Cash and cash equivalents		0		77		100		—
Fixed income		45		—		—		2.5
Domestic equity
Small cap growth		8		3		—		0.9
Small cap value		7		3		—		0.8
Large cap growth		15		6		—		1.4
Large cap value		15		7		—		1.4
International Equities		10		4		—		1.0
								8.0

The asset allocation policy, consistent with the long-term growth objectives of the Pension Plan, is to invest on a diversified basis among various asset classes as determined by the Pension Plan Administrative Committee. The assets of the Pension Plan were temporarily invested in cash equivalents beginning in September 2002. The Pension Plan Administrative Committee has implemented a plan in 2004 to return to the targeted asset allocation. Assets will be invested in a manner that will provide for long-term growth with a goal to achieve returns equal to or greater than applicable benchmarks. Investments will be managed by registered investment advisors. When investing Pension Plan assets, the investment managers of separately managed accounts shall not utilize derivative instruments for speculative purposes or to create leveraged positions.

No equity securities of E&S were part of the Pension Plan assets as of December 31, 2004 or 2003.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash Flow

Employer contributions

E&S expects to contribute approximately $475 in aggregate to the SERP and make no contributions to Pension Plan in 2005. Our funding policy is to contribute amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. In addition, we are not required to fund the SERP and we do not fund it. All benefit payments are made by us directly to those who receive benefits from the SERP. As such, these payments are treated as both contributions and benefits paid for reporting purposes.

Estimated future benefit payments

The following benefit payments are expected to be paid based on actuarial estimates and prior experience:

	Pension
Fiscal years	Plan		SERP
2005	$	2,627	$	475
2006	3,620		543
2007	2,872		543
2008	3,279		540
2009	3,400		541
2010-2014	15,200		3,342

Note 11:   Debt

6% Convertible Subordinated Debentures

As of December 31, 2004 and 2003, $18,015 of 6% Convertible Subordinated Debentures was outstanding (the “6% Debentures”). The 6% Debentures, due in 2012, are unsecured and are convertible at each bondholder’s option into shares of our common stock at a conversion price of $42.10 per share for an aggregate of 428,000 shares of our common stock if all outstanding 6% Debentures are converted, subject to adjustment. The 6% Debentures are redeemable at our option, in whole or in part, at par.

Lines of Credit

The following is a summary of our line of credit agreements during fiscal year :

	2004			2003
Outstanding line of credit loan balance	$	—		$	7,685
Maximum balance outstanding during the year	$	7,738		$	11,298
Average balance outstanding during the year	$	1,026		$	3,054
Weighted average interest rate during the year	3.4		%	4.1		%
Weighted average interest rate at end of year	—		%	6.1		%

The average balance outstanding and the weighted average interest rate are computed based on the outstanding balances and interest rates at month-ends during each year. We had no outstanding long-term loan balances at the end of fiscal 2004 or 2003 related to our lines of credit.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Wells Fargo Foothill

On December 14, 2004 our secured credit facility (the “Foothill Facility”) with Wells Fargo Foothill (“Foothill”) expired. The Foothill Facility provided for borrowings and the issuance of letters of credit up to $25,000. During 2004 and 2003, the Foothill Facility among other things, (i) required us to maintain certain financial ratios and covenants, including a combined cash and borrowing availability financial covenant that adjusted each quarter and a limitation of $12,000 of aggregate capital expenditures in any fiscal year; (ii) restricted our ability to incur debt or liens; sell, assign, pledge or lease assets; merge with another company; and (iii) restricted the payment of dividends and repurchase of any of our outstanding shares without the prior consent of the lender. During 2004 we were in compliance with all financial covenants and ratios.

Borrowings under the Foothill Facility bore interest at the Wells Fargo Bank National Association prevailing prime rate plus 3.0% to 4.5%, depending on the amount outstanding. Also, at no time were borrowings under the Foothill Facility to bear an interest rate of less than 10.25% per annum. In addition, the Foothill Facility had an unused line fee equal to 0.375% per annum times the difference between $25,000 and the sum of the average undrawn portion of the borrowings, payable each quarter. The Foothill Facility provided Foothill with a first priority perfected security interest in substantially all of our assets, including, but not limited to, all of our intellectual property.

On June 23, 2004, we amended the Foothill Facility. This amendment changed the terms of the Foothill Facility such that if we exceeded the amount available for letter of credit guarantees, we were required to deposit 105% of the excess with Foothill. In addition, we deposited $750 with Foothill for the remaining term of the Foothill Facility.

As of December 31, 2004, we had no outstanding borrowings or other obligations related to the Foothill Facility.

Lloyds

On December 31, 2004 the overdraft facility (the “Overdraft Facility”) with Lloyds Bank plc (“Lloyds”) expired. Borrowings under the Overdraft Facility bore interest at Lloyds’ short-term offered rate plus 1.75% per annum. Solely at Lloyds’ discretion, we were allowed to exceed the $2,500 limit for a very limited amount of time, as defined by Lloyds at that time. In addition, borrowings over the $2,500 limit bore an interest rate equal to Lloyds’ unauthorized currency borrowing rate, which was 12.0% per annum above Lloyds’ short term offered rate. The Overdraft Facility was subject to reduction or demand repayment for any reason at any time at Lloyds’ discretion. E&S Ltd executed a letter of negative pledge in favor of Lloyds whereby it agreed not to sell or encumber its assets, except in the ordinary course of business. Covenants contained in the Overdraft Facility restricted dividend payments from E&S Ltd. and required maintenance of certain financial covenants. During 2004 we were in compliance with all financial covenants. As of December 31, 2004, there were no outstanding borrowings. In addition, at December 31, 2004, we had $677 on deposit with Lloyds in a restricted cash collateral account to support certain obligations that the bank guarantees.

Note 12:   Income Taxes

Income (loss) before income taxes consists principally of results of operations in the United States. The income tax expense of $112 for 2004 is primarily attributable to foreign income taxes. The income tax benefit of $971 for 2003 is primarily attributable to adjustments to prior years’ tax provisions as a result of favorable resolution of certain worldwide income tax contingencies. The income tax benefit of $463 for 2002 is primarily attributable to the carryback of alternative minimum tax net operating losses pursuant to the Job Creation and Workers Assistance Act of 2002.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The actual expense (benefit) differs from the expected tax expense (benefit) as computed by applying the U.S. federal statutory income tax rate of 35 percent, during fiscal year:

	2004			2003			2002
Tax benefit at U.S. federal statutory rate	$	(3,064	)	$	(12,936	)	$	(4,264	)
Gains of foreign subsidiaries	—			—			(325		)
Adjustment to prior year tax provisions	—			(1,002		)	—
Change in valuation allowance attributable to operations	3,035			12,807			3,582
Other, net	141			160			544
Tax expense (benefit)	$	112		$	(971	)	$	(463	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of fiscal year-end:

	2004			2003
Deferred income tax assets:
Warranty, vacation, and other accruals	$	3,552		$	2,516
Inventory reserves and other inventory related temporary basis differences	5,785			9,037
Pension accrual	5,459			5,931
Long-term contract related temporary differences	209			180
Net operating loss carryforwards	55,105			48,750
Capital loss carryforwards	—			44
Write-down of investment securities	1,711			1,711
Credit carryforwards	5,719			3,561
Other	273			285
Total deferred income tax assets	77,813			72,015
Less valuation allowance	(77,618		)	(71,027		)
Net deferred income tax assets	195			988
Deferred income tax liabilities:
Plant and equipment, principally due to differences in depreciation	(172		)	(959		)
Other	(23		)	(29		)
Total deferred income tax liabilities	(195		)	(988		)
Net deferred income tax assets and liabilities	$	—		$	—

We have total federal net operating loss carryforwards of approximately $143,000 of which, approximately $1,000 expires in 2005, $1,000 expires in 2007, $1,000 expires in 2008 and the remainder expires between 2011 and 2024. We have various federal tax credit carryforwards of approximately $3,400 of which expire between 2007 and 2021. We also have state net operating loss carryforwards of approximately $121,000 and state tax credit carryforwards of approximately $2,300 that expire depending on the rules of the various states to which the loss or credit is allocated.

During the years ended December 31, 2004, 2003 and 2002, we increased the valuation allowance on deferred income tax assets by approximately $6,591, $14,231 and $3,282, respectively, as it is more likely than not that the net deferred income tax assets will not be realized.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13:   Disclosures About the Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, receivables, accounts payable, accrued expenses, and foreign currency derivatives approximates fair value because of their short maturity. The fair values of marketable securities available for sale are based on quoted market prices. For nonmarketable securities, consisting of investments in private companies, a reasonable estimate of fair value was impracticable. The fair value of our 6% Debentures of $12,250 and $10,291 as of December 31, 2004 and 2003, respectively, is based on quoted market prices.

Note 14:   Commitments and Contingencies

In 2003, we entered into a settlement agreement with one of our customers. At the end of fiscal year 2003, we had accrued approximately $1,200 for this settlement. In fiscal year 2004, the actual costs associated with this settlement were approximately $1,200.

In 2003, we entered into a purchase agreement with a third party that commits us to purchase a minimum $1,000 of licensed products and support for design development software. The agreement is effective for a period of two years. As of December 31, 2004, our remaining commitment totaled $375.

In 2003, we entered into a purchase agreement with a third party that committed us to purchase $1,100 in software licenses and engineering support to be used in product development and future products over a two-year period, with continuous one year extensions optional. As of December 31, 2004, we have no remaining commitment.

As of December 31, 2004, we had various purchase obligations for goods and services. We expect to pay approximately $2,600 and $400 in 2005 and 2006, respectively, related to these purchase obligations.

Certain of our contracts to deliver Harmony image generators contain liquidated damage provisions for delays in delivery. We incurred $640 in such damages in 2003 that were paid during 2003 and 2004. No damages were incurred in 2004 or 2002. In 2004, we completed delivery of our Harmony image generators.

In 2004, we entered into a three-year rental guarantee with the buyer of one of our office buildings, obligating us to make certain monthly payments through June 2004. As of December 31, 2004, we had $1,755 accrued representing the maximum remaining amount under the guarantee. See Note 22 for further information.

As of December 31, 2004 and 2003, we had outstanding letters of credit and bank guarantees of $3,821. Letters of credit that expire in 2005 total $2,736 and those that expire in 2006-2007 total $408.

As of December 31, 2004, we had guarantees related to Quest. See Note 8 for further details.

Note 15:   Legal Proceedings

In March 2004, through mediation, we settled a claim initiated against us in May 2003 by RealVision, Inc. relative to matters arising from the sale of a business unit to RealVision, Inc. in 2001. Under the agreement reached, RealVision received a settlement of approximately $2,425. We paid approximately $850 of the settlement and our insurance carrier paid the remainder.

In the normal course of business, we may have various legal claims and other contingent matters. Although the final outcome of such matters cannot be predicted, we believe the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition, liquidity or results of operations.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16:   Stock Option and Stock Purchase Plans

Stock Option Plans

In 2004, shareholders approved the adoption of the 2004 Stock Incentive Plan of Evans & Sutherland Computer Corporation (“2004 Plan”), which expires in 2014. The 2004 Plan is a stock incentive plan that provides for the grant of options and restricted stock awards to employees and for the grant of options to non-employee directors. Under the 2004 Plan non-employee directors receive an annual option grant for no more than 10,000 shares. New non-employee directors receive an option grant for no more than 10,000 shares upon their appointment or election. In addition, with the adoption of this plan no additional options can be issued under any of the prior stock-based plans. The 2004 Plan establishes a minimum exercise price for options of 110% of fair market value on the date of grant. Restricted stock awards may be qualified as a performance-based award that conditions a participant’s award upon achievement by the Company or its subsidiaries of performance goals established by our Board of Directors’ Compensation Committee.

Our prior stock incentive plans provided for the grant of options to employees, officers, consultants, and independent contractors to acquire shares of our common stock at a purchase price generally equal to the fair market on the date of grant. In general, for all our stock incentive plans, options vest ratably over three years and expire ten years from date of grant. As of December 31, 2004, options to purchase 730,895 shares of common stock were authorized and reserved for future grant.

A summary of activity follows (shares in thousands):

	2004							2003							2002
					Weighted-							Weighted-							Weighted-
					average							average							average
	Number				exercise			Number				exercise			Number				exercise
	of shares				price			of shares				price			of shares				price
Outstanding at beginning of year		2,344				$	11.33		2,410				$	11.58		2,510				$	12.22
Granted		288				4.79			243				5.85			254				5.80
Exercised		(2		)		4.56			—				—			(12		)		5.92
Cancelled		(447		)		10.24			(309		)		8.83			(342		)		12.17
Outstanding at end of year		2,183				10.68			2,344				11.33			2,410				11.58
Exercisable at year end		1,758				12.00			1,951				12.41			1,879				12.86
Weighted average fair value of options granted during the year		$	1.99						$	2.48						$	2.58

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes information about fixed stock options outstanding as of December 31, 2004 (options in thousands):

	Options outstanding							Options exercisable
			Weighted-
			average		Weighted-					Weighted-
			remaining		average					average
	Number		contractual		exercise			Number		exercise
Range of exercise prices	outstanding		life (years)		price			exercisable		price
$  3.15 - $  5.25		287		9.09		$	4.54		29		$	3.38
5.44 -     7.38		490		7.06		6.22			333		6.37
7.50 -   11.00		256		5.73		9.69			246		9.75
11.13 -   13.38		190		4.21		12.52			190		12.52
13.56 -   15.88		840		3.65		13.82			840		13.82
17.00 -   32.88		120		1.37		20.70			120		20.73
Total		2,183		5.30		10.68			1,758		12.00

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during 2004, 2003 and 2002:

	2004		2003		2002
Expected life (in years)	2.6		2.6		2.5
Risk free interest rate	1.8	%	1.5	%	1.4	%
Expected volatility	69	%	69	%	75	%
Dividend yield	—		—		—

Stock Purchase Plan

We have an employee stock purchase plan whereby qualified employees are allowed to have up to 10% of their gross pay withheld each pay period to purchase our common stock at 85% of the market value of the stock at the time of the sale. Under this plan, 26,132 shares in 2004, 30,031 shares in 2003, and 54,000 shares in 2002 were purchased. During the period of December 24, 2002, through February 18, 2003, the employee stock purchase plan was inadvertently oversubscribed in the amount of 10,373 shares, leaving no shares available for future issuance under this plan. On February 27, 2003, our Board of Directors increased the number of shares available under this plan from 500,000 to 800,000 shares, and ratified all prior issuances of shares under this plan. As of December 31, 2004, there were 239,619 shares available for purchase under this plan.

Note 17:   Preferred Stock

Class A Preferred Stock

We have 5,000,000 authorized shares of Class A Preferred Stock. Prior to 1998, we had reserved 300,000 shares of Class A Preferred Stock as Series A Junior Preferred Stock under a shareholder rights plan which expired in November 1998. In November 1998, the Board of Directors declared a dividend of one preferred stock purchase right (“Right”) for each outstanding share of common stock, par value $0.20 per share of E&S for shareholders of record on November 19, 1998, and for all future issuances of common stock. The Rights are not currently exercisable or transferable apart from the common stock and do not have voting rights or rights to receive dividends. Each Right entitles the registered holder to

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

purchase from E&S one thousandth of a share of Preferred Stock at a price per share of $60.00, subject to adjustment. The Rights will be exercisable ten business days following a public announcement of a person or group of affiliated persons acquiring beneficial ownership of 15% or more of our outstanding common shares or following the announcement of a tender offer or exchange offer upon the consummation of which would result in the beneficial ownership by a person or group of affiliated persons of 15% or more of the outstanding E&S stock. The Rights may be redeemed by E&S at a price of $0.01 per Right before November 30, 2008.

In the event that we are acquired in a merger or other business combination transaction, provision shall be made so that each holder of a Right, excluding the Rights beneficially owned by the acquiring persons, will have the right to receive, upon exercise thereof at the then current exercise price, that number of common shares of the surviving company which at the time of such transaction will have a market value of two times the exercise price of the Right. In the event that a person or group of affiliated persons acquires beneficial ownership of 15% or more of our outstanding common shares, provision shall be made so that each holder of a Right, excluding the Rights beneficially owned by the acquiring persons, shall have the right to receive, upon exercise thereof, a share of common stock at a purchase price equal to 50% of the then current exercise price.

On August 13, 2004, E&S and American Stock Transfer & Trust Company amended the Rights to allow Peter R. Kellog to acquire beneficial ownership up to 19.9% of our outstanding common shares without triggering the exercisability of the Rights. On June 7, 2000, E&S and American Stock Transfer & Trust Company amended the Rights to allow the State of Wisconsin Investment Board to acquire beneficial ownership up to 19.9% of our outstanding common shares without triggering the exercisability of the Rights.

Class B Preferred Stock

We have 5,000,000 authorized shares of Class B Preferred Stock. As of December 31, 2004 and 2003, no shares were outstanding.

Note 18:   Net Loss per Common Share

Net loss per common share is computed based on the weighted-average number of common shares and, as appropriate, dilutive common stock equivalents outstanding during the period. Stock options and the 6% Debentures are considered to be common stock equivalents.

Basic net loss per common share is the amount of net loss for the period attributable to each share of common stock outstanding during the reporting period. Diluted net loss per share is the amount of net loss for the period attributable to each share of common stock outstanding during the reporting period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the period.

In calculating net loss per common share, the net loss was the same for both the basic and diluted calculation. The diluted weighted average number of common shares outstanding during 2004, 2003 and 2002 excludes common stock issuable pursuant to outstanding stock options and the 6% Debentures because such inclusions of common stock equivalents would have had an anti-dilutive effect on loss per common share. The total number of common stock equivalents excluded from diluted loss per share was approximately 2,611,000, 2,772,000 and 2,838,000 in 2004, 2003 and 2002, respectively.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 19:   Geographic Information

The table below presents sales by geographic location of our customers during the fiscal year. Sales within individual countries greater than 10% of consolidated sales are shown separately:

Region or Country	2004		2003		2002
United States	$	28,760	$	39,580	$	74,220
United Kingdom	13,714		11,924		25,821
Europe (excluding United Kingdom)	16,663		15,681		10,287
Pacific Rim	8,778		14,655		8,889
Other	1,244		2,936		3,361
Total sales	$	69,159	$	84,776	$	122,578

The table below presents net property, plant and equipment by geographic location based on the location of the assets at fiscal year-end:

	2004		2003
United States	$	20,512	$	23,332
Europe	241		783
Total property, plant and equipment, net	$	20,753	$	24,115

Note 20:   Significant Customers

The table below summarizes, as a percentage of total sales, sales to customers equal to or exceeding 10% of total sales during fiscal year:

Customer	2004		2003		2002
Customer A	12	%	n/a			16	%
Customer B	11	%	18	%		29	%
Customer C	n/a		n/a			14	%

At December 31, 2004, accounts receivable from Customer A and Customer B were 17% and 10%, respectively, of gross receivables and costs and estimated earnings in excess of billings from Customer A was 22% of the total. In addition, at December 31, 2004, accounts receivable from one other customer was 19% of gross receivables. Also at December 31, 2004, two customers had costs and estimated earnings in excess of billings of 15% and 11% of the total.

At December 31, 2003, accounts receivable from one customer was 12% of gross receivables. Also at December 31, 2003, three customers had costs and estimated earnings in excess of billings of 30%, 23% and 11% of total earnings in excess.

Note 21:   Restructuring Charges

The table below represents the restructuring provision activity during our fiscal year:

				Restructuring				Severance
	Beginning			charges				benefits			Ending
Fiscal Year	balance			(recovery)				paid			balance
2004		$	1,618		$	(491	)		$	1,066	$	61
2003		2,032			3,416				3,830		1,618
2002		990			4,492				3,450		2,032

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The restructuring charges incurred in fiscal years 2003 and 2002 were initiated in order to reduce the overall cost structure of the Company. These decisions were based on our analysis of our internal operations and productivity, our customer commitments, our research and development strategy, our current and potential markets, our product strategy, and our financial projections for profitability. During this period our requirements for six Harmony 1 contracts that required a significant amount of our resources were decreasing. In addition, the events of September 11, 2001, were continuing to negatively affect our markets and therefore our profitability. However, as conditions changed both internally in the Company and externally in our markets we adjusted our analysis for projected profitability and organization, which resulted in the decisions to restructure. As such, each restructuring was a separate event, and was not intended to be a continuing long-term process. The main component of our cost structure is our labor costs. As such, in order to reduce labor costs this required a reduction in headcount.

In 2001, we initiated a restructuring plan focused on reducing our operating cost structure. As part of the plan, we recorded a charge of $2,843 relating to a reduction in force of approximately 92 employees. We paid $0, $42 and $901 in fiscal years 2004, 2003 and 2002, respectively. We have paid severance benefits of $2,796 related to this restructure plan. In 2004, we recovered $18 of our original accrual due to a re-evaluation of our estimated obligation. At December 31, 2004, we have $29 in severance benefits accrued for our remaining obligation. We expect this to be paid out over the next four years.

In the second quarter of 2002, we recorded a restructuring charge of $1,921 related to a reduction in force of approximately 90 employees. We paid $29, $234 and $1,495 in fiscal years 2004, 2003 and 2002, respectively. In 2004, we recovered $163 of our original accrual due to a re-evaluation of our estimated obligations. We have no further obligations related to this restructure. In the fourth quarter of 2002, we recorded a restructuring charge of $2,571 related to a reduction in force of approximately 140 employees. We paid $36, $1,380 and $1,054 in fiscal years 2004, 2003 and 2002, respectively. In 2004, we recovered $101 of our original accrual due to a re-evaluation of our estimated obligation. We have no further obligations related to this restructure.

In the first quarter of 2003, we recorded a restructuring charge of $1,279 related to a reduction in force of approximately 50 employees. We paid $30 and $1,078 in fiscal years 2004 and 2003, respectively. In 2004, we recovered $139 of our original accrual due to a re-evaluation of our estimated obligation. Our estimated remaining obligation as of the 2004 fiscal year-end is $32. We expect this to be paid out over the next four years. In the third quarter of 2003, we recorded a restructuring charge of $2,137. This charge primarily related to a reduction in force of approximately 70 full-time equivalent employees. We paid $971 and $1,096 in fiscal years 2004 and 2003, respectively. In 2004, we recovered $70 of our original accrual due to a re-evaluation of our estimated obligation. We have no further obligations related to this restructure.

Note 22:   Assets Held for Sale

In June 2004, we sold an office building previously classified as an asset held for sale with a book value of $2,473 for $8,288 net of closing costs. As part of the sale, we entered into a three-year rental guarantee with the buyer, obligating us to make certain monthly payments through June 2007 based on space available for lease in the building sold. As of December 31, 2004, we had a maximum remaining guarantee of $1,755 recorded as an accrued liability. The maximum rental guarantee may decrease as available space is leased by the buyer, based on terms of the rental guarantee. To the extent the maximum rental guarantee is reduced, additional gain will be realized. As of December 31, 2004, 100% of the leaseable space was available. As a result of the sale, we have initially recognized a gain of $3,488.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2003, we sold one office building we had classified as assets held for sale for $4,760 net of closing costs, resulting in a $1,406 gain. In 2002, we sold one office building we had classified as assets held for sale for $2,917, net of closing costs, resulting in a $1,212 gain.

Note 23:   Sale of Assets

In October 2004, we sold our CRT based projector display system assets to Video Display Corporation (“VDC”) for $5,250. As a result, VDC acquired the assets related to the development and manufacture of these projectors. We recorded a gain of $3,662 on the sale of related inventory, including TargetView 100 inventory that was fully impaired in 2003, and related net fixed assets. We also deferred certain of the proceeds related to the completion of developments and improvements we have agreed to complete and warranty obligation increases. To the extent that the cost to complete these developments and improvements is greater than or less than the amount we have accrued for this purpose, we will adjust the realized gain.

Note 24:   Subsequent Event

Since 2001, both our military and commercial markets have consistently decreased in size primarily as a result of diversion of military funds to other needs and reductions in commercial airline purchases of new aircraft. While we expect orders in these markets to increase in 2005 and 2006, we do not expect these market increases to be themselves sufficient to return the Company to profitability in 2005. In order to improve our profitability and cash flow based on our projections for 2005, we initiated a restructuring plan in March 2005 to reduce costs from cost of sales and operating expenses and to improve our cash flow from operations. The largest cost driver of our business is our labor and labor-related costs. As a result, we plan to reduce our aggregate labor force by approximately 60 full-time equivalent employees at an expected cost of $1,625 in severance benefits to be paid out over the next two years. We expect this action to reduce our labor and labor-related costs by approximately $5,140 per year. Due to the timing of the restructuring, we expect to reduce our costs approximately $3,860 in 2005. Our labor reductions were executed primarily in program management, program engineering and R&D engineering.

62

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Evans & Sutherland Computer Corporation:

We have audited the accompanying consolidated balance sheets of Evans & Sutherland Computer Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2004.  In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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 Evans & Sutherland Computer Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/   KPMG LLP

Salt Lake City, Utah

March 31, 2005

63

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

None.

ITEM 9A.CONTROLS AND PROCEDURES

At the end of the fiscal quarter ended December 31, 2003, we carried out an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2003. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed with the SEC is accumulated and communicated to management, including the chief executive officer and chief financial officer to allow timely decisions regarding required disclosure.

Evaluation of Our Internal Controls and Procedures Related to the Restatement

Our evaluation of our internal controls and procedures included an in depth review of all aspects of the matter of certain material weaknesses we identified in the internal controls and procedures of our wholly-owned subsidiary, Evans & Sutherland Computer Limited (“E&S Ltd.”), as more fully disclosed as part of this annual report on Form 10-K, and an in depth review of all aspects of the matter by the Audit Committee, the results of which are described below.

Management and the Audit Committee took a leadership role in assessing the underlying issues giving rise to the restatement and in ensuring proper steps were taken to improve our internal control environment. Based on all information gathered during our in depth review of all aspects of the matter, we cannot conclude that there was misconduct or intentional use of improper accounting practices to manipulate earnings or any fraud or intentional misconduct on the part of our officers or employees. The Audit Committee, however, also concluded that our accounting, financial reporting and internal control functions needed improvement, including our system of documenting transactions. The Audit Committee determined that our management has proactively identified a number of these issues and has appropriately taken steps to address them.

Actions Taken in Response to Our Evaluation

As a result of our findings described above, during 2004, we began implementing the following improvements to our internal control procedures and our disclosure controls and procedures to address the issues we identified in our evaluation of the these controls and procedures and those of our subsidiary, E&S Ltd.:

·We altered our reporting structure so that the finance director of E&S Ltd. reports directly to our chief financial officer.

·We appointed a Director of Internal Control whose primary responsibilities are to oversee the establishment of formalized policies and procedures throughout our organization and to document, assess, and improve our system of internal controls.

·We instituted rigorous procedures for quarter-end analysis and review of balance sheet and income statement accounts, period-end reconciliations of subsidiary ledgers, and the investigation and correction of reconciling items in a timely manner. We are also enhancing our accounting documentation policies and internal test work of our controls.

64

·We adopted the process currently employed by E&S for the financial controls and procedures employed at E&S Ltd., whereby E&S uses monthly sales audit schedules and reconciles such schedules to the general ledger.

·We instituted new procedures around our quarterly reporting processes whereby significant accounting issues are discussed and documented, reviewed with our external auditors and the Audit Committee, formally approved by our management, and given timely effect in our books and records.

·We began reconciling, on a monthly basis, operational assessments of the status of completion of each contract program and the financial accounting and reporting of such status.

·We established several additional internal control processes at E&S Ltd. and will continue to improve, document and test our UK controls as part of our Sarbanes-Oxley Section 404 compliance process.

We believe that our internal controls and procedures and our disclosure controls and procedures have improved due to the scrutiny of such controls and procedures by management and the Audit Committee and the implementation of the actions described above. We believe our internal controls and procedures and our disclosure controls and procedures will continue to improve as a result.

Based in part upon these changes, our principal executive officer and principal financial officer believe that as of December 31, 2004, our disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Other than as described above, there have been no significant changes in our internal controls and procedures identified in our in depth review of those accounting practices and errors giving rise to our restatement that have materially affected, or are reasonably likely to materially affect, our internal controls and procedures subsequent to the date of our evaluation.

ITEM 9B.  OTHER INFORMATION

None.

65

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS

Certain information required by Item 401 of Regulation S-K will be included under the caption “Election of Directors” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is incorporated herein by reference. Information required by Item 405 of Regulation S-K will be included under the caption “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is incorporated herein by reference. Certain information required by Item 401 of Regulation S-K is included in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.”

Evans & Sutherland maintains a Code of Ethics and Business Conduct which is applicable to all employees, including all officers, and including our independent non-employee directors with regard to Evans & Sutherland related activities. The Code of Ethics and Business Conduct incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications. In addition, they incorporate our expectations of our employees concerning prompt internal reporting of violations of our Code of Ethics and Business Conduct.

The full text of the Evans & Sutherland Code of Ethics and Business Conduct is published on our Investors Relations website at www.es.com. We intend to disclose future amendments to certain provisions of our Code of Ethics and Business Conduct or waivers of such provisions granted to executive officers and directors, on this website within four business days following the date of such amendment or waiver.

ITEM 11.EXECUTIVE COMPENSATION

The information required by this item will be included under the captions “Executive Compensation” and “Election of Directors” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is herein incorporated by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 403 of Regulation S-K will be included under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is herein incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

						Number of securities
	Number of securities					remaining available for
	to be issued upon		Weighted average			for future issuance
	exercise of		exercise price of			under equity compensation
	outstanding options,		outstanding options,			Plans (excluding securities
	warrants, and rights		warrants, and rights			Reflected in column (a))
	(a)		(b)			(c)
Equity compensation plans approved by security holders		2,183,052		$	10.68		730,895
Equity compensation plans not approved by security holders		—		—			—
Total		2,183,052		$	10.68		730,895

66

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 404 of Regulation S-K will be included under the caption “Certain Relationships and Related Party Transactions” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is herein incorporated by reference.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 will be included under the caption “Report of the Audit Committee of the Board of Directors” in the Proxy Statement for our 2005 Annual Meeting of Shareholders and that information is herein incorporated by reference.

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)List of documents filed as part of this report

1.Financial Statements

The following consolidated financial statements are included in Part II, Item 8 of this report on Form 10-K.

·Consolidated Balance Sheets as of December 31, 2004 and 2003

·Consolidated Statement of Operations for each of the years in the three-year period ended December 31, 2004

·Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for each of the years in the three-year period ended December 31, 2004

·Consolidated Statement of Cash Flows for each of the years in the three-year period ended December 31, 2004

·Notes to Consolidated Financial Statements

2.Financial Statement Schedules

The following financial statement schedule I filed as part of this report on Form 10-K.

·Schedule II—Valuation and Qualifying Accounts

Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is presented in the consolidated financial statements or the notes thereto.

67

3.Exhibits

Articles of Incorporation and Bylaws

3.1.1	Articles of Incorporation, as amended, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 25, 1987, and incorporated herein by this reference.
3.1.2	Amendments to Articles of Incorporation filed as Exhibit 3.1.1 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 30, 1988, and incorporated herein by this reference.
3.1.3	Certificate of Designation, Preferences and Other Rights of the Class B-1 Preferred Stock of Evans & Sutherland Computer Corporation, filed as Exhibit 3.1 to Evans & Sutherland Computer Corporation’s Form 10-Q, SEC File No. 000-08771, for the quarter ended September 25, 1998, and incorporated herein by this reference.
3.2.1	Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.2 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
3.2.2	Amendment No. 1 to the Amended and Restated Bylaws of Evans & Sutherland Computer Corporation, filed as Exhibit 3.3 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.

Instruments defining the rights of security holders

4.1	Form of Rights Agreement, dated as of November 19, 1998, between Evans & Sutherland Computer Corporation and American Stock Transfer Trust Company which includes as Exhibit A, the form of Certificate of Designation for the Rights, as Exhibit B, the form of Rights Certificate and as Exhibit C, a Summary of Rights, filed as Exhibit 1 to Evans & Sutherland Computer Corporation’s Registration Statement on Form 8-A filed December 8, 1998, and incorporated herein by this reference.
4.2	First Amendment to Rights Agreement dated as of June 7, 2000 between Evans & Sutherland Computer Corporation and American Stock Transfer & Trust Company, filed as Exhibit 10.14 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by this reference.
4.3	Second Amendment to Rights Agreement dated as of August 13, 2004 between Evans & Sutherland Computer Corporation and American Stock Transfer & Trust Company, filed as Exhibit 4.1 to Evans & Sutherland Computer Corporation’s Form 8-K filed on August 16, 2004, and incorporated herein by this reference.

68

Material contracts

Management contracts and compensatory plans

10.1	1985 Stock Option Plan, as amended, filed as Exhibit 1 to Evans & Sutherland Computer Corporation’s Post-Effective Amendment No. 1 to Registration Statement on Form S-8, SEC File No. 2-76027, and incorporated herein by this reference.
10.2	1989 Stock Option Plan for Non-employee Directors, filed as Exhibit 10.5 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 29, 1989, and incorporated herein by this reference.
10.3	1991 Employee Stock Purchase Plan of Evans & Sutherland Computer Corporation, as amended as of February 21, 2001, filed as exhibit 4.1 to Evans & Sutherland Computer Corporation’s Post Effective Amendment No. 1 to Registration Statement on Form S-8, SEC File No. 33-39632, and incorporated herein by this reference.
10.4	Evans & Sutherland Computer Corporation 1998 Stock Option Plan, as amended as through May 17, 2000, filed as exhibit 4.1 to Evans & Sutherland Computer Corporation’s Post Effective Amendment No. 1 to Registration Statement on Form S-8, SEC File No. 333-58733, and incorporated herein by this reference.
10.5	Evans & Sutherland Computer Corporation’s 1995 Long-Term Incentive Equity Plan, filed as Exhibit 10.11 to Evans & Sutherland Computer Corporation’s Annual Report on Form 10-K, SEC File No. 000-08771, for the fiscal year ended December 29, 1995, and incorporated herein by this reference.
10.6	Evans & Sutherland Computer Corporation 2004 Stock Incentive Plan, filed as Annex A to Evans & Sutherland’s Form 14A, SEC File No. 001-14667, filed on April 19, 2004 and incorporated herein by this reference.
10.7	Amended and restated Evans & Sutherland Computer Corporation’s Supplemental Executive Retirement Plan (SERP), dated May 16, 2002, filed as Exhibit 10.38 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.8	Amended and restated Evans & Sutherland Computer Corporation’s Executive Savings Plan, dated May 16, 2002, filed as Exhibit 10.39 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.9	Employment agreement between Evans & Sutherland Computer Corporation and James R. Oyler, dated May 16, 2000, filed as Exhibit 10.6 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by this reference.
10.10	Amendment to employment agreement between Evans & Sutherland Computer Corporation and James R. Oyler, dated September 22, 2000, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 29, 2000, and incorporated herein by this reference.
10.11	Amended and restated employment agreement between Evans & Sutherland Computer Corporation and David B. Figgins, dated August 26, 2002, filed as Exhibit 10.37 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
10.12	Amended and restated employment agreement between Evans & Sutherland Computer Corporation and E. Thomas Atchison, dated July 1, 2003, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 26, 2003, and incorporated herein by reference
10.13	Employment agreement between Evans & Sutherland Computer Corporation and Kevin A. Paprzycki, effective August 19, 2004, filed herein.
10.14	Employment agreement between Evans & Sutherland Computer Corporation and Kirk Johnson, dated August 26, 2002, filed herein.

69

Other material contracts

10.15	Overdraft Facility agreement between Evans & Sutherland Computer Limited and Lloyds TSB Bank plc, dated March 15, 2004, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended April 2, 2004, and incorporated herein by reference.
10.16	Asset Purchase and Intellectual Property License Agreement between Real Vision Inc. and Evans & Sutherland Computer Corporation, dated August 31, 2001, filed as Exhibit 10.1 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 28, 2001, and incorporated herein by reference.
10.17	Initial License Agreement between Real Vision Inc. and Evans & Sutherland Computer Corporation, dated August 31, 2001, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 28, 2001, and incorporated herein by reference.
10.18	Patent Purchase and License Agreement between Nvidia International Inc., Evans & Sutherland Computer Corporation, and Evans & Sutherland Graphics Corporation, dated October 15, 2001, filed as Exhibit 10.57 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2001, and incorporated herein by this reference.
10.19	Patent Cross License Agreement between Nvidia Corporation and Evans & Sutherland Computer Corporation, dated October 15, 2001, filed as Exhibit 10.58 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2001, and incorporated herein by this reference. Certain information in this exhibit was omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.
10.20	Amendment Number Five to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated July 16, 2003, filed as Exhibit 10.2 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 26, 2003, and incorporated herein by reference.
10.21	Amendment Number Six to Loan and Security Agreement and Waiver by and between Foothill Capital Corporation and Evans & Sutherland Computer Corporation, dated July 25, 2003, filed as Exhibit 10.3 to Evans & Sutherland Computer Corporation’s Form 10-Q for the quarter ended September 26, 2003, and incorporated herein by reference.
10.22	Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.42 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference herein.
10.23	Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.43 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference herein.

70

10.24	Leasehold Deed of Trust, Assignment of Rents, Security Agreement and Fixture filing between Evans & Sutherland Computer Corporation, Chicago Title Company, Foothill Capital Corporation, dated December 14, 2000, filed as Exhibit 10.44 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.25	Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.45 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.26	Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.46 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.27	Absolute Assignment of Sub-Leases and Rent by Evans & Sutherland Computer Corporation, dated December 14, 2000, filed as Exhibit 10.47 to Evans & Sutherland Computer Corporation’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference
10.28	Asset Purchase Agreement between Video Display Corporation and Evans & Sutherland Computer Corporation, dated October 12, 2004, filed herein. Certain information in this exhibit was omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.
10.29	Credit Agreement between Evans & Sutherland Computer Corporation and Wells Fargo Bank, National Association effective December 1, 2004, filed herein.
10.30	Security Agreement between Evans & Sutherland Computer Corporation and Wells Fargo Bank, National Association effective December 1, 2004, filed herein. Certain information in this exhibit was omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

Subsidiaries of the registrant

21.1 Subsidiaries of Registrant, filed herein.

Consent of experts and counsel

23.1 Consent of Independent Registered Public Accounting Firm, filed herein.

Power of attorney

24.1 Powers of Attorney for Messrs. James R. Oyler, Kevin A. Paprzycki, Wolf-Dieter Hass, David J. Coghlan, William Schneider, and James P. McCarthy, filed herein.

Rule 13a-14(a)/15d-14(a) Certifications

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended, filed herein.

Section 1350 Certifications

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herein.

71

TRADEMARKS USED IN THIS FORM 10-K

E&S, ESLP, Harmony, ESIG, ESCP, ECT, simFUSION, EPX, EP, Environment Processor and Digistar are trademarks or registered trademarks of Evans & Sutherland Computer Corporation.  All other product, service, or trade names or marks are the properties of their respective owners.

72

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Evans & Sutherland Computer Corporation and Subsidiaries

				Additions				Deductions
				charged				charged
	Balance			(reversed)				(recovered)			Balance
	at beginning			to cost and				against			at end of
	of year			expenses				provision			year
Allowance for doubtful receivables
December 31, 2004		$	351		$	326			$	27	$	650
December 31, 2003		856			68				573		351
December 31, 2002		6,413			(734		)		4,823		856
Inventory reserves
December 31, 2004		$	24,256		$	2,231			$	11,380	$	15,107
December 31, 2003		9,716			16,065				1,525		24,256
December 31, 2002		7,429			3,194				907		9,716
Warranty reserves
December 31, 2004		$	1,290		$	1,188			$	1,007	$	1,471
December 31, 2003		968			2,274				1,952		1,290
December 31, 2002		1,966			617				1,615		968
Accrued liquidated damages and penalties
December 31, 2004		$	1,734		$	115			$	1,287	$	562
December 31, 2003		1,050			1,850				1,166		1,734
December 31, 2002		1,500			150				600		1,050

73

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.

EVANS & SUTHERLAND COMPUTER CORPORATION(REGISTRANT)
	By:	/s/ James R. Oyler
		James R. Oyler—President and Chief Executive Officer
	By:	/s/ Kevin A. Paprzycki
		Kevin A. Paprzycki—Chief Financial Officer

Date: March 31, 2005

Pursuant to the requirements of the Securities and 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.

*

David J. Coghlan—Chairman of the Board

*

Wolf-Dieter Hass—Director

*

William Schneider, Jr.—Director

*

James P. McCarthy—Director

By:	/s/ Kevin A. Paprzycki
	* Attorney-in-Fact
Date: March 31, 2005

74

EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into effective as of the 19th day of August, 2004, by and between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation (the “Company”) and Kevin A. Paprzycki (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive has provided services to the Company in an executive capacity and desires to continue to provide such services;

WHEREAS, the Company desires to have the benefit of the Executive’s efforts and services;

WHEREAS, the Company and the Executive desire to terminate all prior employment agreements with the Company, if any; and

WHEREAS, the Company determined that it is appropriate and in the best interests of the Company to provide to the Executive protection in the event of certain terminations of the Executive’s employment relationship with the Company in accordance with the terms and conditions contained herein and the Executive desires to have such protection.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the Company and the Executive hereto mutually covenant and agree as follows:

1.DEFINITIONS.

Whenever used in this Agreement, the following terms shall have the meanings set forth below:

(a)“Accrued Benefits” shall mean the amount equal to the sum of the following to the extent not previously paid:

(i)All salary earned or accrued through the Termination Date;

(ii)Reimbursement pursuant to Section 6(d) for any and all monies expended by the Executive and not advanced by Company in connection with the Executive’s employment for reasonable and necessary expenses incurred by the Executive through the Termination Date;

(iii)Any and all other cash benefits of deferred compensation plans previously earned through the Termination Date unless deferred at the election of

the Executive for payment at another time or the applicable deferred compensation plan provides for payment at another time;

(iv)The full amount of any bonus earned in a prior period and payable to the Executive in accordance with Section 6(b) herein, subject to the limitations in Section 10 and Section 12; and

(v)All other payments and benefits to which the Executive may be entitled under the terms of any benefit plan of the Company, which as of the Termination Date, is applicable to all regular full-time employees of the Company generally.

(b)“Act” shall mean the Securities Exchange Act of 1934;

(c)“Affiliate” shall have the same meaning as given to that term in Rule 12b-2 of Regulation 12B promulgated under the Act;

(d)“Base Period Income” shall be an amount equal to the Executive’s “annualized includable compensation” for the “base period” as defined in Sections 280G(d)(1) and (2) of the Code and the regulations adopted thereunder;

(e)“Beneficial Owner” shall have the same meaning as given to that term in Rule 13d-3 of the Act, provided that any pledgee of Company voting securities shall not be deemed to be the Beneficial Owner thereof prior to its disposition of, or acquisition of voting rights with respect to, such securities;

(f)“Board” shall mean the Board of Directors of the Company;

(g)“Cause” shall mean any of the following:

(i)The engaging by the Executive in fraudulent conduct, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;

(ii)Conviction of a felony, as evidenced by a binding and final judgment, order or decree of a court of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;

(iii)Neglect or refusal by the Executive to perform the Executive’s duties or responsibilities; or

2

(iv)A significant violation by the Executive of the Company’s established policies and procedures;

Notwithstanding the foregoing, Cause shall not exist under Sections 1(g)(iii) and (iv) herein unless the Company furnishes written notice to the Executive of the specific offending conduct and the Executive fails to correct such offending conduct within the thirty (30) day period commencing on the receipt of such notice.

(h)“Change of Control” shall mean a change in ownership or managerial control of the stock, assets or business of the Company resulting from one or more of the following circumstances:

(i)A change of control of the Company, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, or any successor regulation of similar import, regardless of whether the Company is subject to such reporting requirement;

(ii)A change in ownership of the Company through a transaction or series of transactions, such that any Person or Persons (other than any current officer of the Company or member of the Board) become(s), in the aggregate, the Beneficial Owner(s), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the Company’s then outstanding securities;

(iii)Any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the common stock of the Company would be converted into cash (other than cash attributable to dissenters’ rights), securities or other property provided by a Person or Persons other than the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger have approximately the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger;

(iv)The shareholders of the Company approve a sale, transfer, liquidation or other disposition of all or substantially all of the assets of the Company to a Person or Persons;

(v)During any period of two (2) consecutive years, individuals who, at the beginning of such period, constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period;

3

(vi)The filing of a proceeding under Chapter 7 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for liquidation with respect to the Company; or

(vii)The filing of a proceeding under Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for reorganization with respect to the Company if in connection with any such proceeding, this Agreement is rejected, or a plan of reorganization is approved an element of which plan entails the liquidation of all or substantially all the assets of the Company.

A “Change of Control” shall be deemed to occur on the actual date on which any of the foregoing circumstances shall occur; provided, however, that in connection with a “Change of Control” specified in Section 1(h)(vii), a “Change of Control” shall be deemed to occur on the date of the filing of the relevant proceeding under Chapter 7 or Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import).  Notwithstanding the foregoing, a “Change of Control” shall not include any transaction that constitutes a “Rule 13e-3 transaction” under Rule 13e-3 of the Act or an “issuer tender offer” under Rule 13e-4 of the Act.

(i)“Change of Control Period” shall mean the period commencing 180 days immediately prior to the date a Change of Control is deemed to occur pursuant to Section 1(h), herein, and ending on the second anniversary of such date of Change of Control;

(j)“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time;

(k)“Disability” shall mean a physical or mental condition whereby the Executive is unable to perform on a full-time basis the customary duties of the Executive under this Agreement;

(l)“Federal Short Term Rate” shall mean the rate defined in Section 1274(d)(1)(C)(i) of the Code;

(m)“Good Reason” shall mean any of the following:

(i)The required relocation of the Executive, without the Executive’s consent, to an employment location which is more than seventy-five (75) miles from the Executive’s employment location on the day preceding the date of this Agreement; or

(ii)Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive.

(n)“Good Reason During a Change of Control” shall mean any of the following events occurring during a Change of Control Period:

4

(i)The required relocation of the Executive, without the Executive’s consent, to an employment location which is more than seventy-five (75) miles from the Executive’s employment location on the day preceding the date of this Agreement;

(ii)The removal of the Executive from or any failure to reelect the Executive to any of the positions held by the Executive during the 180-day period immediately preceding the Change of Control Period, except in the event that such removal or failure to reelect relates to the termination by the Company of the Executive’s employment for Cause or by reason of death, Disability or voluntary retirement;

(iii)A significant adverse change, without the Executive’s written consent, in the nature or scope of the Executive’s authority, powers, functions, duties or responsibilities that existed during the 180-day period immediately preceding the Change of Control Period, or a material reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements available to a level below that which was provided to the Executive during the 180-day period immediately preceding the Change of Control Period, and that which is necessary to perform any duties assigned to the Executive during the 180-day period immediately preceding the Change of Control Period; or

(iv)Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive;

(o)“Gross Income” shall mean the Executive’s current calendar year targeted compensation under Sections 6(a) and (b) of this Agreement;

(p)“Notice of Termination” shall mean the notice described in Section 14 herein;

(q)“Person” shall mean any individual, partnership, joint venture, association, trust, corporation or other entity, other than an employee benefit plan of the Company or an entity organized, appointed or established pursuant to the terms of any such benefit plan;

(r)“Termination Date” shall mean, except as otherwise provided in Section 14 herein,

(i)The Executive’s date of death;

(ii)Thirty (30) days after the delivery of the Notice of Termination terminating the Executive’s employment on account of Disability pursuant to Section 9 herein, unless the Executive returns on a full-time basis to the performance of his or her duties prior to the expiration of such period;

5

(iii)Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Executive voluntarily;

(iv)Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Company for any reason other than death or Disability; or

(v)The date the Executive is terminated for Cause.

(s)“Termination Payment” shall mean the payment described in Section 13 herein;

(t)“Total Payments” shall mean the sum of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive, the receipt of which is contingent on a Change of Control and to which Section 280G of the Code applies.

2.EMPLOYMENT.

The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein.

3.TERM.

The employment of the Executive by the Company pursuant to the provisions of this Agreement shall commence on the date hereof and end on that date employment of the Executive is terminated pursuant to the terms and conditions of either Section 8, 9, 10, 11 or 12, herein.

4.POSITIONS AND DUTIES.

The Executive shall serve as Chief Financial Officer and Secretary of the Company and in such additional capacities as set forth in Section 7 herein.  In connection with the foregoing positions, the Executive shall have such duties, responsibilities and authority as may from time to time be assigned to the Executive by the Chief Executive Officer.  The Executive shall devote substantially all the Executive’s working time and efforts to the business and affairs of the Company.  The Chief Executive Officer, in his or her sole discretion, may alter, modify, or change the Executive’s duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time, consistent with the status of a senior executive of the Company.

5.PLACE OF PERFORMANCE.

In connection with the Executive’s employment by the Company, the Executive shall be based at the principal executive offices of the Company in Salt Lake City, Utah except for required travel on Company business.

6

6.COMPENSATION AND RELATED MATTERS.

(a)Salary.  The Company shall pay to the Executive an annualized base salary at a rate of $135,000.00 in equal installments as nearly as practicable on the Company’s regular payroll dates, in arrears.  Such annualized base salary may be increased from time to time in accordance with normal business practices of the Company.  The annualized base salary of the Executive shall not be decreased below its then existing amount during the term of this Agreement;

(b)MIP.  Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Evans & Sutherland Management Incentive Plan (the “MIP”), the Executive shall be entitled to participate in the MIP as agreed in writing in a MIP document;

(c)Executive Savings Plan.  Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Company’s Executive Savings Plan, the Executive shall be entitled to participate in the Executive Savings Plan according to the terms and conditions of the Executive Savings Plan.

(d)Expenses.  The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses for travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company at the time incurred;

(e)Other Benefits.  The Company shall provide the Executive with all other benefits normally provided to an employee of the Company similarly situated to the Executive, including being added as a named officer on the Company’s existing directors’ and officers’ liability insurance policy.  Such D&O policy and replacement or successor policies, including any extended reporting period for a current policy in the event the current policy is written on a claims made basis, shall provide continuous coverage for claims which may be brought against Executive in connection with Executive’s employment while a named officer of the Company regardless of when a claim is made, including claims brought post-termination.  In the event of a Change of Control, the Executive will be a named officer under a policy that provides continuous coverage comparable to coverage in effect before the Change of Control.

(f)Vacations.  The Executive shall be entitled to the number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, determined in accordance with the Company’s vacation plan as in effect from time to time.  The Executive shall also be entitled to all paid holidays given by the Company to its executives; and

(g)Services Furnished.  The Company shall furnish the Executive with office space, and such other facilities and services as shall be suitable to the Executive’s position and adequate for the performance of the Executive’s duties as set forth in Section 4 hereof.

7

7.OFFICES.

The Executive agrees to serve without additional compensation, if elected or appointed thereto, in one or more executive offices of the Company, or any affiliate or subsidiary of the Company, or as a member of the board of directors of any subsidiary or affiliate of the Company; provided, however, that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided in the Company’s bylaws, or otherwise.

8.TERMINATION AS A RESULT OF DEATH.

If the Executive shall die during the term of this Agreement, the Executive’s employment shall terminate on the Executive’s date of death and the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse, shall be entitled to the Executive’s Accrued Benefits as of the Termination Date and the applicable Termination Payment.

9.TERMINATION FOR DISABILITY.

If, as a result of the Executive’s Disability, the Executive shall have been unable to perform the Executive’s duties hereunder on a full-time basis for four (4) consecutive months and within thirty (30) days after the Company provides the Executive with a Termination Notice, the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis, the Company may terminate the Executive’s employment, subject to Section 14 herein.  During the term of the Executive’s Disability prior to termination, the Executive shall continue to receive all salary and other benefits payable under Section 6 herein, including participation in all employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Disability; provided, however, that the Executive’s continued participation is permitted under the terms and provisions of such plans, programs and arrangements.  In the event that the Executive’s participation in any such plan, program or arrangement is barred as the result of such Disability, the Executive shall be entitled to receive an amount equal to the contributions, payments, credits or allocations which would have been paid by the Company to the Executive, to the Executive’s account or on the Executive’s behalf under such plans, programs and arrangements.  In the event the Executive’s employment is terminated on account of the Executive’s Disability in accordance with this Section 9, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall remain eligible for all benefits provided by any long-term disability programs of the Company in effect at the time of such termination.  The Executive shall also be entitled to the Termination Payment described in Section 13(a).

10.TERMINATION FOR CAUSE.

If the Executive’s employment with the Company is terminated by the Company for Cause, subject to the procedures set forth in Section 14 herein, the Executive shall be entitled to receive the Executive’s Accrued Benefits as of the Termination Date, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv).  The Executive shall not be entitled to receipt of any Termination Payment.

8

11.OTHER TERMINATION BY COMPANY.

From and after the date of this Agreement, provided that the Company furnishes thirty (30) days prior written notice to the Executive, the Company shall have the right to terminate this Agreement at any time, with or without Cause.  If the Executive’s employment with the Company is terminated by the Company other than by reason of death, Disability or Cause, subject to the procedures set forth in Section 14 herein, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment.  The Executive shall not, in connection with any consideration receivable in accordance with this Section 11, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.

12.VOLUNTARY TERMINATION BY EXECUTIVE.

From and after the date of this Agreement, provided that the Executive furnishes thirty (30) days prior written notice to the Company, the Executive shall have the right to voluntarily terminate this Agreement at any time.  If the Executive’s voluntary termination is without Good Reason or without Good Reason During a Change of Control, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall not be entitled to any Termination Payment, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv).  If the Executive’s voluntary termination is for Good Reason or Good Reason During a Change of Control, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment.  The Executive shall not, in connection with any consideration receivable in accordance with this Section 12, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.

13.TERMINATION PAYMENT.

(a)If the Executive’s employment is terminated as a result of death or Disability, the Executive shall receive a Termination Payment equal to one (1.0) times the Executive’s Gross Income.  The Company will also pay the full medical, dental, and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following the Termination Date.

(b)If, prior to a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason or by the Company other than by reason of death, Disability or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be one (1.0) times the Executive’s Gross Income.  The Company will pay the full medical, dental, and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following the Termination Date.

9

(c)If, during a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason During a Change of Control or by the Company for any reason other than death, Disability, or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be one (1.0) times the Executive’s Gross Income.  The Company will pay the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one (1) year following the Termination Date.

(d)It is the intention of the Company and the Executive that the benefits under this Agreement shall be capped such that no portion of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive under this Agreement, or under any other agreement, plan or arrangement, shall be deemed to be an “excess parachute payment” as defined in Section 280G of the Code.  It is agreed that the present value of the Total Payments shall not exceed an amount equal to two and ninety-nine hundredths (2.99) times the Executive’s Base Period Income, which is the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G(a) of the Code.  Present value for purposes of this Agreement shall be calculated in accordance with the regulations issued under Section 280G of the Code.  Within sixty (60) days following delivery of the Notice of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code, the Executive and the Company shall, at the Company’s expense, obtain such opinions as more fully described hereafter, which need not be unqualified, of legal counsel and certified public accountants or a firm of recognized executive compensation consultants.  The Executive shall select said legal counsel, certified public accountants and executive compensation consultants; provided, however, that if the Company does not accept one (1) or more of the parties selected by the Executive, the Company shall provide the Executive with the names of such legal counsel, certified public accountants and/or executive compensation consultants as the Company may select; provided, further, however, that if the Executive does not accept the party or parties selected by the Company, the legal counsel, certified public accountants and/or executive compensation consultants selected by the Executive and the Company, respectively, shall select the legal counsel, certified public accountants and/or executive compensation consultants, whichever is applicable, who shall provide the opinions required by this Section 13(d).  The opinions required hereunder shall set forth (a) the amount of the Base Period Income of the Executive, (b) the present value of Total Payments and (c) the amount and present value of any excess parachute payments.  In the event that such opinions determine that there would be an excess parachute payment, the Termination Payment or any other payment determined by such counsel to be includable in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his or her receipt of such opinions or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment.  The provisions of this Section 13(d), including the

10

calculations, notices and opinions provided for herein shall be based upon the conclusive presumption that the compensation and other benefits, including but not limited to the Gross Income, earned on or after the date of a Change of Control by the Executive pursuant to the Company’s compensation programs if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change of Control, are reasonable compensation for services rendered prior to the Change of Control; provided, however, that in the event legal counsel so requests in connection with the opinion required by this Section 13(d), a firm of recognized executive compensation consultants, selected by the Executive and the Company pursuant to the procedures set forth above, shall provide an opinion, upon which such legal counsel may rely, as to the reasonableness of any item of compensation as reasonable compensation for services rendered prior to the Change of Control by the Executive.  In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section 13(d) shall be of no further force or effect.

(e)The Termination Payment shall be paid to the Executive as follows:

(i)In the event the Executive’s Termination Date is during a Change of Control Period, any Termination Payment shall be paid in a lump sum not later than ten (10) days following the Executive’s Termination Date.  Such lump sum payment shall not be reduced by any present value, interest rate, or similar factor.  Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.

(ii)In the event the Executive’s Termination Date is prior to or after a Change of Control Period, any Termination Payment shall be paid to the Executive in equal installments on the Company’s twenty-six (26) regular bi-weekly paydays over the twelve-month period following the Termination Date.  Such payments shall not be reduced or increased by any present value, interest rate, or similar factor.  Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.

(f)Notwithstanding anything to the contrary herein, in no event will a termination of the Executive’s employment with the Company be deemed to trigger a right to receive a Termination Payment if the termination is effected by the mutual written agreement of the Company and the Executive to accommodate a reassignment of the Executive to an entity created or acquired by the Company, or to which the Company has contributed rights to technology, assets or business plans, if at the time of such termination the Company owns or is acquiring a minimum of a 19% equity interest in such entity.  In the event of any such termination, the Executive shall only be entitled to receive the Executive’s Accrued Benefits as of the Termination Date.

11

14.TERMINATION NOTICE AND PROCEDURE.

Any termination by the Company or the Executive of the Executive’s employment during the employment period shall be communicated by written Notice of Termination (“Notice of Termination”) to the Executive, if such Notice of Termination is delivered by the Company, and to the Company, if such Notice of Termination is delivered by the Executive, all in accordance with the following procedures:

(a)The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances alleged to provide a basis for termination;

(b)Any Notice of Termination by the Company shall be approved by a resolution duly adopted by a majority of the Board, or a majority of the Board may delegate such authority to approve any Notice of Termination to the Chief Executive Officer of the Company;

(c)If the Executive shall in good faith furnish a Notice of Termination for Good Reason or for Good Reason During a Change of Control and the Company notifies the Executive that a dispute exists concerning the existence of Good Reason or Good Reason During a Change of Control, within the fifteen (15) day period following the Company’s receipt of such notice, the Executive shall continue the Executive’s employment during such dispute.  If it is thereafter agreed by the parties to this Agreement or determined by arbitration that (i) Good Reason or Good Reason During a Change of Control did exist, the Executive’s Termination Date shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to Section 16, (B) the date of the Executive’s death or (C) one day prior to the second (2nd) anniversary of a Change of Control, if any,  or (ii) Good Reason or Good Reason During a Change of Control did not exist, the employment of the Executive shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason or Good Reason During a Change of Control; and

(d)If the Executive gives Notice of Termination of his or her employment for Good Reason or Good Reason During a Change of Control and a dispute arises as to the existence of Good Reason or Good Reason During a Change of Control, and the Executive does not continue his employment during such dispute, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by the Executive, the Executive shall be deemed to have voluntarily terminated the Executive’s employment other than for Good Reason or Good Reason During a Change of Control.

15.NON-COMPETE.

The Executive hereby agrees that during the term of this Agreement and for the period of one (1) yearfrom the termination hereof, that the Executive will not:

(a)Own, manage, operate or control any business within the United States of the type and character engaged in and competitive with the Company or any subsidiary

12

thereof.  For purposes of this Section 15, ownership of securities of not in excess of five percent (5%) of any class of securities of a public company shall not be considered to be competition with the Company or any subsidiary thereof; or

(b)Act as, or become employed as, an officer, director, employee, consultant or agent of any business within the United States of the type and character engaged in and competitive with the Company or any of its subsidiaries; or

(c)Solicit any similar business to that of the Company’s for, or sell any products that are in competition with the Company’s products to, any company in the United States, which is, as of the date hereof or through the Termination Date, a customer or client of the Company or any of its subsidiaries, or was such a customer or client thereof within two years prior to the Termination Date; or

(d)Solicit the employment of (i) any employee of the Company or its subsidiaries that is an employee at anytime during this term of this Agreement or during the one year period following the termination of this Agreement or (ii) any former employee of the Company or its subsidiaries who was employed by the Company or its subsidiaries during the one (1) year period preceding the Termination Date.

For purposes of this Section 15, any business in the design, production, sale or support of 3D visualization simulation hardware or software systems shall be deemed to be competitive with the Company.

16.REMEDIES AND JURISDICTION.

(a)The Executive hereby acknowledges and agrees that a breach of the agreements contained in this Agreement will cause irreparable harm and damage to the Company, that the remedy at law for the breach or threatened breach of the agreements set forth in this Agreement will be inadequate, and that, in addition to all other remedies available to the Company for such breach or threatened breach (including, without limitation, the right to recover damages), the Company shall be entitled to injunctive relief for any breach or threatened breach of the agreements contained in this Agreement.  To enforce the provisions of this Section 16(a), the Company may seek relief from any court with proper jurisdiction and the provisions of Section 16(b) through (d) shall not be applicable for purposes of this Section 16(a).

(b)All claims, disputes and other matters in question between the parties arising under this Agreement, shall, unless otherwise provided herein, be decided by binding arbitration before a single independent arbitrator selected pursuant to Section 16(d).  TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, BREACH OF CONTRACT OR POLICY, OR EMPLOYMENT TORT COMMITTED BY THE COMPANY OR A REPRESENTATIVE OF THE COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS POLICY AND THERE SHALL BE NO RECOURSE TO

13

COURT, WITH OR WITHOUT A JURY TRIAL.  The arbitration hearing shall occur at a time and place convenient to the parties in Salt Lake County, Utah, within thirty (30) days of selection or appointment of the arbitrator.  The arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of AAA in effect on the date of the first notice of demand for arbitration.  The arbitrator shall issue written findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.

(c)In cases of breach of contract or policy, damages shall be limited to contract damages.  In cases of discrimination claims prohibited by statute, the arbitrator may direct payment consistent with the applicable statute.  Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16.

(d)The parties shall select the arbitrator from a panel list made available by the AAA.  If the parties are unable to agree to an arbitrator within ten (10) days of receipt of a demand for arbitration, the arbitrator will be chosen by alternatively striking from a list of five (5) arbitrators obtained by the Company from AAA.  The Executive shall have the first strike.

17.ATTORNEYS’ FEES.

In the event that either party hereunder institutes any legal or arbitration proceedings in connection with its rights or obligations under this Agreement, each party in such proceeding shall be responsible for all of its own costs incurred in connection with such proceeding, including attorneys’ fees and any other fees, expenses, or costs.

18.SUCCESSORS.

This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs and beneficiaries.  In the event of the Executive’s death, all amounts payable to the Executive under this Agreement shall be paid to the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse.  This Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor, surviving or resulting corporation or other entity to which all or substantially all of the business and assets of the Company shall be transferred whether by merger, consolidation, transfer or sale.

19.ENFORCEMENT.

The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby.

14

20.AMENDMENT OR TERMINATION.

This Agreement may not be amended or terminated during its term, except by written instrument executed by the Company and the Executive.

21.SURVIVABILITY.

The provisions of Sections 15, 16, 17, 18 and 19 and the Company’s obligation to pay Executive monies or benefits due hereunder shall survive termination of this Agreement.

22.ENTIRE AGREEMENT.

Except for the Confidentiality, Proprietary Information, and Inventions Agreement between the Executive and the Company, this Agreement sets forth the entire agreement between the Executive and the Company with respect to the terms of the Executive’s employment with the Company.  This Agreement supersedes all prior oral or written agreements, negotiations, commitments and understandings with respect thereto, and in the event of conflict between the terms of this Agreement and any other agreement, the terms of this Agreement govern.Prior Employment Agreements between the Executive and the Company are hereby terminated in their entirety and superceded by this Agreement.

23.GOVERNING LAW.

This Agreement and the Executive’s and Company’s respective rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Utah without giving effect to the provisions, principles, or policies thereof relating to choice or conflicts of laws.

24.NOTICE.

All notices, requests, instructions or other documents to be given under this Agreement shall be in writing and shall be deemed given (i) three business days following sending by registered or certified mail, postage prepaid, (ii) when delivered, if delivered personally to the intended recipient and (iv) one business day following sending by overnight delivery via a national courier service, and in each case, addressed to a party at the following address for such party:

Company:	Evans & Sutherland Computer Corporation
	600 Komas Drive
	Salt Lake City, Utah 84108
	Attn: Vice President of Human Resources
	Fax: (801) 588-4517
	Tel: (801) 588-1609

15

Executive:	Kevin A. Paprzycki
	6413 W. Ketchum Drive
	West Valley City, Utah 84128
	Tel: (801) 508-1589

or to such other address as the Company shall have given to the Executive or the Executive shall have given to the Company in writing in the manner set forth above.

25.NO WAIVER.

No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.

26.HEADINGS.

The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.

16

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has executed this Agreement, on the date and year first above written.

“COMPANY”
EVANS & SUTHERLAND COMPUTERCORPORATION, a Utah Corporation
By:	/s/ James R. Oyler
			James R. Oyler
			President and Chief Executive Officer
“EXECUTIVE”
/s/ Kevin A. Paprzycki
		Kevin A. Paprzycki

17

EX-10.14

Exhibit 10.14

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of August, 2002, by and between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation (the “Company”) and Kirk D. Johnson (the “Executive”).

W I T N E S S E T H:

WHEREAS, the Executive has been providing services to the Company in an executive capacity and desires to continue to provide such services;

WHEREAS, the Company desires to have the benefit of the Executive’s efforts and services;

WHEREAS, the Company and Executive desire to terminate all prior employment agreements with the Company, if any; and

WHEREAS, the Company has determined that it is appropriate and in the best interests of the Company to provide to the Executive protection in the event of certain terminations of the Executive’s employment relationship with the Company in accordance with the terms and conditions contained herein and the Executive desires to have such protection.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the Company and the Executive hereto mutually covenant and agree as follows:

1.DEFINITIONS.

Whenever used in this Agreement, the following terms shall have the meanings set forth below:

(a)“Accrued Benefits” shall mean the amount equal to the sum of the following to the extent not previously paid:

(i)All salary earned or accrued through the Termination Date;

(ii)Reimbursement pursuant to Section 6(d) for any and all monies advanced in connection with the Executive’s employment for reasonable and necessary expenses incurred by the Executive through the Termination Date;

(iii)Any and all other cash benefits of deferred compensation plans previously earned through the Termination Date unless deferred at the election of the Executive for payment at another time or the applicable deferred compensation plan provides for payment at another time;

(iv)The full amount of any bonus earned in a prior period and payable to the Executive in accordance with Section 6(b) herein, subject to the limitations in Section 10 and Section 12; and

(v)All other payments and benefits to which the Executive may be entitled under the terms of any benefit plan of the Company, which as of the Termination Date, is applicable to all regular full-time employees of the Company generally.

(b)“Act” shall mean the Securities Exchange Act of 1934;

(c)“Affiliate” shall have the same meaning as given to that term in Rule 12b-2 of Regulation 12B promulgated under the Act;

(d)“Base Period Income” shall be an amount equal to the Executive’s “annualized includable compensation” for the “base period” as defined in Sections 280G(d)(1) and (2) of the Code and the regulations adopted thereunder;

(e)“Beneficial Owner” shall have the same meaning as given to that term in Rule 13d-3 of the Act, provided that any pledgee of Company voting securities shall not be deemed to be the Beneficial Owner thereof prior to its disposition of, or acquisition of voting rights with respect to, such securities;

(f)“Board” shall mean the Board of Directors of the Company;

(g)“Cause” shall mean any of the following:

(i)The engaging by the Executive in fraudulent conduct, as evidenced by a determination in a binding and final judgment, order or decree of a court or administrative agency of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an action, suit or proceeding, whether civil, criminal, administrative or investigative, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;

(ii)Conviction of a felony, as evidenced by a binding and final judgment, order or decree of a court of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, which the Chief Executive Officer of the Company determines, in his sole discretion, has a significant adverse impact on the Company or on the performance of the Executive’s duties to the Company;

(iii)Neglect or refusal by the Executive to perform the Executive’s duties or responsibilities; or

(iv)A significant violation by the Executive of the Company’s established policies and procedures;

2

Notwithstanding the foregoing, Cause shall not exist under Sections 1(g)(iii) and (iv) herein unless the Company furnishes written notice to the Executive of the specific offending conduct and the Executive fails to correct such offending conduct within the thirty (30) day period commencing on the receipt of such notice.

(h)“Change of Control” shall mean a change in ownership or managerial control of the stock, assets or business of the Company resulting from one or more of the following circumstances:

(i)A change of control of the Company, of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Act, or any successor regulation of similar import, regardless of whether the Company is subject to such reporting requirement;

(ii)A change in ownership of the Company through a transaction or series of transactions, such that any Person or Persons (other than any current officer of the Company or member of the Board) become(s), in the aggregate, the Beneficial Owner(s), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the Company’s then outstanding securities;

(iii)Any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the common stock of the Company would be converted into cash (other than cash attributable to dissenters’ rights), securities or other property provided by a Person or Persons other than the Company, other than a consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger have approximately the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger;

(iv)The shareholders of the Company approve a sale, transfer, liquidation or other disposition of all or substantially all of the assets of the Company to a Person or Persons;

(v)During any period of two (2) consecutive years, individuals who, at the beginning of such period, constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority thereof, unless the election or nomination for election of each new director was approved by the vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period;

(vi)The filing of a proceeding under Chapter 7 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for liquidation with respect to the Company; or

(vii)The filing of a proceeding under Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import) for

3

reorganization with respect to the Company if in connection with any such proceeding, this Agreement is rejected, or a plan of reorganization is approved an element of which plan entails the liquidation of all or substantially all the assets of the Company.

A “Change of Control” shall be deemed to occur on the actual date on which any of the foregoing circumstances shall occur; provided, however, that in connection with a “Change of Control” specified in Section 1(h)(vii), a “Change of Control” shall be deemed to occur on the date of the filing of the relevant proceeding under Chapter 11 of the Federal Bankruptcy Code (or any successor or other statute of similar import).  Notwithstanding the foregoing, a “Change of Control” shall not include any transaction that constitutes a “Rule 13e-3 transaction” under Rule 13e-3 of the Act or an “issuer tender offer” under Rule 13e-4 of the Act.

(i)“Change of Control Period” shall mean the period commencing 180 days immediately prior to the date a Change of Control is deemed to occur pursuant to Section 1(h), herein, and ending on the second anniversary of such date;

(j)“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time;

(k)“Disability” shall mean a physical or mental condition whereby the Executive is unable to perform on a full-time basis the customary duties of the Executive under this Agreement;

(l)“Federal Short Term-Rate” shall mean the rate defined in Section 1274(d)(1)(C)(i) of the Code;

(m)“Good Reason” shall mean any of the following:

(i)The required relocation of the Executive, without the Executive’s consent, to an employment location which is more than seventy-five (75) miles from the Executive’s employment location on the day preceding the date of this Agreement; or

(ii)Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive.

(n)“Good Reason During a Change of Control” shall mean any of the following events occurring during a Change of Control Period:

(i)The required relocation of the Executive, without the Executive’s consent, to an employment location which is more than seventy-five (75) miles from the Executive’s employment location on the day preceding the date of this Agreement;

4

(ii)The removal of the Executive from or any failure to reelect the Executive to any of the positions held by the Executive during the 180-day period immediately preceding the Change of Control Period, except in the event that such removal or failure to reelect relates to the termination by the Company of the Executive’s employment for Cause or by reason of death, Disability or voluntary retirement;

(iii)A significant adverse change, without the Executive’s written consent, in the nature or scope of the Executive’s authority, powers, functions, duties or responsibilities that existed during the 180-day period immediately preceding the Change of Control Period, or a material reduction in the level of support services, staff, secretarial and other assistance, office space and accoutrements available to a level below that which was provided to the Executive during the 180-day period immediately preceding the Change of Control Period, and that which is necessary to perform any duties assigned to the Executive during the 180-day period immediately preceding the Change of Control Period; or

(iv)Breach or violation of any material provision of this Agreement by the Company, which is not remedied within five business days following notice to the Company by the Executive;

(o)“Gross Income” shall mean the Executive’s current calendar year targeted compensation under Sections 6(a)-(b) of this Agreement;

(p)“Notice of Termination” shall mean the notice described in Section 14 herein;

(q)“Person” shall mean any individual, partnership, joint venture, association, trust, corporation or other entity, other than an employee benefit plan of the Company or an entity organized, appointed or established pursuant to the terms of any such benefit plan;

(r)“Termination Date” shall mean, except as otherwise provided in Section 14 herein,

(i)The Executive’s date of death;

(ii)Thirty (30) days after the delivery of the Notice of Termination terminating the Executive’s employment on account of Disability pursuant to Section 9 herein, unless the Executive returns on a full-time basis to the performance of his or her duties prior to the expiration of such period;

(iii)Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Executive voluntarily;

5

(iv)Thirty (30) days after the delivery of the Notice of Termination if the Executive’s employment is terminated by the Company for any reason other than death or Disability; or

(v)The date the Executive is terminated for Cause.

(s)“Termination Payment” shall mean the payment described in Section 13 herein;

(t)“Total Payments” shall mean the sum of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive, the receipt of which is contingent on a Change of Control and to which Section 280G of the Code applies.

2.EMPLOYMENT.

The Company hereby agrees to employ the Executive and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein.

3.TERM.

The employment of the Executive by the Company pursuant to the provisions of this Agreement shall commence on the date hereof and end on that date employment of the Executive is terminated pursuant to the terms and conditions of either Section 8, 9, 10, 11 or 12, herein.

4.POSITIONS AND DUTIES.

The Executive shall serve as Vice President and General Manager, Digital Theater Division of the Company and in such additional capacities as set forth in Section 7 herein.  In connection with the foregoing positions, the Executive shall have such duties, responsibilities and authority as may from time to time be assigned to the Executive by the Chief Executive Officer.  The Executive shall devote substantially all the Executive’s working time and efforts to the business and affairs of the Company.  The Chief Executive Officer, in his or her sole discretion, may alter, modify, or change the Executive’s duties, offices, positions, responsibilities and obligations set forth in this Agreement at any time, consistent with the status of a senior executive of the Company.

5.PLACE OF PERFORMANCE.

In connection with the Executive’s employment by the Company, the Executive shall be based at the principal executive offices of the Company in Salt Lake City, Utah except for required travel on Company business.

6.COMPENSATION AND RELATED MATTERS.

(a)Salary.  The Company shall pay to the Executive an annualized base salary at a rate of $129,500.00 in equal installments as nearly as practicable on the

6

Company’s regular payroll dates, in arrears.  Such annualized base salary may be increased from time to time in accordance with normal business practices of the Company.  The annualized base salary of the Executive shall not be decreased below its then existing amount during the term of this Agreement;

(b)MIP and MIP-Q.  Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Evans & Sutherland Management Incentive Plan (MIP) and the Evans & Sutherland Quarterly Management Incentive Plan (MIP-Q), the Executive shall be entitled to participate in the Evans & Sutherland MIP and MIP-Q as agreed in writing in a MIP and a MIP-Q document;

(c)Executive Savings Plan.  Subject to the Company’s right to terminate or amend, at any time with or without notice to the Executive, the Company’s Executive Savings Plan, the Executive shall be entitled to participate in the Executive Savings Plan according to the terms and conditions of the Executive Savings Plan.

(d)Expenses.  The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in performing services hereunder, including all expenses for travel and living expenses while away from home on business or at the request of and in the service of the Company, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company at the time incurred;

(e)Other Benefits.  The Company shall provide the Executive with all other benefits normally provided to an employee of the Company similarly situated to the Executive, including being added as a named officer on the Company’s existing directors’ and officers’ liability insurance policy;

(f)Vacations.  The Executive shall be entitled to the number of vacation days in each calendar year, and to compensation in respect of earned but unused vacation days, determined in accordance with the Company’s vacation plan as in effect from time to time.  The Executive shall also be entitled to all paid holidays given by the Company to its executives; and

(g)Services Furnished.  The Company shall furnish the Executive with office space, and such other facilities and services as shall be suitable to the Executive’s position and adequate for the performance of the Executive’s duties as set forth in Section 4 hereof.

7.OFFICES.

The Executive agrees to serve without additional compensation, if elected or appointed thereto, in one or more executive offices of the Company, or any affiliate or subsidiary of the Company, or as a member of the board of directors of any subsidiary or affiliate of the Company; provided, however, that the Executive is indemnified for serving in any and all such capacities on a basis no less favorable than is currently provided in the Company’s bylaws, or otherwise.

7

8.TERMINATION AS A RESULT OF DEATH.

If the Executive shall die during the term of this Agreement, the Executive’s employment shall terminate on the Executive’s date of death and the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse, shall be entitled to the Executive’s Accrued Benefits as of the Termination Date and the applicable Termination Payment.

9.TERMINATION FOR DISABILITY.

If, as a result of the Executive’s Disability, the Executive shall have been unable to perform the Executive’s duties hereunder on a full-time basis for four (4) consecutive months and within thirty (30) days after the Company provides the Executive with a Termination Notice, the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis, the Company may terminate the Executive’s employment, subject to Section 14 herein.  During the term of the Executive’s Disability prior to termination, the Executive shall continue to receive all salary and other benefits payable under Section 6 herein, including participation in all employee benefit plans, programs and arrangements in which the Executive was entitled to participate immediately prior to the Disability; provided, however, that the Executive’s continued participation is permitted under the terms and provisions of such plans, programs and arrangements.  In the event that the Executive’s participation in any such plan, program or arrangement is barred as the result of such Disability, the Executive shall be entitled to receive an amount equal to the contributions, payments, credits or allocations which would have been paid by the Company to the Executive, to the Executive’s account or on the Executive’s behalf under such plans, programs and arrangements.  In the event the Executive’s employment is terminated on account of the Executive’s Disability in accordance with this Section 9, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall remain eligible for all benefits provided by any long-term disability programs of the Company in effect at the time of such termination.  The Executive shall also be entitled to the Termination Payment described in Section 13(a).

10.TERMINATION FOR CAUSE.

If the Executive’s employment with the Company is terminated by the Company for Cause, subject to the procedures set forth in Section 14 herein, the Executive shall be entitled to receive the Executive’s Accrued Benefits as of the Termination Date, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv).  The Executive shall not be entitled to receipt of any Termination Payment.

11.OTHER TERMINATION BY COMPANY.

If the Executive’s employment with the Company is terminated by the Company other than by reason of death, Disability or Cause, subject to the procedures set forth in Section 14 herein, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment.  The Executive shall not, in connection with any consideration receivable in

8

accordance with this Section 11, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.

12.VOLUNTARY TERMINATION BY EXECUTIVE.

From and after the date of this Agreement, provided that the Executive furnishes thirty (30) days prior written notice to the Company, the Executive shall have the right to voluntarily terminate this Agreement at any time.  If the Executive’s voluntary termination is without Good Reason or without Good Reason During a Change of Control, the Executive shall receive the Executive’s Accrued Benefits as of the Termination Date and shall not be entitled to any Termination Payment, however, the Executive’s Accrued Benefits will not include any amount for bonus under Section 1(a)(iv).  If the Executive’s voluntary termination is for Good Reason or Good Reason During a Change of Control, the Executive (or in the event of the Executive’s death following the Termination Date, the Executive’s surviving spouse or the Executive’s estate if the Executive dies without a surviving spouse) shall receive the Executive’s Accrued Benefits and the applicable Termination Payment.  The Executive shall not, in connection with any consideration receivable in accordance with this Section 12, be required to mitigate the amount of such consideration by securing other employment or otherwise and such consideration shall not be reduced by reason of the Executive securing other employment or for any other reason.

13.TERMINATION PAYMENT.

(a)If the Executive’s employment is terminated as a result of death or Disability, the Executive shall receive a Termination Payment equal to one (1.0) times the Executive’s Gross Income.  The Company will also pay the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following Termination Date.

(b)If, prior to a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason or by the Company for any reason other than death, Disability or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be equal to one (1.0) times the Executive’s Gross Income.  The Company will pay the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one year following the Termination Date.

(c)If, during a Change of Control Period, the Executive’s employment is terminated by the Executive for Good Reason During a Change of Control or by the Company for any reason other than death, Disability, or Cause, the Termination Payment payable to the Executive by the Company or an affiliate of the Company shall be one (1.0) times the Executive’s Gross Income.  The Company will pay the full medical, dental and vision premiums for continuation coverage under COBRA for the Executive and dependents who qualify for continuation coverage under COBRA for one (1) year following the Termination Date.

9

(d)It is the intention of the Company and the Executive that the benefits under this Agreement shall be capped such that no portion of the Termination Payment and any other “payments in the nature of compensation” (as defined in Section 280G of the Code and the regulations adopted thereunder) to or for the benefit of the Executive under this Agreement, or under any other agreement, plan or arrangement, shall be deemed to be an “excess parachute payment” as defined in Section 280G of the Code.  It is agreed that the present value of the Total Payments shall not exceed an amount equal to two and ninety-nine hundredths (2.99) times the Executive’s Base Period Income, which is the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G(a) of the Code.  Present value for purposes of this Agreement shall be calculated in accordance with the regulations issued under Section 280G of the Code.  Within sixty (60) days following delivery of the Notice of Termination or notice by the Company to the Executive of its belief that there is a payment or benefit due the Executive which will result in an excess parachute payment as defined in Section 280G of the Code, the Executive and the Company shall, at the Company’s expense, obtain such opinions as more fully described hereafter, which need not be unqualified, of legal counsel and certified public accountants or a firm of recognized executive compensation consultants.  The Executive shall select said legal counsel, certified public accountants and executive compensation consultants; provided, however, that if the Company does not accept one (1) or more of the parties selected by the Executive, the Company shall provide the Executive with the names of such legal counsel, certified public accountants and/or executive compensation consultants as the Company may select; provided, further, however, that if the Executive does not accept the party or parties selected by the Company, the legal counsel, certified public accountants and/or executive compensation consultants selected by the Executive and the Company, respectively, shall select the legal counsel, certified public accountants and/or executive compensation consultants, whichever is applicable, who shall provide the opinions required by this Section 13(d).  The opinions required hereunder shall set forth (a) the amount of the Base Period Income of the Executive, (b) the present value of Total Payments and (c) the amount and present value of any excess parachute payments.  In the event that such opinions determine that there would be an excess parachute payment, the Termination Payment or any other payment determined by such counsel to be includable in Total Payments shall be reduced or eliminated as specified by the Executive in writing delivered to the Company within thirty (30) days of his or her receipt of such opinions or, if the Executive fails to so notify the Company, then as the Company shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment.  The provisions of this Section 13(d), including the calculations, notices and opinions provided for herein shall be based upon the conclusive presumption that the compensation and other benefits, including but not limited to the Gross Income, earned on or after the date of a Change of Control by the Executive pursuant to the Company’s compensation programs if such payments would have been made in the future in any event, even though the timing of such payment is triggered by the Change of Control, are reasonable compensation for services rendered prior to the Change of Control; provided, however, that in the event legal counsel so requests in connection with the opinion required by this Section 13(d), a firm of recognized

10

executive compensation consultants, selected by the Executive and the Company pursuant to the procedures set forth above, shall provide an opinion, upon which such legal counsel may rely, as to the reasonableness of any item of compensation as reasonable compensation for services rendered prior to the Change of Control by the Executive.  In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section 13(d) shall be of no further force or effect.

(e)The Termination Payment shall be payable as follows:

(i)In the event the Executive’s Termination Date is during a Change of Control Period, any Termination Payment shall be paid to the Executive in a lump sum not later than ten (10) days following the Executive’s Termination Date.  Such lump sum payment shall not be reduced by any present value, interest rate, or similar factor.  Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.

(ii)In the event the Executive’s Termination Date is prior to or after a Change of Control Period, any Termination Payment shall be paid to the Executive in  equal installments on the Company’s twenty-six (26) regular bi-weekly paydays over the twelve-month period following the Termination Date.  Such payments shall not be reduced or increased by any present value, interest rate, or similar factor.  Further, the Executive shall not be required to mitigate the amount of such payment by securing other employment or otherwise and such payment shall not be reduced by reason of the Executive securing other employment or for any other reason.

(f)Notwithstanding anything to the contrary herein, in no event will a termination of Executive’s employment with the Company be deemed to trigger a right to receive a Termination Payment if the termination is effected by the mutual agreement of the Company and Executive to accommodate a reassignment of Executive to an entity created or acquired by the Company, or to which the Company has contributed rights to technology, assets or business plans, if at the time of such termination the Company owns or is acquiring a minimum of a 19% equity interest in such entity.  In the event of any such termination, the Executive shall only be entitled to receive the Executive’s Accrued Benefits as of the Termination Date.

11

14.TERMINATION NOTICE AND PROCEDURE.

Any termination by the Company or the Executive of the Executive’s employment during the employment period shall be communicated by written Notice of Termination (“Notice of Termination”) to the Executive, if such Notice of Termination is delivered by the Company, and to the Company, if such Notice of Termination is delivered by the Executive, all in accordance with the following procedures:

(a)The Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances alleged to provide a basis for termination;

(b)Any Notice of Termination by the Company shall be approved by a resolution duly adopted by a majority of the Board, or a majority of the Board may delegate such authority to approve any Notice of Termination to the Chief Executive Officer of the Company;

(c)If the Executive shall in good faith furnish a Notice of Termination for Good Reason or for Good Reason During a Change of Control and the Company notifies the Executive that a dispute exists concerning the existence of Good Reason or Good Reason During a Change of Control, within the fifteen (15) day period following the Company’s receipt of such notice, the Executive shall continue the Executive’s employment during such dispute.  If it is thereafter determined that (i) Good Reason or Good Reason During a Change of Control did exist, the Executive’s Termination Date shall be the earlier of (A) the date on which the dispute is finally determined, either by mutual written agreement of the parties or pursuant to Section 16, (B) the date of the Executive’s death or (C) one day prior to the second (2nd) anniversary of a Change of Control, if any, and the Executive’s Termination Payment, if applicable, shall reflect events occurring after the Executive delivered the Executive’s Notice of Termination; or (ii) Good Reason or Good Reason During a Change of Control did not exist, the employment of the Executive shall continue after such determination as if the Executive had not delivered the Notice of Termination asserting Good Reason or Good Reason During a Change of Control; and

(d)If the Executive gives Notice of Termination of his or her employment for Good Reason or Good Reason During a Change of Control and a dispute arises as to the existence of Good Reason or Good Reason During a Change of Control, and the Executive does not continue his employment during such dispute, and it is finally determined that the reason for termination set forth in such Notice of Termination did not exist, if such notice was delivered by the Executive, the Executive shall be deemed to have voluntarily terminated the Executive’s employment other than for Good Reason or Good Reason During a Change of Control.

15.NON-COMPETE.

The Executive hereby agrees that during the term of this Agreement and for the period of one yearfrom the termination hereof, that the Executive will not:

12

(a)Within any jurisdiction or marketing area in the United States in which the Company or any subsidiary thereof is doing business, own, manage, operate or control any business of the type and character engaged in and competitive with the Company or any subsidiary thereof.  For purposes of this Section 15, ownership of securities of not in excess of five percent (5%) of any class of securities of a public company shall not be considered to be competition with the Company or any subsidiary thereof; or

(b)Within any jurisdiction or marketing area in the United States in which the Company or any subsidiary thereof is doing business, act as, or become employed as, an officer, director, employee, consultant or agent of any business of the type and character engaged in and competitive with the Company or any of its subsidiaries; or

(c)Solicit any similar business to that of the Company’s for, or sell any products that are in competition with the Company’s products to, any company in the United States, which is, as of the date hereof or through the Termination Date, a customer or client of the Company or any of its subsidiaries, or was such a customer or client thereof within two years prior to the Termination Date; or

(d)Solicit the employment of (i) any employee of the Company or its subsidiaries that is an employee at anytime during this term of this Agreement or during the one year period following the termination of this Agreement, or (ii) any former employee of the Company or its subsidiaries who was employed by the Company or its subsidiaries during the one (1) year period preceding the Termination Date.

For purposes of this Section 15, any business in the 3D visualization simulation market shall be deemed to be competitive with the Company.

16.REMEDIES AND JURISDICTION.

(a)The Executive hereby acknowledges and agrees that a breach of the agreements contained in this Agreement will cause irreparable harm and damage to the Company, that the remedy at law for the breach or threatened breach of the agreements set forth in this Agreement will be inadequate, and that, in addition to all other remedies available to the Company for such breach or threatened breach (including, without limitation, the right to recover damages), the Company shall be entitled to injunctive relief for any breach or threatened breach of the agreements contained in this Agreement.  To enforce the provisions of this Section 16(a), the Company may seek relief from any court with proper jurisdiction and the provisions of Section 16(b)-(d) shall not be applicable for purposes of this Section 16(a).

(b)All claims, disputes and other matters in question between the parties arising under this Agreement, shall, unless otherwise provided herein, be decided by binding arbitration before a single independent arbitrator selected pursuant to Section 16(d).  TO THE EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, BREACH OF CONTRACT OR POLICY, OR EMPLOYMENT TORT COMMITTED BY THE COMPANY OR A REPRESENTATIVE OF THE

13

COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS POLICY AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL.  The arbitration hearing shall occur at a time and place convenient to the parties in Salt Lake County, Utah, within thirty (30) days of selection or appointment of the arbitrator.  If the Company has adopted a policy that is applicable to arbitration with employees, the arbitration shall be conducted in accordance with said policy to the extent that the policy is consistent with this Agreement and the Federal Arbitration Act, 9 U.S.C. §§ 1-16.  If no such policy has been adopted, the arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of AAA in effect on the date of the first notice of demand for arbitration.  The arbitrator shall issue written findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.

(c)In cases of breach of contract or policy, damages shall be limited to contract damages.  In cases of discrimination claims prohibited by statute, the arbitrator may direct payment consistent with the applicable statute.  Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, except that court review of the arbitrator’s award shall be that of an appellate court reviewing a decision of a trial judge sitting without a jury.

(d)The parties shall select the arbitrator from a panel list made available by the AAA.  If the parties are unable to agree to an arbitrator within ten (10) days of receipt of a demand for arbitration, the arbitrator will be chosen by alternatively striking from a list of five (5) arbitrators obtained by the Company from AAA.  The Executive shall have the first strike.

17.ATTORNEYS’ FEES.

In the event that either party hereunder institutes any legal proceedings in connection with its rights or obligations under this Agreement, each party in such proceeding shall be responsible for all of its own costs incurred in connection with such proceeding, including attorneys’ fees and any other fees, expenses, or costs.

18.SUCCESSORS.

This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs and beneficiaries.  In the event of the Executive’s death, all amounts payable to the Executive under this Agreement shall be paid to the Executive’s surviving spouse, or the Executive’s estate if the Executive dies without a surviving spouse.  This Agreement shall inure to the benefit of, be binding upon and be enforceable by, any successor, surviving or resulting corporation or other entity to which all or substantially all of the business and assets of the Company shall be transferred whether by merger, consolidation, transfer or sale.

14

19.ENFORCEMENT.

The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby.

20.AMENDMENT OR TERMINATION.

This Agreement may not be amended or terminated during its term, except by written instrument executed by the Company and the Executive.

21.SURVIVABILITY.

The provisions of Sections 15, 16, 17, 18 and 19 shall survive termination of this Agreement.

22.ENTIRE AGREEMENT.

Except for the Confidentiality, Proprietary Information, and Inventions Agreement between the Executive and the Company, this Agreement sets forth the entire agreement between the Executive and the Company with respect to the subject matter hereof, and supersedes all prior oral or written agreements, negotiations, commitments and understandings with respect thereto.Prior Employment Agreements between the Executive and the Company are hereby terminated in their entirety and superceded by this Agreement.

23.VENUE; GOVERNING LAW.

This Agreement and the Executive’s and Company’s respective rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Utah without giving effect to the provisions, principles, or policies thereof relating to choice or conflicts of laws.

24.NOTICE.

All notices, requests, instructions or other documents to be given under this Agreement shall be in writing and shall be deemed given (i) three business days following sending by registered or certified mail, postage prepaid, (ii) when sent if sent by facsimile; provided, however, that the facsimile is promptly confirmed by telephone confirmation thereof, (iii) when delivered, if delivered personally to the intended recipient, and (iv) one business day following sending by overnight delivery via a national courier service, and in each case, addressed to a party at the following address for such party:

15

Company:	Evans & Sutherland Computer Corporation
	600 Komas Drive
	Salt Lake City, Utah 84108
	Attn: Vice President of Human Resources
	Fax: (801) 588-4517
	Tel: (801) 588-1609
Executive:	Kirk D. Johnson
	2542 Kentucky Ave
	Salt Lake City, Utah 84117
	Fax: (      )       -
	Tel: (801) 277-7103

or to such other address as the Company shall have given to the Executive or, if to the Executive, to such address as the Executive shall have given to the Company or facsimile number as the party to whom notice is given may have previously furnished to the other in writing in the manner set forth above.

25.NO WAIVER.

No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.

26.HEADINGS.

The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.

27.COUNTERPARTS.

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

16

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has executed this Agreement, on the date and year first above written.

“COMPANY”
EVANS & SUTHERLAND COMPUTERCORPORATION, a Utah Corporation
By:	/s/ James R. Oyler
				James R. Oyler
		President and Chief Executive Officer
“EXECUTIVE”
/s/ Kirk Johnson
			Kirk D. Johnson

17

EX-10.28

Exhibit 10.28

ASSET PURCHASE AGREEMENT

BETWEEN

EVANS & SUTHERLAND COMPUTER CORP.

AND

VIDEO DISPLAY CORPORATION

October 12, 2004

TABLE OF CONTENTS

Section 1 - Definitions
Section 2 – Basic Transaction
	(a)	Purchase and Sale of Assets
	(b)	No Assumption of Liabilities
	(c)	Purchase Price
	(d)	The Closing
	(e)	Deliveries at the Closing
	(f)	Allocation
Section 3 – Representations and Warranties of the Seller
	(a)	Organization of the Seller
	(b)	Authorization of Transaction
	(c)	Noncontravention
	(d)	Brokers’ Fees
	(e)	Title to Assets
	(f)	Tangible Assets
	(g)	Product Liability
	(h)	Litigation
	(i)	Product Warranty
	(j)	Material Contracts
	(k)	Inventory
	(l)	Intellectual Property
	(m)	Legal Compliance
	(n)	Reformatted Financial Information
	(o)	Disclosure
Section 4 – Representations and Warranties of the Buyer
	(a)	Organization of the Buyer
	(b)	Authorization of Transaction
	(c)	Noncontravention
	(d)	Brokers’ Fees
	(e)	Risk of Business
	(f)	Disclosure
Section 5 – Pre-Closing Covenants
	(a)	General
	(b)	Notices and Consents
	(c)	Operation of Business
	(d)	Preservation of Business
	(e)	Full Access
	(f)	Publicity
	(g)	Confidentiality
Section 6 – Conditions to Obligation to Close
	(a)	Conditions to Obligation of the Buyer
	(b)	Conditions to Obligation of the Seller
Section 7 – Termination

i

Section 8 – Post Closing Covenants
	(a)	General
	(b)	Litigation Support
	(c)	Transition
	(d)	Covenant Not to Compete
	(e)	Agreement Not to Solicit Customers
	(f)	Agreement Not to Solicit Employees
	(g)	Premises Use
	(h)	Warranty Service
	(i)	Spares Pricing
	(j)	Transition Support
	(k)	Employees
Section 9 – Remedies for Breach of this Agreement
	(a)	Survival of Representations and Warranties
	(b)	Indemnification Provisions
Section 10 – Disputes and Arbitration
Section 11 – Miscellaneous
	(a)	Survival of Representations and Warranties
	(b)	Entire Agreement
	(c)	Succession and Assignment
	(d)	Counterparts
	(e)	Headings
	(f)	Notices
	(g)	Amendments and Waivers
	(h)	Severability
	(i)	Expenses
	(j)	Incorporation of Exhibits and Schedules
	(k)	Bulk Transfer Laws
	(l)	Governing Law
Exhibits
	Supply Agreement
	Assignment of Intellectual Property Transfers Agreement
	Assumption Agreement
	Allocation Schedule
	Transition Plan
Schedules
	Acquired Assets
	Excluded Assets
	Disclosure Schedule
	Intellectual Property – CR- Based Projector (Trademarks, Service Marks, Trade Dress, Logos, Trade Names)
	Intellectual Property – CR- Based Projector (Copyrightable Works, All Copyrights, All Applications, Registrations, Renewals
	Computer Software – CR- Based Projector
	Exceptions to Proprietary Rights – CRT- Based Projector

ii

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into as of October 11, 2004 by and between VIDEO DISPLAY CORPORATION, a Georgia corporation (the “Buyer”), and EVANS & SUTHERLAND COMPUTER CORP., a Utah corporation (the “Seller”).  The Buyer and the Seller are referred to collectively herein as the “Parties.”

This Agreement contemplates a transaction in which the Buyer will purchase Seller’s cathode ray tube (“CRT”) based projector business and certain of the assets (and assume none of the liabilities) of the Seller used in that business in return for cash and a Supply Agreement as per attached Exhibit A.

Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

1.Definitions.

“Acquired Assets” means all right, title, and interest in and to the following assets of the Seller: (a) all the tangible personal property such as all CRT projector machinery, equipment, inventories of raw materials and supplies, manufactured and purchased parts, goods in process and finished goods, furniture, tools, jigs, and dies used exclusively or primarily by the Seller in its CRT- based projector business including, but not limited to such personal property which is specifically enumerated on Schedule 1 attached hereto (b) Intellectual Property, (c) files, documents, correspondence, lists, plats, drawings, and specifications, creative materials, advertising and promotional materials, studies, reports, and other printed or written materials used exclusively in the Seller’s CRT- based projector business, and (d) parts and service customer lists, history and contact information used exclusively in the Seller’s CRT- based projector business; provided, however, anything to the contrary in the foregoing notwithstanding, that the Acquired Assets shall not include (i) the corporate charter, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books, blank stock certificates, and other documents relating to the organization, maintenance, and existence of the Seller as a corporation, (ii) any of the rights of the Seller under this Agreement or (iii) any asset of the Seller primarily used in its other businesses, including any asset not specifically set forth above or that is specifically set forth on Schedule 2 attached hereto.

“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

“Adverse Consequences” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and all reasonable fees and expenses of attorneys and experts.

“Buyer” has the meaning set forth in the preface above.

“Closing” has the meaning set forth in Section 2(d) below.

“Closing Date” has the meaning set forth in Section 2(d) below.

“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B and of any similar state law.

“Code” means the Internal Revenue Code of 1986, as amended.

“Disclosure Schedule” means a schedule or listing of exceptions to the representations made by Seller in Section 3 below or by the Buyer in Section 4 below, and in each case reasonably satisfactory to the party to which such representations and warranties are made.

“Employee Benefit Plan” means any “employee benefit plan” (as such term is defined in ERISA Section 3(3)) and any other material employee benefit plan, program or arrangement of any kind.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA Section 3(2).

“Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section 3(1).

“Environmental, Health, and Safety Requirements” shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means each entity that is treated as a single employer with the Seller for purposes of Code Section 414.

“Estoppel Certificates” has the meaning set forth in Section 6(a) below.

“Export Control” means the U. S. Government Export Control Laws, including the Office of Defense Trade Controls (ODTC) and the International Traffic in Arms Regulations (ITAR)

“Financial Statement” has the meaning set forth in Section 3(g) below.

“GAAP” means United States Generally Accepted Accounting Principles as in effect from time to time.

“Independent Requests For Spares And/Or Repairs” means any customer request received by Seller for ESCP or TargetView spare parts, and/or related repairs, independent of and not involving a Seller’s System or Warranty Obligations thereunder, or a Seller’s Service Agreement.

“Intellectual Property” means the following, (a) the trademarks, service marks, trade dress, logos, trade names, and together with all translations, adaptations, derivations, and combinations thereof used exclusively in the Seller’s CRT- based projector operations and which are specifically set forth on Schedule 3 attached hereto, (b) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith used exclusively in the Seller’s CRT- based projector operations and which are specifically set forth on Schedule 4 attached hereto, (c) all mask works and all applications, registrations, and renewals in connection therewith used exclusively in the Seller’s CRT- based projector operations, (d) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals) used exclusively in the Seller’s CRT- based projector operations, (e) all computer software (including data and related documentation) used exclusively in the Seller’s CRT- based projector operations and which are specifically set forth on Schedule 5 attached hereto, (f) all other proprietary rights of the Seller used exclusively in the Seller’s CRT- based projector operations, except as specifically set forth on Schedule 6 attached hereto, and (g) all copies and tangible embodiments thereof (in whatever form or medium).

“Knowledge” means actual knowledge after reasonable investigation.

“Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.

“Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

“Party” has the meaning set forth in the preface above.

“Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).

“Purchase Price” has the meaning set forth in Section 2(c) below.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Security Interest” means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

“Service Agreement” means a contractual agreement between Seller and a customer of Seller for the installation or maintenance of Seller’s systems, software or equipment over a specified period of time.  A Service Agreement may require Seller to provide installation, training, examination, parts, repairs, alignment, calibration, testing, updates, software, or any

other goods or services associated with ensuring the operational capability of a supplied product.

“Subsidiary” means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.

“Seller” has the meaning set forth in the preface above.

“System”means an image generator and other components designed to create images and/or simulations desired by the end user.

“Tax” means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Warranty Obligations” means a contractual agreement or obligation whereby Seller undertakes to repair or replace defective parts or workmanship in any Seller-supplied System.

2.Basic Transaction.

(a)Purchase and Sale of Assets.  On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase and to accept from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to the Buyer, the Acquired Assets at the Closing for the consideration specified below in this Section 2.

(b)No Assumption of Liabilities.  On and subject to the terms and conditions of this Agreement, the Buyer neither agrees to assume nor become responsible for any of the Seller’s Liabilities at the Closing.

(c)Purchase Price.  The Buyer agrees to pay to the Seller, at the Closing, the Purchase Price by delivering payment by bank wire transfer to an account designated by the Seller in immediately available funds in the amount of Five Million Two Hundred Fifty Thousand Dollars ($5,250,000) and delivery of an executed Supply Agreement in the form as attached as Exhibit A.

(d)The Closing.  The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place on or before October 11, 2004 at the offices of Gambrell & Stolz, L.L.P., 3414 Peachtree Road, Suite 1600, Atlanta, Georgia, 30326, commencing at 9:00 a.m. local time or at such other place and at such other date and time as the Parties may mutually agree upon (the “Closing Date”);

(e)Deliveries at the Closing.  At the Closing, (i) the Seller will deliver to the Buyer the various certificates, instruments, agreements and documents referred to in Section 6(a) below; (ii) the Buyer will deliver to the Seller the various certificates, instruments, agreements and documents referred to in Section 6(b) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyer (A) assignments (including Intellectual Property transfer and license documents) in the forms attached hereto as Exhibit B (B) such other instruments of sale, transfer, conveyance, and assignment as the Buyer and its counsel reasonably may request; (iv) the Buyer will execute, acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the form attached hereto as Exhibit C; (B) such other instruments of assumption as the Seller and its counsel reasonably may request; and (v) the Buyer will deliver to the Seller the consideration specified in Section 2(c) above.

(f)Allocation.  The Parties agree to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with the allocation schedule attached hereto as Exhibit D.  Buyer and Seller acknowledge that such allocation shall be binding upon the parties for all applicable federal, state, local and foreign tax purposes.  Purchaser and Seller covenant to report gain or loss or cost basis, as the case may be, in a manner consistent with such allocation in all tax returns filed by either of them subsequent to the Closing Date and not to take voluntarily any inconsistent position therewith in any administrative or judicial proceeding relating to such returns.  Purchaser and Seller shall exchange mutually acceptable and completed IRS Forms 8594, which they shall use to report the transaction contemplated hereunder to the Internal Revenue Service in accordance with such allocation.

3.Representations and Warranties of the Seller.  The Seller   represents and warrants to the Buyer that to Seller’s Knowledge, and, except as set forth in the Disclosure Schedule, the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete to the best of Seller’s knowledge, as of the Closing Date.  The Seller’s Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3.

(a)Organization of the Seller  The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Utah.

(b)Authorization of Transaction.  The Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder.  Without limiting the generality of the foregoing, the board of directors of the Seller has duly authorized the execution, delivery, and performance of this Agreement by the Seller. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions.

(c)Noncontravention.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 2 above), will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Seller is subject or any provision of the articles of incorporation or bylaws of the Seller or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets).  The

Seller does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement (including the assignments and assumptions referred to in Section 2 above).

(d)Brokers’ Fees.  The Seller has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated.

(e)Title to Assets.  The Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer.

(f)Tangible Assets.  The Seller owns or leases all machinery, equipment, and other tangible assets, including parts inventory, necessary for the conduct of the Seller’s CRT- based projector businesses as presently conducted and as presently proposed to be conducted.  Seller owns some of the raw materials and supplies needed for operation of the CRT-based projector businesses, and contracts for the balance of such materials and supplies.  The Seller makes no representation or warranty as to the condition on usability of any tangible asset transferred under this Agreement and each such tangible asset is SOLD AS IS WITHOUT ANY IMPLIED OR EXPRESS WARRANTY FOR A PARTICULAR PURPOSE.

(g)Product Liability.  The Seller does not have any Liability to its Knowledge (and to Seller’s Knowledge, there is no reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Seller giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any CRT projector product manufactured, sold, leased, or delivered by the Seller.

(h)Litigation.  The Disclosure Schedule sets forth each instance that relates to the Acquired Assets in which the Seller (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator.

(i)Product Warranty.  To the Seller’s Knowledge, each product manufactured, sold, leased, or delivered by the Seller pursuant to CRT projector business has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Seller has no Knowledge of any existing claim of Liability (and to the Seller’s Knowledge there is no  basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Seller giving rise to any Liability) for replacement or repair thereof or other damages in connection therewith.

(j)Material Contracts.   There exists no term or condition in any material contract that relates to the Acquired Assets that would in any way or matter adversely affect Buyer’s utilization of the Acquired Assets post Closing.

(k)Inventory  The inventory portion of the Acquired Assets consists of raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is, obsolete, damaged, or defective.

(l)Intellectual Property.   The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property being sold to Buyer as part of the Acquired Assets.  Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder.

(m)Legal Compliance.  To the Seller’s Knowledge, the Seller has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), as they may relate directly to the Acquired Assets, and to Seller’s Knowledge no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against the Seller alleging any failure so to comply.

(n)Reformatted Financial Information.  To the Seller’s Knowledge, the reformatted financial information concerning the Seller’s CRT- based projector business (as referenced in Section 4(e) hereof) provided to Buyer at Buyer’s request is substantially accurate.

(o)Disclosure.  To the Knowledge of Seller, the representations and warranties contained in this Section 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 3 not misleading.

4.Representations and Warranties of the Buyer.  The Buyer represents and warrants to the Seller that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as set forth in the Disclosure Schedule.  The Buyer’s Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4.

(a)Organization of the Buyer.  The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation.

(b)Authorization of Transaction.  The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder.  Without limiting the generality of the foregoing, the board of directors of the Buyer has duly authorized the execution, delivery, and performance of this Agreement by the Buyer. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions.

(c)Noncontravention.  Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments and assumptions referred to in Section 2 above), will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject.  The Buyer does not need to give any notice to, make any filing with, or obtain any

authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement (including the assignments and assumptions referred to in Section 2 above).

(d)Brokers’ Fees.  The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated.

(e)Risk of Business. The Buyer has a conducted what it believes to be an appropriate “due diligence” investigation of the Seller and the Seller’s CRT- based projector business, and has satisfactorily received from Seller all information that Buyer deems material and necessary to an independent and informed valuation by Buyer of the Acquired Assets, and for Buyer otherwise to make a decision to enter into this Agreement.   The Buyer has been informed by the Seller that annual total revenues of Seller have been declining and absolutely no representations, assurances and/or guarantees have been provided for the growth or performance of financial or business results from the utilization of the Acquired Assets or otherwise.  Buyer and Seller both acknowledge that they have made best efforts to provide, review, and conduct their own analysis of data related to the assets and business being transacted in this contract, and that the valuation of the Acquired Assets is based on these best efforts as of the date of this contract.  Buyer acknowledges that much of the aforementioned Seller’s data required reformatting by Seller to meet Buyer’s requests for information, and that Seller undertook substantial efforts to improve the accuracy of the data over the course of the Parties’ negotiations.

(f)Disclosure.  To the Knowledge of Buyer, the representations and warranties contained in this Section 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Section 4 not misleading.

5.Pre-Closing Covenants.  The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing.

(a)General.  Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 6 below).

(b)Notices and Consents  The Seller will give any notices to third parties, and the Seller will use its best efforts to obtain any third party consents, that the Buyer may reasonably request in connection with the matters referred to in Section 3(c) above.  Each of the Parties will give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3(c) and Section 4(c) above.

(c)Operation of Business.  The Seller will not engage in any practice, take any action, or enter into any transaction in the CRT- based projector field or with respect to its CRT- based projector business outside the Ordinary Course of Business, except as envisioned by this Agreement.

(d)Preservation of Business.  The Seller will undertake best efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees.

(e)Full Access.  The Seller will permit representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Seller, to all premises, properties, personnel, books, records, contracts, and documents of or pertaining to the Acquired Assets.

(f)Publicity.  Prior to the Closing, any written news releases by the Buyer or the Seller pertaining to this Agreement or the sale contemplated by the Agreement shall be reviewed and approved by the other Party hereto prior to release.

(g)Confidentiality.  Buyer shall hold in strict confidence, all documents and information obtained with respect to Seller (“Confidential Information”). Buyer shall not permit any Confidential Information to be utilized or to be disclosed or conveyed to any other person or entity other than its legal and accounting representatives in furtherance of this Agreement. This Section 5(g) shall terminate if and when the Closing occurs in accordance with Section 1 of this Agreement, or within one year of the date of execution of this Agreement, whichever occurs first.

6.Conditions to Obligation to Close.

(a)Conditions to Obligation of the Buyer.  The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(i)the representations and warranties set forth in Section 3 above shall be true and correct in all material respects at and as of the Closing Date;

(ii)the Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing;

(iii)the Seller shall have procured all of the third party consents specified in Section 5(b) above;

(iv)no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own the Acquired Assets and to operate the former businesses of the Seller (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);

(v)the Buyer shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in Section 5 (b) above;

(vi)the Seller shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Section 6(a)(i)-(v) is satisfied in all respects.

(vii)the Seller and Buyer shall have entered into side agreements in form and substance as set forth in Exhibits A through E attached hereto and the same shall be in full force and effect;

(viii)all actions to be taken by the Seller in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Buyer and its counsel.

(ix)Seller agrees with Buyer that the inventory to be transferred to the Buyer at the Closing date shall consist of no less than One Million Ninety-One Thousand Dollars ($1,091,000) of ESCP related inventory (of which no more than $0.00 of such inventory shall be considered, obsolete, damaged or defective) and no less than One Million Three Hundred Fifteen Thousand Dollars ($1,315,000) of Targetview related inventory (of which no more than Eight Hundred Forty-Eight Thousand Dollars ($848,000) of such inventory shall be considered, obsolete, damaged or defective).

The Buyer may waive any condition specified in this Section 6(a) if it executes a writing so stating at or prior to the Closing.

(b)Conditions to Obligation of the Seller  The obligation of the Seller to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(i)the representations and warranties set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date;

(ii)the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing;

(iii)the Seller shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in Section 5(b) above;

(iv)no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);

(v)the Buyer shall have delivered to the Seller a certificate to the effect that each of the conditions specified above in Section 6(b)(i)-(iv) is satisfied in all respects;

(vi)all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Seller.

The Seller may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing.

7.Termination.  The Buyer and the Seller may terminate this Agreement by written consent of both Parties at any time prior to the Closing. In the event of any such termination, none of the Parties shall be liable to any of the other parties for any cost, expenses or damages in connection with this Agreement.

8.Post-Closing Covenants.  The Parties agree as follows with respect to the period following the Closing.

(a)General  In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefore under Section 9 below

(b)Litigation Support.  In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Seller, each of the other Parties will cooperate with the contesting or defending Party and its counsel in the contest or defense, make available its personnel, and provide such testimony and access to his or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefore under Section 9 below).

(c)Transition.  Except as provided in Exhibit A (“Supply Agreement”), the Seller will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Seller from maintaining the same business relationships with the Buyer after the Closing as it maintained with the Seller prior to the Closing.  Except as provided in Exhibit A (“Supply Agreement”), the Seller will refer all customer inquiries relating to the CRT- based projector manufacturing, sales, replacement parts and repair parts businesses of the Seller to the Buyer from and after the Closing.

(d)Covenant Not to Compete.  The Parties agree that this covenant not to compete is necessary in order to protect the value and goodwill of the assets purchased pursuant to this Agreement and without this covenant not to compete, the Buyer would not have entered into this Agreement.  Except as provided in Exhibit A (“Supply Agreement”), for a period of Five (5) years from and after the Closing Date, the Seller will not engage directly or indirectly in the CRT- based projector and projector parts replacement or parts repair business that the Seller conducts as of the Closing Date in any geographic area in which the Seller conducts that business as of the Closing Date; provided, however, that the ownership of less than 10% of the outstanding stock of any publicly traded corporation engaged in such business shall not be deemed to be engaging in any such business.  If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 8(d) is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or

provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

(e)Agreement Not to Solicit Customers.  Except as provided in Exhibit A (“Supply Agreement”), for a period of five (5) years from and after the Closing Date, the Seller will not, directly or indirectly, on Seller’s own behalf or on behalf of others, (1) solicit, divert, appropriate to or accept on behalf of any Competing Business, or (2) attempt to solicit, divert, appropriate to or accept on behalf of a Competing Business, for the purpose of providing services or products substantially similar to the current business of the Seller, that being any business from any customer or actively sought prospective customer of the Seller at or prior to the Closing Date.  For purposes of this Agreement, “Competing Business” means manufacturing and sale of CRT projectors, parts replacement or the repair of parts thereof.

(f)Agreement Not to Solicit Employees.  After the Buyer has hired such employees of the Seller as envisioned by Section 8(k) below, the Buyer shall, for a period of two (2) years from and after the Closing Date, neither directly nor indirectly, on the Buyer’s own behalf or on behalf of others, solicit, divert or hire, or attempt to solicit, divert or hire, any person employed by Seller

(g)Premises Use.   The Seller shall continue to carry on business at its present location for a period of up to ninety (90) days after Closing, which shall allow the Buyer sufficient and reasonable time to train the Buyer’s personnel in the Seller’s operations and to transfer the technology and Acquired Assets.

(h)Warranty Service.  The Parties acknowledge that the Seller has been selling CRT- based projector products with a “repair or replace” warranty and that the transfer of the Acquired Assets to the Buyer as contemplated by this Agreement will make it impracticable for the Seller to meet its obligations to customers under such warranties.  Accordingly, the Buyer agrees to provide the warranted service requirement projectors and parts to the Seller on a “Most Favored Customer” basis for the duration of the warranty period following the Closing Date on all CRT- based projector products sold by Seller that meet the warranty eligibility requirements solely on the terms and conditions as set forth in the Supply Agreement between Seller and Buyer attached hereto as Exhibit A.

(i)Spares Pricing.  Buyer shall provide Seller spare parts, board repair and other repair services as required for its on-going Service commitments as provided in the Supply Agreement attached hereto as Exhibit “A”.

(j)Transition Support.  The Seller shall assist and support Buyer in the transition of the Export Control requirements, licensing, categorization, etc. for the assets being acquired.  The procedures and process for this is set forth in Exhibit A (the “Supply Agreement”).  A Schedule for the transition of the Acquired Assets to Buyer, and for training of Buyer’s personnel, is set forth as        .

(k)Employees.

(i)Nothing in this Agreement obligates the Buyer or Seller to transfer any employee of the Seller to the Buyer.  However, Buyer shall have the option to offer employment to any, all or none of the current employees of the Seller engaged in the CRT- based projector business to the employment of Buyer.

(ii)Seller will meet the continuation of coverage requirements of COBRA as to any such employee hired by the Buyer with respect to each Employee Benefit Plan, which is an Employee Welfare Benefit Plan subject to COBRA.

(iii)Any such employee hired by Buyer shall be treated as a terminated employee under the Seller’s Pension Plan and the Seller’s 401-K Deferred Savings Plan.

(iv)Any such employee hired by the Buyer shall be treated as a terminated employee under the long-term disability and life insurance programs of the Seller and subject to the termination provisions and conversion privileges of those insurance programs.

(v)Any such employee hired by the buyer shall be considered as voluntarily terminating employment from the Seller and shall not be eligible for benefits under the Seller’s Reduction in Force Pay Plan.

(vi)Any such employee hired by Buyer shall continue to be bound, except for Intellectual Property transferred under this Agreement, by the Seller’s Confidentiality and Invention Agreement signed by the employee.

9.Remedies for Breach of this Agreement.

(a)Survival of Representations and Warranties.   All of the representations and warranties of the Seller contained in Section 3 of this Agreement shall survive the Closing (even if the Buyer knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of fourteen (14) months after Closing and expire and terminate in its entirety thereafter.  All of the representations and warranties of the Buyer contained in Section 4 of this Agreement shall survive the Closing (even if the Seller knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force for a period of fourteen (14) months after Closing and expire and terminate in its entirety thereafter.  All covenants of the Parties contained in this Agreement shall survive the Closing in accordance with their terms.

(b)Indemnification Provisions.

(i)In the event either Party claims the other Party has breached any of its representations, warranties and covenants contained in the Agreement and if there is an applicable survival period pursuant to Section 9 (a) above and provided the purportedly damaged Party has made a written claim for indemnification against the other Party within such survival period and the other Party is found to have breached the Agreement, then the other Party agrees to indemnify the damaged Party from and against the entirety of any Adverse Consequences the damaged Party may suffer through and after the date of the breach as specified in the claim for indemnification resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach).

(ii)The Seller specifically indemnifies Buyer from any and all Adverse Consequences to Buyer arising out of, arising from, or related to, directly or indirectly, from  or caused by the Buyer’s use of any patent or patent related technology purchased by Buyer from seller pursuant to this Agreement post Closing.  This specific indemnification protection given to Buyer by Seller shall be an “evergreen” protection.

10.Disputes And Arbitration.  If any dispute should arise after Closing concerning performance under or interpretation of this Agreement, then, prior to, and as a condition to either Seller’s or Buyer’s right to initiate any arbitration action, the Parties will take the following steps in an attempt to informally resolve any such dispute:

(a)The initiating party to the dispute shall provide the other party thirty (30) days written notice of the dispute and opportunity to cure.

(b)If the dispute remains after the thirty (30) days written notice and cure period, then within thirty (30) days of the request of either party, the parties shall participate in non-binding mediation with a mutually agreeable mediator at a mutually agreeable date, time and location.

(c)If any such dispute remains unresolved after the parties have attended mediation pursuant to Section 10(b), then either party may initiate an arbitration proceeding.

(d)The Parties agree that if they are unable to resolve any  controversy that arises under this Agreement post-Closing as contemplated by this Section 10, then such controversy and any ancillary claims not so resolved will be submitted to mandatory and binding arbitration to be held in a mutually agreeable location in the United States of America  in accordance with the rules of the American Arbitration Association. Any award rendered therein shall be final and binding on each and all of the Parties, and judgment may be entered thereon in a court of competent jurisdiction in the State of Georgia.  Seller and Buyer shall appoint a maximum of three arbitrators. Seller shall appoint one arbitrator and Buyer shall appoint one arbitrator. Each of these arbitrators shall appoint the third. If any Party fails to appoint an arbitrator, the President or Chairman of the American Arbitration Association, or his authorized subordinate, shall appoint such arbitrator or arbitrators.

Seller Buyer

11.Miscellaneous.

(a)Survival of Representations and Warranties.  All of the representations, warranties and covenants of the Parties contained in this Agreement shall survive the Closing hereunder as and to the extent provided in Section 9(a) above.

(b)Entire Agreement  This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any and all prior understandings, agreements, discussions or representations by or between the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.  The Parties  acknowledge that they have each been represented by counsel in preparing this Agreement.

(c)Succession and Assignment.  This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns.  No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).

(d)Counterparts  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

(e)Headings.  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

(f)Notices.  All notices, requests, demands, claims, and other communications hereunder will be in writing.  Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:

If to the Seller:	Evans & Sutherland Computer Corp.
	600 Komas Drive
	Salt Lake City, Utah
	Fax: (801-588-4510)
	Attn.: James R. Oyler, CEO
If to the Buyer:	Video Display Corporation
	1868 Tucker Industrial Drive
	Tucker, Georgia 30084
	Fax: 770.493.3903
	Attn.: Ronald D. Ordway, CEO
With a copy to:	Gambrell & Stolz, L.L.P.
	3414 Peachtree Road, Suite 1600
	Atlanta, Georgia 30326
	Fax: 404.221.6501
	Attn.: David S. Cooper, Esq.

Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient.  Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth.

(g)Amendments and Waivers.  No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer, the Seller and the Seller Stockholder.  The Seller may consent to any such amendment at any time prior to the Closing with the prior authorization of its board of directors.  No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

(h)Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

(i)Expenses.  Each of the Buyer and the Seller will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

(j)Incorporation of Exhibits and Schedules.  The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

(k)Bulk Transfer Laws.  The Buyer acknowledges that the Seller will not comply with the provisions of any bulk transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement.

(l)Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia  as it applies to contracts to be performed entirely within the State of Georgia.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

VIDEO DISPLAY CORPORATION
	By:	/s/Ronald D. Ordway
	Title:	CEO
EVANS & SUTHERLAND COMPUTER CORP.
	By:	/s/ David H. Bateman
	Title:	Vice President

[PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

EXHIBIT A

SUPPLY AGREEMENT

THIS SUPPLY AGREEMENT is executed as of this 11^th day of October, 2004 by and between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation having its headquarters at 600 Komas Drive, Salt Lake City, UT  84108 (“E&S”), and VIDEO DISPLAY CORPORATION, a Georgia corporation having its headquarters at 1868 Tucker Industrial Drive, Tucker, GA  30084  (“VDC”).  E&S and VDC are collectively referred to herein as the “Parties”.

W I T N E S S E T H :

WHEREAS, E&S and VDC are, concurrently with the execution of this Supply Agreement, consummating certain transactions contemplated by that certain Asset Purchase Agreement dated as of October 11, 2004 (the “Asset Purchase Agreement”), whereby VDC is purchasing from E&S certain assets of E&S used in E&S’s cathode ray tube based projector business; and

WHEREAS, E&S and VDC desire that subsequent to the Closing as defined in the Asset Purchase Agreement,  E&S continue to offer the sale of new complete visual systems to potential customers that include ESCP and TargetView products (the “Systems”) and that VDC supply  E&S with all of its requirements for ESCP and TargetView products pursuant to this Supply Agreement;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, E&S and VDC enter into this Supply Agreement.

1.SCOPE OF AGREEMENT.

1.1From and after the Closing under the Asset Purchase Agreement, the Parties agree to coordinate and cooperate with respect to the “ESCP” and “TargetView” business developed by E&S and purchased by VDC pursuant to the Asset Purchase Agreement. Specifically, E&S will continue to sell Systems and Service Agreements to customers that may include ESCP and TargetView products, and  E&S may also receive from customers Independent Requests For Spares And/Or Repairs.

1.2The Parties acknowledge that VDC is buying the Assets primarily to obtain the E&S spares and repairs business, and that E&S will not supply spares and repairs as separately invoiced items except as provided in section 4.5

1.3With respect to post-Closing sales of E&S Systems, E&S agrees to purchase, and VDC agrees to supply, all of E&S’s requirements for ESCP and TargetView products used in those Systems.  With respect to any E&S Service Agreements, or E&S’s Warranty Obligations arising from pre- Closing System sales, E&S agrees to purchase, and VDC agrees to use reasonable best efforts to supply, all of E&S’s requirements for spares and/or repairs involving ESCP and TargetView products.

1.4E&S shall be the customer point of contact for, and shall fulfill, all customer requests involving Systems and/or Warranty Obligations thereunder, or Seller’s Service Agreements, even if such requests include ESCP or TargetView products.  With respect to any Independent Request For Spares And/Or Repairs received by E&S, E&S shall refer all such requests to VDC for fulfillment by VDC, and all invoicing for such Independent Requests will be handled directly between VDC and the customer.

2.DEFINITIONS.   Capitalized terms used in this Supply Agreement shall have the same meaning as defined in the Asset Purchase Agreement unless otherwise defined herein. “ESCP” and “TargetView” products are those cathode ray tube (“CRT”)-based projector products acquired by VDC from E&S pursuant to the Asset Purchase Agreement.

3.SUPPLY OF PRODUCTS AND SERVICES.

3.1With respect to post-Closing sales of E&S Systems, E&S agrees to purchase, and VDC agrees to supply, all of E&S’s requirements for ESCP and TargetView products as set forth on periodic forecasts in the manner stated in Exhibit A.

3.2With respect to any E&S Service Agreements, or E&S’s Warranty Obligations arising from pre-Closing Systems, E&S agrees to purchase, and VDC agrees to use reasonable best efforts to supply all of E&S’s requirements for spares and/or repairs involving ESCP and TargetView products.

3.3E&S will offer other VDC CRT projector products as E&S deems appropriate as a preferred solution to potential customers who desire CRT products. The Parties acknowledge and agree that specific programs or customers may prefer CRT products other than those manufactured by VDC, in which case E&S may choose to offer those other products in any System proposal.

4.PRICING.

4.1During the first three years of this Supply Agreement E&S shall have the right to purchase from VDC, in the aggregate, up to XXXXXXXX (XX) standard ESCP projectors at either: i) $XXXXXX per projector, or ii) E&S’s standard cost less $XXXXXXX for non-standard projectors.

4.2Other than as provided in subparagraph 4.1 and 4.3 hereof, all E&S purchases from VDC under this Supply Agreement shall be made at Most Favored Customer (“MFC”) prices. MFC prices shall mean those prices that are not  higher than the lowest prices quoted to any VDC customer or potential customer by VDC for the applicable product or service.

4.3For warranty service on ESCP and TargetView products manufactured and sold by E&S prior to Closing and still having warranty commitments from E&S after Closing, VDC shall provide the warranty services as follows:

[XXXXX – REDACTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.]

4.3.1VDC shall supply warranty labor and parts which shall be charged to E&S by VDC at VDC’s then current “Standard Warranty Service and Parts” pricing XXXXX.

4.3.2All freight and shipping charges associated with returns of warranty products to VDC shall be borne by E&S or the applicable customer and not by VDC.

4.4The VDC price to E&S for any System spare, or for spares or repairs to support existing or future E&S Service Agreements shall be the then applicable VDC MFC prices.

4.5In the event either VDC or a customer makes a request of E&S for additional, customer-site service, E&S may provide such services.  These services may be provided on a Time and Material (“T&M”) basis which could require separate invoicing for spares and repair items.  Under this condition, E&S and VDC will agree in advance on reasonable rates and prices for the provision of required items.

5.PRODUCT IMPROVEMENTS.

5.1E&S shall complete the design and product implementation of the improvements to the ESCP deflection amplifier that are currently in process, including higher resolution interlaced capability, redesigned heat sink assembly, and improved reliability and constructability. When completed, all documentation, drawings, and product structures shall be transferred and assigned by E&S  to VDC at no charge to VDC.  Completion of this work is estimated to 1,200 man-hours of engineering labor at a cost of $100 per hour.  The cost of this improvement is included in the agreed purchase price and shall be accomplished at no cost to VDC.

5.2The Parties have reviewed and discussed other potential ESCP product improvements. The implementation of any of these improvements shall be at the sole discretion of VDC.

5.3Engineering assistance, if any, required by VDC from E&S for any future ESCP improvements shall be negotiated between VDC and E&S on a T&M basis or on other mutually acceptable commercial terms and conditions.

6.WARRANTY SERVICE.

6.1VDC shall provide prompt warranty service for any ESCP and TargetView products manufactured and sold by E&S prior to the Closing for the duration of the applicable warranties. Prices to be charged by VDC for this warranty service shall be as provided in subparagraph 4.3 herein.

6.2VDC shall provide warranty service at its own expense for any products manufactured by VDC in accordance with this Supply Agreement. Such warranty service shall comply with the warranty terms extended to VDC’s customers, or, in the case of products manufactured by VDC for inclusion in a System sold by E&S, or sold by E&S under a service support or Encore contract, then in accordance only with the written warranty terms as in effect between VDC and E&S.

[XXXXX – REDACTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.]

6.3E&S and VDC shall negotiate in good faith with respect  to any items returned by customers that are alleged by the customer to be covered by an applicable warranty, regardless of whether the affected item was manufactured by E&S or VDC.

7.SERVICE AND SUPPORT.

7.1VDC will supply the spares and make the repairs as provided herein. The following process and procedures shall be followed in such instances:

7.1.1Except as provided in Para. 1.3, 7.2 and 7.3, VDC shall be designated as the customer point of contact for spares and repairs on ESCP and TargetView products sold by E&S, including without limitation quotations, status tracking, and exception management.

7.1.2For all spares supplied by VDC under this Agreement, VDC shall maintain a thirty (30) day Turn Around Time (“TAT”), measured from customer or E&S request to shipment date, for E&S manufactured items, and a ninety (90) day TAT for any third-party vendor item

7.1.3For all repairs provided by VDC under this Agreement, VDC shall maintain a thirty (30) day TAT, measured from receipt of the customer’s item to return shipment date.

7.1.4VDC shall be responsible for any harm, damage or degradation occurring to customer’s property while in VDC’s  possession and VDC shall indemnify and hold harmless E&S for loss, costs, damage, claim, action or liability, including without limitation attorney’s fees, incurred or suffered by E&S as a result or in connection with harm, damage or degradation to the customer’s property occurring while in VDC’s possession.

7.2Fulfillment Cycle for Spares.

7.2.1Other than System original spares sold with Systems, or spares requested under existing or future E&S Service Agreements, customers will request additional  spares from VDC.

7.2.2VDC shall be the Party providing the customer with price and availability terms on all  spares requested by customers other than System original spares sold with Systems by E&S, or spares requested under existing or future E&S Service Agreements.

7.3Fulfillment Cycle for Repairs.

7.3.1Other than with respect to repairs of ESCP and TargetView products sold with Systems, or repairs requested under existing or future E&S Service Agreements,  all repair requests will be sent to VDC.

7.3.2For repairs requested of VDC, VDC will provide to customers requesting repairs price, availability, terms, and Request for Material Action (“RMA”) number.

8.VISUAL SYSTEMS SALES.

8.1The Parties acknowledge and agree that E&S shall continue in its normal course of business to offer Systems with CRT-based projectors to current and potential customers.

8.2System sales include both Military and Civil Aviation programs and opportunities.

8.3For any such sales opportunities, VDC shall support E&S in any proposal preparation and shall provide E&S with price and delivery schedules under MFC terms.

8.4E&S shall coordinate with VDC and refer any customers to VDC for any stand-alone projector sales opportunities.

8.5VDC shall coordinate with and refer any VDC customers to E&S for any System sale opportunities with VDC customer approval.

8.6The Parties hereby agree that neither the E&S activities described in this Section 8 nor any other E&S activities properly performed under this Supply Agreement shall be construed as violating Section 8 (c) (d) or (e) of the Asset Purchase Agreement.

9.EXPORT LICENSE CONTROL.

9.1The Parties acknowledge that TargetView projectors are U.S. State Department Munitions Control List (MCL) items under Category 9.

9.2Any export outside of the United States requires a program specific Export License.

9.3E&S shall amend any applicable active Licenses to include VDC as the manufacturer.

9.4E&S shall assist and support VDC in its initial License applications for any new programs including these products.

9.5VDC shall identify their point of contact for Export Control and Administration and coordinate with their E&S counterpart.

10,PRODUCT CHANGES AND IMPROVEMENTS.VDC shall use its best efforts to establish and maintain coordination with E&S for any future product changes to ensure that E&S can assess any impacts to their customers.

11.DURATION AND TERMINATION.

11.1The initial term of this Supply Agreement shall be for a period of five years beginning October 11, 2004 (the “Initial Term”), and will be automatically renewed for an additional five year period unless terminated by either VDC or E&S by written notice to the other ninety (90) days prior to the expiration of the Initial Term.

11.2This Agreement may be terminated by written agreement between the Parties. This termination provision is without prejudice to such other rights and remedies as either Party may have at law with respect of a breach of this Agreement.

12.DISPUTES, MEDIATION AND ARBITRATION.

12.1If any dispute should arise concerning performance under or interpretation of this Agreement, then, prior to, and as a condition to either E&S’s or VDC’s right to initiate any arbitration action, the Parties will take the following steps in an attempt to resolve any such dispute:

12.1.1The initiating party to the dispute shall provide the other party thirty (30) days’ written notice of the dispute and opportunity to cure.

12.1.2If the dispute remains after the thirty (30) days written notice and cure period, then within thirty (30) days of the request the parties shall participate in non-binding mediation with a mutually agreeable mediator at a mutually agreeable date, time and location.

12.1.3If any such dispute remains unresolved after the parties have attended mediation, then either party may initiate an arbitration proceeding.

12.1.4The Parties agree that if they are unable to resolve any controversy that arises under this Supply Agreement as contemplated by this Section 13, then such controversy and any ancillary claims not so resolved will be submitted to mandatory and binding arbitration to be held in a city located in the United States of America to be mutually agreed upon.  Arbitration shall be in accordance with the rules of the American Arbitration Association.  Any award rendered therein shall be final and binding on each and all of the Parties, and judgment may be entered thereon in a court of competent jurisdiction.  The Parties shall appoint a maximum of three arbitrators.  E&S shall appoint one arbitrator and VDC shall appoint one arbitrator.  Each of these arbitrators shall appoint the third.  If any Party fails to appoint an arbitrator, the President or Chairman of the American Arbitration Association, or his authorized subordinate, shall appoint such arbitrator or arbitrators.

13.FORCE MAJEURE.   The Parties to this Supply Agreement shall be excused from performance of their obligations under this Supply Agreement where they are prevented from so performing by revolutions or other disorders, wars, acts of enemies or terrorism, fires, floods, acts of God or, without limiting the foregoing, by any cause not within the control of the

party whose performance is interfered with and, which by the exercise of reasonable diligence, the Party is unable to prevent.

14.MISCELLANEOUS.

14.1In the event of a conflict between the terms of this Supply Agreement and the Asset Purchase Agreement, the Asset Purchase Agreement shall govern.

14.2A Party shall not assign to any third party any or all of its rights or obligations under this Supply Agreement without the prior written consent of the other Party except that VDC shall be permitted to assign this Supply Agreement to any affiliated company.

14.3Neither any provision of this Supply Agreement nor any acts of the parties to this Supply Agreement shall be construed to create a partnership, joint venture or agency relationship between the Parties hereto.

14.4No waiver by either Party of any breach of this Supply Agreement by the other Party or the granting of an extension for performance hereunder shall be deemed to be a waiver of any other or subsequent breach.

14.5This Supply Agreement represents the entire agreement between E&S and VDC for sale and purchase of ESCP and TargetView products and performance of related sales and services.

14.6Each Party acknowledges that there are no representations, covenants or understandings of any kind relating to the subject matter of this Supply Agreement made by either Party to the other except those expressly set forth herein.

14.7If any of the provisions of this Supply Agreement shall contravene or be invalid under the law, such contravention or invalidity shall not invalidate the whole Supply Agreement, but it shall be construed as if not containing the particular provision or provisions held to be invalid. The rights and obligations of the Parties shall be construed and enforced accordingly and the Parties shall endeavor to agree on a mutually acceptable alternative provision.

14.8This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia as it applies to contracts to be performed entirely within the State of Georgia.

This Supply Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Parties hereto have executed this Supply Agreement as of this  11^th day of October, 2004.

VIDEO DISPLAY CORPORATION
	By:	/s/Ronald D. Ordway
	Title:	CEO
EVANS & SUTHERLAND COMPUTER CORPORATION
	By:	/s/David H. Bateman
	Title:	Vice President

EXHIBIT A TO SUPPLY AGREEMENT

VDC’s obligation to supply E&S’s requirements for ESCP and TargetView products for use in post-Closing Systems shall be limited by and administered through use of a twelve-month written forecast of E&S’s anticipated requirements for such products, as provided herein.

Prior to the Closing, E&S shall submit to VDC a written twelve-month forecast setting forth E&S’s anticipated product requirements for Systems in the first twelve-month period of  the Supply Agreement (the “Agreement”).

Thereafter, E&S shall issue to VDC a rolling twelve-month forecast on a monthly basis setting forth the anticipated product requirements for the next twelve-month period.  The requirements set forth on each subsequent forecast for the first two months shall be identical to the second and third month of the prior month’s forecast.

Immediately upon executing this Agreement, E&S shall provide VDC with a written Purchase Order, pursuant to this Agreement, for a minimum of the first three months of requirements. Thereafter, on a monthly basis , E&S shall provide a Purchase Order to VDC pursuant to this Agreement covering the next month in the then applicable forecast that is not already subject to a Purchase Order.

E&S’s liability for submitted Purchase Orders and forecasts shall be as follows:

E&S shall place the initial Purchase Order  as provided above and be irrevocably obligated to purchase the products reflected on the forecast for  the three months period covered thereby, and be irrevocably obligated to  purchase any long lead material that is non-cancelable and non-returnable that was purchased by VDC for forecasted products reflected on the forecast for the fourth and fifth months period.

For all subsequent Purchase Orders, E&S shall be irrevocably obligated to purchase the products ordered thereby, and also shall be irrevocably obligated to purchase any long lead material that is non-cancelable and non-returnable that was purchased by VDC for products reflected in the forecast that is the basis of the Purchase Order for the two months period following the month covered by the Purchase Order.

Unplanned purchase orders can be placed at any time and scheduled for delivery at full lead time.  These orders once placed are not cancelable.

E&S will have the option to reschedule to later delivery dates in all purchase orders by a maximum of 30 days but not to cancel deliveries once a Purchase Order is submitted to VDC.

EXHIBIT B

GENERAL ASSIGNMENT OF INTELLECTUAL RIGHTS

THIS GENERAL ASSIGNMENT  OF INTELLECTUAL RIGHTS is executed as of this 11^th day of October, 2004 by and between EVANS & SUTHERLAND COMPUTER CORP., a Utah corporation (“Seller”), and VIDEO DISPLAY CORPORATION, a Georgia corporation (“Buyer”).  All capitalized terms used herein but not defined herein shall have the meaning set forth in the Asset Purchase Agreement (defined below).

W I T N E S S E T H :

WHEREAS, Seller and Buyer are, concurrently with the execution of this General Assignment of Intellectual Rights, consummating certain transactions contemplated by that certain Asset Purchase Agreement dated as of October 11, 2004 (the “Asset Purchase Agreement”), whereby Buyer is purchasing from Seller certain assets of the Seller used in Seller’s cathode ray tube based projector business; and

WHEREAS, Seller now delivers this General Assignment of Intellectual Rights transferring, conveying, and assigning the Intellectual Property to Buyer as contemplated by Section 2(a) of the Asset Purchase Agreement, which Intellectual Property is specifically enumerated in Schedules 3 through 6 inclusive of the Asset Purchase Agreement;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and pursuant to the terms of the Asset Purchase Agreement, Seller does hereby irrevocably, exclusively and unconditionally convey, grant, transfer, relinquish and assign all its right, title and interest whatsoever throughout the world in the Intellectual Property to Buyer and its successors and assigns, in perpetuity or such lesser time as law permits such rights to be effective, as of October 11, 2004 pursuant to the terms of the Asset Purchase Agreement.

This assignment of rights is intended to encompass all of the Seller’s rights in the Intellectual Property, including, but not limited to: inventions, discoveries, concepts, ideas, proprietary business methods and technical know-how, whether patentable or not; trade secrets; letters patent, both United States and foreign; applications for letters patent, both United States and foreign; trademarks and service marks including, without limitation, the following trademarks: “ESCP 2000” (US) (Registration Number 2432687), “ESCP 2000” (Canada) (Registration Number 565568), “ESCP 2000” (Japan) (Registration Number 4432843), “ESCP 3000” (US) (Registration Number 2468759), “ESCP 3000” (Canada) (Registration Number 565562), and  “ESCP 3000” (Japan) (Registration Number 4432844), whether registered or not, together with the goodwill associated with such marks; copyrights and the right to secure copyrights and renewals and extensions thereof throughout the world; internet domain name registrations; and all contracts and receivables relating to the foregoing.

Seller represents and warrants that it has the full power and right to make this Assignment; that, there exists no claim in or to  the Intellectual Property rights being assigned adverse to Buyer; and that, the Intellectual Property does not infringe any rights of any person or business entity anywhere in the world.  Seller hereby agrees to indemnify Buyer and hold Buyer harmless from any claims by third parties that are inconsistent with any of the foregoing representations and warranties of Seller.

Seller agrees to execute such other documents, and to provide such further assistance, as Buyer may reasonably require to protect or enforce its rights to the assigned Intellectual Property in the United States or elsewhere.

This General Assignment of Intellectual Rights may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute and deliver this General Assignment of Intellectual Rights to be effective as of date first written above.

EVANS & SUTHERLAND COMPUTER CORP.
By:	/s/David H. Bateman
Name:	David H. Bateman
Title:	Vice President

VIDEO DISPLAY CORPORATION
By:	/s/ Ronald D. Ordway
Name:	Ronald D. Ordway
Title:	CEO

EXHIBIT C

ASSUMPTION AGREEMENT

THIS ASSUMPTION AGREEMENT is executed as of this 11^th day of October, 2004 by and between EVANS & SUTHERLAND COMPUTER CORP., a Utah corporation (“Seller”), and VIDEO DISPLAY CORPORATION, a Georgia corporation (“Buyer”).  All capitalized terms used herein but not defined herein shall have the meaning set forth in the Asset Purchase Agreement (defined below).

W I T N E S S E T H :

WHEREAS, Seller and Buyer are, concurrently with the execution of this Assumption Agreement, consummating certain transactions contemplated by that certain Asset Purchase Agreement dated as of October 11, 2004 (the “Asset Purchase Agreement”), whereby Buyer is purchasing from Seller certain assets of the Seller used in Seller’s cathode ray tube based projector business; and

WHEREAS, Seller now delivers this Assumption Agreement as contemplated by Section 2(b) of the Asset Purchase Agreement which provides that the Buyer neither agrees to assume nor become responsible for any of the Seller’s Liabilities;

NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and in the Asset Purchase Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Seller and Buyer hereby acknowledge and agree that Buyer does not assume nor agree to become responsible for any of Seller’s Liabilities of any nature whatsoever.

2.Other than as specifically stated in this Assumption Agreement or in the Asset Purchase Agreement, Buyer is not assuming, becoming subject to, or in any way becoming liable or responsible for any liability or obligation of Seller, whether accrued, absolute or contingent, or choate or inchoate.

This Assumption Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned have executed this Assumption Agreement effective as of the day and year first above written.

BUYER:		SELLER:
VIDEO DISPLAY CORPORATION CORP.		EVANS & SUTHERLAND COMPUER
By:	/s/Ronald D. Ordway	By:	/s/ David H. Bateman
Name:	Ronald D. Ordway	Name:	David H. Bateman
Title:	CEO	Title:	Vice President

EXHIBIT D

ALLOCATION SCHEDULE

EXHIBIT E

TRANSITION PLAN

Major Tasks and Duration of time estimated for completion after Closing:

Major Task	Duration
In House Activities at E&S	90
Data Transfer	5
Knowledge Transfer (Training)	15
Information Support	90
Inventory Transfer	25
Equipment Transfer	21
On Site Activities at VDC	94
Production Process Installation	17
Training	4
Produce ESCP for Q4 2004	90
Supplier Qualification	2
Spares Responsibility Transition	15
Repairs Responsibility Transition	15

Note:  Times shown may run in parallel.  Total transition time isdays after Closing.  The Parties shall cooperate in good faith to promptly transition the Acquired Assets to VDC under the above schedule.  ESCP products manufactured by E&S prior to Closing remain undelivered at VDC’s request, and will be completed at E&S jointly by E&S and VDC personnel in furtherance of E&S’s training obligations herein.

SCHEDULE 1

ACQUIRED ASSETS

1.ESCP and TargetView manufacturing furniture, assembly and test fixtures, test equipment, tooling, and documentation.

2.ESCP inventories located on the 1^st Floor at the E&S Manufacturing Facility located at 560 Arapeen Dr., Salt Lake City, UT 84108 , as disclosed to Buyer, including materials, supplies, purchased parts, assemblies, sub-assemblies and goods in process.

3.ESCP projector software including all C++ source files and the source file for the sequencer firmware including assembler and associated hardware and firmware development tools.

4.ESCP and TargetView related CAD design files and specifications.

5.ESCP Digital Controller PC (DCPC) software including C++ source code and the Matrox MIL library file including associated hardware and firmware development tools.

6.Target View inventories located on the 1^st and 2^nd Floors at the E&S Manufacturing Facility located at 560 Arapeen Dr., Salt Lake City, UT 84108, as disclosed to Buyer, including materials, supplies, purchased parts assemblies, sub-assemblies, and good in process.

7.ESCP and TargetView marketing and sales materials.

8.ESCP and TargetView manuals including Operations & Maintenance and Service manuals.

9.ESCP and TargetView Training coursework.

10.Current active submitted Bids & Proposals for ESCP and TargetView sales opportunities.

11.Rolling 12 month forecast for ESCP and TargetView projectors.

12.ESCP and TargetView Customers and contacts lists.

13.ESCP and TargetView Service and Encore contract status.

14.ESCP and TargetView spares and repairs pricing lists.

15.ESCP and TargetView projector catalog pricing.

16.As shipped configurations and Request for Material Action (RMA) history for ESCP.

17.ESCP and TargetView bills of material.

18.ESCP and TargetView assembly drawings and schematics.

SCHEDULE 2

EXCLUDED ASSETS

1.Seller’s ESCP and TargetView-related inventories located in the U.S. Depot on the 2^nd Floor of 560 Arapeen Dr., Salt Lake City, UT 84108 in a room named U.S. Depot and UK Depot; these inventories are necessary to support on-going existing customer support requirements.

2.All accounts receivable, accounts payable and cash.

3.Rights and obligations existing under any contract, agreement, or supply arrangement between Seller and any third party.

4.Rights that accrue or will accrue to Seller under this Asset Purchase Agreement.

SCHEDULE 3

LIST OF TRADEMARKS

Trademark	Country	Registration No.	Registration Date
“ESCP 2000”	U.S.	2432687	3/6/01
“ESCP 2000”	Canada	565568	8/7/02
“ESCP 2000”	Japan	4432843	11/17/00
“ESCP 3000”	U.S.	2468759	7/17/01
“ESCP 3000”	Canada	565562	8/7/02
“ESCP 3000”	Japan	4432844	11/17/00

SCHEDULE 4

LIST OF COPYRIGHTS AND PATENTS

As previously disclosed to Buyer, there are no copyrights or patents, or copyrightable or patentable works, associated with or related to the Acquired Assets.

SCHEDULE 5

OTHER INTELLECTUAL PROPERTY

1.Trade secrets and manufacturing know-how related to ESCP and TargetView.

2.ESCP projector software including all C++ source files and the source file for the sequencer firmware including assembler and associated tools.

3.ESCP-related CAD design

4.Digital Controller PC (DCPC) software including C++ source code and the Matrox MIL library file.

5.ESCP and TargetView marketing and sales materials.

6.ESCP and TargetView manuals including Operations & Maintenance and Service manuals.

7.ESCP and TargetView Training coursework.

8.Open/unsubmitted Bids & Proposals for ESCP and TargetView sales contracts.

9.Rolling 12 month forecast for ESCP and TargetView projectors.

10.ESCP and TargetView Customers and contacts lists.

11.ESCP and TargetView Service contract status.

12.ESCP and TargetView spares and repairs pricing lists.

13.ESCP and TargetView projector catalog pricing.

14.ESCP and TargetView bills of material.

15.ESCP and TargetView assembly drawings and schematics.

SCHEDULE 6

EXCEPTIONS TO PROPRIETARY RIGHTS

1.Any proprietary rights or intellectual property not used exclusively in Seller’s ESCP or TargetView business.

2.Any proprietary rights or intellectual property not specifically enumerated on Schedules 1 or 3 through 5 of the Asset Purchase Agreement.

EX-10.29

Exhibit 10.29

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”) is entered into as of December 1, 2004, by and between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation (^“Borrower’), and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

RECITALS

Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:

ARTICLE I
CREDIT TERMS

SECTION 1.1. LETTER OF CREDIT LINE.

(a)Letter of Credit Line. Subject to the terms and conditions of this Agreement, Bank hereby agrees to establish a letter of credit line (“Letter of Credit Line) under which Bank shall issue or cause an affiliate to issue standby letters of credit for the account of Borrower to support delivery of simulation software packages to customers (a Performance Letter of Credit”) and to support financial obligations of Borrower (a “Financial Letter of Credit’) (each, a “Letter of Credit” and collectively, “Letters of Credit”) from time to time up to and including December 1, 2006; provided however, that the aggregate of all undrawn amounts, and all amounts drawn and unreimbursed, under any Letters of Credit issued under the Letter of Credit Line shall not at any time exceed the principal amount of Ten Million Dollars ($10,000,000.00). The form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion. No Letter of Credit shall have an expiration date greater than 365 days past the maturity date of the Letter of Credit Line. Each Letter of Credit shall be subject to the additional terms of the Letter of Credit agreements, applications and any related documents required by Bank in connection with the issuance thereof (each, a “Letter of Credit Agreement”). Bank has issued thirteen (13) standby letters of credit for the account of the Borrower in the aggregate amount of Three Million One Hundred Forty One Thousand Nine Hundred Forty Eight and 05/100 Dollars ($3,141,948.05), each of which is outstanding as of the date hereof and shall be deemed Included within the definition of Letters of Credit set forth herein.

(b)Repayment of Drafts. Each drawing paid under any Letter of Credit shall be repaid by Borrower in accordance with the provisions of the applicable Letter of Credit Agreement.

SECTION 1.2. FOREIGN EXCHANGE FACILITY.

(a) Foreign Exchange Facility. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make available to Borrower a facility (the “Foreign Exchange Facility”), the extension of which shall not be subject to a fee, and under which Bank, from time to time up to and including December 1, 2005, will enter into foreign exchange spot contracts (contracts

1

with a value date of not more than two calendar days after the contract is entered into) for the account of Borrower for the purchase and/or sale by Borrower in United States dollars of foreign currencies designated by Borrower; provided however, that the maximum amount of all outstanding foreign exchange contracts shall not at any time exceed an aggregate of Two Hundred Thousand United States Dollars (US$200,000.00). No foreign exchange spot contract shall be executed for a term which extends beyond December 1, 2005. All foreign exchange transactions shall be subject to the additional terms of a Foreign Exchange Agreement dated as of December 1, 2004 (“Foreign Exchange Agreement”), all terms of which are incorporated herein by this reference.

(b)Settlement. Each foreign exchange contract under the Foreign Exchange Facility shall be settled on its maturity date by Bank’s debit to any deposit account maintained by Borrower with Bank.

SECTION 1.3. INTEREST/FEES.

(a)Interest.The outstanding principal balance of each credit subject hereto shall bear interest, and the amount of each drawing paid under any Letter of Credit shall bear interest from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest set forth in each promissory note or other instrument or document executed in connection therewith.

(b)Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby.

(c)Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Letter of Credit Line equal to $37,500.00, which fee shall be due and payable in full on December 1, 2004.

(d)Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one quarter of one percent (.25%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Letter of Credit Line, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears within ten (10) days after each billing is sent by Bank.

(e)Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of each Performance Letter of Credit, as determined by Bank, equal to one percent (1%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) fees upon the issuance of each Financial Letter of Credit, as determined by Bank, equal to one percent (1.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (iii) fees upon the payment or negotiation of each drawing under any Letter of Credit and fees upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank’s standard fees and charges then in effect for such activity.

2

SECTION 1.4. COLLATERAL.

As security for all indebtedness of Borrower to Bank subject hereto and arising pursuant to any deposit or treasury management services provided by Bank to Borrower, Borrower hereby grants to Bank security interests of first priority in all Borrower’s interest in that certain money market savings account #3801563101, over which Borrower shall have no control (the °Cash Collateral Account”). All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security.

The balance in the Cash Collateral Account shall at all times be equal to or greater than one hundred percent (100%) of the aggregate of (i) all issued and outstanding, unpaid and unreimbursed Letters of Credit, plus (ii) such amounts as Bank may determine, in its sole discretion, are required to adequately secure Borrower’s liability and performance of any foreign exchange spot contracts under the Foreign Exchange Facility and deposit and treasury management services provided to Borrower by Bank. In the event that the balance of the Cash Collateral Account, for any reason and at any time, is less than the required amount, Debtor shall, within five (5) Business Days after Bank gives Borrower verbal or written notice of such deficiency, deposit additional monies into the Cash Collateral Account in amounts sufficient to achieve the required amount. As used herein, “Business Day” means any day except a Saturday, Sunday or any other day on which commercial banks in Utah are authorized or required by law to dose.

ARTICLE II
REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.

SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the State of Utah, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower.

SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the “Loan Documents”) have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.

SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound.

3

SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower’s knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof.

SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated October 1, 2004, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of Its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing.

SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year.

SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower’s obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a °Plan”); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower, Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.

SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any

4

rules or regulations adopted pursuant thereto, which govern or affect any of Borrower’s operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

ARTICLE III CONDITIONS

SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank’s satisfaction of all of the following conditions:

(a)Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank’s counsel.

(b)Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed:

(i)This Agreement and each promissory note or other instrument or document required hereby.

(ii)Certificate of Incumbency.

(iii)Corporate Resolution: Borrowing.

(iv)S/A; Borrower. Specific Rights to Payment

(v)Foreign Exchange Agreement.

(vi)Such other documents as Bank may require under any other Section of this Agreement.

(c)Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower.

SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of the following conditions:

(a)Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.

5

(b)Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit.

(c)Additional Letter of Credit Documentation. Prior to the issuance of each Letter of Credit, Bank shall have received a Letter of Credit Agreement, properly completed and duly executed by Borrower.

ARTICLE IV
AFFIRMATIVE COVENANTS

Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing:

SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein.

SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower.

SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank:

(a)not later than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a certified public accountant acceptable to Bank, to include balance sheet, income statement and statement of cash flows;

(b)not later than 45 days after and as of the end of each quarter, a financial statement of Borrower, prepared by Borrower, to include balance sheet and income statement;

(c)from time to time such other information as Bank may reasonably request

SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of Its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrowers continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business.

SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to tire, extended coverage, public liability, flood, property damage and workers’ compensation, with all such insurance carried with companies and in amounts satisfactory to

6

Bank, and deliver to Bank from time to time at Bank’s request schedules setting forth all insurance then in effect.

SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower’s business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank’s satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.

SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower.

SECTION 4.9. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined In ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower’s property.

ARTICLE V
NEGATIVE COVENANTS

Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank’s prior written consent:

SECTION 5.1. USE OF FUNDS.. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof.

SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower’s

7

business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transferor otherwise dispose of all or a substantial or material portion of Borrowers assets except in the ordinary course of its business.

SECTION 5.4. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof.

ARTICLE VI
EVENTS OF DEFAULT

SECTION 6.1. The occurrence of any of the following shall constitute an “Event of Default” under this Agreement:

(a)Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.

(b)Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.

(c)Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence.

(d)Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower, any guarantor hereunder or any general partner or joint venturer in any Borrower which is a partnership or joint venture (with each such guarantor, general partner and/or joint venturer referred to herein as a “Third Party Obligor”) has incurred any debt or other liability to any person or entity, including Bank.

(e)The filing of a notice of judgment lien against Borrower or any Third Party Obligor, or the recording of any abstract of judgment against Borrower or any Third Party Obligor in any county in which Borrower or such Third Party Obligor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any Third Party Obligor; or the entry of a judgment against Borrower or any Third Party Obligor.

(f)Borrower or any Third Party Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any Third Party Obligor shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time (“Bankruptcy Code”), or under

8

any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable slate or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Third Party Obligor, or Borrower or any Third Party Obligor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any Third Party Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any Third Party Obligor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

(g)There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents.

(h)The death or incapacity of any individual Borrower or Third Party Obligor. The dissolution or liquidation of any Borrower or Third Party Obligor which is a corporation, partnership, joint venture or other type of entity; or Borrower or any such Third Party Obligor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of such Borrower or Third Party Obligor.

(i)Any change in ownership of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower.

SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank’s option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE VII
MISCELLANEOUS

SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy, Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

9

SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:	EVANS & SUTHERLAND COMPUTER CORPORATION
	600 Komas Drive, P.O. Box 58700
	Salt Lake City, Utah 84108
BANK:	WELLS FARGO BANK, NATIONAL ASSOCIATION
	Utah RCBO
	299 South Main, 9th Floor
	Salt Lake City, Utah 84111

or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS’ FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of Bank’s in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank’s continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity.

SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank’s prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank’s rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, or any collateral required hereunder.

SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.

10

SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or Invalid under applicable law, such provision shall be Ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah.

SECTION 7.11. ARBITRATION.

(a)Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b)Governing Rules. Any arbitration proceeding will (i) proceed in a location in Utah selected by the American Arbitration Association (“AAA”): (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA’s, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the `Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c)No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property

11

collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d)Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate In all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of Utah or a neutral retired judge of the state or federal judiciary of Utah, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of Utah and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the Utah Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e)Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AM. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f)Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g)Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h)Real Property Collateral: Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness

12

secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of Utah, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a master in accordance with Utah Rule of Civil Procedure 53, and this general reference agreement is intended to be specifically enforceable. A master with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a master shall be entered in the court in which such proceeding was commenced In accordance with Utah Rule of Civil Procedure 53(e).

(i)Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above.

EVANS & SUTHERLAND COMPUTER CORPORATION			WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Kevin A. Papryzycki		By:	/s/ Troy Akagi
		Kevin A. Paprzycki, CFO/Secretary			Relationship Manager

13

EX-10.30

Exhibit 10.30

[PORTIONS OF THIS EXHIBIT HAVE BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.]

 WELLS FARGO SECURITY AGREEMENT
SPECIFIC RIGHTS TO PAYMENT

1.GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned EVANS & SUTHERLAND COMPUTER CORPORATION, or any of them (“Debtor”), hereby grants and transfers to WELLS FARGO BANK NATIONAL ASSOCIATION (“Bank”) a security interest in the following accounts, deposit accounts, chattel paper (whether electronic or tangible), Instruments, promissory notes, documents, general intangibles, payment intangibles, software. letter of credit rights, health-care insurance receivables and other rights to payment (collectively called “Collateral”):

Account No. XXXXXX issued by or maintained with Bank, however evidenced, and all monies, now or hereafter deposited therein and due or to become due and payable thereon, and all instruments, documents, claims and rights to payment with respect thereto, and replacements, substitutions and renewals thereof,

and all renewals thereof, including all securities, guaranties, warranties, indemnity agreements, insurance policies, supporting obligations and other agreements pertaining to the same or the property described therein, together with whatever Is receivable or received when any of the Collateral or proceeds thereof are sold, collected, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary, including without limitation,^- all rights to payment, including returned premiums, with respect to any insurance relating to any of the foregoing, and all rights to payment with respect to any claim or cause of action affecting or relating to any of the foregoing (hereinafter called “Proceeds”).

2.OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank; (b) all obligations of Debtor and rights of Bank under this Agreement; and (c) all present and future obligations of Debtor to Bank of other kinds. The word “Indebtedness” is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable.

3.TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank, including without limitation, the payment of all Indebtedness of Debtor to Bank, and the termination of all commitments of Bank to extend credit to Debtor, existing at the time Bank receives written notice from Debtor of the termination of this Agreement.

4.OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank’s option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder.

5.REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor’s legal name is exactly as set forth on the first page of this Agreement, and all of Debtor’s organizational documents or agreements delivered to Bank are complete and accurate in every respect; (b) Debtor is the owner and has possession or control of the Collateral and Proceeds; (c) Debtor has the exclusive right to grant a security interest in the Collateral and Proceeds; (d) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or as otherwise agreed to by Bank, or heretofore disclosed by Debtor to Bank, in writing; (e) all statements contained herein and, where applicable, in the Collateral are true and complete in all material respects; (f) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office; (g) all persons appearing to be obligated on Collateral and Proceeds have authority and capacity to contract and are bound as they appear to be; (h) all property subject to chattel paper has been properly registered and filed in compliance with law and to perfect the interest of Debtor

[XXXXX – REDACTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.]

1

in such property; and (i) all Collateral and Proceeds comply with all applicable laws concerning form, content and manner of preparation and execution, Including where applicable Federal Reserve Regulation Z and any State consumer credit laws.

6.COVENANTS OF DEBTOR.

6.1Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due; (b) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (c) to pay all costs and expenses, including reasonable attorneys’ fees, incurred by Bank in the perfection and preservation of the Collateral or Bank’s interest therein and/or the realization, enforcement and exercise of Bank’s rights, powers and remedies hereunder, (d) to permit Bank to exercise its powers; (e) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; (f) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and/or registered without giving Bank prior written notice thereof; (g) not to change the places where Debtor keeps any Collateral or Debtors records concerning the Collateral and Proceeds without giving Bank prior written notice of the address to which Debtor is moving same; and (h) to cooperate with Bank in perfecting all security interests granted herein and in obtaining such agreements from third parties as Bank deems necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of Its rights hereunder.

6.2Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (a) that Bank is authorized to file financing statements in the name of Debtor to perfect Bank’s security interest in Collateral and Proceeds; (b) where applicable, to insure the Collateral with Bank named as loss payee, in form, substance and amounts, under agreements, against risks and liabilities, and with insurance companies satisfactory to Bank; (c) not to permit any security interest in or lien on the Collateral or Proceeds, except in favor of Bank; (d) not to sell, hypothecate or otherwise dispose of, nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein, nor withdraw any funds from any deposit account pledged to Bank hereunder; (e) to keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (f) if requested by Bank, to receive and use reasonable diligence to collect Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Proceeds to Bank daily in the exactform in which they are received together with a collection report in form satisfactory to Bank; (g) not to commingle Collateral or Proceeds, or collections thereunder, with other property; (h) in the event Bank elects to receive payments of Collateral or Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (i) to provide any service and do any other acts which may be necessary to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims.

7.POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank’s officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtors name or otherwise; (b) to give notice to account debtors or others of Bank’s rights in the Collateral and Proceeds, to enforce or forebear from enforcing the same and make extension or modification agreements with respect thereto; (c) to release persons liable on Collateral or Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release or substitute security; (e) to resort to security in any order; (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank’s interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor, (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; 0) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance

2

claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank’s sole option, toward repayment of the Indebtedness; (I) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the Indebtedness; (n) to preserve or release the interest evidenced by chattel paper to which Bank is entitled hereunder and to endorse and deliver any evidence of title incidental thereto; and (o) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder.

8.PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, together with interest at a rate determined in accordance with the provisions of this Agreement, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement.

9.EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an “Event of Default” under this Agreement (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between Debtor and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Debtor herein shall prove to be incorrect, false or misleading in any material respect when made; (c) Debtor shall fail to observe or perform any obligation or agreement contained herein; (d) any impairment of the rights of Bank in any Collateral or Proceeds or any attachment or like levy on any property of Debtor; and (e) Bank, in good faith, believes any or all of the Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling, loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory In character or value.

10.REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the Utah Uniform Commercial Code or otherwise provided by law; including without limitation, the right (a) to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank, and (b) to sell, lease, license or otherwise dispose of any or all Collateral. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, pri^vileg^e or remedy hereunder shall effect or operate as a waiver of such right power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales or other dispositions, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auctions, are all commercially reasonable since differences in the prices generally realized in the different kinds of dispositions are ordinarily offset by the differences in the costs and credit risks of such dispositions.

While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any Collateral or Proceeds except on terms approved by Bank; (c) Bank may, at any time and at Bank’s sole option, liquidate any time deposits pledged to Bank hereunder and apply the Proceeds thereof to payment of the Indebtedness, whether or not said time deposits have matured and notwithstanding the fact that such liquidation may give rise to penalties for early withdrawal of funds; and (d) at Bank’s request, Debtor will assemble and deliver all Collateral and Proceeds, and

3

books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank. Debtor further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition.

11.DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In disposing of Collateral hereunder, Bank may disclaim all warranties of title, possession, quiet enjoyment and the like. Any proceeds of any disposition of any Collateral or Proceeds, or any part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys’ fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness in such order of application as Bank may from time to time elect. Upon the transfer of all or any part of the Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred Bank shall retain all rights, powers, privileges and remedies herein given.

12.STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full and all commitments by Bank to extend credit to Debtor have been terminated, the power of sale or other disposition and all other rights, powers, privileges and remedies granted to Bank hereunder shall continue to exist and may be. exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder.

13.MISCELLANEOUS. When there is more than one Debtor named herein: (a) the word “Debtor” shall mean all or any one or more of them as the context requires; (b) the obligations of each Debtor hereunder are joint and several; and (c) until all Indebtedness shall have been paid in full, no Debtor shall have any right of subrogation or contribution, and each Debtor hereby waives any benefit of or right to participate in any of the Collateral or Proceeds or any other security now or hereafter held by Bank. Debtor hereby waives any right to require Bank to (I) proceed against Debtor or any other person, (ii) proceed against or exhaust any security from Debtor or any other person, (iii) perform any obligation of Debtor with respect to any Collateral or Proceeds, and (d) make any presentment or demand, or give any notice of nonpayment or nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any Collateral or Proceeds. Debtor further waives any right to direct the application of payments or security for any Indebtedness of Debtor or indebtedness of customers of Debtor.

14.NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or principal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days after deposit in the U. S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

15.COSTS, EXPENSES AND ATTORNEYS’ FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys’ fees (to include outside counsel fees and all allocated costs of Bank’s in-house counsel), expended or incurred by Bank In exercising any right, power, privilege or remedy conferred by this Agreement or in the enforcement thereof, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank’s ability to exercise any of its rights or remedies with respect thereto. All of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank’s Prime Rate in effect from time to time.

4

16.SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and maybe emended or modified only in writing signed by Bank and Debtor.

17.OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement as Debtor hereby expressly agrees that recourse may be had against his or her separate property for all his or her Indebtedness to Bank secured by the Collateral and Proceeds under this Agreement.

18.SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or Invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement.

19.GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah.

Debtor warrants that Debtor is an organization registered under the laws of the State of Utah.

Debtor warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 600 Komas Drive P.O. Box 58700, Salt Lake City, UT 84108

IN WITNESS WHEREOF, this Agreement has been duly executed as of December 1, 2004.

EVANS & SUTHERLAND COMPUTER CORPORATION

By:	/s/ Kevin A. Paprzycki
		Kevin A. Paprzycki
		CFO/Secretary

5

EX-21.1

Exhibit 21.1

EVANS & SUTHERLAND COMPUTER CORPORATION
SUBSIDIARIES OF THE REGISTRANT

Subsidiary Name	State or Other Jurisdiction of Incorporation or Organization	Names Under Which Each Subsidiary Does Business
Evans & Sutherland Graphics Corporation	Utah	Evans & Sutherland Graphics Corporation
Evans & Sutherland Computer Limited	United Kingdom	Evans & Sutherland Computer Limited
Xionix Simulation, Inc.	Georgia	Xionix Simulation, Inc.
REALimage, Inc.	Delaware	REALimage, Inc.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Evans & Sutherland Computer Corporation

We consent to incorporation by reference in the Registration Statements Nos. 33-39632, 2-76027, 333-53305, 333-58735, 333-58733, 333-104754, and 333-118277 on Forms S-8 and Registration Statements No. 333-09657 on Form S-3 of Evans & Sutherland Computer Corporation of our report dated March 31, 2005, with respect to the consolidated balance sheets of Evans & Sutherland Computer Corporation as of December 31, 2004 and December 31, 2003, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2004 and related financial statement schedule, which report appears in the December 31, 2004 Annual Report on Form 10-K of Evans & Sutherland Computer Corporation.

KPMG LLP

Salt Lake City, Utah

March 31, 2005

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each officer and/or director of Evans & Sutherland Computer Corporation whose signature appears below constitutes and appoints James R. Oyler and Kevin A. Paprzycki, or any of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign in the name of or on behalf of the undersigned, as a director and/or officer of said corporation, the Annual Report on Form 10-K of Evans & Sutherland Computer Corporation for the year ended December 31, 2004, and any and all amendments to such Annual Report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney on the dates indicated.

SIGNATURE	TITLE	DATE
/s/ James R. Oyler	President and Chief Executive Officer	March 30, 2005
James R. Oyler	(Principal Executive Officer) and Director
/s/ Kevin A. Paprzycki	Vice President, Chief Financial	March 30, 2005
Kevin A. Paprzycki	Officer, Corporate Secretary
	(Principal Financial and Accounting Officer)
/s/ James P. McCarthy	Director	March 27, 2005
James P. McCarthy
/s/ David Coghlan	Director	March 30, 2005
David J. Coghlan
/s/ Wolf-Dieter Hass	Director	March 30, 2005
Wolf-Dieter Hass
/s/ William Schneider, Jr.	Director	March 30, 2005
William Schneider, Jr.

EX-31.1

Exhibit 31.1

Rule 13a-14 Certification

CERTIFICATIONS*

I, James R. Oyler, certify that:

1.I have reviewed this annual report on Form 10-K of Evans & Sutherland Computer Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)[Omitted in reliance on SEC Release No. 33-8238; 34-47986, Section III.E.]

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2005
	/s/ James R. Oyler
	James R. Oyler
	Chief Executive Officer
	(Principal Executive Officer)

* Provide a separate certification for each principal executive officer and principal financial officer of the registrant. See Rules 13a-14(a) and 15d-14(a).

EX-31.2

Exhibit 31.2

Rule 13a-14 Certification

CERTIFICATIONS*

I, Kevin A. Paprzycki, certify that:

1.I have reviewed this annual report on Form 10-K of Evans & Sutherland Computer Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)[Omitted in reliance on SEC Release No. 33-8238; 34-47986, Section III.E.]

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2005
	/s/ Kevin A. Paprzycki
	Kevin A. Paprzycki
	Chief Financial Officer
	(Principal Financial Officer)

* Provide a separate certification for each principal executive officer and principal financial officer of the registrant. See Rules 13a-14(a) and 15d-14(a).

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. 1350,

 as Adopted Pursuant Section 906 of the

Sarbanes-Oxley Act of 2002

I, James R. Oyler, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-K of Evans & Sutherland Computer Corporation for the fiscal year ended December 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: March 31, 2005	By:	/s/ James R. Oyler
		James R. Oyler
		Chief Executive Officer

I, Kevin A. Paprzycki, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-K of Evans & Sutherland Computer Corporation for the fiscal year ended December 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Evans & Sutherland Computer Corporation.

Date: March 31, 2005	By:	/s/ Kevin A. Paprzycki
		Kevin A. Paprzycki
		Chief Financial Officer

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.