<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-26380
_______________________________________
PIXTECH, INC.
-------------
(Exact name of registrant as specified in its charter)
Delaware 04-3214691
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Avenue Olivier Perroy, 13790 Rousset, France
- --------------------------------------------
(Address of principal executive offices) (Zip code)
011-33-4-42-29-10-00
--------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of
Class Outstanding at July 31, 1999
----- ----------------------------
Common Stock, $.01 par value 23,467,138
<PAGE>
PIXTECH, INC.
-------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Balance Sheets as of June 30, 1999
and December 31, 1998......................................... 3
Statements of Comprehensive Operations for the Three Months
and Six Months Ended June 30, 1999 and 1998,
and the period from June 18, 1992 through June 30, 1999.......
4
Statements of Cash Flows for the Six Months
ended June 30, 1999 and 1998, and the period
from June 18, 1992 through June 30, 1999...................... 5
Statement of Stockholders' Equity............................. 6 - 7
Notes to Financial Statements................................. 8 - 9
ITEM 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations.................................................... 10 - 14
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings............................................. 16
ITEM 2 Changes in Securities......................................... 16
ITEM 3 Default upon Senior Securities................................ 16
ITEM 4 Submission of matters to a Vote of Security Holders........... 16
ITEM 5 Other Information............................................. 16
ITEM 6 Exhibits and Reports on Form 8-K.............................. 16
Signature......................................................................... 17
Exhibit Index..................................................................... 18
</TABLE>
-2-
<PAGE>
PixTech, Inc.
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash available.......................................................... $ 7,017 $ 10,166
Restricted cash - short term............................................ 2,097 1,685
Accounts receivable..................................................... 322 617
Inventory............................................................... 1,348 980
Other................................................................... 1,377 1,354
-------- --------
Total current assets.............................................. 12,161 14,802
Restricted cash - long term............................................... 6,695 8,427
Property, plant and equipment, net........................................ 28,604 18,826
Goodwill, net............................................................. 114 150
Deferred tax assets....................................................... 1,287 4,643
Other assets - long term.................................................. 204 546
-------- --------
Total assets...................................................... $ 49,065 $ 47,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt....................................... $ 4,807 $ 3,410
Current portion of capital lease obligations............................ 2,362 2,189
Accounts payable........................................................ 7,037 7,514
Accrued expenses........................................................ 2,505 1,544
-------- --------
Total current liabilities......................................... 16,711 14,657
Deferred revenue.......................................................... 79 2,162
Long term debt, less current portion...................................... 10,075 8,391
Capital lease obligation, less current portion............................ 8,565 8,399
Other long term liabilities, less current portion......................... 46 528
-------- --------
Total liabilities................................................. 35,476 34,137
======== ========
Stockholders' equity
Convertible preferred stock Series E, $0.01 par value, authorized
shares--500,000; issued and outstanding shares--367,269................... 4 4
Common stock, $0.01 par value, authorized shares--60,000,000;
issued and outstanding shares--22,352,918; 15,000,329 respectively........ 223 150
Additional paid-in capital........................................... 83,450 68,999
Cumulative translation adjustment.................................... (2,527) (1,740)
Deficit accumulated during development stage......................... (67,561) (54,156)
-------- --------
Total stockholders' equity........................................ 13,589 13,257
-------- --------
Total liabilities and stockholders' equity........................ $ 49,065 $ 47,394
======== ========
</TABLE>
See accompanying notes.
-3-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Period from
June 18, 1992
Three Months Six Months (date of
Ended June 30, Ended June 30, inception)
------------------ ------------------- through June 30,
1999 1998 1999 1998 1999
------- ------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues
Cooperation and license revenues............ $ -- $ 1,001 $ -- $ 1,001 $ 26,449
Product sales............................... 178 66 339 87 3,165
Other revenues.............................. 314 311 2,314 1,543 8,220
-------- ------- -------- -------- ---------
Total revenues...................... 492 1,378 2,653 2,631 37,834
-------- ------- -------- -------- ---------
Cost of revenues
License fees and royalties.................. (85) (122) (172) (201) (1,688)
-------- ------- -------- -------- ---------
Gross margin.................................... 407 1,256 2,481 2,430 36,146
-------- ------- -------- -------- ---------
Operating expenses
Research and development:
Acquisition of intellectual property rights. -- -- -- (125) (4,890)
Other....................................... (6,616) (4,553) (12,203) (8,353) (84,731)
-------- ------- -------- -------- ---------
(6,616) (4,553) (12,203) (8,478) (89,621)
Marketing and sales......................... (329) (354) (680) (693) (7,287)
Administrative and general expenses......... (772) (586) (1,502) (1,223) (14,318)
-------- ------- -------- -------- ---------
(7,717) (5,493) (14,385) (10,394) (111,226)
-------- ------- -------- -------- ---------
Loss from operations............................ (7,310) (4,237) (11,904) (7,964) (75,080)
Other income / (expense)
Interest income / (expense)................. (98) (174) (364) (254) (263)
Foreign exchange gains / (losses)........... (621) 424 (1,137) 709 (111)
-------- ------- -------- -------- ---------
(719) 250 (1,501) 455 (374)
Loss before income tax benefit.................. (8,029) (3,987) (13,405) (7,509) (75,454)
Income tax benefit.............................. -- -- -- -- 7,893
-------- ------- -------- -------- ---------
Net loss........................................ $(8,029) $(3,987) $(13,405) $ (7,509) $ (67,561)
========= ======= ======== ======== =========
Dividends accrued to holders of Preferred
Stock...................................... (165) -- (299) -- (311)
-------- ------- -------- -------- ---------
Net loss to holders of Common Stock............. $(8,194) $(3,987) $(13,704) $ (7,509) $ (67,872)
======== ======= ======== ======== =========
Net loss per share of Common Stock.......... $(0.43) $(0.27) $(0.80) $(0.53)
======== ======= ======== ========
Shares of Common Stock used in computing.... 18,462 14,777 16,816 14,301
net loss per share
Net loss....................................... $(8,029) $(3,987) $(13,405) $(7,509) $ (67,561)
Change in cumulative translation adjustment.... (116) 316 (787) (213) (2,527)
-------- ------- -------- -------- ---------
Comprehensive net loss......................... $(8,145) $(3,671) $(14,192) $(7,722) $ (70,088)
======== ======= ======== ======== =========
</TABLE>
See accompanying notes.
-4-
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Period from
June 18, 1992
(date of
inception)
Six Months Ended through
June 30, June 30,
------------------------ -------------
1999 1998 1999
-------- ------- -------------
<S> <C> <C> <C>
Net loss............................................................ $(13,405) $(7,509) $(67,561)
Total adjustments to net loss....................................... 5,131 4,421 27,277
-------- ------- -------------
Net cash (used in) / provided by operating activities............... (8,274) (3,088) (40,284)
-------- ------- -------------
Investing activities
Additions to property plant and equipment........................... (396) (602) (19,716)
Reclassification of cash available as restricted cash............... 1,299 -- (8,813)
Additions to intangible assets...................................... -- -- (130)
-------- ------- -------------
Net cash used in investing activities............................... 903 (602) (28,659)
Financing activities
Stock issued........................................................ 4,198 3 ,980 71,702
Proceeds from long-term borrowings.................................. -- -- 16,287
Proceeds from sale leaseback transactions........................... -- -- 2,731
Payments for equipment purchases financed by accounts............... -- -- (3,706)
payable
Repayments of long term borrowing and capital lease obligations..... (360) (2,607) (8,177)
-------- ------- -------------
Net cash (used in) / provided by financing activities............... 3,838 1,373 78,837
-------- ------- -------------
Effect of exchange rates on cash.................................... 384 (229) (2,877)
-------- ------- -------------
Net (decrease) / increase in cash and cash equivalents.............. (3,149) (2,546) 7,017
Cash and cash equivalents beginning of period....................... 10,166 12,428 --
-------- ------- -------------
Cash and cash equivalents end of period............................. $ 7,017 $ 9,882 $ 7,017
======== ======= =============
</TABLE>
See accompanying notes.
-5-
<PAGE>
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Convertible Preferred Stock
-----------------------------------------------------
Series A Series B
-------------------- -------------------------------
Shares Shares Shares
----------- --------- -----------
issued Amount issued Amount issued
----------- ------- --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance 1,557,003 2,368 363,447 589 3,044,846
costs in 1992, 1993 and 1994...........................................
Issuance of Common stock in 1992 and 1993................................
Issuance of Common stock under stock option plan in 1994 and 1995
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994.........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995
Common stock issued in initial public offering in 1995, net of issuance
costs -- $1,080........................................................
Conversion of preferred stock in 1995................................... (1,557,003) (2,368) (363,447) (589) (3,044,846)
Translation adjustment..................................................
Net loss from June 18, 1992 (date of inception) through
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
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 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 31, 1998
Common stock issued in private placements (unaudited)...................
Issuance costs and dividends accrued in relation to Series E
Convertible Preferred stock issued in December 1998 (unaudited)........
Issuance of common stock in connection with the acquisition of
certain assets of Micron Display, net of issuance costs -- $493
(unaudited).........................................................
Issuance of warrants in connection with the acquisition of certain
assets of Micron Display (unaudited)................................
Issuance of common stock under stock option plan (unaudited)........
Translation adjustment (unaudited)......................................
Net loss-- Six months ended June 30, 1999 (unaudited)...................
---------- ------ -------- ------ ----------
Balance at June 30, 1999.................................................... -- -- -- -- --
========== ====== ======== ====== ==========
<CAPTION>
Convertible Preferred Stock
-----------------------------------------------
Series C Series D Series E
--------- --------------------------- --------
Shares Shares
--------- ------
Amount issued Amount issued Amount
------ --------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance 8,615 430,208 1,224
costs in 1992, 1993 and 1994...........................................
Issuance of Common stock in 1992 and 1993................................
Issuance of Common stock under stock option plan in 1994 and 1995
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994..........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995.....
Common stock issued in initial public offering in 1995, net of issuance
costs -- $1,080.........................................................
Conversion of preferred stock in 1995.................................... (8,615) (430,208) (1,224)
Translation adjustment...................................................
Net loss from June 18, 1992 (date of inception) through 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
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 E convertible preferred stock, net of issuance
costs -- $822........................................................... 367,269 $4
Issuance of Common stock under stock option plan.........................
Translation adjustment...................................................
Net loss--Year ended December 31, 1998...................................
-------- -------- ------ ------- ------
Balance at December 31, 1998............................................. 367,269 4
Common stock issued in private placements (unaudited)
Issuance costs and dividends accrued in relation to Series E
Convertible Preferred stock issued in December 1998 (unaudited).........
Issuance of common stock in connection with the acquisition of
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)..........................................................
Issuance of warrants in connection with the acquisition of certain
assets of Micron Display (unaudited).................................
Issuance of common stock under stock option plan (unaudited).........
Translation adjustment (unaudited).......................................
Net loss-- Six months ended June 30, 1999 (unaudited)....................
-------- -------- ------ ------- ------
Balance at June 30, 1999................................................. -- -- -- 367,269 $4
======== ======== ====== ======= ======
</TABLE>
See acccompanying notes.
-6-
<PAGE>
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Dividends
---------
accrued to
----------
Additional holders of
---------- ----------
Preferred
---------
Shares Amount Paid-in Stock
---------- ------ ----------- -------------
issued Capital
---------- -----------
<S> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance
costs in 1992, 1993 and 1994................................................
Issuance of Common stock in 1992 and 1993..................................... 132,301 $ 1 $ 96
Issuance of Common stock under stock option plan in 1994 and 1995............. 84,258 1 31
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994...............................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995.......... 3
Common stock issued in initial public offering in 1995, net of
issuance costs -- $1,080..................................................... 2,500,000 25 20,973
Conversion of preferred stock in 1995......................................... 5,395,504 54 12,742
Translation adjustment
Net loss from June 18, 1992 (date of inception) through December
31, 1995..................................................................... 3
---------- ---- ------- -------------
Balance at December 31, 1995.................................................. 8,112,063 81 33,844
Issuance of Common stock under stock option plan.............................. 29,083 0 11
Issuance of warrants in connection with acquisition of the assets
of Panocorp.................................................................. 230
Translation adjustment........................................................
Net loss--Year ended December 31, 1996.......................................
---------- ---- ------- -------------
Balance at December 31, 1996.................................................. 8,141,146 81 34,085
Common stock issued in public offering, net of issuance costs --
$ 796........................................................................ 5,570,819 56 22,958
Issuance of Common stock under stock option plan.............................. 50,767 1 25
Translation adjustment........................................................
Net loss--Year ended December 31, 1997........................................
---------- ---- ------- -------------
Balance at December 31, 1997.................................................. 13,762,732 $138 $57,067
Common stock issued in private placements, net of issuance costs
-- $ 44...................................................................... 1,236,222 12 4,493
Issuance of Series E convertible preferred stock,
net of issuance costs -- $ 822 Issuance of Series E...................... 7,449 (12)
convertible preferred stock in December, net of issuance costs
-- $ 822...................................................................
Issuance of Common stock under stock option plan..............................
1,375 1
Translation adjustment........................................................
Net loss--Year ended December 31, 1998........................................
---------- ---- ------- -------------
Balance at December 31, 1998.................................................. 15,000,329 150 69,011 (12)
Common stock issued in private placements (unaudited)......................... 150,000 1 351
Issuance costs and dividends accrued in relation to Series E.................. (36) (299)
Convertible Preferred stock issued in December 1998 (unaudited)
Issuance of common stock in connection with the acquisition of............. 7,133,562 71 14,152
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)...............................................................
Issuance of warrants in connection with the acquisition of................. 257
certain assets of Micron Display (unaudited)..............................
Issuance of common stock under stock option plan (unaudited).............. 69,027 1 26
Translation adjustment (unaudited)............................................
Net loss--Six months ended June 30, 1999 (unaudited)..........................
---------- ---- ------- -------------
Balance at June 30, 1999 22,352,918 $223 $83,761 (311)
========== ==== ======= =============
<CAPTION>
Deficit
------------
Cumulative accumulated
------------ ------------ Treasury
translation during --------- Total
------------ ------------ stock ---------
adjustment development ---------
------------ ------------
stage
------------
<S> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance $ 12,796
costs in 1992, 1993 and 1994
Issuance of Common stock in 1992 and 1993................................ 97
Issuance of Common stock under stock option plan in 1994 and 1995........ 32
Purchase of 28,761 shares of Common stock-- Treasury $(11) (11)
stock in 1994..........................................................
Reissuance of 28,761 shares of Common stock held in treasury in 1995..... 11 14
Common stock issued in initial public offering in 1995, net of
issuance costs -- $1,080................................................ 20,998
Conversion of preferred stock in 1995....................................
Translation adjustment................................................... $ 515 515
Net loss from June 18, 1992 (date of inception) through December
31, 1995................................................................ $ (9,910) (9,910)
------- -------- -------- --------
Balance at December 31, 1995............................................. 515 (9,910) 24,530
Issuance of Common stock under stock option plan......................... 11
Issuance of warrants in connection with acquisition of the assets
of Panocorp............................................................. 230
Translation adjustment................................................... (953) (953)
Net loss--Year ended December 31, 1996.................................. (11,719) (11,719)
------- -------- -------- --------
Balance at December 31, 1996............................................. (438) (21,629) 12,099
Common stock issued in public offering, net of issuance costs --
$ 796................................................................... 23,014
Issuance of Common stock under stock option plan......................... 25
Translation adjustment................................................... (1,694) (1,694)
Net loss--Year ended December 31, 1997................................... (14,664) (14,664)
------- -------- -------- --------
Balance at December 31, 1997............................................. $(2,132) $(36,293) $ 18,780
Common stock issued in private placements, net of issuance costs
-- $ 44................................................................. 4,506
Issuance of Series E convertible preferred stock,
net of issuance costs -- $ 822 Issuance of Series E................. 7,440
convertible preferred stock in December, net of issuance costs
-- $ 822
Issuance of Common stock under stock option plan
1
Translation adjustment................................................... 392 392
Net loss--Year ended December 31, 1998...................................
(17,863) (17,863)
------- -------- -------- --------
Balance at December 31, 1998............................................. (1,740) (54,156) 13,257
Common stock issued in private placements (unaudited).................... 352
Issuance costs and dividends accrued in relation to Series E............. (335)
Convertible Preferred stock issued in December 1998 (unaudited).........
Issuance of common stock in connection with the acquisition of........ 14,223
certain assets of Micron Display, net of issuance costs -- $493
(unaudited)..........................................................
Issuance of warrants in connection with the acquisition of............ 257
certain assets of Micron Display (unaudited)
Issuance of common stock under stock option plan (unaudited)......... 27
Translation adjustment (unaudited)....................................... (787) (787)
Net loss--Six months ended June 30, 1999 (unaudited)..................... (13,405) (13,405)
------- -------- -------- --------
Balance at June 30, 1999................................................. $(2,527) $(67,561) -- $ 13,589
======= ======== ======== ========
</TABLE>
See accompanying notes.
-7-
<PAGE>
Notes to Condensed Consolidated Financial Statements
(all amounts in thousands except share amounts)
(unaudited)
Note A - Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results of the three-month and six-month periods ending
June 30,1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 1998 (the "1998 Financial Statements"), included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Note B - Inventories
Inventory consists of raw material and spare parts.
Note C - 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 Field Emission Displays ("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. These amounts started to decrease during the three month period
ended June 30, 1999.
Note D - Property, Plant and Equipment
Pursuant to the Foundry Agreement, volume FED 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 amounted to $11,554 as at June 30,
1999. 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 $9,767. Depreciation of $475 was
recorded during the three-month period ended June 30, 1999. As of June 30,
1999, the related capital lease obligation amounted to $10,286, of which $1,950
were recorded as current portion.
In connection with the Micron Transaction (See "Note E -- Micron Transaction"),
production equipment located in Boise, Idaho, was acquired by the Company in May
1999. This acquisition was recorded in the amount of $13,316. The estimated
fair value of net assets acquired in the Micron Transaction was approximately
$9,157 in excess of the cost of net assets acquired. The estimated fair value
of property, plant and equipment of $22,473 was proportionally reduced to the
extent that the fair value of net assets acquired exceeded cost, resulting in
property plant and equipment of $13,316 (See "Note E -- Micron Transaction").
-8-
<PAGE>
Notes to Condensed Consolidated Financial Statements
(all amounts in thousands except share amounts)
(unaudited)
Note E - Micron Transaction
On March 19, 1999, the Company entered into a definitive agreement to purchase
certain assets of Micron Technology, Inc. relating to field emission displays
including equipment and other tangible assets, certain contract rights and cash
(the "Micron Transaction"). The Micron Transaction was closed on May 19, 1999
between the Company and Micron and was accounted for as an acquisition of
assets. The accompanying financial statements reflect the acquisition of assets
for a cost of $17,932 and the assumption of certain liabilities in the amount of
$2,958, in consideration of the issuance of 7,133,562 shares of the Company's
Common Stock and a warrant to purchase 310,000 shares of the Company's Common
Stock. (See "Note F -- Stockholders' Equity"). The estimated fair value of net
assets acquired in the Micron Transaction was approximately $9,157 in excess of
the cost of net assets acquired. Consequently, the estimated fair value of
property, plant and equipment of $22,473 was proportionally reduced to the
extent that the fair value of net assets acquired exceeded cost resulting in
property plant and equipment of $13,316 In addition, the Company received cash
in the amount of $4,350. Therefore, of the assets acquired for $17,932, $13,316
was reflected under the caption "Property, Plant and Equipment", and $4,350
under the caption "Cash available".
Note F - Stockholders' equity
Common Stock : In consideration of the Micron Transaction, the Company issued
7,133,562 shares of the Company's Common Stock, representing a total amount of
$14,717, and a warrant to purchase 310,000 shares of the Company's Common Stock
at an exercise price of approximately $2.25 per share. The fair value of the
310,000 warrants was computed using the Black-Scholes model and was estimated at
$257.
Convertible preferred stock : The holders of Series E Preferred Stock issued in
December 1998 are entitled to receive cumulative dividends. During the six-
month period ended June 30, 1999, dividends of $299 were accrued and recorded
against Stockholders' Equity. As at June 30, 1999, the cumulative dividend
recorded against Stockholders' Equity amounted to $311.
As at June 30, 1999 , there were 367,269 shares of Series E Preferred Stock
outstanding. These shares of Series E Preferred Stock were convertible into
shares of Common Stock. As at June 30, 1999, the Series E Stock, including
accrued dividends, would have been convertible into 5,820,779 shares of Common
Stock using a conversion price of $1.48, equal to the average closing price of
the Company's Common Stock over the 10 trading days ending June 29, 1999.
Consequently, there were 28,173,697 shares of Common Stock or equivalent to
shares of Common Stock outstanding as at June 30, 1999.
In July 1999, 70,000 shares of Series E Preferred Stock were converted into
shares of Common Stock at an average conversion price of $1.47, resulting in the
issuance of1,114,220 shares of the Company's Common Stock. As at July 31, 1999,
there were 297,269 shares of Series E Preferred Stock outstanding. These Series
E Preferred Shares would have been convertible into 3,866,213 shares of the
Company's Common Stock using a conversion price of $1.81, equal to the average
closing price of the Company's Common Stock over the 10 trading days ending July
30, 1999. Consequently, there were 27,333,351 shares of Common Stock or
equivalent to shares of Common Stock outstanding as at July 31, 1999.
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Note G - 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.
Note H - Financial position
During the six months ended June 30, 1999, the Company has continued to
experience losses and has used cash in operating activities, which has adversely
affected the Company's liquidity. At June 30,1999, the Company had net working
deficit of $4,550 and a deficit accumulated during the development stage of
$67,561. 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 additional funds will be available through capital increases when
needed or on terms acceptable to the Company.
Note I - Subsequent event
In July 1999, 70,000 shares of Series E Preferred Stock were converted into
shares of Common Stock at an average conversion price of $1.47, resulting in the
issuance of1,114,220 shares of the Company's Common Stock (See "Note F --
Stockholders' Equity").
On August 9, 1999, the Company entered into a private equity line agreement with
Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the
equity line, PixTech has the irrevocable right, subject to certain conditions,
to draw up to $15 million cash in exchange for PixTech's common stock, in
increments over a two-year period. Such conditions include limitations depending
on the volume and the market price of PixTech's common stock. The Company may
begin to make draws under the facility upon registration of the shares for
resale with the Securities and Exchange Commission. Shares will be issued at a
10% discount to the market price at the time of any draw, if the market is at or
above $3.00, or at a 12% discount if the stock price is below $3.00.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of operations
Product sales. The Company recognized product sales of $339,000 in the six-month
period ended June 30, 1999, as compared to $87,000 in the six-month period ended
June 30, 1998. In the six-month periods ended June 30, 1998 and 1999, product
revenues primarily comprised shipments of displays sold at volume prices to Zoll
Medical, thus reflecting a significant increase in the number of displays
shipped. Since 1998, the Company has begun shipping its FED displays
manufactured by its contract manufacturer, Unipac, to its customers in limited
quantities. During the three-month period ended June 30, 1999, unit shipments
from Taiwan represented 21% of total shipments. The Company expects an increase
of product shipments from Taiwan in the second half of 1999.
Other revenues. Other revenues consist of funding under various public
development contracts and other miscellaneous revenues. The Company recognized
other revenues of $2.3 million in the six-month period ended June 30, 1999, as
compared to $1.5 million in the six-month period ended June 30, 1998. Of these
revenues, in the six-month period ended June 30, 1999, $1.3 million were related
to an incentive from French local authorities awarded in 1994 to the Company to
establish its pilot plant in Montpellier, France, and $961,000 were related to a
development contract from European Union signed in 1997, for which recognition
as revenue of the related contribution, collected mainly in 1997 and in 1998,
had been deferred until all conditions stipulated in the agreement were met. In
the six-month period ended June 30, 1998, other revenues included $1.2 million
related to a development contract granted in December 1994 from the French
Ministry of Industry to support manufacturing of FEDs.
Other Research and Development Expenses. The Company expensed $6.6 million for
research and development costs during the three-month period ended June 30,
1999, an increase of 45% over the $4.6 million incurred in the three-month
period ended June 30, 1998. These 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 Boise, Idaho, the cost
of staffing and operating the Company's pilot manufacturing facility and the
cost of supporting the transfer and adaptation of the Company's FED technology
to Unipac, as well as obligations to CEA under the LETI Research Agreement, and
miscellaneous contract consulting fees. This increase primarily reflected the
costs associated with the research and development activities conducted in Boise
following the Micron Transaction and the cost of supporting the transfer of FED
manufacturing processes to Unipac. As part of the acquisition of Micron
Display`s assets in May 1999, the Company hired 44 employees to work on the
production equipment acquired in the Boise facility, thus reinforcing its FED
technology development efforts. In addition, the development team located in
Santa Clara was moved to Boise with an aim to focus its efforts on the expansion
of the large display effort. Research and development expenses amounted to $12.2
million for the six-month period ended June 30, 1999, as compared to $8.5
million for the six month period ended June 30, 1998.
Sales and Marketing Expenses. The Company expensed $329,000 for sales and
marketing during the three-month period ended June 30, 1999, as compared to
$354,000 during the three-month period ended June 30, 1998, reflecting a one-
time decrease in staff expenses. 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, in
order to achieve a successful commercialization phase for the Company's
products. Sales and marketing expenses amounted to $680,000 for the six-month
period ended June 30, 1999, as compared to $693,000 for the six month period
ended June 30, 1998.
General and Administrative Expenses. General and administrative expenses
amounted to $772,000 in the three-month period ended June 30, 1999, an increase
of 32% over general and administrative expenses incurred in the three-month
period ended June 30, 1998, which amounted to $586,000, reflecting an increase
in consulting expenses. General and administrative expenses amounted to $1.5
million for the six-month period ended June 30, 1999, as compared to $1.2
million for the six month period ended June 30, 1998.
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 $98,000 in the three-month
period ended June 30, 1999, as compared to $174,000 in the three-month period
ended June 30, 1998, reflecting the increase in cash balances and the decrease
in long-term liabilities. Net interest expense amounted to $364,000 in the six-
month period ended June 30, 1999, as compared to $254,000 in the six-month
period ended June 30, 1998.
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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 the past, 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
loss of $1.1 million in the six-month period ended June 30,1999, while the
Company recorded net foreign exchange gain of $709,000 in the six-month period
ended June 30,1998. 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.
Liquidity and Capital Resources.
Cash used in operations was $8.3 million for the six-month period ended June
30,1999, as compared to cash used in operations of $3.1 million for the six-
month period ended June 30, 1998. This increase corresponds to the following
factors : (i) absence of significant cash receipts from revenues in the six-
month period ended June 30,1999, and (ii) increase in operating expenses
associated with Taiwan start-up costs and with the funding of the operations in
Boise.
The Company has used $40.3 million in cash to fund its operating activities from
inception through June 30,1999 and has incurred $28.7 million in capital
expenditures and investments.
Capital expenditures were $396,000 during the six-month period ended June
30,1999 as compared to $602,000 during the same period of 1998. These capital
expenditures exclude the assets acquired pursuant to the Micron Transaction as
those assets were acquired in consideration for Common Stock issuance. They also
exclude assets acquired under capital lease obligations. During the six-month
period ended June 30,1999, capital expenditures remained focused on limited
capacity expansion in the pilot manufacturing facility. Implementing volume
production at Unipac's manufacturing plant required significant capital
expenditures. Pursuant to the Foundry Agreement, Unipac funded a $14.9 million
capital expenditure for equipment. A portion of that equipment is leased to
PixTech and amounted to $11.6 million as of June 30, 1999. The Company expects
that additional capital expenditures will be required in 1999 to increase
capacity at Unipac and to complete implementation of manufacturing processes,
both for monochrome and for color products.
As at June 30, 1999, restricted cash amounted to $8.8 million and was related to
the security interest granted in 1997 by the Company to Unipac, pursuant to the
Foundry Agreement, in relation to the purchase and funding by Unipac of volume
FEDs production equipment. During the six-month period ended June 30, 1999, the
written bank guaranty provided by the Company to Unipac decreased to match the
net amount of equipment leased by Unipac to the Company. The decrease of this
bank guaranty corresponded to a simultaneous similar decrease of the amount of
the security interest to the banks, thus resulting in an $1.3 million increase
of the cash available to fund the Company's activities. Both the amount of this
written bank guaranty and the correspondent security interest to the banks are
expected to continue decreasing in the future.
Cash flows generated from financing activities were $3.8 million in the six-
month period ended June 30,1999, as compared to $1.4 million in the six-month
period ended June 30,1998. This net cash flow consisted of sales of shares of
Common Stock, resulting in net proceeds to the Company of $4.2 million, while
long term liabilities decreased by $360,000. In consideration of the 7,133,562
shares of Common Stock and 310,000 warrants issued pursuant to the Micron
Transaction, the Company was granted certain assets, assumed certain
liabilities, and received $4.3 million in cash. Cash flows generated from
financing activities in the six-month period ended June 30,1999 excluded non-
cash transactions related to the acquisition of these assets and the assumption
of these liabilities, and resulted in net proceeds to the Company of $3.8
million (net of issuance costs). In addition, cash flows generated from
financing activities included the sales of shares of Common Stock in a private
placement in January 1999, resulting in net proceeds to the Company of $352,000.
Long term liabilities increased by $2.0 million in the six-month period ended
June 30,1999, representing two zero-interest loans granted to the Company by
French local authorities, while the repayments amounted to $2.4 million,
resulting in a net decrease of $360,000. Of the repayments occurring in the six-
month period ended June 30,1999, $1.3 million was related to the first repayment
of the $5.0 million note granted to the Company in 1997 by Sumitomo Corporation.
Since its inception, the Company has funded its operations and capital
expenditures primarily from the proceeds of equity financing aggregating $71.7
million and from proceeds aggregating $19.0 million from borrowings and sale-
leaseback transactions.
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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 $3.0 million, of which $2.0 million
were received during the three-month period ended June 30, 1999, and $800,000
are expected to be received in the second half of 1999.
In November 1998, the Company entered into an R&D agreement with French
authorities. Under this agreement, the Company expects to benefit from a grant
totaling approximately $880,000, of which $230,000 is expected to be collected
in the second half of 1999.
In February 1997, the Company entered into an R&D agreement with the European
Union and other European industrial companies. The contribution of the European
Union to the costs incurred by the Company amounts to $961,000 over the period,
of which $736,000 were collected in 1997 and 1998 and recognized as income in
the three-month period ended June 30, 1999, as all conditions stipulated in the
agreement were met. During the three month period ended June 30, 1999, the
Company recognized as income an amount of $225,000 representing the remaining
revenue from this contract, of which $140,000 was collected and $85,000 is
expected up to the end of 1999.
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 April 1999, the
Company collected $3.0 million from R&D tax credit recorded in 1995.
On August 9, 1999, the Company entered into a private equity line agreement with
Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the
equity line, PixTech has the irrevocable right, subject to certain conditions,
to draw up to $15 million cash in exchange for PixTech's common stock, in
increments over a two-year period. Such conditions include limitations depending
on the volume and the market price of PixTech's common stock. The Company may
begin to make draws under the facility upon registration of the shares for
resale with the Securities and Exchange Commission. Shares will be issued at a
10% discount to the market price at the time of any draw, if the market is at or
above $3.00, or at a 12% discount if the stock price is below $3.00.
On August 5, 1999, the Company was awarded a development contract by DARPA
(Defense Advanced Research Projects Agency). Under the terms of the contract,
the Company will receive approximately $4.7 million to develop a color FED.
Cash available at June 30, 1999 amounted to $7.0 million as compared to $10.2
million at December 31, 1998. The Company expects that cash available at June
30,1999 together with the anticipated proceeds from the various grants and loans
described above and from R&D tax credits, will be sufficient to meet its cash
requirements, including repayment of the current portion of its long term
obligations in the amount of $7.2 million at June 30, 1999, until at least
September 30, 1999. The Company intends to improve its liquidity and financial
position through capital increases expected to take place in the second half of
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.
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Year 2000 Disclosure
There is a significant uncertainty regarding the effect of the Year 2000 issue
because computer systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or
altogether fail. The Company has conducted 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. 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 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.
Strategic issues and risks
The Company is currently focused on the following activities which it believes
are necessary to the success of its business: (i) successfully implementing the
manufacture of FEDs by its Taiwanese contract manufacturer, Unipac; (ii)
improving its manufacturing processes and yields, both in its pilot plant and at
Unipac; (iii) expanding its customer base and product offering, and (iv)
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 with development stage
companies.
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 At June 30, 1999, the
Company had net working deficit of $4,550 and a deficit accumulated during the
development stage of $67,561. These conditions raise substantial doubt about its
ability to continue as a going concern. 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.
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.
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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. To date, the Company has used its pilot
manufacturing facility in Montpellier, France to produce only a limited number
of products suitable for sale. In addition, 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 may 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 faces 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. The market for "flat panel display," or "FPD", products is
currently dominated by products utilizing "liquid crystal display," or "LCD",
technology. Certain LCD manufacturers have substantially greater name
recognition and financial, technological, marketing and other resources than the
Company. 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.
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: (i) whether OEMs select its products for incorporation into
their products; (ii) the successful introduction of such products by the OEMs;
and (iii) 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.
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 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.
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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 has received correspondence from Futaba Corporation and its legal
counsel beginning in February 1998 alleging the following: (i) 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; (ii) 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 (iii) 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 has 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 the
Company's net assets and costs are 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.
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 convertible
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. In July 1999, 70,000
shares of Series E Preferred Stock were converted into shares of Common Stock,
resulting in the issuance of1,114,220 shares of the Company's Common Stock. As
at July 31, 1999, there were 297,269 shares of Series E Preferred Stock
outstanding., likely to be converted into 3,866,213 shares of the Company's
Common Stock. Should the Company's stock price fall below its current level,
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.
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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.
-17-
<PAGE>
PIXTECH, INC.
June 30, 1999
PART II Other Information
ITEM 1 Legal Proceedings:
Not applicable.
ITEM 2 Changes in Securities:
(a) Not applicable
(b) Not applicable
(c) 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
$352,000.
In May 1999, the Company issued 7,133,562 shares of
Common Stock and a warrant to purchase 310,000 shares of
the Company's Common Stock to Micron Technology, Inc. In
a private placement, in consideration of the acquisition
of assets from Micron Technology, Inc. for $17.9
million, including cash for $4.4 million and the
assumption of certain liabilities in the amount of $2.9
million. The warrant may be exercised until May 19,
2001, and has an exercise price of $2.25313 per share .
In July 1999, 70,000 shares of Series E Preferred
Stock were converted into shares of Common Stock,
resulting in the issuance of1,114,220 shares of the
Company's Common Stock. As at July 31, 1999, there were
297,269 shares of Series E Preferred Stock outstanding.
ITEM 3 Defaults upon Senior Securities:
Not applicable.
ITEM 4 Submission of matters to a Vote of Security Holders:
At the Annual Meeting of Stockholders held on May 12,
1999, the Company's Stockholders voted :
<TABLE>
<CAPTION>
TOTAL VOTE TOTAL VOTE TOTAL VOTE))
((FOR)) ((AGAINST)) ABSTAINING))
<S> <C> <C> <C>
1. to elect Mr. Dieter Mezger to 11,818,077 17,290 --
the Board of Directors for a
three-year term :
The terms in office of
Messrs. Jean-Luc Grand-Clement,
William C. Schmidt and
John A. Hawkins continued after
the meeting.
2. to amend the Restated 10,962,896 833,501 38,970
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 10,941,621 853,201 40,545
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 10,981,676 814,651 39,040
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.
ITEM 5 Other Information:
None.
</TABLE>
-18-
<PAGE>
ITEM 6 Exhibits and reports on Form 8-K:
(a) Exhibits:
2.3 Amendment No. 2 to Acquisition Agreement, dated as
of May 17, 1999, between the Registrant and Micron
Technology, Inc.
10.44 Lease Agreement, dated as of May 19, 1999, between
the Registrant and Micron Technology, Inc
10.45/++ Employment Agreement of James J. Cathey dated
May 20, 1999
27. Financial Data Schedule
(b) Reports on Form 8-K :
A report on Form 8-K has been filed during the second
quarter of 1999, on May 27, 1999, reporting under Item 2
the closing by the Registrant of an Acquisition
Agreement with Micron Technology, Inc. This report was
amended on August 9, 1999 to include unaudited pro forma
consolidated financial statements under Item 7(b).
++ Confidential treatment has been requested for certain
portions of these Exhibits pursuant to rule 24b-2 of the
Securities Exchange Act of 1934, as amended .
-19-
<PAGE>
PIXTECH, INC.
June 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIXTECH, INC.
Date: August 11, 1999 BY: /s/ Yves Morel
---------------
Yves Morel
Vice President, Chief Financial Officer
Date: August 11, 1999 BY: /s/ Cathie Tomao
-----------------
Cathie Tomao
Chief Accounting Officer
-20-
<PAGE>
PIXTECH, INC.
June 30, 1999
EXHIBIT INDEX
Exhibit No.
- -----------
2.3 Amendment No. 2 to Acquisition Agreement, dated as of May 17,
1999, between the Registrant and Micron Technology, Inc.
10.44 Lease Agreement, dated as of May 19, 1999, between the
Registrant and Micron Technology, Inc
10.45/++ Employment Agreement of James J. Cathey dated May 20, 1 999
27 Financial Data Schedule
++ Confidential treatment has been requested for certain portions
of these Exhibits pursuant to rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
-21-
<PAGE>
Amendment No. 2 to Acquisition Agreement
This Amendment No. 2 to Acquisition Agreement (the "Amendment") is dated as
of May 17, 1999 and amends that certain Acquisition Agreement dated as of March
19, 1999, as amended by an Amendment No. 1 dated as of April 23, 1999 (as
amended, the "Acquisition Agreement"), between Micron Technology, Inc.
("Micron") and PixTech Inc. ("PixTech"). Capitalized terms used but not defined
herein shall have the meaning given them in the Acquisition Agreement.
WHEREAS, Micron and PixTech have entered into the Acquisition Agreement
relating to the acquisition by PixTech of certain assets of Micron's Display
Division.
WHEREAS, Micron and PixTech desire to amend the Acquisition Agreement as
set forth herein.
NOW THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree as follows.
1. Amendment to Acquisition Agreement.
1.1 The second sentence of Section 9.4 of the Acquisition Agreement
shall be amended by adding the following clause in front of the period at the
end thereof:
"(including any requirement that Micron expend any money or incur any
expense or obligation to obtain additional or replacement software
licenses)"
1.2 The last sentence of Section 9.4 of the Acquisition Agreement
shall be amended to read in full as follows:
"If the applicable vendor does not give its consent, or such consent is
subject to any condition other than the payment or a fee, or the giving of
such consent would for any reason require Micron to obtain additional or
replacement software licenses, then such contract shall not be considered
an Assumed Contract."
1.3 The last sentence of Section 9.5(a) to the Acquisition Agreement
is amended to read in full as follows:
"The exercise price of the stock options will be the lesser of (i) $2.25313
or (ii) the closing price for PixTech Common Stock on the Closing Date;
provided that if the exercise price as so calculated in more than $1.825
per share, then PixTech will issue additional stock options to the
Transferred Employees at such exercise price. The number of additional
stock options to be issued will be mutually agreed upon by Micron and
PixTech."
Pursuant to Article XII of the Acquisition Agreement, PixTech hereby agrees to
indemnify Micron from Damages incurred or suffered by Micron or any of its
Affiliates as a result of the foregoing amendment to Section 9.5(a) to the
Acquisition Agreement.
<PAGE>
2. PixTech hereby agrees that it will preserve all books, records,
documents and technological and other information that PixTech acquires from
Micron in connection with the Acquired Assets and Assumed Liabilities for a
minimum period of five years following the Closing Date. Micron and PixTech
acknowledge that all such books, records, documents and technological and other
information will be subject to the confidentiality provisions of the Non-
Disclosure Agreement. Notwithstanding the foregoing, PixTech may dispose of,
transfer, sell, convey, hypothecate, lease or deliver any of the Acquired Assets
as it deems fit during such five year period.
3. Counterparts. This Amendment may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their authorized officers as of the day and year first above
written.
PIXTECH, INC. MICRON TECHNOLOGY, INC.
By: /s/ Dieter Mezger By: /s/ W. G. Stover, Jr.
----------------- ---------------------
Name: Name:
Title: Title:
<PAGE>
LEASE AGREEMENT
by and between
Micron Technology, Inc,
a Delaware corporation ("Landlord")
and
PixTech, Inc.,
a Delaware corporation (Tenant)
<PAGE>
LEASE SUMMARY
-------------
Lease Date: 05/19/99
- ----------
Landlord: Micron Technology, Inc., a Delaware
- -------- corporation.
Tenant: PixTech, Inc., a Delaware corporation
- ------
Contact (Landlord): Jan Nowak
- ------------------
Premises: 3000 South Denver Way
- -------- Boise, ID 83705
Building Square Footage: Deemed to be 72,924 square feet
- -----------------------
Lease Term (Section 2): 36 months (plus any partial month at the
- ----------- commencement of the Lease Term)
Monthly Rent (Section 3.1) $25,000.00 per month (subject to adjustment)
- ------------
Address for Notices To Landlord
- ------------------- -----------
(Section 16.9): 8000 S. Federal Way
Boise, ID 83716-9632
Attn: Jan Nowak
To Tenant
---------
At the Premises
Attn: Michel Garcia
The provisions of the Lease identified above in parentheses are those
provisions making reference to the above-described Lease terms. Each reference
in the Lease shall incorporate the applicable Lease terms. In the event of any
conflict between this Lease Summary and the Lease, the Lease shall control.
LANDLORD: TENANT:
MICRON TECHNOLOGY, PIXTECH, INC., a Delaware
INC., a Delaware corporation corporation
By: /s/ W. G. Stover By: /s/ Dieter Mezger
---------------- -----------------
Printed Printed
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- --------------------------
By: By:
------------------------- ----------------------------
Printed Printed
Name: Name:
----------------------- --------------------------
Title: Title:
---------------------- --------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS.................................................. 1
1.1 Access Fee............................................. 1
1.2 Additional Rent........................................ 1
1.3 Adjacent Property...................................... 1
1.4 Agreed Interest Rate................................... 1
1.5 Appraisers............................................. 1
1.6 Building............................................... 1
1.7 Claims................................................. 1
1.8 CDAS................................................... 1
1.9 Commencement Date...................................... 1
1.10 Default or Event of Default............................ 1
1.11 Effective Date......................................... 1
1.12 Environmental Laws..................................... 1
1.13 Extended Lease Term.................................... 2
1.14 Hazardous Materials.................................... 2
1.15 Hazardous Materials Questionnaire...................... 2
1.16 Initial Lease Term..................................... 2
1.17 Landlord............................................... 2
1.18 Landlord Representative................................ 2
1.19 Law.................................................... 2
1.20 Lease.................................................. 2
1.21 Lease Term............................................. 2
1.22 Leasehold Improvements................................. 2
1.23 Lender................................................. 2
1.24 Micron................................................. 3
1.25 Monthly Rent........................................... 3
1.26 Other Areas............................................ 3
1.27 Party.................................................. 3
1.28 Permitted Use.......................................... 3
1.29 Pollution Conditions................................... 3
1.30 Premises............................................... 3
1.31 Prepaid Rent........................................... 3
1.32 Private Restrictions................................... 3
1.33 PVS.................................................... 3
1.34 Real Property Taxes.................................... 3
1.35 Security Instruments................................... 4
1.36 Site Plan.............................................. 4
1.37 Tenant................................................. 4
1.38 Tenant's Agent or Agent................................ 4
1.39 Tenant's Minimum Liability Insurance Coverage.......... 4
1.40 Trade Fixtures......................................... 4
1.41 Transfer............................................... 4
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2. TERM AND ACCEPTANCE.......................................... 4
2.1 Option to Extend....................................... 4
3. RENT......................................................... 5
3.1 Monthly Payments........................................ 5
3.2 Additional Rent......................................... 5
3.3 Payment of Rent......................................... 5
3.4 Late Charge and Interest on Rent in Default............. 5
3.5 Prepayment of Rent...................................... 6
4. USE OF PREMISES.............................................. 6
4.1 Limitation on Type...................................... 6
4.2 Compliance with Laws and Private Restrictions........... 6
4.3 Insurance Requirements.................................. 7
4.4 Outside Areas........................................... 7
4.5 Signs................................................... 7
4.6 Rules and Regulations................................... 7
4.7 Parking................................................. 7
4.8 Window Coverings........................................ 8
4.9 Auctions................................................ 8
5. TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS.................... 8
5.1 Trade Fixtures.......................................... 8
5.2 Leasehold Improvements.................................. 8
5.3 Alterations Required by Law............................. 9
5.4 Liens................................................... 9
6. REPAIR AND MAINTENANCE....................................... 9
6.1 Tenant's Obligation to Maintain......................... 9
6.2 Control of Other Areas.................................. 10
6.3 Tenant's Negligence..................................... 11
7. UTILITIES.................................................... 11
7.1 Utilities............................................... 11
7.2 Compliance with Governmental Regulations................ 11
7.3 PVS and CDAS............................................ 11
8. REAL PROPERTY TAXES.......................................... 12
8.1 Real Property Taxes Defined............................. 12
8.2 Tenant's Obligation to Reimburse........................ 12
8.3 Taxes on Tenant's Property.............................. 13
9. INSURANCE.................................................... 13
9.1 Tenant's Insurance...................................... 13
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
9.2 Landlord's Insurance.................................... 15
9.3 Tenant's Obligation to Reimburse........................ 15
9.4 Release and Waiver of Subrogation....................... 16
10. LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY............. 16
10.1 Limitation on Landlord's Liability..................... 16
10.2 Limitation on Tenant's Recourse........................ 16
10.3 Indemnification of Landlord............................ 17
10.4 Indemnification of Tenant.............................. 17
11. DAMAGE TO PREMISES........................................... 17
11.1 Landlord's Duty to Restore............................. 17
11.2 Landlord's Right to Terminate.......................... 18
11.3 Tenant's Right to Terminate............................ 18
11.4 Abatement of Rent...................................... 18
12. CONDEMNATION................................................. 19
12.1 Taking of Premises..................................... 19
12.2 Termination By Tenant.................................. 19
12.3 Restoration and Abatement of Rent...................... 19
12.4 Temporary Taking....................................... 19
12.5 Division of Condemnation Award......................... 20
13. DEFAULT AND REMEDIES......................................... 20
13.1 Events of Tenant's Default............................. 20
13.2 Landlord's Remedies.................................... 21
13.3 Landlord's Default and Tenant's Remedies............... 23
13.4 Waiver................................................. 23
14. ASSIGNMENT AND SUBLETTING.................................... 23
14.1 By Tenant.............................................. 23
14.2 By Landlord............................................ 26
15. WASTE DISPOSAL AND HAZARDOUS MATERIALS....................... 26
15.1 Waste Disposal......................................... 26
15.2 Hazardous Materials.................................... 26
16. GENERAL PROVISIONS........................................... 28
16.1 Landlord's Right to Enter.............................. 28
16.2 Surrender of the Premises.............................. 28
16.3 Holding Over........................................... 28
16.4 Subordination.......................................... 29
16.5 Tenant's Attornment.................................... 29
16.6 Lender Protection...................................... 29
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
16.7 Estoppel Certificates and Financial Statements......... 30
16.8 Force Majeure.......................................... 30
16.9 Notices................................................ 30
16.10 Attorneys' Fees........................................ 31
16.11 Corporate Authority.................................... 31
16.12 Miscellaneous.......................................... 31
16.13 Brokerage Commissions.................................. 32
16.14 Consents and Approvals................................. 32
16.15 Termination by Exercise of Option...................... 32
16.16 Entire Agreement....................................... 33
EXHIBITS
Exhibit A - Description of Premises
Exhibit B - Site Plan
Exhibit C - Tenant Trade Fixtures
Exhibit D - Roof Repairs
Exhibit E - Hazardous Materials Questionnaire
-iv-
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated May 19, 1999, for reference purposes only, is
made by and between MICRON TECHNOLOGY, INC., a Delaware corporation
("Landlord"), and PIXTECH, INC., a Delaware corporation ("Tenant").
1. DEFINITIONS: Any term that is given a special meaning by this Section 1 or
-----------
by any other provision of this Lease (including the exhibits attached hereto)
shall have such meaning when used in this Lease or any addendum or amendment
hereto.
1.1 Access Fee: "Access Fee" shall have the meaning set forth in Section
----------
7.3
1.2 Additional Rent: "Additional Rent" shall have the meaning set forth in
---------------
Section 3.2.
1.3 Adjacent Property: "Adjacent Property" means the parcel of land
-----------------
located adjacent to the Premises, which is also owned by Micron Technology, Inc.
and which shares curb cuts with the Premises.
1.4 Agreed Interest Rate: "Agreed Interest Rate" means that interest rate
--------------------
determined as of the time it is to be applied that is equal to the lesser of (i)
four percent (4%) plus the "prime rate" reported in the Wall Street Journal as
published closest prior to the date when due, or (ii) the maximum interest rate
permitted by law.
1.5 Appraisers: "Appraisers" means Knipe & Knipe, Inc. and Thornton
----------
Oliver Commercial Real Estate Brokers, or such other appraiser(s) the Parties
may agree upon to determine the Monthly Rent during the Extended Lease Term.
1.6 Building: "Building" means that certain building (deemed to be
--------
72,924 square feet) located on the Premises. The Building shall include the
central utilities pad as reflected on the Site Plan.
1.7 Claims: "Claims" shall have the meaning set forth in Section 10.3.
------
1.8 CDAS: "CDAS" shall have the meaning set forth in Section 7.3.
----
1.9 Commencement Date: "Commencement Date" means the date on which the
-----------------
"Closing" as defined in that certain Acquisition Agreement by and between
Landlord and Tenant, dated May 19, 1999, has occurred.
1.10 Default or Event of Default: "Default" or "Event of Default" shall
---------------------------
have the meaning set forth in Section 13.
1.11 Effective Date: "Effective Date" means the date the last signatory to
--------------
this Lease whose execution is required to make it binding on the parties hereto
has executed this Lease.
1
<PAGE>
1.12 Environmental Laws: "Environmental Laws" shall have the meaning set
------------------
forth in Section 15.2.1.1.
1.13 Extended Lease Term: "Extended Lease Term" shall have the meaning set
-------------------
forth in Section 2.1.
1.14 Hazardous Materials: "Hazardous Materials" shall have the meaning set
-------------------
forth in Section 15.2.1.2.
1.15 Hazardous Materials Questionnaire: "Hazardous Materials
---------------------------------
Questionnaire" shall have the meaning set forth in Section 15.2.2.
1.16 Initial Lease Term: "Initial Lease Term" shall be the period of time
------------------
commencing on the Commencement Date and ending on the last day of the thirty-
sixth (36th) full calendar month succeeding the Commencement Date, unless sooner
terminated as provided herein.
1.17 Landlord: "Landlord" means Micron Technology, Inc., a Delaware
--------
corporation.
1.18 Landlord's Representative: "Landlord's Representative" shall
-------------------------
include the following individuals: Micron's Vice President of Facilities;
Micron's security personnel; Micron's plant engineering personnel; Micron's
plant operations and maintenance personnel; Micron's environmental personnel;
Micron's property coordinators; Micron's legal counsel for environmental and
facility matters; engineers, contractors, and consultants performing specific
projects on behalf of Landlord relative to Section 16.1(iv). Landlord shall
provide Tenant a list of the names of the above individuals performing on behalf
of Landlord. Landlord, by written notice to Tenant, shall update the list should
any of the individuals listed thereon need to be changed or replaced.
1.19 Law: "Law" means any judicial decision, statute, constitution,
---
ordinance, resolution, regulation, rule, administrative order, or other
requirement of any municipal, county, state, federal, or other government agency
or authority having jurisdiction over the parties to this Lease or the Premises
or both, in effect either at the Effective Date of this Lease or any time during
the Lease Term, including, without limitation, any regulation, order, or policy
of any quasi-official entity or body (e.g., board of fire examiners, public
utilities or special districts).
1.20 Lease: "Lease" means this printed lease, and all exhibits attached
-----
hereto, as the same may be amended in accordance with this Lease from time to
time; all of which are attached hereto and incorporated herein by this
reference.
1.21 Lease Term: "Lease Term" shall be the period of time encompassing
----------
both the Initial Lease Term and, if properly elected, the Extended Lease Term,
unless sooner terminated as provided herein.
1.22 Leasehold Improvements: "Leasehold Improvements" means all
----------------------
improvements, additions, alterations, and fixtures installed in the Premises by
Tenant at its expense which are not Trade Fixtures.
2
<PAGE>
1.23 Lender: "Lender" means any beneficiary, mortgagee, secured party, or
other holder of any deed of trust, mortgage or other written security device or
agreement affecting the Premises, and the note or other obligations secured by
it.
1.24 Micron: "Micron" means Micron Technology, Inc., a Delaware
------
corporation.
1.25 Monthly Rent: "Monthly Rent" means the monthly rent payable by
------------
Tenant pursuant to Section 3.
1.26 Other Areas: "Other Areas" means all areas and facilities within
-----------
the Premises, other than the Building (including, but not limited to, the
parking areas, driveways, curb cuts, pedestrian sidewalk, landscaped areas,
trash enclosures, and the like).
1.27 Party: "Party" or "Parties" shall have the meaning set forth in
-----
Section 16.12.
1.28 Permitted Use: "Permitted Use" means the use of the Premises for
-------------
research, development, manufacturing, marketing, and sales of field emission
displays , in accordance with all Laws and Private Restrictions. The "Permitted
Use" may be modified only with the consent of the Landlord, which consent may be
withheld, if (i) the requested use is incompatible with any other tenants in the
vicinity of the Premises, including, without limitation, tenants of the Adjacent
Property, (ii) involves the use of Hazardous Materials Section or other
dangerous materials or processes, (iii) violates applicable Laws or Private
Restrictions, (iv) reduces the Landlord's financial security in the Lease, or
(v) is otherwise unsuitable in Landlord's reasonable opinion.
1.29 Pollution Conditions: "Pollution Conditions" shall have the meaning
--------------------
set forth in Section 9.1.1.2.iii.
1.30 Premises: "Premises" means that real property comprised of the
--------
Building and Other Areas with all improvements now or hereafter located thereon
commonly known as 3000 South Denver Way, Boise, Idaho 83705 and more
particularly described on Exhibit A, which is attached hereto and incorporated
---------
herein by this reference; provided, however, that subject to Section 6.2,
Landlord may change the boundaries and composition of the Other Areas and,
thereafter the term "Premises" shall refer to such real property so enlarged or
reduced, so long as such change does not materially interfere with Tenant's use
and quiet enjoyment of the Premises.
1.31 Prepaid Rent: "Prepaid Rent" means the sum of Twenty Five Thousand
------------
Dollars and No Cents ($25,000.00).
1.32 Private Restrictions: "Private Restrictions" means all covenants,
--------------------
conditions and restrictions, private agreements, reciprocal easement agreements
and any other instruments (herein "encumbrances") affecting the use of the
Premises recorded in the official records of the county in which the Premises is
located as of the Effective Date, and all encumbrances so recorded after the
Effective Date which do not materially interfere with Tenant's then existing use
of the Premises or, alternatively, which are approved by Tenant, which approval
shall not be unreasonably withheld or delayed. Nothing herein shall be deemed to
require Tenant's consent to any encumbrance of the Premises.
3
<PAGE>
1.33 PVS: "PVS" shall have the meaning set forth in Section 7.3.
---
1.34 Real Property Taxes: "Real Property Taxes" shall have the meaning set
-------------------
forth in Section 8.1.
1.35 Security Instruments: "Security Instruments" shall have the meaning
--------------------
set forth in Section 16.4.
1.36 Site Plan: A site plan depicting the Premises shall be attached
---------
hereto as Exhibit B.
---------
1.37 Tenant: "Tenant" means PixTech, Inc., a Delaware corporation.
------
1.38 Tenant's Agent or Agent: "Tenant's Agent" or "Agent" shall have the
-----------------------
meaning set forth in Section 5.4.
1.39 Tenant's Minimum Liability Insurance Coverage: "Tenant's Minimum
---------------------------------------------
Liability Insurance Coverage" means a minimum limit of Five Million Dollars and
No Cents ($5,000,000.00) per occurrence.
1.40 Trade Fixtures: "Trade Fixtures" means anything affixed to the
--------------
Building or Other Areas by Tenant at its expense for purposes of trade,
manufacture, ornament, or domestic use (except replacement of similar work or
material originally installed by Landlord) which can be removed without injury
to the Building or Other Areas unless such thing has, by the manner in which it
is affixed, become an integral part of the Building or Other Areas, it being
understood that all of the trade fixtures, equipment, furniture and other
personal property of the Landlord which are present in the Building and on the
Other Areas as of the Commencement Date shall at all times remain in the
Building and on the Other Areas and shall in no event be deemed Trade Fixtures,
nor shall any of such items be removed from the Building or Other Areas by
Tenant upon the expiration or earlier termination of the Lease; provided,
however, that all of Tenant's signs shall be Trade Fixtures regardless of how
affixed to the Building or Other Areas. Specific Trade Fixtures as of the
Effective Date shall include the items set forth on Exhibit C, which is attached
hereto and incorporated herein by this reference.
1.41 Transfer: "Transfer" shall have the meaning set forth in Section
--------
14.1.1.
4
<PAGE>
2. TERM AND ACCEPTANCE: Landlord hereby leases the Premises to Tenant, and
-------------------
Tenant leases the Premises from Landlord, for the Lease Term upon the terms and
conditions stated in this Lease. By taking possession of the Premises, Tenant
shall be conclusively deemed to have accepted the Premises in their then
existing condition as of the Commencement Date, "AS-IS, WITH ALL FAULTS." Tenant
represents and warrants to Landlord that (i) Tenant has fully inspected the
Premises, (ii) Tenant is relying on its own inspection in leasing the Premises,
and (iii) Tenant has received no representations or warranties from Landlord,
express or implied, with respect to the Premises (including, without limitation,
any representation or warranty as to the suitability of the Premises for
Tenant's intended use) on which Tenant has relied in entering into this Lease.
2.1 Option to Extend: So long as Tenant is not in Default (or would not
----------------
then be in Default but for the pendency of any grace period) under this Lease,
Tenant shall have the option to extend the Initial Lease Term at then market
rates as negotiated by the parties for an additional thirty-six (36) month term
(the "Extended Lease Term"). One hundred eighty (180) days prior to the
expiration of the Initial Lease Term, Tenant shall notify Landlord in writing of
its election to extend the Initial Lease Term. Time is of the essence.
Accordingly, if Tenant does not deliver its notice of election to extend the
Lease Term within said one hundred eighty (180) day period, then this option to
extend the Lease Term shall lapse and be of no further force or effect and the
Lease shall be allowed to expire. The terms of the Lease shall not change during
the Extended Lease Term except that the Monthly Rent shall be increased to then
market rates as negotiated by the parties. If within ninety (90) days prior to
the expiration of the Initial Lease Term the parties have not agreed on a market
rate for Monthly Rent during the Extended Lease Term, the parties shall have the
Appraisers determine such Monthly Rent. In determining the Monthly Rent for the
Extended Lease Term, the Appraisers shall use open market comparisons for rental
property in Ada County, Idaho, having a utilization substantially similar to the
Permitted Use. If such open market comparisons are not readily available, the
Appraisers shall determine the Monthly Rent for the Extended Lease Term based on
an amount no less than Landlord's depreciable cost of the Premises. If within
forty-five (45) days after notice by the parties to begin the market value
determination the Appraisers cannot agree on a market rate for the Extended
Lease Term Monthly Rent, the Appraisers shall designate an independent appraiser
to make such determination using the method for determining such Monthly Rent as
set forth above. This option to extend the Lease Term is personal to Tenant and
is not transferable.
3. RENT:
----
3.1 Monthly Payments: Commencing on the Commencement Date and continuing
----------------
on the first day of each month throughout the Lease Term, Tenant shall pay to
Landlord Monthly Rent for the Premises. Monthly Rent during the Initial Lease
Term shall be the sum of Twenty Five Thousand Dollars and No Cents ($25,000.00).
Monthly Rent during the Extended Lease Term shall be determined as set forth in
Section 2.1.
3.2 Additional Rent: Commencing on the Commencement Date and continuing
---------------
throughout the Lease Term, Tenant shall pay, as additional rent (the "Additional
Rent"), (i) any late charges or interest due Landlord pursuant to Section 3.4,
(ii) any amortization payments due Landlord under Section 5.3, (iii) legal fees
and costs due Landlord pursuant to Section 16.10, (iv) all
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Real Property Taxes pursuant to Section 8.2, (v) Landlord's insurance costs
pursuant to Section 9.3, (vi) all monthly Access Fees pursuant to Section 7.3,
and (vii) any other charges due Landlord pursuant to this Lease.
3.3 Payment of Rent: All Monthly Rent and any other amounts required to
---------------
be paid in monthly installments shall be paid in advance on the first day of
each calendar month during the Lease Term. All amounts due hereunder shall be
paid in lawful money of the United States, without any abatement (except as
otherwise provided in Sections 11.4 and 12.4 in the event of damage to the
Premises or condemnation, respectively), deduction or offset whatsoever, and
without any prior demand therefor (unless otherwise expressly provided herein),
to Landlord at its address stated in Section 16.9 or at such other place as
Landlord may designate from time to time. Tenant's obligation to pay Monthly
Rent shall be prorated for any partial month based on a thirty (30) day month.
3.4 Late Charge and Interest on Rent in Default: Tenant acknowledges
-------------------------------------------
that the late payment by Tenant of any monthly installment of Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amount of which are extremely difficult
or impractical to fix. Such costs and expenses will include, without limitation,
administration and collection costs and processing and accounting expenses.
Therefore, if any such Monthly or Additional Rent is not received by Landlord
from Tenant within five (5) days after the delinquent amount became due, Tenant
shall immediately pay to Landlord a late charge equal to six percent (6%) of
such delinquent rent. Landlord and Tenant agree that this late charge represents
a reasonable estimate of such costs and expenses and is fair compensation to
Landlord for its loss suffered by Tenant's failure to make timely payment. In no
event shall this provision for a late charge be deemed to grant to Tenant a
grace period or extension of time within which to pay any rent or prevent
Landlord from exercising any right or remedy available to Landlord upon Tenant's
failure to pay any rent due under this Lease in a timely fashion, including the
right to terminate this Lease. If any amount due hereunder is not paid on or
before the tenth (10th) day following the due date, then, without prejudice to
any of Landlord's other rights and remedies and in addition to such late charge,
Tenant shall pay to Landlord interest on the delinquent amount at the Agreed
Interest Rate from the date such amount became due until paid.
3.5 Prepayment of Rent: On the Effective Date, Tenant shall pay to
------------------
Landlord the amount set forth in Section 1.31 as prepayment of rent for credit
against the first installment(s) of Monthly Rent due hereunder.
4. USE OF PREMISES:
---------------
4.1 Limitation on Type: Tenant shall use the Premises solely for the
------------------
Permitted Use (as described in Section 1.12). Tenant shall not do or permit
anything to be done in or about the Premises which will (i) cause structural
injury to the Premises, or (ii) cause damage to any part of the Premises except
to the extent reasonably necessary for the installation of Tenant's equipment
and trade fixtures, and then only in a manner which has been first approved by
Landlord in writing, or (iii) violate, or cause Landlord to be in violation of
any Laws or Private Restrictions. Tenant shall not operate any equipment within
the Premises which will (i) injure, vibrate or shake the Building, (ii) overload
existing electrical systems or other mechanical equipment servicing the
Building,
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(iii) impair the efficient operation of the sprinkler system or the heating,
ventilating or air conditioning ("HVAC") equipment within or servicing the
Building, or (iv) damage, overload, or corrode the sanitary sewer system. Tenant
shall not attach, hang or suspend anything from the ceiling, roof, walls or
columns of the Building or set any load on the floor in excess of approved
structural limits as reasonably defined by Landlord's architect. Any dust,
fumes, or waste products generated by Tenant's use of the Premises shall be
contained and disposed so that they do not (i) create a fire or health hazard,
(ii) damage the Premises, or (iii) violate any Environmental Laws (as defined in
Section 15.2.1.1). Tenant shall not change the exterior of the Building or
install any equipment or antennas on or make any penetrations of the exterior or
roof of the Building; provided, however, that Tenant shall have the right to
maintain, repair and replace, as necessary, in strict accordance with Section
6.1 and all other terms and provisions of this Lease applicable to such work,
the existing television dish antenna located on the roof of the Building. Tenant
shall not commit nor permit to be committed any waste in or about the Premises,
and Tenant shall keep the Premises in a neat, clean, attractive and orderly
condition, free of any Hazardous Materials, and any objectionable noises, odors,
dust or nuisances.
4.2 Compliance with Laws and Private Restrictions: Tenant's lease of
---------------------------------------------
the Premises shall be subject to (i) all Laws, including all Environmental Laws,
(ii) all Private Restrictions, easements and other matters of public record, and
(iii) the reasonable rules and regulations from time to time promulgated by
Landlord governing the use of the Premises. Landlord affirmatively disclaims and
makes no representations or warranties as to whether the Premises complies with
existing Laws, Environmental Laws, or Private Restrictions. Tenant shall not use
or permit any person to use the Premises in any manner which violates any Laws
or Private Restrictions. Tenant shall abide by and promptly observe and comply
with all Laws and Private Restrictions and shall protect, defend (with counsel
reasonably acceptable to Landlord), indemnify and hold Landlord harmless from
any liability resulting from Tenant's failure so to do.
4.3 Insurance Requirements: Tenant shall not use or permit any person
----------------------
to use the Premises in any manner which will cause the existing rate of
insurance upon the Premises, or any of its contents, to be increased (unless
Tenant pays the increase upon demand) or cause a cancellation of any insurance
policy covering the Premises. Tenant shall not sell, or permit to be kept, used,
or sold in or about the Premises any article which may be prohibited by the
standard form of fire insurance policy. Tenant shall comply with all
requirements of any insurance company, insurance underwriter, or Board of Fire
Underwriters which are necessary to maintain, at standard rates, the insurance
coverage carried by either Landlord or Tenant pursuant to this Lease.
4.4 Outside Areas: No materials, supplies, tanks or containers,
-------------
equipment, finished products or semi-finished products, raw materials,
inoperable vehicles or articles of any nature shall be stored upon or permitted
to remain outside of the Premises except in fully fenced and screened areas
outside the Premises, which have been designed for such purpose and have been
designated by Landlord for such use by Tenant.
4.5 Signs: Tenant shall not place on any portion of the Premises any
-----
sign, placard, lettering in or on windows, banners, displays or other
advertising or communicative material which is visible from the exterior of the
Premises without the prior written approval of Landlord. All such
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approved signs shall strictly conform to all Laws and Private Restrictions and
shall be installed at the expense of Tenant. If Landlord so elects, Tenant
shall, at the expiration or sooner termination of this Lease, remove all signs
installed by it and repair any damage caused by such removal. Tenant shall at
all times maintain such signs in good condition and repair.
4.6 Rules and Regulations: Landlord may from time to time promulgate
---------------------
reasonable and non-discriminatory rules and regulations for the care and orderly
management of the Premises and the safety of its occupants and invitees. Such
rules and regulations shall be binding upon Tenant upon delivery of a copy
thereof to Tenant, and Tenant agrees to abide by such rules and regulations.
Such rules and regulations shall not unreasonably interfere with the Permitted
Use as stated in Section 1.12.
4.7 Parking: Tenant shall not park or permit the parking of its
-------
vehicles or the vehicles of others in any portion of the Premises not designated
by Landlord as Tenant's parking area. All delivery trucks and vehicles shall be
(i) parked at the rear of the Premises, and (ii) permitted to remain on the
Premises only so long as is reasonably necessary to complete loading and
unloading. If Landlord is required by any Law to limit or control parking within
the Premises, whether by validation of parking tickets or any other method of
assessment, Tenant agrees to participate in such validation or assessment
program under such reasonable rules and regulations as are from time to time
established by Landlord.
4.8 Window Coverings: Tenant shall use a window covering that is
----------------
reasonably acceptable to Landlord to cover all windows in the Building.
4.9 Auctions: Tenant shall not conduct or permit to be conducted on any
--------
portion of the Premises any sale of any kind, including (i) any public or
private auction, fire sale, going-out-of-business sale, distress sale, or other
liquidation sale, or (ii) any so-called "flea market," open-air market, or any
other similar activity.
5. TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS:
-----------------------------------------
5.1 Trade Fixtures: Throughout the Lease Term, Tenant shall provide,
--------------
install, and maintain in good condition all Trade Fixtures required in the
conduct of its business in the Building. All Trade Fixtures shall remain
Tenant's property.
5.2 Leasehold Improvements: Tenant shall not construct any Leasehold
----------------------
Improvements or otherwise alter the Building or Other Areas without Landlord's
prior written approval and not until Landlord shall have first approved the
plans and specifications therefor, which approval shall not be unreasonably
withheld, conditioned or delayed. In no event shall Tenant make any alterations
to the Building which could affect the structural integrity or the exterior
design of the Building. All such approved Leasehold Improvements shall be
installed by Tenant at Tenant's expense using a licensed contractor first
reasonably approved by Landlord in substantial compliance with the approved
plans and specifications therefor. All construction undertaken by Tenant shall
be done in accordance with all Laws and in a good and workmanlike manner using
new materials of good quality. Tenant shall not commence construction of any
Leasehold Improvements until (i) all required governmental approvals and permits
shall have been obtained and copies of same have been provided to Landlord,
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(ii) all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant shall have given Landlord at least thirty (30) days
prior written notice of its intention to commence such construction, (iv) Tenant
shall have notified Landlord by telephone of the commencement of construction on
the day it commences, and (v) if requested by Landlord in its reasonable
discretion, Tenant shall have obtained or cause its general contractor to obtain
contingent liability and broad form builders risk insurance and/or completion
and performance bonds in an amount reasonably satisfactory to Landlord. All
Leasehold Improvements shall remain the property of Tenant during the Lease
Term, but shall not be damaged, altered, or removed from the Premises. At the
expiration or sooner termination of the Lease Term, all Leasehold Improvements
shall be surrendered to Landlord as a part of the realty and shall then become
Landlord's property, and Landlord shall have no obligation to reimburse Tenant
for all or any portion of the value or cost thereof. If requested by Landlord,
Tenant shall remove any Leasehold Improvements in accordance with the provisions
of Section 16.2; provided, however, Tenant may request from Landlord as part of
the written notice of intent to commence construction of Leasehold Improvements
a determination as to whether Landlord will require Tenant to remove such
Leasehold Improvements at the end of the Lease Term. Notwithstanding the above,
Tenant may construct Leasehold Improvements not affecting the structural
integrity or exterior design of the Building and costing less than Twenty-Five
Thousand Dollars and No Cents ($25,000.00) without Landlord's written approval;
provided, however, that Tenant shall (i) give Landlord fifteen (15) days'
written notice of its intent to commence construction of such Leasehold
Improvements, and (ii) comply with all other terms of this Section 5.2.
5.3 Alterations Required by Law: Tenant shall, in accordance with
---------------------------
Section 5.2, make any alteration, addition or change of any sort, whether
structural or otherwise, to the Premises that is required by any Law, whether or
not such alteration, addition or change is due to Tenant's particular use of the
Premises; provided, however, that if (i) such alteration, addition or change is
not due to Tenant's particular use of the Premises or any alterations or
improvements to the Premises made by or for Tenant, and (ii) such alteration,
addition or change constitutes a capital improvement under generally accepted
accounting principles, then Landlord shall be responsible for making such
alteration, addition or change. If Landlord is responsible for making such
alteration, addition or change, then the cost thereof shall be amortized and
Tenant shall pay Additional Rent on account of such amortization in accordance
with the following procedures: (i) the cost of such alteration, addition or
change shall be amortized on a straight line basis over the useful life (as
reasonably determined by Landlord) of such alteration, addition or change, with
interest at the Agreed Interest Rate, and (ii) Tenant shall pay an amount equal
to such monthly amortization payment for each month after such alteration,
addition or change is completed until the first to occur of (a) the expiration
of the Lease Term, or (b) the end of the term over which such costs were
amortized. The amount of such Additional Rent that Tenant is to pay shall be due
at the same time the Monthly Rent is due.
5.4 Liens: Tenant shall keep the Premises free from any liens and shall
-----
pay when due all bills arising out of any work performed, materials furnished,
or obligations incurred by Tenant or any of Tenant's agents, employees,
contractors, assignees, subtenants or invitees (collectively, "Tenant's Agents")
relating to the Premises. If any claim of lien is recorded, Tenant shall bond
against or discharge the same within thirty (30) days after notice that the same
has been recorded
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<PAGE>
against the Premises. Should any lien be filed against the Premises or any
action commenced affecting title to the Premises, the party receiving notice of
such lien or action shall immediately give the other party written notice
thereof.
6. REPAIR AND MAINTENANCE:
----------------------
6.1 Tenant's Obligation to Maintain: Except as otherwise provided below
-------------------------------
in this Section 6.1 and in Section 11 (restoration of damage caused by fire and
other perils) Tenant shall, at all times during the Lease Term, regularly
inspect, service, clean, keep, and maintain in good order, condition, and repair
the Premises, and every part thereof. Tenant's obligations shall include,
without limitation, (i) all plumbing and sewage facilities (including all sinks,
toilets, faucets and drains), and all ducts, pipes, vents, or other parts of the
HVAC or plumbing system, (ii) all fixtures, interior walls, floors, carpets and
ceilings, (iii) all windows, doors, entrances, showcases, and skylights
(including cleaning both interior and exterior surfaces), (iv) all electrical
facilities and equipment (including all lighting fixtures, lamps, bulbs, tubes,
fans, vents, exhaust equipment and systems), (v) any automatic fire extinguisher
equipment in the Premises, (vi) all landscaping and Other Areas, (vii) the roof
and exterior finishes of the Building, and (viii) all other structural elements
of the Building. With respect to utility facilities serving the Premises
(including electrical wiring and conduits, gas lines, water pipes, and plumbing
and sewage fixtures and pipes), Tenant shall be responsible for the maintenance
and repair of any such facilities which serve the Premises, including all such
facilities that are within or outside the walls, floor, or on the roof of the
Building. If the work affects the roof, the exterior of the Building or Other
Areas, any of the building systems, any of the structural parts of the Premises,
or if the estimated cost of any item of repair or replacement is in excess of
Twenty Five Thousand Dollars and No Cents ($25,000.00), then Tenant shall first
obtain Landlord's written approval of the scope of work, plans therefor,
materials to be used, and the contractor. All repairs and replacements required
of Tenant shall be promptly made at Tenant's own expense with new materials of
like kind and quality; provided, however, that if Tenant fails to make such
repairs or replacements, Landlord may, but need not, make such repairs and
replacements, and Tenant shall pay Landlord the cost thereof, together with an
additional ten percent (10%) of the cost thereof, as reimbursement to Landlord
for all overhead, general conditions, fees and other actual costs or expenses
arising from Landlord's management and coordination of repairs and replacements,
promptly upon being billed for same. This provision shall be construed as an
additional remedy given to Landlord and does not limit any other rights or
remedies that Landlord may have. Notwithstanding the above, during the Extended
Lease Term, Landlord shall maintain in good order, condition, and repair the
roof, exterior finishes, and structural elements of the Building. The cost of
any capital improvements made by Landlord to the Building during the Extended
Lease Term, however, shall be amortized over the useful life of such
improvements with the annual amortized cost thereof included as Additional Rent.
By the Commencement Date, however, Landlord at its sole cost, will add bracing
to the roof purlins in the first two (2) exterior (east and west) bays of the
Building as set forth in Exhibit D, which is attached hereto and incorporated
---------
herein by this reference (the "Roof Repairs"). Landlord makes no representations
or warranties, express or implied, with respect to the Roof Repairs.
6.2 Control of Other Areas: Except as set forth below, Tenant shall at
----------------------
all times have control of the Other Areas. Landlord shall have the right,
without the same constituting an actual or
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constructive eviction and without entitling Tenant to any abatement of rent, to:
(i) close any part of the Other Areas to whatever extent required in the opinion
of Landlord's counsel to prevent a dedication thereof or the accrual of any
prescriptive rights therein; (ii) designate other property outside the
boundaries of the Premises to become part of the Premises; (iii) change the
shape, size, location, number and extent of improvements on the Other Areas
including, without limitation, changes in the location of driveways, entrances,
passageways, exits, parking spaces, parking areas, sidewalks or the direction of
the flow of traffic and the site of the Other Areas, provided, that none of the
foregoing permanently, materially and adversely impairs Tenant's cost, use or
quiet enjoyment of the Premises; and (iv) change the name or address of the
Premises. The use of the Other Areas shall be subject to such reasonable
regulation and changes therein as Landlord shall make from time to time.
Landlord shall not exercise its rights to the Other Areas in a manner that would
materially interfere with Tenant's use of the Premises without first obtaining
Tenant's approval, which approval shall not unreasonably be withheld or delayed.
Tenant shall keep the Other Areas free and clear of all obstructions created or
permitted by Tenant. Nothing herein shall affect the right of Landlord at any
time (or require Landlord at any time) to remove any unauthorized person from
the Other Areas or to prohibit the use of the Other Areas by unauthorized
persons. In exercising any such rights regarding the Other Areas, Landlord shall
make a reasonable effort to minimize any disruption to Tenant's business.
6.3 Tenant's Negligence: Tenant shall pay for all damage to the
-------------------
Premises caused by the negligent act or omission of Tenant, its employees,
contractors, or invitees or by the failure of Tenant to discharge promptly its
obligations under this Lease or comply with the terms of this Lease.
7. UTILITIES:
---------
7.1 Utilities: Tenant shall promptly pay, as the same become due, all
---------
charges for water, gas, electricity, telephone, sewer service, waste pick-up,
and any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term, including, without
limitation, (i) meter, use and/or connection fees, hook-up fees, standby fees,
and (ii) penalties for discontinued or interrupted service.
7.2 Compliance with Governmental Regulations: Landlord and Tenant shall
----------------------------------------
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control. Landlord
may voluntarily cooperate in a reasonable manner with the efforts of all
governmental agencies or utility suppliers in reducing energy or other resources
consumption. Tenant shall not be entitled to terminate this Lease nor to any
abatement in rent by reason of such compliance or cooperation. Tenant shall be
entitled to an abatement of rent to the extent that Landlord's voluntary
cooperation with local rules and regulations materially interferes with Tenant's
use of the Premises for more than five (5) consecutive days. Tenant agrees at
all times to cooperate fully with Landlord and to abide by all reasonable rules,
regulations and requirements which Landlord may prescribe in order to maximize
the efficient operation of the HVAC system and all other utility systems.
7.3 PVS and CDAS Located on the Adjacent Property: Facilities are
---------------------------------------------
located on the Premises that will allow Tenant to access the Process Vacuum
System ("PVS") and Clean Dry Air
11
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System ("CDAS") located on the Adjacent Property. Subject to the terms and
conditions set forth herein, Tenant may, on an as-needed basis, and upon prior
oral or written notice to Landlord, use such facilities to access and utilize
the PVS and CDAS located on the Adjacent Property, on a non-exclusive basis with
Landlord or any tenant of the Adjacent Space. Tenant shall use such PVS and CDAS
systems on an as-needed basis only and shall not engage in any excessive usage.
As consideration for Tenant's use of or rights to use such PVS and CDAS systems,
Tenant shall pay to Landlord as Additional Rent a monthly fee of Two Thousand
Four Hundred Twenty-Seven Dollars and No Cents ($2,427.00) (the "Access Fee"),
which amount is due and payable at the same time that Monthly Rent is due and
payable to Landlord hereunder. Landlord may from time to time promulgate
reasonable rules and regulations for the care and orderly use of the PVS and
CDAS located on the Adjacent Property. Such rules and regulations shall be
binding upon Tenant upon delivery of a copy thereof. Landlord shall be
responsible for making any necessary repairs to the PVS and CDAS located on the
Adjacent Property within a reasonable time after Landlord's receipt of a written
request therefor from Tenant, it being understood that Tenant shall have no
right to enter upon the Adjacent Premises or to otherwise make such repairs.
Landlord makes no warranty express or implied with respect to the condition,
availability or suitability for Tenant's use of the PVS or CDAS facilities
located on the Adjacent Property or any equipment used in connection therewith
and Landlord shall have no liability to Tenant in the event such facilities are
made unavailable to Tenant for any reason. Tenant shall indemnify, defend,
protect and hold harmless Landlord and its agents and employees from and against
any claims, demands, causes of action, damages or liabilities arising from
Tenant's usage or attempted usage of the PVS and CDAS located on the Adjacent
Property. Notwithstanding anything to the contrary contained herein, either
party hereto may upon thirty (30) days prior written notice to the other party
terminate the rights provided for hereunder, in which event, Landlord may upon
the expiration of such 30-day period enter the Premises and make any alterations
necessary to disconnect or otherwise terminate Tenant's access to the PVS and
CDAS located on the Adjacent Property and Tenant shall thereafter have no
obligation to pay the Access Fee.
8. REAL PROPERTY TAXES:
-------------------
8.1 Real Property Taxes Defined: "Real Property Taxes" as used herein
---------------------------
means (i) all taxes, assessments, levies, and other charges of any kind or
nature whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services, or benefits
and any increases resulting from reassessments or resulting from a change in
ownership or any other cause), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy or use of, all or any portion of the Premises
(as now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein, the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of and
located on the Premises, the gross receipts, income, or rentals from the
Premises, or the use of parking areas, public utilities, or energy within the
Premises, (ii) all charges, levies or fees imposed by reason of environmental
regulation or other governmental control of the Premises, and (iii) all costs
and fees (including attorneys' fees) incurred by Landlord in contesting
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any Real Property Tax and in negotiating with public authorities as to any Real
Property Tax. Landlord shall, at Tenant's request, consult and cooperate in good
faith with Tenant with respect to any contest or negotiation with public
authorities concerning any Real Property Tax, but control of any such contest or
negotiation shall rest exclusively and conclusively with Landlord. Tenant shall
be entitled to the benefit of any reduction in Real Property Taxes obtained by
Landlord which is applicable to the Lease Term. If at any time during the Lease
Term the method of taxation or assessment of the Premises prevailing as of the
Effective Date shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation or assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Premises or Landlord's interest therein,
or (ii) on or measured by the gross receipts, income, or rentals from the
Premises, on Landlord's business of leasing the Premises, or computed in any
manner with respect to the operation of the Premises, then any such tax or
charge, however designated, shall be included within the meaning of the term
"Real Property Taxes" for purposes of this Lease. If any Real Property Tax is
based upon property or rents unrelated to the Premises, then only that part of
such Real Property Tax that is fairly allocable to the Premises shall be
included within the meaning of the term "Real Property Taxes." Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, transfer, gift or franchise taxes of Landlord or the federal or
state net income tax imposed on Landlord's income from all sources.
8.2 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall
--------------------------------
pay all Real Property Taxes which become due during the Lease Term. Tenant shall
pay such Real Property Taxes to Landlord within ten (10) days of written demand
therefor by Landlord; provided, however, Landlord shall use its best efforts to
bill Tenant annually for the then current assessment of Real Property Taxes. If
any assessments are levied against the Premises, Landlord may elect either to
pay the assessment in full or allow the assessment to go to bond. If Landlord
pays the assessment in full, only that amount which would have been payable
(both principal and interest) had Landlord allowed the assessment to go to bond
shall be included in the annual amount of Real Property Taxes payable hereunder.
8.3 Taxes on Tenant's Property: Tenant shall pay before delinquency any
--------------------------
and all taxes, assessments, license fees, and public charges levied, assessed,
or imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term. On
demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of
these payments.
9. INSURANCE:
---------
9.1 Tenant's Insurance: Tenant shall maintain insurance complying with all
------------------
of the following:
9.1.1 Tenant shall procure, pay for and keep in full force and
effect the following:
9.1.1.1 Commercial general liability insurance, including
property damage, against liability for personal injury, bodily injury, death and
damage to property occurring in or about, or resulting from an occurrence in or
about, the Premises with combined single limit coverage
13
<PAGE>
of not less than the amount of Tenant's Minimum Liability Insurance Coverage set
forth in Section 1.17, which insurance shall contain "fire legal" endorsement
coverage and a "contractual liability" endorsement insuring Tenant's performance
of Tenant's obligation to indemnify Landlord contained in Section 10.3;
9.1.1.2 Pollution legal liability insurance with limits of Five
Million Dollars and No Cents ($5,000,000.00) per occurrence and Five Million
Dollars and No Cents ($5,000,000.00) aggregate. If the insurance required by
this Section is a "claims made" policy, such insurance or its replacement
insurance shall have a retroactive date of no later than the effective date of
this Lease. Such insurance policy or its replacement policy shall also provide a
minimum of two (2) years extended reporting period coverage, or the maximum time
under the State of Idaho Statute of Limitations, existing on the effective date
of this Lease, for potential claims under such insurance, whichever is longer,
after the last action undertaken by Tenant relative to this Lease. The policy
must also provide the following:
i. coverage for attorneys' fees and costs of defense and
indemnity for liability, including, but not limited to, judgments, settlements
and/or governmental fines and penalties, which is assumed by Tenant under this
Lease;
ii. coverage for any demands for environmental cleanup costs
associated with Tenant's use of the Premises, in accordance with Tenant's
indemnity obligation under Section 10.3 herein;
iii. coverage for the presence, discharge, dispersal, release,
removal, or escape of pollutants ("Pollution Conditions") emanating from or
affecting the Premises, to the extent such Pollution Conditions are caused by or
under the control of Tenant;
iv. coverage for sudden and gradual Pollution Conditions into
or upon land, the atmosphere or any natural or artificial watercourse or body of
water;
v. coverage for loading and unloading activities.
A copy of the pollution legal liability coverage certificate must be
provided to and approved by Landlord prior to Tenant taking possession of or
entering upon the Premises under this Lease.
9.1.1.3 Plate-glass insurance at actual replacement cost;
9.1.1.4 Fire and property damage insurance against loss caused by
fire, extended coverage perils including steam boiler insurance, sprinkler
leakage, if applicable, vandalism, malicious mischief and such other additional
perils as now are or hereafter may be included in a standard extended coverage
endorsement from time to time in general use in the county in which the Premises
is located, insuring Tenant's personal property and inventory, Trade Fixtures,
and Leasehold Improvements within the Building or located on the Other Areas for
the full actual replacement cost thereof;
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9.1.1.5 Worker's compensation coverage and any other employee
benefit insurance sufficient to comply with all Laws;
9.1.1.6 With respect to construction, alterations, improvements, or
the like undertaken by Tenant, upon reasonable demand by Landlord based on such
factors as the size and risk of the work, contingent liability and broad form
builder's risk insurance, in an amount, if any, necessary to protect Landlord,
it being understood that in lieu of maintaining such coverage directly, Tenant
may cause its general contractor to maintain such coverage;
9.1.1.7 Such other insurance that is required by any Lender;
provided, however, that such insurance shall not exceed that which is normally
required by landlords engaged in leasing comparable premises located in the
vicinity of the Premises under comparable terms and conditions.
9.1.2 Each policy of insurance required to be carried by Tenant
pursuant to this Section (i) shall name Landlord and such other parties in
interest as Landlord designates as additional insureds, provided, however that
such parties shall be added as named insureds on the commercial general
liability policy required pursuant to Section 9.1.1.1, (ii) shall be primary
insurance which provides that the insurer shall be liable for the full amount of
the loss up to and including the total amount of liability stated in the
declarations without the right of contribution from any other insurance coverage
of Landlord, (iii) shall be in a form reasonably satisfactory to Landlord, (iv)
shall be carried with companies having a Best rating of at least AVII, (v) shall
----
provide that such policy shall not be subject to cancellation, lapse or change
except after at least thirty (30) days prior written notice to Landlord, (vi)
shall not have a "deductible" in excess of Five Thousand Dollars and No Cents
($5,000.00) per occurrence, (vii) shall contain a cross liability endorsement,
and (viii) shall contain a "severability" clause.
9.1.3 A copy of each paid-up policy evidencing the insurance required
to be carried by Tenant pursuant to this Section (appropriately authenticated by
the insurer) or a certificate of the insurer, certifying that such policy has
been issued, providing the coverage required by this Section, and containing the
provisions specified herein, shall be delivered to Landlord prior to the time
Tenant or any of Tenant's Agents enters the Premises and upon renewal of such
policies, but not less than thirty (30) days prior to the expiration of the term
of such coverage. Landlord may, at any time, and from time to time, inspect
and/or copy any and all insurance policies required to be procured by Tenant
pursuant to this Section. If Landlord's lender or insurance adviser reasonably
determines at any time that the amount of coverage required for any policy of
insurance Tenant is to obtain pursuant to this Section is not adequate, then
Tenant shall increase such coverage for such insurance to such amount as
Landlord's lender or insurance adviser reasonably deems adequate, not to exceed
the level of coverage commonly required by prudent landlords of comparable
buildings in the vicinity.
9.2 Landlord's Insurance: Landlord shall maintain at least the following
--------------------
insurance:
9.2.1 Landlord shall maintain a policy or policies of fire and property
damage insurance in so-called "fire and extended coverage" form insuring
Landlord (and such others as Landlord may designate) against loss of rents for a
period of not less than six (6) months and from
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physical damage to the Premises with coverage at such level as Landlord shall
select, but not less than ninety percent (90%) of the full replacement cost
thereof. Such fire and property damage insurance, at Landlord's election, (i)
may be written in so-called "all risk" form to include such perils as are
commonly covered by such form of coverage, (ii) may provide coverage for
physical damage to the improvements so insured up to the then full replacement
cost thereof, (iii) may be endorsed to cover loss caused by such additional
perils against which Landlord may elect to insure, including earthquake and/or
flood, and (iv) may provide coverage for loss of rents for a period of up to
twelve (12) months. Landlord shall not be required to cause such insurance to
cover any Trade Fixtures, Leasehold Improvements, or any inventory or other
personal property of Tenant. Landlord currently maintains in addition to the
above insurance, environmental insurance for the Premises. Landlord shall
provide thirty (30) days' written notice to Tenant if Landlord, in its sole
discretion, ever reduces or removes such environmental insurance from its
current levels.
9.2.2 Upon demand, Landlord shall provide Tenant with reasonable
evidence of the existence of insurance required of Landlord hereunder.
9.3 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall
--------------------------------
pay to Landlord the cost of the premiums for insurance carried by Landlord
relating to the Premises and deductible amounts under such insurance paid in
connection with the repair or restoration of the Premises (including the Other
Areas) after damage or destruction of the Premises within ten (10) days of
written demand therefor by Landlord. Notwithstanding the above, Tenant shall not
be required to pay the cost of such insurance premiums and deductibles if such
damage to or destruction of the Premises was proximately caused by Landlord's or
Landlord's agent's, tenant's (excluding Tenant), or invitee's negligence or
willful misconduct.
9.4 Release and Waiver of Subrogation: The parties hereto waive all
---------------------------------
rights against each other for damages to property caused by fire or other perils
to the extent such damages are covered by insurance obtained pursuant to any
provision of this Section 9, or any other property insurance applicable to the
Premises; provided, however, that such waivers are effective only if the
applicable insurance policies of both parties contain a clause to the effect
that this release shall not affect the right of the insured to recover under
such policy. Each party shall use reasonable efforts to cause each insurance
policy obtained by it to provide that the insurer waives all right of recovery
by way of subrogation against the other party in connection with any injury or
damage covered by such policy.
10. LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY:
------------------------------------------------
10.1 Limitation on Landlord's Liability: Landlord shall not be liable to
----------------------------------
Tenant (except to the extent caused by the gross negligence or willful
misconduct of Landlord or Landlord's agents, employees, contractors, invitees,
or tenants (excluding Tenant)), nor shall Tenant be entitled to terminate this
Lease or to any abatement of rent, for any injury to Tenant or any of Tenant's
Agents', or damage to Tenant's property, resulting from any cause, including,
without limitation, any (i) failure, interruption or installation of any HVAC or
other utility system or service, (ii) repairs or improvements to the Premises,
(iii) limitation, curtailment, rationing or restriction on the use of water or
electricity, gas or any other form of energy or any services or utility serving
the Premises, (iv) vandalism or forcible entry by unauthorized persons, or (v)
penetration of water into or onto any
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portion of the Premises through roof leaks or otherwise. NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED HEREIN, LANDLORD SHALL IN NO EVENT BE LIABLE
TO TENANT FOR ANY PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES FOR LOSS OF
BUSINESS BY TENANT.
10.2 Limitation on Tenant's Recourse: Notwithstanding any other term or
-------------------------------
provision of this Lease, the liability of Landlord for its obligations under
this Lease, except for obligations under Section 15.2.3, is limited solely to
the lessor of (i) Landlord's interest in the Premises or (ii) twenty percent
(20%) of the fair market value of the Premises, and to no other assets of
Landlord for satisfaction of any liability with respect to this Lease, and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's stockholders, directors,
principals, representatives, trustees or partners on account of any of
Landlord's obligations or actions under this Lease. Any liability of Landlord
for its obligations under Section 15.2.3 shall be limited solely to Landlord's
interest in the Premises, and to no other assets of Landlord for satisfaction of
any such liability, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's
stockholders, directors, principals, representatives, trustees or partners on
account of any of Landlord's obligations under Section 15.2.3. In addition, in
the event of conveyance of Landlord's interest in the Premises, then from and
after the date of such conveyance, Landlord shall be relieved of all liability
with respect to Landlord's obligations to be performed under this Lease after
the date of such conveyance. Upon any such conveyance by Landlord, the grantee
or transferee, by accepting such conveyance, shall be deemed to have assumed
Landlord's obligations to be performed under this Lease from and after the date
of such transfer, subject to the limitations on liability set forth in this
Section 10.2. Notwithstanding the foregoing, if any such grantee or transferee
agrees to assume in writing all of the obligations of Landlord under this Lease,
including, without limitation, all of the obligations of Landlord first accruing
prior to the date of such conveyance, then Landlord shall be fully and
unconditionally released of all liability to Tenant under this Lease, including,
without limitation, all liability with respect to Landlord's obligations under
this Lease first accruing prior to the date of such conveyance.
10.3 Indemnification of Landlord: In addition to any other indemnity
---------------------------
obligations of Tenant stated in this Lease, Tenant shall hold harmless, protect,
indemnify and defend Landlord, and its employees, agents, contractors,
successors and assigns, with competent counsel reasonably satisfactory to
Landlord, from and against all liabilities, penalties, losses, damages, costs,
expenses, causes of action, claims and/or judgments ("Claims") arising in whole
or in part out of (a) any breach of this Lease by Tenant, or (b) by reason of
any death, bodily injury, personal injury or property damage (i) any cause or
causes whatsoever (except to the extent of the gross negligence or willful
misconduct of Landlord or Landlord's employees, agents, contractors, invitees,
or tenants (excluding Tenant)) occurring in or about or resulting from an
occurrence in or about the Premises, or (ii) resulting from the negligence or
willful misconduct of Tenant or any of Tenant's Agents, wherever the same may
occur. The provisions of this Section shall survive the expiration or sooner
termination of this Lease with respect to any claims or liability occurring
prior to such expiration or sooner termination.
10.4 Indemnification of Tenant: Subject to Section 10.2, Landlord shall
-------------------------
hold harmless, protect, indemnify and defend Tenant, and its employees, Agents,
contractors, successors and
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assigns, with competent counsel reasonably satisfactory to Tenant, from and
against all Claims to the extent arising in whole or in part out of (a) any
breach of this Lease by Landlord, or (b) the negligence or willful misconduct of
Landlord (and its agents, employees, invitees, or tenants (excluding Tenant))
arising as a result of Landlord's Agent's presence on the Premises following a
change in the Other Areas under Section 6.2(iii).
11. DAMAGE TO PREMISES:
------------------
11.1 Landlord's Duty to Restore: If the Premises are damaged by any peril
--------------------------
after the Effective Date of this Lease, Landlord shall restore the Premises
unless the Lease is terminated by Landlord pursuant to Section 11.2 or by Tenant
pursuant to Section 11.3. All insurance proceeds available from the fire and
property damage insurance carried by Landlord pursuant to Section 9.2 shall be
paid to and become the property of Landlord. If this Lease is terminated
pursuant to either Sections 11.2 or 11.3, then all insurance proceeds available
from insurance carried by Tenant which covers loss to property that is
Landlord's property or would become Landlord's property on termination of this
Lease shall be paid to and become the property of Landlord. If this Lease is not
so terminated, then upon receipt of the insurance proceeds and the issuance of
all necessary governmental permits, Landlord shall use commercially reasonable
efforts commensurate with local industry standards to commence and complete the
restoration of the Premises to substantially the same condition in which the
Premises were immediately prior to such damage. Landlord's obligation to restore
shall be further limited to the Premises constructed by Landlord as they existed
as of the Commencement Date, excluding any Leasehold Improvements, Trade
Fixtures and/or personal property constructed or installed in the Premises. If
this Lease is not terminated pursuant to Section 11.2 or 11.3, then Tenant shall
forthwith commence and thereafter prosecute to completion the replacement and
repair of all Leasehold Improvements and Trade Fixtures, if any, existing at the
time of such damage or destruction, and which were to have been surrendered to
Landlord hereunder; and all insurance proceeds received by Tenant from the
insurance carried by it pursuant to Section 9.1.1.3 shall be used for such
purpose.
11.2 Landlord's Right to Terminate: Landlord shall have the option to
-----------------------------
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within ninety (90) days after the date of such damage or such later
date as is reasonably necessary under the circumstances:
11.2.1 The Building or Other Areas are damaged by any peril either (i)
not covered by the type of insurance Landlord is required to carry pursuant to
Section 9.2 or (ii) covered by valid and collectible insurance actually carried
by Landlord and in force at the time of such damage or destruction, to such an
extent that the estimated cost to restore equals or exceeds twenty-five percent
(25%) of the then actual replacement cost thereof;
11.2.2 The Building or Other Areas are damaged by any peril and (i) the
cost to restore the Premises less the amount of the insurance proceeds actually
received by Landlord for repair or restoration of the Premises equals or exceeds
Twenty-Five Thousand Dollars and No Cents ($25,000.00), or (ii) unless the
parties agree otherwise, the Laws then in effect prevent Landlord
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from repairing or restoring the Premises to substantially the same condition in
which the Premises were immediately prior to such damage;
11.2.3 The Building or Other Areas are damaged by any peril and,
because of the Laws then in force, (i) may not be restored at reasonable cost to
substantially the same condition in which it was prior to such damage, or (ii)
may not be used for the same use being made thereof before such damage whether
or not restored as required by this Section.
11.3 Tenant's Right to Terminate: If the Premises are damaged by any
---------------------------
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to Section 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the option to terminate
this Lease in the event any of the following occurs, which option may be
exercised only by delivery to Landlord of a written notice of election to
terminate within seven (7) days after Tenant receives from Landlord the estimate
of the time needed to complete such restoration:
11.3.1 The Premises are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration of
the Premises cannot be substantially completed within two hundred seventy (270)
days after the date of such damage; or
11.3.2 The Premises are damaged by any peril within twelve (12) months
of the last day of the Lease Term and in the reasonable opinion of Landlord's
architect or construction consultant the restoration of the Premises cannot be
substantially completed within sixty (60) days after the date of such damage.
11.4 Abatement of Rent: In the event of damage to the Premises which does
-----------------
not result in the termination of this Lease, the Monthly Rent shall be
temporarily abated during the period of restoration in proportion to the degree
to which Tenant's use of the Premises is impaired by such damage. Tenant shall
not be entitled to any compensation or damages from Landlord for loss of
Tenant's business or property or for any inconvenience or annoyance caused by
such damage or restoration. To the extent permitted by applicable law, Tenant
agrees that the foregoing provisions shall supersede any contrary provisions
contained in any applicable law in the state in which the Premises is located
regarding damage to or destruction of leased property.
12. CONDEMNATION:
------------
12.1 Taking of Premises: Landlord shall have the option to terminate this
------------------
Lease if, as a result of a taking by means of the exercise of the power of
eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) twenty-five percent (25%) or more
of the Building is so taken, or (ii) more than fifty percent (50%) of the Other
Areas are so taken. Any such option to terminate by Landlord must be exercised
within a reasonable period of time after the condemnor has commenced judicial
action or entered into a binding agreement to effect such taking. If Landlord so
exercises such option to terminate, such termination shall be effective as of
the date possession is taken by the condemnor.
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12.2 Termination By Tenant: Tenant shall have the option to terminate
---------------------
this Lease if, as a result of any taking by means of the exercise of the power
of eminent domain (including any voluntary sale or transfer by Landlord to any
condemnor under threat of condemnation), (i) twenty-five percent (25%) or more
of the Building is so taken and that part of the Building that remains cannot be
constructed within a reasonable period of time and thereby made reasonably
suitable for the continued operation of Tenant's business, or (iii) there is a
taking of more than fifty percent (50%) of the Other Areas and, as a result of
such taking, Tenant's access to the Premises is materially impeded or Landlord
cannot provide parking spaces within walking distance of the Premises equal in
number to at least fifty percent (50%) of the number of spaces available on the
Premises prior to the taking, whether by rearrangement of the remaining parking
areas in the Other Areas, (including construction of multi-deck parking
structures or restriping for compact cars where permitted by law) or by
alternative parking facilities on other land. Tenant must exercise such option
within a reasonable period of time, to be effective on the date that possession
of that portion of the Other Areas that is condemned is taken by the condemnor.
12.3 Restoration and Abatement of Rent: If any part of the Building or
---------------------------------
the Other Areas is taken by Condemnation and this Lease is not terminated, then,
to the extent reasonably practicable, Landlord shall restore the remaining
portion of the Building and Other Areas as they existed as of the Commencement
Date, excluding any Leasehold Improvements, Trade Fixtures and/or personal
property constructed or installed after the Commencement Date. Thereafter, as of
the date possession is taken the Monthly Rent shall be reduced in the same
proportion that the floor area of that part of the Building so taken (less any
addition thereto by reason of any reconstruction) bears to the original floor
area of the Building.
12.4 Temporary Taking: If all or any portion of the Building is
----------------
temporarily taken for ninety (90) days or less, this Lease shall remain in
effect. If any portion of the Building is temporarily taken by condemnation for
a period which exceeds ninety (90) days or which extends beyond the natural
expiration of the Lease Term, or such taking, as agreed by the parties,
materially and adversely affects Tenant's ability to use the Building for the
Permitted Use, then Landlord and Tenant shall each independently have the option
to terminate this Lease. Such option must be exercised within a reasonable
period of time, and shall be effective on the date possession is taken by the
condemnor.
12.5 Division of Condemnation Award: Any award made as a result of any
------------------------------
condemnation of the Building or the Other Areas shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant, (i) for the
taking of personal property or Trade Fixtures belonging to Tenant, (ii) for the
interruption of Tenant's business or its moving costs, (iii) for loss of
Tenant's goodwill, or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking (subject to the requirements of Section
14.1.6), it being understood that any Lease bonus value (the difference between
the Monthly Rent and Additional Rent and the then fair market value rent for the
Premises) shall be payable and belong to Landlord. The rights of Landlord and
Tenant regarding any condemnation shall be determined as provided in this
Section, and, to the extent allowed by applicable law, each party waives any
contrary provisions contained in the law of the state in which the Premises is
located.
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13. DEFAULT AND REMEDIES:
--------------------
13.1 Events of Tenant's Default: Tenant shall be in Default of its
--------------------------
obligations under this Lease if any of the following events occur (collectively,
"Default" or "Event of Default"):
13.1.1 Tenant shall have failed to pay Monthly Rent or any Additional
Rent when due and such failure is not cured within seven (7) days after delivery
of written notice from Landlord specifying such failure to pay; or
13.1.2 Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Monthly Rent or
Additional Rent, and Tenant shall not cure such Default within fifteen (15) days
after delivery of written notice from Landlord specifying such failure to
perform, or where such Default is not capable of being cured within such 15-day
period, Tenant shall have failed to commence such cure within such 15-day period
and thereafter using best efforts, diligently bring such cure to completion; or
13.1.3 Tenant shall have made a general assignment of its assets for
the benefit of its creditors; or
13.1.4 Tenant shall have sublet the Premises or assigned its interest
in the Lease in violation of the provisions contained in Section 14, whether
voluntarily or by operation of law; or
13.1.5 Tenant shall have permitted the sequestration or attachment of,
or execution on, or the appointment of a custodian or receiver with respect to,
all or any substantial part of the property of Tenant or any property essential
to the conduct of Tenant's business and Tenant shall have failed to obtain a
return or release of such property within sixty (60) days thereafter, or prior
to sale pursuant to such sequestration, attachment or levy, whichever is
earlier; or
13.1.6 Tenant shall have abandoned the Premises or left the Premises
substantially vacant for more than sixty (60) consecutive days; provided,
however, that Tenant shall not be deemed in Default under this Lease if it
leaves all or any part of the Premises vacant for less than sixty (60)
consecutive days as long as (i) Tenant is performing all of its other
obligations under this Lease, including, without limitation, the obligation to
pay Monthly Rent and Additional Rent, (ii) Tenant provides on-site security
during normal business hours for those parts of the Premises left vacant, (iii)
such vacancy does not materially and adversely affect the validity or coverage
of any policy of insurance carried by Landlord with respect to the Premises, and
(iv) the utilities and building systems are operated and maintained to the
extent necessary to prevent damage to the Building and Premises; or
13.1.7 A court shall have made or entered any decree or order with
respect to Tenant or Tenant shall have submitted to or sought a decree or order
(or a petition or pleading shall have been filed in connection therewith) which:
(i) grants or constitutes (or seeks) an order for relief, appointment of a
trustee, or confirmation of a reorganization plan under the bankruptcy laws of
the United States; (ii) approves as properly filed (or seeks such approval of) a
petition seeking liquidation or reorganization under said bankruptcy laws or any
other debtor's relief law or statute of the United States or any state thereof;
or (iii) otherwise directs (or seeks) the winding up or
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liquidation of Tenant; and such petition, decree or order shall have continued
in effect for a period of sixty (60) or more days.
13.2 Landlord's Remedies: In the event of any Default by Tenant, Landlord
-------------------
shall have the following remedies, in addition to all other rights and remedies
provided by any Law or otherwise provided in this Lease, to which Landlord may
resort cumulatively, or in the alternative:
13.2.1 Landlord may, at Landlord's election, continue this Lease in
full force and effect and may enforce all its rights and remedies under this
Lease, including, but not limited to, the right to recover rent and any other
sums payable hereunder as they become due. In addition, Landlord may enter the
Premises without terminating this Lease and sublet all or any part of the
Premises for Tenant's account to any person, for such term (which may be a
period beyond the remaining term of this Lease), at such rents and on such other
terms and conditions as Landlord deems advisable. In the event of any such
subletting, rents received by Landlord from such subletting shall be applied (i)
first, to the payment of the costs of maintaining, preserving, altering and
preparing the Premises for subletting and other costs of subletting, including
but not limited to brokers' commissions, attorneys' fees and expenses of removal
of Tenant's personal property, Trade Fixtures, and Leasehold Improvements, (ii)
second, to the payment of rent or any other sums then due and payable, (iii)
third, to the payment of future rent or any other sums as the same may become
due and payable hereunder, and (iv) fourth, the balance, if any, shall be paid
to Tenant upon (but not before) expiration of the term of this Lease. If the
rents received by Landlord from such subletting, after application as provided
above, are insufficient in any month to pay the Monthly Rent and any Additional
Rent due and payable hereunder for such month, Tenant shall pay such deficiency
to Landlord monthly upon demand. Notwithstanding any such subletting for
Tenant's account without termination, Landlord may at any time thereafter, by
written notice to Tenant, elect to terminate this Lease by virtue of any
previous Default hereunder by Tenant.
13.2.2 Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice. Tenant expressly
acknowledges that in the absence of such written notice from Landlord, no other
act of Landlord, including, without limitation, its re-entry into the Premises,
its efforts to relet the Premises, its reletting of the Premises for Tenant's
account, its storage of Tenant's personal property and Trade Fixtures, its
acceptance of keys to the Premises from Tenant or its exercise of any other
rights and remedies under this Section 13.2, shall constitute an acceptance of
Tenant's surrender of the Premises or constitute a termination of this Lease or
of Tenant's right to possession of the Premises. Upon such termination in
writing of Tenant's right to possession of the Premises, as herein provided,
this Lease shall terminate and Landlord shall be entitled to recover damages
from Tenant as provided in any existing or future Law providing for recovery of
damages for such breach, including, without limitation, the following:
13.2.2.1 The reasonable cost of recovering the Premises; plus
13.2.2.2 The reasonable cost of removing Tenant's Trade Fixtures and
Leasehold Improvements; plus
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13.2.2.3 The acceleration of all rent (discounted to present value
using a discount rate of seven percent (7%)) and any other sums due or to become
due under this Lease;
13.2.2.4 For purposes of this Section 13.2, (i) the term "rent"
includes the Monthly Rent and all Additional Rent, and (ii) if it becomes
necessary to determine the amount of Additional Rent that would have become due
had Tenant not breached its obligations under this Lease, all such Additional
Rent shall be computed on the basis of the average monthly amount thereof
accruing during the immediately preceding twelve (12) month period, except that
if it becomes necessary to compute such Additional Rent before such a twelve
(12) month period has occurred, then such rent shall be computed on the basis of
the average monthly amount thereof accruing during such shorter period.
13.2.2.5 Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable Law.
13.2.3 In the event Tenant breaches this Lease and abandons the
Premises, this Lease shall not terminate unless Landlord gives Tenant written
notice of its election to so terminate this Lease. No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including those
described by Section 13.2.2 immediately preceding, shall constitute a
termination of Tenant's right to possession unless Landlord gives Tenant written
notice of termination. Should Landlord not terminate this Lease by giving Tenant
written notice, Landlord may enforce all its rights and remedies under this
Lease, including the right to recover the rent as it becomes due under the
Lease.
13.2.4 Nothing in this Section shall limit Landlord's right to
indemnification from Tenant as provided elsewhere in this Lease, including,
without limitation, Sections 10.3 and 15.2.3. Any notice given by Landlord in
order to satisfy the requirements of Sections 13.1.1 or 13.1.2 above shall also
satisfy the notice requirements of any applicable law regarding unlawful
detainer proceedings.
13.2.5 Landlord shall have a lien upon and a security interest in all
of Tenant's property located on the Premises for the rent and all other payments
to be made by Tenant to Landlord or any other person hereunder, for Tenant's
performance of all of Tenant's obligations pursuant to this Lease and for all of
Tenant's breaches thereof ; provided, however, if no Event of Default shall have
occurred and be continuing, Landlord shall subordinate such lien to any lien on
Tenant's property held by a bona fide lender.
13.2.6 Tenant, for itself and on behalf of any persons claiming through
or under Tenant, including creditors of all kinds, does hereby waive and
surrender all rights and privileges which they or any of them might have under
or by reason of any present or future Law, to redeem the Premises or to have a
continuance of this Lease for the Lease Term after being dispossessed or ejected
therefrom by the valid order of a court of competent jurisdiction.
13.3 Landlord's Default and Tenant's Remedies: If Landlord fails to
----------------------------------------
perform any of its obligations under this Lease and fails to cure such default
within thirty (30) days after written notice from Tenant specifying the nature
of such default where such default could reasonably be cured
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within said thirty (30) day period, or fails to commence such cure within said
thirty (30) day period and thereafter continuously with due diligence prosecute
such cure to completion where such default could not reasonably be cured within
said thirty (30) day period, then Tenant, as its sole and exclusive remedy, may
proceed in equity or at law to compel Landlord to perform its obligations. To
the extent allowable by law, Tenant waives the provisions of any law regarding
Tenant's right to terminate this Lease or to make repairs and deduct the
expenses of such repairs from the rent due under the Lease.
13.4 Waiver: One party's consent to or approval of any act by the other
------
party requiring the first party's consent or approval shall not be deemed to
waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or hereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or any other provisions herein contained.
14. ASSIGNMENT AND SUBLETTING:
-------------------------
14.1 By Tenant: The following provisions shall apply to any direct or
---------
indirect assignment, subletting, change of control (as defined in Section 14.1.4
below) or other transfer by Tenant or any subtenant or assignee or other
successor in interest of the original Tenant (collectively referred to in this
Section as "Tenant"):
14.1.1 Tenant shall not do any of the following (collectively referred
to herein as a "Transfer"), whether voluntarily, involuntarily, or by operation
of laws, without the prior written consent of Landlord: (i) sublet all or any
part of the Building or Other Areas or allow it to be sublet, occupied or used
by any person or entity other than Tenant; (ii) assign its interest in this
Lease; (iii) transfer any right appurtenant to this Lease or the Premises; (iv)
mortgage or encumber the Lease (or otherwise use the Lease as a security device)
in any manner; or (v) terminate or materially amend or modify an assignment,
sublease, or other transfer that has been previously approved by Landlord.
Tenant shall reimburse Landlord for all reasonable costs and attorneys' fees
incurred by Landlord in connection with the processing and/or documentation of
any requested Transfer whether or not Landlord's consent is granted. Any
Transfer so approved by Landlord shall not be effective until Tenant has paid
all such costs and attorneys' fees to Landlord and delivered to Landlord an
executed counterpart of the document evidencing the Transfer which (i) is in
form approved by Landlord, (ii) contains substantially the same terms and
conditions as stated in Tenant's notice given to Landlord pursuant to Section
14.1.2 below, and (iii) contains the agreement of the proposed Transferee to
assume all obligations of Tenant related to the Transfer arising after the
effective date of such Transfer and to remain jointly and severally liable
therefor with Tenant. Any attempted Transfer without Landlord's consent shall
constitute a Default by Tenant and shall be voidable at Landlord's option.
Landlord's consent to any one Transfer shall not constitute a waiver of the
provisions of Section 14.1 as to any subsequent Transfer nor a consent to any
subsequent Transfer.
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No Transfer, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay the rent and to perform all of the other
obligations to be performed by Tenant hereunder. The acceptance of rent by
Landlord from any person shall not be deemed to be a waiver by Landlord of any
provision of this Lease nor to be a consent to any Transfer.
14.1.2 Tenant shall give Landlord at least thirty (30) days prior
written notice of any desired Transfer and of the proposed terms of such
Transfer including but not limited to (i) the name and legal composition of the
proposed Transferee; (ii) a current financial statement of the Transferee,
financial statements of the Transferee covering the preceding three years, and
the "best available" financial statement of the Transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of which statements are prepared in accordance with generally accepted
accounting principles; (iii) the nature of the proposed Transferee's business to
be carried on in or on the Premises; (iv) all consideration to be given on
account of the Transfer; (v) a current financial statement of Tenant; and (vi)
such other information as may be requested by Landlord. Tenant's notice shall
not be deemed to have been served or given until such time as Tenant has
provided Landlord with all information reasonably requested by Landlord pursuant
to this Section 14.1.2. Tenant shall immediately notify Landlord of any
modification to the proposed terms of such Transfer.
14.1.3 LANDLORD MAY WITHHOLD ITS CONSENT TO ANY PROPOSED TRANSFER FOR
ANY REASON OR NO REASON. If Tenant seeks to make any Transfer, then Landlord may
withhold its consent to such Transfer, as permitted pursuant to Section 14.1.1
above, by giving Tenant written notice of its election within thirty (30) days
after Tenant's notice of intent to Transfer has been deemed given to Landlord.
Without otherwise limiting the criteria upon which Landlord may withhold its
consent to any proposed Transfer, if Landlord withholds its consent where the
proposed Transferee's net worth (according to generally accepted accounting
principles) is less than the greater of (i) the net worth of Tenant (or
guarantor if any) immediately prior to the Transfer, or (ii) the net worth of
Tenant (or guarantor if any) as of the Effective Date, such withholding of
consent shall be presumptively reasonable. Additionally, such withholding of
consent by Landlord shall be presumptively reasonable if (x) at the time consent
is requested or at any time prior to the grant of consent, Tenant is in Default
under this Lease or would be in Default under this Lease but for the pendency of
any grace or cure period specified in this lease; or (y) in Landlord's
reasonable judgment, the use of the premises by the proposed Transferee would
involve occupancy in violation of this Lease. If Landlord approves of any
assignment by Tenant of its interest in this Lease, then Tenant shall pay to
Landlord all consideration received by Tenant over and above the assignee's
agreement to assume the obligations of Tenant under this Lease. If Landlord
approves of any subletting by Tenant of all or part of the Premises, then
Landlord shall be entitled to keep the positive difference, if any, between (a)
all rent and other consideration paid by the subtenant to Tenant, less (b) all
rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the
area so sublet. As used herein, the term "consideration" shall mean any
consideration of any kind received, or to be received, by Tenant as a result of
the Transfer, if such sums are related to Tenant's interest in this lease or in
the Premises, including payments (in excess of the fair market value thereof)
for Tenant's assets, fixtures, leasehold improvements, inventory, accounts,
goodwill, equipment, furniture, general intangibles and any capital stock or
other equity ownership interest in Tenant.
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14.1.4 If Tenant is a corporation, any dissolution, merger,
consolidation, or other reorganization of Tenant, or the sale or transfer in the
aggregate over the Lease Term of a controlling percentage of the capital stock
of Tenant, shall be deemed a Transfer of Tenant's interest in this Lease. The
phrase "controlling percentage" or "change of control" means the ownership of
and the right to vote stock possessing more than fifty percent (50%) of the
total combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. If Tenant is a
partnership, any withdrawal or substitution (whether voluntary, involuntary, or
by operation of law and whether occurring at one time or over a period of time)
of any partner(s) owning twenty-five percent (25%) or more (cumulatively) of any
interest in the capital or profits of the partnership, or the dissolution of the
partnership, shall be deemed a Transfer of Tenant's interest in this Lease.
Notwithstanding the foregoing, any sale or transfer of Tenant's capital stock
over any nationally recognized public exchange (specifically excluding, without
limitation, any so-called "penny stock" exchanges) shall not be deemed a
Transfer hereunder.
14.1.5 It is the intent of the parties hereto that this Lease shall
confer upon Tenant only the right to use and occupy the Premises and to exercise
such other rights as are conferred upon Tenant by this Lease. The parties agree
that this Lease is not intended to have a bonus value, nor to serve as a vehicle
whereby Tenant may profit by a future Transfer of this Lease or the right to use
or occupy the Premises as a result of any favorable terms contained herein or
any future changes in the market for leased space.
14.1.6 Tenant irrevocably assigns to Landlord, as security for Tenant's
obligations under this Lease, all rent or other consideration not otherwise
payable to Landlord by reason of any Transfer. Landlord, as assignee of Tenant,
or a receiver for Tenant appointed on Landlord's application, may collect such
rent or other consideration and apply it toward Tenant's obligation under this
Lease, provided, however, that until occurrence of any Default by Tenant and
following the expiration of any applicable cure period, Tenant may collect and
retain such rent or other consideration not otherwise payable to Landlord.
14.2 By Landlord: Landlord and its successors in interest shall have the
-----------
right to transfer their interest in the Premises at any time and to any person
or entity. In the event of any such transfer, the Landlord originally named
herein (and in the case of any subsequent transfer, the transferor) from the
date of such transfer, (i) shall be automatically relieved, without any further
act by any person or entity, of all liability for the performance of the
obligations of the Landlord hereunder which may accrue after the date of such
transfer, and (ii) shall be relieved of all liability for the performance of the
obligations of the Landlord hereunder which have accrued before the date of
transfer if its transferee agrees to assume and perform all such obligations of
the Landlord hereunder. After the date of any such transfer, the term "Landlord"
as used herein shall mean the transferee of such interest in the Premises.
15. WASTE DISPOSAL AND HAZARDOUS MATERIALS:
--------------------------------------
15.1 Waste Disposal: Tenant shall store its waste either inside the
--------------
Premises or within outside trash enclosures that are designated for such
storage. Tenant shall cause all of its waste to be
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regularly removed from the Premises at Tenant's sole cost. Tenant shall keep all
fire corridors and mechanical equipment rooms in the Premises free and clear of
all obstructions at all times.
15.2 Hazardous Materials:
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15.2.1 Definitions:
-----------
15.2.1.1 Environmental Laws: "Environmental Laws" means all local,
------------------
state or federal laws, statutes, ordinances, rules, regulations, judgments,
injunctions, stipulations, decrees, orders, permits, approvals, treaties or
protocols now or hereafter enacted, issued or promulgated by any governmental
authority which relate to any Hazardous Material or to the use, handling,
transportation, production, disposal, discharge, release, emission, sale or
storage of, or the exposure of any person to, a Hazardous Material.
15.2.1.2 Hazardous Material: "Hazardous Material" means any
------------------
material or substance that is now or hereafter prohibited or regulated by any
law or that is now or hereafter designated by any governmental authority to be
radioactive, toxic, hazardous or otherwise a danger to health, reproduction or
the environment, including, without limitation, crude oil or any fraction
thereof, asbestos or radon gas.
15.2.2 Hazardous Materials Questionnaire: Tenant shall complete, and
---------------------------------
duly execute by the Commencement Date, , a copy of the questionnaire pertaining
to Tenant's use of Hazardous Materials attached hereto as Exhibit E (the
---------
"Hazardous Materials Questionnaire"). Tenant represents and warrants to
Landlord that, to the best of Tenant's knowledge, all information stated in the
Hazardous Materials Questionnaire is true and correct as of the Effective Date.
Should Tenant become aware of any changes to the Hazardous Materials
Questionnaire at any time during the Lease Term, Tenant shall promptly update
and amend within thirty (30) days of becoming aware of such changes the
Hazardous Materials Questionnaire to reflect such changes thereto. Tenant and
Tenant's Agents shall not cause or permit the use, generation, storage,
disposal, transportation or release of any Hazardous Materials on, under, in,
above, to, or from the Premises except that which is (i) fully described in the
Hazardous Materials Questionnaire, (ii) in compliance with Environmental Laws
and all applicable Laws and (iii) required for and solely incidental to Tenant's
principal use and operation of the Premises. Tenant may not use at the Premises
any Hazardous Materials other than those specified in the Hazardous Materials
Questionnaire, or in quantities different from those specified in the Hazardous
Materials Questionnaire, unless Tenant obtains Landlord's prior written consent
to such new use and submits a new Hazardous Materials Questionnaire that
accurately describes the new use. Notwithstanding the above, Tenant shall not
allow and shall prevent the release or threat of release into the environment at
or from the Premises of petroleum, petroleum products, or hazardous substances
as defined by the Comprehensive Environmental Response Compensation Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, 42 U.S.C. (S) 9601 et seq.
15.2.3 Indemnity: Tenant shall cause any handling, transportation,
---------
storage, treatment, disposal or use of Hazardous Materials by Tenant or Tenant's
Agents after the Commencement Date in or about the Premises to comply strictly
with all Laws, including, without limitation, applicable Environmental Laws. In
addition to Tenant's other indemnity obligations
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under this Lease, Tenant shall protect, indemnify, defend upon demand with
counsel reasonably acceptable to Landlord, and hold harmless Landlord and its
employees, agents, contractors, successors and assigns from and against any and
all liabilities, losses, claims, damages, lost profits, consequential damages,
interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees,
court costs, remediation costs, investigation costs, and other expenses which
result from or arise in any manner whatsoever in whole or in part, out of (i)
the use, storage, treatment, transportation, release, or disposal of Hazardous
Materials on or about the Premises, by Tenant or Tenant's Agents after the
Commencement Date, or (ii) the disposal or release of any Hazardous Materials on
the surface of the Premises occurring after the Commencement Date and prior to
the termination of this Lease that is not the result of the negligent acts or
willful misconduct of Landlord or Landlord's agents, contractors, invitees, or
tenants (excluding Tenant). Tenant shall not suffer any lien to be recorded
against the Premises as a consequence of the release, discharge or disposal of
any Hazardous Materials in, on under or about the Premises by Tenant or any of
Tenant's Agents, including any state, federal, or local "superfund" lien related
to the removal or remediation of any Hazardous Materials in, over, on, under,
through, or about the Premises.
15.2.4 Confidentiality: Tenant shall give written notice to Landlord
---------------
as soon as reasonably practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Premises, and (ii) any contamination of the Premises by Hazardous Materials
which constitutes a violation of any Environmental Law or other applicable Laws.
Tenant shall keep such information confidential, except for (i) disclosures that
are approved by Landlord, (ii) disclosures required by Law or (iii) disclosures
to any environmental consultant, lender, purchaser, prospective purchaser,
attorneys for Landlord or brokers for Landlord, so long as an agreement of
confidentiality is obtained from a party to whom the disclosure is to be made,
and (iv) disclosures in connection with any litigation or administrative
proceeding in which Tenant is involved.
15.2.5 Survival of Obligations: The obligations of Tenant under
-----------------------
Section 15.2 shall survive the expiration or earlier termination of the Lease
Term. In the event of any inconsistency between any other part of this Lease and
Section 15.2, the terms of Section 15.2 shall control.
16. GENERAL PROVISIONS:
------------------
16.1 Landlord's Right to Enter: Landlord's Representative may enter
-------------------------
the Premises at any reasonable time, following forty-eight (48) hours notice
except in the case of an emergency, for the purpose of (i) inspecting the same,
(ii) posting notices of non-responsibility, (iii) except as set forth below,
showing the Premises to prospective purchasers, mortgagees or tenants (during
the last year of the Lease Term only), (iv) making necessary alterations,
additions, or repairs, (v) performing Tenant's obligation when Tenant has failed
to do so after written notice from Landlord, (vi) placing upon the Premises
ordinary "for lease" or "for sale" signs, and/or (vii) in case of an emergency.
In the case of an emergency, Landlord's Representative may enter the Premises by
means of a master key or may use any and all other means it may deem necessary
and proper to open the doors of the Premises. Such master key shall at all times
be maintained at Landlord's security office located at Micron Technology, Inc.,
8000 S. Federal Way, Boise, Idaho and signed out to Landlord's Representative.
Landlord's Representative shall use reasonable efforts to comply with Tenant's
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security measures during any such entry. Any entry into the Premises or portions
thereof obtained by Landlord's Representative by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction,
actual or constructive, of Tenant from the Premises or any portion thereof.
Tenant shall accompany Landlord's Representative during any scheduled entry and
Landlord's Representative shall use all reasonable efforts (without requiring
Landlord to incur any extra expense or to perform work outside of normal
business hours) to avoid interfering with Tenant's use of the Premises during
such entry. Notwithstanding the above, Tenant may limit access to designated
restricted areas of the Building, such as the cleanroom, by prospective
purchasers, mortgagees, or tenants. Landlord and Tenant shall negotiate in good
faith in order to determine in advance which areas of the Building in addition
to the cleanroom and cleanroom plenum will be designated as restricted areas.
16.2 Surrender of the Premises: Immediately prior to the expiration or
-------------------------
upon the sooner termination of this Lease, Tenant shall remove all of Tenant's
Trade Fixtures and other personal property and vacate and surrender the Premises
to Landlord in the same condition as existed at the Commencement Date,
reasonable wear and tear and damage caused by casualty or condemnation excepted,
with all interior walls cleaned, all carpets shampooed and cleaned, all HVAC
equipment within the Building in operating order and in good repair, and all
floors cleaned, all to the reasonable satisfaction of Landlord. If Landlord so
requests, Tenant shall, prior to the expiration or sooner termination of this
Lease, remove any Leasehold Improvements and repair all damage caused by such
removal. If the Premises are not so surrendered at the termination of this
Lease, then Tenant shall be liable to Landlord for all costs incurred by
Landlord in returning the Premises to the required condition, plus interest on
all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant.
16.3 Holding Over: This Lease shall terminate without further notice at
------------
the expiration of the Lease Term. Any holding over by Tenant after expiration of
the Lease Term shall not constitute a renewal or extension of the Lease or give
Tenant any rights in or to the Premises, except as expressly provided in this
Lease. Any holding over after such expiration with the consent of Landlord shall
be construed to be a tenancy from month-to-month on the same terms and
conditions herein specified insofar as applicable, except that Monthly Rent
shall be increased to One Hundred Sixty Thousand Dollars and No Cents
($160,000.00).
16.4 Subordination: The following provisions shall govern the
-------------
relationship of this Lease to any underlying lease, mortgage or deed of trust
which now or hereafter affects the Premises, and any renewal, modification,
consolidation, replacement or extension thereof (collectively "Security
Instruments"), which have been or may hereafter be executed affecting the
Premises.
16.4.1 This Lease is subject and subordinate to all Security
Instruments existing as of the Effective Date; provided, however, that to
Landlord's current actual knowledge (with no duty of inquiry) there are no
Security Instruments encumbering the Premises as of the Effective Date.
16.4.2 At Landlord's election, this Lease shall become subject and
subordinate to any Security Instruments created after the Effective Date.
However, if Landlord, Landlord's Lender or
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any other successor to Landlord elects in writing, this Lease shall be deemed
superior to the Security Instrument specified, regardless of the date of
recording, and Tenant will execute an agreement confirming this election on
request.
16.4.3 Tenant shall execute any document or instrument required by
Landlord or any Lender to make this Lease either prior or subordinate to any
Security Instruments, which may include such other matters as the Lender
customarily requires in connection with such agreements, including provisions
that the Lender not be liable for any defaults on the part of Landlord occurring
prior to the time the Lender takes possession of the Premises in connection with
the enforcement of its Security Instrument. Tenant's failure to execute any such
document or instrument within ten (10) days after written demand therefor shall
constitute a Default by Tenant.
16.4.4 Notwithstanding the foregoing, Landlord shall provide Tenant
with a non-disturbance agreement in favor of Tenant from the holder of any
future Security Instrument (on such entity's then standard form), which
provides, among other matters, that as long as Tenant is not in Default (beyond
any applicable notice and cure period), this Lease shall not be terminated by
foreclosure or sale pursuant to the terms of such mortgage or lien and all of
Tenant's rights under this Lease will continue to be recognized.
16.5 Tenant's Attornment: Tenant shall after written notice from
-------------------
Landlord attorn (i) to any purchaser of the Premises at any foreclosure sale or
private sale conducted pursuant to any security instrument encumbering the
Premises, and (ii) to any grantee or transferee designated in any deed given in
lieu of foreclosure; provided the transferee agrees to recognize Tenant's rights
under this Lease which accrue after the date of the transfer in question. Tenant
hereby waives the protection of any Laws which give or purport to give Tenant
any right to terminate this Lease or surrender possession of the Premises upon
the transfer of Landlord's interest.
16.6 Lender Protection: In the event of any default on the part of the
-----------------
Landlord, Tenant will give notice by registered mail to any Lender whose name,
if any, has been provided to Tenant and shall offer Lender a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure or other appropriate legal
proceedings, if such should prove necessary to effect a cure.
16.7 Estoppel Certificates and Financial Statements: At all times during
----------------------------------------------
the Lease Term, Tenant agrees, within fifteen (15) days after any request by
Landlord, promptly to execute and deliver to Landlord an estoppel certificate,
(i) certifying that this Lease is unmodified and in full force and effect, or if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or if there are uncured defaults, stating the
nature of such uncured defaults, and (iv) certifying such other information
about the Lease as may be reasonably required by Landlord. Tenant's failure to
deliver an estoppel certificate within fifteen (15) days after delivery of
Landlord's request therefore shall be a conclusive admission by Tenant that, as
of the date of the request for such statement, (i) this Lease is unmodified
except as may be represented by Landlord in said request and is in full force
and effect, (ii) there are no uncured defaults in Landlord's
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performance, and (iii) no rent has been paid in advance. At any time during the
Lease Term, Tenant shall, upon fifteen (15) days' prior written notice from
Landlord, provide Tenant's most recent publicly filed financial statement and
publicly filed financial statements covering the twenty-four (24) month period
prior to the date of such most recent publicly filed financial statement to any
existing Lender or to any potential Lender or buyer of Landlord's interest in
the Premises. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of Tenant,
shall be audited by an independent certified public accountant.
16.8 Force Majeure: Any prevention, delay, or stoppage due to strikes,
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lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of either party to
perform shall excuse the performance thereof, for a period equal to the period
of any said prevention, delay, or stoppage, of any obligation hereunder --
except Tenant's obligations under Section 4.2, Section 15.1, and Section 15.2,
and Tenant's obligation to pay Monthly Rent, Additional Rent, or any other
payment obligations required by this Lease.
16.9 Notices: Any notice required or desired to be given regarding this
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Lease shall be in writing and shall be personally served, or in lieu of personal
service may be given by mail. Personally served notices shall be deemed to have
been given when received by the party, if served by mail, such notice shall be
deemed to have been given (i) on the third business day after mailing to the
party if such notice was deposited in the United States mail, certified and
postage prepaid, addressed to the party to be served at the address set forth
below, and (ii) in all other cases when actually received. Either party may
change its address by giving notice of same in accordance with this Section.
To Micron at: To Tenant at - the Premises.
Micron Technology, Inc. PixTech, Inc.
8000 S. Federal Way 3350 Scott Blvd., Bldg. 37
Boise, ID 83716 Santa Clara, CA 95054
Facsimile: (208) 368-5555 Facsimile: (408) 986-9896
Attn: Jan Nowak Attn: Dieter Mezger
With a required copy to: With a required copy to:
Micron Technology, Inc. PixTech, Inc.
8000 S. Federal Way 3350 Scott Blvd., Bldg. 37
P.O. Box 6 Santa Clara, CA 95054
Boise, ID 83707-0006
Facsimile: (208) 368-4540 Facsimile: (408) 986-9896
Attn: General Counsel Attn: Michel Garcia
16.10 Attorneys' Fees: If either party shall bring any action or legal
---------------
proceeding for an alleged breach of any provision of this Lease, to recover
rent, to terminate this Lease or to otherwise
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enforce, protect or establish any term or covenant of this Lease, then the
prevailing party shall be entitled to recover as a part of such action or
proceedings, or in a separate action brought for that purpose, reasonable
attorneys' fees and court costs as may be fixed by the court.
16.11 Corporate Authority: If Tenant is a corporation (or a partnership),
-------------------
each individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he/she is duly authorized to execute
and deliver this Lease on behalf of said corporation in accordance with the
bylaws of said corporation (or partnership in accordance with the partnership
agreement of said partnership) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Tenant is a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby covenant and warrant that Tenant is a duly authorized and existing
corporation, that Tenant has and is qualified to do business in the state in
which the Premises is located and that the corporation has full right and
authority to enter into this Lease. If Tenant is a corporation Tenant shall,
within thirty (30) days after execution of this Lease, deliver to Landlord a
certified copy of the resolution of the board of directors of said corporation
authorizing or ratifying the execution of this Lease.
16.12 Miscellaneous: Should any provisions of this Lease prove to be
-------------
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof. Any
executed copy of this Lease shall be deemed an original for all purposes. This
Lease shall, subject to the provisions regarding assignment, apply to and bind
the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context
implies. If Tenant consists of more than one person or entity, then all members
of Tenant shall be jointly and severally liable hereunder. If Tenant is a
corporation, nothing in this Section is intended to confer personal liability
upon the officers or shareholders of Tenant. This Lease shall be construed and
enforced in accordance with the laws of the state in which the Premises is
located. The language in all parts of this Lease shall in all cases be construed
as a whole according to its fair meaning, and not strictly for or against either
Landlord or Tenant. When the context of this Lease requires, the neuter gender
includes the masculine, the feminine, a partnership or corporation or joint
venture, and the singular includes the plural. When a party is required to do
something by this Lease, it shall do so at its sole cost and expense without
right of reimbursement from the other party unless specific provision is made
therefor. All measurements of gross leasable area shall be made from the outside
faces of exterior walls and the centerline of joint partitions. Landlord makes
no covenant or warranty as to the exact square footage of any area. Where Tenant
is obligated not to perform any act, Tenant is also obligated to restrain any
others within its control from performing said act, including Agents, invitees,
contractors, subcontractors and employees. Landlord shall not become or be
deemed a partner nor a joint venturer with Tenant by reason of the provisions of
this Lease. Except as expressly provided otherwise herein, if either party's
consent or approval is required as a condition to the doing of any act by the
other party, such consent shall not be unreasonably withheld.
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16.13 Brokerage Commissions: Tenant warrants that it has not had any
---------------------
dealings with any real estate brokers, leasing agents, salesmen, or incurred any
obligations for the payment of real estate brokerage commissions or finder's
fees which would be earned or due and payable by reason of the execution of this
Lease.
16.14 Consents and Approvals: Wherever the consent, approval, judgment
----------------------
or determination of Landlord is required or permitted under this Lease, Landlord
may exercise its good faith business judgment in granting or withholding such
consent or approval or in making such judgment or determination without
reference to any extrinsic standard of reasonableness, unless the provision
providing for such consent, approval, judgment or determination specifies that
Landlord's consent or approval is not to be unreasonably withheld, or that such
judgment or determination is to be reasonable, or otherwise specifies the
standards under which Landlord may withhold its consent. Notwithstanding
anything to the contrary contained in this Lease, if it is determined that
Landlord failed to give its consent where it was required to do so under this
Lease, Tenant shall be entitled to specific performance but not to monetary
damages for such failure. The review and/or approval by Landlord of any item to
be reviewed or approved by Landlord under the terms of this Lease or any
Exhibits hereto shall not impose upon Landlord any liability for accuracy or
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review or approval is for the sole purpose of protecting
Landlord's interest in the Premises under this Lease, and no third parties,
including Tenant, its Agents, employees, contractors, invitees, or any person or
entity claiming by, through or under Tenant, shall have any rights hereunder.
33
<PAGE>
16.15 Termination by Exercise of Option: Except as otherwise set forth
---------------------------------
herein, if this Lease is terminated pursuant to its terms by the proper exercise
of an option to terminate specifically granted to Landlord or Tenant by this
Lease, then this Lease shall terminate thirty (30) days after the date the
option to terminate is properly exercised (unless another date is specified in
that part of the Lease creating the option, in which event the date so specified
for termination shall prevail), the rent and all other charges due hereunder
shall be prorated as of the date of termination, and neither Landlord nor Tenant
shall have any further rights or obligations under this Lease except for those
that have accrued prior to the date of termination. This Section does not apply
to a termination of this Lease by Landlord as a result of a Default by Tenant.
16.16 Entire Agreement: This Lease constitutes the entire agreement
----------------
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's agent(s) has made any representation or warranty as to
(i) whether the Premises may be used for Tenant's intended use under existing
Law or (ii) the suitability of the Premises for the conduct of Tenant's business
or the condition of any improvements located thereon. Tenant expressly waives
all claims for damage by reason of any statement, representation, warranty,
promise or other agreement of Landlord or Landlord's agent(s), if any, not
contained in this Lease or in any addendum or amendment hereto. No subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date of
this Lease.
LANDLORD: TENANT:
MICRON TECHNOLOGY, PIXTECH, INC., a Delaware
INC., a Delaware corporation corporation
By: /s/ W.G. Stover, Jr. By: /s/ Dieter Mezger
-------------------------- ------------------------
Printed Printed
Name: Name:
------------------------ ----------------------
Title: Title:
------------------------ ----------------------
34
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of May 20, 1999 (the "Execution Date") by and
between PixTech, Inc., a Delaware corporation (the "Company") with its principal
offices at Avenue Olivier Perroy, 13790 Rousset, France, and James J. Cathey,
("Executive").
WHEREAS, the Company desires to employ Executive in a senior executive
capacity and to enter into an Agreement embodying the terms of such employment
(the "Agreement"); and
WHEREAS, Executive desires to accept such employment and enter into such an
Agreement;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Term of Employment. The Company hereby agrees to employ Executive, and
------------------
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth in this Agreement, for a period commencing on the
Closing Date (as defined in a certain Acquisition Agreement dated as of March
19, 1999 between Micron Technology, Inc. ("Micron") and the Company (the
"Acquisition Agreement")) (the "Effective Date") and continuing until terminated
in accordance with the provisions of Section 5 (the "Employment Term").
2. Title; Duties. During the Employment Term, Executive shall serve as the
-------------
Vice President Worldwide Sales and Marketing of the Company. In such position,
Executive shall have such duties and authority as shall be designated from time
to time by the Chief Executive Officer of the Company or its designee. The
Executive hereby agrees to undertake the duties and responsibilities inherent in
such position and such other duties and responsibilities as the Chief Executive
Officer or its designee shall from time to time reasonably assign to him.
3. No Conflict. During the employment term, Executive shall devote
-----------
substantially all of his business time and best efforts to the performance of
his duties hereunder and shall not, directly or indirectly, engage in any other
business, profession or occupation for compensation or otherwise which would
conflict with the rendition of such duties without the prior written consent of
the Chief Executive Officer, which consent shall not unreasonably be withheld,
delayed or conditioned. Executive represents and warrants that Schedule A
attached hereto states all current business relationships, including, but not
limited to, consulting agreements, confidentiality agreements and non-
competition agreements that Executive is currently a party to.
4. Compensation and Benefits.
-------------------------
4.1 Base Salary. During the Employment Term, the Company shall pay
-----------
Executive for his services hereunder a base salary (the "Base Salary") at the
initial annual rate of $140,000, payable in regular installments in accordance
with the Company's usual payment
<PAGE>
practices and subject to annual review and adjustment by the Chief Executive
Officer in its sole discretion.
4.2 Additional Compensation.
-----------------------
4.2.1 Stock Option. As further compensation for his services
------------
hereunder, the Company shall grant to Executive, on or after the Effective Date,
a stock option (the "Stock Option") to purchase 154,000 shares of the Company's
Common Stock, $0.01 par value per share (the "Common Stock"). The Stock Option
shall be pursuant to the Company's 1993 Stock Option Plan (the "Plan") and in
accordance with the Company's standard terms and other conditions. The exercise
price of such Stock Option shall be $2.0625 per share. Such options shall vest
as to 25% of such options upon the six month anniversary of the date such option
was granted and upon each of the first three anniversaries of the date such
Stock Option first became vested in any amount, except that, upon a Change of
Control (as hereinafter defined), such options shall immediately vest in
Executive.
For purposes of this Section 4.2.1. the occurrence of any one of the
following shall be deemed a "Change of Control":
(i) the acquisition by any "person" (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934) of any amount of
the Company's Common Stock so that it holds or controls fifty percent (50%)
or more of the Company's Common Stock; or
(ii) a merger or consolidation after which fifty percent (50%) or
more of the voting stock of the surviving corporation is held by persons
who where not stockholders of the Company immediately prior to such merger
or combination.
4.2.2 Milestone Bonus. As further compensation for his services
---------------
hereunder, the Company may, from time to time, pay Executive a bonus (the
"Bonus"), upon the achievement of certain milestones. The Bonus available to
Executive for the 1999 calendar year (the "1999 Bonus") is equal to one percent
of development contract payments payable under the DARPA Contract (as defined in
the Acquisition Agreement) which are assigned from Micron to the Company during
the 1999 calendar year. Two thirds of any 1999 Bonus due to Executive will be
paid to the Executive within 30 days after DARPA assigns the DARPA Contract to
PixTech, and one third of any 1999 Bonus due to Executive shall be paid within
30 days after the Company receives all such payments due the Company pursuant to
the DARPA Contract.
4.3 Executive Benefits. During the Employment Term and subject to any
------------------
contributions therefor generally required of senior executives of the Company,
Executive shall be entitled to receive such employee benefits (including fringe
benefits, 401(k) plan participation, and life, health, accident and disability
insurance, if any) which the Company may, in its sole and absolute discretion,
make available generally to its senior executives, or for personnel similarly
situated; provided, however, that it is hereby acknowledged and agreed that any
-------- -------
such employee benefit plans may be altered, modified or terminated by the
Company at any time in its sole discretion without recourse by Executive.
2
<PAGE>
4.4 Vacation. Executive shall be entitled to 3 weeks (15 working days)
--------
of paid vacation per annum during the Employment Term, to accrue in accordance
with the Company's policy and to be taken at such time or times as shall be
mutually convenient for the Company and Executive. Unused vacation time will be
allocated pursuant to the Company's existing policies and practices.
4.5 Business Expenses and Perquisites. Executive shall be entitled to
---------------------------------
reimbursement by the Company during the Employment Term for reasonable travel,
entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder in accordance with such policies as the
Company may from time to time have in effect.
4.6 Indemnification. The Company shall, to the fullest extent
---------------
permitted by the General Corporation Law of the State of Delaware, as amended
from time to time and in accordance with the Company's Certificate of
Incorporation, as amended from time to time, and By-laws, as amended from time
to time, indemnify Executive if Executive is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was an officer of the Company, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom. In addition, Executive shall be covered
by the Company's standard director and officer insurance.
4.7 Signing Bonus. Upon execution of this Agreement, PixTech shall pay
-------------
$50,000 to Executive. If Executive is not an employee of the Company on the six
month anniversary of the Closing Date, Executive shall pay PixTech $50,000 on
such date.
4.8 Six Month Bonus. If Executive remains employed by PixTech for six
---------------
months, beginning on the Closing Date, PixTech shall pay Executive a bonus of
$84,000.
5. Termination.
-----------
5.1 Without Cause by the Company. The Executive's employment hereunder
----------------------------
may be terminated by the Company at any time without Cause upon not less than
thirty (30) days prior written notice from the Company to Executive. If
Executive's employment is terminated by the Company without Cause, including
without limitation by reason of Executive's failure to achieve stated goals or
milestones, the Company shall pay Executive a lump sum amount equal to the Base
Salary plus any benefits to which Executive is entitled under Section 4.3 of
this Agreement (to the extent permitted by the then-current terms of the
applicable benefit plans and subject to any employee contribution requirements
applicable to Executive on the date of termination) through the conclusion of a
period of six months from the date of such termination. The payment to Executive
of any other benefits following the termination of Executive's employment
pursuant to this Section 5.1 shall be determined by the Chief Executive Officer
in its sole discretion in accordance with the policies and practices of the
Company.
3
<PAGE>
5.2 For Cause by the Company. Notwithstanding any other provision of
------------------------
this Agreement, Executive's employment hereunder may be terminated by the
Company at any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) Executive's dishonesty in the performance of his duties hereunder, (ii)
an act or acts on Executive's part constituting a felony under the laws of the
United States or any state thereof, or (iii) Executive's material breach of his
obligations under Section 6 and 7 hereof, which breach shall remain uncured by
Executive for thirty (30) days following receipt of notice from the Company
specifying such breach. If Executive's employment is terminated by the Company
for Cause, the Company shall pay Executive a lump sum amount equal to the Base
Salary through the last day of his actual employment by the Company. The payment
to Executive of any other benefits following the termination of Executive's
employment pursuant to this Section 5.2 shall be determined by the Chief
Executive Officer in its sole discretion in accordance with the policies and
practices of the Company.
5.3 Disability. Executive's employment hereunder may be terminated by
----------
the Company at any time in the event of the Disability of the Executive. For
purposes of this Agreement, "Disability" shall mean the inability of Executive
to substantially perform his duties hereunder due to physical or mental
disablement which continues for a period of six (6) consecutive months during
the Employment Term, as determined by an independent qualified physician
mutually acceptable to the Company and Executive (or his personal
representative) or, if the Company and Executive (or such representative) are
unable to agree on an independent qualified physician, as determined by a panel
of three physicians, one designated by the Company, one designated by Executive
(or his personal representative) and one designated by the two physicians so
designated. If Executive's employment is terminated by the Company for
Disability, the Company shall pay Executive an amount equal to the Base Salary
plus any benefits to which Executive is entitled under Section 4.3 of this
Agreement (to the extent permitted by the then-current terms of the applicable
benefit plans and subject to any employee contribution requirements applicable
to Executive on the date of termination) through the date on which Executive is
first eligible to receive payment of disability benefits in lieu of Base Salary
under the Company's employee benefit plans as then in effect. The payment to
Executive of any other benefits following the termination of Executive's
employment pursuant to this Section 5.3 shall be determined by the Chief
Executive Officer in its sole discretion in accordance with the policies and
practices of the Company.
5.4 Death. Executive's employment hereunder shall automatically
-----
terminate in the event of the Executive's death. If Executive's employment is
terminated by the death of Executive, the Company shall pay to Executive's
estate or legal representative an amount equal to the Base Salary at the rate in
effect at the time of Executive's death through the day in which his death
occurs. The payment to Executive of any other benefits following the termination
of Executive's employment pursuant to this Section 5.4 shall be determined by
the Chief Executive Officer in its sole discretion in accordance with the
policies and practices of the Company.
5.5 Termination by Executive. Executive's employment hereunder may be
------------------------
terminated by Executive at any time upon not less than sixty (60) days prior
written notice from Executive to the Company. If Executive terminates his
employment with the Company pursuant
4
<PAGE>
to this Section 5.5, the Company shall pay Executive an amount equal to the Base
Salary through the last day of his actual employment by the Company; provided,
however, if such voluntary termination is by reason of a demotion of Executive
or a decrease in the Base Salary of Executive, the Company shall pay Executive a
lump sum amount equal to the prior Base Salary plus any benefits to which
Executive is entitled under Section 4.3 of this Agreement (to the extent
permitted by the then-current terms of the applicable to Executive on the date
of termination) through the conclusion of a period of six months from the date
of such termination.
5.6 Notice of Termination. Any purported termination of employment by
---------------------
the Company or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 9 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
5.7 Survival. The provisions of Sections 6 and 7 shall survive the
--------
termination of this Agreement.
6. Non-Competition. Executive acknowledges and recognizes the highly
---------------
competitive nature of the businesses of the Company and accordingly agrees that
during the Employment Term and for a period of one (1) year after expiration or
termination of Executive's employment hereunder:
6.1 Executive will not engage in any activity including without
limitation becoming an employee, investor (except for passive investments of not
more than one percent (1%) of the outstanding shares of, or any other equity
interest in, a company or entity listed or traded on a national securities
exchange or in an over-the-counter securities market), officer, agent, partner
or director of, or other participant in, any firm, person or other entity in any
geographic area which is engaged in any activities in the field of the
development, manufacturing, marketing, sale, distribution or commercialization
of FEDs. Notwithstanding any provision of this Agreement to the contrary, upon
the occurrence of any breach of this Section 6.1, if Executive is employed by
the Company, the Company may immediately terminate the employment of Executive
for Cause in accordance with the notice provisions contained in Sections 5.6 and
9, and, whether or not Executive is employed by the Company, the Company shall
immediately cease to have any obligations to make payments to Executive under
this Agreement.
6.2 Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited to engage by
clause 6.1 above.
6.3 Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by clause 6.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
5
<PAGE>
6.4 It is expressly understood and agreed that (a) although Executive
and the Company consider the restrictions contained in this Section 6 to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Agreement is unenforceable, this Agreement shall not be rendered void but
shall be deemed to be enforceable to such maximum extent as such court may
judicially determine or indicate to be enforceable and (b) if any restriction
contained in this Agreement is determined to be unenforceable and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of the other restrictions contained herein.
7. Confidentiality. Executive will not at any time (whether during or
---------------
after his employment with the Company) disclose or use for his own benefit or
purposes or the benefit or purposes of any other person, firm, partnership,
joint venture, association, corporation or other organization, entity or
enterprise other than the Company, any Confidential Information. As used herein,
the term "Confidential Information" shall mean, without limitation, all
Proprietary Materials (as defined below), any and all information about
inventions, improvements, modifications, discoveries, costs, profits, markets,
sales, products, key personnel, pricing policies, operational methods, concepts,
technical processes and applications, and other business affairs and methods of
the Company and of its affiliates, licensees, collaborators, consultants,
suppliers, and customers, as well as any other information not readily available
to the public, including without limitation any information supplied by third
parties to the Company under an obligation of confidence. As used in this
Agreement "Proprietary Materials" shall include, without limitation, the
following materials: any and all materials used in construction of field
emission displays and completed field emission display samples as well as any
and all derivatives or replications derived from or relating to such materials.
Confidential Information may be contained in various media, including without
limitation patent applications, computer programs in object and/or source code,
flow charts and other program documentation, manuals, plans, drawings, designs,
technical specifications, laboratory notebooks, supplier and customer lists,
internal financial data, and other documents and records of the Company, whether
or not in written form and whether or not labeled or identified as confidential
or proprietary. Executive further agrees that (a) upon termination or expiration
of his employment hereunder, Executive will return immediately to the Company
any Proprietary Materials and any materials containing Confidential Information
then in Executive's possession or under Executive's control and (b) he will not
retain or use for his account at any time any trade name, trademark or other
proprietary business designation used or owned in connection with the business
of the Company.
8. Specific Performance. Executive acknowledges and agrees that the
--------------------
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 6 or Section 7 would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining orders, temporary or permanent injunctions or
any other equitable remedy which may then be available.
6
<PAGE>
9. Notices. Any notice hereunder by either party to the other shall be
-------
given in writing by personal delivery, telecopy or registered mail, return
receipt requested, addressed, if to the Company, to the attention of the Chief
Executive Officer at the Company's executive offices or to such other address as
the Company may designate in writing at any time or from time to time to the
Executive, and if to the Executive, to his most recent address on file with the
Company. Notice shall be deemed given, if by personal delivery, on the date of
such delivery or, if by telex or telecopy, on the business day following receipt
of answer back or telecopy information or, if by registered mail, on the date
shown on the applicable return receipt.
10. Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party. The Company shall require
any persons, firm or corporation succeeding to all or substantially all of the
business or assets of the Company whether by purchase, merger or consolidation
to expressly assume and agree to perform this Agreement.
11. Entire Agreement. This Agreement contains the entire agreement
----------------
between the Company and Executive with respect to the subject matter thereof and
there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this Agreement or otherwise
concerning this Agreement or the subject matter hereof.
12. Expenses. Each party shall pay its own expenses incident to the
--------
performance or enforcement of this Agreement, including all fees and expenses of
its counsel for all activities of such counsel undertaken pursuant to this
Agreement, except as otherwise herein specifically provided. If any action at
law or equity is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reimbursement of reasonable attorney's
fees and other costs incurred by such party in connection with such action, in
addition to any other relief to which such party is entitled.
13. Arbitration. In the event any dispute shall arise between the Company
-----------
and the Executive with respect to any of the terms and conditions of this
Agreement, then such dispute shall be submitted and finally settled by
arbitration in Boise, Idaho under the rules of the American Arbitration
Association. The award rendered by the arbitrator shall be final and binding
upon the parties hereto, and judgment upon the award rendered may be entered by
either party in any court that would ordinarily have jurisdiction over the
parties or the subject matter of the controversy or claim. Each party shall pay
its own expenses incident to such arbitration, including attorneys' fees. The
parties agree not to institute any litigation or proceedings against each other
in connection with this Agreement except as provided in this Section 13.
14. Waivers and Further Agreements. Any waiver of any terms or conditions
------------------------------
of this Agreement shall not operate as a waiver of any other breach of such
terms or conditions or any other term or condition, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof; provided, however, that no such written wavier, unless
it, by its own terms, explicitly provides to the contrary, shall be construed to
effect a continuing waiver of the provision being waived and no such waiver in
any instance shall constitute a waiver in any other instance or for any other
purpose or impair the right of the party
7
<PAGE>
against whom such waiver is claimed in all other instances or for all other
purposes to require full compliance with such provision. Each of the parties
hereto agrees to execute all such further instruments and documents and to take
all such further action as the other party may reasonably require in order to
effectuate the terms and purposes of this Agreement.
15. Amendments. This Agreement may not be amended, nor shall any waiver,
----------
change, modification, consent or discharge be effected except by an instrument
in writing executed by or on behalf of the party against whom enforcement of any
waiver, change, modification, consent or discharge is sought.
16. Severability. If any provision of this Agreement shall be held or
------------
deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
17. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
18. Section Headings. The headings contained in this Agreement are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
19. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the law (other than the law governing conflict of
law questions) of the state of Delaware.
8
<PAGE>
IN WITNESS WHEREOF, the parties have been executed or caused to be executed
this Agreement as of the date first above written.
PIXTECH, INC.
By: /s/ Dieter Mezger
---------------------------------------------
Name: Dieter Mezger
Title: President and Chief Executive Officer
JAMES J. CATHEY
/s/ James J. Cathey 5/20/99
-------------------------------------------------
9
<PAGE>
SCHEDULE A
----------
Business Relationships
----------------------
Employment Agreement with Micron Technology, Inc.
10
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,017
<SECURITIES> 0
<RECEIVABLES> 322
<ALLOWANCES> 0
<INVENTORY> 1,348
<CURRENT-ASSETS> 12,161
<PP&E> 28,604
<DEPRECIATION> 14,393
<TOTAL-ASSETS> 49,065
<CURRENT-LIABILITIES> 16,711
<BONDS> 0
223
0
<COMMON> 4
<OTHER-SE> 13,362
<TOTAL-LIABILITY-AND-EQUITY> 49,065
<SALES> 178
<TOTAL-REVENUES> 492
<CGS> 85
<TOTAL-COSTS> 7,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (98)
<INCOME-PRETAX> (8,029)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,029)
<EPS-BASIC> 0.43
<EPS-DILUTED> 0
</TABLE>
