Filed Pursuant to Rule 424(b)(3)
Registration Statement File No. 333-87001
PROSPECTUS
Dated September 28, 1999
16,100,000 Shares
PIXTECH, INC.
Common Stock
This Prospectus may be used only in connection with the resale
(i) by Kingsbridge Capital Limited, from time to time, of up to 16,100,000
shares of the common stock of PixTech as follows:
o 15,000,000 shares of common stock which may be issued by us to
Kingsbridge pursuant to an equity line agreement; and
o 100,000 shares of common stock issuable upon exercise of a warrant
held by Kingsbridge;
and (ii) by Sumitomo Corporation, from time to time, of up to 1,000,000
shares of common stock to be issued upon conversion of a certain convertible
note issued by us to Sumitomo.
The shares of common stock offered may be sold from time to time for the
account of the selling stockholders. We will not receive any of the proceeds
from the sale of the shares by the selling stockholders. We have agreed to pay
the selling stockholders' costs of registering the shares, including
commissions, transfer taxes and certain other expenses of resale of the common
stock.
The price at which the common stock will be issued by us to Kingsbridge
will be 88-90% of the market price of the stock on the date we issue shares,
depending on certain factors described in the equity line agreement. The price
at which the common stock will be issued by us to Sumitomo will be 80% of the
market price of the stock on the date of conversion, the market price being
determined as the average closing market price over the twenty consecutive
trading days immediately prior to the notice of conversion.
The selling stockholders may offer, pursuant to this prospectus, shares of
common stock to purchasers from time to time in transactions on the Nasdaq
National Market, in negotiated transactions, or otherwise, or by a combination
of these methods, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to market prices or at
negotiated prices. Sales of the shares by the selling stockholders may be
effected through broker-dealers, who may, in the case of sales by Kingsbridge,
receive compensation from Kingsbridge in the form of discounts or commissions.
Kingsbridge is an "underwriter" within the meaning of the Securities Act in
connection with such sales.
Our common stock is listed on the Nasdaq National Market under the symbol
"PIXT." The average of the high and low bid prices for our common stock on the
Nasdaq National Market on September 21, 1999 was $1.641 per share.
Investing in our common stock involves certain risks which are described in
the "Risk Factors" section beginning on page 5.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
PROSPECTUS SUMMARY............................................................3
RISK FACTORS..................................................................5
THE EQUITY LINE AGREEMENT....................................................19
SUMMARY CONSOLIDATED FINANCIAL INFORMATION...................................20
PRICE RANGE OF OUR COMMON STOCK..............................................21
DIVIDEND POLICY..............................................................21
USE OF PROCEEDS..............................................................21
CAPITALIZATION...............................................................22
SELECTED CONSOLIDATED FINANCIAL DATA.........................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..............................................24
BUSINESS OF THE COMPANY......................................................34
MANAGEMENT...................................................................46
EXECUTIVE COMPENSATION.......................................................49
SHARE OWNERSHIP..............................................................53
SELLING STOCKHOLDERS.........................................................56
DESCRIPTION OF CAPITAL STOCK.................................................57
PLAN OF DISTRIBUTION.........................................................60
WHERE YOU CAN FIND MORE INFORMATION..........................................63
LEGAL MATTERS................................................................64
EXPERTS .....................................................................64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................F-1
2
<PAGE>
PROSPECTUS SUMMARY
The Offering
PixTech and Kingsbridge entered into a private equity line agreement on
August 9, 1999. This agreement entitles us to sell, from time to time, up to
$15,000,000 (after deducting Kingsbridge's discount) worth of our common stock
to Kingsbridge. Pursuant to the agreement, we have:
o filed a registration statement for 15,000,000 shares of common stock
which we may sell to Kingsbridge pursuant to the agreement, which
Kingsbridge may offer to the public through this prospectus; and
o issued a warrant to Kingsbridge to purchase 100,000 shares of our
common stock at an exercise price of $2.30 per share. Shares issuable
on exercise of the Kingsbridge warrant may also be offered to the
public through this prospectus.
On October 27, 1997, we issued a convertible note to Sumitomo. This note
may be converted into shares of our common stock at a price equal to 80% of the
market price of our common stock at the time of conversion, the market price
being determined as the average closing market price over the twenty consecutive
trading days immediately prior to the notice of conversion.
Through this prospectus, the selling stockholders may offer to the public
the common stock acquired under the equity line agreement and the warrant and
through conversion of the convertible note.
Shares Offered by the 16,100,000 shares of common stock of PixTech,
Selling Stockholders Inc., par value $.01 per share.
Offering Price Determined at the time of sale by the selling
stockholders.
Common stock outstanding as
of September 21, 1999 23,567,138 shares
Use of Proceeds We will not receive any of the proceeds of the
shares offered by the selling stockholders.
Any proceeds we receive from the sale of common
stock pursuant to the equity line agreement and
the exercise of the warrant will be used primarily
for general corporate purposes. See "Use of
Proceeds."
Dividend Policy We currently intend to retain any future earnings
to fund the development and growth of our
business. Therefore, we do not currently
anticipate paying cash dividends. See "Dividend
Policy."
Nasdaq National Market Symbol PIXT
3
<PAGE>
Address and Phone Number Avenue Olivier Perroy
13790 Rousset, France
011-33-4-42-29-10-00
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information contained in this prospectus, in deciding whether to
invest in the stock offered under this prospectus. This prospectus contains
forward-looking statements which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this prospectus.
We Have A History of Losses and Accumulated Deficit Which May Continue In The
Future.
We have a history of losses as follows:
<TABLE>
<CAPTION>
Loss to Common
Operating Net Losses Stockholders
-------------------- ------------
<S> <C> <C>
Six Months ended June 30, 1999 $11.9 million $13.7 million
Year Ended December 31, 1998 $19.7 million $17.9 million
Year Ended December 31, 1997 $15.8 million $14.7 million
</TABLE>
The losses were due in part to limited revenues and to various
expenditures, including expenditures associated with:
o research and development activities;
o pilot production activities; and
o preparation and start-up of volume manufacturing in Taiwan, at Unipac.
We expect to incur operating losses in the future due primarily to:
o continuing research and development activities to develop field
emission displays larger than 15 inch in diagonal and color displays;
o manufacturing start-up costs in Taiwan, and
o expansion of our sales and marketing activities.
As a result of these losses, as of June 30, 1999, we had an accumulated
deficit of approximately $67.6 million.
Our ability to achieve and maintain profitability is highly dependent upon
the successful commercialization of our monochrome and color displays. We cannot
assure you that we will ever be able to successfully commercialize our products
or that we will ever achieve profitability.
5
<PAGE>
We Will Need Additional Capital In The Future.
We have incurred negative cash flows from operations since inception, and
have expended, and will need to expend, substantial funds to complete our
planned technology and product development efforts, including:
o continuous improvement of our manufacturing processes in order to
achieve yields that will lead to an acceptable cost of products;
o continuous product development activities in order to develop color
displays that meet market requirements and to develop a range of
products offered for sales;
o continuous research and development activities in order to develop
displays larger than 15 inch in diagonal; and
o expansion of our marketing, sales and distribution activities.
In addition to the above requirements, we expect that we will require
additional capital either in the form of debt or equity, regardless of whether
and when we reach profitability, for the following activities: o working
capital;
o acquisition of manufacturing equipment to expand manufacturing
capacity; and
o further product development.
Our future capital requirements and the adequacy of our available funds
depend on numerous factors, including:
o the rate of increase in manufacturing yields by Unipac, in Taiwan;
o the magnitude, scope and results of our product development efforts;
o the costs of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights;
o competing technological and market developments; and
o expansion of strategic alliances for the development, manufacturing,
sale, marketing and distribution of our products.
We currently expect to run out of money in September 1999. We have entered
into an equity line agreement with Kingsbridge which provides that we may issue
and sell, from time to time, up to an aggregate of $15,000,000 of our common
stock, subject to the satisfaction of certain conditions. We cannot assure you
that we will meet all of the conditions required to obtain financing under the
equity line agreement. Even if we were able to meet the required conditions, we
may have to raise additional money from other sources in order to continue to
fund our operations.
6
<PAGE>
We May Have Problems Raising Money We Need In The Future.
In the future, we expect that we will need to obtain additional money from
sources outside our company, as we have done in the past. If we cannot obtain
money when we need it, we may need to reduce our production of products and
development of new products. There is no guarantee that any of the outside
sources will provide us with money when we need it. In addition, even if we are
able to find outside sources which will provide us with money when we need it,
in order to raise this money we may be required to issue securities with better
rights than the rights of our common stock or we may be required to take other
actions which lessen the value of our current common stock, including borrowing
money on terms that are not favorable to us.
Our ability to raise capital through the equity line agreement is subject
to the satisfaction of certain conditions at the time of each sale of common
stock to Kingsbridge (none of which is within the control of Kingsbridge). These
conditions include, but are not limited to, the following:
o the registration statement we have filed to register the common stock
purchased by Kingsbridge under the equity line agreement for resale
must have been declared effective by the SEC;
o our representations and warranties to Kingsbridge set forth in the
equity line agreement must be accurate as of the date of each put of
our common stock;
o no statue, rule, regulation, executive order, decree, ruling or
injunction shall be in effect which prohibit or directly and adversely
affects any of the transactions contemplated by the equity line
agreement;
o at the time we put our common stock to Kingsbridge, there cannot have
been any material adverse change in our business, operations,
properties, prospects or financial condition since the date of filing
of our most recent report with the SEC pursuant to the Securities
Exchange Act of 1934;
o the number of shares already held by Kingsbridge, together with those
shares we are proposing to put, cannot exceed 9.9% of the total amount
of our common stock that would be outstanding upon completion of the
put;
o our common stock must meet certain price and trading volume guidelines
including those on Annex A of the equity line agreement; and
o at least 15 trading days must have elapsed since the date of the last
put notice.
We may not satisfy all of these conditions, and therefore may not be able
to sell shares to Kingsbridge pursuant to the equity line agreement. For a more
complete description of the equity line agreement, see The Equity Line Agreement
on page 19.
7
<PAGE>
Due To the Conversion Of Series E Preferred Stock, Holders of Common Stock May
Face Significant Dilution.
In December 1998, we issued 367,269 shares of series E stock, at a price of
$22.5313 per share, to certain institutional investors. The series E stock is
generally convertible into our common stock at a rate equal to the lesser of (a)
$2.25313, and (b) the average closing price of our common stock over the ten
trading day ending period ending on the day immediately preceding the day upon
conversion. When our common stock price falls below $2.25313, the conversion of
the series E stock may result in the issuance of a significant number of
additional shares of common stock, and may cause significant dilution to current
holders of our common stock. Even before the shares of series E stock are
converted, the holders of the series E stock vote on the basis of the number of
shares of common stock that the series E stock can be converted into. Therefore,
a large drop in our stock price may result in a large amount of voting control
being held by a small number of stockholders. As of September 21, 1999, there
were 297,269 shares of series E Stock outstanding that would have been
convertible into 4,214,568 shares of our common stock, giving the holders of the
series E stock 15% of the vote of the issued and outstanding common stock.
Holders Of Our Series E Preferred Stock Could Engage In Short Selling To Reduce
Their Conversion Price.
A decrease in the price of our common stock below the $2.25313 maximum
conversion price could result in the series E preferred stock being convertible
into more shares of common stock. Increased sales volume of our common stock
could put downward pressure on the market price of the shares. This fact could
encourage holders of series E preferred stock to sell short our common stock
prior to conversion of the series E preferred stock, thereby potentially causing
the market price to decline. The selling stockholders could then convert their
series E preferred stock and use the share of common stock received upon
conversion to cover their short position. The selling stockholders could thereby
profit by the decline in the market price of the common stock caused by their
short selling.
Qualifications In The Report Of Our Independent Public Accountants May Affect
Our Ability To Continue As A Going Concern.
In their audit report on the consolidated financial statements for the year
ended December 31, 1998 contained in our Annual Report and elsewhere in this
prospectus, our independent public accountants, Ernst & Young, included an
explanatory paragraph indicating their view that we would require additional
funding to continue operations which raised substantial doubt about our ability
to continue as a going concern. We cannot assure you that Ernst & Young's
opinion on future financial statements will not include a similar explanatory
paragraph if we are unable to raise sufficient funds or generate sufficient cash
flow from operations to cover the cost of our operations. The continued
inclusion of this paragraph could raise concerns about our ability to fulfill
our contractual obligations, may adversely affect our relationships with third
parties, and we may not be able to complete future financings.
8
<PAGE>
If We Fail To Continue To Meet Nasdaq's Listing Maintenance Requirement, Nasdaq
May Delist Our Common Stock.
There is a possibility that our common stock could be delisted from the
Nasdaq National Market. While our common stock is currently quoted on the Nasdaq
National Market, in order to remain quoted on the Nasdaq National Market, we
must meet certain requirements with respect to:
o market capitalization (the market value of all outstanding shares of
our common stock);
o public float (the number of outstanding shares of common stock held by
those not affiliated with us);
o market value of public float;
o market price of the common stock;
o number of market makers;
o number of shareholders; and
o net tangible assets (total assets minus total liabilities and
intangible assets).
If the price of our common stock were to fall significantly below our
current trading range, Nasdaq may approach us regarding our continued listing on
the Nasdaq National Market. This situation could result from the rights
contained in the series E stock, which is convertible into common stock at a
conversion price based on a future price of our common stock. If Nasdaq were to
begin delisting proceedings against us, it could reduce the level of liquidity
currently available to our stockholders. With regard to future priced securities
such as our series E stock, Nasdaq is concerned with the following, among other
things:
o disproportionate voting rights;
o minimum bid price of a company's common stock; and
o public interest concerns.
The holders of our series E stock may vote their series E stock as if they
were holders of common stock and are entitled to the number of votes equal to
the number of shares of common stock that the series E stock is convertible into
at the time of voting. If our common stock price were to fall significantly,
this right may be deemed to violate a Nasdaq maintenance requirement due to the
disproportionate voting right, when compared to our common stock, that each
share of series E stock would have.
Moreover, in order to continue to be listed on Nasdaq, the minimum bid
price of our common stock must stay above $1.00. In addition to the fluctuations
of the market in general and our common stock in particular, a decrease in our
common stock price that causes the
9
<PAGE>
number of shares of common stock issuable upon conversion of the series E stock
to increase may exert downward pressure on the price of our common stock. This
may drive the minimum bid price of our common stock below $1.00, thus violating
a Nasdaq maintenance requirement. On September 21, 1999 the minimum bid price on
our common stock was $1.5625. Nasdaq has also stated that in egregious
situations, future priced securities, such as our series E stock, may raise
public interest concerns that may result in the delisting of our common stock,
if Nasdaq deems the delisting necessary to prevent fraudulent and manipulative
acts and practices.
If our common stock is delisted from the Nasdaq National Market, we could
apply to have the common stock quoted on the Nasdaq SmallCap Market. The Nasdaq
SmallCap Market has a similar set of criteria for initial and continued
quotation. We may not, however, meet the requirements for initial or continued
quotation on the Nasdaq SmallCap Market. If we were not able to meet the
requirements of the Nasdaq SmallCap Market, trading of our common stock could be
conducted on an electronic bulletin board established for securities that do not
meet the Nasdaq SmallCap Market listing requirements, in what is commonly
referred to as the "pink sheets."
In addition, if our common stock were delisted from the Nasdaq National
Market, we may not have the right to obtain funds under the equity line
agreement and it could be more difficult for us to obtain future financing. In
addition, if our common stock is delisted, investors' interest in our common
stock would be reduced, which would materially and adversely affect trading in,
and the price of, our common stock.
Because We Use a Single Contract Manufacturer To Manufacture Our Field Emission
Displays We May Be Unable To Obtain An Adequate Supply Of Products And We May
Have Less Control Of Price.
Unipac, a liquid crystal display manufacturer and an affiliate of UMC,
Taiwan's second largest Semiconductor manufacturer, is our only contract
manufacturer. In the future, we expect that the products that will be
manufactured at Unipac and sold to our customers will represent the majority of
our revenues. If we are not able to implement our manufacturing plans with
Unipac as soon as we expect, we will not be able to ship medium to large volumes
of field emission display products. Moreover, we will have less control over the
price of the finished products, the timeliness of their delivery and their
reliability and quality. Finally, we will not be able to obtain an acceptable
cost for our field emission displays through high volume manufacturing, as
compared to manufacturing field emission displays at our pilot production
facility. This situation would materially adversely affect our revenues and
costs of producing products.
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 field emission display
technology to Unipac.
Our failure to adequately manage this contract manufacturing relationship
or any delays in the shipment of our products would adversely affect us.
10
<PAGE>
Our Manufacturing Processes Are Still Under Development And We Still Need To
Obtain Commercially Acceptable Yields And Acceptable Costs Of Products Or Our
Costs To Produce Our Displays Will Be Too High for Us To Be Profitable.
In order for us to succeed, we must continue to develop and produce a range
of products incorporating our field emission display technology. At this time,
we have successfully developed only one monochrome field emission display
product that has been incorporated into a commercial end-user application and
that is being targeted at various markets. We will need to complete the
development of additional field emission display products to enlarge our market
opportunity, and there is no guaranty that we will succeed in these development
efforts. If we do not develop these new products, we will need to rely on sales
of a single product to be successful.
We have used our manufacturing facility in Montpellier, France to develop
manufacturing processes but it has produced only a limited number of products
suitable for sale. Additionally, to date, we have not completed testing of our
manufacturing processes at Unipac. In order for us to be successful, we must
improve our manufacturing yields in order to demonstrate the low cost potential
of our field emission display technology. Even if we succeed in completing the
development and testing of our manufacturing processes, we can not be sure that
the favorable characteristics demonstrated by our current displays manufactured
at our pilot manufacturing facility will be reproduced on a cost-effective basis
in commercial production.
We have, at this time, encountered a number of delays in the development of
our products and processes, and it is possible that further delays will occur.
Any significant delays could cause us to miss certain market opportunities and
could reduce our product sales.
We Need to Further Enhance Our Display Performance of Our Color Displays Or Our
Displays May Never Be Accepted By A Large Number Of Potential Customers.
We may never improve the performance characteristics of our color displays
to a level that is commercially acceptable or fail to do so on a timely basis,
either of which could result in potential customers not buying our products. Key
elements of display performance are brightness, power efficiency and stability
over time (life time and reliability). We are seeking to balance brightness with
power efficiency to produce bright and low power-consumption displays. Display
reliability depends on a large number of factors, including the manufacturing
process used in assembling the displays as well as the characteristics of the
materials, including phosphors, used in the display. In order to produce color
displays that will provide the product life and other characteristics necessary
for most applications, we need to make further advances in our manufacturing
processes and in the selection of the materials we use.
We May Never Be Able To Fund The Research And Development Activities Needed To
Develop Large Displays.
We need to conduct a significant research and development effort in order
to bring our current 15-inch field emission display prototype to a stage where
it can be manufactured in volume at an acceptable cost. We may never be able to
fund that effort. Even if we were able to develop a product that could be
manufactured, we would have to locate or build a manufacturing
11
<PAGE>
facility to produce our displays. Currently, Unipac has a facility and equipment
to build small displays only. We may not be able to fund the amount needed in
order to acquire or build a manufacturing facility for our large displays. If we
are unable to develop or manufacture large displays, we will miss large market
opportunities for flat panel displays.
We May Reduce Research Or Development Programs To Conserve Capital, Increasing
Our Dependence On Remaining Programs.
We are constantly reviewing and prioritizing programs, and we may reduce
some programs to conserve capital. Any cut would increase our dependence on our
remaining programs, and would increase the risk from those programs to our
business as a whole, which could materially and adversely affect our chances of
obtaining profitability. While we plan to allocate our resources to those
programs with the greatest potential to contribute to a sound financial and
operating position, we may fail to do so.
We Face Intense Competition And Need To Compete With Current And Future
Competing Technologies That May Outperform Our Displays Thus Making Our Display
Undesirable.
Our competitors may succeed in developing products that outperform our
displays or that are more cost effective. If our competitors develop products
that offer significant advantages over our products and we are unable to improve
our technology, or develop or acquire alternative technology that is more
competitive, we may not be able to sell our displays.
The market for flat panel display products is currently dominated by
products utilizing liquid crystal display technology. Certain liquid crystal
display manufacturers, such as Canon, Sharp, NEC, Hitachi, Samsung and Toshiba
have substantially greater name recognition and financial, technological,
marketing and other resources than us. Presently liquid crystal displays are in
short demand and independent forecasts predict that this may continue over a
certain period of time. However, liquid crystal display manufacturers have made,
and continue to make, substantial investments in increasing capacity as well as
product performance. We believe that, over time, this, combined with new
competitors entering the flat panel displays market, may cause over-supply
conditions and may have the effect of reducing average selling prices of flat
panel displays. In order to effectively compete, we could be required to
increase the performance of our products or reduce prices. In the event of price
reductions, we will not be able to maintain gross margins unless we reduce our
cost of sales.
There are a number of domestic and international companies developing and
marketing display devices using alternative technologies to liquid crystal
display technology, such as vacuum fluorescent displays, electro-luminescent
panels and plasma panels. Additionally, some of the basic field emission display
technology is in the public domain and, as a result, we have a number of
potential direct competitors developing field emission displays or developing
fundamental field emission displays technology, including Canon, Futaba,
Motorola, Sony, Fujitsu, Samsung and Toshiba, as well as smaller companies,
including Candescent, and Silicon Diamond Technology. Although we own the rights
to significant technological advances in field emission display technology,
potential competitors may have developed or may soon develop comparable or
superior field emission display technology. Many of the developers of
alternative
12
<PAGE>
flat panel display and competing field emission display technologies have
substantially greater name recognition and financial, research and development,
manufacturing and marketing resources than us, and have made and continue to
make substantial investments in improving their technologies and manufacturing
processes.
Because Potential Customers May Not Accept Our Products We May Never Sell The
Number Of Displays Required To Make Our Business Profitable.
We are uncertain about the potential size and timing of our target market
opportunities. We anticipate marketing our displays to original equipment
manufacturer customers, which are customers that will incorporate our product
into their final product. It is possible that demand for any particular product
by these customers will not last or that new markets will fail to develop as we
expect, or at all. Our ability to have consumer products sold that incorporate
our displays will depend, in part, on the following factors:
o whether original equipment manufacturers select our products for
incorporation into their products;
o the successful introduction of such products by the original equipment
manufacturers; and
o the successful commercialization of products developed by parties
incorporating our products.
It takes a long time for any product to achieve market success, and any
success is never certain. The introduction of new products is often delayed by
the need to have the products selected by an original equipment manufacturer and
designed into the original equipment manufacturer's products. For certain
products, the delay attributable to a manufacturer's design cycle may be a year
or longer. Factors affecting the length of these delays include:
o the size of the manufacturer;
o the type of application; and
o whether the displays are being designed into new products or fitted
into existing applications.
If volume production of such products is delayed for any reason, our
competitors may introduce new technologies or refine existing technologies which
could diminish the commercial acceptance of our products.
We Have Limited Sales, Marketing And Distribution Capabilities.
We have limited internal sales, marketing and distribution experience and
capabilities. Until recently, we were a development stage company with no
products or product sales. Consequently, we had not established significant
sales, marketing, or distribution operations within our company. Recently,
however, we have begun sales of our displays to customers. We will not be able
to develop significant revenues from the sales of our products unless we can
13
<PAGE>
attract and retain highly qualified employees to market and oversee the
distribution of our products. If we are unable to establish and maintain
significant sales, marketing and distribution efforts, either internally or
through arrangements with third parties, we may be adversely affected.
Future Cooperation And License Revenues May Decrease.
From 1993 to 1995, we entered into various cooperation and license
agreements under which we were paid money for achieving certain milestones. At
this time, we have received all expected revenues associated with these
milestone payments. If we fail to enter into new royalty-bearing licenses or
cooperation agreements, we could be adversely affected as we have relied on
these revenues in the past and revenues from product sales may not increase as
we expect. For instance, we must execute further cooperation and/or license
agreements with third parties that are not existing licensees before we will
receive any future cooperation or license revenues. Should we successfully enter
such agreements, a portion of the revenues from these contracts may need to be
shared with our existing licensees. Cooperation and license revenues accounted
for approximately 34% of our revenues in 1998.
In addition, we will only recognize royalty revenues under cooperation and
license agreements with existing or future licenses if any of our licensees
incorporate licensed technology into products that are successfully
commercialized. We can not guarantee that any of our licensees will successfully
develop or commercialize any field emission display products. We believe that
one of our existing licensees, Raytheon Company, may have suspended our internal
program to develop field emission displays.
We May Have Difficulty Protecting Patents And Other Proprietary Rights To Our
Technology And May therefore Be Unable To Prevent Competitors From Using Our
Technology.
We have been granted, have filed applications for, and have been licensed
under a number of patents in the United States and other countries. We rely on
these patents and licenses for an advantage in our industry and any infringement
of these patents and licenses will lessen our advantage. However, rights granted
under patents may not provide us with any competitive advantage over competitors
with similar technology, and any issued patents may not contain claims
sufficiently broad to protect against these competitors.
We have not conducted an independent review of patents issued to other
companies. We cannot be certain that we were the first creator of inventions
covered by pending patent applications or the first to file patent applications
on such inventions because patent applications in the United States are
maintained in secrecy until patents issue and the publication of discoveries in
scientific or patent literature tends to lag behind actual discoveries by
several months. Competitors in both the United States and other countries may
have applied for or obtained, or may in the future apply for and obtain, patents
that will prevent, limit or interfere with our ability to make and sell our
products.
We also rely on unpatented, proprietary technology which is significant to
the development and manufacture of our displays. Others may independently
develop the same or
14
<PAGE>
similar technology or obtain access to our unpatented technology. If we are
unable to maintain the proprietary nature of our technologies, our competitors
may develop products using our technology.
Moreover, claims that our products infringe on the proprietary rights of
others are more likely to be asserted after we begin commercial sales of
products using our technology. It is possible that competitors will infringe our
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 our products.
We have received correspondence from Futaba Corporation and its legal
counsel beginning in February 1998 alleging the following:
o we are infringing one or more patents owned by Futaba relating to the
construction and manufacture of our displays that are not expressly
included under the license agreement between us and Futaba;
o our use of terms such as "alliance" and "partners" in describing the
nature of our contractual relationships with Motorola, Raytheon and
Futaba in reports filed with the SEC is misleading; and
o certain provisions in our agreement with Unipac constitute an
impermissible sublicense of Futaba technology.
We do not believe such claims have any merit and have denied each of the
allegations in correspondences with Futaba and our counsel. Futaba has also
claimed that we 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, we may be required to
modify the construction and manufacture of our displays and may, as a result, be
materially adversely affected.
Because A Large Percentage Of Our Net Assets And Our Costs Is Expressed In
Euros, Currency Fluctuations May Cause Gains Or Losses.
A large percentage of our net assets and of our costs is expressed in
Euros, but our financial statements are stated in U.S. dollars. In 1998, 50% of
our assets and 60% of our costs were expressed in Euros. In the six month period
ended June 30, 1999, 25% of our assets and 58% of our costs were expressed in
Euros. Fluctuations of the value of the U.S. dollar versus the Euro may cause
significant gains or losses. Most of our capital lease obligation is expressed
in Taiwanese dollars and thus fluctuations of the value of the Taiwanese dollar
versus the Euro may also cause significant foreign exchange gains or losses.
Year 2000 Errors In Our Computer Systems May Cause Our Operations To Be
Suspended Or May Be Costly to Correct.
We are in the process of conducting a comprehensive review of our computer
systems and manufacturing equipment to identify applications that could be
affected by the inability of
15
<PAGE>
certain computer systems and manufacturing equipment to format and manipulate
data containing dates including the year 2000 and subsequent years and are
developing an implementation plan to resolve these issues. Our management does
not expect that costs associated with modifying existing computer systems and
manufacturing equipment will have a significant impact on our financial position
or results of operations. However, it is possible that such modifications will
not be successfully implemented or that the costs will be significant. If this
happens, we may be adversely affected. Furthermore, we depend on a limited group
of suppliers. We have no way of knowing whether those suppliers will be
significantly impacted by the Year 2000 issue. If the suppliers are
significantly impacted by the Year 2000 issue, they may be unable to continue
their supply of parts to us without interruption, and we may be adversely
affected. Unipac, our main supplier, has disclosed to us their Year 2000 plan
and their contingency plan should they not achieve success in their plan.
Certain Anti-Takeover Provisions That We Have Instituted May Limit Our Stock
Price.
Certain provisions of our restated certificate of incorporation and by-laws
may discourage a third party from offering to purchase the company and may also
adversely affect the market price of our common stock. 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.
In addition, under our restated certificate of incorporation we can issue
preferred stock with such designations, rights and preferences as our board of
directors determines 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 series E stock issued by the company in December
1998 and any additional shares of preferred stock that we 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. We do not currently
intend to issue any additional shares of preferred stock, but we retain the
right to do so in the future.
Furthermore, we are subject to Section 203 of the Delaware General
Corporation Law, which may discourage takeover attempts.
Our Business May Suffer If We Are Unable To Attract or Retain Key Personnel.
We are highly dependent on the principal members of our management and
staff, the loss of whose services might significantly delay or prevent the
achievement of research, development or strategic objectives. Our success
depends on our ability to retain key employees and to attract additional
qualified employees. Competition for such personnel is intense, and we may not
be able to retain existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future.
Shares Of Our Common Stock Eligible For Future Sale May Adversely Affect The
Market Price Of Our Common Stock.
A large number of shares of common stock already outstanding, or issuable
upon exercise of options and warrants, are eligible for resale, which may
adversely affect the market price of
16
<PAGE>
the common stock. As of September 21, 1999, we had 23,567,138 shares of common
stock outstanding. An additional 4,705,605 shares of common stock are issuable
upon the exercise of outstanding options and warrants (including 100,000 shares
issuable upon exercise of the warrant granted to Kingsbridge). Substantially all
of the shares subject to outstanding options and warrants will, when issued upon
exercise, be available for immediate resale in the public market pursuant to
currently effective registration statements under the Securities Act, or
pursuant to Rule 701 promulgated thereunder. In addition, the equity line
agreement provides that we are obligated to issue at least $5,000,000, after
deducting discounts, (up to a maximum of $15,000,000, after deducting discounts)
worth of common stock during the term of the equity line, which continues until
the earliest of when:
o we sell $15,000,000 (after deducting discounts) worth of common stock
to Kingsbridge;
o we fail to meet certain conditions of the equity line agreement; or
o 24 months from the date of effectiveness of the registration statement
covering the shares issuable pursuant to the equity line agreement.
The shares of stock that Kingsbridge may acquire under the equity line
agreement and warrant will be available for immediate resale in the public
market pursuant to this prospectus. Such resales, or the prospect of such
resales, may have an adverse effect on the market price of the common stock.
The Equity Line Agreement And Convertible Note May Have A Dilutive Impact On Our
Shareholders.
The sale of shares pursuant to the equity line agreement or conversion of
the note held by Sumitomo will have a dilutive impact on our stockholders. As a
result, our net income or loss per share could be materially decreased in future
periods, and the market price of our common stock could be materially and
adversely affected. In addition, the common stock to be issued under the equity
line agreement and upon conversion of the Sumitomo note will be issued at a
discount to the then-prevailing market price of the common stock. These
discounted sales could have an immediate adverse effect on the market price of
the common stock. We also issued to Kingsbridge a warrant for 100,000 shares of
common stock exercisable until February 6, 2003 at an exercise price of $2.30
per share. The issuance or resale of such shares and the shares issuable upon
exercise of these warrants would have a further dilutive effect on our common
stock and could adversely affect our price.
We May Not Successfully Integrate Micron's Display Division Operations, and the
Integration of the Businesses May Be Costly.
In May 1999, we purchased certain assets of Micron Technology, Inc.
relating to field emission displays including equipment and other tangible
assets, contract rights related to the tangible assets and $4.35 million in
cash.
17
<PAGE>
The continued integration of our operations may temporarily distract
management's attention from the day-to-day business. While the current process
of integrating Micron's operations has shown good progress, if we fail to
integrate Micron's operations quickly and efficiently, our business and results
of operations may be impaired.
Some of the things we must accomplish in order to integrate Micron's
operations include:
o educate previous and new employees about our technologies and
platforms;
o coordinate or combine research and development efforts;
o manage prior and new relationships with suppliers and customers; and
o align the strategic plans of two previously independent management
teams.
These integration efforts may be costly. If we have underestimated these
initial costs of integration, our initial results will be worse than
anticipated.
18
<PAGE>
THE EQUITY LINE AGREEMENT
On August 9, 1999, we entered into the equity line agreement with
Kingsbridge, pursuant to which, subject to the satisfaction of certain
conditions, we may issue and sell, from time to time, up to an aggregate of
$15,000,000, after deducting discounts, of our common stock.
Beginning on the date the registration statement, of which this prospectus
forms a part, is declared effective by the SEC, and continuing for a period of
24 months thereafter, we may from time to time in our sole discretion sell, or
put, shares of our common stock to Kingsbridge at a price equal to 90% of the
then current average market price of our common stock, if the current average
market price is greater than or equal to $3.00 per share, or 88% of the then
current average market price if the current average market price is less than
$3.00 per share. The current average market price of our common stock, for
purposes of calculating the purchase price, is the average of the lowest trading
prices of our common stock on the Nasdaq National Market for the five days
beginning two days before and ending two days after we notify Kingsbridge of our
intention to put common stock.
There are conditions to our ability to sell our common stock to Kingsbridge
in the equity line agreement, and we may not be able to satisfy all conditions
required under the equity line agreement to put shares to Kingsbridge at any
given time. If we fail to maintain the quotation of our common stock on the
Nasdaq National Market, we may not be able to sell common stock pursuant to the
equity line agreement. See "Risk Factors - If We Fail To Continue To Meet
Nasdaq's Listing Maintenance Requirement, Nasdaq May Delist Our Common Stock."
In addition, the amount of shares that we can put to Kingsbridge depends on our
trading price and trading volume. Also, we cannot put shares to Kingsbridge at a
time when we have not publicly disclosed material information about our company.
We have filed a registration statement, of which this prospectus forms a
part, in order to permit Kingsbridge to resell to the public any common stock it
buys pursuant to the equity line agreement. Kingsbridge may be entitled to
indemnification by us for lawsuits based on language in this prospectus. We will
prepare and file such amendments and supplements to the registration statement
as may be necessary in accordance with the Securities Act and the rules and
regulations promulgated under it, in order to keep it effective as long as
shares covered by the prospectus have not been sold by Kingsbridge. We have
agreed to bear certain expenses (other than broker discounts and commissions, if
any) in connection with the registration statement.
In conjunction with the equity line agreement, on August 9, 1999, we issued
to Kingsbridge a warrant to purchase 100,000 shares of our common stock at an
exercise price of $2.30 per share. The Kingsbridge warrant is exercisable
through February 6, 2003.
The warrant contains provisions that protect Kingsbridge against dilution
by adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of certain events, such as a merger, stock split or reverse
stock split, stock dividend or recapitalization.
The exercise price of the Kingsbridge warrant is payable either in cash or by
cashless exercise. In a cashless exercise, the number of shares of common stock
issuable pursuant to the warrant having a fair market value at the time of
exercise equal to the aggregate exercise price are cancelled as payment of the
exercise price.
19
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share data)
The summary consolidated financial information below has been derived from
the Annual and Interim Consolidated Financial Statements of PixTech, Inc.
included elsewhere in this prospectus. You should read this information in
conjunction with our Annual Financial Statements and the Interim Financial
Statements, and the Notes thereto, which are included in this prospectus.
Results of operations for the six months ended June 30, 1999 are not necessarily
indicative of results of operations for the whole year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Fiscal Year Six months ended
------------------------------------------------ -----------------
June 30, June 30,
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Total revenues...................... 6,225 $11,513 $7,644 $3,819 $3,652 2,631 2,653
Loss from operations................ (4,940) (9,278) (12,041) (15,774) (19,686) (7,964) (11,904)
Net loss............................ (2,979) (6,305) (11,719) (14,664) (17,863) (7,509) (13,405)
Net loss to holders
of Common Stock..................... (2,979) (6,305) (11,719) (14,664) (17,875) (7,509) (13,704)
Net loss per share.................. (0.51) (0.82) (1.44) (1.12) (1.23) $(0.53) $(0.80)
Shares used in computing net loss
per share........................... 5,840 7,697 8,137 13,140 14,548 14,301 16,816
Balance Sheet
Working deficit / capital........... 813 15,919 (859) 9,290 145 2,886 (4,550)
Total assets, less current assets... 15,300 18,569 19,701 24,058 32,592 30,682 36,904
Long term liabilities, less current
portion............................. 6,626 9,958 6,743 14,568 19,480 18,480 18,765
Stockholders' equity................ 9,487 24,530 12,099 18,780 13,257 15,088 13,589
</TABLE>
20
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is currently quoted on the Nasdaq National Market under
the symbol "PIXT." For each quarter since the beginning of 1997, the high and
low trading prices for our common stock, as reported by Nasdaq, were as follows:
High Low
---- ---
Year ended December 31, 1997
First Quarter $6 3/8 $4
Second Quarter $4 7/8 $3 3/8
Third Quarter $4 1/4 $3 1/8
Fourth Quarter $3 7/8 $2
Year ended December 31, 1998
First Quarter $6 1/2 $2 5/16
Second Quarter $7 3/4 $4 1/2
Third Quarter $5 1/2 $2 3/4
Fourth Quarter $3 15/16 $1 3/8
Year ended December 31, 1999
First Quarter $3 5/16 $1 1/2
Second Quarter $2 5/8 $1 11/32
Third Quarter (through September 21, 1999) $2 1/4 $1 15/32
The foregoing bid quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of September 21, 1999, there were approximately 79 holders of record of our
common stock.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends in the foreseeable future. Future
dividends, if any, will depend on, among other things, our results of
operations, capital requirements, restrictions in loan agreements and on such
other factors as our board of directors, in our discretion, may consider
relevant.
USE OF PROCEEDS
The proceeds from the sale of the common stock will be received directly by
the selling stockholders. We will receive no proceeds from the sale of the
common stock offered in this registration statement. However, we will receive
the put price pursuant to the equity line agreement to the extent that our
common stock is sold under the equity line agreement. The put price equals
88-90% of the then current average market price of our common stock, as
determined by the equity line agreement. We may also receive proceeds relating
to the exercise, if any, of the warrant. See "The Equity Line Agreement" on page
19. We intend to use the proceeds from puts and the exercise of the warrant to
support general corporate purposes, including continuous support of our
manufacturing plans at Unipac and development of our color and large field
emission displays.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. You
should be read this table in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in this
prospectus on page 24 and with our Consolidated Financial Statements and the
accompanying Notes.
(All amounts in thousands except share data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1999
<S> <C>
Long term liabilities (1)
Deferred revenue $ 79
Long term debt, less current portion 10,075
Capital lease obligation, less current portion 8,565
Other long term liabilities, less current portion 46
Total Long term liabilities 18,765
Stockholders' equity
Convertible preferred stock series E, $0.01 par value,
authorized shares--500,000; issued and outstanding shares--367,269
4
Common stock, $0.01 par value, authorized shares--60,000,000;
issued and outstanding shares--22,352,918
223
Additional paid-in capital 83,450
Cumulative other comprehensive income (2,527)
Deficit accumulated during development stage (67,561)
--------
Total Stockholders' equity 13,589
Total Capitalization 32,534
========
</TABLE>
(1) For information concerning our long-term debt, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources" and Notes to Consolidated Financial Statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except per share data)
The following table sets forth selected consolidated financial data of
PixTech, Inc. The selected consolidated financial data as of December 31, 1997
and 1998, and for each of the three years in the period ended December 31, 1998
are derived from our consolidated financial statements included elsewhere in
this prospectus, which have been audited by Ernst & Young, independent auditors.
The selected consolidated financial data as of December 31, 1994, 1995 and 1999
and for the years then ended are derived from audited consolidated financial
statements not included in this prospectus. The selected consolidated financial
data as of June 30, 1999 and for the six-month periods ended June 30, 1998 and
1999 are derived from unaudited consolidated financial statements included
elsewhere in this prospectus. The selected consolidated financial data as of
June 30, 1998 are derived from unaudited consolidated financial statements not
included in this prospectus. The unaudited consolidated statements include all
adjustments, consisting of normal recurring accruals, which Pix Tech, Inc.
considers necessary for fair presentation. You should read this data in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus on page 24.
<TABLE>
<CAPTION>
Fiscal Year Six months ended
---------------------------------------------------- ------------------
June 30, June 30,
------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Revenue
Corporation and license revenues ............... $ 3,645 $ 9,865 $ 5,440 $ 1,932 $ 1,239 $ 1,001 $ --
Product sales .................................. 37 808 791 745 445 87 339
Other revenues ................................. 543 840 1,413 1,142 1,968 1,543 2,314
Total revenues ................................. 6,225 11,513 7,644 3,819 3,652 2,631 2,653
Operating Expenses
Acquisition of intellectual
property rights ................................ (1,654) (3,111) -- -- (125) (125) --
Other research and development ................. (7,157) (12,527) (15,848) (15,497) (19,289) (8,353) (12,203)
Sales and marketing ............................ (741) (1,688) (1,089) (1,496) (1,433) (693) (680)
General and administrative ..................... (1,613) (2,151) (2,703) (2,419) (2,515) (1,223) (1,502)
Total operating expenses ....................... (11,165) (19,477) (19,640) (19,412) (23,362) (10,394) (14,385)
Loss from operations ........................... (4,940) (9,278) (12,041) (15,774) (19,686) (7,964) (11,904)
Interest income (expense), net ................. 216 (27) 66 470 (708) (254) (364)
Foreign exchange gains (losses)................. 38 280 256 54 372 709 (1,137)
Loss before income tax benefit ................. (4,686) (9,025) (11,719) (15,250) (20,022) (7,509) (13,405)
Income tax benefit ............................. 1,707 2,720 -- 586 2,159 -- --
Net loss ....................................... (2,979) (6,305) (11,719) (14,664) (17,863) (7,509) (13,405)
Net loss to holders
of Common Stock ................................ (2,979) (6,305) (11,719) (14,664) (17,875) (7,509) (13,704)
Net loss per share ............................. (0.51) (0.82) (1.44) (1.12) (1.23) $(0.53) $(0.80)
Shares used in computing net loss
per share ...................................... 5,840 7,697 8,137 13,140 14,548 14,301 16,816
Balance Sheet
Working deficit / capital ...................... 813 15,919 (859) 9,290 145 2,886 (4,550)
Total assets, less current assets .............. 15,300 18,569 19,701 24,058 32,592 30,682 36,904
Long term liabilities, less current
portion ........................................ 6,626 9,958 6,743 14,568 19,480 18,480 18,765
Stockholders' equity ........................... 9,487 24,530 12,099 18,780 13,257 15,088 13,589
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
PixTech was founded in June 1992 to develop and commercialize field
emission displays. Since inception, we have been a development stage company and
our operating activities related primarily to raising capital, conducting
research and development activities, concluding cooperation and license
agreements with certain displays manufacturers, including Motorola, Inc. and
Futaba Corporation, and establishing manufacturing capabilities for our field
emission displays. To date, most of our revenues have been cooperation and
license revenues from these cooperation and license agreements and revenues from
funding under grants from the French government and the European Union. In the
future, we expect that our revenue will come primarily from the sale of products
manufactured by Unipac under a contract manufacturing arrangement signed in May
1997. After adaptation of Unipac's plant, including addition of certain
equipment and transfer of our manufacturing processes, Unipac successfully
manufactured field emission display samples in June 1998. While current
shipments by Unipac of field emission displays are still minimal, we expect that
Unipac will be successful in increasing manufacturing yields in 1999 and
therefore that display shipments from Unipac will exceed a thousand units per
month by the end of 1999. However, we do not anticipate generating positive
gross margins on our sale of products in 1999.
Our revenues from 1999 will rely mainly on products sales and funding under
various grants; therefore, historical financial results are not meaningful and
you should not rely upon them as an indication of our future performance.
Our products and manufacturing processes are still in the early stages of
development and testing. To date, we have only shipped limited quantities of
field emission displays. Our only commercially available display is a 5.2-inch
monochrome display which to date has been sold in limited quantities to more
than a hundred customers.
Under a license agreement with the French Atomic Energy Commission, we are
obligated to make royalty payments on our product sales and to pass-through a
portion of royalties on sales of royalty-bearing products by our sublicensees.
Under an amendment to the Laboratoire d'Electronique, de Technologie et
d'Instrumentation License Agreement signed in 1997, the royalty rates and
minimum payments payable to French Atomic Energy Commission were temporarily
increased for a period of three years. Royalty amounts accrued under this
agreement were:
Royalty
Year Amount
---- ------
1996 $45,000
1997 $109,000
1998 $308,000
(See Notes to Consolidated Financial Statements--Note 16--Related Party
transactions).
24
<PAGE>
All of our expenses to date, except royalties and pass-through expenses
payable to French Atomic Energy Commission and tax expenses directly associated
with revenues from cooperation and license agreements, have been recorded as
operating expenses, since we have not shipped enough products to determine a
meaningful cost of products sold category.
We have incurred cumulative losses of $68 million from inception to June
30, 1999. We have incurred operating losses every quarter since 1996, and we
expect to incur additional operating losses. The magnitude and duration of our
future losses will depend on a number of factors within and outside of our
control, including the rate at which we can successfully manufacture and
commercialize our Field emission displays, if at all, and the related costs of
such efforts. Successful commercialization of our displays will in turn depend
on a number of factors, including the successful development of sufficient
market demand for our products.
Results of Operations
Cooperation and License Revenues.
We recognized revenues under cooperation and license agreements of $5.4
million in 1996, $1.9 million in 1997 and $1.2 million in 1998. The significant
decrease in cooperation and license revenues in 1997 and 1998 over 1996 reflects
the achievement at the end of 1996 of most of our contractual milestones. The
cooperation phase of these agreements, which had generated milestone revenues
for us, expired in June 1998. In the future, we may derive royalty revenues only
under existing cooperation and license agreements. These royalty revenues will
be based on licensees' sales, if any, of royalty-bearing products.
We may grant royalty-bearing licenses to third parties to the field
emission display technology cross-licensed to us from our licensees, subject to
certain restrictions. Royalties payable to us under these third-party licenses
would be shared with the existing licensees.
In 1997, we entered into a cooperation agreement with a major Japanese
cathode ray tube manufacturer to demonstrate a 15-inch field emission display.
Revenues generated under this agreement in 1997 and 1998 were included in
Cooperation and License Revenues. In February 1999, we entered into a subsequent
cooperation agreement with our cathode ray tube partner. We will not record any
significant revenues under this agreement.
Product Sales.
We recognized product sales of $791,000 in 1996, $745,000 in 1997 and
$445,000 in 1998. Through 1997, these product sales primarily represented the
shipment of a few high-priced field emission display displays and cathodes to
customers for evaluation and product development purposes. In 1998, product
revenues primarily reflected the shipment of displays to our first volume
customer, Zoll Medical. While we shipped significantly more displays in 1998
over 1997, the average selling price was reduced, reflecting commercially priced
sales. We expect to increase product shipments to new customers in 1999, mainly
from our contract manufacturer, Unipac.
25
<PAGE>
Other Revenues.
Other revenues consist of funding under European development contracts and
other miscellaneous revenues. Other revenues were $1.4 million in 1996, $1.1
million in 1997 and $2.0 million in 1998. Of these revenues, $800,000 in 1996,
$663,000 in 1997 and $1.2 million in 1998 relate to a development contract
granted in December 1994 from the French Ministry of Industry to support
manufacturing of field emission displays. We successfully completed this
development contract and will not derive any additional revenue from it. In
addition, we expect to earn development-contract related revenues in 1999,
primarily following expected recognition as income of certain amounts which we
collected before December 31, 1998, and previously recorded as Deferred Revenues
(See Notes to Consolidated Financial Statements--Note 12--Other and deferred
revenues).
Research and Development Expenses -- Acquisition of Intellectual Property
Rights.
Since inception, we have expensed $4.9 million for the acquisition of
intellectual property rights from our licensees and other third parties. In
1998, we expensed $125,000 in connection with a license agreement with Coloray
Display Corporation, a California corporation, providing us with a worldwide,
nonexclusive royalty-free license on certain technologies related to field
emission displays.
Other Research and Development Expenses.
Other research and development expenses include salaries and associated
expenses for in-house research and development activities conducted both in our
manufacturing facility in Montpellier, France and our research and development
facility in Santa Clara, the cost of staffing and operating this manufacturing
facility and since 1997, the cost of supporting the transfer of our field
emission display technology to Unipac. Other research and development expenses
also include obligations to the French Atomic Energy Commission under the
Laboratoire d'Electronique, de Technologie et d'Instrumentation Research
Agreement, and miscellaneous contract consulting fees.
Other research and development expenses increased from $15.8 million in
1996 and $15.5 million in 1997 to $19.2 million in 1998. This increase reflected
the continued development of our field emission display technology, the cost of
the transfer and modification of our manufacturing processes to Unipac, as well
as actual production start-up costs relating to labor, material and equipment
depreciation at Unipac, and the significant increase in the level of our
manufacturing activities in France to support early deliveries of our displays
to customers.
Sales and Marketing Expenses.
We incurred sales and marketing expenses of $1.1 million in 1996, $1.5
million in 1997 and $1.4 million in 1998. Sales and marketing expenses may
increase in the future, reflecting the expansion of our sales and marketing
organization both in the United States and in Europe. We signed distribution
agreements of our field emission display products respectively with Sumitomo for
the Japanese and Asian market areas in 1997. In 1999, we will seek to enter into
similar distribution agreements for both the United States and Europe, in order
to expand market reach in a cost effective manner.
26
<PAGE>
General and Administrative Expenses.
General and administrative expenses amounted to $2.5 million in 1998, an
increase of 4% over general and administrative expenses incurred in 1997, which
amounted to $2.4 million, reflecting an increase in staff expenses. General and
administrative expenses amounted to $2.7 million in 1996.
Interest Income (Expense), Net.
Interest income consists of interest on available and restricted cash.
Interest expense consists of interest payable on long-term obligations. Net
interest expense was $708,000 in 1998, compared to $470,000 in 1997, and to
$66,000 in 1996, reflecting the increase in long-term liabilities.
Currency Fluctuations.
Although a significant portion of our revenues are denominated in U.S.
dollars, a substantial portion of our 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 our results
of operations, which are reported in U.S. dollars. Most of our capital lease
obligation is expressed in Taiwanese dollars. In 1998, fluctuations of the
parity of the Taiwanese dollar versus the Euro caused significant foreign
exchange gains or losses and may continue to do so in the future. We recorded
net foreign exchange gains of $256,000 in 1996, $54,000 in 1997 and $372,000 in
1998. We cannot predict the effect of exchange rate fluctuations on future
operating results. To date, we have not undertaken hedging transactions to cover
our currency exposure, but we may do so in the future.
Income Tax.
We have recognized French income tax benefit of $7.9 million since our
inception, including $586,000 in 1997 and $2.2 million in 1998. These income tax
benefit represent tax credit for research and development activities we
conducted in France and the benefit of net operating loss carryforwards, net of
valuation allowance. As of December 31, 1998, we provided for a valuation
allowance of $19.2 million against a net deferred tax asset of $23.8 million. We
will collect the tax credits for research and development in cash if we are not
able to credit them against future income tax liabilities within three fiscal
years. We collected $29,000 in 1997 for our 1992 income tax benefit and $2.8
million in 1998 for our 1993 and 1994 income tax benefits.
We may not record significant additional tax credit for research and
development activities, if any, in the foreseeable future, as the benefit is
based on increases in eligible research and development expenses in a given year
over the two previous fiscal years.
As of December 31, 1998, our net operating loss carryforwards in France
were approximately $49.4 million of which $5.6 million will expire in 2000, $5.9
million in 2001, $10.7 million in 2002 and 15.5 million in 2003 if they are not
utilized.
27
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Results of operations
Product Sales.
We 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
both periods, 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, we have begun shipping field emission
displays manufactured by our contract manufacturer, Unipac, to our customers in
limited quantities. During the three-month period ended June 30, 1999, unit
shipments from Taiwan represented 21% of our total shipments. We expect an
increase in the proportion of products shipped from Taiwan as compared to
products shipped from our pilot production facility in the second half of 1999.
Other revenues.
Other revenues consist of funding under various public development
contracts and other miscellaneous revenues. We 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 we had deferred
recognition as revenue of the related contribution, collected mainly in 1997 and
in 1998, until we met all conditions stipulated in the agreement. 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 field emission displays.
Research and Development Expenses.
We expensed $12.2 million for research and development costs during the
six-month period ended June 30, 1999, an increase of 44% over the $8.5 million
incurred in the six-month period ended June 30, 1998. These expenses include
salaries and associated expenses for in-house research and development
activities conducted both in our pilot plant and our research and development
facility in Boise, Idaho, the cost of staffing and operating our pilot
manufacturing facility and the cost of supporting the transfer and adaptation of
our field emission display technology to Unipac, as well as obligations to CEA
under the LETI Research Agreement, and miscellaneous contract consulting fees.
The 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 our field emission display manufacturing
processes to Unipac. As part of the acquisition of Micron Display's assets in
May 1999, we hired 44 employees to work on the production equipment acquired in
the Boise facility, thus reinforcing our field emission display technology
development efforts. In addition, we moved the development team located in Santa
Clara to Boise to accelerate our large display program.
28
<PAGE>
Sales and Marketing Expenses.
We expensed $680,000 for sales and marketing during the six-month period
ended June 30, 1999, as compared to $693,000 during the six-month period ended
June 30, 1998, reflecting a one-time decrease in staff expenses. We believe
sales and marketing expenses may increase in the future, reflecting the
expansion of our sales and marketing organization both in the United States and
in Europe.
General and Administrative Expenses.
General and administrative expenses amounted to $1.5 million in the
six-month period ended June 30, 1999, an increase of 25% over general and
administrative expenses incurred in the six month period ended June 30, 1998,
which amounted to $1.2 million, reflecting an increase in consulting expenses.
Interest Income (Expense), Net.
Interest income consists of interest on available and restricted cash.
Interest expense consists of interest payable on long-term obligations. Net
interest expense was $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, reflecting a
decrease in cash balances and an increase in long-term liabilities.
Currency Fluctuations.
We recorded net foreign exchange loss of $1.1 million in the six-month
period ended June 30, 1999, while we recorded net foreign exchange gain of
$709,000 in the six-month period ended June 30, 1998. The foreign exchange loss
recorded in the six-month period ended June 30, 1999 resulted from the
fluctuations of the parity of the Taiwanese dollar versus the Euro, as most of
the Company's capital lease obligation is expressed in Taiwanese dollars. We
cannot predict the effect of exchange rate fluctuations on future operating
results. To date, we have not undertaken hedging transactions to cover its
currency exposure, but we may do so in the future.
Liquidity and Capital Resources.
Since inception through June 30, 1999, we have used $40.3 million in cash
to fund our operations, and $28.7 million in capital expenditures and
investments. Through June 30, 1999, we have funded our operations and capital
expenditures primarily from sales of $71.7_million of equity securities and
$19.0 million of proceeds from borrowings and sale-leaseback transactions.
In 1998, we used $9.3 million in cash to fund our operations. During the
six-month period ended June 30, 1999, we used $8.3 million in cash to fund our
operations as compared $3.1 million for the six-month period ended June 30,
1998. This increase was caused by the following factors:
29
<PAGE>
o absence of significant cash receipts from revenues in the six-month period
ended June 30, 1999; and
o increase in operating expenses associated with Taiwan start-up costs and
with the funding of the operations in Boise.
We expect that the cash needed to fund our operations during the next two
quarters will continue to increase because we will have the full impact of the
additional operating expenses we incur in our new research and development plant
in Boise, Idaho, and because we expect to increase the level of activity in
Unipac's volume manufacturing plant.
Capital expenditures were $5.9 million in 1996, $1.2 million in 1997 and
$1.9 million in 1998, and $396,000 during the six-month period ended June 30,
1999. In 1996, capital expenditures were primarily for leasehold improvements,
facility expansion, and equipment installed in our pilot manufacturing facility,
while 1997 and 1998 capital expenditures remained focused on limited capacity
expansion in our pilot line.
Capital expenditures for the six-month period ended June 30, 1999 exclude
the assets acquired pursuant to the Micron Transaction as those assets were
acquired for the issuance of our common stock. Capital expenditures also exclude
assets acquired under capital lease obligations.
As of June 30, 1999, we had commitments for capital expenditures of
approximately $100,000.
Implementing volume production at Unipac's manufacturing plant required
significant capital expenditures. Under the Foundry Agreement with Unipac,
Unipac acquired and funded $14.9 million of capital expenditures for equipment
only. Unipac leases a portion of that equipment to us, which amounted to $11.6
million as of June 30, 1999. We expect that we will need additional capital
expenditure in 1999 to increase capacity at Unipac and to complete
implementation of manufacturing processes, both for monochrome and for color
products.
Restricted cash amounted to $10.1 million in 1998 and to $8.8 million at
June 30, 1999. Restricted cash is related to the security interest that we
granted to Unipac pursuant to the Foundry Agreement, in relation to the purchase
and funding by Unipac of volume field emission displays production equipment.
The bank guaranty that we provided to Unipac is expected to decrease to match
the net amount of equipment leased by Unipac to us. The decrease of this bank
guaranty in the six-month period ended June 30, 1999 corresponded to a
simultaneous decrease of the same 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 bank guaranty and the
corresponding security interest to the banks are expected to continue decreasing
in the future.
We have existing contracts with French authorities providing for the
payment of grants totaling approximately $4.0 million, which were fully paid to
us as of December 31, 1998. In 1997 and January 1999, we entered into two R&D
agreements with French authorities. Under these agreements, we expect to benefit
from zero-interest loans totaling approximately $3.0 million, of which we
received $2.0 million during the three-month period ended June 30, 1999, and of
which we expect to receive $800,000 in the second half of 1999.
30
<PAGE>
In February 1997, we entered into an R&D agreement with the European Union
and other European industrial companies. The contribution of the European Union
to our costs under this agreement amounted to $941,000 over the period. We
received $423,000 in 1997 and $293,000 in 1998 from this contribution, which we
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, we 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 through the end of 1999.
In November 1998, we entered into an R&D agreement with French authorities.
Under this agreement, we expect to benefit from a grant totaling approximately
$880,000, of which we expect to collect $230,000 in the second half of 1999.
In 1998, we received $96,000 in relation to another R&D agreement entered
into in 1993 with the European Union and other European industrial companies.
The total contribution of the European Union amounted to $546,000. We received
$330,000 in 1994, $120,000 in 1995 and $96,000 in 1998 from this contribution.
We do not expect to derive any additional revenue from this contract.
Since inception, we recognized French income tax benefits of $7.9 million.
These income tax benefits represent tax credits for research and development
activities conducted in France, which are paid in cash if we are not able to
credit them against future income tax liabilities within three fiscal years. In
1998, we collected $2.8 million, representing research and development tax
credits recorded in 1993 and 1994. In April 1999, we collected $3.0 million from
research and development tax credits recorded in 1995.
We generated $9.5 million in cash flows from financing activities in 1998,
as compared to $30.3 million in 1997. These financings consisted primarily of
sales of shares of Common Stock and of Convertible Preferred Stock in private
placements, resulting in net proceeds us of $4.5 million (net of issuance costs)
and $7.5 million, respectively. Cash flow generated from financing activities
exclude non-cash transactions related respectively to (i) the issuance of 14,000
shares of the Company's Common Stock to Coloray Display Corporation with a value
of $50,000 (See "Notes to Consolidated Financial Statements - Note 11 --
Stockholders' Equity") and (ii) the dividends attached to the shares of
Convertible Preferred Stock in the amount of $12,000 (See "Notes to Consolidated
Financial Statements - Note 11 -- Stockholders' Equity").
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, we received certain assets, assumed certain liabilities, and
collected $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 of $352,000.
31
<PAGE>
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.
On August 9, 1999, we entered into a private equity line agreement with
Kingsbridge. Under the terms of the equity line agreement, we have the
irrevocable right, subject to certain conditions, to draw up to $15 million cash
in exchange for our common stock, in increments over a two-year period. Such
conditions include limitations depending on the volume and the market price of
our common stock. We 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, DARPA (Defense Advanced Research Projects Agency)
awarded a development contract to us. Under the terms of the contract, we may
receive approximately $4.7 million to develop a color field emission display.
We believe that cash available at June 30, 1999, which amounted to $7.0
million, together with the anticipated proceeds during 1999 from R&D tax credits
and from the various grants and loans described above will be sufficient to meet
our cash requirements until at least September 30, 1999. We intend to improve
our liquidity and financial position through capital increases expected to take
place in 1999.
We 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
levels we currently anticipate will also require further investment. Our capital
requirements will depend on many factors, including the rate at which we can
develop our products, the market acceptance of our products, the levels of
promotion and advertising required to launch our products and attain a
competitive position in the marketplace and the response of competitors to our
products. Funds for these purposes, whether from equity or debt financing, or
other sources, may not be available when needed or on terms acceptable to us.
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.
Based upon that review, we expect to have our systems Year 2000 compliant in
November, 1999. 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
32
<PAGE>
operations, there can be no assurance that such modifications will be
successfully implemented or that these costs will not be significant. To date,
we estimate that we have expended $60,000 on our Year 2000 program and
anticipated expending an additional $40,000 during the remainder of 1999. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk exposure inherent to our international operations creates
potential for losses arising from adverse changes in foreign currency exchange
rates. We are exposed to such foreign currency exchange rate risk in two main
areas: (i) a substantial portion of our operating expenses are and are expected
to be denominated in Euros, (ii) most of our 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 our results of operations, which are
reported in U.S. dollars. To date, we have not undertaken hedging transactions
to cover its currency exposure. We are also exposed to interest rate risks in
connection with certain long term debt. We do not, however, enter into market
sensitive instruments for trading purposes. As of June 30, 1999, we had a $8.75
million loan payable, bearing interest at the prime rate plus 0.75%, of which
$3.75 million is payable in three equal installments every six months, the next
payment being due November 7, 1999. The remaining $5 million is due November
2000 and is convertible, partially or wholly, at the holder's option, into
shares of our common stock at a conversion price equal to 80% of the market
price on the date of conversion, the market price being determined as the
average closing market price over the twenty consecutive trading days
immediately prior to the notice of conversion. The loan became convertible in
April 1999.
33
<PAGE>
BUSINESS OF THE COMPANY
PixTech, Inc. was incorporated in Delaware in November 1993 as the parent
company of PixTech S.A., a French corporation formed in June 1992. Our principal
executive offices are located at Avenue Olivier Perroy, 13790, Rousset, France.
Our main telephone numbers are 011-33-(0)442-29-10-00 and (408) 986-8868.
We are dedicated to commercializing our field emission displays. We expect
that field emission displays will provide higher viewing quality, lower
manufacturing costs and more efficient power consumption than current flat panel
display technologies.
Since we were established, we have attempted to contain costs by
collaborating with other parties to make use of their expertise and resources.
Initially, we applied this strategy to the area of fundamental research,
manufacturing process and product development. We licensed our technology to
display manufacturers, including Motorola and Futaba. With the market
introduction of our first commercial displays, we now employ the same strategy
for manufacturing and distributing our products through an agreement with our
Taiwanese manufacturing partner, Unipac.
During 1998, we supplied more than 1,000 field emission displays to our
main customer, Zoll Medical Inc., a manufacturer of portable medical equipment.
To date, we are not aware of any other field emission display manufactured by a
competitor that has been incorporated into an end-user product. In addition, we
successfully demonstrated the world's first 15-inch color field emission display
prototype, thus keeping a leadership position in field emission display
technology development.
We are currently focused on:
o increasing production yields and capacities with Unipac;
o expanding our customer base and product offering; and
o further developing large-size displays based on field emission display
technology.
In May, 1999, we acquired substantially all the assets of Micron's field
emission display division located in Boise, Idaho. As a result of this
transaction, Micron has become the largest owner of our shares of common stock.
As part of the acquisition, we hired 44 Micron employees who have continued to
work in the Boise facility. Micron also granted us a ten-year, worldwide,
royalty-free license to its patents and patent applications related to field
emission display technology.
The Flat Panel Display Market
According to Stanford Resources, Inc., a market research organization, the
market for flat panel displays is expanding rapidly and is projected to grow
from $13.8 billion in 1998 to $20.6 billion in 2002. We expect field emission
displays to penetrate the existing flat panel display market by offering better
viewing quality than existing technologies, such as active matrix liquid crystal
displays, at similar manufacturing costs.
34
<PAGE>
We expect the continued proliferation of products requiring flat panel
displays, including desktop computers, car navigation systems, hand-held
computers, and instrumentation, to drive the strong growth of the flat panel
display market. We expect advanced display applications requiring full color and
video to become more prevalent over the next few years. Field emission displays
may also offer an alternative technology in markets which are currently only
served by cathode ray tubes due to performance requirements such as brightness
or range of operating temperature. Because field emission displays may be able
to meet these performance requirements, we also consider the cathode ray tube
replacement market as an opportunity for our field emission displays.
Laptop computers constitute the largest single market for flat panel
displays. However, desktop and handheld computers will drive much of the growth
in the computer flat panel display market.
We believe that emerging field emission display technology has the
potential to address many of the shortcomings of active matrix liquid crystal
displays. The following table summarizes some of the differentiating
characteristics of cathode ray tube, active matrix liquid crystal display and
field emission display technologies(1):
<TABLE>
<CAPTION>
ACTIVE MATRIX LIQUID
CHARACTERISTICS CATHODE RAY TUBE CRYSTAL DISPLAY FIELD EMISSION DISPLAY
--------------- ---------------- --------------- ----------------------
<S> <C> <C> <C>
Viewing angle Very wide horizontal and Wide horizontal, limited Very wide horizontal and
vertical vertical vertical
Video speed High speed over full Adequate speed over High speed over full
temperature range limited temperature range temperature range
Brightness range From low to very high, From low to medium, From low to very high,
easy to dim limited dimming easy to dim
capabilities
Dynamic range * High Limited High
Operating temperature Wide range Limited range due to Wide range and instant-on
liquid crystal behavior at low temperature
Power consumption High Current industry standard Comparable to current
industry standard
Manufacturability Mature process offering Complex process Early stage of
lowest cost manufacturing development
Fewer process steps than
active matrix liquid
crystal display
</TABLE>
* Dynamic range results from a combination of contrast and peak brightness.
(1) The information set forth in this table is based upon our assessment of
existing cathode ray tube and active matrix liquid crystal display products when
compared to field emission display products and prototypes manufactured at our
pilot plant. We cannot assure you that field emission displays, if manufactured
in commercial quantities, will achieve such performance characteristics on a
cost-effective basis.
Strategy
Our strategy is to develop sales based on the key differentiating factors
of our displays relative to other display technology. These factors include
better viewing quality, greater brightness and lower power consumption. Key
elements of this strategy include:
35
<PAGE>
Exploit niche market opportunities in the industrial market
Our strategy is to initially focus on niche applications where the specific
performance of our field emission displays, such as wide viewing angles, high
contrast and low power usage are highly valued by the customer and have yet to
be equaled by other display technologies. These applications, where the cost of
the display is a small percentage of the total equipment cost, are primarily in
the portable medical area, but can also spread over a wide range of industrial
equipment where, so far, mainly cathode ray tubes have been used. We will
thereby avoid competing directly with existing major flat panel display
manufacturers during the initial commercialization period and subsequent ramping
up of production. We expect that 4-to-8 inch diagonal, monochrome field emission
displays for industrial usage will provide the majority of our revenues in the
next two to three years.
Increase market penetration, mainly by entering the transportation market
In order to significantly increase our market penetration, we intend to
launch further products directed towards large volume, high growth market
segments, such as dashboard, mapping and entertainment displays for the
transportation market. Currently, various display technologies are being used,
ranging from very cost competitive vacuum fluorescent displays over reflective
liquid crystal displays to expensive active matrix color liquid crystal
displays. However, we expect this market to grow significantly and major car
manufacturers to adopt a very aggressive strategy to incorporate more displays
into cars during the next five to ten years. We believe our field emission
display technology will offer significant advantages in most display
applications needed for cars. We currently have an active program to develop
color field emission displays in the size of 4-to-8 inches to participate in
those future opportunities.
Ramp to Volume Manufacturing
We entered into a contract-manufacturing agreement with Unipac, an active
matrix liquid crystal display manufacturer based in Taiwan in 1997. Beginning in
1998, we installed field emission display specific equipment required to
complement Unipac's active matrix liquid crystal display manufacturing plant and
transferred and started adjustment of all of our proprietary field emission
display manufacturing processes, leading, in October 1998, to the successful
delivery to PixTech's customers of the first field emission displays
manufactured in Taiwan. Since then, we have focused on solving a number of
manufacturing issues which have prevented us, so far, from shipping any
meaningful quantity of displays from Unipac. The volume production of displays
will be initially carried out at Unipac, which we expect to provide a flexible
and cost effective way to produce displays in large volumes, while keeping our
capital commitment to a minimum level. While current shipments by Unipac of
field emission displays are still minimal, we expect that Unipac will be
successful in increasing manufacturing yields in the second half of 1999 and
that therefore display shipments from Unipac will exceed several thousand units
per month before mid 2000.
Develop large display capability
Whereas the laptop computer display market is strongly covered by today's
active matrix liquid crystal display technology, we believe that the market for
flat panel displays for desktop
36
<PAGE>
applications and wall televisions are still under development. We also believe
that the tremendous advantages of flat screens for desktop computing will fuel a
very rapid transition from cathode ray tubes to flat panel displays for desktop
computer applications. We believe that the requirements for certain desktop
monitor applications, such as video motion, or multi viewer usage, will
facilitate field emission display penetration in that segment.
In 1998, we demonstrated the world's first 15-inch color field emission
display prototype, which we developed together with a major cathode ray tube
manufacturer. Since then, we have started an ambitious program with that partner
to be able to address the 17-inch diagonal desktop monitor market by 2002. If
the cost goals of this program are met, economically viable "wall TVs" using
field emission displays in the 15 to 30-inch diagonal range may then become a
reality.
Maintain significant research and development effort
The development of field emission displays manufacturing processes and
products require a significant ongoing effort. Since inception, we have
leveraged the development activities of Laboratoire d'Electronique, de
Technologie et d'Instrumentation, an electronics research institute from which
we have exclusively licensed many of our key patents. We anticipate that
Laboratoire d'Electronique, de Technologie et d'Instrumentation and our pilot
plant in Montpellier will be specialized to cathode development in the next 12
to 18 months, with a focus on new product development, new process architecture
for cost reduction and enhanced performance. Our plant in Boise, with its
strengths in anode, sealing and spacer technology, will concentrate on the back
end part of the process development, for color and large displays.
Assessing the challenge to successfully penetrate the markets described
above, we are very open-minded to team up with display specialists which can add
value to the development process.
Build Intellectual property base
Shortly after we were founded, we spearheaded the creation of a cooperative
program among ourselves, Motorola, Raytheon, Texas Instruments and Futaba to
advance field emission display technology. Due to this program, as of August,
1999, we held or had a license to approximately 1,445 patents and pending
applications, of which approximately 709 patents are counterparts in various
jurisdictions of originally filed patents.
Products
Our current product is a 5.2-inch monochrome display. This display has 320
lines and 240 columns (1/4 Video Graphic Adapter (VGA) format), a pixel pitch of
0.33 millimeters, and a viewing angle or more than 160 degrees both horizontally
and vertically. Its brightness varies over a range from 120 to 240 candellas per
square meter. Its power consumption is approximately 2.4 watts, depending on the
content of the image, and its weight is less 200 grams.
We expect to sell the first samples of our full color 5.6-inch display
during the first half of 2000 to customers in the automotive industry. In
addition, we intend to expand our product range within the 4 to 8 inch display
market segment.
37
<PAGE>
Marketing and Sales
Target segments:
We are currently marketing our displays directly to original equipment
manufacturers and system integrators in the instrumentation, medical, and
transportation market segments where the benefits of our products are highly
valued. We have not targeted certain segments of the market, such as the
computer laptop display market and other consumer markets, which are large but
extremely price competitive. We believe that as we are still early in the field
emission display manufacturing learning curve, we would not be able to compete
effectively on price with well established liquid crystal display manufacturers.
Pricing:
We believe that field emission display screens will provide significant
quality and operational advantages compared with competing flat panel displays.
To allow fast market penetration, our current pricing strategy is, however, to
offer our displays with better viewing quality at similar prices to competing
products in the markets that we are targeting.
Distribution and Sales:
We intend to achieve sales coverage through a combination of the following:
o our own sales and marketing force which will address major original
equipment manufacturer customers in the US and in Europe;
o a network of sales representatives to expand coverage mainly in the
US; and
o a network of distributors to address specific areas of the worldwide
market and to offer technical and commercial customer support.
We have granted exclusive distribution rights to Sumitomo Corporation in
Japan. In 1999, we intend to progress on our efforts to conclude non exclusive
distribution agreements for both the United States and Europe, in order to
expand market reach in a cost effective manner.
Customers:
To date, we have sold samples of our displays to more than one hundred
customers, mostly based in the United States and in Europe. Since early 1998, we
shipped a large proportion of our products to Zoll Medical Corporation, a US
medical equipment manufacturer which markets a portable defibrillator
incorporating our field emission displays. We received a purchase order to
deliver 50,000 displays to Zoll Medical over 5 years. Zoll Medical uses the
screens as a key differentiator against competing products using liquid crystal
display screens, emphasizing some of the key characteristics of field emission
displays, including brightness and viewing angle. We are negotiating with
potentially new customers, and we believe that we can book new orders when units
shipments from Unipac exceed deliveries to Zoll Medical.
38
<PAGE>
Manufacturing
Outsourcing high-volume manufacturing.
In 1997, we chose to partner with Unipac, a liquid crystal display
manufacturer and an affiliate of UMC, Taiwan's second largest Semiconductor
manufacturer, because much of the equipment used for field emission display
manufacturing is common to the active matrix liquid crystal display
manufacturing process. In doing so, we are able to make use of Unipac's
installed base of equipment and extensive expertise in the production of
displays.
In 1998, we installed all of the field emission display-specific equipment
needed to complement Unipac's active matrix liquid crystal display manufacturing
plant. We are currently transferring our field emission display manufacturing
processes, and have started qualification of the first displays manufactured in
Taiwan. While current shipments by Unipac of field emission displays are still
minimal, we expect that Unipac will be successful in increasing manufacturing
yields in the second half of 1999 and therefore that display shipments from
Unipac will exceed several thousand units per month by mid 2000. However, we do
not expect to generate positive gross margins on the sale of our displays until
we can significantly improve our manufacturing yields over the levels we
experienced in our pilot plant.
Under the agreement with Unipac, we will purchase displays from Unipac on a
cost plus basis during the initial production period. After the startup phase of
manufacturing, we and Unipac will determine a unit price per display on a
quarterly basis, which is expected to decrease over time to take into account
yield and process improvements. We intend to implement profit-sharing mechanisms
with Unipac, so that Unipac will be motivated to seek continuous manufacturing
improvements to reduce cost.
Manufacturing Engineering.
Our pilot production line in Montpellier currently supports early
deliveries to customers ahead of volume production requirements. It is also
being used to streamline manufacturing processes, develop new products and
refine field emission display technology. After start-up of volume production at
Unipac, the pilot production line will be used to support market introduction of
color displays and development of large displays using high voltage technology.
Our pilot facility has approximately 31,100 square feet of space and
contains approximately 10,900 square feet of clean room ranging from class 10 to
class 1000. As of December 31, 1998, we had 136 employees engaged in process
development and pilot production at this facility.
Technology
The basic principle used in field emission displays is the same as in
conventional cathode ray tubes. In both technologies, electrons are extracted
from a source, called the cathode, and collected by a phosphor-coated screen,
called the anode, held at positive voltage to accelerate electrons. The
electrons travel in a vacuum between the cathode and the anode. The phosphor
coating is a cathodoluminescent material, meaning that it emits light when hit
by electrons.
39
<PAGE>
Color is created by using different colored phosphors and by directing the
electrons so that they address each different color phosphor separately.
In a field emission display, each picture element, called a pixel, on the
screen has multiple electron sources from an array of electron-emitting
microtips. The emitting cathode surface, organized into a matrix of rows and
columns, is held closely to the receiving anode. Selection of cathode row and
column voltages determines which pixel will be illuminated.
A field emission display color display can be designed using either a low
voltage or high voltage structure between anode and cathode. The advantages of a
high voltage anode structure are that well characterized cathode ray tube
phosphors can be used, with high luminous efficiency. The potential drawbacks
are that the use of high voltage--at least 5,000 volts--between cathode and
anode may lead to the occurrence of uncontrolled flash-over, limiting the useful
life of such high voltage devices. Furthermore, spacer materials, glass sealing
manufacturing steps and driving electronics may be more costly for high-voltage
field emission displays.
Our cathode technology can be incorporated with equal performance and cost
effectiveness in the design of high voltage field emission displays for large
screen applications or low voltage field emission displays for smaller screen
applications. We believe that the low voltage switched-anode technology is the
most cost effective solution for displays of 12 inches or less, and that high
voltage field emission display technology, with further development, could
address larger performance requirements.
Research and Development
We are focusing our research and development programs in three areas:
o display performance enhancement;
o manufacturing efficiency; and
o scaling-up of the technology to 15-inch and larger displays.
Display Performance Enhancement.
The key elements of display performance are brightness, lifetime, and power
efficiency. We are seeking to balance luminous efficiency with power efficiency
to produce bright, low-power-consumption displays. Display reliability depends
heavily upon the manufacturing process used in assembling the displays as well
as upon the characteristics of the phosphors used on the anode. We are working
to make further advances in phosphors and related manufacturing technologies.
Manufacturing efficiency and costs.
We believe that we can obtain improved manufacturing efficiency by
simplifying manufacturing processes and reducing specific equipment costs. We
have recently focused on
40
<PAGE>
simplifying the assembly process to achieve equipment and material cost
reduction associated with these steps.
Large Display Development.
We conduct a development program to demonstrate the large display (15-inch
and larger) capability of field emission display technology with the goal of
addressing the desktop monitor replacement market. We have strengthened this
program through collaboration with a major Japanese cathode ray tube
manufacturer.
A portion of our research and development activities is carried out at
Laboratoire d'Electronique, de Technologie et d'Instrumentation, a laboratory
under the French Atomic Energy Commission. The research and development
Agreement between French Atomic Energy Commission and us provides for us and the
French Atomic Energy Commission to contribute equally to the funding of field
emission display-related research and development activities at Laboratoire
d'Electronique, de Technologie et d'Instrumentation. The Laboratoire
d'Electronique, de Technologie et d'Instrumentation research agreement provides
for the French Atomic Energy Commission to perform this research and development
work exclusively for us.
Our research and development expenses in the fiscal year ended December 31,
1998 were $19.4 million, as compared to $15.5 million in 1997.
Our licensing program
Between 1993 and 1995, we entered into bilateral cooperation and license
agreements with Motorola, Futaba, Raytheon and Texas Instruments to advance
field emission display technology. These agreements provided each of these
companies with a license, subject to certain limitations, to all field emission
display technology owned by us, Laboratoire d'Electronique, de Technologie et
d'Instrumentation and the other parties. These agreements gave us a royalty-free
license to any field emission display technology held within the group at the
term of the agreements, with certain rights to sublicense. In addition, we
received milestone revenues under these agreements during the cooperation phase.
The agreement with Texas Instruments was terminated in March 1996, but we
maintain our license to Texas Instruments' field emission display technology. We
believe that one of our existing licensees, Raytheon Company, may have suspended
its internal program to develop field emission displays.
Although the cooperation phases of these agreements have all ended, we are
granted royalty-free licenses to all field emission display technology held by
each other party at the end of each respective cooperation period, with certain
rights to sublicense. We are also entitled to royalties on future sales by any
of these licensees of any field emission display products which are based on our
technology.
Micron
In May, 1999, we purchased certain assets and liabilities of Micron's field
emission display division in Boise, Idaho. At the same time, we hired 44 Micron
employees who will continue to work in the Boise facility. Since that time we
have moved development personnel
41
<PAGE>
from Santa Clara to Boise, and the integrated team will continue to focus on
color products and large displays.
In connection with our acquisition, we were granted a ten-year, worldwide
royalty-free license to Micron's field emission display-related patents and
patent applications.
Competition
The market for flat panel display products is intensely competitive. It is
currently dominated by liquid crystal display technology. Liquid crystal display
manufacturers, such as Sharp, NEC and Hitachi, have substantially greater name
recognition and financial, technological, marketing and other resources than we
have, and continue to make substantial investments in improving liquid crystal
display technology, manufacturing processes and in manufacturing facilities. The
recent increase in world-wide manufacturing capacity of flat panel displays and
the entrance of new competitors in the flat panel display market have caused
over-supply conditions leading to dramatic reductions in the price of flat panel
displays over the last few years. In order to effectively compete, we could be
required to continuously increase the performance of our products and to reduce
prices. In the event of price reductions, our ability to maintain gross margins
would depend on our ability to reduce our cost of sales.
There are a number of domestic and international companies developing and
marketing display devices using alternative technologies, such as:
o passive matrix liquid crystal displays;
o active matrix liquid crystal displays;
o vacuum fluorescent displays;
o electroluminescent panels; and
o plasma panels.
We ended our cooperation phase with Futaba in January 1997 and with
Motorola in June 1998, and are aware of significant continued investments in
field emission display technology development by both of them. In the future, we
expect to face competition from both of them. In addition, some of the basic
field emission display technology is in the public domain and, as a result, we
have a number of potential direct competitors developing field emission
displays.
We are aware of several other companies which are developing field emission
display technologies similar to ours, including but not limited to:
o Sony;
o Fujitsu;
o Samsung;
42
<PAGE>
o Candescent;
o FED Corporation; and
o SI Diamond Technology Incorporated.
Many of these companies have made, and may continue to make, significant
advancements to their field emission display technology.
Although we have proprietary rights to significant technological advances
in field emission display technology, our technology and products are still in
development stage. We cannot assure you that such potential competitors have not
developed or will not develop comparable or superior field emission display
technology. Many of these developers of alternative flat panel display and
competing field emission display technologies have substantially greater name
recognition and financial, research and development, manufacturing and marketing
resources than we have, and have made and continue to make substantial
investments in improving their technologies and manufacturing processes. In the
event efforts by our competitors result in the development of products that
offer significant advantages over our products, and we are unable to improve our
technology or develop or acquire alternative technology that is more
competitive, we would be adversely affected.
Patents and Trade Secrets
As of August 31, 1999, we held or had license to 370 U.S. patents and 270
pending U.S. patent applications. We also actively pursue foreign patent
protection in countries of interest to us. As of August 31, 1999, we had filed,
or were licensed under, 794 patent and patent applications in foreign countries.
Our fundamental technology was developed by Laboratoire d'Electronique, de
Technologie et d'Instrumentation and licensed to us in 1992. Under the
Laboratoire d'Electronique, de Technologie et d'Instrumentation License
Agreement, which has a term of twenty years, the French Atomic Energy Commission
granted us an exclusive, worldwide, royalty-bearing license, with right to
sub-license, of all field emission display technology developed by the French
Atomic Energy Commission (including Laboratoire d'Electronique, de Technologie
et d'Instrumentation).
In addition to the payment of royalties on sales of products incorporating
the licensed technology, we must pass through to the French Atomic Energy
Commission a percentage of any royalties on licensed product sales by our
sub-licensees.
43
<PAGE>
Employees
The following table represents the number of employees working with us over
the past three years.
Year Number of Employees
---- -------------------
1996 (average) 143
1997 (average) 144
1998 (average) 164
1999 (at 8/31) 194 (177 full-time, 17 part-time)
On August 31, 1999:
o 64 employees were engaged in research and development;
o 101 employees were engaged in process development, pilot production
and support of the transfer and adjustment of our manufacturing
processes to Unipac;
o 6 employees were engaged in marketing and sales;
o 23 employees were engaged in general and administrative functions.
Our success will depend in large part on our ability to attract and retain
skilled and experienced employees. We consider our relations with our employees
to be good.
In addition, as of August 31, 1999,
o Laboratoire d'Electronique, de Technologie et d'Instrumentation had 10
full-time employees working exclusively for our R&D program; and
o Unipac had 59 full-time employees working exclusively on the start-up
of the field emission display manufacturing and relies on other
manufacturing employees to perform a significant portion of the
manufacture of field emission displays
The number of the employees working on the field emission display
manufacturing is expected to increase significantly in the next 12 months.
Facilities
Montpellier, France
We rent a facility in including a clean room, office area, and engineering
laboratories in Montpellier, France, having 31,100 square feet of space. The
Montpellier lease terminates in 2003, with an option to renew.
44
<PAGE>
Boise, Idaho
We lease a total of approximately 73,000 square feet of space in Boise,
Idaho, including a clean room, devoted to our research and development
activities, under a three-year lease from Micron expiring in May, 2002. The
lease is renewable for an additional three-year term.
Santa Clara, California
We lease a total of approximately 2,570 square feet of space in Santa
Clara, California, for our sales offices, under a lease which terminates in
2001. The lease is renewable for an additional term of three years.
Rousset, France
Our corporate offices are located in an approximately 11,000 square foot
facility located in Rousset, France. We own the facility and occupy
approximately 5,500 square feet of floor space. A third party rents the rest of
the area under a lease which terminates in June 2002.
Legal Proceedings
We have received correspondence from Futaba Corporation and its legal
counsel beginning in February 1998 alleging the following:
o we are infringing one or more patents owned by Futaba relating to the
construction and manufacture of our displays that are not expressly
included under the license agreement between us and Futaba;
o our use of terms such as "alliance" and "partners" in describing the
nature of our contractual relationships with Motorola, Raytheon and
Futaba in reports filed with the SEC is misleading; and
o certain provisions in our agreement with Unipac constitute an
impermissible sublicense of Futaba technology.
We do not believe such claims have any merit and have denied each of the
allegations in correspondences with Futaba and our counsel. Futaba has also
claimed that we 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, we may be required to
modify the construction and manufacture of our displays and may, as a result, be
materially adversely affected.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
As of September 21, 1999, our executive officers were as follows:
Name Age Position held with us
---- --- ---------------------
Jean-Luc Grand-Clement 60 Chairman of the Board of Directors
Dieter Mezger 56 President, Chief Executive Officer and Director
James J. Cathey 35 Vice President, Marketing and Sales
Francis G. Courreges 46 Executive Vice President, Development
Chief Technology Officer
Donald E. Crim 57 Vice President, Manufacturing, Taiwan
Michel Garcia 52 Vice President, Industrial Partners
Jean-Jacques Louart 50 Vice President, Operations
Yves Morel 33 Vice President, Chief Financial Officer
John A. Hawkins 38 Director
Will C. Schmidt 43 Director
Each officer's term of office extends until the first meeting of the Board
of Directors following the next annual meeting of stockholders and until a
successor is elected and qualified.
Jean-Luc Grand-Clement, a founder of PixTech, has been our Chairman of the
Board of Directors since our inception in 1992. Mr. Grand-Clement has been our
President through March 1998 and our Chief Executive Officer thorough January
1999. Prior to founding PixTech, Mr. Grand-Clement co-founded European Silicon
Structures, a European applications specific integrated circuit supplier for
cell based and full custom semiconductor products, and served as Chief Executive
Officer and then as Chairman of the Board of Directors of European Silicon
Structures from its founding in 1985 until 1991. From 1967 to 1978 and from 1982
to 1985, Mr. Grand-Clement held various positions with Motorola, Inc., most
recently as Vice-President and Assistant General Manager of the Motorola
European Semiconductor Group from 1983 to 1985. From 1978 to 1982, Mr.
Grand-Clement was the Managing Director of Eurotechnique, a metal-oxide
semiconductor design and fabrication joint venture between National
Semiconductor and Saint-Gobain. Mr. Grand-Clement graduated from Ecole Nationale
Superieure des Telecommunications in Paris.
Dieter Mezger joined PixTech in March 1998 as President and was elected
Chief Executive Officer in January 1999. Between 1996 and 1998, Mr. Mezger
worked as a marketing consultant in California. Between 1990 and 1996, Mr.
Mezger was President of Compass Design Automation, a wholly-owned subsidiary of
VLSI Technology, Inc. which develops and markets computer assisted design
software tools for IC designs. From 1984 to 1990, Mr. Mezger established VLSI's
European presence in Munich, building the European marketing and sales
organizations, design centers, research and development operations, as well as
its finance and human resources departments. Mr. Mezger simultaneously built
VLSI's wireless and GSM (Global System for Mobile Communications) businesses.
Prior to joining VLSI, Mr. Mezger
46
<PAGE>
career included fifteen years with Texas Instruments, where he rose to the
position of Manager, Sales and Marketing, Europe. He holds a BS in engineering
from the University of Stuttgart.
James J. Cathey has been our Vice President, Marketing and Sales since May
1999. Mr. Cathey served as Vice President Sales and Marketing for the display
division of Micron Technology from 1994 to 1999. From 1991 to 1994 Mr. Cathey
was Vice President Sales and Marketing for G2, a software development company.
From 1989 to 1991 he was key accounts manager for Micron Technology's Memory
applications group. Mr. Cathey holds a BA in Marketing from Boise State
University.
Francis G. Courreges has served as our Executive Vice-President,
Development since July 1995. He was promoted to Chief Technology Officer in May
1999. From July 1993 to July 1995, he was our Vice-President of Marketing and
Development. Prior to joining PixTech, Mr. Courreges was a co-founder of
European Silicon Structures, and served as Manager of direct write technology
for metal-oxide semiconductors and gate array products from 1985 to 1991 and
Vice-President of Marketing from 1991 to 1992. Prior to joining European Silicon
Structures, Mr. Courreges was product engineering manager at Sierra
Semiconductor from 1984 to 1985. He held various process and product engineering
positions at Electronic Arrays from 1977 to 1979, at National Semiconductor,
from 1979 to 1980 and at Eurotechnique, from 1980 to 1984. Mr. Courreges
graduated from Ecole Nationale Superieure des Arts et Metiers and holds M.S. and
Ph.D. degrees in Materials Science from Stanford University.
Donald E. Crim has been our Vice President, Manufacturing, Taiwan since
April 1999. From June 1988 to December 1995, Mr. Crim was senior vice president
Wafer Fabrication and Technology at Silicon Systems, Inc. Over that period, he
grew the manufacturing activities to support sales growth from $100 million to
$400 million. His responsibilities included overseeing all semiconductor wafer
manufacturing, technology development and wafer foundry services. Additional
responsibilities included establishing outside foundry suppliers in Taiwan,
Japan, Korea, Singapore and USA. Since June 1998 and in 1996, Mr. Crim was a
consultant for several companies. His customers included IBM, Dallas
Semiconductor, Tower Semiconductor and others.
Michel Garcia, a founder of PixTech, has served as our Vice President,
Industrial Partners since August 1995. From inception to August 1995, he had
served as Vice-President of Equipment Engineering. In 1986, Mr. Garcia founded
Microsolve, a semiconductor processing equipment company, which he managed for
five years. From 1981 to 1985, he served as operations manager at Eurotechnique;
from 1979 to 1981, he served as fab process manager at Eurotechnique; and from
1977 to 1979 he served as a process engineer at Motorola. In 1970, Mr. Garcia
graduated from Ecole Nationale Superieure d'Electronique et de Radioelectricite
de Grenoble, and he received a degree of Doctor of Microelectronics from
Grenoble University.
Jean-Jacques Louart joined PixTech in May 1997 as Vice-President of
Operations. Mr. Louart served as Quality Director of LX Management, a consultant
agency, from 1995 to 1997. From 1993 to 1995, he was president of SIP, an
equipment engineering company. Prior to that, Mr. Louart spent 18 years with
IBM, holding process and manufacturing management positions. Mr. Louart
graduated from Ecole de l'Air and holds a management degree from CPA, Paris.
47
<PAGE>
Yves Morel joined PixTech in April 1994 as Director of Finance and
Administration. He was promoted to Chief Financial Officer in March 1997 and to
Vice President in March 1998. From 1993 to 1994, Mr. Morel was Finance Manager
of International Software Enterprise, a hardware and software distribution
group. From 1992 to 1993, Mr. Morel served as Controller at Genoyer S.A., a
manufacturing and distribution company in the industrial valve and piping field.
From 1989 to 1992, Mr. Morel was employed at Price Waterhouse. Mr. Morel
graduated from the Ecole des Hautes Etudes Commerciales and he obtained a
Diplome d'Etudes Superieures Comptables et Financieres.
John A. Hawkins has been a director of PixTech since 1994. Since August
1995, Mr. Hawkins has been a co-founder and managing partner of Generation
Partners, L.P., a private equity firm. From 1992 until August 1995, Mr. Hawkins
was a general partner of various funds affiliated with Burr, Egan, Deleage & Co.
Mr. Hawkins is a director of P-COM, Inc., Enso Audio Imaging Corporation, Dover
Pacific computing, Inc., High End Systems, Inc. and Linguateq, Inc. Mr. Hawkins
holds degrees from Harvard College and Harvard Business School.
William C. Schmidt has been a director of PixTech since June 1992. Since
1988, Mr. Schmidt has been an investment partner at Advent International, an
international venture capital company, where he also manages the activities of
Advent International's corporate investment programs in Europe. From 1981 to
1987, Mr. Schmidt worked as a management consultant at Bain & Company in Europe
and the United States. Mr. Schmidt holds degrees from Williams College and
Harvard Business School.
Committees of the Board
The audit committee, which consisted in 1998 of Mr. Schmidt and Mr. Jean-
Pierre Noblanc and currently consists of Messrs. Schmidt and Hawkins, is
responsible for providing the board of directors with an independent review of
our financial health and our financial controls and reporting. The audit
committee's primary functions are to recommend independent auditors to the board
of directors, review the results of the annual audit and the auditors' reports,
and ensure the adequacy of our financial controls and procedures. The audit
committee met five times in 1998. The compensation committee, whose members in
1998 were Messrs. Schmidt, Hawkins, and Roger W. Johnson from September 22, 1998
to December 31, 1998, acts for the board of directors with respect to our
compensation practices and implementation of those practices. The compensation
committee sets and implements the compensation of our officers and administers
the amended and restated 1993 stock option plan and the 1995 employee stock
purchase plan. The compensation committee held two meetings in 1998. The entire
board of directors functions as a nominating committee, considering nominations
submitted by the Chairman of the Board. The board of directors held ten meetings
during 1998, and each director attended at least 75% of all meetings of the
Board and of all committees of the Board on which he served, except Mr. Roger W.
Johnson who attended 25% of all meetings of the Board and of all committees of
the Board on which he served. Mr. Roger W. Johnson served as one of our
directors from September 22, 1998 to December 31, 1998.
48
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table (1)
The following table provides summary information on the cash compensation
and certain other compensation paid, awarded, or accrued by us and our
subsidiaries to or for the Chief Executive Officer of PixTech and each of our
other five most highly compensated executive officers for 1998.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation (1) Awards
--------------------------------- --------------
Securities
Underlying
Name and Principal Position Year Salary($) Other ($) Options(#)
- --------------------------- ---- --------- --------- ----------
<S> <C> <C> <C> <C>
Jean-Luc Grand-Clement 1998 $192,246 -- --
Former President, Former Chief Executive 1997 193,708 -- 165,000
Officer, and Chairman of the Board 1996 212,502 -- 40,000 (2)
Dieter Mezger (3) 1998 156,000 -- 300,000
President and Chief Executive Officer 1997 10,500 -- --
Francis G. Courreges 1998 149,201 -- --
Executive Vice President, 1997 150,850 -- 77,000
Chief Technology Officer 1996 172,053 -- 20,000 (2)
Michel Garcia (6) 1998 101,728 53,808 --
Vice President, 1997 102,852 -- 56,000
Industrial Partners 1996 107,045 -- 15,000 (2)
Tom M. Holzel (5) 1998 122,500 -- --
Vice President, 1997 122,500 -- 85,000
Marketing & Sales 1996 122,500 -- 10,000 (2)
Jean-Jacques Louart (4) 1998 101,728 -- --
Vice President, 1997 64,349 -- 68,000
Operations --
</TABLE>
(1) All dollar amounts (except for amounts paid to Messrs. Mezger and Holzel)
reflect the conversion of Euros to U.S. dollars at an average conversion rate
for Euros to U.S. dollars of 0.7797 for 1996, 0.8893 for 1997 and 0.8992 in
1998.
(2) All of these options were unexercised and terminated as of February 21,
1997.
(3) Dieter Mezger joined PixTech in March 1998 and was elected President and
Chief Executive Officer as of March 1998 and January 1999, respectively. Prior
to that, Mr. Mezger was a consultant to us from November 1997 to March 1998, an
activity for which he received $10,500 in 1997 and $21,000 in 1998.
(4) Jean-Jacques Louart joined PixTech in May 1997.
(5) Tom M. Holzel left PixTech in April 1999.
(6) Michel Garcia is an employee of PixTech S.A., a wholly owned subsidiary of
PixTech. Other compensation received in 1998 included daily allowances for
$29,450, rent for $22,120 and car payments of $2,238.
49
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table provides information on stock options granted during
1998 to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of % of Total
--------- ---------- Potential Realized Value at
Securities Options Assumed Annual Rates of
---------- ------- Stock Price Appreciation for
Underlying Granted to Option Term ($) (1)
---------- ---------- -------------------
Options Employees in Exercise Price Expiration
------- ------------ -------------- ----------
Name Granted (#) 1998 ($/ share) Date 5% 10%
---- ----------- ---- ---------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Dieter Mezger 300,000 (2) 67% 5.271 03/25/2008 994,471 2,520,185
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% appreciation rates set by the Securities and Exchange Commission of a
value for the common stock equal to the market price of the common stock on the
date of grant of the option. These amounts are not intended to forecast possible
future appreciation, if any, in the price of the common stock.
(2) These options became or become exercisable as follows: 37,500 shares on
March 25, 1998, 75,000 shares on July 23, 1998, 75,000 shares on January 05,
1999, 37,500 shares on March 25, 1999, 37,500 shares on March 25, 2000 and
37,500 shares on March 25, 2001.
Aggregated Option Exercises in Last Fiscal Year and Year-End Stock Option Values
The following table sets forth certain information concerning the
unexercised stock options as of December 31, 1998 held by the executive officers
named in the Summary Compensation Table. No options were exercised during 1998
by any named executive officer.
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-The-Money Options
Options at 12/31/98 (#) at 12/31/98 ($) (1)
----------------------- -------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jean-Luc Grand-Clement 521,988 189,473 941,890 88,137
Dieter Mezger 225,000 75,000 -- --
Francis Courreges 134,757 75,577 227,953 22,484
Michel Garcia 117,772 49,333 215,135 5,519
Tom Holzel 76,250 8,750 -- --
Jean-Jacques Louart -- 68,000 -- --
</TABLE>
(1) Based on the difference between the respective option exercise price and the
closing market price of the Common Stock on December 31, 1998, which was 2 3/8.
Executive Employment Agreements
Each of Messrs. Grand-Clement, Courreges, Garcia and Louart have entered
into employment agreements with us in substantially the same form as most of our
other employees. The material terms of the employment agreements provide for
employment by each individual for an indefinite period. Pursuant to the
employment agreements, each individual agrees to non-competition and non-
solicitation provisions which survive for a one-year period following
termination of employment. The employment agreements also contain obligations of
each employee concerning confidentiality and assignment of inventions and
intellectual property to us. Mr. Cathey has entered into an employment agreement
providing for employment for an indefinite period, non-competition and
non-solicitation for one year following termination, and
50
<PAGE>
confidentiality provisions. Mr. Mezger is employed at will and has signed
similar non-competition and non-solicitation provisions.
Compensation Committee Interlocks And Insider Participation
During the fiscal year ended December 31, 1998, our compensation committee
consisted of Messrs. Schmidt and Hawkins. None of the members of the
compensation committee has been an officer or employee of ours.
Mr. Noblanc, who was a member of our board of directors and its audit
committee until March 1999, is an officer of CEA Industrie, S.A., which is
controlled by the French Atomic Energy Commission. In September 1992, we
licensed its fundamental technology from the Laboratoire d'Electronique, de
Technologie et d'Instrumentation, a research laboratory of the French Atomic
Energy Commission, pursuant to an exclusive, worldwide, royalty- bearing license
agreement with French Atomic Energy Commission, which has a term of twenty
years. The Laboratoire d'Electronique, de Technologie et d'Instrumentation
License Agreement was amended in July 1993, March 1994 and October 1997.
Beginning in 1996, we became obligated under the Laboratoire d'Electronique, de
Technologie et d'Instrumentation License Agreement to make royalty payments to
the Laboratoire d'Electronique, de Technologie et d'Instrumentation based on the
sales of products incorporating licensed technology. In addition to such royalty
payments, we must pass through to French Atomic Energy Commission a percentage
of any lump sum sublicense fees earned after 1993 and royalties on sales of
licensed products by the Company's sublicenses. Pursuant to an amendment to the
Laboratoire d'Electronique, de Technologie et d'Instrumentation License
Agreement signed in 1997, the royalty rates and minimum payments from us to
French Atomic Energy Commission were increased for a period of three years. An
amount of $308,000 was accrued in 1998 in that respect.
We also entered into a research and development agreement with French
Atomic Energy Commission in 1992, under which we funds research at the
Laboratoire d'Electronique, de Technologie et d'Instrumentation. Pursuant to the
Laboratoire d'Electronique, de Technologie et d'Instrumentation Research
Agreement, we expensed $36,000 in 1992, $1,335,000 in 1993, $1,506,000 in 1994,
$1,339,000 in 1995, $644,000 in 1996, and $637,000 in 1997. In 1998, we recorded
$848,000 as expenses pursuant to the Laboratoire d'Electronique, de Technologie
et d'Instrumentation Research Agreement.
Director Compensation
Director Fees
We reimburse non-employee directors for expenses incurred in attending
meetings, and they also receive $1,500 for each meeting of the board of
directors that they attend, plus an additional $4,000 if they attend at least
four meetings in a year. Such payments may not exceed a total of $10,000 in any
one year. Mr. Grand-Clement and Mr. Mezger are the only directors who are
employees of the Company, and will not receive additional compensation for their
service as directors.
51
<PAGE>
1995 Director Stock Option Plan
The 1995 director stock option plan provides that each director who is not
a PixTech employee and who is elected or re-elected into office following the
annual meeting of stockholders receives an automatic grant of options to
purchase 6,000 shares of common stock. The options become exercisable in
increments of 2,000 shares as follows: 2,000 shares on the grant date, and an
additional 2,000 shares at each of the following two annual meetings of
stockholders so long as the director remains in office. The options expire ten
years from the grant date. The exercise price of each option is the fair market
value of the common stock on the day immediately preceding the grant date.
The director plan authorizes the grant of stock options to purchase up to a
maximum of 50,000 shares (subject to adjustment in the event of a stock split or
other recapitalization) of common stock. Messrs. Schmidt and Hawkins are
currently eligible to participate under the director plan. Because the only
director elected at the 1999 Annual Meeting of Stockholders is an employee of
PixTech, no options were granted under the Director Plan at the 1999 Annual
Meeting of Stockholders.
52
<PAGE>
SHARE OWNERSHIP
The following tables set forth certain information regarding the ownership
of our common stock and series E preferred stock as of September 21, 1999 by (i)
persons known by us to be beneficial owners of more than 5% of our common stock
and series E preferred stock, (ii) the executive officers named in the Summary
Compensation Table on page 49, and (iii) all of our current executive officers
and directors as a group:
Common Stock
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficial Owner Beneficially Owned (1)
- ---------------------------- ------------------------------------
Shares Percent of Class
------------ ----------------
<S> <C> <C>
Micron Technology, Inc. 7,443,562 31.1%
8000 South Federal Way
Boise, Idaho 83716-9632
Sumitomo Corporation 3,626,327(2) 13.3%
1-2-2 Hitotsubashi, Chiyoda-Ku
Tokyo, 100 Japan
The Kaufmann Fund, Inc. 1,678,169(3) 7.1%
140 East 45th Street
43rd floor
New York, NY 10017
Jean-Luc Grand-Clement 725,464(4) 3.0%
Dieter Mezger 375,000(5) 1.6%
Francis G. Courreges 93,307(6) *
Michel Garcia 135,116(7) *
Tom M. Holzel 0 *
John A. Hawkins 16,000(8) *
William C. Schmidt 4,000(9) *
All directors and executive officers as a group 1,413,594(10) 5.7%
(10 persons)
</TABLE>
* Less than one percent.
(1) Except as otherwise indicated in these footnotes, the persons and entities
named in the table have sole voting and investment power with respect to all
shares beneficially owned by them. Share ownership information includes shares
of common stock issuable pursuant to outstanding options which may be exercised
within 60 days after September 21, 1999.
(2) Includes 3,576,327 shares of common stock subject to the conversion of a $5
million convertible note issued in 1997, of which approximately $4.9 million is
outstanding as of September 21, 1999. This note is convertible into shares
53
<PAGE>
of our common stock at a conversion price equal to 80% of the market price on
the conversion date, the market price being determined as the average closing
market price over the twenty consecutive trading days immediately prior to the
notice of conversion.
(3) Consists of 1,678,169 shares of common stock (information as of April 15,
1998). In addition, The Kaufmann Fund, Inc. holds 266,297 shares of series E
preferred stock which are convertible into common stock. As of September 21,
1999, these shares of series E preferred stock would have been convertible into
3,775,458 shares of common stock (See series E preferred stock chart below).
(4) Includes 53,605 shares held by Mr. Grand-Clement's wife and 600,753 shares
of common stock subject to options exercisable as of September 21, 1999 or
within 60 days thereafter, of which 6,792 shares are subject to options held by
Mr. Grand-Clement's wife.
(5) Consists of 375,000 shares of common stock subject to options exercisable as
of September 21, 1999 or within 60 days thereafter.
(6) Includes 89,307 shares of common stock subject to options exercisable as of
September 21, 1999 or within 60 days thereafter.
(7) Includes 127,355 shares of common stock subject to options exercisable as of
September 21, 1999 or within 60 days thereafter.
(8) Includes 6,000 shares of common stock subject to an option exercisable as
of September 21, 1999 or within 60 days thereafter.
(9) Consists of 4,000 shares of common stock subject to an option exercisable as
of September 21, 1999 or within 60 days thereafter. Mr. Schmidt, a director of
PixTech, is a Vice President of Eventech Limited and of Advent International
Corporation. Mr. Schmidt disclaims beneficial ownership of all 675,945 shares
held by the funds affiliated with Advent International Corporation, except for
80 shares which he beneficially owns as a partner in Advent International
Investors Limited Partnership and 192 Shares which he beneficially owns as a
partner in Advent International Investors II L.P.
(10) Excludes shares, as to which beneficial ownership is disclaimed, described
in footnotes (8)-(9). Includes 1,250,415 shares of common stock subject to
options exercisable as of September 21, 1999 or within 60 days thereafter.
54
<PAGE>
Series E Preferred Stock
Shares of Common Stock
Beneficial Owner Beneficially Owned (1)
- ------------------------------ ------------------------------------
Shares Percent of Class
------------ ----------------
The Kaufmann Fund, Inc. 266,297 (1) 89.6%
140 East 45th Street
43rd floor
New York, NY 10017
Citadel Investment Group, L.L.C. 18,766 (2) 6.3%
225 West Washington Street
Chicago, Illinois 60606
(1) As of September 21, 1999, these shares of series E preferred stock would
have been convertible into 3,775,458 shares of common stock. In addition, the
Kaufmann Fund holds 1,678,169 shares of our common stock (See common stock chart
above). As of September 21, 1999, the Kaufmann Fund holds 5,453,627 shares of
common stock on a as-converted basis.
(2) As of September 21, 1999, these shares of series E preferred stock would
have been convertible into 266,058 shares of common stock. In addition, Citadel
Investment Group, L.L.C. holds 336,702 shares of our common stock (Information
as of January 4, 1999). As of September 21, 1999, Citadel Investment Group holds
602,760 shares of our common stock on a as-converted basis.
55
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock by Kingsbridge and Sumitomo as of September 21,
1999.
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Number of Shares of Common Stock
Name and Address of Beneficially Owned Prior Common Stock Offered Beneficially Owned
Stockholder to the Offering Hereby Following the Offering
------------------- ------------------------ -------------------- ----------------------
Number Per Cent Number Per Cent
------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Sumitomo Corporation 3,626,327 (1) 13.3% 1,000,000 2,626,327 6.2%
1-2-2 Hitotsubashi, Chiyoda-Ku
Tokyo, 100 Japan
Kingsbridge Capital Limited 0 * 15,100,000 (3) 0(4) 0
3rd Floor,
Barclays House,
PO Box
3340 Wickhams Cay 1,
Road Town
Tortola,
British Virgin Islands(2)
</TABLE>
* Less than 1%.
(1) Includes 3,576,327 shares of common stock subject to the conversion of a $5
million convertible note issued in 1997, of which approximately $4.9 million is
outstanding as of September 21, 1999. This note is convertible into shares of
our common stock at a conversion price equal to 80% of the market price on the
conversion date, the market price being determined as the average closing market
price over the twenty consecutive trading days immediately prior to the notice
of conversion.
(2) The natural person controlling Kingsbridge Capital Limited is Valentine
O'Donoghue.
(3) Includes 100,000 shares of common stock issuable pursuant to the Kingsbridge
warrant. If all of the shares offered pursuant to the equity line agreement were
purchased and held by Kingsbridge, it would hold 39% of our outstanding common
stock. Pursuant to the equity line agreement, however, unless PixTech obtains
the required approval from its shareholders in accordance with Delaware law and
the rules of the National Association of Securities Dealers, Inc., no more than
19.9% of the number of outstanding shares of common stock may be issued to
Kingsbridge.
(4) Assumes that all shares acquired pursuant to the equity line agreement and
the warrant are sold pursuant to this prospectus. Kingsbridge has not had any
material relationship with us or our affiliates other than as a result of the
ownership of common stock or as a result of the negotiation and the execution of
the equity line agreement. The shares offered hereby are to be acquired by
Kingsbridge pursuant to the equity line agreement or upon exercise of the
warrant.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock of consists of 60,000,000 shares of common
stock, and 1,000,000 shares of preferred stock
The following summary of certain provisions of the common stock and
preferred stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of our restated certificate of incorporation
and our amended and restated by-laws which are included as exhibits to this
registration statement, and by the provisions of applicable law.
Common Stock
Holders of common stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of common stock are entitled to receive ratable dividends when declared by our
board of directors. Upon the liquidation, dissolution or winding up of PixTech,
holders of common stock share ratably in PixTech's assets available for
distribution to its stockholders, subject to the preferential rights of any
preferred stock. The common stock outstanding upon the effective date of this
prospectus are fully paid and nonassessable. As of September 21, 1999,
23,567,138 shares of our common stock are issued and outstanding, and 582,500
were reserved for issuance upon the exercise of certain outstanding warrants and
approximately 4,123,105 were reserved for issuance pursuant to stock option
plans and employee stock purchase plans.
We have issued to Sumitomo Corporation a note in the principal amount of
$5,000,000 convertible, in whole or in part, into our common stock at 80% of the
fair market value of our common stock on the day Sumitomo converts the note. As
of September 21, 1999, we issued 100,000 shares of our common stock to Sumitomo
following the conversion of $144,636 of the note.
We have issued a warrant to Micron to purchase an aggregate of 310,000
shares of our common stock at $2.25313 per share.
We have issued a warrant to purchase 62,500 shares of our common stock to
Comdisco, Inc. in connection with a master lease agreement between us and
Comdisco which is exercisable at a price of $2.88 per share and expires on July
18, 2000.
We are obligated to issue a warrant to purchase 35,000 shares of our common
stock to Needham & Company, Inc., in connection with an agreement for financial
advisory services, which is exercisable at a price of $2.26 per share and
expires on May 10, 2004.
We are obligated issue a warrant to purchase 75,000 shares of our common
stock to Josephthal and Co, in connection with an agreement for financial
advisory services, which is exercisable at a price of $2.26 per share and
expires on June 17, 2004.
In addition, we have issued a warrant to Kingsbridge to purchase 100,000
shares of our common stock at $2.30 per share which expires on February 6, 2003.
57
<PAGE>
Preferred Stock
In December 1998, we issued 367,269 shares of series E stock, at a price of
$22.5313 per share, to certain institutional investors. The series E stock is
generally convertible into our common stock at a rate equal to the lesser of (a)
$2.25313, and (b) the average closing price of our common stock over the ten
trading day ending period ending on the day immediately preceding the day upon
conversion.
There currently are 500,000 shares of preferred stock designated as series
E stock and 297,269 shares are currently outstanding. The holders of series E
stock will receive, if declared, cumulative compounding dividends at the rate of
six percent per year which we may pay with additional shares of common stock
upon conversion of the series E stock. In addition, we are required to pay an
additional dividend equal to the higher of (a) two percent per year, pro rated
on the basis of twelve 30-day months and a 360-day year, for the number of days
that our common stock has a closing bid price that is less than $2.25313 and (b)
four percent per year, pro rated on the basis of twelve 30-day months and a
360-day year, for the number of days that our common stock has a closing bid
price that is less than $1.12657.
Our board of directors has the authority to issue 500,000 shares of
additional preferred stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further vote
or action by the stockholders. Our board of directors could, without the
approval of the stockholders, issue preferred stock having voting or conversion
rights that could adversely affect the voting power of the holders of common
stock, and the issuance of preferred stock could be used, under certain
circumstances, to render more difficult or discourage a hostile takeover of
PixTech. We have no present plans to issue any additional shares of preferred
stock.
Anti-Takeover Measures
In addition to the directors' ability to issue shares of preferred stock in
one or more series, our restated certificate of incorporation and by-laws
contain several other provisions that are commonly considered to have an
anti-takeover effect. Our restated certificate includes a provision classifying
our board of directors into three classes with staggered three-year terms, a
provision prohibiting stockholder action by written consent except as otherwise
provided by law and a provision requiring 70% stockholder approval for certain
acquisitions, including a merger consolidation, sale or other disposition of all
or substantially all of our assets, which has not been approved by a majority of
the independent members of our board of directors. Under our restated
certificate and by-laws, the directors may enlarge the size of our board and
fill any vacancies on the board. Our by-laws provide that nominations for
directors may not be made by stockholders at any annual or special meeting
unless the stockholder intending to make a nomination notifies us of its
intention a specified period in advance and furnishes certain information. Our
by-laws also provide that special meetings of our stockholders may be called
only by the President or the directors and require advance notice of business to
be brought by a stockholder before the annual meeting.
58
<PAGE>
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, a law regulating corporate takeovers. In certain circumstances,
the Anti-Takeover Law prevents certain Delaware corporations, including those
whose securities are listed on the Nasdaq National Market, from engaging in a
"business combination" (which includes a merger or sale of more than ten percent
of the corporation's assets) with an "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock) for three years
following the date on which such stockholder became an "interested stockholder"
subject to certain exceptions, unless the transaction is approved by the board
of directors and the holders of at least 66 2/3% of the outstanding voting stock
of the corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by persons who are both directors and officers or by certain employee stock
plans). A Delaware corporation subject to the Anti-Takeover Law may "opt out" of
the Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares; such an amendment is
effective following expiration of twelve months from adoption. We have not
"opted out" of the Anti-Takeover Law.
The provisions of the restated certificate of incorporation and by-laws and
Delaware law described above could have the effect of discouraging others from
attempting hostile takeovers of PixTech and, as a consequence, they may also
inhibit temporary fluctuations in the market price of our common stock that
might result from actual or rumored hostile takeover attempts. Such provisions
may also have the effect of preventing changes in our management. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests.
Transfer Agent
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
59
<PAGE>
PLAN OF DISTRIBUTION
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any broker-dealers; (b) the number of
shares of common stock involved; (c) the price at which such common stock is to
be sold; (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable; (e) that such broker- dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this prospectus, as supplemented; and (f) other facts material to the
transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the common stock may not simultaneously engage in
market making activities with respect to the securities for a period beginning
when the person becomes a distribution participant and ending upon the person's
completion of participation in a distribution, including stabilization
activities in the common stock to effect covering transactions, to impose
penalty bids or to effect passive market making bids. In addition and without
limiting the foregoing, in connection with transactions in the common stock,
PixTech and the selling stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations under it, including, without
limitation, Rule 10b-5 and, insofar as PixTech and the selling stockholders are
distribution participants, Regulation M and Rules 100, 101, 102, 103, 104 and
105 thereof. All of the foregoing may affect the marketability of the common
stock.
Kingsbridge
We have been advised by Kingsbridge that it may sell the common stock from
time to time in transactions on the Nasdaq National Market (or any exchange
where the common stock is then listed) in negotiated transactions, or otherwise,
or by a combination of these methods, at fixed prices which may be changed, at
market prices at the time of sale, at prices related to market prices or at
negotiated prices. Kingsbridge may effect these transactions by selling the
common stock to or through broker-dealers, who may receive compensation in the
form of discounts, concessions or commissions from Kingsbridge or the purchasers
of the common stock for whom the broker-dealer may act as an agent or to whom it
may sell the common stock as a principal, or both. The compensation to a
particular broker-dealer may be in excess of customary commissions.
Kingsbridge is an "underwriter" within the meaning of the Securities Act in
connection with the sale of the common stock offered hereby. Assuming that we
are in compliance with the conditions of the equity line agreement, Kingsbridge
must accept puts of shares from us, subject to minimum and maximum aggregate
dollar amounts, during the term of the equity line agreement. Broker-dealers who
act in connection with the sale of the common stock may also be deemed to be
underwriters. Profits on any resale of the common stock as a principal by such
broker-dealers and any commissions received by such broker-dealers may be deemed
to be underwriting discounts and commissions under the Securities Act. Any
broker-dealer participating in such transactions as agent may receive
commissions from Kingsbridge (and, if they act as agent for the purchaser of
such common stock, from such purchaser). Broker-dealers may agree with
Kingsbridge to sell a specified number of shares of common stock at a stipulated
price per share, and, to the extent such a broker- dealer is unable to do so
acting as agent for Kingsbridge, to purchase as principal any unsold common
stock at the price required to fulfill the
60
<PAGE>
broker-dealer commitment to Kingsbridge. Broker-dealers who acquire common stock
as principal may thereafter resell such common stock from time to time in
transactions (which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such common stock commissions computed as described
above.
Kingsbridge will pay all commissions and certain other expenses associated
with the sale of the common stock. The common stock offered hereby is being
registered pursuant to our contractual obligations, and we have agreed to pay
the costs of registering the shares hereunder, including legal fees up to a
maximum of $5,000, commissions, transfer taxes and certain other expenses for
resale of the common stock. We have also agreed to indemnify Kingsbridge with
respect to the common stock offered hereby against certain liabilities,
including, without limitation, certain liabilities under the Securities Act, or,
if such indemnity is unavailable, to contribute toward amounts required to be
paid in respect of such liabilities.
We have also agreed to reimburse Kingsbridge costs and expenses incurred in
connection with this offering. These may include the fees, expenses and
disbursements of counsel for Kingsbridge the preparation of the equity line
agreement and associated documentation and the registration statement of which
this prospectus forms a part, up to a maximum of $5,000. In addition, we have
agreed to reimburse Kingsbridge for expenses incurred in obtaining insurance
against liability under the Securities Act of 1933 and Securities Exchange Act
of 1934, as amended, in an amount initially equal to 3% of each put amount.
The price at which the common stock will be issued by us to Kingsbridge
will be 88-90% of the market price, as defined in the equity line agreement, on
the date we issue shares. Assuming an offering price of $1.641 per share (based
on the average of the high and low bid prices of the common stock as reported by
the Nasdaq National Market on September 21, 1999), a summary of our potential
expenses in connection with the equity line agreement is as follows:
o discount to Kingsbridge, $0.197;
o warrant to purchase 100,000 shares of common stock exercisable by
Kingsbridge at $2.30 per share;
o costs associated with the preparation of this prospectus,
approximately $90,000; and
o reimbursement for securities liability insurance equal to 3% of each
put amount.
61
<PAGE>
Sumitomo
Sumitomo holds a note in the principal amount of $5,000,000, of which
$4,855,364 is outstanding as of September 21, 1999, which is convertible into
our common stock at a price equal to 80% of the market price on the date
Sumitomo decides to convert the note.
Sumitomo may offer the shares of common stock that it receives after
converting its note into shares of common stock, from time to time in
transactions in the over-the-counter market, on any exchange where the common
stock is then listed, with broker-dealers or third-parties other than in the
over-the-counter market or on an exchange (including in block sales), in
connection with short sales, in connection with writing call options or in other
hedging arrangements, or in transactions involving a combination of such
methods.
Sumitomo may sell its shares at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices
or at fixed prices.
Sumitomo may use dealers, agents or underwriters to sell their shares.
Underwriters may use dealers to sell such shares. If this happens, the dealers,
agents or underwriters may receive compensation in the form of discounts or
commissions from the selling stockholders, purchasers of shares or both (which
compensation to a particular broker might be in excess of customary
compensation).
Sumitomo and any dealers, agents or underwriters that participate with
Sumitomo in the distribution of the shares may be deemed to be "underwriters" as
such term is defined in the Securities Act of 1933. Any commissions paid or any
discounts or concessions allowed to any such persons, and any profits received
on the resale of such shares of common stock offered by this prospectus, may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
We have agreed to pay certain expenses of the offering and issuance of the
shares covered by this prospectus, including the printing, legal and accounting
expenses we incur and the registration and filing fees imposed by the SEC or the
Nasdaq National Market. We will not pay brokerage commissions or taxes
associated with sales by Sumitomo or any legal, accounting and other expenses of
Sumitomo.
62
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to PixTech and the common stock offered by this prospectus, refer to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance you
should refer to the copy of the contract or other document filed as an exhibit
to the registration statement. A copy of the registration statement may be
inspected without charge at the offices of the SEC in Washington, D.C. 20549,
and copies of all or any part of the registration statement may be obtained from
the Public Reference Section of the SEC, Washington, D.C. 20549 upon the payment
of the fees prescribed by the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as us, that file electronically
with the Commission. We also maintain a web site (http://www.pixtech.com).
63
<PAGE>
LEGAL MATTERS
Palmer & Dodge LLP, Boston, Massachusetts, counsel to PixTech, is giving
PixTech an opinion on the validity of the shares covered by this prospectus.
Michael Lytton, a partner at Palmer & Dodge LLP, is our Secretary.
EXPERTS
Ernst & Young, independent auditors, have audited our consolidated
financial statements as of December 31, 1998 and 1997, and for the three years
in the period ended December 31, 1998, and for the period from June 18, 1992
(inception) to December 31, 1998, as set forth in their report (which contain an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern). We have included our
financial statements in the Prospectus and elsewhere in the registraiton
statement in reliance on Ernst & Young's report, given on their authority as
experts in accounting and auditing.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C>
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 1998 .......................................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Six Months ended June 30, 1999 ........................................ F-3
Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Operations .............................................. F-4
PIXTECH, INC
Report of Independent Auditors ............................................. F-5
Consolidated Balance Sheets ................................................ F-6
Consolidated Statements of Comprehensive Operations ........................ F-7
Consolidated Statements of Stockholders' Equity ............................ F-8
Consolidated Statements of Cash Flows ...................................... F-10
Notes to Consolidated Financial Statements ................................. F-11
</TABLE>
F-1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(all amounts in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
PixTech PixTech
Year Pro Forma Year
Ended Adjustments Ended
--------- ----------- ----------
December December
31, 1998 (Note B) 31, 1998
--------- ----------- ----------
<S> <C> <C> <C>
Revenues
Cooperation and license revenues .................................. $ 1,239 $ -- $ 1,239
Product sales ..................................................... 445 -- 445
Other revenues .................................................... 1,968 -- 1,968
-------- -------- --------
Total revenues ............................................ 3,652 -- 3,652
-------- -------- --------
Cost of revenues
License fees and royalties ........................................ 24 -- 24
-------- -------- --------
Gross margin ............................................................ 3,676 -- 3,676
-------- -------- --------
Operating expenses
Research and development .......................................... (19,414) (8,256) (27,670)
Marketing and sales ............................................... (1,433) (431) (1,864)
Administrative and general expenses ............................... (2,515) (431) (2,946)
-------- -------- --------
(23,362) (9,117) (32,479)
-------- -------- --------
Loss from operations .................................................... (19,686) (9,117) (28,803)
Other income / (expense)
Interest income (expense) net ..................................... (708) (6) (714)
Foreign exchange gains / (losses) ................................. 372 -- 372
-------- -------- --------
(336) (6) (342)
Loss before income tax benefit .......................................... (20,022) (9,123) (29,145)
Income tax benefit ...................................................... 2,159 -- 2,159
-------- -------- --------
Net loss ................................................................ $(17,863) $ (9,123) $(26,986)
======== ======== ========
Dividend accrued to holders of Preferred Stock .......................... (12) -- (12)
-------- -------- --------
Net loss to holders of Common Stock ..................................... $(17,875) $ (9,123) $(26,998)
Net loss per share of Common Stock ................................ $ (1.23) $ (1.25)
Shares of Common Stock used in computing net loss per share ....... 14,548 21,681
</TABLE>
See accompanying notes.
F-2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(all amounts in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
PixTech PixTech
Six Months Pro Forma Six Months
Ended Adjustments Ended
---------- ----------- ----------
June 30, June 30,
1999 (Note B) 1999
---------- ----------- ----------
<S> <C> <C> <C>
Revenues
Cooperation and license revenues ................................. $ -- $ -- $ --
Product sales .................................................... 339 -- 339
Other revenues ................................................... 2,314 -- 2,314
-------- -------- --------
Total revenues ........................................... 2,653 -- 2,653
-------- -------- --------
Cost of revenues
License fees and royalties ....................................... (172) -- (172)
-------- -------- --------
Gross margin ........................................................... 2,481 -- 2,481
-------- -------- --------
Operating expenses
Research and development ......................................... (12,203) (3,388) (15,591)
Marketing and sales .............................................. (680) (151) (831)
Administrative and general expenses .............................. (1,502) (151) (1,653)
-------- -------- --------
(14,385) (3,691) (18,076)
-------- -------- --------
Loss from operations ................................................... (11,904) (3,691) (15,595)
Other income / (expense)
Interest income (expense) net .................................... (364) 14 (350)
Foreign exchange gains / (losses) ................................ (1,137) -- (1,137)
-------- -------- --------
(1,501) 14 (1,487)
Loss before income tax benefit ......................................... (13,405) (3,678) (17,083)
Income tax benefit ..................................................... -- -- --
-------- -------- --------
Net loss ............................................................... $(13,405) $ (3,678) $(17,083)
======== ======== ========
Dividend accrued to holders of Preferred Stock ......................... (299) -- (299)
-------- -------- --------
Net loss to holders of Common Stock .................................... $(13,704) $ (3,678) $(17,382)
Net loss per share of Common Stock ............................... $ (0.80) $ (0.77)
Shares of Common Stock used in computing net loss per share ...... 16,816 22,294
</TABLE>
See accompanying notes.
F-3
<PAGE>
Notes to Pro Forma Condensed Consolidated Statements of Operations
(all amounts in thousands except share amounts)
(unaudited)
Note A - Basis of presentation
The accompanying unaudited pro forma condensed statements of operations reflect
the acquisition of certain assets of Micron Technology, Inc. ("Micron ")
relating to field emission displays including equipment and other tangible
assets, certain contract rights and cash (the "Micron Assets Acquisition"). The
Micron Assets Acquisition was closed on May 19, 1999 between the Company and
Micron.
These unaudited pro forma condensed statements of operations were derived from
PixTech's audited and unaudited statements of operations for the year ended
December 31, 1998 and for the six-month period ended June 30, 1999,
respectively. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1998 and for the six-month period
ended June 30, 1999 give effect to the Micron Assets Acquisition as if it had
occurred at the beginning of the period.
The pro forma adjustments for the Micron Assets Acquisition are based upon the
allocation of total cost to the assets acquired and certain operating costs
associated with the acquired assets. The unaudited pro forma condensed
consolidated financial information does not purpose to represent the results of
operations of PixTech that actually would have resulted had the Micron Assets
Acquisition occurred as of the dates indicated, nor should it be taken as
indicative of the future results of operations of PixTech.
It is suggested that these pro forma condensed consolidated statements of
operations be read in conjunction with the historical consolidated financial
statements and footnotes thereto contained herein.
Note B - Pro Forma Condensed Consolidated Statements of Operations - Pro Forma
Adjustments
The unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1998 and for the six months ended June 30, 1999 reflect
ongoing expenses associated with Micron Assets Acquisition, as if such assets
had been acquired at the beginning of the periods presented.
These expenses primarily relate to additional research and development personnel
costs in the amount of $2,797 and $1,145, and additional depreciation expense of
the acquired assets of $3,342 and $1,454, respectively for the year ended
December 31, 1998 and for the six months ended June 30, 1999. These expenses
also relate to additional marketing and sales and administrative and general
personnel costs totaling $539 and $157, respectively for the year ended December
31, 1998 and for the six months ended June 30, 1999.
F-4
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
PixTech, Inc.
We have audited the accompanying consolidated balance sheets of PixTech,
Inc. (a development stage company) as of December 31, 1997 and 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the period from June 18, 1992 (date of inception) through December 31,
1998, and for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PixTech, Inc. (a development stage company) as of December 31, 1997 and 1998 and
the consolidated results of its operations and its cash flows for the period
June 18, 1992 (date of inception) through December 31, 1998 and for each of the
three years in the period ended December 31, 1998 in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 19 to the
Financial Statements, the Company has suffered recurring losses from operations
and its financial position raises substantial doubt about its ability to
continue as a going concern. As discussed in note 19 to the Financial
Statements, the Financial Statements do not include any adjustments that might
result from the outcome of this uncertainty.
ERNST & YOUNG AUDIT
REPRESENTED BY: CHRISTINE BLANC-PATIN
Marseilles, France
February 03, 1999
F-5
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, December 31, June 30, 1999
1997 1998 (unaudited)
----------- ----------- -------------
ASSETS
<S> <C> <C> <C>
Current assets :
Cash & cash equivalent available .......................................... $ 12,428 $ 10,166 $ 7,017
Restricted cash - short term .............................................. 1,259 1,685 2,097
Accounts receivable :
Trade ............................................................... 953 456 213
Other ............................................................... 82 161 109
Inventory ................................................................. 702 980 1,348
Other ..................................................................... 2,166 1,354 1,377
-------- -------- --------
Total current assets .............................................. 17,590 14,802 12,161
Restricted cash - long term ..................................................... 8,816 8,427 6,695
Property, plant and equipment, net .............................................. 9,353 18,826 28,604
Goodwill, net ................................................................... 226 150 114
Deferred tax assets ............................................................. 5,058 4,643 1,287
Other assets - long term ........................................................ 605 546 204
-------- -------- --------
Total assets ...................................................... $ 41,648 $ 47,394 $ 49,065
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt ......................................... $ 1,364 $ 3,410 $ 4,807
Current portion of capital lease obligations .............................. 599 2,189 2,362
Accounts payable .......................................................... 5,053 7,514 7,037
Accrued expenses .......................................................... 1,284 1,544 2,505
-------- -------- --------
Total current liabilities ......................................... 8,300 14,657 16,711
Deferred revenue ................................................................ 2,546 2,162 79
Long term debt, less current portion ............................................ 11,024 8,391 10,075
Capital lease obligation, less current portion .................................. 441 8,399 8,565
Other long term liabilities, less current portion ............................... 557 528 46
-------- -------- --------
Total liabilities ................................................. 22,868 34,137 35,476
======== ======== ========
Stockholders' equity
Convertible preferred stock Series E, $0.01 par value, authorized
shares--500,000; issued and outstanding
shares--none; 367,269, 367,269 respectively ............................ -- 4 4
Common stock, $0.01 par value, authorized shares--30,000,000;
60,000,000 respectively, issued and
outstanding shares--13,762,732; 15,000,329, 22,352,918 respectively ............ 138 150 223
Additional paid-in capital .............................................. 57,067 68,999 83,450
Cumulative other comprehensive income.................................... (2,132) (1,740) (2,527)
Deficit accumulated during development stage ............................ (36,293) (54,156) (67,561)
-------- -------- --------
Total stockholders' equity ...................................... 18,780 13,257 13,589
-------- -------- --------
Total liabilities and stockholders' equity ...................... $ 41,648 $ 47,394 $ 49,065
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Six Months Ended Period
December 31, June 30, from June
----------------------------------- ----------------------- 18, 1992
(date of
inception)
through
June 30,
1996 1997 1998 1998 1999 1999
------- ------- ------- ------- ------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Cooperation & license revenues ........... $ 5,440 $ 1,932 $ 1,239 $ 1,001 $ -- $ 26,449
Product sales ............................ 791 745 445 87 339 3,165
Other revenues ........................... 1,413 1,142 1,968 1,543 2,314 8,220
------- ------- ------- ------- ------- --------
Total revenues ................... 7,644 3,819 3,652 2,631 2,653 37,834
------- ------- ------- ------- ------- --------
Cost of revenues
License fees and royalties ............... (45) (181) 24 (201) (172) (1,688)
------- ------- ------- ------- ------- --------
Gross margin ................................... 7,599 3,638 3,676 2,430 2,481 36,146
------- ------- ------- ------- ------- --------
Operating expenses
Research and development:
Acquisition of intellectual
property rights ................... -- -- (125) (125) -- (4,890)
Other ............................... (15,848) (15,497) (19,289) (8,353) (12,203) (84,731)
------- ------- ------- ------- ------- --------
(15,848) (15,497) (19,414) (8,478) (12,203) (89,621)
Marketing & sales ........................ (1,089) (1,496) (1,433) (693) (680) (7,287)
Administrative & general expenses ........ (2,703) (2,419) (2,515) (1,223) (1,502) (14,318)
------- ------- ------- ------- ------- --------
(19,640) (19,412) (23,362) (10,394) (14,385) (111,226)
------- ------- ------- ------- ------- --------
Loss from operations ........................... (12,041) (15,774) (19,686) (7,964) (11,904) (75,080)
Other income / (expense)
Interest income .......................... 428 759 828 464 471 3,319
Interest expense ......................... (362) (289) (1,536) (718) (835) (3,582)
Foreign exchange gains / (losses) ........ 256 54 372 709 (1,137) (111)
------- ------- ------- ------- ------- --------
322 524 (336) 455 (1,501) (374)
Loss before income tax benefit ................. (11,719) (15,250) (20,022) (7,509) (13,405) (75,454)
Income tax benefit ............................. -- 586 2,159 -- -- 7,893
Net loss ....................................... $ (11,719) $ (14,664) $ (17,863) $ (7,509) $ (13,405) $ (67,561)
========= ========= ========= ========= ========= =========
Dividend accrued to holders of Preferred
Stock ...................................... -- -- (12) -- (299) (311)
Net loss to holders of Common Stock ............ $ (11,719) $ (14,664) $ (17,875) $ (7,509) $ (13,704) $ (67,872)
========= ========= ========= ========= ========= =========
Net loss per share of Common Stock ....... $ (1.44) $ (1.12) $ (1.23) $ (0.53) $ (0.80)
========= ========= ========= ========= =========
Shares of Common Stock used in
computing net loss per share ............. 8,137 13,140 14,548 14,301 16,816
Net loss ....................................... $ (11,719) $ (14,664) $ (17,863) $ (7,509) $ (13,405) $ (67,561)
Change in other comprehensive income............ (953) (1,694) 392 (213) (787) (2,527)
Comprehensive net loss ......................... $ (12,672) $ (16,358) $ (17,471) $ (7,722) $ (14,192) $ (70,088)
</TABLE>
See accompanying notes.
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------
Series A Series B
-------- --------
Shares Shares
issued Amount issued Amount
------ ------ ------ ------
<S> <C> <C> <C> <C
Balance at June 18, 1992
Issuance of convertible preferred stock,
net of issuance costs in 1992, 1993 and 1994 ........ 1,557,003 2,368 363,447 589
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)
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 (unaudited) ..................... -- -- -- --
========== ========== ========== ==========
<CAPTION>
Series C Series D
-------- --------
Shares Shares
issued Amount issued Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock,
net of issuance costs in 1992, 1993 and 1994 ........ 3,044,846 8,615 430,208 1,224
Issuance of Common stock in 1992 and 1993 .............
Issuance of Common stock under stock option plan
in 1994 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 ................. (3,044,846) (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 .........................
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 (unaudited) ..................... -- -- -- --
========== ========== ========== ==========
<CAPTION>
Series E
--------
Shares
issued Amount
------ ------
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 .............
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 .................
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 (unaudited) ..................... 367,269 $ 4
========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
------------
Additional
Shares Paid-in
issued Amount Capital
------- ------ -------
<S> <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 7,449
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
Common stock issued in private placements (unaudited) 150,000 1 351
Issuance costs and dividends accrued in relation to Series
E Convertible Preferred stock issued in December 1998 (unaudited)....... (36)
Issuance of common stock in connection with the acquisition of certain
assets of Micron Display, net of issuance costs -- $493 (unaudited).......... 7,133,562 71 14,152
Issuance of warrants in connection with the acquisition of
certain assets of
Micron Display (unaudited)................................................... 257
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 (unaudited) 22,352,918 $223 $83,761
=========== ==== ========
<CAPTION>
Dividends Deficit
accrued to accumulated
holders of Other during
Preferred Comprehensive development
Stock Income stage
----- ---------- -----
<S> <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.................................
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.....................................
Translation adjustment.................................................... $ 515
Net loss from June 18, 1992 (date of inception) through December
31, 1995. $ (9,910)
---------- ------ -------
Balance at December 31, 1995 515 (9,910)
Issuance of Common stock under stock option plan..........................
Issuance of warrants in connection with
acquisition of the assets of Panocorp
Translation adjustment.................................................... (953)
Net loss--Year ended December 31, 1996 .................................. (11,719)
---------- ------ -------
Balance at December 31, 1996 (438) (21,629)
Common stock issued in public offering, net of issuance
costs -- $ 796..
Issuance of Common stock under stock option plan..........................
Translation adjustment.................................................... (1,694)
Net loss--Year ended December 31, 1997.................................... (14,664)
---------- ------ -------
Balance at December 31, 1997 $(2,132) $(36,293)
Common stock issued in private placements, net of issuance
costs -- $ 44
Issuance of Series E convertible preferred stock,
net of issuance costs -- $ 822 (12)
Issuance of Common stock under stock option plan..........................
Translation adjustment ................................................... 392
Net loss--Year ended December 31, 1998.................................... (17,863)
---------- ------ -------
Balance at December 31, 1998 (12) (1,740) (54,156)
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)....... (299)
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)........................................ (787)
Net loss--Six months ended June 30, 1999 (unaudited)...................... (13,405)
---------- ------ -------
Balance at June 30, 1999 (unaudited) (311) $(2,527) $(67,561)
========== ======= =======
<CAPTION>
Treasury
stock Total
----- -----
<S> <C> <C>
Balance at June 18, 1992
Issuance of convertible preferred stock, net of issuance
costs in 1992, 1993 and 1994........................................... $12,796
Issuance of Common stock in 1992 and 1993................................. 97
Issuance of Common stock under stock option plan in 1994 and 1995 32
Purchase of 28,761 shares of Common stock-- Treasury
stock in 1994.............................................................. $(11) (11)
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
Net loss from June 18, 1992 (date of inception) through December
31, 1995. (9,910)
---------- --------
Balance at December 31, 1995 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)
Net loss--Year ended December 31, 1996 .................................. (11,719)
---------- --------
Balance at December 31, 1996 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)
Net loss--Year ended December 31, 1997.................................... (14,664)
---------- --------
Balance at December 31, 1997 $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 7,440
Issuance of Common stock under stock option plan.......................... 1
Translation adjustment ................................................... 392
Net loss--Year ended December 31, 1998.................................... (17,863)
---------- --------
Balance at December 31, 1998 13,257
Common stock issued in private placements (unaudited) 352
Issuance costs and dividends accrued in relation to Series
E Convertible Preferred stock issued in December 1998 (unaudited)....... (335)
Issuance of common stock in connection with the acquisition of certain
assets of Micron Display, net of issuance costs -- $493 (unaudited).......... 14,223
Issuance of warrants in connection with the acquisition of
certain assets of
Micron Display (unaudited)................................................... 257
Issuance of common stock under stock option plan (unaudited)............. 27
Translation adjustment (unaudited)........................................ (787)
Net loss--Six months ended June 30, 1999 (unaudited)...................... (13,405)
---------- --------
Balance at June 30, 1999 (unaudited) -- $13,589
========== =======
</TABLE>
See accompanying notes.
F-9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net loss .............................................................. $(11,719) $(14,664) $(17,863)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation and amortization ......................................... 3,934 3,741 4,359
Gain on disposal of fixed assets ...................................... (31) -- (12)
Deferred taxes ........................................................ (53) -- 680
"in kind" transactions .............................................. -- -- --
Change in assets and liabilities
Accounts receivable--Trade ........................................ 3,749 672 337
Accounts receivable--Other ........................................ (21) 102 (75)
Inventory ......................................................... (393) (28) (223)
Other assets ...................................................... (280) 115 996
Accounts payable, accrued expenses and other
assets and liabilities (634) 983 2,948
Deferred revenue .................................................. 300 (297) (490)
-------- -------- --------
Net cash used in operating activities ................................. (5,148) (9,376) (9,343)
-------- -------- --------
Investing activities
Additions to property, plant, and equipment ........................... (5,866) (1,165) (1,860)
Reclassification of cash equivalents as restricted cash ............... -- (10,080) (32)
Additions to patents .................................................. (130) -- --
-------- -------- --------
Net cash used in investing activities ................................. (5,996) (11,245) (1,892)
Financing activities
Stock issued .......................................................... 3 21,639 11,906
Proceeds from long-term borrowings .................................... 97 10,000 --
Proceeds from sale leaseback transactions ............................. -- -- --
Payments for equipment purchases financed by accounts
payable ........................................................... (997) -- --
Repayment of long-term borrowings ..................................... (215) (787) (739)
Repayment of capital lease obligations ................................ (876) (576) (1,695)
-------- -------- --------
Net cash provided by (used in) financing activities ................... (1,988) 30,276 9,472
Effect of exchange rates on cash ...................................... (165) (1,493) (499)
-------- -------- --------
Net increase / (decrease) in cash equivalents ......................... (13,297) 8,162 (2,262)
Cash and cash equivalents beginning of period ............................. 17,563 4,266 12,428
-------- -------- --------
Cash and cash equivalents end of period ................................... $ 4,266 $ 12,428 $ 10,166
======== ======== ========
Supplemental disclosures of non cash activities:
Equipment acquired under capitalized leases ............................... -- -- $ 12,048
Equipment purchases financed by accounts payable .......................... -- -- --
Licenses acquired payable over two or three years ......................... -- -- --
Acquisitions of intangible by issuance of warrants ........................ $ 230 -- --
Fixed assets disposed of in like-kind exchange ............................ $ 468 -- --
Fixed assets acquired through like-kind exchange .......................... $ 499 -- --
Supplemental disclosures of cash flow information:
Interest paid ............................................................. $ 52 $ 184 $ 729
<CAPTION>
Period from
June 18, 1999
(date of
inception)
Six months ended through
June 30, June 30,
1998 1999 1999
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating activities
Net loss .............................................................. $ (7,509) $(13,405) $(67,561)
Adjustments to reconcile net loss to net cash (used) by
operating activities:
Depreciation and amortization ......................................... 1,830 2,980 18,905
Gain on disposal of fixed assets ...................................... (12) -- (43)
Deferred taxes ........................................................ 1,693 -- (4,483)
"in kind" transactions .............................................. -- -- 1,420
Change in assets and liabilities
Accounts receivable--Trade ........................................ (638) 242 (102)
Accounts receivable--Other ........................................ (38) 26 346
Inventory ......................................................... (94) (232) (1,250)
Other assets ...................................................... 1,290 2,995 2,427
Accounts payable, accrued expenses and other
assets and liabilities 1,864 1,113 9,760
Deferred revenue .................................................. (1,474) (1,993) 297
-------- -------- --------
Net cash used in operating activities ................................. (3,088) (8,274) (40,284)
-------- -------- --------
Investing activities
Additions to property, plant, and equipment ........................... (602) (396) (19,716)
Reclassification of cash equivalents as restricted cash ............... -- 1,299 (8,813)
Additions to patents .................................................. -- -- (130)
-------- -------- --------
Net cash used in investing activities ................................. (602) 903 (28,659)
Financing activities
Stock issued .......................................................... 3,980 4,198 71,702
Proceeds from long-term borrowings .................................... -- -- 16,287
Proceeds from sale leaseback transactions ............................. -- -- 2,731
Payments for equipment purchases financed by accounts
payable ........................................................... -- -- (3,706)
Repayment of long-term borrowings ..................................... (232) -- (3,815)
Repayment of capital lease obligations ................................ (2,374) (360) (4,362)
-------- -------- --------
Net cash provided by (used in) financing activities ................... 1,373 3,838 78,837
Effect of exchange rates on cash ...................................... (229) 384 (2,877)
-------- -------- --------
Net increase / (decrease) in cash equivalents ......................... (2,546) (3,149) 7,017
Cash and cash equivalents beginning of period ............................. 12,428 10,166 --
-------- -------- --------
Cash and cash equivalents end of period ................................... $ 9,882 $ 7,017 $ 7,017
======== ======== ========
Supplemental disclosures of non cash activities:
Equipment acquired under capitalized leases ............................... $ 10,596 $ 679 $ 13,257
Equipment purchases financed by accounts payable .......................... -- -- $ 920
Licenses acquired payable over two or three years ......................... -- -- $ 3,765
Acquisitions of intangible by issuance of warrants ........................ -- -- $ 230
Fixed assets disposed of in like-kind exchange ............................ -- -- $ 468
Fixed assets acquired through like-kind exchange .......................... -- -- $ 499
Supplemental disclosures of cash flow information:
Interest paid ............................................................. $ 592 $ 728 $ 925
</TABLE>
See accompanying notes.
F-10
<PAGE>
Notes to Consolidated Financial Statements
(Information as of and for the six months
ended June 30, 1998 and 1999 is unaudited)
(all amounts in thousands except share amounts)
1. Organization and Business Activity
PixTech, Inc. was incorporated under the laws of Delaware on October 27,
1993. On November 30, 1993, PixTech, Inc. acquired 100% beneficial ownership of
PixTech S.A., through a share exchange agreement. PixTech S.A. was incorporated
under the laws of France on June 18, 1992. For accounting purposes, the
acquisition has been treated as a recapitalization of PixTech S.A. As used
herein, "the Company" refers to PixTech, Inc. and PixTech S.A.
The Company was founded to improve, utilize and license certain background
technology developed by Laboratoire Electronique de Technologie et
d'Instrumentation ("LETI"), a French government-owned research and development
laboratory in the field of flat panel displays using electron emitters, known as
field emission displays ("FEDs").
The Company has devoted substantially all its efforts to raising capital,
conducting research and development activities, concluding cooperation and
license agreements with certain displays manufacturers, and establishing
manufacturing capabilities for its FEDs. Revenues from principal planned
operations will mainly consist of product sales. As these revenues have not
commenced, PixTech, Inc. is still in a development stage and falls under the
provisions of FAS No. 7 "Accounting and Reporting by Development Stage
Enterprises".
2. Summary of the Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements were prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of PixTech, Inc.
and its wholly owned subsidiary PixTech S.A. Intercompany accounts and
transactions have been eliminated in consolidation.
Fiscal Year
The Company ends its fiscal year on December 31.
Interim Financial information
The financial information as of June 30, 1999 and for the six months ended
June 30, 1998 and 1999 is unaudited but includes all adjustments consisting only
of normal recurring entries that management considers necessary for fair
presentation. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for any future
period. The unaudited financial statements as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 have been prepared in accordance with
genearally accepted accounting principles for intermim financial information.
Accordingly, they do not contain all disclosures required by generally accepted
accounting priciples for complete financial statements.
F-11
<PAGE>
Revenue recognition--Cooperation and License Agreements
The Company has entered into cooperation and license agreements with
certain displays manufacturers. Under these contracts, the Company shares
technology with such members through cross licensing provisions. Each contract
provides for certain fees and royalties to be paid to the Company. The Company
believes that each of the cooperation and license agreements are long-term
construction/production contracts pursuant to SOP 81-1 and that the criteria
have been satisfied to entitle the Company to partially recognize the revenue
under those contracts. Certain fees payable to the Company under these
agreements were milestone-related and were due in accordance with the terms of
each agreement when the milestone is achieved. Once paid, such fees are
irrevocable. The Company recognized this milestone-related revenue only when
each milestone had been fully performed, as agreed by the parties. Costs
incurred under these contracts were considered costs in the period incurred,
regardless of when related revenue is recognized.
Texas Instruments. The Company entered into a Cooperation and License
Agreement with Texas Instruments Incorporated on June 29, 1993. This Agreement
was terminated on July 15, 1996. In 1996, the Company recorded cooperation and
license revenues under this terminated agreement in the amount of $1,336.
Futaba Corporation. The Company entered into a Cooperation and License
Agreement with Futaba Corporation ("Futaba") on November 27, 1993 (the "Futaba
Agreement"). Pursuant to the Futaba Agreement, Futaba agreed to pay the Company
a license fee upon signing the agreement, which was recognized upon execution of
the agreement. Futaba also agreed to a technology transfer fee, payable to the
Company in three installments upon the occurrence of certain milestones, and an
additional fee payable annually upon the achievement of further product
development milestones. Finally, to the extent that Futaba successfully
incorporates the cross-licensed technology into its own products, Futaba must
make royalty payments in connection with the sale of products incorporating the
technology licensed by the Company. At that time, the Company will recognize
royalty revenues.
In order to reach certain specified milestones under the Futaba Agreement,
the Company performed certain services in the field of technology development.
In accordance with the Futaba Agreement, the milestone-related revenues were
recognized when certain milestone were achieved. The cooperation period between
the Company and Futaba expired in January 1997 and the Company will not record
any additional milestone based revenues in the future.
Raytheon Company. The Company entered into a Cooperation and License
Agreement with Raytheon Company ("Raytheon") on June 1, 1994 (the "Raytheon
Agreement"). Pursuant to the Raytheon Agreement, Raytheon agreed to pay the
Company a license fee payable in part upon the signing of the agreement and for
a specified number of months thereafter. Such license fee was recognized when
due. Raytheon also agreed to make two additional payments based on the
achievement of certain milestones. Raytheon also must make royalty payments in
connection with the sale of products incorporating technology licensed to it by
the Company.
In June 1997, the cooperation period between the Company and Raytheon was
extended for a period of two years but no revenue was associated with such
extension. To the extent that Raytheon successfully incorporates the
cross-licensed technology into its own products, the Company will recognize
royalty revenues as Raytheon sells the products. The Company believes that
Raytheon Company may have suspended its internal program to develop FEDs.
Motorola, Inc. The Company entered into a Cooperation and License Agreement
with Motorola, Inc. ("Motorola") on June 13, 1995 (the "Motorola Agreement").
Pursuant to the Motorola Agreement, Motorola agreed to pay the Company a license
fee upon signing the agreement, which was recognized upon execution of the
agreement. Motorola also agreed to a technology transfer fee, payable to the
Company upon the occurrence of certain milestones, and an additional technology
update fee payable annually over a period of three years. Finally, Motorola must
make royalty payments in connection with the sale of its own products
incorporating the technology licensed by the Company.
In order to reach certain of the specified milestones under the Motorola
Agreement, the Company performed services in the field of technology
development. In accordance with the Motorola Agreement, the milestone-related
payments were irrevocable when paid. Cash milestone-related revenues was
recognized when certain milestones were achieved.
F-12
<PAGE>
The cooperation period between the Company and Motorola expired in June
1998 and the Company will not record any additional milestone based revenues in
the future.
To the extent that Motorola successfully incorporates the cross-licensed
technology into its own products, the Company will recognize royalty revenues as
Motorola sells the products.
Revenue Recognition--Product Revenue
Product revenue is recognized upon shipment in the case of standard
deliveries, and upon acceptance by the customer in the case of first delivery of
a specified product.
Revenue Recognition--Grants
The Company recognizes revenue from unconditional grants received from
governmental agencies in the period granted. Revenue from conditional grants
received are recognized when all conditions outlined in the grant have been met.
Foreign Currency Translation
Assets and liabilities of PixTech S.A. are translated into U.S. dollar
equivalents at the rate of exchange in effect on the balance sheet date; income
and expenses are translated at the average rates of exchange prevailing during
the period. The related translation adjustments are reflected in stockholders'
equity. Foreign currency gains or losses resulting from transactions are
included in results of operations, except for transaction gains and losses
attributable to intercompany transactions, and for foreign currency transactions
or cash balances that hedge foreign currency commitments; such transactions and
cash balances are recorded in the same manner as translation adjustments, as
recommended by the Statement of Financial Accounting Standards No 52, "Foreign
currency translation" ("SFAS 52").
Net Income (Loss) Per Share
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No 128, "Earnings per Share", ("SFAS 128").
Prior to the adoption of SFAS 128, net income (loss) per share has been
calculated in accordance with the provisions of Accounting Principles Board
Opinion No 15, "Earnings per Share" (APB 15), using the weighted average number
of shares, convertible preferred shares assuming conversion at date of issuance,
and dilutive equivalent shares from stock options and warrants using the
treasury stock method. Net income (loss) per share also reflects for all periods
presented a 2 for 3 reverse stock split which was effective at the closing of
the Company's initial public offering.
Pursuant to SFAS 128, the Company is required to change the method
currently used to compute earnings per share and to restate all prior periods.
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects of options,
warrants and convertible securities.
There is no impact of Statement 128 on the previous calculation of loss per
share for the financial years ended December 31, 1996, 1997 or 1998. As net
losses have been reported in these periods, the dilutive effects of stock
options, preferred stock and warrants were excluded from the calculation of net
loss per share under APB 15.
F-13
<PAGE>
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", ("SFAS 130"), effective for the Company for
the first quarter of 1998. SFAS 130 requires that items defined as other
comprehensive income, such as foreign currency translation adjustments, be
separately classified in the financial statements and that the accumulated
balance of other comprehensive income be reported separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The components of comprehensive income for the years ended December 31,
1996, 1997 and 1998 consist solely of foreign currency translation adjustments.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company had no investments at December 31, 1997
or December 31, 1998, other than pledged cash (See Note 6--Short term and long
term restricted cash). There were no realized gains or losses on sales of
investments in 1996, 1997 or 1998.
Inventory
Inventory is valued at the lower of cost (first-in, first-out basis) or
market. Inventory consists of raw material and spare parts.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets, generally five years for pilot production equipment and six
years for Unipac volume production equipment, ten years for building
improvements and twenty years for buildings. Equipment financed under capital
leases are depreciated over the shorter of the estimated useful life or the
lease term. Amortization expense is included within depreciation expense.
Impairment of Long-Lived Assets
In January 1996, the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), which establishes criteria
for the recognition and measurement of impairment loss associated with
long-lived assets. Adoption of SFAS 121 did not have a material impact on the
Company's financial position or results of operations.
F-14
<PAGE>
Patents and Other Intangible Assets
Patent application and establishment costs are expensed as incurred.
Other intangible assets include primarily goodwill. The carrying value of
goodwill is reviewed on an ongoing basis to assess if facts or circumstances
suggest that the Company's goodwill may be impaired. If this review indicates
that goodwill will not be recoverable, based on the expected future cash flows
to be generated by these assets over their remaining amortization period, the
Company's carrying value of the goodwill is reduced by the estimated shortfall
of discounted cash flows.
Employee Stock Option Plans
In 1996, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No 123 ("SFAS 123"), "Accounting for Stock Based
Compensation". As permitted by SFAS 123, the Company has elected to continue to
account for its employee stock option plans and the Employee Stock Purchase
Plans in accordance with the provisions of the Accounting Principles Board
Opinion No 25 "Accounting for Stock Issued to Employees" ("APB 25"). Under APB
25, when the exercise price of the Company's employee stock options is less than
the market price of the underlying shares of the date of grant, compensation
expense is recognized.
Accounting for Income Taxes
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Pension Costs
In France, legislation requires that lump sum retirement indemnities be
paid to employees based upon their years of services and compensation at
retirement. The actuarial liability of this unfunded obligation as of December
31, 1997 and December 31, 1998 is $46 and $85, respectively. Pension expense
incurred was $14 in 1996, $14 in 1997 and $35 in 1998.
3. Other current assets
The components of other current assets are as follows :
December 31,
--------------------
1997 1998
------ ------
Value added tax refundable ............... $ 882 $1,141
Grants receivable ........................ 1,210 --
Other .................................... 74 213
------ ------
$2,166 $1,354
====== ======
F-15
<PAGE>
4. Property, Plant and Equipment
The components of Property, Plant and Equipment are as follows:
December 31,
-----------------------
1997 1998
-------- --------
Land ................................... $ 218 $ 232
Buildings and improvements ............. 2,532 2,714
Machinery and equipment ................ 14,941 29,503
Furniture and fixtures ................. 1,089 1,163
-------- --------
18,780 33,612
Less accumulated depreciation .......... (9,427) (14,786)
-------- --------
$ 9,353 $ 18,826
======== ========
In 1994, the Company entered into capital lease agreements for production
equipment. The gross and net book values of equipment financed under capital
leases amounted $3,857 and $947, respectively, at December 31, 1997 and $4,107
and $350, respectively, at December 31, 1998.
Land and buildings with a net book value of $1,100 and $1,123 at December
31, 1997 and December 31, 1998, respectively, have been pledged to guarantee a
$10,000 loan received from Sumitomo Corporation in November 1997. See note
7--Long-term debt.
Pursuant to the Display Foundry Agreement signed in 1997 with Unipac,
volume FEDs production equipment was installed at Unipac's facility. That
equipment was purchased and funded by Unipac, and a portion of it is leased to
PixTech, which amounts to $12,048 as of December 31, 1998. According to
Financial Accounting Standard 13, "Accounting for Leases", PixTech's share of
equipment was recorded as assets under the caption "Property, Plant and
Equipment", in the net amount of $11,061. Depreciation of $988 was recorded
during 1998. As of December 31, 1998, the related capital lease obligation
amounts to $10,125, of which $1,869 has been recorded as current portion. (See
Note 8--Capital leases). As of June 30, 1999, the equipment leased by Unipac to
PixTech amounted to $11,554 and was recorded as assets under the caption
"Property, Plant and Equipment", in the net amount of $11,061. Depreciation of
$941 was recorded during the six-month period ended June 30, 1999. As of June
30, 1999, the related capital lease obligation amounts to $10,286, of which
$1,950 has been recorded as current portion. In connection with the Micron
Transaction (see "Note 20 -- 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 21 -- Subsequent events").
5. Goodwill
On February 20, 1996, the Company acquired substantially all the assets of
PanoCorp, Inc. ("Panocorp"), a research and development company located in
California, in a transaction accounted for as a purchase. The assets of
PanoCorp, Inc., principally including fixed assets valued at $120, were
purchased for $250 in cash plus 150,000 warrants to purchase shares of the
Company's common stock at an exercise price of $11.67 per share. See Note
11--Stockholders' Equity - Warrants.
The fair value of the 150,000 warrants was computed using the Black-Scholes
model. Pursuant to APB Opinion 16, the value of such warrants was estimated at
$230 and the entire transaction generated goodwill of $360. This goodwill is
being amortized over 5 years.
The purchase agreement also calls for the issuance of up to 600,000
additional warrants to the shareholders of PanoCorp, contingent upon the
achievement by the Company of specified technical milestones before end of
February 1999. No such warrants have been issued at December 31, 1998 and, at
that date, no more than 200,000 warrants to purchase shares of the Company's
common stock, at an exercise price of $16.67 per share, may be issued under the
purchase agreement. As of June 30, 1999, no such warrants have been issued or
will be issued in the future under the purchase agreement.
F-16
<PAGE>
6. Short-term and long-term restricted cash
In August 1997, the Company provided Unipac Optoelectronics Corp.
("Unipac"), its Asian manufacturing partner, with a written bank guaranty in an
amount of $10,000 pursuant to the display foundry agreement (the "Foundry
Agreement") signed in May 1997 between the Company and Unipac in order to
implement volume production of FEDs at Unipac's manufacturing line. The Company
granted the issuing banks a security interest in its cash and cash equivalents
for the same amount. The pledged cash and cash equivalents have been recorded as
short-term and long-term restricted cash in the balance sheet. Under certain
conditions of the Foundry Agreement, Unipac can sell certain equipment to the
Company. The payment for such equipment will be secured by Unipac through the
exercise of the bank guaranty. Both the amount of the guaranty to Unipac and the
amount of the security interest to the banks is expected to decrease to match
the net amount of equipment leased by Unipac to the Company.
7. Long-term debt
Long-term debt consists of the following :
December 31,
--------------------
1997 1998
-------- --------
Loan payable (a) ............................. $ 10,000 $ 10,000
Non interest bearing loan from ANVAR (b) ..... 2,004 1,601
Equipment purchase loans (c) ................. 172 93
Loan payable (d) ............................. 45 --
Loan payable (e) ............................. 167 107
-------- --------
12,388 11,801
Less: current portion ........................ (1,364) (3,410)
-------- --------
Total long-term debt, less current portion ... $ 11,024 $ 8,391
======== ========
(a) In November 1997, Sumitomo Corporation ("Sumitomo") granted PixTech a
$10,000 loan repayable over a period of three years. Of this $10,000 amount,
$5,000 represents a straight loan payable in four equal installments every 6
months starting April 7, 1999, bearing interest at prime rate plus 0.75% per
annum. The remaining amount of $5,000 represents a convertible loan payable in
November 2000, bearing interest at prime rate plus 0.75% per annum, and
partially or totally convertible, at Sumitomo's option, into shares of Common
Stock of the Company at a conversion price equal to 80% of the market price on
the conversion date. This option becomes exercisable starting April 1999 and
expires November 2000. As part of the Sumitomo Agreement, the loan is partially
secured as follows: (i) the Company pledged certain PixTech S.A. land and
constructions located in Rousset. See Note 4-- Property, plant and equipment ;
(ii) the French atomic energy agency, Commissariat a l'Energie Atomique ("CEA"),
has guaranteed certain contingent payment obligations towards Sumitomo in case
of default by PixTech. See Note 16-- Related parties transactions. In addition,
should the Company default on the repayment of the loan, the Company will remit
to Sumitomo two thirds of any royalty amount received from any licensee until
all obligations to Sumitomo are satisfied.
(b) The Company entered into a development contract with a French Public
agency ANVAR in 1993. Under this agreement, the Company received a non-interest
bearing loan. Repayment of this loan started in 1997.
(c) In 1994, the Company was granted a $686 loan from a supplier of a piece
of particular equipment. This loan is payable in 8 installments of $77,
including interest at 6.50%, over a period of 4 years starting in May 1996.
(d) In 1994, the Company was granted a loan, which bears interest at 5% and
is repayable in 8 installments of approximately $17 over two years starting in
December 1996. As of December 31, 1998, this loan was totally repaid.
(e) In 1995, the Company was granted a bank loan, which bears interest at
6.37% and is repayable in 20 installments of approximately $20 over 5 years
starting in July 1995.
F-17
<PAGE>
Future minimum payments under these obligations are as follows:
At December 31, 1998, due for the years
ending December 31,
1999 ...................................................... $ 3,410
2000 (f) .................................................. 8,391
-------
Total minimum payments .................................... $11,801
-------
At June 30, 1999, due for the years
ending December 31,
1999 ...................................................... $ 2,880
2000 (f) .................................................. 9,223
-------
2001 ...................................................... 767
=======
2002 ...................................................... 777
=======
2003 ...................................................... 205
=======
2004 ...................................................... 198
=======
2005 ...................................................... 834
=======
Total minimum payments .................................... $14,883
=======
(f) Includes the $5,000 convertible loan repayable in November 2000, and
partially or totally convertible into shares of Common Stock of the Company
after April 7, 1999. See note (a) above.
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 $3,000, of which $2,000 were received
during the six-month period ended June 30, 1999, and $800 are expected to be
received in the second half of 1999. As of June 30, 1999, the related long term
debt was recorded in the amount of $2,014.
8. Capital leases
December 31,
1997 1998
-------- --------
Capital lease obligations ............ $ 1,040 $ 10,588
Less: current portion ............... (599) (2,189)
-------- --------
$ 441 $ 8,399
-------- --------
In December 1994, the Company completed several sale-leaseback transactions
whereby equipment with a net book value of $4,219 was financed through three to
five-year capital lease obligations, effective December 1994. At December 31,
1998, the net book value of this equipment was $350.
Pursuant to the Display Foundry Agreement signed in 1997 with Unipac,
PixTech's share of volume FEDs production installed at Unipac's facility is
leased to PixTech. As of December 31, 1998, the related capital lease obligation
amounts to $10,125, of which $1,869 has been recorded as current portion. (See
Note 4--Property, Plant and Equipment).
Future minimum payments under these obligations are as follows:
At December 31, 1998, due for the years ending December 31,
1999 .................................................... $ 2,880
2000 .................................................... 2,511
2001 .................................................... 2,233
2002 .................................................... 2,110
2003 .................................................... 1,987
2004 .................................................... 792
--------
Total minimum payments .................................. 12,513
Less amount representing interest ....................... (1,925)
--------
Present value of minimum capitalized lease payments ..... $ 10,588
--------
F-18
<PAGE>
At June 30, 1999, due for the years ending December 31,
1999 .................................................... $ 1,625
2000 .................................................... 2,938
2001 .................................................... 2,663
2002 .................................................... 2,361
2003 .................................................... 2,224
2004 .................................................... 890
--------
Total minimum payments .................................. 12,701
Less amount representing interest ....................... (1,774)
--------
Present value of minimum capitalized lease payments ..... $ 10,927
--------
9. Commitments and contingencies
Operating leases
The Company is obligated under operating lease agreements for equipment and
manufacturing and office facilities.
The Company leases certain equipment under a cancelable operating lease
with terms of 60 months through 1999. The total amount of the base rent payments
has been charged as an expense on the straight line method over the term of the
lease.
The Company leases its main manufacturing and office facilities under a
non-cancelable operating lease which expires September 2000.
Minimum annual rental commitments under non cancelable leases at December
31, 1998, are as follows :
Year ending December 31,
1999 ............................................... $1,113
2000 ............................................... 768
2001 ............................................... 46
2002 ............................................... 15
2003 ............................................... 14
2004 ............................................... 7
------
Total minimum payments ............................. $1,963
======
Minimum annual rental commitments under non cancelable leases at June 30,
1999, are as follows :
Year ending December 31,
1999 ............................................... $ 183
2000 ............................................... 367
2001 ............................................... 335
2002 ............................................... 126
2003 ............................................... 1
------
Total minimum payments ............................. $1,012
======
Rental expense for all operating leases consisted of the following:
1996 1997 1998
---- ---- ----
Rent expense for operating leases $1,439 $1,245 $1,188
====== ====== ======
License Agreement and Research and Development Agreement with CEA
See Note 16--Related Party Transactions
F-19
<PAGE>
10. Fair Value of Financial Instruments
At December 31, 1997 and 1998, the carrying values of financial instruments
such as cash and cash equivalents, short term investments, accounts receivable
and payable, other receivables and accrued liabilities and the current portion
of long-term debt approximated their market values, based on the short-term
maturities of these instruments.
At December 31, 1998, the fair value of long-term portion of restricted
cash, with total book value of $8,427 was $6,949.
At December 31, 1997 and 1998, the fair values of long-term debt and other
long-term liabilities, with book value of $13,984 and $22,917 were $12,463 and
$16,081, respectively.
Fair value is determined based on expected future cash flows, discounted at
market interest rates, and other appropriate valuation methodologies.
11. Stockholders' Equity
The share amounts and per share dollar amounts included herein reflect the
effect of the 2 for 3 reverse stock split which was effective on July 18, 1995.
Common Stock
On July 18, 1995, the Company sold 2,500,000 shares of common stock for net
proceeds of $20,998 in its initial public offering on Nasdaq.
On February 7, 1997, the Company sold 3,333,000 shares of Common Stock in a
public offering in Europe resulting in net proceeds of $15,927.
In February 1997, the Company sold 463,708 and 1,111,111 shares of the
Company's Common Stock to Motorola, Inc. and to United Microelectronics
Corporation, the parent company of Unipac Optoelectronics Corporation,
respectively, in private placements resulting in net proceeds of $2,086 and
$5,000 respectively.
In March 1998, the Company sold 1,000,000 shares of the Company's Common
Stock to The Kaufmann Fund Inc., in a private placement at a price of $4.00 per
share, resulting in net cash proceeds of $4,000 before expenses payable by the
Company, which amounted to $44.
In March 1998, the Company entered into a license agreement with Coloray
Display Corporation, a California corporation ("Coloray"), providing PixTech
with a worldwide, nonexclusive royalty-free license on certain technologies
related to field emission displays. In consideration of the license and rights
granted to PixTech, the Company paid an amount of $75 and issued 14,000 shares
of the Company's Common Stock, valued at a price of $3.57 per share,
representing a total amount of $50.
In December 1998, the Company sold 222,222 shares of the Company's Common
Stock in a private placement at a price of $2.25 per share, resulting in net
proceeds of $500.
There were 15,000,329 shares of Common Stock outstanding at December 31,
1998.
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.
In consideration of the Micron Transaction (See "Note 20 -- Micron
transaction"), the Company issued in May 1999 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. In
consideration of the 7,133,562 shares of Common Stock and 310,000 warrants
issued pursuant to the Micon 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 liabilites, and resulted in net proceeds to the
Company of $3.8 million (net of issuance costs).
F-20
<PAGE>
Preferred Stock
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to fix the relative rights thereof. In December
1998, 500,000 shares of Preferred Stock were reserved for the issuance of
"Series E Convertible Preferred Stock".
Convertible preferred stock
The Company's Series A to D shares of Convertible Preferred Stock
automatically converted into shares of Common Stock upon the closing of the
Company's initial public offering in 1995.
In December 1998, the Company issued 367,269 Series E shares of Convertible
Preferred Stock. The Preferred Stock was sold in a private placement at a price
of approximately $22.53 per share, resulting in net proceeds of $8,275, before
expenses payable by the Company, which amounted to $822. The amount representing
Preferred Stock sold by the Company is generally convertible into shares of
Common Stock starting from June 21, 1999 at a conversion price equal to the
lesser of approximately $2.25 per share of Common Stock or the average of the
closing price of the Common Stock over the ten trading days immediately
preceding the notice of conversion. In addition to the conversion feature, the
Preferred Stock has a liquidation preference equal to the purchase price of the
preferred stock and a cumulative dividend. The Preferred Stock will
automatically convert into Common Stock on December 22, 2003. The Preferred
Stock is redeemable at the option of the Company at the issue price upon certain
events. The holders of shares of Series E Preferred Stock are entitled to the
number of votes equal to the number of shares of Common Stock into which the
shares of Series E Preferred Stock held by such holder are convertible.
The holders of Series E Preferred Stock are entitled to receive cumulative
dividends. Dividends are calculated on a 6% interest basis per annum, on the
purchase price paid for the Series E Preferred shares for the numbers of days
that the stock price is above $2.253, on a 8% interest basis for the numbers of
days that the stock price is between $1.127 and $2.253, and on a 10% interest
basis for the number of days that the stock price is below $1.127. At December
31, 1998 a dividend of $12 was accrued and recorded against Stockholders'
Equity.
In addition, the Company agreed to reserve, out of the authorized but
unissued shares, 150% of the number of shares of Common Stock that the Series E
Stock is convertible into. As of December 31, 1998, the Series E Stock would
have been convertible into 3,678,199 shares of Common Stock thus requiring the
Company to reserve 5,517,299 shares of the remaining authorized but unissued
shares.
As of 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 of 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 of 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 (See "Note 21 --
Subsequent events"). As of 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 of July 31, 1999.
F-21
<PAGE>
Stock Options
1993 Stock Option Plan
The Company adopted a stock option plan on November 30, 1993, the "1993
Stock Option Plan" (which was amended and restated in May 1995 and in April
1997), under which options to purchase shares of common stock may be granted to
key employees and consultants of the Company. The plan provides that the option
price shall be determined by the Compensation Committee of the Board of
Directors and that no portion of the option may be exercised beyond ten years
from the date of grant. Options which are outstanding at December 31, 1998,
become exercisable within a certain period of time or when specific milestones
are completed.
The activity under the option plan was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Options Option Price
available outstanding per Share
--------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1995 ............... 544,039 1,228,074
========== ==========
Options granted ........................ (365,850) 365,850 $8.018
Options exercised ...................... -- (29,083) 0.375
Options terminated unexercised ......... 100,567 (100,567) 2.859
---------- ----------
Balance at December 31, 1996 ............... 278,756 1,464,274
========== ==========
Additional shares reserved ............. 800,000
Options granted ........................ (1,121,050) 1,121,050 $4.300
Options exercised ...................... -- (52,989) 0.506
Options terminated unexercised ......... 464,193 (464,193) 7.875
---------- ----------
Balance at December 31, 1997 ............... 421,899 2,068,142
========== ==========
Options granted ........................ (444,960) 444,960 $4.626
Options exercised ...................... -- (1,375) 0.656
Options terminated unexercised ......... 362,535 (362,535) 4.632
---------- ----------
Balance at December 31, 1998 ............... 339,474 2,149,192
========== ==========
</TABLE>
Options to purchase 748,667 shares and 1,125,434 shares were exercisable at
weighted-average exercise prices of $1.110 and $1.886 at December 31, 1997 and
December 31,1998, respectively.
Exercise prices for options outstanding as of December 31, 1998 ranged from
$0.375 to $9.750. The weighted average remaining contractual life of those
options is 7.369 years.
Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following average assumptions for all three years:
risk-free interest rates of 3%; dividend yields of 0%; volatility factors of the
expected market price of the Company's shares of Common Stock of 0.74 ; and a
weighted-average expected life of the option of 4 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information follows (in thousands except for loss per share
information) :
---------------------------------------------------------------------
1996 1997 1998
---------------------------------------------------------------------
Pro forma net loss $ (11,869) $ (14,865) $ (18,690)
Pro forma loss per share $ (1.46) $ (1.13) $ (1.29)
---------------------------------------------------------------------
The weighted-average fair value of options granted during 1996, 1997 and
1998 were $3.84, $2.52 and $2.82, respectively.
F-22
<PAGE>
Director Stock Option Plan
In May 1995, the Company adopted the 1995 Director Stock Option Plan (the
"Director Stock Plan"), which provides for the issuance of up to 50,000 shares
of the Company's stock. The Director Stock Plan provides for an automatic grant
of options to purchase the Company's stock at its fair market value to the
non-employee directors of the Company upon election or re-election to the Board
of Directors.
The activity under the option plan was as follows:
<TABLE>
<CAPTION>
Weighted Average
Option
Shares Options Price
available outstanding per Share
--------- ----------- ---------
<S> <C> <C> <C>
Balance at December 31, 1995 ................ 50,000 --
======
Options granted ......................... (6,000) 6,000 $ 8.625
------- ------
Balance at December 31, 1996 ................ 44,000 6,000
======= ======
Options granted ......................... (12,000) 12,000 $ 3.910
------- ------
Balance at December 31, 1997 ................ 32,000 18,000
======= ======
Options granted ......................... (12,000) 12,000 $ 4.646
Options terminated unexercised .......... 14,000 (14,000) $ 5.962
------- ------
Balance at December 31, 1998 ................ 34,000 16,000
======= ======
</TABLE>
As of December 31, 1998 and at the date of grant, the exercise prices of each
stock option grant under the Director Stock Plan was above the Company's stock
price. Therefore, no compensation expense was incurred.
Warrants
In December 1994, in connection with various equipment leases, the Company
entered into a warrant agreement. Under this agreement, the Company granted a
right to purchase 62,500 shares of Common Stock of the Company at a purchase
price of $2.88 per share. No value was ascribed to the warrant. This warrant
expires on July 18, 2000.
In February 1996, in order to finance partially the purchase of PanoCorp
assets, the Company granted 150,000 warrants to purchase shares of the Company's
common stock at an exercise price of $11.67 per share. See Note 5--Goodwill.
In February 1997, in connection with the purchase of 463,708 shares of the
Company's Common Stock, Motorola received warrants to purchase an additional
463,708 shares of the Common Stock of the Company at a price of $5.50 per share,
which have expired unexercised on December 31, 1998.
Employee Stock Purchase Plan
In May 1995, the Company adopted an employee stock purchase plan (the
"Purchase Plan") under which employees may purchase shares of Common Stock at a
discount from fair market value. 100,000 shares of Common Stock are reserved for
issuance under the Purchase Plan. To date, no shares have been issued under the
Purchase Plan. Rights to purchase Common Stock under the Purchase Plan are
granted at the discretion of the Compensation Committee, which determines the
frequency and duration of individual offerings under the Plan and the dates when
the stock may be purchased. Eligible employees, which represent all full-time
employees (as defined by the Purchase Plan), participate voluntarily and may
withdraw from any offering at any time before the stock is purchased. The
purchase price per share of Common Stock in an offering is 85% of the lesser of
its fair market value at the beginning of the offering period or on the
applicable exercise date and may be paid through payroll deductions, periodic
lump sum payments or a combination of both. The Purchase Plan terminates on May
9, 2005.
F-23
<PAGE>
Shares available for issuance
At December 31, 1998, 2,851,166 shares of Common Stock are reserved for
shares issuable under the Purchase Plan or upon exercise of stock options and
warrants. In addition, 5,517,299 shares of Common Stock are reserved for shares
issuable upon conversion of the Convertible Preferred Stock. Therefore, on
December 31, 1998, out of the 30,000,000 authorized shares of Common Stock,
6,631,206 shares were available for issuance by the Company.
12. Other and deferred revenues
Other revenues and deferred revenues include the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1998
----------------------- ------------------------
Other Deferred Other Deferred
<S> <C> <C> <C> <C>
Grant from French Ministry of Industry (a) ............... $ 663 $1,210 $1,211 $ --
Grant from French local authorities (b) .................. 144 913 290 1,396
Grant from European Union, Esprit Program (c) ............ -- 423 96 766
Insurance refund (d) ..................................... 292 -- -- --
Other(e) ................................................. 43 -- 371 --
------ ------ ------ ------
TOTAL .................................................... $1,142 $2,546 $1,968 $2,162
====== ====== ====== ======
</TABLE>
(a) In December 1994, the Company was awarded a grant from the French
Ministry of Industry to support manufacturing of Field Emission
Displays. The total contribution of the French Ministry of Industry
amounted to $2,674. The Company recognized as income $800 in 1996,
$663 in 1997, and $1,211 in 1998, as all conditions of the grant were
met.
(b) PixTech SA was awarded certain incentives to establish its
manufacturing facilities in Montpellier, France. These incentives are
partially subject to maintaining an operating facility in this
location for a certain period of time. In 1998, no revenue was
recognized in relation to these incentives. Revenue is deferred until
all conditions are met. In 1998, revenue recognized in the amount of
$290 was related to various incentives granted by French local
authorities.
(c) In February 1997, the Company entered into an R&D agreement with the
European Union for 18 months starting February 1, 1997. The
contribution of the European Union to the costs incurred by the
Company amounts to $800 over the period. The Company received $423 and
$293 from this contribution in 1997 and in 1998, respectively. This
contribution was not recognized as income in 1997 nor in 1998 as all
conditions stipulated in the agreement were not met. In 1998, revenue
recognized in the amount of $96 is related to another R&D agreement
entered into in 1993 with the European Union. The total contribution
of the European Union amounted to $546. The Company received $330 in
1994, $120 in 1995 and $96 in 1998 from this contribution. This
contribution was recognized as income ratably over the contract period
as required costs were incurred to meet the conditions of the grant,
at which point such portion of the contribution is irrevocable as
stipulated in the agreement.
(d) In September 1997, the Company collected an amount of $620 in payment
under its business insurance policy to cover losses incurred after
certain physical damages suffered in the Company's pilot manufacturing
facility in April 1997. An amount of $328 representing reimbursement
of direct costs was recorded as reduction in research and development
expenses. The remaining amount of $292 covering consequential losses
was reflected as other revenues in 1997.
(e) Amounts relating to payments received by the Company from entities
primarily for the performance of miscellaneous services, including
$200 in 1998 related to the favorable settlement of a tax dispute.
F-24
<PAGE>
13. Income Taxes
Income (loss) before income tax benefit consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
France $(10,556) $(13,567) $(16,614)
Rest of world ................................. (1,161) (1,683) (3,408)
-------- -------- --------
Income (loss) before income tax benefit $(11,719) $(15,250) $(20,022)
======== ======== ========
</TABLE>
The income tax benefit consists of the following:
December 31,
-----------------------------------
1996 1997 1998
------- ------- ------
Deferred:
France ..................... -- $ 586 $2,159
Rest of world .............. -- -- --
------ ------ ------
-- $ 586 $2,159
====== ====== ======
A reconciliation of income taxes computed at the French statutory rate
(36.66%) to the income tax benefit is as follows :
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Income taxes computed at the French
statutory rate ................................ $ 4,297 $ 6,354 $ 7,341
Operating losses not utilized .................... (4,297) (6,354) (7,341)
Research credits ................................. -- 586 2,159
------- ------- -------
Total ............................................ -- 586 2,159
======= ======= =======
</TABLE>
No U.S. income tax expense was realized and no U.S. income taxes were paid
in periods ended December 31, 1996, 1997 and 1998.
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C
Deferred tax assets:
Net operating loss carryforwards ...................... $ 6,788 $ 12,058 $ 18,108
Deferred revenue ...................................... 1,201 355 75
Research credit carryforwards ......................... 8,193 8,000 6,448
-------- -------- --------
16,181 20,413 24,631
Deferred tax liabilities:
Revenue not currently taxable ......................... -- -- --
Deferred revenue ...................................... -- (412) (760)
Deferred expense ...................................... (145) (165) (53)
-------- -------- --------
Total deferred tax assets ......................... 16,039 19,835 23,818
Valuation allowance ....................................... (10,869) (14,777) (19,175)
-------- -------- --------
Deferred tax assets ....................................... $ 5,167 $ 5,058 $ 4,643
======== ======== ========
</TABLE>
Net operating loss carryforwards can be credited against future income in
France. Net operating loss carryforward of: $5,585 expire in 2000, $5,951 in
2001, $10,658 in 2002, $15,451 in 2003 and $11,735 can be carried forward
indefinitely.
F-25
<PAGE>
Research credit carryforwards derive from the Company's subsidiary PixTech
SA. In France, research credit carryforwards are calculated following certain
rules defined by the Tax administration. The Company is entitled to full payment
by the Tax administration of these research credit carryforwards if they are not
credited against income tax liabilities within a period of three financial
years. The Company collected $29 representing income tax benefit recorded in
1992, and $2,840 representing income tax benefit recorded in 1993 and 1994, in
1997 and 1998 respectively.
14. Industry and Geographic information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
131"), effective for the Company for fiscal years beginning after December 15,
1997. SFAS 131 requires that public business enterprises report certain
information about operating segments in their financial statements, and about
their products and services, the geographic area in which they operate, and
their major customers. As the Company operates in one single reportable segment,
the development, manufacturing and licensing of flat panel displays using
electron emitters, the adoption of SFAS 131 has no effect on the Company's
consolidated operating results or financial condition.
15. Significant customers and suppliers
Historically, the Company derived its revenues principally from cooperation
and license agreements with certain display manufacturers. Net revenues from
cooperation and license agreements represented approximately 75%, 50% and 34% of
the Company's net revenues for the fiscal years 1996, 1997 and 1998,
respectively. The Company does not expect any significant additional milestone
related revenues to be directly derived from existing cooperation and license
agreements.
In 1998, product revenues primarily reflected the shipment of displays to
the Company's first volume customer, Zoll Medical Inc.
Umipac is the Company's only contract manufacturer. During the six-month
period ended June 30, 1999, unit shipments from Taiwan represented 17% of total
product shipments. In the future, the Company expects that the products that
will be manufactured at Unipac and sold to its customers will represent the
majority of its revenues. The Company's reliance on a single contract
manufacturer will involve several risks, including a protential inability to
obtain an adequate supply of required products and a potential reduced control
over the prices.
16. Related Party transactions
CEA License Agreement
In September 1992, the Company entered into a license agreement with CEA.
CEA holds a controlling interest in CEA Industrie, a shareholder of the Company.
Under this agreement, CEA granted to the Company a royalty bearing, worldwide,
exclusive license to all patents held by CEA in the field of FEDs, with a right
to sublicense these patents under certain conditions. The consideration for this
license is a payment of license fees and royalties based on the Company's sales
and the license fees and royalties collected by the Company. No expense was
recorded in 1993 and 1994 with respect to license fees and royalties due to CEA.
In 1995, $1,000 was accrued in respect of license fees and royalties due to CEA
in 1996. In order for the Company to maintain an exclusive license, it was
required to make minimum royalty payments beginning in 1996. An amount of $45
payable to CEA in 1997 was accrued in 1996. By paying the remaining amount due
to LETI, the Company will fulfill the minimum royalty obligations to LETI
through 1998.
In 1997, an amendment to the LETI License Agreement was signed between the
CEA and the Company (the "1997 CEA Amendment") for a period of three years, in
return for CEA guarantying certain contingent payment obligations towards
Sumitomo. See Note 7-- Long term debt. The royalty rates and minimum payments
from the Company to CEA were increased for a period of three years. In addition,
the Company gave a security interest to CEA on all its patents during the term
of the amendment. An amount of $109 and $308 was accrued respectively in 1997
and in 1998, which included a minimum royalty obligation of $100 and $288
respectively, pursuant to the 1997 CEA Amendment.
F-26
<PAGE>
CEA R&D Agreement
In September 1992, the Company entered into a three-year renewable R&D
agreement with CEA, under which CEA, through its laboratory LETI, performs
certain research and development activities for the benefit of the Company. This
program is expected to be extended for a third three-year period ending on
January 1, 2002, subject to further extension by mutual agreement of the
parties. The consideration received by the CEA for this R&D activity in 1998
amounted to approximately $848.
In connection with the above R&D agreement with CEA, the Company expensed
$644 , $637 and $848 in 1996, 1997 and 1998, respectively, included in research
and development costs.
17. License
In connection with the Company's license of its technology to a display
manufacturer, the Company acquired a worldwide, non-exclusive royalty-free
license to such licensee's background FED technology, as well as a right to
grant royalty-free sublicenses to certain other companies. The Company was
obligated to pay certain license fees in connection with the acquisition of
these rights from such licensee; these payments to the licensee were $650 in
1995 and $650 in 1996. In 1997, the Company recorded cooperation and license
revenues in the amount of $707, in consideration of the cancellation of same
amount which had been included in accounts payable in relation to accrued
license fees due this licensee.
In connection with the Company's license of its technology to another
display manufacturer, the Company also acquired a worldwide, non-exclusive
license, without the right to sublicense, to certain technology of such
licensee. The Company was obligated to pay certain license fees in connection
with the acquisition of these rights; these payments to the licensee were $1,000
in 1995, $1,000 in 1996. The remaining license fees payable to this licensee in
the amount of $1,400 were canceled in 1997, as consideration for the purchase by
such licensee of shares of the Company's Common Stock in February 1997.
In March 1998, the Company entered into a license agreement with Coloray,
providing PixTech with a worldwide, nonexclusive royalty-free license on certain
technologies related to field emission displays. In consideration of the license
and rights granted to PixTech, the Company paid an amount of $75 and issued
14,000 shares of the Company's Common Stock, valued at a price of $3.57 per
share, representing a total amount of $50 (See Note 11--Stockholders' Equity).
18. Litigation
The Company has received correspondence from Futaba Corporation and its
legal counsel since January 1998 alleging the following : (i) Pixtech is
infringing one or more patents owned by Futaba relating to the construction and
manufacture of its displays that are not expressly included under the license
agreement between Futaba and Pixtech, (ii) PixTech's use of terms such as
"alliance" and "partners" in describing the nature of its contractual
relationships with Motorola, Raytheon and Futaba in reports filed with the SEC
is misleading and (iii) certain provisions in the Foundry Agreement with Unipac
constitute an impermissible sublicense of Futaba technology. PixTech does not
believe such claims have any merit and has denied each of the allegations in
correspondences with Futaba and its counsel and is in discussions with Futaba
concerning their allegations. Futaba has also claimed that the Company
improperly supplied certain Futaba proprietary information to Unipac, and that
Unipac has in turn disclosed such information to a third party vendor. If Futaba
were to prevail on all of these claims, PixTech may be required, among other
adverse consequences, to modify the construction and manufacture of its displays
and may, as a result, be materially adversely affected.
To the Company's knowledge, there are no other exceptional facts or
litigation that could have or that have in the recent past had any significant
impact on its business, results, financial situation, or assets and liabilities.
F-27
<PAGE>
19. Financial position
During 1998, the Company has incurred losses in the amount of $17,875, and
used cash in operating activities of $9,343, which has adversely affected the
Company's liquidity. At December 31,1998, the Company had net working capital of
$145 and a deficit accumulated during the development stage of $54,156. These
conditions raise substantial doubt about its ability to continue as a going
concern. The Company intends to improve its liquidity and financial position
through capital increases expected to take place in 1999. There can be no
assurance that funds will be available through capital increases when needed or
on terms acceptable to the Company. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
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.
20. 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 financial statements as of June 30, 1999 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, representing a total amount of $14,717, and a warrant to
purchase 310,000 shares of the Company's Common Stock. The fair value of the
310,000 warrants was computed using the Black-Scholes model and was estimated at
$257. 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".
The enclosed unaudited pro forma financial information presents the
combined results of operations for the year ended December 31, 1998 and for the
six months ended June 30, 1999 as if the transaction had been completed at the
beginning of the periods indicated, after giving effect to certain adjustments,
including additional personnel costs and depreciation expenses. The pro forma
financial information does not necessarily reflect the results of operations
that would have occured had the the transaction been completed at the beginning
of the periods indicated, and may not be indicative of the future results.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year ended December Six months ended June
31, 1998 30, 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss ..................................... $(26,986) $(17,083)
- ----------------------------------------------------------------------------------------------------------
Net loss to holders of common stock .......... (26,998) (17,382)
- ----------------------------------------------------------------------------------------------------------
Net loss per share of common stock ........... $ (1.25) $ (0.77)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
21. Subsequent events
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 of 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 of July 31, 1999.
F-28
<PAGE>
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. Under the terms of the equity line, the Company also issued a warrant to
Kingsbridge to purchase 100,000 shares of PixTech's common stock at an exercise
price of $2.30 per share.
F-29
