<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
PIXTECH, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box): [X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transactions apply:
(2) Aggregate number of securities to which transactions apply:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined).
(4) Proposed maximum aggregate value of transactions:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE>
PIXTECH, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1999 Annual Meeting of Stockholders of PixTech, Inc. will be held at the
Grand Hyatt, Park Avenue, Grand Central, in New York, New York, at 3 p.m. on
Wednesday, May 12, 1999 for the following purposes:
1. To elect one director to hold office for a term of three years and until
his successor is elected and qualified.
2. To amend the Restated Certificate of Incorporation of the Company to
increase the authorized shares of capital stock of the Company from
31,000,000 shares to 61,000,000 shares.
3. To amend the Company's 1993 Stock Option Plan to increase the number of
shares available under such Plan from 2,656,372 shares to 5,156,372 shares.
4. To consider and vote on a proposal to issue shares of the Company's Common
Stock in connection with the purchase of certain assets of Micron
Technology, Inc. relating to field emission displays including certain
equipment and other tangible assets, certain contract rights and cash.
5. To transact such other business as may be in furtherance of or incidental
to the foregoing or as may otherwise properly come before the meeting.
Only stockholders of record at the close of business on March 22, 1999 will be
entitled to vote at the meeting or any adjournment thereof. A list of such
stockholders will be open for examination by any stockholder for any purpose
germane to the meeting for ten days before the meeting during ordinary business
hours at the offices of Palmer & Dodge LLP, One Beacon Street, Boston,
Massachusetts 02108.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR PROXY
WILL NOT BE USED.
By order of the Board of Directors,
MICHAEL LYTTON, Secretary
Dated: April 23, 1999
<PAGE>
PIXTECH, INC.
Avenue Olivier Perroy, Zone Industrielle de Rousset
13790 Rousset France
Telephone 011 33 (0)442 29 1000
_______________
Proxy Statement
_______________
The enclosed proxy is solicited on behalf of the Board of Directors of
PixTech, Inc. (the "Company") for use at the 1999 Annual Meeting of Stockholders
to be held on Wednesday, May 12, 1999, and at any adjournments thereof. The
approximate date on which this proxy statement and accompanying proxy are first
being sent or given to security holders is April 28, 1999.
The principal business expected to be transacted at the meeting, as more fully
described below, will be the election of one director, an increase in the number
of shares authorized under the Company's Restated Certificate of Incorporation,
an increase in the number of shares available under the 1993 Stock Option Plan
and the issuance of common stock to Micron Technology, Inc.
The authority granted by an executed proxy may be revoked at any time before
its exercise by filing with the Secretary of the Company a written revocation or
a duly executed proxy bearing a later date or by voting in person at the
meeting. Shares represented by valid proxies will be voted in accordance with
the specifications in the proxies. If no specifications are made, the proxies
will be voted to elect the directors nominated by the Board of Directors and to
approve the other proposals listed in the notice on the cover page of this proxy
statement.
The Company will bear the cost of the solicitation of proxies, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of stock. In addition to the use of mails,
proxies may be solicited by officers and employees of the Company in person or
by telephone.
VOTING SECURITIES AND VOTES REQUIRED
Only stockholders of record at the close of business on March 22, 1999 will be
entitled to vote at the meeting. On that date, the Company had outstanding
15,150,329 shares of Common Stock, $0.01 par value (the "Common Stock"), each of
which is entitled to one vote. In addition, the Company had outstanding 367,269
shares of Series E Preferred Stock, $0.01 par value (the "Series E Stock"), each
of which is entitled to the number of votes equal to the number of whole shares
of Common Stock which the shares of Series E Preferred Stock are convertible
into as of the record date. As of March 22, 1999, the record date for the 1999
Annual Meeting, the Series E Stock would have been convertible into 4,622,496
shares of Common Stock. A majority in interest of the outstanding Common Stock
and shares convertible into Common Stock entitled to vote, represented at the
meeting in person or by proxy, constitutes a quorum for the transaction of
business. A plurality of the votes cast is required to elect the nominee for
director. Broker non-votes are counted for the purpose of determining the
presence or absence of a quorum for the transaction of business, but will not be
counted in determining the shares entitled to vote on a particular matter nor
treated as votes cast. A "broker non-vote" occurs when a registered broker
holding a customer's shares in the name of the broker has not received voting
instructions on the matter from the customer, is barred by applicable rules from
exercising discretionary voting authority in the matter, and so indicates on the
proxy. The amendment to the 1993 Stock Option Plan and the Certificate of
Incorporation and the issuance of Common Stock to Micron Technology, Inc.
require approval from a majority of the Common Stock and shares convertible into
Common Stock outstanding. In voting on amending the 1993 Stock Option Plan, the
Certificate of Incorporation and the issuance of Common Stock to Micron
Technology, Inc., abstentions will be counted as present and entitled to vote;
accordingly, they will have the effect of votes against approval of such
amendments. Abstentions will not be treated as votes cast in the election of
directors.
Page 1
<PAGE>
ELECTION OF DIRECTORS
The number of directors is fixed at five for the coming year and is divided
into three classes with the members of each class holding office for a three
year term. At the meeting, one director will be elected to hold office for
three years and until his successor is elected and qualified. Dieter Mezger,
who is presently serving as President and Chief Executive Officer and was
elected a Director by the Board of Directors on March 3, 1999, has been
nominated for re-election by the Board of Directors. Unless a properly signed
and returned proxy withholds authority to vote for the nominee or is a broker
non-vote, the shares represented by such proxy will be voted for the election of
the Board's nominee as director. If the nominee is unable to serve, which is not
expected, the shares represented by a properly signed and returned proxy will be
voted for such other candidate as may be nominated by the Board of Directors.
The following table contains certain information about the nominee for
director and each other person whose term of office as a director will continue
after the meeting.
<TABLE>
<CAPTION>
Present
Director Term
Name and Age Business Experience and Other Directorships Since Expires
- ------------ ------------------------------------------- ----- -------
<S> <C> <C> <C>
Jean-Luc Grand-Clement Jean-Luc Grand-Clement, a co-founder of the Company, 1992 2001
Age: 59 has served as Chairman of the Board of
Directors since the Company's inception in 1992, and
served as President and Chief Executive Officer
through March 1998 and January 1999, respectively.
Prior to founding the Company, Mr. Grand-Clement co-
founded European Silicon Structures ("ES2"), a
European applications specific integrated circuit
supplier for cell based and full custom CMOS
products, and served as Chief Executive Officer and
then as Chairman of the Board of Directors of ES2
from its founding in 1985 until 1991. From 1967 to
1978 and from 1982 to 1985, Mr. Grand-Clement held
various positions with Motorola, Inc., most recently
as Vice-President and Assistant General Manager of
the Motorola European Semiconductor Group from 1983
to 1985. From 1978 to 1982, Mr. Grand-Clement was the
Managing Director of Eurotechnique, a MOS
semiconductor design and fabrication joint venture
between National Semiconductor and Saint-Gobain. Mr.
Grand-Clement graduated from Ecole Nationale
Superieure des Telecommunications in Paris.
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
Present
Director Term
Name and Age Business Experience and Other Directorships Since Expires
- ------------ ------------------------------------------- ----- -------
<S> <C> <C> <C>
Dieter Mezger * Dieter Mezger joined PixTech in March 1998 as President and 1999 1999
Age: 55 was elected President and Chief Executive Officer in January
1999. Mr. Mezger has been a director of the Company since
March 1999. Between 1996 and 1998, Mr. Mezger worked as a
marketing consultant in California. Between 1990 and 1996,
Mr. Mezger was President of Compass Design Automation, a
wholly-owned subsidiary of VLSI Technology, Inc. which
develops and markets computer assisted design software tools
for IC designs. From 1984 to 1990, Mr. Mezger established
VLSI's European presence in Munich, building the European
marketing and sales organizations, design centers, R&D
operations, as well as its finance and human resources
departments. Mr. Mezger simultaneously built VLSI's
wireless and GSM businesses. Prior to joining VLSI, Mr.
Mezger's career included fifteen years with Texas
Instruments, where he rose to the position of Manager, Sales
and Marketing, Europe. He holds a BS in engineering from
the University of Stuttgart.
William C. Schmidt William C. Schmidt has been a director of the Company since 1992 2001
Age: 43 June 1992. Since 1988, Mr. Schmidt has been an investment
partner at Advent International, an international venture
capital company, where he also manages the activities of
Advent International's corporate investment programs in
Europe. From 1981 to 1987, Mr. Schmidt worked as a
management consultant at Bain & Company in Europe and the
United States. Mr. Schmidt holds degrees from Williams
College and Harvard Business School.
John A. Hawkins John A. Hawkins has been a director of the Company since 1994 2000
Age: 38 1994. Since August 1995, Mr. Hawkins has been a managing
partner of Generation Capital Partners, L.P., a private
equity firm. From 1992 until August, 1995, Mr. Hawkins was
a general partner of various funds affiliated with Burr,
Egan, Deleage & Co. He is currently a limited partner of
various funds associated with Burr, Egan, Deleage & Co. He
was an associate at Burr, Egan, Deleage & Co. from 1987 to
1992, prior to which he was an associate with Alex. Brown &
Sons Incorporated. Mr. Hawkins is a director of P-Com,
Inc., a telecommunications company, AUNET Corp. and Dover
Pacific Computing, Inc. Mr. Hawkins holds degrees from
Harvard College and Harvard Business School.
</TABLE>
________________________
* Nominee for election as director
Page 3
<PAGE>
Committees of the Board
The Audit Committee, which consisted in 1998 of Mr. Schmidt and Mr. Jean-
Pierre Noblanc and currently consists of Messrs. Schmidt and Hawkins, is
responsible for providing the Board of Directors with an independent review of
the financial health of the Company and its financial controls and reporting.
Its primary functions are to recommend independent auditors to the Board of
Directors, review the results of the annual audit and the auditors' reports, and
ensure the adequacy of the Company's financial controls and procedures. The
Audit Committee met five times in 1998. The Compensation Committee, whose
members in 1998 were Messrs. Schmidt, Hawkins, and Roger W. Johnson from
September 22, 1998 to December 31, 1998, acts for the Board of Directors with
respect to the Company's compensation practices and their implementation. It
sets and implements the compensation of the Company's officers and administers
the Amended and Restated 1993 Stock Option Plan and the 1995 Employee Stock
Purchase Plan. The Compensation Committee held two meetings in 1998. The entire
Board of Directors functions as a nominating committee, considering nominations
submitted by the Chairman of the Board. The Board of Directors held ten
meetings during 1998, and each director attended at least 75% of all meetings of
the Board and of all committees of the Board on which he served, except Mr.
Roger W. Johnson who attended 25% of all meetings of the Board and of all
committees of the Board on which he served. Mr. Roger W. Johnson served as
Director of the Company from September 22, 1998 to December 31, 1998.
Director Compensation
Director Fees
Non-employee directors are reimbursed for expenses incurred in attending
meetings, and they also receive $1,500 for each meeting of the Board of
Directors that they attend, plus an additional $4,000 if they attend at least
four meetings in a year. Such payments may not exceed a total of $10,000 in any
one year. Mr. Grand-Clement and Mr. Mezger, if he is re-elected to the Board of
Directors, will be the only directors who are employees of the Company, and will
not receive additional compensation for their service as directors.
1995 Director Stock Option Plan
The 1995 Director Stock Option Plan (the "Director Plan") provides that each
director who is not an employee of the Company and who is elected or re-elected
into office following the Annual Meeting of Stockholders receives an automatic
grant of options to purchase 6,000 shares of Common Stock. The options become
exercisable in increments of 2,000 shares as follows: 2,000 shares on the grant
date, and an additional 2,000 shares at each of the following two Annual
Meetings of Stockholders so long as the director remains in office. The options
expire ten years from the grant date. The exercise price of each option is the
fair market value of the Common Stock on the day immediately preceding the grant
date.
The Director Plan authorizes the grant of stock options to purchase up to a
maximum of 50,000 shares (subject to adjustment in the event of a stock split or
other recapitalization) of Common Stock. Messrs. Schmidt and Hawkins are
currently eligible to participate under the Director Plan. At the 1998 Annual
Meeting of Stockholders, Mr. Schmidt was granted an option to purchase 6,000
shares of Common Stock of the Company, at an exercise price of $5.27 per share.
Mr. Roger W. Johnson was granted an option to purchase 6,000 shares of Common
Stock of the Company, at an exercise price of $4.021 per share, when he joined
the Company's Board of Directors in September 1998. During 1998, options to
purchase 14,000 shares of the Common Stock of the Company were terminated
unexercised. In January 1998, for personal reasons, Mr. Noblanc waived the
benefit of the 6,000 options which had been granted to him in April 1996. In
addition, as Messrs. Piccino and Johnson resigned from the Board of Directors of
the Company in March 1998 and December 1998 respectively, options to purchase
4,000 shares of the Common Stock of the Company which had been granted to each
of them in April 1997 and September 1998 respectively were terminated
unexercised. As of December 31, 1998, options to purchase 14,000 shares of
Common Stock of the Company were outstanding pursuant to the Director Stock
Options Plan. Since the only director to be elected at the 1999 Annual Meeting
of Stockholders is an employee of the Company, no options will be granted under
the Director Plan at the 1999 Annual Meeting of Stockholders.
Page 4
<PAGE>
Options granted under the Director Plan are not intended to qualify as
incentive stock options under the Internal Revenue Code. The exercise of an
option under the Director Plan results in ordinary income to the director and a
corresponding deduction for the Company, in each case equal to the difference
between the option price and the fair market value of the shares on the date of
exercise.
EXECUTIVE COMPENSATION
Summary Compensation Table (1)
The following table provides summary information on the cash compensation and
certain other compensation paid, awarded, or accrued by the Company and its
subsidiaries to or for the Chief Executive Officer of the Company and each of
the Company's other five most highly compensated executive officers for 1998
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation (1) Awards
---------------------------------------------------
Securities
Underlying
Name and Principal Position Year Salary($) Options(#)
--------------------------- ---- --------- ----------
<S> <C> <C> <C>
Jean-Luc Grand-Clement 1998 $192,246 --
Former President, Former Chief Executive 1997 193,708 165,000
Officer, and Chairman of the Board 1996 212,502 40,000 (2)
Dieter Mezger (3) 1998 156,000 300,000
President and Chief Executive Officer 1997 10,500 --
Francis G. Courreges 1998 149,201 --
Executive Vice President 1997 150,850 77,000
1996 172,053 20,000 (2)
Michel Garcia 1998 101,728 --
Vice President, 1997 102,852 56,000
Industrial Partners 1996 107,045 15,000 (2)
Tom M. Holzel (5) 1998 122,500 --
Vice President, 1997 122,500 85,000
Marketing & Sales 1996 122,500 10,000 (2)
Jean-Jacques Louart (4) 1998 101,728 --
Vice President, 1997 64,349 68,000
Operations
</TABLE>
(1) All dollar amounts (except for amounts paid to Messrs. Mezger and Holzel)
reflect the conversion of Euros to U.S. dollars at an average conversion
rate of 0.7797, 0.8893 and 0.8992 Euros to U.S. dollars for 1996, 1997 and
1998 respectively.
(2) All of these options have been terminated unexercised as of
February 21, 1997.
Page 5
<PAGE>
(3) Dieter Mezger joined the Company in March 1998 and was elected President
and Chief Executive Officer of the Company as of March 1998 and January
1999, respectively. Prior to that, Mr. Mezger was a consultant of the
Company from November 1997 to March 1998, an activity for which he received
$10,500 and $21,000 in 1997 and 1998 respectively.
(4) Jean-Jacques Louart joined the Company in May 1997.
(5) Tom M. Holzel is expected to leave the Company in April 1999.
Stock Option Grants in Last Fiscal Year
The following table provides information on stock options granted during
1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities % of Total Potential Realized Value at
Underlying Options Granted Exercise Assumed Annual Rates of Stock
Options to Price Expiration Price Appreciation for
Name Granted (#) Employees in 1998 ($ / share) Date Option Term ($) (1)
---- ----------- ----------------- -------------- ----------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
-- ---
Dieter Mezger 300,000 (2) 67% 5.271 03/25/2008 994,471 2,520,185
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% appreciation rates set by the Securities and Exchange
Commission of a value for the Common Stock equal to the market price of the
Common Stock on the date of grant of the option. These amounts are not
intended to forecast possible future appreciation, if any, in the price of
the Common Stock.
(2) These options become exercisable as follows : 37,500 shares on March 25,
1998, 75,000 shares on July 23, 1998, 75,000 shares on January 05, 1999,
and 37,500 shares on March 25, 1999, 2000 and 2001, respectively.
Aggregated Option Exercises in Last Fiscal Year and Year-End Stock Option Values
The following table sets forth certain information concerning the unexercised
stock options as of December 31, 1998 held by the Named Executive Officers. No
options were exercised during 1998 by any Named Executive Officer.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at 12/31/98 (#) at 12/31/98 ($) (1)
------------------------ --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jean-Luc Grand-Clement 521,988 189,473 941,890 88,137
Dieter Mezger 225,000 75,000 -- --
Francis Courreges 134,757 75,577 227,953 22,484
Michel Garcia 117,772 49,333 215,135 5,519
Tom Holzel 76,250 8,750 -- --
Jean-Jacques Louart -- 68,000 -- --
</TABLE>
(1) Based on the difference between the respective option exercise price and
the closing market price of the Common Stock on December 31, 1998, which
was 2 12/32.
Page 6
<PAGE>
Executive Employment Agreements
Each of Messrs. Grand-Clement, Courreges, Garcia and Louart have entered into
employment agreements with the Company in substantially the same form as most
other employees of the Company. The material terms of the employment agreements
provide for employment by each individual for an indefinite period. Pursuant to
the employment agreements, each individual agrees to non-competition and non-
solicitation provisions which survive for a one-year period following
termination of employment. The employment agreements also contain obligations of
each employee concerning confidentiality and assignment of inventions and
intellectual property to the Company. Mr. Mezger is employed at will and has
signed similar non-competition and non-solicitation provisions.
Compensation Committee Report on Executive Compensation
This Compensation Committee Report describes the compensation policies
applicable to executive officers of the Company, including Mr. Grand-Clement,
the Company's Chief Executive Officer through January 1999, and Mr. Dieter
Mezger since he was elected Chief Executive Officer in January 1999.
Overall Policy. The Company's executive compensation program is designed to
be closely linked to corporate performance and returns to stockholders. To this
end, the Company has developed an overall compensation strategy and specific
compensation plan that tie a portion of executive compensation to the Company's
success in meeting specified performance goals. In addition, through the use of
stock options, the Company ensures that a part of the executives' compensation
is closely tied to appreciation in the Company's stock price. The overall
objectives of this strategy are to attract and retain the best possible
executive talent, to motivate these executives to achieve the goals inherent in
the Company's business strategy, to link executive and stockholder interests
through equity based plans and, finally, to provide a compensation package that
recognizes individual contributions as well as overall business results.
The Compensation Committee determines the compensation of the seven most
highly compensated corporate executives, including the Named Executive Officers.
The Compensation Committee takes into account the views of the Company's Chief
Executive Officer in reviewing the individual performance of these executives
(other than the Chief Executive Officer), a responsibility assumed by Mr. Grand-
Clement through 1998, and by Mr. Mezger since he was elected Chief Executive
Officer in January 1999.
The key elements of the Company's executive compensation consist of base
salary, annual bonus and stock options. The Compensation Committee's policies
with respect to each of these elements, including the bases for the compensation
awarded to Mr. Grand-Clement, are discussed below. In addition, while the
elements of compensation described below are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by the Company to the individual, including insurance and other employee
benefits, as well as the programs described below.
Base Salaries. Base salaries for new executive officers are initially
determined by evaluating the responsibilities of the position held and the
experience of the individual. In making determinations regarding base salaries,
the Compensation Committee considers generally available information regarding
salaries prevailing in the industry, but does not utilize any particular indices
or peer groups.
Annual salary adjustments are determined by evaluating the financial
performance of the Company and of each executive officer, and also take into
account new responsibilities. The Compensation Committee, where appropriate,
also considers non-financial performance measures. These non-financial
performance measures may include such factors as efficiency gains, quality
improvements and improvements in relations with customers, suppliers and
employees. No particular weight is given to any of these financial or non-
financial factors.
Page 7
<PAGE>
The determination of Mr. Grand-Clement's base salary for 1998 was based on the
overall successful development of the Company and in particular on his ability
to achieve the transition from an R&D company to a manufacturing company. Mr.
Grand-Clement was granted a base salary of $192,246 in 1998, a decrease of 1%
over his $193,708 base salary for 1997. Mr. Grand-Clement's salary is mostly
calculated and paid in Euros, however, and after taking out the effect of the
rise of the US dollar against the French franc in 1998, Mr. Grand-Clement's base
salary was unchanged in 1998 as compared to 1997. No bonus was awarded to Mr.
Grand-Clement in 1998.
Annual Bonus. The Company's executive officers are eligible for an annual
cash bonus, based primarily on achievement of the Company's overall performance.
No bonuses were awarded to the executive officers for the year ended December
31, 1998.
Stock Options. Stock options are granted to the Company's executive officers
under the Company's 1993 Stock Option Plan. Stock options are designed to align
the interests of executives with those of the stockholders. Stock options are
granted with an exercise price equal to the fair market value of the Common
Stock on the date of grant and vest over various periods of time, normally four
years. Stock option grants are designed to encourage the creation of
stockholder value over the long term since the full benefit of the compensation
package cannot be realized unless stock price appreciation is achieved, and,
once achieved, is maintained and improved upon. In determining the amount of
such grants, the Compensation Committee evaluates the job level of the
executive, responsibilities to be assumed in the upcoming year, and
responsibilities in prior years, and also takes in account the size of the
officer's awards in the past. Based on these factors and on the level of his
existing stock ownership in 1998, no Stock Options were granted to Mr. Grand-
Clement in 1998.
Policy on Deductibility of Compensation. The Internal Revenue Service has
adopted a provision limiting the income tax deduction of public companies for
certain compensation paid in a year to any executive officer named in the proxy
statement compensation tables in excess of one million dollars. No such officer
of the Company received applicable compensation at that level in 1998. At such
time as it becomes likely that the applicable compensation for a covered
executive will exceed the deductibility limit, the Compensation Committee will
consider the adoption of a policy in this regard.
Conclusion. Through the programs described above, a very significant portion
of the Company's executive compensation is linked directly to individual and
corporate performance and stock appreciation. In 1998, as in previous years, a
substantial portion of the Company's targeted executive compensation consists of
performance-based variable elements. The Compensation Committee intends to
continue the policy of linking executives compensation to Company performance
and returns to stockholders, recognizing that the ups and downs of the business
cycle from time to time may result in an imbalance for a particular period.
By the Compensation Committee,
John Hawkins,
William C. Schmidt.
Page 8
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows the cumulative total stockholder return on the
Company's Common Stock over the period beginning July 18, 1995, when the
Company's Common Stock began trading publicly, and ending December 31, 1998, as
compared with that of the Nasdaq Market Index and an Industry Index, based on an
initial investment of $100 in each. Total stockholder return is measured by
dividing share price change plus dividends, if any, for each period by the share
price at the beginning of the respective period, and assumes reinvestment of
dividends. The Electronic Components, N.E.C. Index consists of 190 publicly
traded electronic components companies reporting under the same Standard
Industrial Classification Code (SIC 3670-3679) as the Company.
[COMPARATIVE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
7/31/95 12/29/95 12/31/96 12/31/97 12/31/98
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PixTech, Inc. 100 127.87 50.82 30.31 31.56
- -------------------------------------------------------------------------------------------------------------------------
Electronics Components, NEC Index 100 84.37 145.86 152.92 236.43
- -------------------------------------------------------------------------------------------------------------------------
Nasdaq Market Index 100 105.65 129.94 159.45 224.51
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 9
<PAGE>
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK
Currently the Company's Restated Certificate of Incorporation authorizes the
issuance of 30,000,000 shares of Common Stock, par value $.01 per share, and of
1,000,000 shares of Preferred Stock, par value $.01 per share. On February 3,
1999, the Company's Board of Directors approved, and recommended for adoption by
the stockholders at the meeting, a proposed amendment to the Company's Restated
Certificate of Incorporation which would, if approved by the stockholders,
effect an increase in the number of authorized shares of Common Stock of the
Company from 30,000,000 shares to 60,000,000 shares, $.01 par value per share,
resulting in the aggregate number of authorized shares of capital stock of the
Company to be increased from 31,000,000 shares to 61,000,000 shares.
As of the close of business on March 22, 1999, 15,150,329 shares of Common
Stock were issued and outstanding, leaving 14,849,671 shares of Common Stock
authorized but unissued. Of the authorized but unissued shares, the Company has
currently reserved 2,588,666 shares under the Company's 1993 Stock Option Plan
and 1995 Employee Stock Purchase Plan, 50,000 shares under the Company's 1995
Director Stock Option Plan and 212,500 shares following the exercise of
warrants. In addition, in December 1998, the Company issued 367,269 shares of
Series E Preferred Stock (the "Series E Stock"), at a price of $22.5313 per
share, to certain institutional investors and agreed to reserve, out of the
authorized but unissued shares, 150% of the number of shares of Common Stock
into which the Series E Stock is convertible. The Series E Stock is generally
convertible into Common Stock at a rate equal to the lesser of (a) $2.25313, and
(b) the average closing price of the Common Stock over the ten trading day
period ending on the day immediately preceding the day upon conversion. As of
March 22, 1999, the Series E Stock would have been convertible into 4,622,496
shares of Common Stock thus requiring the Company to reserve 6,933,744 shares of
the remaining authorized but unissued shares. In addition, the Company issued a
$5 million convertible note in 1997. This loan is convertible, starting in April
1999, into shares of Common Stock of the Company at a conversion price equal to
80% of the market price on the conversion date. As of March 22, 1999, the
convertible note would have been convertible into 2,740,026 shares of Common
Stock of the Company. Therefore, on March 22, 1999, out of the 30,000,000
authorized shares of Common Stock, 2,324,735 shares were available for issuance
by the Company.
The Board of Directors of the Company believes that the adoption of the
proposed amendment to the Company's Restated Certificate of Incorporation
increasing the authorized shares of Common Stock is advisable and in the best
interests of the Company and its stockholders. Adoption of the proposed
amendment would increase the flexibility of the Company to issue Common Stock
and would ensure that an adequate supply of authorized and unissued shares of
Common Stock is available for general corporate needs, including stock splits,
issuances under the Company's 1993 Stock Option Plan, 1995 Director Stock Option
Plan and 1995 Employee Stock Purchase Plan, acquisitions and equity financings.
The availability of additional shares of Common Stock for issue, without the
delay and expense of obtaining the approval of stockholders at a special
meeting, will afford the Company greater flexibility in taking these corporate
actions.
Page 10
<PAGE>
In addition, the Company has entered into a definitive agreement to purchase
certain assets of Micron Technology, Inc. relating to field emission displays
including certain equipment and other tangible assets, certain contract rights
and cash (the "Micron Transaction"). The Company will also be leasing, but not
acquiring, the facilities that are currently used by Micron relating to its
field emission display activities. Pursuant to the Micron Transaction, the
Company would issue 7,133,562 shares of the Company's Common Stock and a warrant
to purchase 310,000 shares of the Company's Common Stock at an exercise price of
approximately $2.25 per share. In order to issue such number of shares, the
Company's Restated Certificate of Incorporation must be amended to increase the
number of authorized shares of capital stock of the Company. Stockholder
approval of the proposed amendment to the Company's Restated Certificate of
Incorporation is a condition to Micron's obligation to consummate the Micron
Transaction. The Board of Directors believes that the Micron Transaction may
benefit the Company in numerous ways, including : (i) the acceleration of
research and development programs, especially in the area of new product
development, including the development of color and large size displays, (ii)
receiving a ten year world-wide royalty-free license under all of Micron's 406
field emission display specific patents and field emission display specific
patent applications (iii) the opportunity to use a portion of Micron's equipment
to support an increase in the Company's manufacturing capacity, (iv) the
anticipation of greater access to financings from investors because of an
expected enhanced competitive position of the Company resulting from several
factors including Micron becoming the Company's largest shareholder, the
Company's US presence being significantly improved, and the Company taking
advantage of consolidation in the field emission display industry, and (v) the
availability of approximately $4.3 million included in the assets to be
acquired.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock of the Company currently
authorized. The newly authorized Common Stock, like the currently authorized
Common Stock, may be used by the Company for any proper corporate purpose. Such
purposes may include, without limitation, issuance as part or all of the
consideration required to be paid by the Company in the acquisition of other
businesses or properties, or issuance in public or private sales for cash as a
means of obtaining additional capital for use in the Company's business and
operations.
If approved by the stockholders, the increased authorized shares of Common
Stock will be available for issue from time to time for such purposes and
consideration as the Board of Directors may approve, and no further vote of the
stockholders of the Company will be required, except as required under the
Delaware General Corporation Law or the rules of any national securities
exchange or quotation system, such as the Nasdaq National Market, on which the
shares of the Company are at the time listed or quoted.
Although the Board of Directors will authorize the issuance of additional
Common Stock based on its judgment as to the best interests of the Company and
its stockholders, the issuance of Common Stock could have a dilutive effect on
the earnings per share, book value per share, and on the equity and voting power
of existing holders of Common Stock. Holders of Common Stock are not now, and
will not be entitled to preemptive rights to purchase shares of any authorized
capital stock of the Company. In addition, the issuance of additional shares of
Common Stock could, in certain instances, render more difficult or discourage a
merger, tender offer, or proxy contest and thus potentially have an "anti-
takeover" effect, especially if Common Stock were issued in response to a
potential takeover.
If the amendment is approved by the stockholders, the first paragraph of
Article FOURTH of the Company's Restated Certificate of Incorporation will be
amended to read as follows:
FOURTH: The Corporation shall be authorized to issue sixty-one Million
(61,000,000) shares of capital stock, which shall be divided into sixty
million (60,000,000) shares of Common Stock, par value $0.01 per share and
One Million (1,000,000) shares of Preferred Stock, par value $0.01 per
share ("Preferred Stock").
Page 11
<PAGE>
The affirmative vote of holders of a majority of the shares of capital stock
outstanding and entitled to vote at the meeting is required to approve this
proposal and adopt the proposed amendment to the Company's Restated Certificate
of Incorporation increasing the number of authorized shares of Common Stock of
the Company. For purposes of the vote to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
capital stock, abstentions and broker non-votes are treated as votes against the
proposal. If the amendment is not approved by the stockholders, the Company's
authorized capital stock will remain at 31,000,000 shares.
If approved by the stockholders, the amendment to the Company's Restated
Certificate of Incorporation increasing the authorized shares of Common Stock
will become effective upon the filing of an amendment to the Company's Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware, which is expected to occur promptly following approval by the
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
===
Page 12
<PAGE>
PROPOSAL TO AMEND THE 1993 STOCK OPTION PLAN
1993 Stock Option Plan
General
The Company's Amended and Restated 1993 Stock Option Plan (the "Option Plan")
was readopted by the Board of Directors on May 9, 1995 and by the stockholders
on May 19, 1995. The purpose of the Option Plan is to attract and retain key
employees and consultants of the Company and its affiliates. The Option Plan
provides for the grant of incentive and nonstatutory stock options (the
"Options") to employees and consultants of the Company and its affiliates
("Eligible Persons").
Currently, Options may be granted under the Option Plan for up to a total of
2,656,372 shares of Common Stock (subject to adjustment for stock splits and
similar capital changes) to employees of the Company and, in the case of
nonstatutory Options, to consultants (other than French consultants, pursuant to
French tax law) of the Company or any Affiliate (as defined in the Option Plan)
capable of contributing to the Company's performance.
As of March 1/st/, 1999, approximately 149 employees were eligible to
participate in the Option Plan and options to purchase an aggregate of 3,269,276
shares of Common Stock had been granted. Of these, Options to purchase 953,778
shares had been canceled, 167,706 had been exercised and options to purchase
2,147,792 shares remained outstanding, leaving 340,874 shares available for new
Options under the Option Plan.
Administration and Eligibility
Awards are made by the Compensation Committee which has been designated by the
Board of Directors to administer the Option Plan. The Compensation Committee
may delegate to one or more officers the power to make awards under the Option
Plan to persons other than officers of the Company who are subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act").
Options under the Option Plan are granted at the discretion of the
Compensation Committee which determines the recipients and establishes the terms
and conditions of each award, including the exercise price, the form of payment
of the exercise price, the number of shares subject to Options and the time at
which such Options become exercisable. However, the exercise price of any
incentive stock option granted under the Option Plan may not be less than the
fair market value of the Common Stock on the date of grant.
Proposed Amendment to the Option Plan
The Board of Directors has voted, subject to the approval of the stockholders,
to increase the aggregate number of shares of Common Stock that may be subject
to grants under the Option Plan by 2,500,000, from 2,656,372 to 5,156,372,
subject to adjustment for stock splits, stock dividends and certain transactions
affecting the Company's capital stock. The Company believes that this increase
is necessary and appropriate for the following reasons:
. As of December 31, 1998, the exercise prices of most of the stock options
outstanding and exercisable under the Option Plan were above the Company's
stock price, thus limiting the ability of the Option Plan to retain qualified
employees. The Company's policy is to grant new stock options to its
employees in order to attract and retain key employees. The Company will be
unable to continue to follow this policy if there is an insufficient number
of shares available under the Option Plan.
Page 13
<PAGE>
. The Micron Transaction, more fully described in the section of this proxy
statement entitled "AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CAPITAL STOCK",
requires the Company to grant Options to acquire approximately 850,000 shares
of the Company's Common Stock to Micron employees who will become employees
and consultants of the Company. Since the number of shares currently
available under the Company's Option Plan is insufficient for the Company to
meet this obligation, stockholder approval of the proposed amendment to the
Company's Option Plan is a condition to Micron's obligation to consummate the
Micron Transaction. The Board of Directors believes that the Micron
Transaction will benefit the Company for the reasons described in the section
of this proxy statement entitled "AMENDMENT OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
CAPITAL STOCK".
United States Federal Income Tax Consequences Relating to Stock Options
The following is a description of the tax consequences relating to stock
options under United States tax law. Individuals subject to taxation in any
other country should consult their own tax advisors regarding the tax
consequences relating to the exercise of stock options and the sale of shares
acquired upon the exercise of such options.
Incentive Stock Options. An optionee does not realize taxable income upon the
grant or exercise of an incentive stock option ("ISO") under the Option Plan.
If no disposition of shares issued to an optionee pursuant to the exercise of
an ISO is made by the optionee within two years from the date of grant or within
one year from the date of exercise, then (a) upon sale of such shares, any
amount realized in excess of the option price (the amount paid for the shares)
is taxed to the optionee as long-term capital gain and any loss sustained will
be a long-term capital loss and (b) no deduction is allowed to the Company for
Federal income tax purposes. The exercise of ISOs gives rise to an adjustment
in computing alternative minimum taxable income that may result in alternative
minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed of
prior to the expiration of the two-year or one-year holding periods described
above (a "disqualifying disposition") then (a) the optionee realizes ordinary
income in the year of disposition in an amount equal to the excess (if any) of
the fair market value of the shares at exercise (or, if less, the amount
realized on a sale of such shares) over the option price thereof and (b) the
Company is entitled to deduct such amount. Any further gain realized is taxed
as a short-term or long-term capital gain and does not result in any deduction
to the Company. A disqualifying disposition in the year of exercise will
generally avoid the alternative minimum tax consequences of the exercise of an
ISO.
Nonstatutory Stock Options. No income is realized by the optionee at the time
a nonstatutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise and (b)
the Company receives a tax deduction for the same amount. Upon disposition of
the shares, appreciation or depreciation after the date of exercise is treated
as a short-term or long-term capital gain or loss and will not result in any
deduction by the Company.
Votes Required
The affirmative vote of the holders of a majority in interest of the Common
Stock present, or represented, and entitled to vote at the meeting is required
to approve the proposed amendment to the Option Plan. Broker non-votes will not
be counted as present or represented for this purpose. Abstentions will be
counted as present and entitled to vote and, accordingly, will have the effect
of a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
===
Page 14
<PAGE>
PROPOSAL TO ISSUE SECURITIES
As described in the section of this proxy statement entitled "AMENDMENT OF THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF CAPITAL STOCK", the Company has entered into a definitive
agreement to purchase certain assets of Micron relating to field emission
displays including certain equipment and other tangible assets, certain contract
rights and cash. The Company will also be leasing, but not acquiring, the
facilities that are currently used by Micron relating to its field emission
display activities Pursuant to the Micron Transaction, the Company would issue
7,133,562 shares of the Company's Common Stock and a warrant to purchase 310,000
shares of the Company's Common Stock at an exercise price of approximately $2.25
per share. After the issuance of these shares of the Company's Common Stock,
Micron will be a holder of approximately 32% of the Company's outstanding Common
Stock. The Company's Common Stock is traded on the Nasdaq National Market and
Easdaq and the Company is thus governed by certain Nasdaq and Easdaq rules.
Pursuant to Nasdaq rules, the Company's stockholders are required to approve an
issuance of more than 20% of the number of shares of Common Stock outstanding
before the issuance. In order to issue such number of shares to Micron,
stockholder approval must be obtained. Stockholder approval of the proposed
issuance is a condition to Micron's obligation to consummate the Micron
Transaction. As previously stated, the Board of Directors believes that the
Micron Transaction may benefit the Company in numerous ways, including: (i) the
acceleration of research and development programs, especially in the area of new
product development, including the development of color and large size displays,
(ii) receiving a ten year world-wide royalty-free license under all of Micron's
406 field emission display specific patents and field emission display specific
patent applications (iii) the opportunity to use a portion of Micron's equipment
to support an increase in the Company's manufacturing capacity, (iv) the
anticipation of greater access to financings from investors because of an
expected enhanced competitive position of the Company resulting from several
factors including Micron becoming the Company's largest shareholder, the
Company's US presence being significantly improved, and the Company taking
advantage of consolidation in the field emission display industry, and (v) the
availability of approximately $4.3 million included in the assets to be
acquired.
The affirmative vote of holders of a majority of the shares of capital stock
outstanding and entitled to vote at the meeting is required to approve this
proposal and issue the shares to Micron. For purposes of the vote to issue the
shares to Micron, abstentions and broker non-votes are treated as votes against
the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
===
Page 15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, the Company's Compensation
Committee consisted of Messrs. Schmidt and Hawkins. None of the members of the
Compensation Committee has been an officer or employee of the Company.
Mr. Noblanc, who was a member of the Company's Board of Directors and its
Audit Committee until March 1999, is an officer of CEA Industrie, S.A., which is
controlled by the Commissariat a l'Energie Atomique ("CEA"), the French atomic
agency. In September 1992, the Company licensed its fundamental technology from
the Laboratoire d'Electronique, de Technologie et d'Instrumentation ("LETI"), a
research laboratory of the CEA, pursuant to an exclusive, worldwide, royalty-
bearing license agreement with CEA (the "LETI License Agreement"), which has a
term of twenty years. The LETI License Agreement was amended in July 1993,
March 1994 and October 1997. Beginning in 1996, the Company became obligated
under the LETI License Agreement to make royalty payments to the LETI based on
the sales of products incorporating licensed technology. In addition to such
royalty payments, the Company must pass through to CEA a percentage of any lump
sum sublicense fees earned after 1993 and royalties on sales of licensed
products by the Company's sublicenses. Pursuant to an amendment to the LETI
License Agreement signed in 1997 (the "1997 CEA Amendment"), the royalty rates
and minimum payments from the Company to CEA were increased for a period of
three years. An amount of $308,000 was accrued in 1998 in that respect.
The Company also entered into a research and development agreement with CEA
("the "LETI Research Agreement") in 1992, under which the Company funds research
at the LETI. Pursuant to the LETI Research Agreement, the Company expensed
$36,000 in 1992, $1,335,000 in 1993, $1,506,000 in 1994, $1,339,000 in 1995,
$644,000 in 1996, and $637,000 in 1997. In 1998, the Company recorded $848,000
as expenses pursuant to the LETI Research Agreement.
Page 16
<PAGE>
SHARE OWNERSHIP
The following tables set forth certain information regarding the ownership of
the Company's Common Stock and Series E Preferred Stock as of March 10, 1999 by
(i) persons known by the Company to be beneficial owners of more than 5% of its
Common Stock and Series E Preferred Stock, (ii) the executive officers named in
the Summary Compensation Table, (iii) the directors and nominees for election as
directors of the Company, and (iv) all current executive officers and directors
of the Company as a group:
Common Stock
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)
------------------------------------------------
Beneficial Owner Shares Percent of Class
- --------------------------------------------------- ----------------------- ----------------
<S> <C> <C> <C>
Sumitomo Corporation 3,077,302 (2) 20.3%
1-2-2 Hitotsubashi, Chiyoda-Ku
Tokyo, 100 Japan
The Kaufmann Fund, Inc. 1,678,169 (3) 11.1%
140 East 45th Street
43rd floor
New York, NY 10017
United Microelectronics Corp. 111,111 7.3%
2F, NO. 76 SEC 2, Tunhwa S. RD.,
Taipei, Taiwan, R.O.C.
CEA Industrie 793,656 5.2%
31-33 rue de la Federation
75752 Paris Cedex 15 France
Jean-Luc Grand-Clement 715,289 (4) 4.5%
Dieter Mezger 225,000 (5) 1.5%
Francis G. Courreges 157,334 (6) 1.0%
Michel Garcia 131,366 (7) *
Tom M. Holzel 77,500 (8) *
John A. Hawkins 6,000 (9) *
William C. Schmidt 4,000 (10) *
All directors and executive officers 1,363,196 (11) 8.3%
as a group (9 persons)
</TABLE>
* Less than one percent.
(1) Except as otherwise indicated in these footnotes, the persons and entities
named in the table have sole voting and investment power with respect to
all shares beneficially owned by them. Share ownership information
includes shares of Common Stock issuable pursuant to outstanding options
which may be exercised within 60 days after March 10, 1999.
(2) Consists of 3,077,302 shares of Common Stock subject to the conversion
of a $5 million convertible note issued in 1997. This note is convertible,
starting in April 1999, into shares of Common Stock of the Company at a
conversion price equal to 80% of the market price on the conversion date.
(3) Consists of 1,678,169 shares of Common Stock (information as of April 15,
1998). In addition, The Kaufmann Fund, Inc. holds 266,297 Series E
Preferred Stock which are convertible into Common Stock starting June
1999. As of March 10, 1999, these Series E Preferred Stock would have been
convertible into 2,699,076 shares of Common Stock (See Series E Preferred
Stock chart below).
(4) Includes 53,605 shares held by Mr. Grand-Clement's wife and 590,578 shares
of Common Stock subject to options exercisable as of March 10, 1998 or
within 60 days thereafter, of which 6,617 shares are subject to options
held by Mr. Grand-Clement's wife.
Page 17
<PAGE>
(5) Consists of 225,000 shares of Common Stock subject to options exercisable
as of March 10, 1999 or within 60 days thereafter.
(6) Includes 153,334 shares of Common Stock subject to options exercisable as
of March 10, 1999 or within 60 days thereafter.
(7) Includes 123,605 shares of Common Stock subject to options exercisable as
of March 10, 1999 or within 60 days thereafter.
(8) Consists of 77,500 shares of Common Stock subject to options exercisable
as of March 10, 1999 or within 60 days thereafter.
(9) Consists of 6,000 shares of Common Stock subject to an option exercisable
as of March 10, 1999 or within 60 days thereafter. Mr. John A. Hawkins, a
director of the Company, is a limited partner of Alta V Limited
Partnership and disclaims beneficial ownership of all 572,916 shares held
by Alta V Limited Partnership and Customs House Partners, except to the
extent of his proportionate pecuniary interests therein.
(10) Consists of 4,000 shares of Common Stock subject to an option exercisable
as of March 10, 1999 or within 60 days thereafter. Mr. Schmidt, a director
of the Company, is a Vice President of Eventech Limited and of Advent
International Corporation. Mr. Schmidt disclaims beneficial ownership of
all 675,945 shares held by the funds affiliated with Advent International
Corporation, except for 80 Shares which he beneficially owns as a partner
in Advent International Investors Limited Partnership and 192 Shares which
he beneficially owns as a partner in Advent International Investors II
L.P.
(11) Excludes shares, as to which beneficial ownership is disclaimed, described
in footnotes (9)-(10). Includes 1,225,017 shares of Common Stock subject
to options exercisable as of March 10, 1999 or within 60 days thereafter.
Series E Preferred Stock
<TABLE>
<CAPTION>
Shares of Series E Preferred Stock
Beneficially Owned
------------------------------------------------
Percent of
Beneficial Owner Shares Class
- ---------------------------------------------------------------- ----------------------- ----------------
<S> <C> <C> <C>
The Kaufmann Fund, Inc. 266,297 (1) 72.5%
140 East 45th Street
43rd floor
New York, NY 10017
Citadel Investment Group, L.L.C. 88,766 (2) 24.2%
225 West Washington Street
Chicago, Illinois 60606
</TABLE>
(1) The 266,297 shares of Series E Preferred Stock are convertible into shares
of Common Stock starting June 22 1999. As of March 10, 1999, these Series E
Preferred Stock would have been convertible into 2,699,076 shares of Common
Stock. In addition, the Kaufmann Fund, Inc. holds 1,678,169 shares of
Common Stock of the Company (See Common Stock chart above). As of March 10,
1999, the Kaufmann Fund, Inc. holds 4,377,245 shares of Common Stock on a
as-converted basis.
(2) The 88,766 shares of Series E Preferred Stock are convertible into shares of
Common Stock starting June 1999. As of March 10, 1999, these Series E
Preferred Stock would have been convertible into 899,692 shares of Common
Stock. In addition, Citadel Investment Group, L.L.C. holds 336,702 shares
of Common Stock of the Company (Information as of January 4, 1999). As of
March 10, 1999, Citadel Investment Group, L.L.C. holds 1,236,394 shares of
Common Stock on a as-converted basis.
Page 18
<PAGE>
SECURITIES EXCHANGE ACT REPORTING
The Company's executive officers and directors are required under Section
16(a) of the Exchange Act to file reports of ownership of Company securities and
changes in ownership with the Securities and Exchange Commission. Copies of
those reports must also be furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company and
written representations that no other reports were required, the Company
believes that during 1998 the executive officers and directors of the Company
complied with all applicable Section 16(a) filing requirements.
INFORMATION CONCERNING AUDITORS
The firm of Ernst & Young independent accountants, has audited the Company's
accounts since the inception of the Company and will do so for 1999.
Representatives of Ernst & Young have been invited to attend the Annual Meeting.
STOCKHOLDER PROPOSALS
The Company's Bylaws require a stockholder who wishes to bring business before
or propose director nominations at an annual meeting to give written notice to
the Secretary of the Company not less than 45 days nor more than 60 days before
the meeting, unless less than 60 days' notice or public disclosure of the
meeting is given, in which case the stockholder's notice must be received within
15 days after such notice or disclosure is given. The notice must contain
specified information about the proposed business or nominee and the stockholder
making the proposal or nomination. If any stockholder intends to present a
proposal at the 2000 Annual Meeting of stockholders and desires that it be
considered for inclusion in the Company's proxy statement and form of proxy, it
must be received by the Company at Avenue Olivier Perroy, Zone Industrielle de
Rousset, 13790 Rousset, France; Attention: Yves Morel, Chief Financial Officer,
no later than November 23, 1999.
OTHER MATTERS
The Board of Directors does not know of any business to come before the
meeting other than the matters described in the notice. If other business is
properly presented for consideration at the meeting, the enclosed proxy
authorizes the persons named therein to vote the shares in their discretion.
Certain financial information is attached as Annex A hereto. Stockholders are
urged to review such information.
IN ADDITION TO THE COMPANY'S ANNUAL REPORT, WHICH HAS BEEN MAILED TO
STOCKHOLDERS, ANY HOLDER OR BENEFICIAL OWNER OF THE COMPANY'S COMMON STOCK MAY
OBTAIN A COPY OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31,
1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN REQUESTS
FOR COPIES OF THE COMPANY'S FORM 10-K SHOULD BE ADDRESSED TO YVES MOREL, CHIEF
FINANCIAL OFFICER, AVENUE OLIVIER PERROY, ZONE INDUSTRIELLE DE ROUSSET, 13790
ROUSSET, FRANCE.
Page 19
<PAGE>
Annex A
-------
Selected Financial Data
The selected financial data set forth below as of December 31, 1998 and 1997,
and for each of the three years in the period ended December 31, 1998 are
derived from the Company's consolidated financial statements included elsewhere
in this Report, which have been audited by Ernst & Young , independent auditors.
The selected financial data set forth below as of December 31, 1996, 1995 and
1994 and for the years ended December 31, 1996, 1995 and 1994 are derived from
audited consolidated financial statements not included in this Report. This data
should be read in conjunction with the Company's consolidated financial
statements and related notes thereto and ''Management's Discussion and Analysis
of Financial Condition and Results of Operations'' under Item 7 of this report.
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ------------ ------------ ------------
(in thousands, except per share)
<S> <C> <C> <C> <C> <C>
Operations
Total revenues............................................ 6,225 $11,513 $ 7,644 $ 3,819 $ 3,652
Loss from operations...................................... (4,940) (9,278) (12,041) (15,774) (19,686)
Net loss.................................................. (2,979) (6,305) (11,719) (14,664) (17,863)
Net loss per share........................................ (0.51) (0.82) (1.44) (1.12) (1.23)
Shares used in computing net loss per share............... 5,840 7,697 8,137 13,140 14,548
Balance Sheet
Working deficit / capital................................. 813 15,919 (859) 9,290 145
Total assets, less current assets......................... 15,300 18,569 19,701 24,058 32,592
Long term liabilities, less current portion............... 6,626 9,958 6,743 14,568 19,480
Stockholders' equity...................................... 9,487 24,530 12,099 18,780 13,257
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company was founded in June 1992 to develop and commercialize its field
emission displays. Since its inception, the Company has been a development
stage company devoting a majority of its resources to raising capital,
conducting research and development activities, concluding cooperation and
license agreements with certain displays manufacturers, including Motorola Inc.
("Motorola") and Futaba Corporation ("Futaba"), and establishing manufacturing
capabilities for its FEDs. To date, most of the Company's revenues have been
cooperation and license revenues under these cooperation and license agreements
and revenues from funding under grants from the French government and the
European Union. In the future, the Company expects to generate its revenue
primarily from the sale of products manufactured by Unipac under a contract
manufacturing arrangement signed in May 1997. After adaptation of Unipac's
plant, including addition of certain equipment and extensive transfer of
PixTech's proprietary manufacturing processes, Unipac successfully manufactured
FED samples in June 1998. While current shipments by Unipac of FEDs are still
minimal, the Company expects that Unipac will be successful in increasing
manufacturing yields in 1999 and therefore that display shipments from Unipac
will exceed several thousand units per month by the end of 1999. However, the
Company does not expect to generate positive gross margins on the sale of its
products in 1999.
In view of the development stage of the Company and the completion of the
cooperation phase of existing cooperation and license agreements, the Company
expects to rely mainly on product sales to generate revenues in 1999 and
believes that historical financial results are not meaningful and should not be
relied upon as an indication of future performance.
1
<PAGE>
The Company's expectations regarding its sources of future revenue are
forward-looking statements. The amount, time and source of revenue generation
will be affected by numerous matters including the availability of funds to
finance its activities until volume shipments of products begin; the continued
development of the Company's products, including the enhancement of the display
performance and the cost-effective reproduction of the favorable characteristics
demonstrated by the Company's current prototypes in the context of commercial
production; the successful transition of the Company's prototype manufacturing
processes to commercial manufacturing processes to achieve commercially viable
yields; the successful development of a volume supply of FED products under
contract manufacturing, the successful commercialization of FEDs by other
members of the Company's licensees, and the successful development of sufficient
market demand for the Company's products.
The Company's products and its manufacturing processes are still in the early
stages of development and testing. To date, the Company has only shipped limited
quantities of products incorporating FED technology. The Company's only
commercially available display is a 5.2-inch monochrome display which to date
has been sold in limited quantities to more than a hundred customers.
Pursuant to a license agreement with the CEA, the French atomic agency, the
Company is obligated to make royalty payments on its product sales and to pass-
through a portion of royalties on sales of royalty-bearing products by the
Company's sublicensees. Pursuant to an amendment to the LETI License Agreement
signed in 1997 (the "1997 CEA Amendment"), the royalty rates and minimum
payments from the Company to CEA were temporarily increased for a period of
three years. A royalty amount of $45,000, $109,000 and $308,000 was accrued in
1996, in 1997 and in 1998, respectively (See Notes to Consolidated Financial
Statements--Note 16--Related Party transactions).
All of the Company's expenses to date, except royalties and pass-through
expenses payable to CEA and tax expenses directly associated with revenues from
cooperation and license agreements, have been recorded as operating expenses,
since the Company has not shipped products in quantities sufficient to determine
a meaningful cost of products sold category.
The Company has incurred cumulative losses of $54.1 million from inception to
December 31, 1998. The Company has incurred operating losses every quarter in
1996 , 1997 and 1998, and expects to incur additional operating losses. The
magnitude and duration of the Company's losses will depend on a number of
factors within and outside of the Company's control, including the rate at which
it can successfully manufacture and commercialize its FEDs, if at all, and the
related costs of such efforts. Successful commercialization of such displays
will in turn depend on a number of factors, including the successful development
of sufficient market demand for the Company's products.
Results of Operations
Cooperation and License Revenues. The Company recognized revenues under
cooperation and license agreements of $5.4 million in 1996, $1.9 million in 1997
and $1.2 million in 1998. The significant decrease in cooperation and license
revenues in 1997 and 1998 over 1996 reflects the achievement by the Company at
the end of 1996 of most of its contractual milestones. The cooperation phase of
these agreements, which had generated milestone revenues for the Company,
expired in June 1998. In the future, the Company expects to derive royalty
revenues only under existing cooperation and license agreements. Such royalty
revenues will be based on licensees' sales, if any, of royalty-bearing products.
The Company may grant royalty-bearing licenses to the FED cross-licensed
technology to third parties subject to certain restrictions. Royalties payable
to PixTech under such third-party licenses will be shared with the existing
licensees.
In 1997, the Company entered into a cooperation agreement with a major
Japanese CRT manufacturer to demonstrate a 15-inch FED display. Revenues
generated under this agreement in 1997 and 1998 were included in Cooperation and
License Revenues. In February 1999, the Company entered into a subsequent
cooperation agreement with its CRT partner. The Company does not expect any
significant revenues to be associated with such agreement.
Product Sales. The Company recognized product sales of $791,000 in 1996,
$745,000 in 1997 and $445,000 in 1998. Through 1997, these product sales
primarily represented the shipment of a limited number of high-priced FED
2
<PAGE>
displays and cathodes to customers for evaluation and product development
purposes. In 1998, product revenues primarily reflected the shipment of
displays to the Company's first volume customer, Zoll Medical. While the number
of displays shipped increased significantly in 1998 over 1997, the average
selling price was reduced, reflecting commercially priced sales. The Company
expects to increase product shipments in 1999, mainly from its contract
manufacturer, Unipac.
Other Revenues. Other revenues consist of funding under European development
contracts and other miscellaneous revenues. Other revenues were $1.4 million in
1996, $1.1 million in 1997 and $2.0 million in 1998. Of these revenues,
$800,000, $663,000 and $1.2 million were related to a development contract
granted in December 1994 from the French Ministry of Industry to support
manufacturing of FEDs, in 1996, 1997 and 1998 respectively. The Company
successfully completed this development contract and will not derive any
additional revenue from it. In addition, the Company expects to earn
development-contract related revenues in 1999, primarily following expected
recognition as income of certain amounts collected by the Company before
December 31, 1998, and previously recorded as Deferred Revenues (See Notes to
Consolidated Financial Statements--Note 12--Other and deferred revenues).
Research and Development Expenses--Acquisition of Intellectual Property
Rights. Since its inception, the Company expensed $4.9 million for the
acquisition of intellectual property rights from its licensees and other third
parties. In 1998, the Company expensed $125,000 in relation to a license
agreement with Coloray Display Corporation, a California corporation
("Coloray"), providing PixTech with a worldwide, nonexclusive royalty-free
license on certain technologies related to field emission displays.
Other Research and Development Expenses. Other research and development
expenses include salaries and associated expenses for in-house research and
development activities conducted both in its pilot plant and its research and
development facility in Santa Clara, the cost of staffing and operating the
Company's pilot manufacturing facility and since 1997, the cost of supporting
the transfer of the Company's FED technology to Unipac. Other research and
development expenses also include obligations to CEA under the LETI Research
Agreement, and miscellaneous contract consulting fees.
Other research and development expenses increased from $15.8 million and $15.5
million in 1996 and 1997 respectively to $19.2 million in 1998. This increase
reflected the continued development of the Company's FED technology, the cost of
supporting the transfer and adjustment of its FED manufacturing processes to
Unipac, as well as the significant increase in the level of its pilot
manufacturing activities to support early deliveries of its displays to
customers.
Sales and Marketing Expenses. The Company incurred sales and marketing
expenses of $1.1 million in 1996, $1.5 million in 1997 and $1.4 million in 1998.
The Company believes sales and marketing expenses may increase in the future,
reflecting the expansion of the Company's sales and marketing organization both
in the United States and in Europe. The Company signed distribution agreements
of its FED products respectively with Sumitomo for the Japanese and Asian market
areas in 1997. In 1999, the Company intends to progress on its efforts to
conclude similar distribution agreements for both the United States and Europe,
in order to expand market reach in a cost effective manner.
Such expectation regarding increased product shipments and customer contracts
is a forward-looking statement, the fulfillment of which is dependent on
numerous factors. See Item 1. Business - Strategy. In addition, in order to
achieve its objectives, the Company will need to expand its business rapidly and
add sales, marketing, manufacturing, administrative and management personnel, as
well as establish and manage its international operations.
General and Administrative Expenses. General and administrative expenses
amounted to $2.5 million in 1998, an increase of 4% over general and
administrative expenses incurred in 1997, which amounted to $2.4 million,
reflecting an increase in staff expenses. General and administrative expenses
amounted to $2.7 million in 1996.
Interest Income (Expense), Net. Interest income is comprised of interest on
available and restricted cash. Interest expense is comprised of interest payable
on long-term obligations. Net interest expense was $708,000 in 1998, while the
Company recorded a net interest income of $470,000 in 1997, and of $66,000 in
1996, reflecting the increase in long-term liabilities.
3
<PAGE>
Currency Fluctuations. Although a significant portion of the Company's
revenues are denominated in U.S. dollars, a substantial portion of the Company's
operating expenses are denominated in Euros. Gains and losses on the conversion
to U.S. dollars of assets and liabilities denominated in Euros may contribute to
fluctuations in the Company's results of operations, which are reported in U.S.
dollars. Most of the Company's capital lease obligation is expressed in
Taiwanese dollars. In 1998, fluctuations of the parity of the Taiwanese dollar
versus the Euro caused significant foreign exchange gains or losses and may
continue to do so in the future. The Company recorded net foreign exchange
gains of $256,000 in 1996, $54,000 in 1997 and $372,000 in 1998. The Company
cannot predict the effect of exchange rate fluctuations on future operating
results. To date, the Company has not undertaken hedging transactions to cover
its currency exposure, but it may do so in the future.
Income tax. The Company has recognized French income tax benefits of $7.9
million since inception, including $586,000 in 1997 and $2.2 million in 1998.
These income tax benefits represent tax credits for research and development
activities conducted in France and the benefits of net operating loss
carryforwards, net of valuation allowance. As of December 31, 1998, a valuation
allowance of $19.2 million was provided against a net deferred tax asset of
$23.8 million. The tax credits for research and development activities will be
paid in cash to the Company if the Company is not able to credit them against
future income tax liabilities within three fiscal years. The Company collected
$29,000 and $2.8 million in 1997 and 1998 respectively, representing income tax
benefits recorded in 1992, and in 1993 and 1994, respectively.
The Company does not expect to record significant additional tax credits for
research and development activities, if any, in the foreseeable future, as the
benefit is based on increases in eligible research and development expenses in a
given year over the two previous fiscal years.
As of December 31, 1998, the Company had net operating loss carryforwards in
France of approximately $49.4 million of which $5.6 million, $5.9 million, $10.7
million and 15.5 million will expire in 2000, 2001, 2002 and 2003, respectively,
if they are not utilized.
4
<PAGE>
Quarterly Results of Operations
The following table presents certain unaudited quarterly financial information
for each quarter in 1997 and 1998. In the opinion of the Company's management,
this information has been prepared on the same basis as the audited consolidated
financial statements appearing elsewhere in this report and includes all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the unaudited quarterly results set forth herein. The Company's
quarterly results are subject to fluctuations and thus, the operating results
for any quarter are not necessarily indicative for any future period.
<TABLE>
<CAPTION>
(amounts in thousands) Three Months Ended
----------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
--------- --------- ---------- --------- --------- --------- ---------- ---------
1997 1997 1997 1997 1998 1998 1998 1998
--------- --------- ---------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Cooperation and license
revenues................... $ 707 $ 1,011 $ -- $ 214 $ -- $ 1,001 $ 238 $ --
Product sales............... 173 255 152 165 21 66 135 223
Other revenues.............. 673 47 284 138 1,232 311 225 200
------- ------- ------- ------- ------- ------- ------- -------
1,553 1,313 436 517 1,253 1,378 598 423
Cost of revenues:
License fees and
royalties................. -- (61) -- (120) (79) (122) (80) 305
------- ------- ------- ------- ------- ------- ------- -------
Gross margin: 1,553 1,252 436 397 1,174 1,256 518 728
Operating expenses:
Research and development: 4,174 3,904 3,227 4,192 3,925 4,553 5,107 5,829
Sales and marketing......... 380 402 369 345 339 354 371 369
General and administrative 606 682 611 520 637 586 639 653
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 5,160 4,988 4,207 5,057 4,901 5,493 6,117 6,851
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (3,607) (3,736) (3,771) (4,660) (3,727) (4,237) (5,599) (6,123)
Interest income (expense),
net....................... 131 211 82 46 (80) (174) (208) (246)
Foreign exchange gain (loss) (238) 67 32 193 285 424 844 (1,181)
------- ------- ------- ------- ------- ------- ------- -------
Loss before income tax
benefit................... (3,714) (3,458) (3,657) (4,421) (3,522) (3,987) (4,963) (7,550)
Income tax benefit........... -- -- -- 586 -- -- 1,047 1,112
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(3,714) $(3,458) $(3,657) $(3,835) $(3,522) $(3,987) $(3,916) $(6,438)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company expects that it will continue to experience fluctuations in its
quarterly operating results. In the past, these fluctuations have been caused by
a variety of factors, including the rate of growth of the Company's research and
development activities, the rate of growth of the costs related to the transfer
and adaptation of the Company's manufacturing process to Unipac, and the extent
of foreign exchange gains or losses.
5
<PAGE>
Liquidity and Capital Resources
The Company has used $32.0 million in cash to fund its operations from
inception through December 31, 1998, and $29.6 million in capital expenditures
and investments. Through December 31, 1998, the Company has funded its
operations and capital expenditures primarily from sales of $67.5 million of
equity securities and $19.0 million of proceeds from borrowings and sale-
leaseback transactions. In 1998, the Company used $9.3 million in cash to fund
its operations and $1.9 million in capital expenditures and investments.
Capital expenditures were $5.9 million in 1996, $1.2 million in 1997 and $1.9
million in 1998. In 1996, capital expenditures were primarily for leasehold
improvements, facility expansion, and equipment installed in its pilot
manufacturing facility, while 1997 and 1998 capital expenditures remained
focused on limited capacity expansion in the Company's pilot line. As of
December 31, 1998, the Company had commitments for capital expenditures of
approximately $100,000. Implementing volume production at Unipac's
manufacturing plant required significant capital expenditures. An amount of
$14.2 million of capital expenditures for equipment only was required which,
pursuant to the Foundry Agreement, was purchased and funded by Unipac. A
portion of that equipment is leased to PixTech and amounts to $12.0 million as
of December 31, 1998. The Company expects that additional capital expenditure
will be required in 1999 to increase capacity at Unipac and to complete
implementation of manufacturing processes, both for monochrome and for color
products.
Restricted cash amounted to $10.1 million in 1997 and was related to the
security interest granted by the Company to its Taiwanese manufacturing partner,
Unipac, pursuant to the Foundry Agreement signed in 1997, in relation to the
purchase and funding by Unipac of volume FEDs production equipment. The written
bank guaranty provided by the Company to Unipac is expected to decrease to match
the net amount of equipment leased by Unipac to the Company.
The Company has existing contracts with French authorities providing for the
payment of grants to the Company totaling approximately $4.0 million, which were
fully paid to the Company as of December 31, 1998. In 1997 and January 1999, the
Company entered into two R&D agreements with French authorities. Under these
agreements, the Company expects to benefit from zero-interest loans totaling
approximately $3.4 million, of which 50% are expected to be collected in 1999.
In February 1997, the Company entered into an R&D agreement with the European
Union and other European industrial companies for 18 months starting February 1,
1997. The contribution of the European Union to the costs incurred by the
Company amounts to $800,000 over the period. The Company received $423,000 and
$293,000 from this contribution respectively in 1997 and in 1998, which were not
recognized as income as all conditions stipulated in the agreement were not met.
In 1998, the Company received $96,000 in relation to another R&D agreement
entered into in 1993 with the European Union and other European industrial
companies. The total contribution of the European Union amounted to $546,000.
The Company received $330,000 in 1994, $120,000 in 1995 and $96,000 in 1998 from
this contribution. The Company does not expect to derive any additional revenue
from this contract.
The Company recognized French income tax benefits of $7.9 million since
inception. These income tax benefits represent tax credits for research and
development activities conducted in France, which are paid in cash to the
Company if it is not able to credit them against future income tax liabilities
within three fiscal years. In 1998, the Company collected $2.8 million,
representing R&D tax credits recorded in 1993 and 1994. In 1999, the Company
expects to collect up to $3.2 million from R&D tax credits recorded in 1995.
Cash flows generated from financing activities were $9.5 million in 1998, as
compared to $30.3 million in 1997. These financings consisted primarily of
sales of shares of Common Stock and of Convertible Preferred Stock in private
placements, resulting in net proceeds to the Company of $4.5 million (net of
issuance costs) and $7.5 million, respectively. Cash flow generated from
financing activities exclude non-cash transactions related respectively to (i)
the issuance of 14,000 shares of the Company's Common Stock to Coloray Display
Corporation with a value of $50,000 (See "Notes to Consolidated Financial
Statements - Note 11 -- Stockholders' Equity") and (ii) the dividends attached
to the shares of Convertible Preferred Stock in the amount of $12,000 (See
"Notes to Consolidated Financial Statements - Note 11 -- Stockholders' Equity").
6
<PAGE>
The Company believes that cash available at December 31, 1998 together with
the anticipated increase in product sales in 1999 and the anticipated proceeds
during 1999 from R&D tax credits and from the various grants and loans described
above will be sufficient to meet its cash requirements, including repayment of
the current portion of its long term obligations in the amount of $5.6 million
at December 31, 1998, until at least June 30, 1999. The Company intends to
improve its liquidity and financial position through capital increases expected
to take place in 1999.
The Company will require substantial funds to conduct research, development
and testing, to develop and expand commercial-scale manufacturing systems and to
market any resulting products. Changes in technology or a growth of sales beyond
currently anticipated levels will also require further investment. The Company's
capital requirements will depend on many factors, including the rate at which
the Company can develop its products, the market acceptance of such products,
the levels of promotion and advertising required to launch such products and
attain a competitive position in the marketplace and the response of competitors
to the Company's products. There can be no assurance that funds for these
purposes, whether from equity or debt financing, or other sources, will be
available when needed or on terms acceptable to the Company.
Outlook: Issues and Risks
The Company is currently focused on the following activities which it believes
are necessary to the success of its business:
. successfully implementing the manufacture of FEDs by its Taiwanese
contract manufacturer, Unipac;
. improving its manufacturing processes and yields, both in its pilot plant
and at Unipac;
. expanding its customer base and product offering, and
. continuing the development of its FED technology, including the
development of large FED displays.
In evaluating its outlook, the following risks and issues should be considered,
among others which are common among development stage companies such as its. It
is especially important to keep these risk factors in mind when reading
"forward-looking statements." These are statements that relate to future
periods and include discussions relating to the Company's market opportunities,
acquisition opportunities, ability to compete; and stock price. Generally, the
words "anticipates," "believes," "expects," "intends" and similar expressions
identify such forward-looking statements. Forward-looking statements involve
risks and uncertainties, and its actual results could differ materially from the
results discussed in the forward-looking statements because of these and other
factors. Forward-looking statements are current only as of the date of this
Prospectus. The Company does not have any obligation to disclose if forward-
looking statements, or the circumstances they are based on, change.
The Company May Not Have Operating Income or Net Income in the Future and It May
Have Problems Raising the Money It Needs in the Future
Since the Company inception, the Company has had significant operating losses.
During the year ended December 31, 1998, its net operating loss amounted to
$19.7 million, as compared to $15.8 million during the year ended December 31,
1997.
In the future, the Company expects that it will need to obtain money from
sources outside the Company, as it has done in the past. There is no guarantee
that any of the outside sources will provide the Company with the money when
needed. In addition, even if the Company is able to find outside sources which
will provide it with the money when needed, in order to raise this money the
Company may be required to issue securities with better rights than the rights
of its common stock or it may be required to take other actions which lessen the
value of its current common stock, including borrowing money on terms that are
not favorable to it.
7
<PAGE>
There are Risks Associated with Using a Single Contract Manufacturer to
Manufacture its FEDs.
The Company believes that its ability to commercialize medium to large volumes
of FEDs depends on its ability to have Unipac manufacture FEDs. If the Company
is not able to implement its manufacturing plans with Unipac as expected, the
Company will not be able to ship medium to large volumes of FED products.
Furthermore, the Company will not be able to obtain an acceptable cost for its
FED displays through high volume manufacturing, as compared to manufacturing
FEDs at its pilot production facility. This situation would materially adversely
affect its operations. In May 1997, the Company signed a Foundry Agreement with
Unipac, a liquid crystal display manufacturer based in Taiwan. Under the
agreement, Unipac has installed volume production equipment to produce FEDs at
its manufacturing plant, and has begun production for exclusive delivery of FED
displays to the Company. Expectations about the final timing of this
manufacturing plan with Unipac are forward-looking statements that still involve
risks and uncertainties, including the ease or difficulty of the transfer of the
FED technology to Unipac.
The Company's reliance on a single contract manufacturer will involve several
risks. For example, the Company could be unable to obtain an adequate supply of
required products if Unipac did not supply enough products. Moreover, the
Company will have less control over the price of the finished products, the
timeliness of their delivery and their reliability and quality. The Company's
failure to adequately manage this contract manufacturing relationship or any
delays in the shipment of its products would adversely effect the Company.
The Company's Products and Manufacturing Processes are Still under Development
and The Company Still Needs to Obtain Commercially Acceptable Yields and
Acceptable Costs of Products.
In order for the Company to succeed, it must continue to develop and produce a
range of products incorporating its FED technology. At this time, the Company
has successfully developed only one product that has been incorporated into a
commercial end-user application. The Company will need to complete the
development of additional FED products before they can be sold to the public,
and there is no guaranty that the Company will succeed in these development
efforts. If the Company does not develop these new products, it will not be
successful.
The Company has used its pilot manufacturing facility in Montpellier, France to
produce only a limited number of products suitable for sale. Additionally, the
Company has not completed testing of its manufacturing processes at Unipac. In
order for the Company to be successful, it must make certain improvements to its
manufacturing processes. In particular, it must improve its manufacturing
yields in order to demonstrate the low cost potential of its FED technology.
Even if the Company succeeds in completing the development and testing of its
manufacturing processes, it can not be sure that the favorable characteristics
demonstrated by its current displays manufactured at its pilot manufacturing
facility will be reproduced on a cost- effective basis in commercial production.
The Company has, at this time, encountered a number of delays in the development
of its products and processes, and it is possible that further delays will
occur. Any significant delays could cause the Company to miss certain market
opportunities and could have a material adverse effect on its business.
The Company Needs to Further Enhance its Display Performance.
The Company may never improve the performance characteristics of its color FEDs
to a level that is commercially acceptable or fail to do so on a timely basis,
either of which could adversely affect its business. Key elements of display
performance are brightness, power efficiency and stability over time (life time
and reliability). The Company is seeking to balance brightness with power
efficiency to produce bright and low power-consumption displays. Display
reliability depends heavily on the manufacturing process used in assembling the
displays as well as the characteristics of the phosphors used in the display.
In order to produce color displays that will provide the product life and other
characteristics necessary for most applications, the Company needs to make
further advances in its manufacturing processes.
The Company face Intense Competition and Needs to Compete with Current and
Future Competing Technologies.
The Company's competitors may succeed in developing products that outperform its
displays or that are more cost effective. If its competitors develop products
that offer significant advantages over its products and if the Company is unable
to improve its technology, or develop or acquire alternative technology that is
more competitive, it would be adversely affected.
8
<PAGE>
The market for "flat panel display," or "FPD", products is currently dominated
by products utilizing "liquid crystal display," or "LCD", technology. Certain
LCD manufacturers, such as Sharp, NEC and Hitachi, have substantially greater
name recognition and financial, technological, marketing and other resources
than us. Furthermore, LCD manufacturers have made, and continue to make,
substantial investments in improving LCD technology and manufacturing processes
and in the construction of manufacturing facilities for displays. The Company
believes that, over time, this will have the effect of reducing average selling
prices of FPDs. In addition, recently there have been substantial increases in
the worldwide manufacturing capacity of FPDs, and new competitors have entered
the FPD market. Such changes may cause over-supply conditions leading to
dramatic reductions in the price of FPDs. In order to effectively compete, The
Company could be required to increase the performance of its products or reduce
prices. In the event of price reductions, the Company will not be able to
maintain gross margins unless it reduces its cost of sales.
There are a number of domestic and international companies developing and
marketing display devices using alternative technologies to LCD technology, such
as vacuum fluorescent displays, electro-luminescent panels and plasma panels.
In addition, the Company has ended its cooperation phase with both Futaba and
Motorola in January 1997 and June 1998, respectively, and is aware of
significant continued investments in FED technology development by each of them.
In the future, the Company expects to face competition from both of them.
Additionally, some of the basic FED technology is in the public domain and, as a
result, the Company has a number of potential direct competitors developing FED
displays. The Company is aware of several other companies which are developing
FED technologies similar to its technology, including Sony, Fujitsu, and Samsung
as well as smaller companies, including Candescent, FED Corporation, and Micron
Display Division, a division of Micron Display Technology. Although the Company
owns the rights to significant technological advances in FED technology,
potential competitors may have developed or may soon develop comparable or
superior FED technology. Many of the developers of alternative FPD and
competing FED technologies have substantially greater name recognition and
financial, research and development, manufacturing and marketing resources than
the Company, and have made and continue to make substantial investments in
improving their technologies and manufacturing processes.
Potential Customers may not Accept the Company's Products.
The Company is uncertain about the potential size and timing of its target
market opportunities. It anticipates marketing its displays to "original
equipment manufacturer" or "OEM" customers Its success will depend, in part, on
the following factors:
. whether OEMs select its products for incorporation into their products;
. the successful introduction of such products by the OEMs; and
. the successful commercialization of products developed by parties
incorporating its products.
It is possible that demand for any particular product will not last or that new
markets will fail to develop as the Company expects, or at all. Such deviations
would materially and adversely effect the Company.
It takes a long time for any product to achieve market success, and such success
is never certain. The introduction of new products is often delayed by the need
to have the products selected by an OEM and designed into the OEM's products.
For certain products, the delay attributable to a manufacturer's design cycle
may be a year or longer. Factors affecting the length of these delays include:
. the size of the manufacturer;
. the type of application; and
. whether the displays are being designed into new products or fitted into
existing applications.
9
<PAGE>
If volume production of such products is delayed for any reason, the Company's
competitors may introduce new technologies or refine existing technologies which
could diminish the commercial acceptance of its products. The Company has made
efforts to design its products to be compatible with the electronic products
with which they will be used and has targeted smaller markets where the design
cycle may be shorter. However, unforeseen difficulty in incorporating the
Company's products and technology, would lessen the commercial acceptance of its
products. Furthermore, its OEMs will probably require the Company to implement
certain manufacturing quality control procedures as well as prove its ability to
manufacture the number of displays they require on a timely and reliable basis.
The Company's failure to meet these requirements could have an adverse impact on
its relationships with these OEMs and could prevent it from establishing
relationships with other OEMs.
Future Cooperation and License Revenues May Decrease.
The Company has entered into various license agreements under which the Company
was paid money for achieving certain milestones. At this time, the Company has
recorded all expected revenues associated with these milestone payments. If the
Company fails to conclude new royalty-bearing licenses or cooperation
agreements, it could be adversely affected. The Company must execute further
cooperation and/or license agreements with third parties that are not existing
licensees before it will receive any future cooperation or license revenues.
Should the Company successfully enter such agreements, a portion of the revenues
from such contracts may need to be shared with the existing licensees.
In addition, the Company will only recognize royalty revenues under cooperation
and license agreements with existing or future licenses if any of its licensees
incorporate licensed technology into products that are successfully
commercialized. The Company can not guarantee that any of its licensees will
successfully develop or commercialize any FED products. The Company believes
that one of its existing licensees, Raytheon Company, may have suspended its
internal program to develop FEDs.
The Company May Have Difficulty Protecting Patents and other Proprietary Rights
to its Technology.
The Company has been granted, has filed applications for, and has been licensed
under a number of patents in the United States and other countries. However,
rights granted under patents may not provide the Company with any competitive
advantage over competitors with similar technology, and any issued patents may
not contain claims sufficiently broad to protect against these competitors.
The Company has not conducted an independent review of patents issued to other
companies. The Company cannot be certain that it was the first creator of
inventions covered by pending patent applications or the first to file patent
applications on such inventions because patent applications in the United States
are maintained in secrecy until patents issue and the publication of discoveries
in scientific or patent literature tends to lag behind actual discoveries by
several months. Competitors in both the United States and other countries may
have applied for or obtained, or may in the future apply for and obtain, patents
that will prevent, limit or interfere with its ability to make and sell its
products.
Moreover, claims that its products infringe on the proprietary rights of others
are more likely to be asserted after the Company begins commercial sales of
products using its technology. Although the Company believes that its products
do not infringe the patents or other proprietary rights of third parties, it is
possible that third parties will assert infringement claims against us and that
such claims will be successful. It is also possible that competitors will
infringe its patents. Even the successful defense and prosecution of patent
suits is costly and time consuming. The adverse outcome of a patent suit could
subject us to significant liabilities to other parties, require disputed rights
to be licensed from third parties or require us to stop selling its products.
The Company also relies on unpatented, proprietary technology which is
significant to the development and manufacture of its displays. Others may
independently develop the same or similar technology or obtain access to its
unpatented technology. To protect its trade secrets and other proprietary
information, the Company requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. It is possible that the
agreements may be breached, that the Company would not be fully compensated for
any such breach, or that its trade secrets will otherwise become known or be
independently developed or discovered by competitors. If the Company is unable
to maintain the proprietary nature of its technologies, its business could be
adversely affected.
10
<PAGE>
The Company has received correspondence from Futaba Corporation and its legal
counsel beginning in February 1998 alleging the following:
. the Company is infringing one or more patents owned by Futaba relating to
the construction and manufacture of its displays that are not expressly
included under the license agreement between the Company and Futaba;
. its use of terms such as "alliance" and "partners" in describing the
nature of its contractual relationships with Motorola, Raytheon and Futaba
in reports filed with the SEC is misleading; and
. certain provisions in the Foundry Agreement with Unipac constitute an
impermissible sublicense of Futaba technology.
The Company does not believe such claims have any merit and have denied each of
the allegations in correspondences with Futaba and its counsel. Futaba has also
claimed that the Company improperly supplied certain Futaba proprietary
information to Unipac, and that Unipac has, in turn, disclosed such information
to a third party vendor. If Futaba prevails on any of these claims, the Company
may be required, among other adverse consequences, to modify the construction
and manufacture of its displays and may, as a result, be materially adversely
affected.
Currency Fluctuations May Cause Gains or Losses.
A large percentage of its net assets and of the Company's costs is expressed in
Euros. Fluctuations of the value of the U.S. dollar versus the Euro may cause
significant foreign exchange gains or losses. Most of the Company's capital
lease obligation is expressed in Taiwanese dollars. Fluctuations of the value
of the Taiwanese dollar versus the Euro or the US dollar may cause significant
foreign exchange gains or losses.
11
<PAGE>
The Company May be Affected by Year 2000 Errors in Computer Systems.
There is a significant uncertainty regarding the effect of the Year 2000 issue
because computer systems which do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or
altogether fail. The Company is in the process of conducting a comprehensive
review of its computer systems and manufacturing equipment to identify
applications that could be affected by the inability of certain computer systems
to format and manipulate data containing dates including the year 2000 and
subsequent years. Although management does not expect that costs associated
with modifying existing computer systems and manufacturing equipment will have a
significant impact on its financial position or result of operations, there can
be no assurance that such modifications will be successfully implemented or that
these costs will not be significant. The Company currently has no contingency
plans in place in the event it does not complete all phases of the year 2000
review. The Company plans to evaluate the status of completion during 1999 and
determine whether such a plan is necessary. In addition, the Company depends on
a limited group of suppliers. There can be no assurance that those suppliers
will not be significantly impacted by the "Year 2000" issue. If those suppliers
are significantly impacted by the "Year 2000" issue, such suppliers may not be
able to continue their supply of parts to the Company without interruption. The
Company is in the process of identifying third party vendors that are non-Year
2000 compliant and of assessing the following consequences. In particular, the
Company requested from Unipac, its Taiwanese manufacturing partner, to assess
whether its computer systems and manufacturing equipment could be affected by
the "Year 2000" issue and, if so, to present a contingency plan. To implement
its large volume manufacturing strategy, the Company is dependent on Unipac's
ability to be successful in addressing the "Year 2000" issue. The Company's
continued use of a vendor which is not Year 2000 compliant or the failure of the
Company's own computer systems or manufacturing equipment to be fully Year 2000
compliant could materially adversely affect the Company's business, financial
position and results of operations.
Holders of Common Stock May face Significant Dilution from the Conversion of
Series E Preferred Shares.
In December 1998, the Company issued 367,269 shares of Series E Preferred Stock
(the "Series E Stock"), at a price of $22.5313 per share, to certain
institutional investors. The Series E Stock is generally convertible after June
21, 1999 into Common Stock at a rate equal to the lesser of (a) $2.25313, and
(b) the average closing price Common Stock over the ten trading day ending
period ending on the day immediately preceding the day upon conversion. As of
March 1st, 1999, the Series E Stock would have been convertible into 3,715,334
shares of Common Stock. Should the Company's stock price fall below $2.25313,
conversion of Series E stock may result into the issuance of a significant
additional number of shares of Common Stock, and may cause significant dilution
to current holders of Common Stock.
Certain Anti-Takeover Provisions May Limit the Company's Stock Price
Certain provisions of the Company's certificate of incorporation and by-laws may
discourage a third party from offering to purchase the Company. These
provisions, therefore, inhibit actions that would result in a change in control
of the company, including an action that may give the holders of the common
stock the opportunity to realize a premium over the then-prevailing market price
of their stock.
These provisions may also adversely affect the market price of the Common Stock.
For example, under its certificate of incorporation, the Company can issue
"blank check" Preferred Stock with such designations, rights and preferences as
determined by its Board of Directors from time to time. This type of Preferred
Stock could be used as a method of discouraging, delaying or preventing a change
in control of the Company. In addition, the Preferred Stock issued by the
company in December 1998 and any additional shares of Preferred Stock that the
Company may issue in the future may adversely affect the voting and dividend
rights, rights upon liquidation and other rights of the holders of common stock.
The Company does not currently intend to issue any additional shares of
preferred stock, but it retains the right to do so in the future.
Furthermore, the Company is subject to Section 203 of the Delaware General
Corporation Law, which may discourage takeover attempts.
12
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
The market risk exposure inherent to the Company's international operations
creates potential for losses arising from adverse changes in foreign currency
exchange rates. The Company is exposed to such foreign currency exchange rate
risk in two main areas : (i) a substantial portion of the Company's operating
expenses are and are expected to be denominated in Euros, (ii) most of the
Company's capital lease obligation is expressed in Taiwanese dollars.
Fluctuations of the parity of the Taiwanese dollar versus the Euro or the US
dollar may cause significant foreign exchange gains or losses. In addition,
gains and losses arising from the conversion to U.S. dollars of assets and
liabilities denominated in Euros or in Taiwanese dollars may contribute to
fluctuations in the Company's results of operations, which are reported in U.S.
dollars. To date, the Company has not undertaken hedging transactions to cover
its currency exposure.
13
<PAGE>
Financial Statements and Supplementary Data
Index to Financial Statements
<TABLE>
<CAPTION>
Page(s)
--------------
<S> <C>
Report of Independent Auditors........................................... 15
Balance Sheets........................................................... 16
Statements of Comprehensive Operations................................... 17
Statements of Stockholders' Equity (Deficit)............................. 18 - 21
Statements of Cash Flows................................................. 22
Notes to Financial Statements............................................ 23 - 39
</TABLE>
Financial statement schedules have been omitted
since they are not required or are inapplicable
14
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
PixTech, Inc.
We have audited the accompanying consolidated balance sheets of PixTech, Inc.
(a development stage company) as of December 31, 1997 and 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the period from June 18, 1992 (date of inception) through December 31, 1998, and
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of
PixTech, Inc. (a development stage company) as of December 31, 1997 and 1998 and
the consolidated results of its operations and its cash flows for the period
June 18, 1992 (date of inception) through December 31, 1998 and for each of the
three years in the period ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 19 to the
Financial Statements, the Company has suffered recurring losses from operations
and its financial position raises substantial doubt about its ability to
continue as a going concern. As discussed in note 19 to the Financial
Statements, the Financial Statements do not include any adjustments that might
result from the outcome of this uncertainty.
Ernst & Young AUDIT
Represented by: Christine Blanc-Patin
Marseilles, France
February 03, 1999
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalent available...................................... $ 12,428 $ 10,166
Restricted cash - short term.......................................... 1,259 1,685
Accounts receivable:
Trade............................................................... 953 456
Other............................................................... 82 161
Inventory............................................................. 702 980
Other................................................................. 2,166 1,354
-------- --------
Total current assets........................................... 17,590 14,802
Restricted cash - long term............................................. 8,816 8,427
Property, plant and equipment, net...................................... 9,353 18,826
Goodwill, net........................................................... 226 150
Deferred tax assets..................................................... 5,058 4,643
Other assets - long term................................................ 605 546
-------- --------
Total assets................................................... $ 41,648 $ 47,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt..................................... $ 1,364 $ 3,410
Current portion of capital lease obligations.......................... 599 2,189
Accounts payable...................................................... 5,053 7,514
Accrued expenses...................................................... 1,284 1,544
-------- --------
Total current liabilities...................................... 8,300 14,657
Deferred revenue........................................................ 2,546 2,162
Long term debt, less current portion.................................... 11,024 8,391
Capital lease obligation, less current portion.......................... 441 8,399
Other long term liabilities, less current portion....................... 557 528
-------- --------
Total liabilities.............................................. 22,868 34,137
======== ========
Stockholders' equity
Convertible preferred stock Series E, $0.01 par value, authorized
shares--500,000; issued and outstanding shares--none; 367,269
respectively......................................................... -- 4
Common stock, $0.01 par value, authorized shares--30,000,000;
issued and outstanding shares--13,762,732; 15,000,329
respectively................................................... 138 150
Additional paid-in capital........................................ 57,067 68,999
Cumulative translation adjustment................................. (2,132) (1,740)
Deficit accumulated during development stage...................... (36,293) (54,156)
-------- --------
Total stockholders' equity.................................... 18,780 13,257
-------- --------
Total liabilities and stockholders' equity.................... $ 41,648 $ 47,394
======== ========
</TABLE>
See accompanying notes.
16
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
June 18, 1992
(date of
Year Ended inception)
December 31, through Dec.
--------------------------------- 31,
1996 1997 1998 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Cooperation & license revenues....................... $ 5,440 $ 1,932 $ 1,239 $ 26,449
Product sales........................................ 791 745 445 2,826
Other revenues....................................... 1,413 1,142 1,968 5,906
-------- -------- -------- --------
Total revenues.................................... 7,644 3,819 3,652 35,181
-------- -------- -------- --------
Cost of revenues
License fees and royalties........................... (45) (181) 24 (1,516)
-------- -------- -------- --------
Gross margin........................................... 7,599 3,638 3,676 33,665
-------- -------- -------- --------
Operating expenses
Research and development:
Acquisition of intellectual property rights........ -- -- (125) (4,890)
Other.............................................. (15,848) (15,497) (19,289) (72,528)
-------- -------- -------- --------
(15,848) (15,497) (19,414) (77,418)
Marketing & sales.................................... (1,089) (1,496) (1,433) (6,607)
Administrative & general expenses.................... (2,703) (2,419) (2,515) (12,816)
-------- -------- -------- --------
(19,640) (19,412) (23,362) (96,841)
-------- -------- -------- --------
Loss from operations................................... (12,041) (15,774) (19,686) (63,176)
Other income / (expense)
Interest income...................................... 428 759 828 2,848
Interest expense..................................... (362) (289) (1,536) (2,747)
Foreign exchange gains / (losses).................... 256 54 372 1,026
-------- -------- -------- --------
322 524 (336) 1,127
Loss before income tax benefit......................... (11,719) (15,250) (20,022) (62,049)
Income tax benefit..................................... -- 586 2,159 7,893
-------- -------- -------- --------
Net loss............................................... $(11,719) $(14,664) $(17,863) $(54,156)
======== ======== ======== ========
Dividend accrued to holders of Preferred Stock......... -- -- (12) (12)
-------- -------- -------- --------
Net loss to holders of Common Stock.................... $(11,719) $(14,664) $(17,875) $(54,168)
======== ======== ======== ========
Net loss per share of Common Stock................... $(1.44) $(1.12) $(1.23)
======== ======== ========
Shares of Common Stock used in computing net loss 8,137 13,140 14,548
per share...........................................
Net loss............................................... $(11,719) $(14,664) $(17,863) $(54,156)
Change in cumulative translation adjustment............ (953) (1,694) 392 (1,740)
Comprehensive net loss................................. $(12,672) $(16,358) $(17,471) $(55,896)
</TABLE>
See accompanying notes.
17
<PAGE>
Consolidated Statement of Stockholders' Equity
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Series E
-------------------- ------------------ -------------------- ------------------ ---------------
Shares Shares Shares Shares Shares
issued Amount issued Amount issued Amount issued Amount issued Amount
----------- ------- --------- ------- ----------- ------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 18,
1992
Issuance of
convertible
preferred stock,
net of issuance
costs in 1992,
1993 and 1994...... 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224
Issuance of Common
stock in 1992 and
1993...............
Issuance of Common
stock under stock
option plan in 1994
Purchase of 28,761
shares of Common
stock--Treasury
stock in 1994......
Translation
adjustment.........
Net loss from June
18, 1992 (date of
inception) through
December 31, 1994..
---------- ------- --------- ------- ----------- ------- --------- ------- ------- ------
Balance at December 1,557,003 2,368 363,447 589 3,044,846 8,615 430,208 1,224
31, 1994
Reissuance of
28,761 shares of
Common stock held
in treasury........
Issuance of Common
stock under stock
option plan........
Common stock issued
in initial public
offering, net of
issuance costs
$1,080..............
Conversion of
preferred stock.... (1,557,003) (2,368) (363,447) (589) (3,044,846) (8,615) (430,208) (1,224)
Translation
adjustment.........
Net loss--Year
ended December 31,
1995...............
---------- ------- --------- ------- ----------- ------- --------- ------- ------- ------
Balance at December
31, 1995
Issuance of Common
stock under stock
option plan........
Issuance of
warrants in
connection with
acquisition of the
assets of Panocorp.
Translation
adjustment.........
Net loss--Year
ended December
31, 1996...........
---------- ------- --------- ------- ----------- ------- --------- ------- ------- ------
Balance at December
31, 1996
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued
in public
offering, net of
issuance costs --
$796...............
Issuance of Common
stock under stock
option plan........
Translation
adjustment.........
Net loss--Year
ended December 31,
1997...............
---------- ------ -------- ------ ---------- ------ -------- ------ ------- ------
Balance at December
31, 1997
Common stock issued
in private
placements, net of
issuance costs
-- $ 44............
Issuance of Series 367,269 $4
E convertible
preferred stock,
net of issuance
costs -- $822......
Issuance of Common
stock under stock
option plan........
Translation
adjustment.........
Net loss--Year
ended December 31,
1998...............
----------- ------- --------- ------- ----------- ------- --------- ------- ------- ------
Balance at December -- -- -- -- -- -- -- -- 367,269 $4
31, 1998 =========== ======= ========= ======= =========== ======= ========= ======= ======= ======
</TABLE>
See accompanying notes.
19
<PAGE>
Consolidated Statement of Stockholders' Equity
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Deficit
------------
Common Stock accumulated
------------------- ------------
Additional Cumulative during
---------- ------------ ------------
Shares Paid-in translation development Treasury
---------- ---------- ------------ ------------ ---------
issued Amount Capital adjustment stage stock Total
---------- ------ ---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred
stock, net of issuance
costs in 1992, 1993 and 1994........ $ 12,796
Issuance of Common stock in 1992 and
1993................................ 132,301 $ 1 $ 96 97
Issuance of Common stock under stock
option plan in 1994................ 77,356 1 28 29
Purchase of 28,761 shares of Common
stock-- Treasury stock in 1994..... $(11) (11)
Translation adjustment............... $ 181 181
Net loss from June 18, 1992 (date of
inception) through December 31,
1994................................ $ (3,605) (3,605)
---------- ---- ------- ------- -------- -------- --------
Balance at December 31, 1994 209,657 2 123 181 (3,605) (11) 9,487
Reissuance of 28,761 shares of
Common stock held in treasury....... 3 11 14
Issuance of Common stock under stock
option plan......................... 6,902 0 3 3
Common stock issued in initial
public offering, net of issuance
costs -- $1,080..................... 2,500,000 25 20,973 20,998
Conversion of preferred stock........ 5,395,504 54 12,742
Translation adjustment............... 334 334
Net loss--Year ended December 31,
1995................................ (6,305) (6,305)
---------- ---- ------- ------- -------- -------- --------
Balance at December 31, 1995 8,112,063 81 33,844 515 (9,910) 24,530
Issuance of Common stock under stock
option plan......................... 29,083 0 11 11
Issuance of warrants in connection
with acquisition of the assets of
Panocorp............................ 230 230
Translation adjustment............... (953) (953)
Net loss--Year ended December 31,
1996................................ (11,719) (11,719)
---------- ---- ------- ------- -------- -------- --------
Balance at December 31, 1996 8,141,146 81 34,085 (438) (21,629) 12,099
Common stock issued in public
offering, net of issuance costs
$796................................ 5,570,819 56 22,958 23,014
Issuance of Common stock under stock
option plan......................... 50,767 1 25 25
---------- ---- ------- ------- -------- -------- --------
Translation adjustment............... (1,694) (1,694)
Net loss--Year ended December 31,
1997................................ (14,664) (14,664)
---------- ---- ------- ------- -------- -------- --------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 13,762,732 $138 $57,067 $(2,132) $(36,293) $ 18,780
Common stock issued in private
placements, net of issuance costs-
$44................................. 1,236,222 12 4,493 4,506
Issuance of Series E convertible
preferred stock, net of issuance
costs -- $ 822 Issuance of 7,437 7,440
Series E convertible preferred
stock in December, net of issuance
costs -- $ 822......................
Issuance of Common stock under stock
option plan......................... 1,375 1 1
Translation adjustment............... 392 392
Net loss--Year ended December 31,
1998................................ (17,863) (17,863)
---------- ---- ------- ------- -------- -------- --------
Balance at December 31, 1998 15,000,329 $150 $68,999 $(1,740) $(54,156) $ 13,257
</TABLE>
See accompanying notes.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
------------
June 18,
1992
------------
(date of
------------
inception)
Year Ended ------------
------------------- through
December 31st, ------------
-------------------- Dec. 31st,
------------
1996 1997 1998 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating activities
Net loss......................................................... $(11,719) $(14,664) $(17,863) $(54,156)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation and amortization................................... 3,934 3,741 4,359 15,925
Gain on disposal of fixed assets................................ (31) -- (12) (43)
Deferred taxes.................................................. (53) -- 680 (4,483)
"in kind" transactions.......................................... -- -- -- 1,420
Change in assets and liabilities
Accounts receivable--Trade..................................... 3,749 672 337 (344)
Accounts receivable--Other..................................... (21) 102 (75) 320
Inventory...................................................... (393) (28) (223) (1,018)
Other assets................................................... (280) 115 996 (568)
Accounts payable, accrued expenses and other assets and
liabilities.................................................... (634) 983 2,948 8,647
Deferred revenue............................................... 300 (297) (490) 2,290
-------- -------- -------- --------
Net cash used in operating activities........................... (5,148) (9,376) (9,343) (32,010)
-------- -------- -------- --------
Investing activities
Additions to property, plant, and equipment..................... (5,866) (1,165) (1,860) (19,320)
Reclassification of cash equivalents as restricted cash......... -- (10,080) (32) (10,112)
Additions to patents ........................................... (130) -- -- (130)
-------- -------- -------- --------
Net cash used in investing activities........................... (5,996) (11,245) (1,892) (29,562)
Financing activities
Stock issued.................................................... 3 21,639 11,906 67,504
Proceeds from long-term borrowings.............................. 97 10,000 -- 16,287
Proceeds from sale leaseback transactions....................... -- -- -- 2,731
Payments for equipment purchases financed by accounts
payable........................................................ (997) -- -- (3,706)
Repayment of long-term borrowings............................... (215) (787) (739) (3,815)
Repayment of capital lease obligations.......................... (876) (576) (1,695) (4,002)
-------- -------- -------- --------
Net cash provided by (used in) financing activities............. (1,988) 30,276 9,472 74,999
Effect of exchange rates on cash................................ (165) (1,493) (499) (3,261)
-------- -------- -------- --------
Net increase / (decrease) in cash equivalents................... (13,297) 8,162 (2,262) 10,166
Cash and cash equivalents beginning of period.................... 17,563 4,266 12,428 --
-------- -------- -------- --------
Cash and cash equivalents end of period.......................... $ 4,266 $ 12,428 $ 10,166 $ 10,166
======== ======== ======== ========
Supplemental disclosures of non cash activities:
Equipment acquired under capitalized leases...................... -- -- $ 12,048 $ 13,257
Equipment purchases financed by accounts payable................. -- -- -- $ 920
Licenses acquired payable over two or three years................ -- -- -- $ 3,765
Acquisitions of intangible by issuance of warrants............... $ 230 -- -- $ 230
Fixed assets disposed of in like-kind exchange................... $ 468 -- -- $ 468
Fixed assets acquired through like-kind exchange................. $ 499 -- -- $ 499
Supplemental disclosures of cash flow information:...............
Interest paid.................................................... $ 52 $ 184 $ 729 $ 925
</TABLE>
See accompanying notes.
22
<PAGE>
Notes to Consolidated Financial Statements
(all amounts in thousands except share amounts)
1. Organization and Business Activity
PixTech, Inc. was incorporated under the laws of Delaware on October 27, 1993.
On November 30, 1993, PixTech, Inc. acquired 100% beneficial ownership of
PixTech S.A., through a share exchange agreement. PixTech S.A. was incorporated
under the laws of France on June 18, 1992. For accounting purposes, the
acquisition has been treated as a recapitalization of PixTech S.A. As used
herein, "the Company" refers to PixTech, Inc. and PixTech S.A.
The Company was founded to improve, utilize and license certain background
technology developed by Laboratoire Electronique de Technologie et
d'Instrumentation ("LETI"), a French government-owned research and development
laboratory in the field of flat panel displays using electron emitters, known as
field emission displays ("FEDs").
The Company has devoted substantially all its efforts to raising capital,
conducting research and development activities, concluding cooperation and
license agreements with certain displays manufacturers, and establishing
manufacturing capabilities for its FEDs. Revenues from principal planned
operations will mainly consist of product sales. As these revenues have not
commenced, PixTech, Inc. is still in a development stage and falls under the
provisions of FAS No. 7 "Accounting and Reporting by Development Stage
Enterprises".
2. Summary of the Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements were prepared in accordance
with generally accepted accounting principles in the United States. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of PixTech, Inc.
and its wholly owned subsidiary PixTech S.A. Intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year
The Company ends its fiscal year on December 31.
Revenue recognition--Cooperation and License Agreements
The Company has entered into cooperation and license agreements with certain
displays manufacturers. Under these contracts, the Company shares technology
with such members through cross licensing provisions. Each contract provides
for certain fees and royalties to be paid to the Company. The Company believes
that each of the cooperation and license agreements are long-term
construction/production contracts pursuant to SOP 81-1 and that the criteria
have been satisfied to entitle the Company to partially recognize the revenue
under those contracts. Certain fees payable to the Company under these
agreements were milestone-related and were due in accordance with the terms of
each agreement when the milestone is achieved. Once paid, such fees are
irrevocable. The Company recognized this milestone-related revenue only when
each milestone had been fully performed, as agreed by the parties. Costs
incurred under these contracts were considered costs in the period incurred,
regardless of when related revenue is recognized.
23
<PAGE>
Texas Instruments. The Company entered into a Cooperation and License
Agreement with Texas Instruments Incorporated on June 29, 1993. This Agreement
was terminated on July 15, 1996. In 1996, the Company recorded cooperation and
license revenues under this terminated agreement in the amount of $1,336.
Futaba Corporation. The Company entered into a Cooperation and License
Agreement with Futaba Corporation ("Futaba") on November 27, 1993 (the "Futaba
Agreement"). Pursuant to the Futaba Agreement, Futaba agreed to pay the
Company a license fee upon signing the agreement, which was recognized upon
execution of the agreement. Futaba also agreed to a technology transfer fee,
payable to the Company in three installments upon the occurrence of certain
milestones, and an additional fee payable annually upon the achievement of
further product development milestones. Finally, to the extent that Futaba
successfully incorporates the cross-licensed technology into its own products,
Futaba must make royalty payments in connection with the sale of products
incorporating the technology licensed by the Company. At that time, the Company
will recognize royalty revenues.
In order to reach certain specified milestones under the Futaba Agreement, the
Company performed certain services in the field of technology development. In
accordance with the Futaba Agreement, the milestone-related revenues were
recognized when certain milestone were achieved. The cooperation period between
the Company and Futaba expired in January 1997 and the Company will not record
any additional milestone based revenues in the future.
Raytheon Company. The Company entered into a Cooperation and License
Agreement with Raytheon Company ("Raytheon") on June 1, 1994 (the "Raytheon
Agreement"). Pursuant to the Raytheon Agreement, Raytheon agreed to pay the
Company a license fee payable in part upon the signing of the agreement and for
a specified number of months thereafter. Such license fee was recognized when
due. Raytheon also agreed to make two additional payments based on the
achievement of certain milestones. Raytheon also must make royalty payments in
connection with the sale of products incorporating technology licensed to it by
the Company.
In June 1997, the cooperation period between the Company and Raytheon was
extended for a period of two years but no revenue was associated with such
extension. To the extent that Raytheon successfully incorporates the cross-
licensed technology into its own products, the Company will recognize royalty
revenues as Raytheon sells the products. The Company believes that Raytheon
Company may have suspended its internal program to develop FEDs.
Motorola, Inc. The Company entered into a Cooperation and License Agreement
with Motorola, Inc. ("Motorola") on June 13, 1995 (the "Motorola Agreement").
Pursuant to the Motorola Agreement, Motorola agreed to pay the Company a license
fee upon signing the agreement, which was recognized upon execution of the
agreement. Motorola also agreed to a technology transfer fee, payable to the
Company upon the occurrence of certain milestones, and an additional technology
update fee payable annually over a period of three years. Finally, Motorola
must make royalty payments in connection with the sale of its own products
incorporating the technology licensed by the Company.
In order to reach certain of the specified milestones under the Motorola
Agreement, the Company performed services in the field of technology
development. In accordance with the Motorola Agreement, the milestone-related
payments were irrevocable when paid. Cash milestone-related revenues was
recognized when certain milestones were achieved.
The cooperation period between the Company and Motorola expired in June 1998
and the Company will not record any additional milestone based revenues in the
future.
To the extent that Motorola successfully incorporates the cross-licensed
technology into its own products, the Company will recognize royalty revenues as
Motorola sells the products.
24
<PAGE>
Revenue Recognition--Product Revenue
Product revenue is recognized upon shipment in the case of standard
deliveries, and upon acceptance by the customer in the case of first delivery of
a specified product.
Revenue Recognition--Grants
The Company recognizes revenue from unconditional grants received from
governmental agencies in the period granted. Revenue from conditional grants
received are recognized when all conditions outlined in the grant have been met.
Foreign Currency Translation
Assets and liabilities of PixTech S.A. are translated into U.S. dollar
equivalents at the rate of exchange in effect on the balance sheet date; income
and expenses are translated at the average rates of exchange prevailing during
the period. The related translation adjustments are reflected in stockholders'
equity. Foreign currency gains or losses resulting from transactions are
included in results of operations, except for transaction gains and losses
attributable to intercompany transactions, and for foreign currency transactions
or cash balances that hedge foreign currency commitments; such transactions and
cash balances are recorded in the same manner as translation adjustments, as
recommended by the Statement of Financial Accounting Standards No 52, "Foreign
currency translation" ("SFAS 52").
Net Income (Loss) Per Share
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No 128, "Earnings per Share", ("SFAS 128").
Prior to the adoption of SFAS 128, net income (loss) per share has been
calculated in accordance with the provisions of Accounting Principles Board
Opinion No 15, "Earnings per Share" (APB 15), using the weighted average number
of shares, convertible preferred shares assuming conversion at date of issuance,
and dilutive equivalent shares from stock options and warrants using the
treasury stock method. Net income (loss) per share also reflects for all
periods presented a 2 for 3 reverse stock split which was effective at the
closing of the Company's initial public offering.
Pursuant to SFAS 128, the Company is required to change the method currently
used to compute earnings per share and to restate all prior periods. SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share exclude any dilutive effects of options, warrants and
convertible securities.
There is no impact of Statement 128 on the previous calculation of loss per
share for the financial years ended December 31, 1996, December 31, 1997 or
December 31, 1998. As net losses have been reported in these periods, the
dilutive effects of stock options, preferred stock and warrants were excluded
from the calculation of net loss per share under APB 15.
25
<PAGE>
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", ("SFAS 130"), effective for the Company for
the first quarter of 1998. SFAS 130 requires that items defined as other
comprehensive income, such as foreign currency translation adjustments, be
separately classified in the financial statements and that the accumulated
balance of other comprehensive income be reported separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The components of comprehensive income for the years ended December 31,
1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
Comprehensive loss: Years ended December 31,
----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss $(11,719) $(14,664) $(17,863)
Change in cumulative
translation adjustment (953) (1,694) 392
-------- -------- --------
Comprehensive net loss $(12,672) $(16,358) $(17,471)
</TABLE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Investments
The Company accounts for investments in accordance with Statement of Financial
Accounting Standards No 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Company had no investments at December 31, 1997 or
December 31, 1998, other than pledged cash (See Note 6--Short term and long term
restricted cash). There were no realized gains or losses on sales of
investments in 1996, 1997 or 1998.
Inventory
Inventory is valued at the lower of cost (first-in, first-out basis) or
market. Inventory consists of raw material and spare parts.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets, generally five years for pilot production equipment and six
years for Unipac volume production equipment, ten years for building
improvements and twenty years for buildings. Equipment financed under capital
leases are depreciated over the shorter of the estimated useful life or the
lease term. Amortization expense is included within depreciation expense.
Impairment of Long-Lived Assets
In January 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), which establishes criteria
for the recognition and measurement of impairment loss associated with long-
lived assets. Adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
26
<PAGE>
Patents and Other Intangible Assets
Patent application and establishment costs are expensed as incurred as
research and development costs.
Other intangible assets include primarily goodwill. The carrying value of
goodwill is reviewed on an ongoing basis to assess if facts or circumstances
suggest that the Company's goodwill may be impaired. If this review indicates
that goodwill will not be recoverable, based on the expected future cash flows
to be generated by these assets over their remaining amortization period, the
Company's carrying value of the goodwill is reduced by the estimated shortfall
of discounted cash flows.
Employee Stock Option Plans
In 1996, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No 123 ("SFAS 123"), "Accounting for Stock Based
Compensation". As permitted by SFAS 123, the Company has elected to continue to
account for its employee stock option plans and the Employee Stock Purchase
Plans in accordance with the provisions of the Accounting Principles Board
Opinion No 25 "Accounting for Stock Issued to Employees" ("APB 25"). Under APB
25, when the exercise price of the Company's employee stock options is less than
the market price of the underlying shares of the date of grant, compensation
expense is recognized.
Accounting for Income Taxes
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Pension Costs
In France, legislation requires that lump sum retirement indemnities be paid
to employees based upon their years of services and compensation at retirement.
The actuarial liability of this unfunded obligation as of December 31, 1997 and
December 31, 1998 is $46 and $85, respectively. Pension expense incurred was $14
in 1996, $14 in 1997 and $35 in 1998.
3. Other current assets
The components of other current assets are as follows :
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Value added tax refundable.......... $ 882 $1,141
Grants receivable................... 1,210 --
Other............................... 74 213
------ ------
$2,166 $1,354
====== ======
</TABLE>
27
<PAGE>
4. Property, Plant and Equipment
The components of Property, Plant and Equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- ----------
<S> <C> <C>
Land......................................... $ 218 $ 232
Buildings and improvements................... 2,532 2,714
Machinery and equipment...................... 14,941 29,503
Furniture and fixtures....................... 1,089 1,163
------- --------
18,780 33,612
Less accumulated depreciation................ (9,427) (14,786)
------- --------
$ 9,353 $ 18,826
======= ========
</TABLE>
In 1994, the Company entered into capital lease agreements for production
equipment. The gross and net book values of equipment financed under capital
leases amounted $3,857 and $947, respectively, at December 31, 1997 and $4,107
and $350, respectively, at December 31, 1998.
Land and buildings with a net book value of $1,100 and $1,123 at December 31,
1997 and December 31, 1998, respectively, have been pledged to guarantee a
$10,000 loan received from Sumitomo Corporation in November 1997. See note 7--
Long-term debt.
Pursuant to the Display Foundry Agreement signed in 1997 with Unipac, volume
FEDs production equipment was installed at Unipac's facility. That equipment
was purchased and funded by Unipac, and a portion of it is leased to PixTech,
which amounts to $12,048 as of December 31, 1998. According to Financial
Accounting Standard 13, "Accounting for leases", PixTech's share of equipment
was recorded as assets under the caption "Property, Plant and Equipment", in
the net amount of $11,061. A depreciation of $988 was recorded during 1998. As
of December 31, 1998, the related capital lease obligation amounts to $10,125,
of which $1,869 has been recorded as current portion. (See Note 8--Capital
leases).
5. Goodwill
On February 20, 1996, the Company acquired substantially all the assets of
PanoCorp, Inc. ("Panocorp"), a research and development company located in
California, in a transaction accounted for as a purchase. The assets of
PanoCorp, Inc., principally including fixed assets valued at $120, were
purchased for $250 in cash plus 150,000 warrants to purchase shares of the
Company's common stock at an exercise price of $11.67 per share. See Note 11--
Stockholders' Equity - Warrants.
The fair value of the 150,000 warrants was computed using the Black-Scholes
model. Pursuant to APB Opinion 16, the value of such warrants was estimated at
$230 and the entire transaction generated goodwill of $360. This goodwill is
being amortized over 5 years.
The purchase agreement also calls for the issuance of up to 600,000 additional
warrants to the shareholders of PanoCorp, contingent upon the achievement by the
Company of specified technical milestones before end of February 1999. No such
warrants have been issued at December 31, 1998 and, at that date, no more than
200,000 warrants to purchase shares of the Company's common stock, at an
exercise price of $16.67 per share, may be issued under the purchase agreement.
28
<PAGE>
6. Short-term and long-term restricted cash
In August 1997, the Company provided Unipac Optoelectronics Corp. ("Unipac"),
its Asian manufacturing partner, with a written bank guaranty in an amount of
$10,000 pursuant to the display foundry agreement (the "Foundry Agreement")
signed in May 1997 between the Company and Unipac in order to implement volume
production of FEDs at Unipac's manufacturing line. The Company granted the
issuing banks a security interest in its cash and cash equivalents for the same
amount. The pledged cash and cash equivalents have been recorded as short-term
and long-term restricted cash in the balance sheet. Under certain conditions of
the Foundry Agreement, Unipac can sell certain equipment to the Company. The
payment for such equipment will be secured by Unipac through the exercise of the
bank guaranty. Both the amount of the guaranty to Unipac and the amount of the
security interest to the banks is expected to decrease to match the net amount
of equipment leased by Unipac to the Company.
7. Long-term debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Loan payable (a)............................ $10,000 $10,000
Non interest bearing loan from ANVAR (b).... 2,004 1,601
Equipment purchase loans (c)................ 72 93
Loan payable (d)............................ 45 --
Loan payable (e)............................ 167 107
------- -------
12,388 11,801
Less: current portion....................... (1,364) (3,410)
------- -------
Total long-term debt, less current portion.. $11,024 $ 8,391
======= =======
</TABLE>
(a) In November 1997, Sumitomo Corporation ("Sumitomo") granted PixTech a
$10,000 loan repayable over a period of three years. Of this $10,000 amount,
$5,000 represents a straight loan payable in four equal installments every 6
months starting April 7, 1999, bearing interest at prime rate plus 0.75% per
annum. The remaining amount of $5,000 represents a convertible loan payable in
November 2000, bearing interest at prime rate plus 0.75% per annum, and
partially or totally convertible, at Sumitomo's option, into shares of Common
Stock of the Company at a conversion price equal to 80% of the market price on
the conversion date. This option becomes exercisable starting April 1999 and
expires November 2000. As part of the Sumitomo Agreement, the loan is partially
secured as follows: (i) the Company pledged certain PixTech S.A. land and
constructions located in Rousset. See Note 4-- Property, plant and equipment ;
(ii) the French atomic energy agency, Commissariat a l'Energie Atomique ("CEA"),
has guaranteed certain contingent payment obligations towards Sumitomo in case
of default by PixTech. See Note 16-- Related parties transactions. In addition,
should the Company default on the repayment of the loan, the Company will remit
to Sumitomo two thirds of any royalty amount received from any licensee until
all obligations to Sumitomo are satisfied.
(b) The Company entered into a development contract with a French Public
agency ANVAR in 1993. Under this agreement, the Company received a non-interest
bearing loan. Repayment of this loan started in 1997.
(c) In 1994, the Company was granted a $686 loan from a supplier of a piece of
particular equipment. This loan is payable in 8 installments of $77, including
interest at 6.50%, over a period of 4 years starting in May 1996.
(d) In 1994, the Company was granted a loan, which bears interest at 5% and is
repayable in 8 installments of approximately $17 over two years starting in
December 1996. As at December 31, 1998, this loan was totally repaid.
(e) In 1995, the Company was granted a bank loan, which bears interest at
6.37% and is repayable in 20 installments of approximately $20 over 5 years
starting in July 1995.
29
<PAGE>
Future minimum payments under these obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1999.......................... 3,410
2000(f)....................... 8,391
-------
Total minimum payments........ $11,801
=======
</TABLE>
(f) Includes the $5,000 convertible loan repayable in November 2000, and
partially or totally convertible into shares of Common Stock of the Company
after April 7, 1999. See note (a) above.
8. Capital leases
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- -------
<S> <C> <C>
Capital lease obligations...... $1,040 $10,588
Less: current portion.......... (599) (2,189)
------ -------
$ 441 $ 8,399
------ -------
</TABLE>
In December 1994, the Company completed several sale-leaseback transactions
whereby equipment with a net book value of $4,219 was financed through three to
five-year capital lease obligations, effective December 1994. At December 31,
1998, the net book value of this equipment was $ 350.
Pursuant to the Display Foundry Agreement signed in 1997 with Unipac,
PixTech's share of volume FEDs production installed at Unipac's facility is
leased to PixTech. As of December 31, 1998, the related capital lease obligation
amounts to $10,125, of which $1,869 has been recorded as current portion.
(See Note 4--Property, Plant and Equipment).
Future minimum payments under these obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999.................................... $ 2,880
2000.................................... 2,511
2001.................................... 2,233
2002.................................... 2,110
2003.................................... 1,987
2004.................................... 792
Total minimum payments.................. 12,513
Less amount representing interest....... (1,925)
Present value of minimum
capitalized lease payments............. $10,588
</TABLE>
-------
9. Commitments and contingencies
Operating leases
The Company is obligated under operating lease agreements for equipment and
manufacturing and office facilities.
The Company leases certain equipment under a cancelable operating lease with
terms of 60 months through 1999. The total amount of the base rent payments has
been charged as an expense on the straight line method over the term of the
lease.
The Company leases its main manufacturing and office facilities under a non-
cancelable operating lease which expires September 2000.
30
<PAGE>
Minimum annual rental commitments under non cancelable leases at December 31,
1998, are as follows:
<TABLE>
Year ending December 31,
<S> <C>
1999..................... $1,113
2000..................... 768
2001..................... 46
2002..................... 15
2003..................... 14
2004..................... 7
------
Total minimum payments $1,963
======
</TABLE>
Rental expense for all operating leases consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1997 1998
Rent expense for ---- ---- ----
operating leases $1,439 $1,245 $1,188
====== ====== ======
</TABLE>
License Agreement and Research and Development Agreement with CEA
See Note 16--Related Party Transactions
10. Fair Value of Financial Instruments
At December 31, 1997 and 1998, the carrying values of financial instruments
such as cash and cash equivalents, short term investments, accounts receivable
and payable, other receivables and accrued liabilities and the current portion
of long-term debt approximated their market values, based on the short-term
maturities of these instruments.
At December 31, 1998, the long-term portion of restricted cash, with total
book value of $8,427 was $6,949.
At December 31, 1997 and 1998, the fair values of long-term debt and other
long-term liabilities, with book value of $13,984 and $22,917 were $12,463 and
$16,081, respectively.
Fair value is determined based on expected future cash flows, discounted at
market interest rates, and other appropriate valuation methodologies.
11. Stockholders' Equity
The share amounts and per share dollar amounts included herein reflect the
effect of the 2 for 3 reverse stock split which was effective on July 18, 1995.
Common Stock
On July 18, 1995, the Company sold 2,500,000 shares of common stock for net
proceeds of $20,998 in its initial public offering on Nasdaq.
On February 7, 1997, the Company sold 3,333,000 shares of Common Stock in a
public offering in Europe resulting in net proceeds of $15,927.
In February 1997, the Company sold 463,708 and 1,111,111 shares of the
Company's Common Stock to Motorola, Inc. and to United Microelectronics
Corporation, the parent company of Unipac Optoelectronics Corporation,
respectively, in private placements resulting in net proceeds of $2,086 and
$5,000 respectively.
In March 1998, the Company sold 1,000,000 shares of the Company's Common Stock
to The Kaufmann Fund Inc., in a private placement at a price of $4.00 per share,
resulting in net cash proceeds of $4,000 before expenses payable by the Company,
which amounted to $44.
31
<PAGE>
In March 1998, the Company entered into a license agreement with Coloray
Display Corporation, a California corporation ("Coloray"), providing PixTech
with a worldwide, nonexclusive royalty-free license on certain technologies
related to field emission displays. In consideration of the license and rights
granted to PixTech, the Company paid an amount of $75 and issued 14,000 shares
of the Company's Common Stock, valued at a price of $3.57 per share,
representing a total amount of $50.
In December 1998, the Company sold 222,222 shares of the Company's Common
Stock in a private placement at a price of $2.25 per share, resulting in net
proceeds of $500.
There were 15,000,329 shares of Common Stock outstanding at December 31, 1998.
Preferred Stock
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to fix the relative rights thereof. In December
1998, 500,000 shares of Preferred Stock were reserved for the issuance of
"Series E Convertible Preferred Stock".
Convertible preferred stock
The Company's Series A to D shares of Convertible Preferred Stock
automatically converted into shares of Common Stock upon the closing of the
Company's initial public offering in 1995.
In December 1998, the Company issued 367,269 Series E shares of Convertible
Preferred Stock. The Preferred Stock was sold in a private placement at a price
of approximately $22.53 per share, resulting in net proceeds of $8,275, before
expenses payable by the Company, which amounted to $822. The amount
representing Preferred Stock sold by the Company is generally convertible into
shares of Common Stock starting from June 21, 1999 at a conversion price equal
to the lesser of approximately $2.25 per share of Common Stock or the average of
the closing price of the Common Stock over the ten trading days immediately
preceding the notice of conversion. In addition to the conversion feature, the
Preferred Stock has a liquidation preference equal to the purchase price of the
preferred stock and a cumulative dividend. The Preferred Stock will
automatically convert into Common Stock on December 22, 2003. The Preferred
Stock is redeemable at the option of the Company at the issue price upon certain
events. The holders of shares of Series E Preferred Stock are entitled to the
number of votes equal to the number of shares of Common Stock into which the
shares of Series E Preferred Stock held by such holder are convertible.
The holders of Series E Preferred Stock are entitled to receive cumulative
dividends. At December 31, 1998 a dividend of $12 was accrued and recorded
against Stockholders' Equity.
In addition, the Company agreed to reserve, out of the authorized but unissued
shares, 150% of the number of shares of Common Stock that the Series E Stock is
convertible into. As of December 31, 1998, the Series E Stock would have been
convertible into 3,678,199 shares of Common Stock thus requiring the Company to
reserve 5,517,299 shares of the remaining authorized but unissued shares.
32
<PAGE>
Stock Options
1993 Stock Option Plan
The Company adopted a stock option plan on November 30, 1993, the "1993 Stock
Option Plan" (which was amended and restated in May 1995 and in April 1997),
under which options to purchase shares of common stock may be granted to key
employees and consultants of the Company. The plan provides that the option
price shall be determined by the Compensation Committee of the Board of
Directors and that no portion of the option may be exercised beyond ten years
from the date of grant. Options which are outstanding at December 31, 1998,
become exercisable within a certain period of time or when specific milestones
are completed.
The activity under the option plan was as follows:
<TABLE>
<CAPTION>
Weighted
Shares Options Average
------------- --------------- Option Price
available outstanding per Share
------------- --------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995...... 544,039 1,228,074
========== =========
Options granted................. (365,850) 365,850 $8.018
Options exercised............... -- (29,083) 0.375
Options terminated unexercised.. 100,567 (100,567) 2.859
---------- ---------
Balance at December 31, 1996...... 278,756 1,464,274
========== =========
Additional shares reserved...... 800,000
Options granted................. (1,121,050) 1,121,050 $4.300
Options exercised .............. - (52,989) 0.506
Options terminated unexercised.. 464,193 (464,193) 7.875
---------- ---------
Balance at December 31, 1997...... 421,899 2,068,142
========== =========
Options granted................. (444,960) 444,960 $4.626
Options exercised............... -- (1,375) 0.656
Options terminated unexercised.. 362,535 (362,535) 4,632
---------- ---------
Balance at December 31, 1998...... 339,474 2,149,192
========== =========
</TABLE>
Options to purchase 748,667 shares and 1,125,434 shares were exercisable at
weighted-average exercise prices of $1.110 and $1.886 at December 31, 1997 and
December 31,1998, respectively.
Exercise prices for options outstanding as of December 31, 1998 ranged from
$0.375 to $9.750. The weighted average remaining contractual life of those
options is 7.369 years.
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following average assumptions for both years:
risk-free interest rates of 3%; dividend yields of 0%; volatility factors of the
expected market price of the Company's shares of Common Stock of 0.74; and a
weighted-average expected life of the option of 4 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information follows (in thousands except for loss per share information):
<TABLE>
<CAPTION>
1996 1997 1998
- --------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $(11,869) $(14,865) $(18,690)
Pro forma loss per share $ (1.46) $ (1.13) $ (1.29)
- --------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during 1996, 1997 and 1998
were $3.84, $2.52 and $2.82, respectively.
33
<PAGE>
Director Stock Option Plan
In May 1995, the Company adopted the 1995 Director Stock Option Plan (the
"Director Stock Plan"), which provides for the issuance of up to 50,000 shares
of the Company's stock. The Director Stock Plan provides for an automatic grant
of options to purchase the Company's stock at its fair market value to the non-
employee directors of the Company upon election or re-election to the Board of
Directors.
The activity under the option plan was as follows:
<TABLE>
<CAPTION>
Weighted
Shares Options Average Option
------------- ------------- Price
available outstanding per Share
------------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995.......... 50,000 --
=======
Options granted..................... (6,000) 6,000 $8.625
------- -------
Balance at December 31, 1996.......... 44,000 6,000
======= =======
Options granted..................... (12,000) 12,000 $3.910
------- -------
Balance at December 31, 1997.......... 38,000 12,000
======= =======
Options granted..................... (12,000) 12,000 $4.646
Options terminated unexercised...... 14,000 (14,000) $5.962
------- -------
Balance at December 31, 1998.......... 34,000 14,000
======= =======
</TABLE>
As at December 31, 1998 and at the date of grant , the exercise prices of each
stock option grant under the Director Stock Plan was above the Company's stock
price. Therefore, no compensation expense was incurred.
Warrants
In December 1994, in connection with various equipment leases, the Company
entered into a warrant agreement. Under this agreement, the Company granted a
right to purchase 62,500 shares of Common Stock of the Company at a purchase
price of $2.88 per share. No value was ascribed to the warrant. This warrant
expires on July 18, 2000.
In February 1996, in order to finance partially the purchase of PanoCorp
assets, the Company granted 150,000 warrants to purchase shares of the Company's
common stock at an exercise price of $11.67 per share. See Note 5--Goodwill.
In February 1997, in connection with the purchase of 463,708 shares of the
Company's Common Stock, Motorola received warrants to purchase an additional
463,708 shares of the Common Stock of the Company at a price of $5.50 per share,
which have expired unexercised on December 31, 1998.
Employee Stock Purchase Plan
In May 1995, the Company adopted an employee stock purchase plan (the
"Purchase Plan") under which employees may purchase shares of Common Stock at
a discount from fair market value. 100,000 shares of Common Stock are reserved
for issuance under the Purchase Plan. To date, no shares have been issued under
the Purchase Plan. Rights to purchase Common Stock under the Purchase Plan are
granted at the discretion of the Compensation Committee, which determines the
frequency and duration of individual offerings under the Plan and the dates when
the stock may be purchased. Eligible employees, which represent all full-time
employees (as defined by the Purchase Plan), participate voluntarily and may
withdraw from any offering at any time before the stock is purchased. The
purchase price per share of Common Stock in an offering is 85% of the lesser of
its fair market value at the beginning of the offering period or on the
applicable exercise date and may be paid through payroll deductions, periodic
lump sum payments or a combination of both. The Purchase Plan terminates on
May 9, 2005.
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<PAGE>
Shares available for issuance
At December 31, 1998, 2,851,166 shares of Common Stock are reserved for
shares issuable under the Purchase Plan or upon exercise of stock options and
warrants. In addition, 5,517,299 shares of Common Stock are reserved for shares
issuable upon conversion of the Convertible Preferred Stock. Therefore, on
December 31, 1998, out of the 30,000,000 authorized shares of Common Stock,
6,631,206 shares were available for issuance by the Company.
12. Other and deferred revenues
Other revenues and deferred revenues include the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1998
------------------------ ------------------------
Other Deferred Other Deferred
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Grant from French Ministry of Industry (a).................. $ 663 $1,210 $1,211 $ -
Grant from French local authorities (b)..................... 144 913 290 1,396
Grant from European Union, Esprit Program (c)............... - 423 96 766
Insurance refund (d)........................................ 292 - - -
Other(e).................................................... 43 - 371 -
------ ------ ------ ------
TOTAL....................................................... $1,142 $2,546 $1,968 $2,162
====== ====== ====== ======
</TABLE>
(a) In December 1994, the Company was awarded a grant from the French Ministry
of Industry to support manufacturing of Field Emission Displays. The total
contribution of the French Ministry of Industry amounted to $2,674. The
Company recognized as income $800 in 1996, $663 in 1997,and $1,211 in 1998,
as all conditions of the grant were met.
(b) PixTech SA was awarded certain incentives to establish its manufacturing
facilities in Montpellier, France. These incentives are partially subject
to maintaining an operating facility in this location for a certain period
of time. In 1998, no revenue was recognized in relation to these
incentives. Revenue is deferred until all conditions are met. In 1998,
revenue recognized in the amount of $290 was related to various incentives
granted by French local authorities.
(c) In February 1997, the Company entered into an R&D agreement with the
European Union for 18 months starting February 1, 1997. The contribution
of the European Union to the costs incurred by the Company amounts to $800
over the period. The Company received $423 and $293 from this contribution
in 1997 and in 1998, respectively. This contribution was not recognized as
income in 1997 nor in 1998 as all conditions stipulated in the agreement
were not met. In 1998, revenue recognized in the amount of $96 is related
to another R&D agreement entered into in 1993 with the European Union. The
total contribution of the European Union amounted to $546. The Company
received $330 in 1994, $120 in 1995 and $96 in 1998 from this contribution.
This contribution was recognized as income ratably over the contract period
as required costs were incurred to meet the conditions of the grant, at
which point such portion of the contribution is irrevocable as stipulated
in the agreement.
(d) In September 1997, the Company collected an amount of $620 in payment under
its business insurance policy to cover losses incurred after certain
physical damages suffered in the Company's pilot manufacturing facility in
April 1997. An amount of $328 representing reimbursement of direct costs
was recorded as reduction in research and development expenses. The
remaining amount of $292 covering consequential losses was reflected as
other revenues in 1997.
(e) Amounts relating to payments received by the Company from entities
primarily for the performance of miscellaneous services, including $200 in
1998 related to the favorable settlement of a tax dispute.
35
<PAGE>
13. Income Taxes
Income (loss) before income tax benefit consists of the following :
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
France............................................. $(10,556) $(13,567) $(16,614)
Rest of world...................................... (1,161) (1,683) (3,408)
-------- -------- --------
Income (loss) before income tax benefit......... $(11,719) $(15,250) $(20,022)
======== ======== ========
</TABLE>
The income tax benefit consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Deferred:
France................ -- $ 586 $2,159
Rest of world......... -- -- --
---------- ----- ------
-- $ 586 $2,159
========== ===== ======
</TABLE>
A reconciliation of income taxes computed at the French statutory rate
(36.66%) to the income tax benefit is as follows :
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income taxes computed at the
French statutory rate................ $ 4,297 $ 6,354 $ 7,341
Operating losses not utilized.......... (4,297) (6,354) (7,341)
Research credits....................... -- 586 2,159
------- ------- -------
Total.................................. -- 586 2,159
======= ======= =======
</TABLE>
No U.S. income tax expense was realized and no U.S. income taxes were paid in
periods ended December 31, 1996, December 31, 1997 and December 31, 1998.
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....... $ 6,788 $ 12,058 $ 18,108
Deferred revenue....................... 1,201 355 75
Research credit carryforwards.......... 8,193 8,000 6,448
-------- -------- --------
16,181 20,413 24,631
Deferred tax liabilities:
Revenue not currently taxable.......... -- -- --
Deferred revenue....................... -- (412) (760)
Deferred expense....................... (145) (165) (53)
-------- -------- --------
Total deferred tax assets............. 16,039 19,835 23,818
Valuation allowance...................... (10,869) (14,777) (19,175)
-------- -------- --------
Deferred tax assets...................... $ 5,167 $ 5,058 $ 4,643
======== ======== ========
</TABLE>
Net operating loss carryforwards can be credited against future income in
France. Net operating loss carryforward of: $5,585 expire in 2000, $5,951 in
2001, $10,658 in 2002, $15,451 in 2003 and $11,735 can be carried forward
indefinitely.
36
<PAGE>
Research credit carryforwards derive from the Company's subsidiary PixTech SA.
In France, research credit carryforwards are calculated following certain rules
defined by the Tax administration. The Company is entitled to full payment by
the Tax administration of these research credit carryforwards if they are not
credited against income tax liabilities within a period of three financial
years. The Company collected $29 representing income tax benefit recorded in
1992, and $2,840 representing income tax benefit recorded in 1993 and 1994, in
1997 and 1998 respectively.
14. Industry and Geographic information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
131"), effective for the Company for fiscal years beginning after December 15,
1997. SFAS 131 requires that public business enterprises report certain
information about operating segments in their financial statements, and about
their products and services, the geographic area in which they operate, and
their major customers. As the Company operates in one single reportable
segment, the development, manufacturing and licensing of flat panel displays
using electron emitters, the adoption of SFAS 131 has no effect on the Company's
consolidated operating results or financial condition.
15. Significant customers
Historically, the Company derived its revenues principally from cooperation
and license agreements with certain display manufacturers. Net revenues from
cooperation and license agreements represented approximately 75%, 50% and 34% of
the Company's net revenues for the fiscal years 1996, 1997 and 1998,
respectively. The Company does not expect any significant additional milestone
related revenues to be directly derived from existing cooperation and license
agreements.
In 1998, product revenues primarily reflected the shipment of displays to the
Company's first volume customer, Zoll Medical Inc.
16. Related Party transactions
CEA License Agreement
In September 1992, the Company entered into a license agreement with CEA. CEA
holds a controlling interest in CEA Industrie, a shareholder of the Company.
Under this agreement, CEA granted to the Company a royalty bearing, worldwide,
exclusive license to all patents held by CEA in the field of FEDs, with a right
to sublicense these patents under certain conditions. The consideration for this
license is a payment of license fees and royalties based on the Company's sales
and the license fees and royalties collected by the Company. No expense was
recorded in 1993 and 1994 with respect to license fees and royalties due to CEA.
In 1995, $1,000 was accrued in respect of license fees and royalties due to CEA
in 1996. In order for the Company to maintain an exclusive license, it was
required to make minimum royalty payments beginning in 1996. An amount of $45
payable to CEA in 1997 was accrued in 1996. By paying the remaining amount due
to LETI, the Company will fulfill the minimum royalty obligations to LETI
through 1998.
In 1997, an amendment to the LETI License Agreement was signed between the
CEA and the Company (the "1997 CEA Amendment") for a period of three years, in
return for CEA guarantying certain contingent payment obligations towards
Sumitomo. See Note 7-- Long term debt. The royalty rates and minimum payments
from the Company to CEA were increased for a period of three years. In
addition, the Company gave a security interest to CEA on all its patents during
the term of the amendment. An amount of $109 and $308 was accrued respectively
in 1997 and in 1998, which included a minimum royalty obligation of $100 and
$288 respectively pursuant to the 1997 CEA Amendment.
37
<PAGE>
CEA R&D Agreement
In September 1992, the Company entered into a three-year renewable R&D
agreement with CEA, under which CEA, through its laboratory LETI, performs
certain research and development activities for the benefit of the Company.
This program is expected to be extended for a third three-year period ending on
January 1, 2002, subject to further extension by mutual agreement of the
parties. The consideration received by the CEA for this R&D activity in 1998
amounted to approximately $848.
In connection with the above R&D agreement with CEA, the Company expensed
$644, $637 and $848 in 1996, 1997 and 1998, respectively, included in research
and development costs.
17. License
In connection with the Company's license of its technology to a display
manufacturer, the Company acquired a worldwide, non-exclusive royalty-free
license to such licensee's background FED technology, as well as a right to
grant royalty-free sublicenses to certain other companies. The Company was
obligated to pay certain license fees in connection with the acquisition of
these rights from such licensee; these payments to the licensee were $650 in
1995 and $650 in 1996. In 1997, the Company recorded cooperation and license
revenues in the amount of $707, in consideration of the cancellation of same
amount which had been included in accounts payable in relation to accrued
license fees due this licensee.
In connection with the Company's license of its technology to another display
manufacturer, the Company also acquired a worldwide, non-exclusive license,
without the right to sublicense, to certain technology of such licensee. The
Company was obligated to pay certain license fees in connection with the
acquisition of these rights; these payments to the licensee were $1,000 in 1995,
$1,000 in 1996. The remaining license fees payable to this licensee in the
amount of $1,400 were canceled in 1997, as consideration for the purchase by
such licensee of shares of the Company's Common Stock in February 1997.
In March 1998, the Company entered into a license agreement with Coloray,
providing PixTech with a worldwide, nonexclusive royalty-free license on certain
technologies related to field emission displays. In consideration of the
license and rights granted to PixTech, the Company paid an amount of $75 and
issued 14,000 shares of the Company's Common Stock, valued at a price of $3.57
per share, representing a total amount of $50 (See Note 11--Stockholders'
Equity).
18. Litigation
The Company has received correspondence from Futaba Corporation and its
legal counsel since January 1998 alleging the following : (i) Pixtech is
infringing one or more patents owned by Futaba relating to the construction and
manufacture of its displays that are not expressly included under the license
agreement between Futaba and Pixtech, (ii) PixTech's use of terms such as
"alliance" and "partners" in describing the nature of its contractual
relationships with Motorola, Raytheon and Futaba in reports filed with the SEC
is misleading and (iii) certain provisions in the Foundry Agreement with Unipac
constitute an impermissible sublicense of Futaba technology. PixTech does not
believe such claims have any merit and has denied each of the allegations in
correspondences with Futaba and its counsel and is in discussions with Futaba
concerning their allegations. Futaba has also claimed that the Company
improperly supplied certain Futaba proprietary information to Unipac, and that
Unipac has in turn disclosed such information to a third party vendor. If
Futaba were to prevail on all of these claims, PixTech may be required, among
other adverse consequences, to modify the construction and manufacture of its
displays and may, as a result, be materially adversely affected.
To the Company's knowledge, there are no other exceptional facts or litigation
that could have or that have in the recent past had any significant impact on
its business, results, financial situation, or assets and liabilities.
38
<PAGE>
19. Financial position
During 1998, the Company has incurred losses in the amount of $17,875, and used
cash in operating activities of $9,343, which has adversely affected the
Company's liquidity. At December 31,1998, the Company had net working capital
of $145 and a deficit accumulated during the development stage of $54,156.
These conditions raise substantial doubt about its ability to continue as a
going concern. The Company intends to improve its liquidity and financial
position through capital increases expected to take place in 1999. There can be
no assurance that funds will be available through capital increases when needed
or on terms acceptable to the Company. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
20. Subsequent events
In January 1999, the Company sold 150,000 shares of the Company's Common Stock
in a private placement at a price of $2.35 per share, resulting in net proceeds
of $352.
39
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PIXTECH, INC.
PROXY FOR THE ANNUAL METING OF STOCKHOLDERS MAY 12, 1999
The undersigned stockholder of PixTech, Inc. (the "Company") hereby appoints
Jean-Luc Grand-Clement, Dieter Mezger, Yves Morel, Michael Lytton, and Marc A.
Rubenstein, and each of them acting singly, the attorneys and proxies of the
undersigned, with full power of substitution, to vote on behalf of the
undersigned all the shares of capital stock of the company entitled to vote at
the Annual meeting of Stockholders of the Company to be held on May 12, 1999,
and at all adjournments thereof, hereby revoking any proxy heretofore given with
respect to such shares.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
Back of Card:
A [X] Please mark your
votes as in this
example.
1. Proposal to elect Dieter Mezger as Director.
FOR WITHHELD
[ ] [ ]
2. Proposal to amend the Restated Certificate of Incorporation of the Company
to increase the authorized number of shares of Capital Stock to 61,000,000
shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to amend the Company's Amended and Restated 1993 Stock Option Plan
to increase the number of shares of Common Stock available under such plan to
5,156,372 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1
<PAGE>
4. Proposal to issue shares of the Company's Common Stock in connection with
the purchase of certain assets of Micron Technology, Inc. relating to field
emission displays including certain equipment and other tangible assets, certain
contract rights and cash.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholders. If no specification is made, this proxy will be
voted for proposals 1, 2 and 3. In their discretion, the proxies are also
authorized to vote upon such matters as may properly come before the meeting.
Signature Date 1999
---------------------- ------------
Signature Date 1999
---------------------- ------------
(IF HELD JOINTLY)
NOTE: Please sign exactly as name appears on stock certificate. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partner, please sign in partnership.
2
