-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OmEfd9wPtUtWRQumewrwn8pMX3GXDN90pZm0GN2weLW59NKPXWOwuRy58rNZVuTJ 0+mkOYimw29fMWYbEFivXw== 0000927016-99-002929.txt : 19990813 0000927016-99-002929.hdr.sgml : 19990813 ACCESSION NUMBER: 0000927016-99-002929 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIXTECH INC /DE/ CENTRAL INDEX KEY: 0000946144 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 043214691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26380 FILM NUMBER: 99686076 BUSINESS ADDRESS: STREET 1: AVENUE OLIVIER PERROY 13790 CITY: ROUSSET FRANCE STATE: I0 10-Q 1 FORM 10-Q FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 0-26380 _______________________________________ PIXTECH, INC. ------------- (Exact name of registrant as specified in its charter) Delaware 04-3214691 -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) Avenue Olivier Perroy, 13790 Rousset, France - -------------------------------------------- (Address of principal executive offices) (Zip code) 011-33-4-42-29-10-00 -------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of common stock as of Class Outstanding at July 31, 1999 ----- ---------------------------- Common Stock, $.01 par value 23,467,138 PIXTECH, INC. ------------- TABLE OF CONTENTS -----------------
PAGE NO. PART I FINANCIAL INFORMATION ITEM 1 Financial Statements Balance Sheets as of June 30, 1999 and December 31, 1998......................................... 3 Statements of Comprehensive Operations for the Three Months and Six Months Ended June 30, 1999 and 1998, and the period from June 18, 1992 through June 30, 1999....... 4 Statements of Cash Flows for the Six Months ended June 30, 1999 and 1998, and the period from June 18, 1992 through June 30, 1999...................... 5 Statement of Stockholders' Equity............................. 6 - 7 Notes to Financial Statements................................. 8 - 9 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 10 - 14 ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 15 PART II OTHER INFORMATION ITEM 1 Legal Proceedings............................................. 16 ITEM 2 Changes in Securities......................................... 16 ITEM 3 Default upon Senior Securities................................ 16 ITEM 4 Submission of matters to a Vote of Security Holders........... 16 ITEM 5 Other Information............................................. 16 ITEM 6 Exhibits and Reports on Form 8-K.............................. 16 Signature......................................................................... 17 Exhibit Index..................................................................... 18
-2- PixTech, Inc. (a development stage company) CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited)
June 30, December 31, 1999 1998 --------------- ---------------- (unaudited) ASSETS Current assets: Cash available.......................................................... $ 7,017 $ 10,166 Restricted cash - short term............................................ 2,097 1,685 Accounts receivable..................................................... 322 617 Inventory............................................................... 1,348 980 Other................................................................... 1,377 1,354 -------- -------- Total current assets.............................................. 12,161 14,802 Restricted cash - long term............................................... 6,695 8,427 Property, plant and equipment, net........................................ 28,604 18,826 Goodwill, net............................................................. 114 150 Deferred tax assets....................................................... 1,287 4,643 Other assets - long term.................................................. 204 546 -------- -------- Total assets...................................................... $ 49,065 $ 47,394 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long term debt....................................... $ 4,807 $ 3,410 Current portion of capital lease obligations............................ 2,362 2,189 Accounts payable........................................................ 7,037 7,514 Accrued expenses........................................................ 2,505 1,544 -------- -------- Total current liabilities......................................... 16,711 14,657 Deferred revenue.......................................................... 79 2,162 Long term debt, less current portion...................................... 10,075 8,391 Capital lease obligation, less current portion............................ 8,565 8,399 Other long term liabilities, less current portion......................... 46 528 -------- -------- Total liabilities................................................. 35,476 34,137 ======== ======== Stockholders' equity Convertible preferred stock Series E, $0.01 par value, authorized shares--500,000; issued and outstanding shares--367,269................... 4 4 Common stock, $0.01 par value, authorized shares--60,000,000; issued and outstanding shares--22,352,918; 15,000,329 respectively........ 223 150 Additional paid-in capital........................................... 83,450 68,999 Cumulative translation adjustment.................................... (2,527) (1,740) Deficit accumulated during development stage......................... (67,561) (54,156) -------- -------- Total stockholders' equity........................................ 13,589 13,257 -------- -------- Total liabilities and stockholders' equity........................ $ 49,065 $ 47,394 ======== ========
See accompanying notes. -3- CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (in thousands, except per share amounts) (unaudited)
Period from June 18, 1992 Three Months Six Months (date of Ended June 30, Ended June 30, inception) ------------------ ------------------- through June 30, 1999 1998 1999 1998 1999 ------- ------- -------- -------- ---------------- Revenues Cooperation and license revenues............ $ -- $ 1,001 $ -- $ 1,001 $ 26,449 Product sales............................... 178 66 339 87 3,165 Other revenues.............................. 314 311 2,314 1,543 8,220 -------- ------- -------- -------- --------- Total revenues...................... 492 1,378 2,653 2,631 37,834 -------- ------- -------- -------- --------- Cost of revenues License fees and royalties.................. (85) (122) (172) (201) (1,688) -------- ------- -------- -------- --------- Gross margin.................................... 407 1,256 2,481 2,430 36,146 -------- ------- -------- -------- --------- Operating expenses Research and development: Acquisition of intellectual property rights. -- -- -- (125) (4,890) Other....................................... (6,616) (4,553) (12,203) (8,353) (84,731) -------- ------- -------- -------- --------- (6,616) (4,553) (12,203) (8,478) (89,621) Marketing and sales......................... (329) (354) (680) (693) (7,287) Administrative and general expenses......... (772) (586) (1,502) (1,223) (14,318) -------- ------- -------- -------- --------- (7,717) (5,493) (14,385) (10,394) (111,226) -------- ------- -------- -------- --------- Loss from operations............................ (7,310) (4,237) (11,904) (7,964) (75,080) Other income / (expense) Interest income / (expense)................. (98) (174) (364) (254) (263) Foreign exchange gains / (losses)........... (621) 424 (1,137) 709 (111) -------- ------- -------- -------- --------- (719) 250 (1,501) 455 (374) Loss before income tax benefit.................. (8,029) (3,987) (13,405) (7,509) (75,454) Income tax benefit.............................. -- -- -- -- 7,893 -------- ------- -------- -------- --------- Net loss........................................ $(8,029) $(3,987) $(13,405) $ (7,509) $ (67,561) ========= ======= ======== ======== ========= Dividends accrued to holders of Preferred Stock...................................... (165) -- (299) -- (311) -------- ------- -------- -------- --------- Net loss to holders of Common Stock............. $(8,194) $(3,987) $(13,704) $ (7,509) $ (67,872) ======== ======= ======== ======== ========= Net loss per share of Common Stock.......... $(0.43) $(0.27) $(0.80) $(0.53) ======== ======= ======== ======== Shares of Common Stock used in computing.... 18,462 14,777 16,816 14,301 net loss per share Net loss....................................... $(8,029) $(3,987) $(13,405) $(7,509) $ (67,561) Change in cumulative translation adjustment.... (116) 316 (787) (213) (2,527) -------- ------- -------- -------- --------- Comprehensive net loss......................... $(8,145) $(3,671) $(14,192) $(7,722) $ (70,088) ======== ======= ======== ======== =========
See accompanying notes. -4- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except per share amounts) (unaudited)
Period from June 18, 1992 (date of inception) Six Months Ended through June 30, June 30, ------------------------ ------------- 1999 1998 1999 -------- ------- ------------- Net loss............................................................ $(13,405) $(7,509) $(67,561) Total adjustments to net loss....................................... 5,131 4,421 27,277 -------- ------- ------------- Net cash (used in) / provided by operating activities............... (8,274) (3,088) (40,284) -------- ------- ------------- Investing activities Additions to property plant and equipment........................... (396) (602) (19,716) Reclassification of cash available as restricted cash............... 1,299 -- (8,813) Additions to intangible assets...................................... -- -- (130) -------- ------- ------------- Net cash used in investing activities............................... 903 (602) (28,659) Financing activities Stock issued........................................................ 4,198 3 ,980 71,702 Proceeds from long-term borrowings.................................. -- -- 16,287 Proceeds from sale leaseback transactions........................... -- -- 2,731 Payments for equipment purchases financed by accounts............... -- -- (3,706) payable Repayments of long term borrowing and capital lease obligations..... (360) (2,607) (8,177) -------- ------- ------------- Net cash (used in) / provided by financing activities............... 3,838 1,373 78,837 -------- ------- ------------- Effect of exchange rates on cash.................................... 384 (229) (2,877) -------- ------- ------------- Net (decrease) / increase in cash and cash equivalents.............. (3,149) (2,546) 7,017 Cash and cash equivalents beginning of period....................... 10,166 12,428 -- -------- ------- ------------- Cash and cash equivalents end of period............................. $ 7,017 $ 9,882 $ 7,017 ======== ======= =============
See accompanying notes. -5- Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited)
Convertible Preferred Stock ----------------------------------------------------- Series A Series B -------------------- ------------------------------- Shares Shares Shares ----------- --------- ----------- issued Amount issued Amount issued ----------- ------- --------- ------ ----------- Balance at June 18, 1992 Issuance of convertible preferred stock, net of issuance 1,557,003 2,368 363,447 589 3,044,846 costs in 1992, 1993 and 1994........................................... Issuance of Common stock in 1992 and 1993................................ Issuance of Common stock under stock option plan in 1994 and 1995 Purchase of 28,761 shares of Common stock-- Treasury stock in 1994......................................................... Reissuance of 28,761 shares of Common stock held in treasury in 1995 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080........................................................ Conversion of preferred stock in 1995................................... (1,557,003) (2,368) (363,447) (589) (3,044,846) Translation adjustment.................................................. Net loss from June 18, 1992 (date of inception) through December 31, 1995 ---------- ------ -------- ------ ---------- Balance at December 31, 1995 Issuance of Common stock under stock option plan........................ Issuance of warrants in connection with acquisition of the assets of Panocorp.................................................... Translation adjustment.................................................. Net loss--Year ended December 31, 1996.................................. ---------- ------ -------- ------ ---------- Balance at December 31, 1996 Common stock issued in public offering, net of issuance costs -- $ 796........................................................ Issuance of Common stock under stock option plan........................ Translation adjustment.................................................. Net loss--Year ended December 31, 1997.................................. ---------- ------ -------- ------ ---------- Balance at December 31, 1997 Common stock issued in private placements, net of issuance costs -- $44 Issuance of Series E convertible preferred stock, net of issuance costs -- $822......................................... Issuance of Common stock under stock option plan........................ Translation adjustment.................................................. Net loss--Year ended December 31, 1998 ---------- ------ -------- ------ ---------- Balance at December 31, 1998 Common stock issued in private placements (unaudited)................... Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited)........ Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $493 (unaudited)......................................................... Issuance of warrants in connection with the acquisition of certain assets of Micron Display (unaudited)................................ Issuance of common stock under stock option plan (unaudited)........ Translation adjustment (unaudited)...................................... Net loss-- Six months ended June 30, 1999 (unaudited)................... ---------- ------ -------- ------ ---------- Balance at June 30, 1999.................................................... -- -- -- -- -- ========== ====== ======== ====== ========== Convertible Preferred Stock ----------------------------------------------- Series C Series D Series E --------- --------------------------- -------- Shares Shares --------- ------ Amount issued Amount issued Amount ------ --------- ------ ------ ------ Balance at June 18, 1992 Issuance of convertible preferred stock, net of issuance 8,615 430,208 1,224 costs in 1992, 1993 and 1994........................................... Issuance of Common stock in 1992 and 1993................................ Issuance of Common stock under stock option plan in 1994 and 1995 Purchase of 28,761 shares of Common stock-- Treasury stock in 1994.......................................................... Reissuance of 28,761 shares of Common stock held in treasury in 1995..... Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080......................................................... Conversion of preferred stock in 1995.................................... (8,615) (430,208) (1,224) Translation adjustment................................................... Net loss from June 18, 1992 (date of inception) through December 31, 1995 -------- -------- ------ ------- ------ Balance at December 31, 1995 Issuance of Common stock under stock option plan......................... Issuance of warrants in connection with acquisition of the assets of Panocorp..................................................... Translation adjustment................................................... Net loss--Year ended December 31, 1996................................... -------- -------- ------ ------- ------ Balance at December 31, 1996 Common stock issued in public offering, net of issuance costs -- $ 796......................................................... Issuance of Common stock under stock option plan......................... Translation adjustment................................................... Net loss--Year ended December 31, 1997................................... -------- -------- ------ ------- ------ Balance at December 31, 1997 Common stock issued in private placements, net of issuance costs -- $44 Issuance of Series E convertible preferred stock, net of issuance costs -- $822........................................................... 367,269 $4 Issuance of Common stock under stock option plan......................... Translation adjustment................................................... Net loss--Year ended December 31, 1998................................... -------- -------- ------ ------- ------ Balance at December 31, 1998............................................. 367,269 4 Common stock issued in private placements (unaudited) Issuance costs and dividends accrued in relation to Series E Convertible Preferred stock issued in December 1998 (unaudited)......... Issuance of common stock in connection with the acquisition of certain assets of Micron Display, net of issuance costs -- $493 (unaudited).......................................................... Issuance of warrants in connection with the acquisition of certain assets of Micron Display (unaudited)................................. Issuance of common stock under stock option plan (unaudited)......... Translation adjustment (unaudited)....................................... Net loss-- Six months ended June 30, 1999 (unaudited).................... -------- -------- ------ ------- ------ Balance at June 30, 1999................................................. -- -- -- 367,269 $4 ======== ======== ====== ======= ======
See acccompanying notes. -6- Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) (unaudited)
Common Stock ------------------------------- Dividends --------- accrued to ---------- Additional holders of ---------- ---------- Preferred --------- Shares Amount Paid-in Stock ---------- ------ ----------- ------------- issued Capital ---------- ----------- Balance at June 18, 1992 Issuance of convertible preferred stock, net of issuance costs in 1992, 1993 and 1994................................................ Issuance of Common stock in 1992 and 1993..................................... 132,301 $ 1 $ 96 Issuance of Common stock under stock option plan in 1994 and 1995............. 84,258 1 31 Purchase of 28,761 shares of Common stock-- Treasury stock in 1994............................................................... Reissuance of 28,761 shares of Common stock held in treasury in 1995.......... 3 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080..................................................... 2,500,000 25 20,973 Conversion of preferred stock in 1995......................................... 5,395,504 54 12,742 Translation adjustment Net loss from June 18, 1992 (date of inception) through December 31, 1995..................................................................... 3 ---------- ---- ------- ------------- Balance at December 31, 1995.................................................. 8,112,063 81 33,844 Issuance of Common stock under stock option plan.............................. 29,083 0 11 Issuance of warrants in connection with acquisition of the assets of Panocorp.................................................................. 230 Translation adjustment........................................................ Net loss--Year ended December 31, 1996....................................... ---------- ---- ------- ------------- Balance at December 31, 1996.................................................. 8,141,146 81 34,085 Common stock issued in public offering, net of issuance costs -- $ 796........................................................................ 5,570,819 56 22,958 Issuance of Common stock under stock option plan.............................. 50,767 1 25 Translation adjustment........................................................ Net loss--Year ended December 31, 1997........................................ ---------- ---- ------- ------------- Balance at December 31, 1997.................................................. 13,762,732 $138 $57,067 Common stock issued in private placements, net of issuance costs -- $ 44...................................................................... 1,236,222 12 4,493 Issuance of Series E convertible preferred stock, net of issuance costs -- $ 822 Issuance of Series E...................... 7,449 (12) convertible preferred stock in December, net of issuance costs -- $ 822................................................................... Issuance of Common stock under stock option plan.............................. 1,375 1 Translation adjustment........................................................ Net loss--Year ended December 31, 1998........................................ ---------- ---- ------- ------------- Balance at December 31, 1998.................................................. 15,000,329 150 69,011 (12) Common stock issued in private placements (unaudited)......................... 150,000 1 351 Issuance costs and dividends accrued in relation to Series E.................. (36) (299) Convertible Preferred stock issued in December 1998 (unaudited) Issuance of common stock in connection with the acquisition of............. 7,133,562 71 14,152 certain assets of Micron Display, net of issuance costs -- $493 (unaudited)............................................................... Issuance of warrants in connection with the acquisition of................. 257 certain assets of Micron Display (unaudited).............................. Issuance of common stock under stock option plan (unaudited).............. 69,027 1 26 Translation adjustment (unaudited)............................................ Net loss--Six months ended June 30, 1999 (unaudited).......................... ---------- ---- ------- ------------- Balance at June 30, 1999 22,352,918 $223 $83,761 (311) ========== ==== ======= ============= Deficit ------------ Cumulative accumulated ------------ ------------ Treasury translation during --------- Total ------------ ------------ stock --------- adjustment development --------- ------------ ------------ stage ------------ Balance at June 18, 1992 Issuance of convertible preferred stock, net of issuance $ 12,796 costs in 1992, 1993 and 1994 Issuance of Common stock in 1992 and 1993................................ 97 Issuance of Common stock under stock option plan in 1994 and 1995........ 32 Purchase of 28,761 shares of Common stock-- Treasury $(11) (11) stock in 1994.......................................................... Reissuance of 28,761 shares of Common stock held in treasury in 1995..... 11 14 Common stock issued in initial public offering in 1995, net of issuance costs -- $1,080................................................ 20,998 Conversion of preferred stock in 1995.................................... Translation adjustment................................................... $ 515 515 Net loss from June 18, 1992 (date of inception) through December 31, 1995................................................................ $ (9,910) (9,910) ------- -------- -------- -------- Balance at December 31, 1995............................................. 515 (9,910) 24,530 Issuance of Common stock under stock option plan......................... 11 Issuance of warrants in connection with acquisition of the assets of Panocorp............................................................. 230 Translation adjustment................................................... (953) (953) Net loss--Year ended December 31, 1996.................................. (11,719) (11,719) ------- -------- -------- -------- Balance at December 31, 1996............................................. (438) (21,629) 12,099 Common stock issued in public offering, net of issuance costs -- $ 796................................................................... 23,014 Issuance of Common stock under stock option plan......................... 25 Translation adjustment................................................... (1,694) (1,694) Net loss--Year ended December 31, 1997................................... (14,664) (14,664) ------- -------- -------- -------- Balance at December 31, 1997............................................. $(2,132) $(36,293) $ 18,780 Common stock issued in private placements, net of issuance costs -- $ 44................................................................. 4,506 Issuance of Series E convertible preferred stock, net of issuance costs -- $ 822 Issuance of Series E................. 7,440 convertible preferred stock in December, net of issuance costs -- $ 822 Issuance of Common stock under stock option plan 1 Translation adjustment................................................... 392 392 Net loss--Year ended December 31, 1998................................... (17,863) (17,863) ------- -------- -------- -------- Balance at December 31, 1998............................................. (1,740) (54,156) 13,257 Common stock issued in private placements (unaudited).................... 352 Issuance costs and dividends accrued in relation to Series E............. (335) Convertible Preferred stock issued in December 1998 (unaudited)......... Issuance of common stock in connection with the acquisition of........ 14,223 certain assets of Micron Display, net of issuance costs -- $493 (unaudited).......................................................... Issuance of warrants in connection with the acquisition of............ 257 certain assets of Micron Display (unaudited) Issuance of common stock under stock option plan (unaudited)......... 27 Translation adjustment (unaudited)....................................... (787) (787) Net loss--Six months ended June 30, 1999 (unaudited)..................... (13,405) (13,405) ------- -------- -------- -------- Balance at June 30, 1999................................................. $(2,527) $(67,561) -- $ 13,589 ======= ======== ======== ========
See accompanying notes. -7- Notes to Condensed Consolidated Financial Statements (all amounts in thousands except share amounts) (unaudited) Note A - Basis of presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results of the three-month and six-month periods ending June 30,1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 1998 (the "1998 Financial Statements"), included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Note B - Inventories Inventory consists of raw material and spare parts. Note C - Restricted Cash In August 1997, the Company provided Unipac Optoelectronics Corp. ("Unipac"), its Asian manufacturing partner, with a written bank guaranty in an amount of $10,000 pursuant to the display foundry agreement (the "Foundry Agreement") signed in May 1997 between the Company and Unipac in order to implement volume production of Field Emission Displays ("FEDs") at Unipac's manufacturing line. The Company granted the issuing banks a security interest in its cash and cash equivalents for the same amount. The pledged cash and cash equivalents have been recorded as short-term and long-term restricted cash in the balance sheet. Under certain conditions of the Foundry Agreement, Unipac can sell certain equipment to the Company. The payment for such equipment will be secured by Unipac through the exercise of the bank guaranty. Both the amount of the guaranty to Unipac and the amount of the security interest to the banks is expected to decrease to match the net amount of equipment leased by Unipac to the Company. These amounts started to decrease during the three month period ended June 30, 1999. Note D - Property, Plant and Equipment Pursuant to the Foundry Agreement, volume FED production equipment was installed at Unipac's facility. That equipment was purchased and funded by Unipac, and a portion of it is leased to PixTech, which amounted to $11,554 as at June 30, 1999. According to Financial Accounting Standard 13, "Accounting for leases", PixTech's share of equipment was recorded as assets under the caption "Property, Plant and Equipment", in the net amount of $9,767. Depreciation of $475 was recorded during the three-month period ended June 30, 1999. As of June 30, 1999, the related capital lease obligation amounted to $10,286, of which $1,950 were recorded as current portion. In connection with the Micron Transaction (See "Note E -- Micron Transaction"), production equipment located in Boise, Idaho, was acquired by the Company in May 1999. This acquisition was recorded in the amount of $13,316. The estimated fair value of net assets acquired in the Micron Transaction was approximately $9,157 in excess of the cost of net assets acquired. The estimated fair value of property, plant and equipment of $22,473 was proportionally reduced to the extent that the fair value of net assets acquired exceeded cost, resulting in property plant and equipment of $13,316 (See "Note E -- Micron Transaction"). -8- Notes to Condensed Consolidated Financial Statements (all amounts in thousands except share amounts) (unaudited) Note E - Micron Transaction On March 19, 1999, the Company entered into a definitive agreement to purchase certain assets of Micron Technology, Inc. relating to field emission displays including equipment and other tangible assets, certain contract rights and cash (the "Micron Transaction"). The Micron Transaction was closed on May 19, 1999 between the Company and Micron and was accounted for as an acquisition of assets. The accompanying financial statements reflect the acquisition of assets for a cost of $17,932 and the assumption of certain liabilities in the amount of $2,958, in consideration of the issuance of 7,133,562 shares of the Company's Common Stock and a warrant to purchase 310,000 shares of the Company's Common Stock. (See "Note F -- Stockholders' Equity"). The estimated fair value of net assets acquired in the Micron Transaction was approximately $9,157 in excess of the cost of net assets acquired. Consequently, the estimated fair value of property, plant and equipment of $22,473 was proportionally reduced to the extent that the fair value of net assets acquired exceeded cost resulting in property plant and equipment of $13,316 In addition, the Company received cash in the amount of $4,350. Therefore, of the assets acquired for $17,932, $13,316 was reflected under the caption "Property, Plant and Equipment", and $4,350 under the caption "Cash available". Note F - Stockholders' equity Common Stock : In consideration of the Micron Transaction, the Company issued 7,133,562 shares of the Company's Common Stock, representing a total amount of $14,717, and a warrant to purchase 310,000 shares of the Company's Common Stock at an exercise price of approximately $2.25 per share. The fair value of the 310,000 warrants was computed using the Black-Scholes model and was estimated at $257. Convertible preferred stock : The holders of Series E Preferred Stock issued in December 1998 are entitled to receive cumulative dividends. During the six- month period ended June 30, 1999, dividends of $299 were accrued and recorded against Stockholders' Equity. As at June 30, 1999, the cumulative dividend recorded against Stockholders' Equity amounted to $311. As at June 30, 1999 , there were 367,269 shares of Series E Preferred Stock outstanding. These shares of Series E Preferred Stock were convertible into shares of Common Stock. As at June 30, 1999, the Series E Stock, including accrued dividends, would have been convertible into 5,820,779 shares of Common Stock using a conversion price of $1.48, equal to the average closing price of the Company's Common Stock over the 10 trading days ending June 29, 1999. Consequently, there were 28,173,697 shares of Common Stock or equivalent to shares of Common Stock outstanding as at June 30, 1999. In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock at an average conversion price of $1.47, resulting in the issuance of1,114,220 shares of the Company's Common Stock. As at July 31, 1999, there were 297,269 shares of Series E Preferred Stock outstanding. These Series E Preferred Shares would have been convertible into 3,866,213 shares of the Company's Common Stock using a conversion price of $1.81, equal to the average closing price of the Company's Common Stock over the 10 trading days ending July 30, 1999. Consequently, there were 27,333,351 shares of Common Stock or equivalent to shares of Common Stock outstanding as at July 31, 1999. -9- Note G - Litigation The Company has received correspondence from Futaba Corporation and its legal counsel since January 1998 alleging the following : (i) PixTech is infringing one or more patents owned by Futaba relating to the construction and manufacture of its displays that are not expressly included under the license agreement between Futaba and Pixtech, (ii) PixTech's use of terms such as "alliance" and "partners" in describing the nature of its contractual relationships with Motorola, Raytheon and Futaba in reports filed with the SEC is misleading and (iii) certain provisions in the Foundry Agreement with Unipac constitute an impermissible sublicense of Futaba technology. PixTech does not believe such claims have any merit and has denied each of the allegations in correspondences with Futaba and its counsel and is in discussions with Futaba concerning their allegations. Futaba has also claimed that the Company improperly supplied certain Futaba proprietary information to Unipac, and that Unipac has in turn disclosed such information to a third party vendor. If Futaba were to prevail on all of these claims, PixTech may be required, among other adverse consequences, to modify the construction and manufacture of its displays and may, as a result, be materially adversely affected. To the Company's knowledge, there are no other exceptional facts or litigation that could have or that have in the recent past had any significant impact on its business, results, financial situation, or assets and liabilities. Note H - Financial position During the six months ended June 30, 1999, the Company has continued to experience losses and has used cash in operating activities, which has adversely affected the Company's liquidity. At June 30,1999, the Company had net working deficit of $4,550 and a deficit accumulated during the development stage of $67,561. The Company intends to improve its liquidity and financial position through capital increases expected to take place in 1999. There can be no assurance that additional funds will be available through capital increases when needed or on terms acceptable to the Company. Note I - Subsequent event In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock at an average conversion price of $1.47, resulting in the issuance of1,114,220 shares of the Company's Common Stock (See "Note F -- Stockholders' Equity"). On August 9, 1999, the Company entered into a private equity line agreement with Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the equity line, PixTech has the irrevocable right, subject to certain conditions, to draw up to $15 million cash in exchange for PixTech's common stock, in increments over a two-year period. Such conditions include limitations depending on the volume and the market price of PixTech's common stock. The Company may begin to make draws under the facility upon registration of the shares for resale with the Securities and Exchange Commission. Shares will be issued at a 10% discount to the market price at the time of any draw, if the market is at or above $3.00, or at a 12% discount if the stock price is below $3.00. -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations Product sales. The Company recognized product sales of $339,000 in the six-month period ended June 30, 1999, as compared to $87,000 in the six-month period ended June 30, 1998. In the six-month periods ended June 30, 1998 and 1999, product revenues primarily comprised shipments of displays sold at volume prices to Zoll Medical, thus reflecting a significant increase in the number of displays shipped. Since 1998, the Company has begun shipping its FED displays manufactured by its contract manufacturer, Unipac, to its customers in limited quantities. During the three-month period ended June 30, 1999, unit shipments from Taiwan represented 21% of total shipments. The Company expects an increase of product shipments from Taiwan in the second half of 1999. Other revenues. Other revenues consist of funding under various public development contracts and other miscellaneous revenues. The Company recognized other revenues of $2.3 million in the six-month period ended June 30, 1999, as compared to $1.5 million in the six-month period ended June 30, 1998. Of these revenues, in the six-month period ended June 30, 1999, $1.3 million were related to an incentive from French local authorities awarded in 1994 to the Company to establish its pilot plant in Montpellier, France, and $961,000 were related to a development contract from European Union signed in 1997, for which recognition as revenue of the related contribution, collected mainly in 1997 and in 1998, had been deferred until all conditions stipulated in the agreement were met. In the six-month period ended June 30, 1998, other revenues included $1.2 million related to a development contract granted in December 1994 from the French Ministry of Industry to support manufacturing of FEDs. Other Research and Development Expenses. The Company expensed $6.6 million for research and development costs during the three-month period ended June 30, 1999, an increase of 45% over the $4.6 million incurred in the three-month period ended June 30, 1998. These expenses include salaries and associated expenses for in-house research and development activities conducted both in its pilot plant and its research and development facility in Boise, Idaho, the cost of staffing and operating the Company's pilot manufacturing facility and the cost of supporting the transfer and adaptation of the Company's FED technology to Unipac, as well as obligations to CEA under the LETI Research Agreement, and miscellaneous contract consulting fees. This increase primarily reflected the costs associated with the research and development activities conducted in Boise following the Micron Transaction and the cost of supporting the transfer of FED manufacturing processes to Unipac. As part of the acquisition of Micron Display`s assets in May 1999, the Company hired 44 employees to work on the production equipment acquired in the Boise facility, thus reinforcing its FED technology development efforts. In addition, the development team located in Santa Clara was moved to Boise with an aim to focus its efforts on the expansion of the large display effort. Research and development expenses amounted to $12.2 million for the six-month period ended June 30, 1999, as compared to $8.5 million for the six month period ended June 30, 1998. Sales and Marketing Expenses. The Company expensed $329,000 for sales and marketing during the three-month period ended June 30, 1999, as compared to $354,000 during the three-month period ended June 30, 1998, reflecting a one- time decrease in staff expenses. The Company believes sales and marketing expenses may increase in the future, reflecting the expansion of the Company's sales and marketing organization both in the United States and in Europe, in order to achieve a successful commercialization phase for the Company's products. Sales and marketing expenses amounted to $680,000 for the six-month period ended June 30, 1999, as compared to $693,000 for the six month period ended June 30, 1998. General and Administrative Expenses. General and administrative expenses amounted to $772,000 in the three-month period ended June 30, 1999, an increase of 32% over general and administrative expenses incurred in the three-month period ended June 30, 1998, which amounted to $586,000, reflecting an increase in consulting expenses. General and administrative expenses amounted to $1.5 million for the six-month period ended June 30, 1999, as compared to $1.2 million for the six month period ended June 30, 1998. Interest Income (Expense), Net. Interest income is comprised of interest on available and restricted cash. Interest expense is comprised of interest payable on long-term obligations. Net interest expense was $98,000 in the three-month period ended June 30, 1999, as compared to $174,000 in the three-month period ended June 30, 1998, reflecting the increase in cash balances and the decrease in long-term liabilities. Net interest expense amounted to $364,000 in the six- month period ended June 30, 1999, as compared to $254,000 in the six-month period ended June 30, 1998. -11- Currency Fluctuations. Although a significant portion of the Company's revenues are denominated in U.S. dollars, a substantial portion of the Company's operating expenses are denominated in Euros. Gains and losses on the conversion to U.S. dollars of assets and liabilities denominated in Euros may contribute to fluctuations in the Company's results of operations, which are reported in U.S. dollars. Most of the Company's capital lease obligation is expressed in Taiwanese dollars. In the past, fluctuations of the parity of the Taiwanese dollar versus the Euro caused significant foreign exchange gains or losses and may continue to do so in the future. The Company recorded net foreign exchange loss of $1.1 million in the six-month period ended June 30,1999, while the Company recorded net foreign exchange gain of $709,000 in the six-month period ended June 30,1998. The Company cannot predict the effect of exchange rate fluctuations on future operating results. To date, the Company has not undertaken hedging transactions to cover its currency exposure, but it may do so in the future. Liquidity and Capital Resources. Cash used in operations was $8.3 million for the six-month period ended June 30,1999, as compared to cash used in operations of $3.1 million for the six- month period ended June 30, 1998. This increase corresponds to the following factors : (i) absence of significant cash receipts from revenues in the six- month period ended June 30,1999, and (ii) increase in operating expenses associated with Taiwan start-up costs and with the funding of the operations in Boise. The Company has used $40.3 million in cash to fund its operating activities from inception through June 30,1999 and has incurred $28.7 million in capital expenditures and investments. Capital expenditures were $396,000 during the six-month period ended June 30,1999 as compared to $602,000 during the same period of 1998. These capital expenditures exclude the assets acquired pursuant to the Micron Transaction as those assets were acquired in consideration for Common Stock issuance. They also exclude assets acquired under capital lease obligations. During the six-month period ended June 30,1999, capital expenditures remained focused on limited capacity expansion in the pilot manufacturing facility. Implementing volume production at Unipac's manufacturing plant required significant capital expenditures. Pursuant to the Foundry Agreement, Unipac funded a $14.9 million capital expenditure for equipment. A portion of that equipment is leased to PixTech and amounted to $11.6 million as of June 30, 1999. The Company expects that additional capital expenditures will be required in 1999 to increase capacity at Unipac and to complete implementation of manufacturing processes, both for monochrome and for color products. As at June 30, 1999, restricted cash amounted to $8.8 million and was related to the security interest granted in 1997 by the Company to Unipac, pursuant to the Foundry Agreement, in relation to the purchase and funding by Unipac of volume FEDs production equipment. During the six-month period ended June 30, 1999, the written bank guaranty provided by the Company to Unipac decreased to match the net amount of equipment leased by Unipac to the Company. The decrease of this bank guaranty corresponded to a simultaneous similar decrease of the amount of the security interest to the banks, thus resulting in an $1.3 million increase of the cash available to fund the Company's activities. Both the amount of this written bank guaranty and the correspondent security interest to the banks are expected to continue decreasing in the future. Cash flows generated from financing activities were $3.8 million in the six- month period ended June 30,1999, as compared to $1.4 million in the six-month period ended June 30,1998. This net cash flow consisted of sales of shares of Common Stock, resulting in net proceeds to the Company of $4.2 million, while long term liabilities decreased by $360,000. In consideration of the 7,133,562 shares of Common Stock and 310,000 warrants issued pursuant to the Micron Transaction, the Company was granted certain assets, assumed certain liabilities, and received $4.3 million in cash. Cash flows generated from financing activities in the six-month period ended June 30,1999 excluded non- cash transactions related to the acquisition of these assets and the assumption of these liabilities, and resulted in net proceeds to the Company of $3.8 million (net of issuance costs). In addition, cash flows generated from financing activities included the sales of shares of Common Stock in a private placement in January 1999, resulting in net proceeds to the Company of $352,000. Long term liabilities increased by $2.0 million in the six-month period ended June 30,1999, representing two zero-interest loans granted to the Company by French local authorities, while the repayments amounted to $2.4 million, resulting in a net decrease of $360,000. Of the repayments occurring in the six- month period ended June 30,1999, $1.3 million was related to the first repayment of the $5.0 million note granted to the Company in 1997 by Sumitomo Corporation. Since its inception, the Company has funded its operations and capital expenditures primarily from the proceeds of equity financing aggregating $71.7 million and from proceeds aggregating $19.0 million from borrowings and sale- leaseback transactions. -12- In 1997 and January 1999, the Company entered into two R&D agreements with French authorities. Under these agreements, the Company expects to benefit from zero-interest loans totaling approximately $3.0 million, of which $2.0 million were received during the three-month period ended June 30, 1999, and $800,000 are expected to be received in the second half of 1999. In November 1998, the Company entered into an R&D agreement with French authorities. Under this agreement, the Company expects to benefit from a grant totaling approximately $880,000, of which $230,000 is expected to be collected in the second half of 1999. In February 1997, the Company entered into an R&D agreement with the European Union and other European industrial companies. The contribution of the European Union to the costs incurred by the Company amounts to $961,000 over the period, of which $736,000 were collected in 1997 and 1998 and recognized as income in the three-month period ended June 30, 1999, as all conditions stipulated in the agreement were met. During the three month period ended June 30, 1999, the Company recognized as income an amount of $225,000 representing the remaining revenue from this contract, of which $140,000 was collected and $85,000 is expected up to the end of 1999. The Company recognized French income tax benefits of $7.9 million since inception. These income tax benefits represent tax credits for research and development activities conducted in France, which are paid in cash to the Company if it is not able to credit them against future income tax liabilities within three fiscal years. In 1998, the Company collected $2.8 million, representing R&D tax credits recorded in 1993 and 1994. In April 1999, the Company collected $3.0 million from R&D tax credit recorded in 1995. On August 9, 1999, the Company entered into a private equity line agreement with Kingsbridge Capital Ltd (the "Kingsbridge Agreement"). Under the terms of the equity line, PixTech has the irrevocable right, subject to certain conditions, to draw up to $15 million cash in exchange for PixTech's common stock, in increments over a two-year period. Such conditions include limitations depending on the volume and the market price of PixTech's common stock. The Company may begin to make draws under the facility upon registration of the shares for resale with the Securities and Exchange Commission. Shares will be issued at a 10% discount to the market price at the time of any draw, if the market is at or above $3.00, or at a 12% discount if the stock price is below $3.00. On August 5, 1999, the Company was awarded a development contract by DARPA (Defense Advanced Research Projects Agency). Under the terms of the contract, the Company will receive approximately $4.7 million to develop a color FED. Cash available at June 30, 1999 amounted to $7.0 million as compared to $10.2 million at December 31, 1998. The Company expects that cash available at June 30,1999 together with the anticipated proceeds from the various grants and loans described above and from R&D tax credits, will be sufficient to meet its cash requirements, including repayment of the current portion of its long term obligations in the amount of $7.2 million at June 30, 1999, until at least September 30, 1999. The Company intends to improve its liquidity and financial position through capital increases expected to take place in the second half of 1999. The Company will require substantial funds to conduct research, development and testing, to develop and expand commercial-scale manufacturing systems and to market any resulting products. Changes in technology or a growth of sales beyond currently anticipated levels will also require further investment. The Company's capital requirements will depend on many factors, including the rate at which the Company can develop its products, the market acceptance of such products, the levels of promotion and advertising required to launch such products and attain a competitive position in the marketplace and the response of competitors to the Company's products. There can be no assurance that funds for these purposes, whether from equity or debt financing, or other sources, will be available when needed or on terms acceptable to the Company. -13- Year 2000 Disclosure There is a significant uncertainty regarding the effect of the Year 2000 issue because computer systems that do not properly recognize date sensitive information when the year changes to 2000 could generate erroneous data or altogether fail. The Company has conducted a comprehensive review of its computer systems and manufacturing equipment to identify applications that could be affected by the inability of certain computer systems to format and manipulate data containing dates including the year 2000 and subsequent years. Although management does not expect that costs associated with modifying existing computer systems and manufacturing equipment will have a significant impact on its financial position or result of operations, there can be no assurance that such modifications will be successfully implemented or that these costs will not be significant. In addition, the Company depends on a limited group of suppliers. There can be no assurance that those suppliers will not be significantly impacted by the "Year 2000" issue. If those suppliers are significantly impacted by the "Year 2000" issue, such suppliers may not be able to continue their supply of parts to the Company without interruption. The Company is in the process of identifying third party vendors that are non-Year 2000 compliant and of assessing the following consequences. In particular, the Company requested Unipac, its Taiwanese manufacturing partner, to assess whether its computer systems and manufacturing equipment could be affected by the "Year 2000" issue and, if so, to present a contingency plan. To implement its large volume manufacturing strategy, the Company is dependent on Unipac's ability to be successful in addressing the "Year 2000" issue. The Company's continued use of a vendor which is not Year 2000 compliant or the failure of the Company's own computer systems or manufacturing equipment to be fully Year 2000 compliant could materially adversely affect the Company's business, financial position and results of operations. Strategic issues and risks The Company is currently focused on the following activities which it believes are necessary to the success of its business: (i) successfully implementing the manufacture of FEDs by its Taiwanese contract manufacturer, Unipac; (ii) improving its manufacturing processes and yields, both in its pilot plant and at Unipac; (iii) expanding its customer base and product offering, and (iv) continuing the development of its FED technology, including the development of large FED displays. In evaluating its outlook, the following risks and issues should be considered, among others which are common with development stage companies. The Company May Not Have Operating Income or Net Income in the Future and It May Have Problems Raising the Money It Needs in the Future At June 30, 1999, the Company had net working deficit of $4,550 and a deficit accumulated during the development stage of $67,561. These conditions raise substantial doubt about its ability to continue as a going concern. In the future, the Company expects that it will need to obtain money from sources outside the Company, as it has done in the past. There is no guarantee that any of the outside sources will provide the Company with the money when needed. In addition, even if the Company is able to find outside sources which will provide it with the money when needed, in order to raise this money the Company may be required to issue securities with better rights than the rights of its common stock or it may be required to take other actions which lessen the value of its current common stock, including borrowing money on terms that are not favorable to it. There are Risks Associated with Using a Single Contract Manufacturer to Manufacture its FEDs. The Company believes that its ability to commercialize medium to large volumes of FEDs depends on its ability to have Unipac manufacture FEDs. If the Company is not able to implement its manufacturing plans with Unipac as expected, the Company will not be able to ship medium to large volumes of FED products. Furthermore, the Company will not be able to obtain an acceptable cost for its FED displays through high volume manufacturing, as compared to manufacturing FEDs at its pilot production facility. This situation would materially adversely affect its operations. In May 1997, the Company signed a Foundry Agreement with Unipac, a liquid crystal display manufacturer based in Taiwan. Under the agreement, Unipac has installed volume production equipment to produce FEDs at its manufacturing plant, and has begun production for exclusive delivery of FED displays to the Company. Expectations about the final timing of this manufacturing plan with Unipac are forward-looking statements that still involve risks and uncertainties, including the ease or difficulty of the transfer of the FED technology to Unipac. The Company's reliance on a single contract manufacturer will involve several risks. For example, the Company could be unable to obtain an adequate supply of required products if Unipac did not supply enough products. Moreover, the Company will have less control over the price of the finished products, the timeliness of their delivery and their reliability and quality. The Company's failure to adequately manage this contract manufacturing relationship or any delays in the shipment of its products would adversely effect the Company. -14- The Company's Products and Manufacturing Processes are Still under Development and The Company Still Needs to Obtain Commercially Acceptable Yields and Acceptable Costs of Products. In order for the Company to succeed, it must continue to develop and produce a range of products incorporating its FED technology. At this time, the Company has successfully developed only one product that has been incorporated into a commercial end-user application. The Company will need to complete the development of additional FED products before they can be sold to the public, and there is no guaranty that the Company will succeed in these development efforts. If the Company does not develop these new products, it will not be successful. To date, the Company has used its pilot manufacturing facility in Montpellier, France to produce only a limited number of products suitable for sale. In addition, the Company has not completed testing of its manufacturing processes at Unipac. In order for the Company to be successful, it must make certain improvements to its manufacturing processes. In particular, it must improve its manufacturing yields in order to demonstrate the low cost potential of its FED technology. Even if the Company succeeds in completing the development and testing of its manufacturing processes, it can not be sure that the favorable characteristics demonstrated by its current displays manufactured at its pilot manufacturing facility will be reproduced on a cost- effective basis in commercial production. The Company has, at this time, encountered a number of delays in the development of its products and processes, and it is possible that further delays will occur. Any significant delays could cause the Company to miss certain market opportunities and could have a material adverse effect on its business. The Company Needs to Further Enhance its Display Performance. The Company may never improve the performance characteristics of its color FEDs to a level that is commercially acceptable or may fail to do so on a timely basis, either of which could adversely affect its business. Key elements of display performance are brightness, power efficiency and stability over time (life time and reliability). The Company is seeking to balance brightness with power efficiency to produce bright and low power-consumption displays. Display reliability depends heavily on the manufacturing process used in assembling the displays as well as the characteristics of the phosphors used in the display. In order to produce color displays that will provide the product life and other characteristics necessary for most applications, the Company needs to make further advances in its manufacturing processes. The Company faces Intense Competition and Needs to Compete with Current and Future Competing Technologies. The Company's competitors may succeed in developing products that outperform its displays or that are more cost effective. If its competitors develop products that offer significant advantages over its products and if the Company is unable to improve its technology, or develop or acquire alternative technology that is more competitive, it would be adversely affected. The market for "flat panel display," or "FPD", products is currently dominated by products utilizing "liquid crystal display," or "LCD", technology. Certain LCD manufacturers have substantially greater name recognition and financial, technological, marketing and other resources than the Company. Furthermore, LCD manufacturers have made, and continue to make, substantial investments in improving LCD technology and manufacturing processes and in the construction of manufacturing facilities for displays. The Company believes that, over time, this will have the effect of reducing average selling prices of FPDs. In addition, recently there have been substantial increases in the worldwide manufacturing capacity of FPDs, and new competitors have entered the FPD market. Such changes may cause over-supply conditions leading to dramatic reductions in the price of FPDs. In order to effectively compete, the Company could be required to increase the performance of its products or reduce prices. In the event of price reductions, the Company will not be able to maintain gross margins unless it reduces its cost of sales. Potential Customers may not Accept the Company's Products. The Company is uncertain about the potential size and timing of its target market opportunities. It anticipates marketing its displays to "original equipment manufacturer" or "OEM" customers Its success will depend, in part, on the following factors: (i) whether OEMs select its products for incorporation into their products; (ii) the successful introduction of such products by the OEMs; and (iii) the successful commercialization of products developed by parties incorporating its products. It is possible that demand for any particular product will not last or that new markets will fail to develop as the Company expects, or at all. Such deviations would materially and adversely effect the Company. The Company May Have Difficulty Protecting Patents and other Proprietary Rights to its Technology. The Company has been granted, has filed applications for, and has been licensed under a number of patents in the United States and other countries. However, rights granted under patents may not provide the Company with any competitive advantage over competitors with similar technology, and any issued patents may not contain claims sufficiently broad to protect against these competitors. The Company cannot be certain that it was the first creator of inventions covered by pending patent applications or the first to file patent applications on such inventions because patent applications in the United States are maintained in secrecy until patents issue and the publication of discoveries in scientific or patent literature tends to lag behind actual discoveries by several months. -15- Moreover, claims that its products infringe on the proprietary rights of others are more likely to be asserted after the Company begins commercial sales of products using its technology. Although the Company believes that its products do not infringe the patents or other proprietary rights of third parties, it is possible that third parties will assert infringement claims against us and that such claims will be successful. It is also possible that competitors will infringe its patents. Even the successful defense and prosecution of patent suits is costly and time consuming. The adverse outcome of a patent suit could subject us to significant liabilities to other parties, require disputed rights to be licensed from third parties or require us to stop selling its products. The Company has received correspondence from Futaba Corporation and its legal counsel beginning in February 1998 alleging the following: (i) the Company is infringing one or more patents owned by Futaba relating to the construction and manufacture of its displays that are not expressly included under the license agreement between the Company and Futaba; (ii) its use of terms such as "alliance" and "partners" in describing the nature of its contractual relationships with Motorola, Raytheon and Futaba in reports filed with the SEC is misleading; and (iii) certain provisions in the Foundry Agreement with Unipac constitute an impermissible sublicense of Futaba technology. The Company does not believe such claims have any merit and has denied each of the allegations in correspondences with Futaba and its counsel. Futaba has also claimed that the Company improperly supplied certain Futaba proprietary information to Unipac, and that Unipac has, in turn, disclosed such information to a third party vendor. If Futaba prevails on any of these claims, the Company may be required, among other adverse consequences, to modify the construction and manufacture of its displays and may, as a result, be materially adversely affected. Currency Fluctuations May Cause Gains or Losses. A large percentage of the Company's net assets and costs are expressed in Euros. Fluctuations of the value of the U.S. dollar versus the Euro may cause significant foreign exchange gains or losses. Most of the Company's capital lease obligation is expressed in Taiwanese dollars. Fluctuations of the value of the Taiwanese dollar versus the Euro or the US dollar may cause significant foreign exchange gains or losses. Holders of Common Stock May face Significant Dilution from the Conversion of Series E Preferred Shares. In December 1998, the Company issued 367,269 shares of Series E Preferred Stock (the "Series E Stock"), at a price of $22.5313 per share, to certain institutional investors. The Series E Stock is convertible into Common Stock at a rate equal to the lesser of (a) $2.25313, and (b) the average closing price Common Stock over the ten trading day ending period ending on the day immediately preceding the day upon conversion. In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock, resulting in the issuance of1,114,220 shares of the Company's Common Stock. As at July 31, 1999, there were 297,269 shares of Series E Preferred Stock outstanding., likely to be converted into 3,866,213 shares of the Company's Common Stock. Should the Company's stock price fall below its current level, conversion of Series E stock may result into the issuance of a significant additional number of shares of Common Stock, and may cause significant dilution to current holders of Common Stock. Certain Anti-Takeover Provisions May Limit the Company's Stock Price Certain provisions of the Company's certificate of incorporation and by-laws may discourage a third party from offering to purchase the Company. These provisions, therefore, inhibit actions that would result in a change in control of the company, including an action that may give the holders of the common stock the opportunity to realize a premium over the then-prevailing market price of their stock. These provisions may also adversely affect the market price of the Common Stock. For example, under its certificate of incorporation, the Company can issue "blank check" Preferred Stock with such designations, rights and preferences as determined by its Board of Directors from time to time. This type of Preferred Stock could be used as a method of discouraging, delaying or preventing a change in control of the Company. In addition, the Preferred Stock issued by the company in December 1998 and any additional shares of Preferred Stock that the Company may issue in the future may adversely affect the voting and dividend rights, rights upon liquidation and other rights of the holders of common stock. The Company does not currently intend to issue any additional shares of preferred stock, but it retains the right to do so in the future. -16- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk exposure inherent to the Company's international operations creates potential for losses arising from adverse changes in foreign currency exchange rates. The Company is exposed to such foreign currency exchange rate risk in two main areas: (i) a substantial portion of the Company's operating expenses are and are expected to be denominated in Euros, (ii) most of the Company's capital lease obligation is expressed in Taiwanese dollars. Fluctuations of the parity of the Taiwanese dollar versus the Euro or the US dollar may cause significant foreign exchange gains or losses. In addition, gains and losses arising from the conversion to U.S. dollars of assets and liabilities denominated in Euros or in Taiwanese dollars may contribute to fluctuations in the Company's results of operations, which are reported in U.S. dollars. To date, the Company has not undertaken hedging transactions to cover its currency exposure. -17- PIXTECH, INC. June 30, 1999 PART II Other Information ITEM 1 Legal Proceedings: Not applicable. ITEM 2 Changes in Securities: (a) Not applicable (b) Not applicable (c) In January 1999, the Company sold 150,000 shares of the Company's Common Stock in a private placement at a price of $2.35 per share, resulting in net proceeds of $352,000. In May 1999, the Company issued 7,133,562 shares of Common Stock and a warrant to purchase 310,000 shares of the Company's Common Stock to Micron Technology, Inc. In a private placement, in consideration of the acquisition of assets from Micron Technology, Inc. for $17.9 million, including cash for $4.4 million and the assumption of certain liabilities in the amount of $2.9 million. The warrant may be exercised until May 19, 2001, and has an exercise price of $2.25313 per share . In July 1999, 70,000 shares of Series E Preferred Stock were converted into shares of Common Stock, resulting in the issuance of1,114,220 shares of the Company's Common Stock. As at July 31, 1999, there were 297,269 shares of Series E Preferred Stock outstanding. ITEM 3 Defaults upon Senior Securities: Not applicable. ITEM 4 Submission of matters to a Vote of Security Holders: At the Annual Meeting of Stockholders held on May 12, 1999, the Company's Stockholders voted :
TOTAL VOTE TOTAL VOTE TOTAL VOTE)) ((FOR)) ((AGAINST)) ABSTAINING)) 1. to elect Mr. Dieter Mezger to 11,818,077 17,290 -- the Board of Directors for a three-year term : The terms in office of Messrs. Jean-Luc Grand-Clement, William C. Schmidt and John A. Hawkins continued after the meeting. 2. to amend the Restated 10,962,896 833,501 38,970 Certificate of Incorporation of the Company to increase the authorized shares of capital stock of the Company from 31,000,000 shares to 61,000,000 shares.: 3. To amend the Company's 1993 10,941,621 853,201 40,545 Stock Option Plan to increase the number of shares available under such Plan from 2,656,372 shares to 5,156,372 shares. 4. To consider and vote on a 10,981,676 814,651 39,040 proposal to issue shares of the Company's Common Stock in connection with the purchase of certain assets of Micron Technology, Inc relating to field emission displays including certain equipment and other tangible assets, certain contract rights and cash. ITEM 5 Other Information: None.
-18- ITEM 6 Exhibits and reports on Form 8-K: (a) Exhibits: 2.3 Amendment No. 2 to Acquisition Agreement, dated as of May 17, 1999, between the Registrant and Micron Technology, Inc. 10.44 Lease Agreement, dated as of May 19, 1999, between the Registrant and Micron Technology, Inc 10.45/++ Employment Agreement of James J. Cathey dated May 20, 1999 27. Financial Data Schedule (b) Reports on Form 8-K : A report on Form 8-K has been filed during the second quarter of 1999, on May 27, 1999, reporting under Item 2 the closing by the Registrant of an Acquisition Agreement with Micron Technology, Inc. This report was amended on August 9, 1999 to include unaudited pro forma consolidated financial statements under Item 7(b). ++ Confidential treatment has been requested for certain portions of these Exhibits pursuant to rule 24b-2 of the Securities Exchange Act of 1934, as amended . -19- PIXTECH, INC. June 30, 1999 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIXTECH, INC. Date: August 11, 1999 BY: /s/ Yves Morel --------------- Yves Morel Vice President, Chief Financial Officer Date: August 11, 1999 BY: /s/ Cathie Tomao ----------------- Cathie Tomao Chief Accounting Officer -20- PIXTECH, INC. June 30, 1999 EXHIBIT INDEX Exhibit No. - ----------- 2.3 Amendment No. 2 to Acquisition Agreement, dated as of May 17, 1999, between the Registrant and Micron Technology, Inc. 10.44 Lease Agreement, dated as of May 19, 1999, between the Registrant and Micron Technology, Inc 10.45/++ Employment Agreement of James J. Cathey dated May 20, 1 999 27 Financial Data Schedule ++ Confidential treatment has been requested for certain portions of these Exhibits pursuant to rule 24b-2 of the Securities Exchange Act of 1934, as amended. -21- EX-2.3 2 AMENDMENT NO. 2 TO ACQUISITION AGREEMENT Amendment No. 2 to Acquisition Agreement This Amendment No. 2 to Acquisition Agreement (the "Amendment") is dated as of May 17, 1999 and amends that certain Acquisition Agreement dated as of March 19, 1999, as amended by an Amendment No. 1 dated as of April 23, 1999 (as amended, the "Acquisition Agreement"), between Micron Technology, Inc. ("Micron") and PixTech Inc. ("PixTech"). Capitalized terms used but not defined herein shall have the meaning given them in the Acquisition Agreement. WHEREAS, Micron and PixTech have entered into the Acquisition Agreement relating to the acquisition by PixTech of certain assets of Micron's Display Division. WHEREAS, Micron and PixTech desire to amend the Acquisition Agreement as set forth herein. NOW THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows. 1. Amendment to Acquisition Agreement. 1.1 The second sentence of Section 9.4 of the Acquisition Agreement shall be amended by adding the following clause in front of the period at the end thereof: "(including any requirement that Micron expend any money or incur any expense or obligation to obtain additional or replacement software licenses)" 1.2 The last sentence of Section 9.4 of the Acquisition Agreement shall be amended to read in full as follows: "If the applicable vendor does not give its consent, or such consent is subject to any condition other than the payment or a fee, or the giving of such consent would for any reason require Micron to obtain additional or replacement software licenses, then such contract shall not be considered an Assumed Contract." 1.3 The last sentence of Section 9.5(a) to the Acquisition Agreement is amended to read in full as follows: "The exercise price of the stock options will be the lesser of (i) $2.25313 or (ii) the closing price for PixTech Common Stock on the Closing Date; provided that if the exercise price as so calculated in more than $1.825 per share, then PixTech will issue additional stock options to the Transferred Employees at such exercise price. The number of additional stock options to be issued will be mutually agreed upon by Micron and PixTech." Pursuant to Article XII of the Acquisition Agreement, PixTech hereby agrees to indemnify Micron from Damages incurred or suffered by Micron or any of its Affiliates as a result of the foregoing amendment to Section 9.5(a) to the Acquisition Agreement. 2. PixTech hereby agrees that it will preserve all books, records, documents and technological and other information that PixTech acquires from Micron in connection with the Acquired Assets and Assumed Liabilities for a minimum period of five years following the Closing Date. Micron and PixTech acknowledge that all such books, records, documents and technological and other information will be subject to the confidentiality provisions of the Non- Disclosure Agreement. Notwithstanding the foregoing, PixTech may dispose of, transfer, sell, convey, hypothecate, lease or deliver any of the Acquired Assets as it deems fit during such five year period. 3. Counterparts. This Amendment may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their authorized officers as of the day and year first above written. PIXTECH, INC. MICRON TECHNOLOGY, INC. By: /s/ Dieter Mezger By: /s/ W. G. Stover, Jr. ----------------- --------------------- Name: Name: Title: Title: EX-10.44 3 LEASE AGREEMENT LEASE AGREEMENT by and between Micron Technology, Inc, a Delaware corporation ("Landlord") and PixTech, Inc., a Delaware corporation (Tenant) LEASE SUMMARY ------------- Lease Date: 05/19/99 - ---------- Landlord: Micron Technology, Inc., a Delaware - -------- corporation. Tenant: PixTech, Inc., a Delaware corporation - ------ Contact (Landlord): Jan Nowak - ------------------ Premises: 3000 South Denver Way - -------- Boise, ID 83705 Building Square Footage: Deemed to be 72,924 square feet - ----------------------- Lease Term (Section 2): 36 months (plus any partial month at the - ----------- commencement of the Lease Term) Monthly Rent (Section 3.1) $25,000.00 per month (subject to adjustment) - ------------ Address for Notices To Landlord - ------------------- ----------- (Section 16.9): 8000 S. Federal Way Boise, ID 83716-9632 Attn: Jan Nowak To Tenant --------- At the Premises Attn: Michel Garcia The provisions of the Lease identified above in parentheses are those provisions making reference to the above-described Lease terms. Each reference in the Lease shall incorporate the applicable Lease terms. In the event of any conflict between this Lease Summary and the Lease, the Lease shall control. LANDLORD: TENANT: MICRON TECHNOLOGY, PIXTECH, INC., a Delaware INC., a Delaware corporation corporation By: /s/ W. G. Stover By: /s/ Dieter Mezger ---------------- ----------------- Printed Printed Name: Name: ----------------------- -------------------------- Title: Title: ---------------------- -------------------------- By: By: ------------------------- ---------------------------- Printed Printed Name: Name: ----------------------- -------------------------- Title: Title: ---------------------- -------------------------- TABLE OF CONTENTS Page ---- 1. DEFINITIONS.................................................. 1 1.1 Access Fee............................................. 1 1.2 Additional Rent........................................ 1 1.3 Adjacent Property...................................... 1 1.4 Agreed Interest Rate................................... 1 1.5 Appraisers............................................. 1 1.6 Building............................................... 1 1.7 Claims................................................. 1 1.8 CDAS................................................... 1 1.9 Commencement Date...................................... 1 1.10 Default or Event of Default............................ 1 1.11 Effective Date......................................... 1 1.12 Environmental Laws..................................... 1 1.13 Extended Lease Term.................................... 2 1.14 Hazardous Materials.................................... 2 1.15 Hazardous Materials Questionnaire...................... 2 1.16 Initial Lease Term..................................... 2 1.17 Landlord............................................... 2 1.18 Landlord Representative................................ 2 1.19 Law.................................................... 2 1.20 Lease.................................................. 2 1.21 Lease Term............................................. 2 1.22 Leasehold Improvements................................. 2 1.23 Lender................................................. 2 1.24 Micron................................................. 3 1.25 Monthly Rent........................................... 3 1.26 Other Areas............................................ 3 1.27 Party.................................................. 3 1.28 Permitted Use.......................................... 3 1.29 Pollution Conditions................................... 3 1.30 Premises............................................... 3 1.31 Prepaid Rent........................................... 3 1.32 Private Restrictions................................... 3 1.33 PVS.................................................... 3 1.34 Real Property Taxes.................................... 3 1.35 Security Instruments................................... 4 1.36 Site Plan.............................................. 4 1.37 Tenant................................................. 4 1.38 Tenant's Agent or Agent................................ 4 1.39 Tenant's Minimum Liability Insurance Coverage.......... 4 1.40 Trade Fixtures......................................... 4 1.41 Transfer............................................... 4 -i- TABLE OF CONTENTS (continued) Page ---- 2. TERM AND ACCEPTANCE.......................................... 4 2.1 Option to Extend....................................... 4 3. RENT......................................................... 5 3.1 Monthly Payments........................................ 5 3.2 Additional Rent......................................... 5 3.3 Payment of Rent......................................... 5 3.4 Late Charge and Interest on Rent in Default............. 5 3.5 Prepayment of Rent...................................... 6 4. USE OF PREMISES.............................................. 6 4.1 Limitation on Type...................................... 6 4.2 Compliance with Laws and Private Restrictions........... 6 4.3 Insurance Requirements.................................. 7 4.4 Outside Areas........................................... 7 4.5 Signs................................................... 7 4.6 Rules and Regulations................................... 7 4.7 Parking................................................. 7 4.8 Window Coverings........................................ 8 4.9 Auctions................................................ 8 5. TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS.................... 8 5.1 Trade Fixtures.......................................... 8 5.2 Leasehold Improvements.................................. 8 5.3 Alterations Required by Law............................. 9 5.4 Liens................................................... 9 6. REPAIR AND MAINTENANCE....................................... 9 6.1 Tenant's Obligation to Maintain......................... 9 6.2 Control of Other Areas.................................. 10 6.3 Tenant's Negligence..................................... 11 7. UTILITIES.................................................... 11 7.1 Utilities............................................... 11 7.2 Compliance with Governmental Regulations................ 11 7.3 PVS and CDAS............................................ 11 8. REAL PROPERTY TAXES.......................................... 12 8.1 Real Property Taxes Defined............................. 12 8.2 Tenant's Obligation to Reimburse........................ 12 8.3 Taxes on Tenant's Property.............................. 13 9. INSURANCE.................................................... 13 9.1 Tenant's Insurance...................................... 13 -ii- TABLE OF CONTENTS (continued) Page ---- 9.2 Landlord's Insurance.................................... 15 9.3 Tenant's Obligation to Reimburse........................ 15 9.4 Release and Waiver of Subrogation....................... 16 10. LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY............. 16 10.1 Limitation on Landlord's Liability..................... 16 10.2 Limitation on Tenant's Recourse........................ 16 10.3 Indemnification of Landlord............................ 17 10.4 Indemnification of Tenant.............................. 17 11. DAMAGE TO PREMISES........................................... 17 11.1 Landlord's Duty to Restore............................. 17 11.2 Landlord's Right to Terminate.......................... 18 11.3 Tenant's Right to Terminate............................ 18 11.4 Abatement of Rent...................................... 18 12. CONDEMNATION................................................. 19 12.1 Taking of Premises..................................... 19 12.2 Termination By Tenant.................................. 19 12.3 Restoration and Abatement of Rent...................... 19 12.4 Temporary Taking....................................... 19 12.5 Division of Condemnation Award......................... 20 13. DEFAULT AND REMEDIES......................................... 20 13.1 Events of Tenant's Default............................. 20 13.2 Landlord's Remedies.................................... 21 13.3 Landlord's Default and Tenant's Remedies............... 23 13.4 Waiver................................................. 23 14. ASSIGNMENT AND SUBLETTING.................................... 23 14.1 By Tenant.............................................. 23 14.2 By Landlord............................................ 26 15. WASTE DISPOSAL AND HAZARDOUS MATERIALS....................... 26 15.1 Waste Disposal......................................... 26 15.2 Hazardous Materials.................................... 26 16. GENERAL PROVISIONS........................................... 28 16.1 Landlord's Right to Enter.............................. 28 16.2 Surrender of the Premises.............................. 28 16.3 Holding Over........................................... 28 16.4 Subordination.......................................... 29 16.5 Tenant's Attornment.................................... 29 16.6 Lender Protection...................................... 29 -iii- TABLE OF CONTENTS (continued) Page ---- 16.7 Estoppel Certificates and Financial Statements......... 30 16.8 Force Majeure.......................................... 30 16.9 Notices................................................ 30 16.10 Attorneys' Fees........................................ 31 16.11 Corporate Authority.................................... 31 16.12 Miscellaneous.......................................... 31 16.13 Brokerage Commissions.................................. 32 16.14 Consents and Approvals................................. 32 16.15 Termination by Exercise of Option...................... 32 16.16 Entire Agreement....................................... 33 EXHIBITS Exhibit A - Description of Premises Exhibit B - Site Plan Exhibit C - Tenant Trade Fixtures Exhibit D - Roof Repairs Exhibit E - Hazardous Materials Questionnaire -iv- LEASE AGREEMENT THIS LEASE AGREEMENT, dated May 19, 1999, for reference purposes only, is made by and between MICRON TECHNOLOGY, INC., a Delaware corporation ("Landlord"), and PIXTECH, INC., a Delaware corporation ("Tenant"). 1. DEFINITIONS: Any term that is given a special meaning by this Section 1 or ----------- by any other provision of this Lease (including the exhibits attached hereto) shall have such meaning when used in this Lease or any addendum or amendment hereto. 1.1 Access Fee: "Access Fee" shall have the meaning set forth in Section ---------- 7.3 1.2 Additional Rent: "Additional Rent" shall have the meaning set forth in --------------- Section 3.2. 1.3 Adjacent Property: "Adjacent Property" means the parcel of land ----------------- located adjacent to the Premises, which is also owned by Micron Technology, Inc. and which shares curb cuts with the Premises. 1.4 Agreed Interest Rate: "Agreed Interest Rate" means that interest rate -------------------- determined as of the time it is to be applied that is equal to the lesser of (i) four percent (4%) plus the "prime rate" reported in the Wall Street Journal as published closest prior to the date when due, or (ii) the maximum interest rate permitted by law. 1.5 Appraisers: "Appraisers" means Knipe & Knipe, Inc. and Thornton ---------- Oliver Commercial Real Estate Brokers, or such other appraiser(s) the Parties may agree upon to determine the Monthly Rent during the Extended Lease Term. 1.6 Building: "Building" means that certain building (deemed to be -------- 72,924 square feet) located on the Premises. The Building shall include the central utilities pad as reflected on the Site Plan. 1.7 Claims: "Claims" shall have the meaning set forth in Section 10.3. ------ 1.8 CDAS: "CDAS" shall have the meaning set forth in Section 7.3. ---- 1.9 Commencement Date: "Commencement Date" means the date on which the ----------------- "Closing" as defined in that certain Acquisition Agreement by and between Landlord and Tenant, dated May 19, 1999, has occurred. 1.10 Default or Event of Default: "Default" or "Event of Default" shall --------------------------- have the meaning set forth in Section 13. 1.11 Effective Date: "Effective Date" means the date the last signatory to -------------- this Lease whose execution is required to make it binding on the parties hereto has executed this Lease. 1 1.12 Environmental Laws: "Environmental Laws" shall have the meaning set ------------------ forth in Section 15.2.1.1. 1.13 Extended Lease Term: "Extended Lease Term" shall have the meaning set ------------------- forth in Section 2.1. 1.14 Hazardous Materials: "Hazardous Materials" shall have the meaning set ------------------- forth in Section 15.2.1.2. 1.15 Hazardous Materials Questionnaire: "Hazardous Materials --------------------------------- Questionnaire" shall have the meaning set forth in Section 15.2.2. 1.16 Initial Lease Term: "Initial Lease Term" shall be the period of time ------------------ commencing on the Commencement Date and ending on the last day of the thirty- sixth (36th) full calendar month succeeding the Commencement Date, unless sooner terminated as provided herein. 1.17 Landlord: "Landlord" means Micron Technology, Inc., a Delaware -------- corporation. 1.18 Landlord's Representative: "Landlord's Representative" shall ------------------------- include the following individuals: Micron's Vice President of Facilities; Micron's security personnel; Micron's plant engineering personnel; Micron's plant operations and maintenance personnel; Micron's environmental personnel; Micron's property coordinators; Micron's legal counsel for environmental and facility matters; engineers, contractors, and consultants performing specific projects on behalf of Landlord relative to Section 16.1(iv). Landlord shall provide Tenant a list of the names of the above individuals performing on behalf of Landlord. Landlord, by written notice to Tenant, shall update the list should any of the individuals listed thereon need to be changed or replaced. 1.19 Law: "Law" means any judicial decision, statute, constitution, --- ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the parties to this Lease or the Premises or both, in effect either at the Effective Date of this Lease or any time during the Lease Term, including, without limitation, any regulation, order, or policy of any quasi-official entity or body (e.g., board of fire examiners, public utilities or special districts). 1.20 Lease: "Lease" means this printed lease, and all exhibits attached ----- hereto, as the same may be amended in accordance with this Lease from time to time; all of which are attached hereto and incorporated herein by this reference. 1.21 Lease Term: "Lease Term" shall be the period of time encompassing ---------- both the Initial Lease Term and, if properly elected, the Extended Lease Term, unless sooner terminated as provided herein. 1.22 Leasehold Improvements: "Leasehold Improvements" means all ---------------------- improvements, additions, alterations, and fixtures installed in the Premises by Tenant at its expense which are not Trade Fixtures. 2 1.23 Lender: "Lender" means any beneficiary, mortgagee, secured party, or other holder of any deed of trust, mortgage or other written security device or agreement affecting the Premises, and the note or other obligations secured by it. 1.24 Micron: "Micron" means Micron Technology, Inc., a Delaware ------ corporation. 1.25 Monthly Rent: "Monthly Rent" means the monthly rent payable by ------------ Tenant pursuant to Section 3. 1.26 Other Areas: "Other Areas" means all areas and facilities within ----------- the Premises, other than the Building (including, but not limited to, the parking areas, driveways, curb cuts, pedestrian sidewalk, landscaped areas, trash enclosures, and the like). 1.27 Party: "Party" or "Parties" shall have the meaning set forth in ----- Section 16.12. 1.28 Permitted Use: "Permitted Use" means the use of the Premises for ------------- research, development, manufacturing, marketing, and sales of field emission displays , in accordance with all Laws and Private Restrictions. The "Permitted Use" may be modified only with the consent of the Landlord, which consent may be withheld, if (i) the requested use is incompatible with any other tenants in the vicinity of the Premises, including, without limitation, tenants of the Adjacent Property, (ii) involves the use of Hazardous Materials Section or other dangerous materials or processes, (iii) violates applicable Laws or Private Restrictions, (iv) reduces the Landlord's financial security in the Lease, or (v) is otherwise unsuitable in Landlord's reasonable opinion. 1.29 Pollution Conditions: "Pollution Conditions" shall have the meaning -------------------- set forth in Section 9.1.1.2.iii. 1.30 Premises: "Premises" means that real property comprised of the -------- Building and Other Areas with all improvements now or hereafter located thereon commonly known as 3000 South Denver Way, Boise, Idaho 83705 and more particularly described on Exhibit A, which is attached hereto and incorporated --------- herein by this reference; provided, however, that subject to Section 6.2, Landlord may change the boundaries and composition of the Other Areas and, thereafter the term "Premises" shall refer to such real property so enlarged or reduced, so long as such change does not materially interfere with Tenant's use and quiet enjoyment of the Premises. 1.31 Prepaid Rent: "Prepaid Rent" means the sum of Twenty Five Thousand ------------ Dollars and No Cents ($25,000.00). 1.32 Private Restrictions: "Private Restrictions" means all covenants, -------------------- conditions and restrictions, private agreements, reciprocal easement agreements and any other instruments (herein "encumbrances") affecting the use of the Premises recorded in the official records of the county in which the Premises is located as of the Effective Date, and all encumbrances so recorded after the Effective Date which do not materially interfere with Tenant's then existing use of the Premises or, alternatively, which are approved by Tenant, which approval shall not be unreasonably withheld or delayed. Nothing herein shall be deemed to require Tenant's consent to any encumbrance of the Premises. 3 1.33 PVS: "PVS" shall have the meaning set forth in Section 7.3. --- 1.34 Real Property Taxes: "Real Property Taxes" shall have the meaning set ------------------- forth in Section 8.1. 1.35 Security Instruments: "Security Instruments" shall have the meaning -------------------- set forth in Section 16.4. 1.36 Site Plan: A site plan depicting the Premises shall be attached --------- hereto as Exhibit B. --------- 1.37 Tenant: "Tenant" means PixTech, Inc., a Delaware corporation. ------ 1.38 Tenant's Agent or Agent: "Tenant's Agent" or "Agent" shall have the ----------------------- meaning set forth in Section 5.4. 1.39 Tenant's Minimum Liability Insurance Coverage: "Tenant's Minimum --------------------------------------------- Liability Insurance Coverage" means a minimum limit of Five Million Dollars and No Cents ($5,000,000.00) per occurrence. 1.40 Trade Fixtures: "Trade Fixtures" means anything affixed to the -------------- Building or Other Areas by Tenant at its expense for purposes of trade, manufacture, ornament, or domestic use (except replacement of similar work or material originally installed by Landlord) which can be removed without injury to the Building or Other Areas unless such thing has, by the manner in which it is affixed, become an integral part of the Building or Other Areas, it being understood that all of the trade fixtures, equipment, furniture and other personal property of the Landlord which are present in the Building and on the Other Areas as of the Commencement Date shall at all times remain in the Building and on the Other Areas and shall in no event be deemed Trade Fixtures, nor shall any of such items be removed from the Building or Other Areas by Tenant upon the expiration or earlier termination of the Lease; provided, however, that all of Tenant's signs shall be Trade Fixtures regardless of how affixed to the Building or Other Areas. Specific Trade Fixtures as of the Effective Date shall include the items set forth on Exhibit C, which is attached hereto and incorporated herein by this reference. 1.41 Transfer: "Transfer" shall have the meaning set forth in Section -------- 14.1.1. 4 2. TERM AND ACCEPTANCE: Landlord hereby leases the Premises to Tenant, and ------------------- Tenant leases the Premises from Landlord, for the Lease Term upon the terms and conditions stated in this Lease. By taking possession of the Premises, Tenant shall be conclusively deemed to have accepted the Premises in their then existing condition as of the Commencement Date, "AS-IS, WITH ALL FAULTS." Tenant represents and warrants to Landlord that (i) Tenant has fully inspected the Premises, (ii) Tenant is relying on its own inspection in leasing the Premises, and (iii) Tenant has received no representations or warranties from Landlord, express or implied, with respect to the Premises (including, without limitation, any representation or warranty as to the suitability of the Premises for Tenant's intended use) on which Tenant has relied in entering into this Lease. 2.1 Option to Extend: So long as Tenant is not in Default (or would not ---------------- then be in Default but for the pendency of any grace period) under this Lease, Tenant shall have the option to extend the Initial Lease Term at then market rates as negotiated by the parties for an additional thirty-six (36) month term (the "Extended Lease Term"). One hundred eighty (180) days prior to the expiration of the Initial Lease Term, Tenant shall notify Landlord in writing of its election to extend the Initial Lease Term. Time is of the essence. Accordingly, if Tenant does not deliver its notice of election to extend the Lease Term within said one hundred eighty (180) day period, then this option to extend the Lease Term shall lapse and be of no further force or effect and the Lease shall be allowed to expire. The terms of the Lease shall not change during the Extended Lease Term except that the Monthly Rent shall be increased to then market rates as negotiated by the parties. If within ninety (90) days prior to the expiration of the Initial Lease Term the parties have not agreed on a market rate for Monthly Rent during the Extended Lease Term, the parties shall have the Appraisers determine such Monthly Rent. In determining the Monthly Rent for the Extended Lease Term, the Appraisers shall use open market comparisons for rental property in Ada County, Idaho, having a utilization substantially similar to the Permitted Use. If such open market comparisons are not readily available, the Appraisers shall determine the Monthly Rent for the Extended Lease Term based on an amount no less than Landlord's depreciable cost of the Premises. If within forty-five (45) days after notice by the parties to begin the market value determination the Appraisers cannot agree on a market rate for the Extended Lease Term Monthly Rent, the Appraisers shall designate an independent appraiser to make such determination using the method for determining such Monthly Rent as set forth above. This option to extend the Lease Term is personal to Tenant and is not transferable. 3. RENT: ---- 3.1 Monthly Payments: Commencing on the Commencement Date and continuing ---------------- on the first day of each month throughout the Lease Term, Tenant shall pay to Landlord Monthly Rent for the Premises. Monthly Rent during the Initial Lease Term shall be the sum of Twenty Five Thousand Dollars and No Cents ($25,000.00). Monthly Rent during the Extended Lease Term shall be determined as set forth in Section 2.1. 3.2 Additional Rent: Commencing on the Commencement Date and continuing --------------- throughout the Lease Term, Tenant shall pay, as additional rent (the "Additional Rent"), (i) any late charges or interest due Landlord pursuant to Section 3.4, (ii) any amortization payments due Landlord under Section 5.3, (iii) legal fees and costs due Landlord pursuant to Section 16.10, (iv) all 5 Real Property Taxes pursuant to Section 8.2, (v) Landlord's insurance costs pursuant to Section 9.3, (vi) all monthly Access Fees pursuant to Section 7.3, and (vii) any other charges due Landlord pursuant to this Lease. 3.3 Payment of Rent: All Monthly Rent and any other amounts required to --------------- be paid in monthly installments shall be paid in advance on the first day of each calendar month during the Lease Term. All amounts due hereunder shall be paid in lawful money of the United States, without any abatement (except as otherwise provided in Sections 11.4 and 12.4 in the event of damage to the Premises or condemnation, respectively), deduction or offset whatsoever, and without any prior demand therefor (unless otherwise expressly provided herein), to Landlord at its address stated in Section 16.9 or at such other place as Landlord may designate from time to time. Tenant's obligation to pay Monthly Rent shall be prorated for any partial month based on a thirty (30) day month. 3.4 Late Charge and Interest on Rent in Default: Tenant acknowledges ------------------------------------------- that the late payment by Tenant of any monthly installment of Monthly Rent or any Additional Rent will cause Landlord to incur certain costs and expenses not contemplated under this Lease, the exact amount of which are extremely difficult or impractical to fix. Such costs and expenses will include, without limitation, administration and collection costs and processing and accounting expenses. Therefore, if any such Monthly or Additional Rent is not received by Landlord from Tenant within five (5) days after the delinquent amount became due, Tenant shall immediately pay to Landlord a late charge equal to six percent (6%) of such delinquent rent. Landlord and Tenant agree that this late charge represents a reasonable estimate of such costs and expenses and is fair compensation to Landlord for its loss suffered by Tenant's failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay any rent due under this Lease in a timely fashion, including the right to terminate this Lease. If any amount due hereunder is not paid on or before the tenth (10th) day following the due date, then, without prejudice to any of Landlord's other rights and remedies and in addition to such late charge, Tenant shall pay to Landlord interest on the delinquent amount at the Agreed Interest Rate from the date such amount became due until paid. 3.5 Prepayment of Rent: On the Effective Date, Tenant shall pay to ------------------ Landlord the amount set forth in Section 1.31 as prepayment of rent for credit against the first installment(s) of Monthly Rent due hereunder. 4. USE OF PREMISES: --------------- 4.1 Limitation on Type: Tenant shall use the Premises solely for the ------------------ Permitted Use (as described in Section 1.12). Tenant shall not do or permit anything to be done in or about the Premises which will (i) cause structural injury to the Premises, or (ii) cause damage to any part of the Premises except to the extent reasonably necessary for the installation of Tenant's equipment and trade fixtures, and then only in a manner which has been first approved by Landlord in writing, or (iii) violate, or cause Landlord to be in violation of any Laws or Private Restrictions. Tenant shall not operate any equipment within the Premises which will (i) injure, vibrate or shake the Building, (ii) overload existing electrical systems or other mechanical equipment servicing the Building, 6 (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning ("HVAC") equipment within or servicing the Building, or (iv) damage, overload, or corrode the sanitary sewer system. Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls or columns of the Building or set any load on the floor in excess of approved structural limits as reasonably defined by Landlord's architect. Any dust, fumes, or waste products generated by Tenant's use of the Premises shall be contained and disposed so that they do not (i) create a fire or health hazard, (ii) damage the Premises, or (iii) violate any Environmental Laws (as defined in Section 15.2.1.1). Tenant shall not change the exterior of the Building or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building; provided, however, that Tenant shall have the right to maintain, repair and replace, as necessary, in strict accordance with Section 6.1 and all other terms and provisions of this Lease applicable to such work, the existing television dish antenna located on the roof of the Building. Tenant shall not commit nor permit to be committed any waste in or about the Premises, and Tenant shall keep the Premises in a neat, clean, attractive and orderly condition, free of any Hazardous Materials, and any objectionable noises, odors, dust or nuisances. 4.2 Compliance with Laws and Private Restrictions: Tenant's lease of --------------------------------------------- the Premises shall be subject to (i) all Laws, including all Environmental Laws, (ii) all Private Restrictions, easements and other matters of public record, and (iii) the reasonable rules and regulations from time to time promulgated by Landlord governing the use of the Premises. Landlord affirmatively disclaims and makes no representations or warranties as to whether the Premises complies with existing Laws, Environmental Laws, or Private Restrictions. Tenant shall not use or permit any person to use the Premises in any manner which violates any Laws or Private Restrictions. Tenant shall abide by and promptly observe and comply with all Laws and Private Restrictions and shall protect, defend (with counsel reasonably acceptable to Landlord), indemnify and hold Landlord harmless from any liability resulting from Tenant's failure so to do. 4.3 Insurance Requirements: Tenant shall not use or permit any person ---------------------- to use the Premises in any manner which will cause the existing rate of insurance upon the Premises, or any of its contents, to be increased (unless Tenant pays the increase upon demand) or cause a cancellation of any insurance policy covering the Premises. Tenant shall not sell, or permit to be kept, used, or sold in or about the Premises any article which may be prohibited by the standard form of fire insurance policy. Tenant shall comply with all requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain, at standard rates, the insurance coverage carried by either Landlord or Tenant pursuant to this Lease. 4.4 Outside Areas: No materials, supplies, tanks or containers, ------------- equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain outside of the Premises except in fully fenced and screened areas outside the Premises, which have been designed for such purpose and have been designated by Landlord for such use by Tenant. 4.5 Signs: Tenant shall not place on any portion of the Premises any ----- sign, placard, lettering in or on windows, banners, displays or other advertising or communicative material which is visible from the exterior of the Premises without the prior written approval of Landlord. All such 7 approved signs shall strictly conform to all Laws and Private Restrictions and shall be installed at the expense of Tenant. If Landlord so elects, Tenant shall, at the expiration or sooner termination of this Lease, remove all signs installed by it and repair any damage caused by such removal. Tenant shall at all times maintain such signs in good condition and repair. 4.6 Rules and Regulations: Landlord may from time to time promulgate --------------------- reasonable and non-discriminatory rules and regulations for the care and orderly management of the Premises and the safety of its occupants and invitees. Such rules and regulations shall be binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees to abide by such rules and regulations. Such rules and regulations shall not unreasonably interfere with the Permitted Use as stated in Section 1.12. 4.7 Parking: Tenant shall not park or permit the parking of its ------- vehicles or the vehicles of others in any portion of the Premises not designated by Landlord as Tenant's parking area. All delivery trucks and vehicles shall be (i) parked at the rear of the Premises, and (ii) permitted to remain on the Premises only so long as is reasonably necessary to complete loading and unloading. If Landlord is required by any Law to limit or control parking within the Premises, whether by validation of parking tickets or any other method of assessment, Tenant agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Landlord. 4.8 Window Coverings: Tenant shall use a window covering that is ---------------- reasonably acceptable to Landlord to cover all windows in the Building. 4.9 Auctions: Tenant shall not conduct or permit to be conducted on any -------- portion of the Premises any sale of any kind, including (i) any public or private auction, fire sale, going-out-of-business sale, distress sale, or other liquidation sale, or (ii) any so-called "flea market," open-air market, or any other similar activity. 5. TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS: ----------------------------------------- 5.1 Trade Fixtures: Throughout the Lease Term, Tenant shall provide, -------------- install, and maintain in good condition all Trade Fixtures required in the conduct of its business in the Building. All Trade Fixtures shall remain Tenant's property. 5.2 Leasehold Improvements: Tenant shall not construct any Leasehold ---------------------- Improvements or otherwise alter the Building or Other Areas without Landlord's prior written approval and not until Landlord shall have first approved the plans and specifications therefor, which approval shall not be unreasonably withheld, conditioned or delayed. In no event shall Tenant make any alterations to the Building which could affect the structural integrity or the exterior design of the Building. All such approved Leasehold Improvements shall be installed by Tenant at Tenant's expense using a licensed contractor first reasonably approved by Landlord in substantial compliance with the approved plans and specifications therefor. All construction undertaken by Tenant shall be done in accordance with all Laws and in a good and workmanlike manner using new materials of good quality. Tenant shall not commence construction of any Leasehold Improvements until (i) all required governmental approvals and permits shall have been obtained and copies of same have been provided to Landlord, 8 (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant shall have given Landlord at least thirty (30) days prior written notice of its intention to commence such construction, (iv) Tenant shall have notified Landlord by telephone of the commencement of construction on the day it commences, and (v) if requested by Landlord in its reasonable discretion, Tenant shall have obtained or cause its general contractor to obtain contingent liability and broad form builders risk insurance and/or completion and performance bonds in an amount reasonably satisfactory to Landlord. All Leasehold Improvements shall remain the property of Tenant during the Lease Term, but shall not be damaged, altered, or removed from the Premises. At the expiration or sooner termination of the Lease Term, all Leasehold Improvements shall be surrendered to Landlord as a part of the realty and shall then become Landlord's property, and Landlord shall have no obligation to reimburse Tenant for all or any portion of the value or cost thereof. If requested by Landlord, Tenant shall remove any Leasehold Improvements in accordance with the provisions of Section 16.2; provided, however, Tenant may request from Landlord as part of the written notice of intent to commence construction of Leasehold Improvements a determination as to whether Landlord will require Tenant to remove such Leasehold Improvements at the end of the Lease Term. Notwithstanding the above, Tenant may construct Leasehold Improvements not affecting the structural integrity or exterior design of the Building and costing less than Twenty-Five Thousand Dollars and No Cents ($25,000.00) without Landlord's written approval; provided, however, that Tenant shall (i) give Landlord fifteen (15) days' written notice of its intent to commence construction of such Leasehold Improvements, and (ii) comply with all other terms of this Section 5.2. 5.3 Alterations Required by Law: Tenant shall, in accordance with --------------------------- Section 5.2, make any alteration, addition or change of any sort, whether structural or otherwise, to the Premises that is required by any Law, whether or not such alteration, addition or change is due to Tenant's particular use of the Premises; provided, however, that if (i) such alteration, addition or change is not due to Tenant's particular use of the Premises or any alterations or improvements to the Premises made by or for Tenant, and (ii) such alteration, addition or change constitutes a capital improvement under generally accepted accounting principles, then Landlord shall be responsible for making such alteration, addition or change. If Landlord is responsible for making such alteration, addition or change, then the cost thereof shall be amortized and Tenant shall pay Additional Rent on account of such amortization in accordance with the following procedures: (i) the cost of such alteration, addition or change shall be amortized on a straight line basis over the useful life (as reasonably determined by Landlord) of such alteration, addition or change, with interest at the Agreed Interest Rate, and (ii) Tenant shall pay an amount equal to such monthly amortization payment for each month after such alteration, addition or change is completed until the first to occur of (a) the expiration of the Lease Term, or (b) the end of the term over which such costs were amortized. The amount of such Additional Rent that Tenant is to pay shall be due at the same time the Monthly Rent is due. 5.4 Liens: Tenant shall keep the Premises free from any liens and shall ----- pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant or any of Tenant's agents, employees, contractors, assignees, subtenants or invitees (collectively, "Tenant's Agents") relating to the Premises. If any claim of lien is recorded, Tenant shall bond against or discharge the same within thirty (30) days after notice that the same has been recorded 9 against the Premises. Should any lien be filed against the Premises or any action commenced affecting title to the Premises, the party receiving notice of such lien or action shall immediately give the other party written notice thereof. 6. REPAIR AND MAINTENANCE: ---------------------- 6.1 Tenant's Obligation to Maintain: Except as otherwise provided below ------------------------------- in this Section 6.1 and in Section 11 (restoration of damage caused by fire and other perils) Tenant shall, at all times during the Lease Term, regularly inspect, service, clean, keep, and maintain in good order, condition, and repair the Premises, and every part thereof. Tenant's obligations shall include, without limitation, (i) all plumbing and sewage facilities (including all sinks, toilets, faucets and drains), and all ducts, pipes, vents, or other parts of the HVAC or plumbing system, (ii) all fixtures, interior walls, floors, carpets and ceilings, (iii) all windows, doors, entrances, showcases, and skylights (including cleaning both interior and exterior surfaces), (iv) all electrical facilities and equipment (including all lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and systems), (v) any automatic fire extinguisher equipment in the Premises, (vi) all landscaping and Other Areas, (vii) the roof and exterior finishes of the Building, and (viii) all other structural elements of the Building. With respect to utility facilities serving the Premises (including electrical wiring and conduits, gas lines, water pipes, and plumbing and sewage fixtures and pipes), Tenant shall be responsible for the maintenance and repair of any such facilities which serve the Premises, including all such facilities that are within or outside the walls, floor, or on the roof of the Building. If the work affects the roof, the exterior of the Building or Other Areas, any of the building systems, any of the structural parts of the Premises, or if the estimated cost of any item of repair or replacement is in excess of Twenty Five Thousand Dollars and No Cents ($25,000.00), then Tenant shall first obtain Landlord's written approval of the scope of work, plans therefor, materials to be used, and the contractor. All repairs and replacements required of Tenant shall be promptly made at Tenant's own expense with new materials of like kind and quality; provided, however, that if Tenant fails to make such repairs or replacements, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, together with an additional ten percent (10%) of the cost thereof, as reimbursement to Landlord for all overhead, general conditions, fees and other actual costs or expenses arising from Landlord's management and coordination of repairs and replacements, promptly upon being billed for same. This provision shall be construed as an additional remedy given to Landlord and does not limit any other rights or remedies that Landlord may have. Notwithstanding the above, during the Extended Lease Term, Landlord shall maintain in good order, condition, and repair the roof, exterior finishes, and structural elements of the Building. The cost of any capital improvements made by Landlord to the Building during the Extended Lease Term, however, shall be amortized over the useful life of such improvements with the annual amortized cost thereof included as Additional Rent. By the Commencement Date, however, Landlord at its sole cost, will add bracing to the roof purlins in the first two (2) exterior (east and west) bays of the Building as set forth in Exhibit D, which is attached hereto and incorporated --------- herein by this reference (the "Roof Repairs"). Landlord makes no representations or warranties, express or implied, with respect to the Roof Repairs. 6.2 Control of Other Areas: Except as set forth below, Tenant shall at ---------------------- all times have control of the Other Areas. Landlord shall have the right, without the same constituting an actual or 10 constructive eviction and without entitling Tenant to any abatement of rent, to: (i) close any part of the Other Areas to whatever extent required in the opinion of Landlord's counsel to prevent a dedication thereof or the accrual of any prescriptive rights therein; (ii) designate other property outside the boundaries of the Premises to become part of the Premises; (iii) change the shape, size, location, number and extent of improvements on the Other Areas including, without limitation, changes in the location of driveways, entrances, passageways, exits, parking spaces, parking areas, sidewalks or the direction of the flow of traffic and the site of the Other Areas, provided, that none of the foregoing permanently, materially and adversely impairs Tenant's cost, use or quiet enjoyment of the Premises; and (iv) change the name or address of the Premises. The use of the Other Areas shall be subject to such reasonable regulation and changes therein as Landlord shall make from time to time. Landlord shall not exercise its rights to the Other Areas in a manner that would materially interfere with Tenant's use of the Premises without first obtaining Tenant's approval, which approval shall not unreasonably be withheld or delayed. Tenant shall keep the Other Areas free and clear of all obstructions created or permitted by Tenant. Nothing herein shall affect the right of Landlord at any time (or require Landlord at any time) to remove any unauthorized person from the Other Areas or to prohibit the use of the Other Areas by unauthorized persons. In exercising any such rights regarding the Other Areas, Landlord shall make a reasonable effort to minimize any disruption to Tenant's business. 6.3 Tenant's Negligence: Tenant shall pay for all damage to the ------------------- Premises caused by the negligent act or omission of Tenant, its employees, contractors, or invitees or by the failure of Tenant to discharge promptly its obligations under this Lease or comply with the terms of this Lease. 7. UTILITIES: --------- 7.1 Utilities: Tenant shall promptly pay, as the same become due, all --------- charges for water, gas, electricity, telephone, sewer service, waste pick-up, and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Lease Term, including, without limitation, (i) meter, use and/or connection fees, hook-up fees, standby fees, and (ii) penalties for discontinued or interrupted service. 7.2 Compliance with Governmental Regulations: Landlord and Tenant shall ---------------------------------------- comply with all rules, regulations and requirements promulgated by national, state or local governmental agencies or utility suppliers concerning the use of utility services, including any rationing, limitation or other control. Landlord may voluntarily cooperate in a reasonable manner with the efforts of all governmental agencies or utility suppliers in reducing energy or other resources consumption. Tenant shall not be entitled to terminate this Lease nor to any abatement in rent by reason of such compliance or cooperation. Tenant shall be entitled to an abatement of rent to the extent that Landlord's voluntary cooperation with local rules and regulations materially interferes with Tenant's use of the Premises for more than five (5) consecutive days. Tenant agrees at all times to cooperate fully with Landlord and to abide by all reasonable rules, regulations and requirements which Landlord may prescribe in order to maximize the efficient operation of the HVAC system and all other utility systems. 7.3 PVS and CDAS Located on the Adjacent Property: Facilities are --------------------------------------------- located on the Premises that will allow Tenant to access the Process Vacuum System ("PVS") and Clean Dry Air 11 System ("CDAS") located on the Adjacent Property. Subject to the terms and conditions set forth herein, Tenant may, on an as-needed basis, and upon prior oral or written notice to Landlord, use such facilities to access and utilize the PVS and CDAS located on the Adjacent Property, on a non-exclusive basis with Landlord or any tenant of the Adjacent Space. Tenant shall use such PVS and CDAS systems on an as-needed basis only and shall not engage in any excessive usage. As consideration for Tenant's use of or rights to use such PVS and CDAS systems, Tenant shall pay to Landlord as Additional Rent a monthly fee of Two Thousand Four Hundred Twenty-Seven Dollars and No Cents ($2,427.00) (the "Access Fee"), which amount is due and payable at the same time that Monthly Rent is due and payable to Landlord hereunder. Landlord may from time to time promulgate reasonable rules and regulations for the care and orderly use of the PVS and CDAS located on the Adjacent Property. Such rules and regulations shall be binding upon Tenant upon delivery of a copy thereof. Landlord shall be responsible for making any necessary repairs to the PVS and CDAS located on the Adjacent Property within a reasonable time after Landlord's receipt of a written request therefor from Tenant, it being understood that Tenant shall have no right to enter upon the Adjacent Premises or to otherwise make such repairs. Landlord makes no warranty express or implied with respect to the condition, availability or suitability for Tenant's use of the PVS or CDAS facilities located on the Adjacent Property or any equipment used in connection therewith and Landlord shall have no liability to Tenant in the event such facilities are made unavailable to Tenant for any reason. Tenant shall indemnify, defend, protect and hold harmless Landlord and its agents and employees from and against any claims, demands, causes of action, damages or liabilities arising from Tenant's usage or attempted usage of the PVS and CDAS located on the Adjacent Property. Notwithstanding anything to the contrary contained herein, either party hereto may upon thirty (30) days prior written notice to the other party terminate the rights provided for hereunder, in which event, Landlord may upon the expiration of such 30-day period enter the Premises and make any alterations necessary to disconnect or otherwise terminate Tenant's access to the PVS and CDAS located on the Adjacent Property and Tenant shall thereafter have no obligation to pay the Access Fee. 8. REAL PROPERTY TAXES: ------------------- 8.1 Real Property Taxes Defined: "Real Property Taxes" as used herein --------------------------- means (i) all taxes, assessments, levies, and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any existing or future general or special assessments for public improvements, services, or benefits and any increases resulting from reassessments or resulting from a change in ownership or any other cause), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of, all or any portion of the Premises (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein, the fixtures, equipment and other property of Landlord, real or personal, that are an integral part of and located on the Premises, the gross receipts, income, or rentals from the Premises, or the use of parking areas, public utilities, or energy within the Premises, (ii) all charges, levies or fees imposed by reason of environmental regulation or other governmental control of the Premises, and (iii) all costs and fees (including attorneys' fees) incurred by Landlord in contesting 12 any Real Property Tax and in negotiating with public authorities as to any Real Property Tax. Landlord shall, at Tenant's request, consult and cooperate in good faith with Tenant with respect to any contest or negotiation with public authorities concerning any Real Property Tax, but control of any such contest or negotiation shall rest exclusively and conclusively with Landlord. Tenant shall be entitled to the benefit of any reduction in Real Property Taxes obtained by Landlord which is applicable to the Lease Term. If at any time during the Lease Term the method of taxation or assessment of the Premises prevailing as of the Effective Date shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Premises or Landlord's interest therein, or (ii) on or measured by the gross receipts, income, or rentals from the Premises, on Landlord's business of leasing the Premises, or computed in any manner with respect to the operation of the Premises, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Tax is based upon property or rents unrelated to the Premises, then only that part of such Real Property Tax that is fairly allocable to the Premises shall be included within the meaning of the term "Real Property Taxes." Notwithstanding the foregoing, the term "Real Property Taxes" shall not include estate, inheritance, transfer, gift or franchise taxes of Landlord or the federal or state net income tax imposed on Landlord's income from all sources. 8.2 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall -------------------------------- pay all Real Property Taxes which become due during the Lease Term. Tenant shall pay such Real Property Taxes to Landlord within ten (10) days of written demand therefor by Landlord; provided, however, Landlord shall use its best efforts to bill Tenant annually for the then current assessment of Real Property Taxes. If any assessments are levied against the Premises, Landlord may elect either to pay the assessment in full or allow the assessment to go to bond. If Landlord pays the assessment in full, only that amount which would have been payable (both principal and interest) had Landlord allowed the assessment to go to bond shall be included in the annual amount of Real Property Taxes payable hereunder. 8.3 Taxes on Tenant's Property: Tenant shall pay before delinquency any -------------------------- and all taxes, assessments, license fees, and public charges levied, assessed, or imposed against Tenant or Tenant's estate in this Lease or the property of Tenant situated within the Premises which become due during the Lease Term. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. 9. INSURANCE: --------- 9.1 Tenant's Insurance: Tenant shall maintain insurance complying with all ------------------ of the following: 9.1.1 Tenant shall procure, pay for and keep in full force and effect the following: 9.1.1.1 Commercial general liability insurance, including property damage, against liability for personal injury, bodily injury, death and damage to property occurring in or about, or resulting from an occurrence in or about, the Premises with combined single limit coverage 13 of not less than the amount of Tenant's Minimum Liability Insurance Coverage set forth in Section 1.17, which insurance shall contain "fire legal" endorsement coverage and a "contractual liability" endorsement insuring Tenant's performance of Tenant's obligation to indemnify Landlord contained in Section 10.3; 9.1.1.2 Pollution legal liability insurance with limits of Five Million Dollars and No Cents ($5,000,000.00) per occurrence and Five Million Dollars and No Cents ($5,000,000.00) aggregate. If the insurance required by this Section is a "claims made" policy, such insurance or its replacement insurance shall have a retroactive date of no later than the effective date of this Lease. Such insurance policy or its replacement policy shall also provide a minimum of two (2) years extended reporting period coverage, or the maximum time under the State of Idaho Statute of Limitations, existing on the effective date of this Lease, for potential claims under such insurance, whichever is longer, after the last action undertaken by Tenant relative to this Lease. The policy must also provide the following: i. coverage for attorneys' fees and costs of defense and indemnity for liability, including, but not limited to, judgments, settlements and/or governmental fines and penalties, which is assumed by Tenant under this Lease; ii. coverage for any demands for environmental cleanup costs associated with Tenant's use of the Premises, in accordance with Tenant's indemnity obligation under Section 10.3 herein; iii. coverage for the presence, discharge, dispersal, release, removal, or escape of pollutants ("Pollution Conditions") emanating from or affecting the Premises, to the extent such Pollution Conditions are caused by or under the control of Tenant; iv. coverage for sudden and gradual Pollution Conditions into or upon land, the atmosphere or any natural or artificial watercourse or body of water; v. coverage for loading and unloading activities. A copy of the pollution legal liability coverage certificate must be provided to and approved by Landlord prior to Tenant taking possession of or entering upon the Premises under this Lease. 9.1.1.3 Plate-glass insurance at actual replacement cost; 9.1.1.4 Fire and property damage insurance against loss caused by fire, extended coverage perils including steam boiler insurance, sprinkler leakage, if applicable, vandalism, malicious mischief and such other additional perils as now are or hereafter may be included in a standard extended coverage endorsement from time to time in general use in the county in which the Premises is located, insuring Tenant's personal property and inventory, Trade Fixtures, and Leasehold Improvements within the Building or located on the Other Areas for the full actual replacement cost thereof; 14 9.1.1.5 Worker's compensation coverage and any other employee benefit insurance sufficient to comply with all Laws; 9.1.1.6 With respect to construction, alterations, improvements, or the like undertaken by Tenant, upon reasonable demand by Landlord based on such factors as the size and risk of the work, contingent liability and broad form builder's risk insurance, in an amount, if any, necessary to protect Landlord, it being understood that in lieu of maintaining such coverage directly, Tenant may cause its general contractor to maintain such coverage; 9.1.1.7 Such other insurance that is required by any Lender; provided, however, that such insurance shall not exceed that which is normally required by landlords engaged in leasing comparable premises located in the vicinity of the Premises under comparable terms and conditions. 9.1.2 Each policy of insurance required to be carried by Tenant pursuant to this Section (i) shall name Landlord and such other parties in interest as Landlord designates as additional insureds, provided, however that such parties shall be added as named insureds on the commercial general liability policy required pursuant to Section 9.1.1.1, (ii) shall be primary insurance which provides that the insurer shall be liable for the full amount of the loss up to and including the total amount of liability stated in the declarations without the right of contribution from any other insurance coverage of Landlord, (iii) shall be in a form reasonably satisfactory to Landlord, (iv) shall be carried with companies having a Best rating of at least AVII, (v) shall ---- provide that such policy shall not be subject to cancellation, lapse or change except after at least thirty (30) days prior written notice to Landlord, (vi) shall not have a "deductible" in excess of Five Thousand Dollars and No Cents ($5,000.00) per occurrence, (vii) shall contain a cross liability endorsement, and (viii) shall contain a "severability" clause. 9.1.3 A copy of each paid-up policy evidencing the insurance required to be carried by Tenant pursuant to this Section (appropriately authenticated by the insurer) or a certificate of the insurer, certifying that such policy has been issued, providing the coverage required by this Section, and containing the provisions specified herein, shall be delivered to Landlord prior to the time Tenant or any of Tenant's Agents enters the Premises and upon renewal of such policies, but not less than thirty (30) days prior to the expiration of the term of such coverage. Landlord may, at any time, and from time to time, inspect and/or copy any and all insurance policies required to be procured by Tenant pursuant to this Section. If Landlord's lender or insurance adviser reasonably determines at any time that the amount of coverage required for any policy of insurance Tenant is to obtain pursuant to this Section is not adequate, then Tenant shall increase such coverage for such insurance to such amount as Landlord's lender or insurance adviser reasonably deems adequate, not to exceed the level of coverage commonly required by prudent landlords of comparable buildings in the vicinity. 9.2 Landlord's Insurance: Landlord shall maintain at least the following -------------------- insurance: 9.2.1 Landlord shall maintain a policy or policies of fire and property damage insurance in so-called "fire and extended coverage" form insuring Landlord (and such others as Landlord may designate) against loss of rents for a period of not less than six (6) months and from 15 physical damage to the Premises with coverage at such level as Landlord shall select, but not less than ninety percent (90%) of the full replacement cost thereof. Such fire and property damage insurance, at Landlord's election, (i) may be written in so-called "all risk" form to include such perils as are commonly covered by such form of coverage, (ii) may provide coverage for physical damage to the improvements so insured up to the then full replacement cost thereof, (iii) may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and (iv) may provide coverage for loss of rents for a period of up to twelve (12) months. Landlord shall not be required to cause such insurance to cover any Trade Fixtures, Leasehold Improvements, or any inventory or other personal property of Tenant. Landlord currently maintains in addition to the above insurance, environmental insurance for the Premises. Landlord shall provide thirty (30) days' written notice to Tenant if Landlord, in its sole discretion, ever reduces or removes such environmental insurance from its current levels. 9.2.2 Upon demand, Landlord shall provide Tenant with reasonable evidence of the existence of insurance required of Landlord hereunder. 9.3 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall -------------------------------- pay to Landlord the cost of the premiums for insurance carried by Landlord relating to the Premises and deductible amounts under such insurance paid in connection with the repair or restoration of the Premises (including the Other Areas) after damage or destruction of the Premises within ten (10) days of written demand therefor by Landlord. Notwithstanding the above, Tenant shall not be required to pay the cost of such insurance premiums and deductibles if such damage to or destruction of the Premises was proximately caused by Landlord's or Landlord's agent's, tenant's (excluding Tenant), or invitee's negligence or willful misconduct. 9.4 Release and Waiver of Subrogation: The parties hereto waive all --------------------------------- rights against each other for damages to property caused by fire or other perils to the extent such damages are covered by insurance obtained pursuant to any provision of this Section 9, or any other property insurance applicable to the Premises; provided, however, that such waivers are effective only if the applicable insurance policies of both parties contain a clause to the effect that this release shall not affect the right of the insured to recover under such policy. Each party shall use reasonable efforts to cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against the other party in connection with any injury or damage covered by such policy. 10. LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY: ------------------------------------------------ 10.1 Limitation on Landlord's Liability: Landlord shall not be liable to ---------------------------------- Tenant (except to the extent caused by the gross negligence or willful misconduct of Landlord or Landlord's agents, employees, contractors, invitees, or tenants (excluding Tenant)), nor shall Tenant be entitled to terminate this Lease or to any abatement of rent, for any injury to Tenant or any of Tenant's Agents', or damage to Tenant's property, resulting from any cause, including, without limitation, any (i) failure, interruption or installation of any HVAC or other utility system or service, (ii) repairs or improvements to the Premises, (iii) limitation, curtailment, rationing or restriction on the use of water or electricity, gas or any other form of energy or any services or utility serving the Premises, (iv) vandalism or forcible entry by unauthorized persons, or (v) penetration of water into or onto any 16 portion of the Premises through roof leaks or otherwise. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, LANDLORD SHALL IN NO EVENT BE LIABLE TO TENANT FOR ANY PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES FOR LOSS OF BUSINESS BY TENANT. 10.2 Limitation on Tenant's Recourse: Notwithstanding any other term or ------------------------------- provision of this Lease, the liability of Landlord for its obligations under this Lease, except for obligations under Section 15.2.3, is limited solely to the lessor of (i) Landlord's interest in the Premises or (ii) twenty percent (20%) of the fair market value of the Premises, and to no other assets of Landlord for satisfaction of any liability with respect to this Lease, and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord's stockholders, directors, principals, representatives, trustees or partners on account of any of Landlord's obligations or actions under this Lease. Any liability of Landlord for its obligations under Section 15.2.3 shall be limited solely to Landlord's interest in the Premises, and to no other assets of Landlord for satisfaction of any such liability, and no personal liability shall at any time be asserted or enforceable against any other assets of Landlord or against Landlord's stockholders, directors, principals, representatives, trustees or partners on account of any of Landlord's obligations under Section 15.2.3. In addition, in the event of conveyance of Landlord's interest in the Premises, then from and after the date of such conveyance, Landlord shall be relieved of all liability with respect to Landlord's obligations to be performed under this Lease after the date of such conveyance. Upon any such conveyance by Landlord, the grantee or transferee, by accepting such conveyance, shall be deemed to have assumed Landlord's obligations to be performed under this Lease from and after the date of such transfer, subject to the limitations on liability set forth in this Section 10.2. Notwithstanding the foregoing, if any such grantee or transferee agrees to assume in writing all of the obligations of Landlord under this Lease, including, without limitation, all of the obligations of Landlord first accruing prior to the date of such conveyance, then Landlord shall be fully and unconditionally released of all liability to Tenant under this Lease, including, without limitation, all liability with respect to Landlord's obligations under this Lease first accruing prior to the date of such conveyance. 10.3 Indemnification of Landlord: In addition to any other indemnity --------------------------- obligations of Tenant stated in this Lease, Tenant shall hold harmless, protect, indemnify and defend Landlord, and its employees, agents, contractors, successors and assigns, with competent counsel reasonably satisfactory to Landlord, from and against all liabilities, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgments ("Claims") arising in whole or in part out of (a) any breach of this Lease by Tenant, or (b) by reason of any death, bodily injury, personal injury or property damage (i) any cause or causes whatsoever (except to the extent of the gross negligence or willful misconduct of Landlord or Landlord's employees, agents, contractors, invitees, or tenants (excluding Tenant)) occurring in or about or resulting from an occurrence in or about the Premises, or (ii) resulting from the negligence or willful misconduct of Tenant or any of Tenant's Agents, wherever the same may occur. The provisions of this Section shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or sooner termination. 10.4 Indemnification of Tenant: Subject to Section 10.2, Landlord shall ------------------------- hold harmless, protect, indemnify and defend Tenant, and its employees, Agents, contractors, successors and 17 assigns, with competent counsel reasonably satisfactory to Tenant, from and against all Claims to the extent arising in whole or in part out of (a) any breach of this Lease by Landlord, or (b) the negligence or willful misconduct of Landlord (and its agents, employees, invitees, or tenants (excluding Tenant)) arising as a result of Landlord's Agent's presence on the Premises following a change in the Other Areas under Section 6.2(iii). 11. DAMAGE TO PREMISES: ------------------ 11.1 Landlord's Duty to Restore: If the Premises are damaged by any peril -------------------------- after the Effective Date of this Lease, Landlord shall restore the Premises unless the Lease is terminated by Landlord pursuant to Section 11.2 or by Tenant pursuant to Section 11.3. All insurance proceeds available from the fire and property damage insurance carried by Landlord pursuant to Section 9.2 shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either Sections 11.2 or 11.3, then all insurance proceeds available from insurance carried by Tenant which covers loss to property that is Landlord's property or would become Landlord's property on termination of this Lease shall be paid to and become the property of Landlord. If this Lease is not so terminated, then upon receipt of the insurance proceeds and the issuance of all necessary governmental permits, Landlord shall use commercially reasonable efforts commensurate with local industry standards to commence and complete the restoration of the Premises to substantially the same condition in which the Premises were immediately prior to such damage. Landlord's obligation to restore shall be further limited to the Premises constructed by Landlord as they existed as of the Commencement Date, excluding any Leasehold Improvements, Trade Fixtures and/or personal property constructed or installed in the Premises. If this Lease is not terminated pursuant to Section 11.2 or 11.3, then Tenant shall forthwith commence and thereafter prosecute to completion the replacement and repair of all Leasehold Improvements and Trade Fixtures, if any, existing at the time of such damage or destruction, and which were to have been surrendered to Landlord hereunder; and all insurance proceeds received by Tenant from the insurance carried by it pursuant to Section 9.1.1.3 shall be used for such purpose. 11.2 Landlord's Right to Terminate: Landlord shall have the option to ----------------------------- terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Tenant of a written notice of election to terminate within ninety (90) days after the date of such damage or such later date as is reasonably necessary under the circumstances: 11.2.1 The Building or Other Areas are damaged by any peril either (i) not covered by the type of insurance Landlord is required to carry pursuant to Section 9.2 or (ii) covered by valid and collectible insurance actually carried by Landlord and in force at the time of such damage or destruction, to such an extent that the estimated cost to restore equals or exceeds twenty-five percent (25%) of the then actual replacement cost thereof; 11.2.2 The Building or Other Areas are damaged by any peril and (i) the cost to restore the Premises less the amount of the insurance proceeds actually received by Landlord for repair or restoration of the Premises equals or exceeds Twenty-Five Thousand Dollars and No Cents ($25,000.00), or (ii) unless the parties agree otherwise, the Laws then in effect prevent Landlord 18 from repairing or restoring the Premises to substantially the same condition in which the Premises were immediately prior to such damage; 11.2.3 The Building or Other Areas are damaged by any peril and, because of the Laws then in force, (i) may not be restored at reasonable cost to substantially the same condition in which it was prior to such damage, or (ii) may not be used for the same use being made thereof before such damage whether or not restored as required by this Section. 11.3 Tenant's Right to Terminate: If the Premises are damaged by any --------------------------- peril and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to Section 11.2, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord's architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the option to terminate this Lease in the event any of the following occurs, which option may be exercised only by delivery to Landlord of a written notice of election to terminate within seven (7) days after Tenant receives from Landlord the estimate of the time needed to complete such restoration: 11.3.1 The Premises are damaged by any peril and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within two hundred seventy (270) days after the date of such damage; or 11.3.2 The Premises are damaged by any peril within twelve (12) months of the last day of the Lease Term and in the reasonable opinion of Landlord's architect or construction consultant the restoration of the Premises cannot be substantially completed within sixty (60) days after the date of such damage. 11.4 Abatement of Rent: In the event of damage to the Premises which does ----------------- not result in the termination of this Lease, the Monthly Rent shall be temporarily abated during the period of restoration in proportion to the degree to which Tenant's use of the Premises is impaired by such damage. Tenant shall not be entitled to any compensation or damages from Landlord for loss of Tenant's business or property or for any inconvenience or annoyance caused by such damage or restoration. To the extent permitted by applicable law, Tenant agrees that the foregoing provisions shall supersede any contrary provisions contained in any applicable law in the state in which the Premises is located regarding damage to or destruction of leased property. 12. CONDEMNATION: ------------ 12.1 Taking of Premises: Landlord shall have the option to terminate this ------------------ Lease if, as a result of a taking by means of the exercise of the power of eminent domain (including a voluntary sale or transfer by Landlord to a condemnor under threat of condemnation), (i) twenty-five percent (25%) or more of the Building is so taken, or (ii) more than fifty percent (50%) of the Other Areas are so taken. Any such option to terminate by Landlord must be exercised within a reasonable period of time after the condemnor has commenced judicial action or entered into a binding agreement to effect such taking. If Landlord so exercises such option to terminate, such termination shall be effective as of the date possession is taken by the condemnor. 19 12.2 Termination By Tenant: Tenant shall have the option to terminate --------------------- this Lease if, as a result of any taking by means of the exercise of the power of eminent domain (including any voluntary sale or transfer by Landlord to any condemnor under threat of condemnation), (i) twenty-five percent (25%) or more of the Building is so taken and that part of the Building that remains cannot be constructed within a reasonable period of time and thereby made reasonably suitable for the continued operation of Tenant's business, or (iii) there is a taking of more than fifty percent (50%) of the Other Areas and, as a result of such taking, Tenant's access to the Premises is materially impeded or Landlord cannot provide parking spaces within walking distance of the Premises equal in number to at least fifty percent (50%) of the number of spaces available on the Premises prior to the taking, whether by rearrangement of the remaining parking areas in the Other Areas, (including construction of multi-deck parking structures or restriping for compact cars where permitted by law) or by alternative parking facilities on other land. Tenant must exercise such option within a reasonable period of time, to be effective on the date that possession of that portion of the Other Areas that is condemned is taken by the condemnor. 12.3 Restoration and Abatement of Rent: If any part of the Building or --------------------------------- the Other Areas is taken by Condemnation and this Lease is not terminated, then, to the extent reasonably practicable, Landlord shall restore the remaining portion of the Building and Other Areas as they existed as of the Commencement Date, excluding any Leasehold Improvements, Trade Fixtures and/or personal property constructed or installed after the Commencement Date. Thereafter, as of the date possession is taken the Monthly Rent shall be reduced in the same proportion that the floor area of that part of the Building so taken (less any addition thereto by reason of any reconstruction) bears to the original floor area of the Building. 12.4 Temporary Taking: If all or any portion of the Building is ---------------- temporarily taken for ninety (90) days or less, this Lease shall remain in effect. If any portion of the Building is temporarily taken by condemnation for a period which exceeds ninety (90) days or which extends beyond the natural expiration of the Lease Term, or such taking, as agreed by the parties, materially and adversely affects Tenant's ability to use the Building for the Permitted Use, then Landlord and Tenant shall each independently have the option to terminate this Lease. Such option must be exercised within a reasonable period of time, and shall be effective on the date possession is taken by the condemnor. 12.5 Division of Condemnation Award: Any award made as a result of any ------------------------------ condemnation of the Building or the Other Areas shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided, however, that Tenant shall be entitled to receive any condemnation award that is made directly to Tenant, (i) for the taking of personal property or Trade Fixtures belonging to Tenant, (ii) for the interruption of Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill, or (iv) for any temporary taking where this Lease is not terminated as a result of such taking (subject to the requirements of Section 14.1.6), it being understood that any Lease bonus value (the difference between the Monthly Rent and Additional Rent and the then fair market value rent for the Premises) shall be payable and belong to Landlord. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Section, and, to the extent allowed by applicable law, each party waives any contrary provisions contained in the law of the state in which the Premises is located. 20 13. DEFAULT AND REMEDIES: -------------------- 13.1 Events of Tenant's Default: Tenant shall be in Default of its -------------------------- obligations under this Lease if any of the following events occur (collectively, "Default" or "Event of Default"): 13.1.1 Tenant shall have failed to pay Monthly Rent or any Additional Rent when due and such failure is not cured within seven (7) days after delivery of written notice from Landlord specifying such failure to pay; or 13.1.2 Tenant shall have failed to perform any term, covenant, or condition of this Lease except those requiring the payment of Monthly Rent or Additional Rent, and Tenant shall not cure such Default within fifteen (15) days after delivery of written notice from Landlord specifying such failure to perform, or where such Default is not capable of being cured within such 15-day period, Tenant shall have failed to commence such cure within such 15-day period and thereafter using best efforts, diligently bring such cure to completion; or 13.1.3 Tenant shall have made a general assignment of its assets for the benefit of its creditors; or 13.1.4 Tenant shall have sublet the Premises or assigned its interest in the Lease in violation of the provisions contained in Section 14, whether voluntarily or by operation of law; or 13.1.5 Tenant shall have permitted the sequestration or attachment of, or execution on, or the appointment of a custodian or receiver with respect to, all or any substantial part of the property of Tenant or any property essential to the conduct of Tenant's business and Tenant shall have failed to obtain a return or release of such property within sixty (60) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; or 13.1.6 Tenant shall have abandoned the Premises or left the Premises substantially vacant for more than sixty (60) consecutive days; provided, however, that Tenant shall not be deemed in Default under this Lease if it leaves all or any part of the Premises vacant for less than sixty (60) consecutive days as long as (i) Tenant is performing all of its other obligations under this Lease, including, without limitation, the obligation to pay Monthly Rent and Additional Rent, (ii) Tenant provides on-site security during normal business hours for those parts of the Premises left vacant, (iii) such vacancy does not materially and adversely affect the validity or coverage of any policy of insurance carried by Landlord with respect to the Premises, and (iv) the utilities and building systems are operated and maintained to the extent necessary to prevent damage to the Building and Premises; or 13.1.7 A court shall have made or entered any decree or order with respect to Tenant or Tenant shall have submitted to or sought a decree or order (or a petition or pleading shall have been filed in connection therewith) which: (i) grants or constitutes (or seeks) an order for relief, appointment of a trustee, or confirmation of a reorganization plan under the bankruptcy laws of the United States; (ii) approves as properly filed (or seeks such approval of) a petition seeking liquidation or reorganization under said bankruptcy laws or any other debtor's relief law or statute of the United States or any state thereof; or (iii) otherwise directs (or seeks) the winding up or 21 liquidation of Tenant; and such petition, decree or order shall have continued in effect for a period of sixty (60) or more days. 13.2 Landlord's Remedies: In the event of any Default by Tenant, Landlord ------------------- shall have the following remedies, in addition to all other rights and remedies provided by any Law or otherwise provided in this Lease, to which Landlord may resort cumulatively, or in the alternative: 13.2.1 Landlord may, at Landlord's election, continue this Lease in full force and effect and may enforce all its rights and remedies under this Lease, including, but not limited to, the right to recover rent and any other sums payable hereunder as they become due. In addition, Landlord may enter the Premises without terminating this Lease and sublet all or any part of the Premises for Tenant's account to any person, for such term (which may be a period beyond the remaining term of this Lease), at such rents and on such other terms and conditions as Landlord deems advisable. In the event of any such subletting, rents received by Landlord from such subletting shall be applied (i) first, to the payment of the costs of maintaining, preserving, altering and preparing the Premises for subletting and other costs of subletting, including but not limited to brokers' commissions, attorneys' fees and expenses of removal of Tenant's personal property, Trade Fixtures, and Leasehold Improvements, (ii) second, to the payment of rent or any other sums then due and payable, (iii) third, to the payment of future rent or any other sums as the same may become due and payable hereunder, and (iv) fourth, the balance, if any, shall be paid to Tenant upon (but not before) expiration of the term of this Lease. If the rents received by Landlord from such subletting, after application as provided above, are insufficient in any month to pay the Monthly Rent and any Additional Rent due and payable hereunder for such month, Tenant shall pay such deficiency to Landlord monthly upon demand. Notwithstanding any such subletting for Tenant's account without termination, Landlord may at any time thereafter, by written notice to Tenant, elect to terminate this Lease by virtue of any previous Default hereunder by Tenant. 13.2.2 Landlord may, at Landlord's election, terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice. Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other act of Landlord, including, without limitation, its re-entry into the Premises, its efforts to relet the Premises, its reletting of the Premises for Tenant's account, its storage of Tenant's personal property and Trade Fixtures, its acceptance of keys to the Premises from Tenant or its exercise of any other rights and remedies under this Section 13.2, shall constitute an acceptance of Tenant's surrender of the Premises or constitute a termination of this Lease or of Tenant's right to possession of the Premises. Upon such termination in writing of Tenant's right to possession of the Premises, as herein provided, this Lease shall terminate and Landlord shall be entitled to recover damages from Tenant as provided in any existing or future Law providing for recovery of damages for such breach, including, without limitation, the following: 13.2.2.1 The reasonable cost of recovering the Premises; plus 13.2.2.2 The reasonable cost of removing Tenant's Trade Fixtures and Leasehold Improvements; plus 22 13.2.2.3 The acceleration of all rent (discounted to present value using a discount rate of seven percent (7%)) and any other sums due or to become due under this Lease; 13.2.2.4 For purposes of this Section 13.2, (i) the term "rent" includes the Monthly Rent and all Additional Rent, and (ii) if it becomes necessary to determine the amount of Additional Rent that would have become due had Tenant not breached its obligations under this Lease, all such Additional Rent shall be computed on the basis of the average monthly amount thereof accruing during the immediately preceding twelve (12) month period, except that if it becomes necessary to compute such Additional Rent before such a twelve (12) month period has occurred, then such rent shall be computed on the basis of the average monthly amount thereof accruing during such shorter period. 13.2.2.5 Such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable Law. 13.2.3 In the event Tenant breaches this Lease and abandons the Premises, this Lease shall not terminate unless Landlord gives Tenant written notice of its election to so terminate this Lease. No act by or on behalf of Landlord intended to mitigate the adverse effect of such breach, including those described by Section 13.2.2 immediately preceding, shall constitute a termination of Tenant's right to possession unless Landlord gives Tenant written notice of termination. Should Landlord not terminate this Lease by giving Tenant written notice, Landlord may enforce all its rights and remedies under this Lease, including the right to recover the rent as it becomes due under the Lease. 13.2.4 Nothing in this Section shall limit Landlord's right to indemnification from Tenant as provided elsewhere in this Lease, including, without limitation, Sections 10.3 and 15.2.3. Any notice given by Landlord in order to satisfy the requirements of Sections 13.1.1 or 13.1.2 above shall also satisfy the notice requirements of any applicable law regarding unlawful detainer proceedings. 13.2.5 Landlord shall have a lien upon and a security interest in all of Tenant's property located on the Premises for the rent and all other payments to be made by Tenant to Landlord or any other person hereunder, for Tenant's performance of all of Tenant's obligations pursuant to this Lease and for all of Tenant's breaches thereof ; provided, however, if no Event of Default shall have occurred and be continuing, Landlord shall subordinate such lien to any lien on Tenant's property held by a bona fide lender. 13.2.6 Tenant, for itself and on behalf of any persons claiming through or under Tenant, including creditors of all kinds, does hereby waive and surrender all rights and privileges which they or any of them might have under or by reason of any present or future Law, to redeem the Premises or to have a continuance of this Lease for the Lease Term after being dispossessed or ejected therefrom by the valid order of a court of competent jurisdiction. 13.3 Landlord's Default and Tenant's Remedies: If Landlord fails to ---------------------------------------- perform any of its obligations under this Lease and fails to cure such default within thirty (30) days after written notice from Tenant specifying the nature of such default where such default could reasonably be cured 23 within said thirty (30) day period, or fails to commence such cure within said thirty (30) day period and thereafter continuously with due diligence prosecute such cure to completion where such default could not reasonably be cured within said thirty (30) day period, then Tenant, as its sole and exclusive remedy, may proceed in equity or at law to compel Landlord to perform its obligations. To the extent allowable by law, Tenant waives the provisions of any law regarding Tenant's right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under the Lease. 13.4 Waiver: One party's consent to or approval of any act by the other ------ party requiring the first party's consent or approval shall not be deemed to waive or render unnecessary the first party's consent to or approval of any subsequent similar act by the other party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach unless such waiver is in writing and signed by Landlord. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or hereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or any other provisions herein contained. 14. ASSIGNMENT AND SUBLETTING: ------------------------- 14.1 By Tenant: The following provisions shall apply to any direct or --------- indirect assignment, subletting, change of control (as defined in Section 14.1.4 below) or other transfer by Tenant or any subtenant or assignee or other successor in interest of the original Tenant (collectively referred to in this Section as "Tenant"): 14.1.1 Tenant shall not do any of the following (collectively referred to herein as a "Transfer"), whether voluntarily, involuntarily, or by operation of laws, without the prior written consent of Landlord: (i) sublet all or any part of the Building or Other Areas or allow it to be sublet, occupied or used by any person or entity other than Tenant; (ii) assign its interest in this Lease; (iii) transfer any right appurtenant to this Lease or the Premises; (iv) mortgage or encumber the Lease (or otherwise use the Lease as a security device) in any manner; or (v) terminate or materially amend or modify an assignment, sublease, or other transfer that has been previously approved by Landlord. Tenant shall reimburse Landlord for all reasonable costs and attorneys' fees incurred by Landlord in connection with the processing and/or documentation of any requested Transfer whether or not Landlord's consent is granted. Any Transfer so approved by Landlord shall not be effective until Tenant has paid all such costs and attorneys' fees to Landlord and delivered to Landlord an executed counterpart of the document evidencing the Transfer which (i) is in form approved by Landlord, (ii) contains substantially the same terms and conditions as stated in Tenant's notice given to Landlord pursuant to Section 14.1.2 below, and (iii) contains the agreement of the proposed Transferee to assume all obligations of Tenant related to the Transfer arising after the effective date of such Transfer and to remain jointly and severally liable therefor with Tenant. Any attempted Transfer without Landlord's consent shall constitute a Default by Tenant and shall be voidable at Landlord's option. Landlord's consent to any one Transfer shall not constitute a waiver of the provisions of Section 14.1 as to any subsequent Transfer nor a consent to any subsequent Transfer. 24 No Transfer, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease nor to be a consent to any Transfer. 14.1.2 Tenant shall give Landlord at least thirty (30) days prior written notice of any desired Transfer and of the proposed terms of such Transfer including but not limited to (i) the name and legal composition of the proposed Transferee; (ii) a current financial statement of the Transferee, financial statements of the Transferee covering the preceding three years, and the "best available" financial statement of the Transferee for a period ending not more than one year prior to the proposed effective date of the Transfer, all of which statements are prepared in accordance with generally accepted accounting principles; (iii) the nature of the proposed Transferee's business to be carried on in or on the Premises; (iv) all consideration to be given on account of the Transfer; (v) a current financial statement of Tenant; and (vi) such other information as may be requested by Landlord. Tenant's notice shall not be deemed to have been served or given until such time as Tenant has provided Landlord with all information reasonably requested by Landlord pursuant to this Section 14.1.2. Tenant shall immediately notify Landlord of any modification to the proposed terms of such Transfer. 14.1.3 LANDLORD MAY WITHHOLD ITS CONSENT TO ANY PROPOSED TRANSFER FOR ANY REASON OR NO REASON. If Tenant seeks to make any Transfer, then Landlord may withhold its consent to such Transfer, as permitted pursuant to Section 14.1.1 above, by giving Tenant written notice of its election within thirty (30) days after Tenant's notice of intent to Transfer has been deemed given to Landlord. Without otherwise limiting the criteria upon which Landlord may withhold its consent to any proposed Transfer, if Landlord withholds its consent where the proposed Transferee's net worth (according to generally accepted accounting principles) is less than the greater of (i) the net worth of Tenant (or guarantor if any) immediately prior to the Transfer, or (ii) the net worth of Tenant (or guarantor if any) as of the Effective Date, such withholding of consent shall be presumptively reasonable. Additionally, such withholding of consent by Landlord shall be presumptively reasonable if (x) at the time consent is requested or at any time prior to the grant of consent, Tenant is in Default under this Lease or would be in Default under this Lease but for the pendency of any grace or cure period specified in this lease; or (y) in Landlord's reasonable judgment, the use of the premises by the proposed Transferee would involve occupancy in violation of this Lease. If Landlord approves of any assignment by Tenant of its interest in this Lease, then Tenant shall pay to Landlord all consideration received by Tenant over and above the assignee's agreement to assume the obligations of Tenant under this Lease. If Landlord approves of any subletting by Tenant of all or part of the Premises, then Landlord shall be entitled to keep the positive difference, if any, between (a) all rent and other consideration paid by the subtenant to Tenant, less (b) all rent paid by Tenant to Landlord pursuant to this Lease which is allocable to the area so sublet. As used herein, the term "consideration" shall mean any consideration of any kind received, or to be received, by Tenant as a result of the Transfer, if such sums are related to Tenant's interest in this lease or in the Premises, including payments (in excess of the fair market value thereof) for Tenant's assets, fixtures, leasehold improvements, inventory, accounts, goodwill, equipment, furniture, general intangibles and any capital stock or other equity ownership interest in Tenant. 25 14.1.4 If Tenant is a corporation, any dissolution, merger, consolidation, or other reorganization of Tenant, or the sale or transfer in the aggregate over the Lease Term of a controlling percentage of the capital stock of Tenant, shall be deemed a Transfer of Tenant's interest in this Lease. The phrase "controlling percentage" or "change of control" means the ownership of and the right to vote stock possessing more than fifty percent (50%) of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors. If Tenant is a partnership, any withdrawal or substitution (whether voluntary, involuntary, or by operation of law and whether occurring at one time or over a period of time) of any partner(s) owning twenty-five percent (25%) or more (cumulatively) of any interest in the capital or profits of the partnership, or the dissolution of the partnership, shall be deemed a Transfer of Tenant's interest in this Lease. Notwithstanding the foregoing, any sale or transfer of Tenant's capital stock over any nationally recognized public exchange (specifically excluding, without limitation, any so-called "penny stock" exchanges) shall not be deemed a Transfer hereunder. 14.1.5 It is the intent of the parties hereto that this Lease shall confer upon Tenant only the right to use and occupy the Premises and to exercise such other rights as are conferred upon Tenant by this Lease. The parties agree that this Lease is not intended to have a bonus value, nor to serve as a vehicle whereby Tenant may profit by a future Transfer of this Lease or the right to use or occupy the Premises as a result of any favorable terms contained herein or any future changes in the market for leased space. 14.1.6 Tenant irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent or other consideration not otherwise payable to Landlord by reason of any Transfer. Landlord, as assignee of Tenant, or a receiver for Tenant appointed on Landlord's application, may collect such rent or other consideration and apply it toward Tenant's obligation under this Lease, provided, however, that until occurrence of any Default by Tenant and following the expiration of any applicable cure period, Tenant may collect and retain such rent or other consideration not otherwise payable to Landlord. 14.2 By Landlord: Landlord and its successors in interest shall have the ----------- right to transfer their interest in the Premises at any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and in the case of any subsequent transfer, the transferor) from the date of such transfer, (i) shall be automatically relieved, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer, and (ii) shall be relieved of all liability for the performance of the obligations of the Landlord hereunder which have accrued before the date of transfer if its transferee agrees to assume and perform all such obligations of the Landlord hereunder. After the date of any such transfer, the term "Landlord" as used herein shall mean the transferee of such interest in the Premises. 15. WASTE DISPOSAL AND HAZARDOUS MATERIALS: -------------------------------------- 15.1 Waste Disposal: Tenant shall store its waste either inside the -------------- Premises or within outside trash enclosures that are designated for such storage. Tenant shall cause all of its waste to be 26 regularly removed from the Premises at Tenant's sole cost. Tenant shall keep all fire corridors and mechanical equipment rooms in the Premises free and clear of all obstructions at all times. 15.2 Hazardous Materials: ------------------- 15.2.1 Definitions: ----------- 15.2.1.1 Environmental Laws: "Environmental Laws" means all local, ------------------ state or federal laws, statutes, ordinances, rules, regulations, judgments, injunctions, stipulations, decrees, orders, permits, approvals, treaties or protocols now or hereafter enacted, issued or promulgated by any governmental authority which relate to any Hazardous Material or to the use, handling, transportation, production, disposal, discharge, release, emission, sale or storage of, or the exposure of any person to, a Hazardous Material. 15.2.1.2 Hazardous Material: "Hazardous Material" means any ------------------ material or substance that is now or hereafter prohibited or regulated by any law or that is now or hereafter designated by any governmental authority to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment, including, without limitation, crude oil or any fraction thereof, asbestos or radon gas. 15.2.2 Hazardous Materials Questionnaire: Tenant shall complete, and --------------------------------- duly execute by the Commencement Date, , a copy of the questionnaire pertaining to Tenant's use of Hazardous Materials attached hereto as Exhibit E (the --------- "Hazardous Materials Questionnaire"). Tenant represents and warrants to Landlord that, to the best of Tenant's knowledge, all information stated in the Hazardous Materials Questionnaire is true and correct as of the Effective Date. Should Tenant become aware of any changes to the Hazardous Materials Questionnaire at any time during the Lease Term, Tenant shall promptly update and amend within thirty (30) days of becoming aware of such changes the Hazardous Materials Questionnaire to reflect such changes thereto. Tenant and Tenant's Agents shall not cause or permit the use, generation, storage, disposal, transportation or release of any Hazardous Materials on, under, in, above, to, or from the Premises except that which is (i) fully described in the Hazardous Materials Questionnaire, (ii) in compliance with Environmental Laws and all applicable Laws and (iii) required for and solely incidental to Tenant's principal use and operation of the Premises. Tenant may not use at the Premises any Hazardous Materials other than those specified in the Hazardous Materials Questionnaire, or in quantities different from those specified in the Hazardous Materials Questionnaire, unless Tenant obtains Landlord's prior written consent to such new use and submits a new Hazardous Materials Questionnaire that accurately describes the new use. Notwithstanding the above, Tenant shall not allow and shall prevent the release or threat of release into the environment at or from the Premises of petroleum, petroleum products, or hazardous substances as defined by the Comprehensive Environmental Response Compensation Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. (S) 9601 et seq. 15.2.3 Indemnity: Tenant shall cause any handling, transportation, --------- storage, treatment, disposal or use of Hazardous Materials by Tenant or Tenant's Agents after the Commencement Date in or about the Premises to comply strictly with all Laws, including, without limitation, applicable Environmental Laws. In addition to Tenant's other indemnity obligations 27 under this Lease, Tenant shall protect, indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold harmless Landlord and its employees, agents, contractors, successors and assigns from and against any and all liabilities, losses, claims, damages, lost profits, consequential damages, interest, penalties, fines, monetary sanctions, attorneys' fees, experts' fees, court costs, remediation costs, investigation costs, and other expenses which result from or arise in any manner whatsoever in whole or in part, out of (i) the use, storage, treatment, transportation, release, or disposal of Hazardous Materials on or about the Premises, by Tenant or Tenant's Agents after the Commencement Date, or (ii) the disposal or release of any Hazardous Materials on the surface of the Premises occurring after the Commencement Date and prior to the termination of this Lease that is not the result of the negligent acts or willful misconduct of Landlord or Landlord's agents, contractors, invitees, or tenants (excluding Tenant). Tenant shall not suffer any lien to be recorded against the Premises as a consequence of the release, discharge or disposal of any Hazardous Materials in, on under or about the Premises by Tenant or any of Tenant's Agents, including any state, federal, or local "superfund" lien related to the removal or remediation of any Hazardous Materials in, over, on, under, through, or about the Premises. 15.2.4 Confidentiality: Tenant shall give written notice to Landlord --------------- as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Premises, and (ii) any contamination of the Premises by Hazardous Materials which constitutes a violation of any Environmental Law or other applicable Laws. Tenant shall keep such information confidential, except for (i) disclosures that are approved by Landlord, (ii) disclosures required by Law or (iii) disclosures to any environmental consultant, lender, purchaser, prospective purchaser, attorneys for Landlord or brokers for Landlord, so long as an agreement of confidentiality is obtained from a party to whom the disclosure is to be made, and (iv) disclosures in connection with any litigation or administrative proceeding in which Tenant is involved. 15.2.5 Survival of Obligations: The obligations of Tenant under ----------------------- Section 15.2 shall survive the expiration or earlier termination of the Lease Term. In the event of any inconsistency between any other part of this Lease and Section 15.2, the terms of Section 15.2 shall control. 16. GENERAL PROVISIONS: ------------------ 16.1 Landlord's Right to Enter: Landlord's Representative may enter ------------------------- the Premises at any reasonable time, following forty-eight (48) hours notice except in the case of an emergency, for the purpose of (i) inspecting the same, (ii) posting notices of non-responsibility, (iii) except as set forth below, showing the Premises to prospective purchasers, mortgagees or tenants (during the last year of the Lease Term only), (iv) making necessary alterations, additions, or repairs, (v) performing Tenant's obligation when Tenant has failed to do so after written notice from Landlord, (vi) placing upon the Premises ordinary "for lease" or "for sale" signs, and/or (vii) in case of an emergency. In the case of an emergency, Landlord's Representative may enter the Premises by means of a master key or may use any and all other means it may deem necessary and proper to open the doors of the Premises. Such master key shall at all times be maintained at Landlord's security office located at Micron Technology, Inc., 8000 S. Federal Way, Boise, Idaho and signed out to Landlord's Representative. Landlord's Representative shall use reasonable efforts to comply with Tenant's 28 security measures during any such entry. Any entry into the Premises or portions thereof obtained by Landlord's Representative by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof. Tenant shall accompany Landlord's Representative during any scheduled entry and Landlord's Representative shall use all reasonable efforts (without requiring Landlord to incur any extra expense or to perform work outside of normal business hours) to avoid interfering with Tenant's use of the Premises during such entry. Notwithstanding the above, Tenant may limit access to designated restricted areas of the Building, such as the cleanroom, by prospective purchasers, mortgagees, or tenants. Landlord and Tenant shall negotiate in good faith in order to determine in advance which areas of the Building in addition to the cleanroom and cleanroom plenum will be designated as restricted areas. 16.2 Surrender of the Premises: Immediately prior to the expiration or ------------------------- upon the sooner termination of this Lease, Tenant shall remove all of Tenant's Trade Fixtures and other personal property and vacate and surrender the Premises to Landlord in the same condition as existed at the Commencement Date, reasonable wear and tear and damage caused by casualty or condemnation excepted, with all interior walls cleaned, all carpets shampooed and cleaned, all HVAC equipment within the Building in operating order and in good repair, and all floors cleaned, all to the reasonable satisfaction of Landlord. If Landlord so requests, Tenant shall, prior to the expiration or sooner termination of this Lease, remove any Leasehold Improvements and repair all damage caused by such removal. If the Premises are not so surrendered at the termination of this Lease, then Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Premises to the required condition, plus interest on all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant. 16.3 Holding Over: This Lease shall terminate without further notice at ------------ the expiration of the Lease Term. Any holding over by Tenant after expiration of the Lease Term shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the Premises, except as expressly provided in this Lease. Any holding over after such expiration with the consent of Landlord shall be construed to be a tenancy from month-to-month on the same terms and conditions herein specified insofar as applicable, except that Monthly Rent shall be increased to One Hundred Sixty Thousand Dollars and No Cents ($160,000.00). 16.4 Subordination: The following provisions shall govern the ------------- relationship of this Lease to any underlying lease, mortgage or deed of trust which now or hereafter affects the Premises, and any renewal, modification, consolidation, replacement or extension thereof (collectively "Security Instruments"), which have been or may hereafter be executed affecting the Premises. 16.4.1 This Lease is subject and subordinate to all Security Instruments existing as of the Effective Date; provided, however, that to Landlord's current actual knowledge (with no duty of inquiry) there are no Security Instruments encumbering the Premises as of the Effective Date. 16.4.2 At Landlord's election, this Lease shall become subject and subordinate to any Security Instruments created after the Effective Date. However, if Landlord, Landlord's Lender or 29 any other successor to Landlord elects in writing, this Lease shall be deemed superior to the Security Instrument specified, regardless of the date of recording, and Tenant will execute an agreement confirming this election on request. 16.4.3 Tenant shall execute any document or instrument required by Landlord or any Lender to make this Lease either prior or subordinate to any Security Instruments, which may include such other matters as the Lender customarily requires in connection with such agreements, including provisions that the Lender not be liable for any defaults on the part of Landlord occurring prior to the time the Lender takes possession of the Premises in connection with the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within ten (10) days after written demand therefor shall constitute a Default by Tenant. 16.4.4 Notwithstanding the foregoing, Landlord shall provide Tenant with a non-disturbance agreement in favor of Tenant from the holder of any future Security Instrument (on such entity's then standard form), which provides, among other matters, that as long as Tenant is not in Default (beyond any applicable notice and cure period), this Lease shall not be terminated by foreclosure or sale pursuant to the terms of such mortgage or lien and all of Tenant's rights under this Lease will continue to be recognized. 16.5 Tenant's Attornment: Tenant shall after written notice from ------------------- Landlord attorn (i) to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any security instrument encumbering the Premises, and (ii) to any grantee or transferee designated in any deed given in lieu of foreclosure; provided the transferee agrees to recognize Tenant's rights under this Lease which accrue after the date of the transfer in question. Tenant hereby waives the protection of any Laws which give or purport to give Tenant any right to terminate this Lease or surrender possession of the Premises upon the transfer of Landlord's interest. 16.6 Lender Protection: In the event of any default on the part of the ----------------- Landlord, Tenant will give notice by registered mail to any Lender whose name, if any, has been provided to Tenant and shall offer Lender a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or judicial foreclosure or other appropriate legal proceedings, if such should prove necessary to effect a cure. 16.7 Estoppel Certificates and Financial Statements: At all times during ---------------------------------------------- the Lease Term, Tenant agrees, within fifteen (15) days after any request by Landlord, promptly to execute and deliver to Landlord an estoppel certificate, (i) certifying that this Lease is unmodified and in full force and effect, or if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect, (ii) stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or if there are uncured defaults, stating the nature of such uncured defaults, and (iv) certifying such other information about the Lease as may be reasonably required by Landlord. Tenant's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Landlord's request therefore shall be a conclusive admission by Tenant that, as of the date of the request for such statement, (i) this Lease is unmodified except as may be represented by Landlord in said request and is in full force and effect, (ii) there are no uncured defaults in Landlord's 30 performance, and (iii) no rent has been paid in advance. At any time during the Lease Term, Tenant shall, upon fifteen (15) days' prior written notice from Landlord, provide Tenant's most recent publicly filed financial statement and publicly filed financial statements covering the twenty-four (24) month period prior to the date of such most recent publicly filed financial statement to any existing Lender or to any potential Lender or buyer of Landlord's interest in the Premises. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 16.8 Force Majeure: Any prevention, delay, or stoppage due to strikes, ------------- lockouts, inclement weather, labor disputes, inability to obtain labor, materials, fuels or reasonable substitutes therefor, governmental restrictions, regulations, controls, action or inaction, civil commotion, fire or other acts of God, and other causes beyond the reasonable control of either party to perform shall excuse the performance thereof, for a period equal to the period of any said prevention, delay, or stoppage, of any obligation hereunder -- except Tenant's obligations under Section 4.2, Section 15.1, and Section 15.2, and Tenant's obligation to pay Monthly Rent, Additional Rent, or any other payment obligations required by this Lease. 16.9 Notices: Any notice required or desired to be given regarding this ------- Lease shall be in writing and shall be personally served, or in lieu of personal service may be given by mail. Personally served notices shall be deemed to have been given when received by the party, if served by mail, such notice shall be deemed to have been given (i) on the third business day after mailing to the party if such notice was deposited in the United States mail, certified and postage prepaid, addressed to the party to be served at the address set forth below, and (ii) in all other cases when actually received. Either party may change its address by giving notice of same in accordance with this Section. To Micron at: To Tenant at - the Premises. Micron Technology, Inc. PixTech, Inc. 8000 S. Federal Way 3350 Scott Blvd., Bldg. 37 Boise, ID 83716 Santa Clara, CA 95054 Facsimile: (208) 368-5555 Facsimile: (408) 986-9896 Attn: Jan Nowak Attn: Dieter Mezger With a required copy to: With a required copy to: Micron Technology, Inc. PixTech, Inc. 8000 S. Federal Way 3350 Scott Blvd., Bldg. 37 P.O. Box 6 Santa Clara, CA 95054 Boise, ID 83707-0006 Facsimile: (208) 368-4540 Facsimile: (408) 986-9896 Attn: General Counsel Attn: Michel Garcia 16.10 Attorneys' Fees: If either party shall bring any action or legal --------------- proceeding for an alleged breach of any provision of this Lease, to recover rent, to terminate this Lease or to otherwise 31 enforce, protect or establish any term or covenant of this Lease, then the prevailing party shall be entitled to recover as a part of such action or proceedings, or in a separate action brought for that purpose, reasonable attorneys' fees and court costs as may be fixed by the court. 16.11 Corporate Authority: If Tenant is a corporation (or a partnership), ------------------- each individual executing this Lease on behalf of said corporation (or partnership) represents and warrants that he/she is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with the bylaws of said corporation (or partnership in accordance with the partnership agreement of said partnership) and that this Lease is binding upon said corporation (or partnership) in accordance with its terms. If Tenant is a corporation, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing corporation, that Tenant has and is qualified to do business in the state in which the Premises is located and that the corporation has full right and authority to enter into this Lease. If Tenant is a corporation Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of the resolution of the board of directors of said corporation authorizing or ratifying the execution of this Lease. 16.12 Miscellaneous: Should any provisions of this Lease prove to be ------------- invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. The captions used in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. Any executed copy of this Lease shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. "Party" shall mean Landlord or Tenant, as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. If Tenant is a corporation, nothing in this Section is intended to confer personal liability upon the officers or shareholders of Tenant. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises is located. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless specific provision is made therefor. All measurements of gross leasable area shall be made from the outside faces of exterior walls and the centerline of joint partitions. Landlord makes no covenant or warranty as to the exact square footage of any area. Where Tenant is obligated not to perform any act, Tenant is also obligated to restrain any others within its control from performing said act, including Agents, invitees, contractors, subcontractors and employees. Landlord shall not become or be deemed a partner nor a joint venturer with Tenant by reason of the provisions of this Lease. Except as expressly provided otherwise herein, if either party's consent or approval is required as a condition to the doing of any act by the other party, such consent shall not be unreasonably withheld. 32 16.13 Brokerage Commissions: Tenant warrants that it has not had any --------------------- dealings with any real estate brokers, leasing agents, salesmen, or incurred any obligations for the payment of real estate brokerage commissions or finder's fees which would be earned or due and payable by reason of the execution of this Lease. 16.14 Consents and Approvals: Wherever the consent, approval, judgment ---------------------- or determination of Landlord is required or permitted under this Lease, Landlord may exercise its good faith business judgment in granting or withholding such consent or approval or in making such judgment or determination without reference to any extrinsic standard of reasonableness, unless the provision providing for such consent, approval, judgment or determination specifies that Landlord's consent or approval is not to be unreasonably withheld, or that such judgment or determination is to be reasonable, or otherwise specifies the standards under which Landlord may withhold its consent. Notwithstanding anything to the contrary contained in this Lease, if it is determined that Landlord failed to give its consent where it was required to do so under this Lease, Tenant shall be entitled to specific performance but not to monetary damages for such failure. The review and/or approval by Landlord of any item to be reviewed or approved by Landlord under the terms of this Lease or any Exhibits hereto shall not impose upon Landlord any liability for accuracy or sufficiency of any such item or the quality or suitability of such item for its intended use. Any such review or approval is for the sole purpose of protecting Landlord's interest in the Premises under this Lease, and no third parties, including Tenant, its Agents, employees, contractors, invitees, or any person or entity claiming by, through or under Tenant, shall have any rights hereunder. 33 16.15 Termination by Exercise of Option: Except as otherwise set forth --------------------------------- herein, if this Lease is terminated pursuant to its terms by the proper exercise of an option to terminate specifically granted to Landlord or Tenant by this Lease, then this Lease shall terminate thirty (30) days after the date the option to terminate is properly exercised (unless another date is specified in that part of the Lease creating the option, in which event the date so specified for termination shall prevail), the rent and all other charges due hereunder shall be prorated as of the date of termination, and neither Landlord nor Tenant shall have any further rights or obligations under this Lease except for those that have accrued prior to the date of termination. This Section does not apply to a termination of this Lease by Landlord as a result of a Default by Tenant. 16.16 Entire Agreement: This Lease constitutes the entire agreement ---------------- between the parties, and there are no binding agreements or representations between the parties except as expressed herein. Tenant acknowledges that neither Landlord nor Landlord's agent(s) has made any representation or warranty as to (i) whether the Premises may be used for Tenant's intended use under existing Law or (ii) the suitability of the Premises for the conduct of Tenant's business or the condition of any improvements located thereon. Tenant expressly waives all claims for damage by reason of any statement, representation, warranty, promise or other agreement of Landlord or Landlord's agent(s), if any, not contained in this Lease or in any addendum or amendment hereto. No subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the intent to be legally bound thereby, to be effective as of the Effective Date of this Lease. LANDLORD: TENANT: MICRON TECHNOLOGY, PIXTECH, INC., a Delaware INC., a Delaware corporation corporation By: /s/ W.G. Stover, Jr. By: /s/ Dieter Mezger -------------------------- ------------------------ Printed Printed Name: Name: ------------------------ ---------------------- Title: Title: ------------------------ ---------------------- 34 EX-10.45 4 EMPLOYMENT AGREEMENT OF JAMES T. CATHEY EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT dated as of May 20, 1999 (the "Execution Date") by and between PixTech, Inc., a Delaware corporation (the "Company") with its principal offices at Avenue Olivier Perroy, 13790 Rousset, France, and James J. Cathey, ("Executive"). WHEREAS, the Company desires to employ Executive in a senior executive capacity and to enter into an Agreement embodying the terms of such employment (the "Agreement"); and WHEREAS, Executive desires to accept such employment and enter into such an Agreement; NOW, THEREFORE, in consideration of the premises, and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Term of Employment. The Company hereby agrees to employ Executive, and ------------------ Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth in this Agreement, for a period commencing on the Closing Date (as defined in a certain Acquisition Agreement dated as of March 19, 1999 between Micron Technology, Inc. ("Micron") and the Company (the "Acquisition Agreement")) (the "Effective Date") and continuing until terminated in accordance with the provisions of Section 5 (the "Employment Term"). 2. Title; Duties. During the Employment Term, Executive shall serve as the ------------- Vice President Worldwide Sales and Marketing of the Company. In such position, Executive shall have such duties and authority as shall be designated from time to time by the Chief Executive Officer of the Company or its designee. The Executive hereby agrees to undertake the duties and responsibilities inherent in such position and such other duties and responsibilities as the Chief Executive Officer or its designee shall from time to time reasonably assign to him. 3. No Conflict. During the employment term, Executive shall devote ----------- substantially all of his business time and best efforts to the performance of his duties hereunder and shall not, directly or indirectly, engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such duties without the prior written consent of the Chief Executive Officer, which consent shall not unreasonably be withheld, delayed or conditioned. Executive represents and warrants that Schedule A attached hereto states all current business relationships, including, but not limited to, consulting agreements, confidentiality agreements and non- competition agreements that Executive is currently a party to. 4. Compensation and Benefits. ------------------------- 4.1 Base Salary. During the Employment Term, the Company shall pay ----------- Executive for his services hereunder a base salary (the "Base Salary") at the initial annual rate of $140,000, payable in regular installments in accordance with the Company's usual payment practices and subject to annual review and adjustment by the Chief Executive Officer in its sole discretion. 4.2 Additional Compensation. ----------------------- 4.2.1 Stock Option. As further compensation for his services ------------ hereunder, the Company shall grant to Executive, on or after the Effective Date, a stock option (the "Stock Option") to purchase 154,000 shares of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). The Stock Option shall be pursuant to the Company's 1993 Stock Option Plan (the "Plan") and in accordance with the Company's standard terms and other conditions. The exercise price of such Stock Option shall be $2.0625 per share. Such options shall vest as to 25% of such options upon the six month anniversary of the date such option was granted and upon each of the first three anniversaries of the date such Stock Option first became vested in any amount, except that, upon a Change of Control (as hereinafter defined), such options shall immediately vest in Executive. For purposes of this Section 4.2.1. the occurrence of any one of the following shall be deemed a "Change of Control": (i) the acquisition by any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934) of any amount of the Company's Common Stock so that it holds or controls fifty percent (50%) or more of the Company's Common Stock; or (ii) a merger or consolidation after which fifty percent (50%) or more of the voting stock of the surviving corporation is held by persons who where not stockholders of the Company immediately prior to such merger or combination. 4.2.2 Milestone Bonus. As further compensation for his services --------------- hereunder, the Company may, from time to time, pay Executive a bonus (the "Bonus"), upon the achievement of certain milestones. The Bonus available to Executive for the 1999 calendar year (the "1999 Bonus") is equal to one percent of development contract payments payable under the DARPA Contract (as defined in the Acquisition Agreement) which are assigned from Micron to the Company during the 1999 calendar year. Two thirds of any 1999 Bonus due to Executive will be paid to the Executive within 30 days after DARPA assigns the DARPA Contract to PixTech, and one third of any 1999 Bonus due to Executive shall be paid within 30 days after the Company receives all such payments due the Company pursuant to the DARPA Contract. 4.3 Executive Benefits. During the Employment Term and subject to any ------------------ contributions therefor generally required of senior executives of the Company, Executive shall be entitled to receive such employee benefits (including fringe benefits, 401(k) plan participation, and life, health, accident and disability insurance, if any) which the Company may, in its sole and absolute discretion, make available generally to its senior executives, or for personnel similarly situated; provided, however, that it is hereby acknowledged and agreed that any -------- ------- such employee benefit plans may be altered, modified or terminated by the Company at any time in its sole discretion without recourse by Executive. 2 4.4 Vacation. Executive shall be entitled to 3 weeks (15 working days) -------- of paid vacation per annum during the Employment Term, to accrue in accordance with the Company's policy and to be taken at such time or times as shall be mutually convenient for the Company and Executive. Unused vacation time will be allocated pursuant to the Company's existing policies and practices. 4.5 Business Expenses and Perquisites. Executive shall be entitled to --------------------------------- reimbursement by the Company during the Employment Term for reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder in accordance with such policies as the Company may from time to time have in effect. 4.6 Indemnification. The Company shall, to the fullest extent --------------- permitted by the General Corporation Law of the State of Delaware, as amended from time to time and in accordance with the Company's Certificate of Incorporation, as amended from time to time, and By-laws, as amended from time to time, indemnify Executive if Executive is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was an officer of the Company, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom. In addition, Executive shall be covered by the Company's standard director and officer insurance. 4.7 Signing Bonus. Upon execution of this Agreement, PixTech shall pay ------------- $50,000 to Executive. If Executive is not an employee of the Company on the six month anniversary of the Closing Date, Executive shall pay PixTech $50,000 on such date. 4.8 Six Month Bonus. If Executive remains employed by PixTech for six --------------- months, beginning on the Closing Date, PixTech shall pay Executive a bonus of $84,000. 5. Termination. ----------- 5.1 Without Cause by the Company. The Executive's employment hereunder ---------------------------- may be terminated by the Company at any time without Cause upon not less than thirty (30) days prior written notice from the Company to Executive. If Executive's employment is terminated by the Company without Cause, including without limitation by reason of Executive's failure to achieve stated goals or milestones, the Company shall pay Executive a lump sum amount equal to the Base Salary plus any benefits to which Executive is entitled under Section 4.3 of this Agreement (to the extent permitted by the then-current terms of the applicable benefit plans and subject to any employee contribution requirements applicable to Executive on the date of termination) through the conclusion of a period of six months from the date of such termination. The payment to Executive of any other benefits following the termination of Executive's employment pursuant to this Section 5.1 shall be determined by the Chief Executive Officer in its sole discretion in accordance with the policies and practices of the Company. 3 5.2 For Cause by the Company. Notwithstanding any other provision of ------------------------ this Agreement, Executive's employment hereunder may be terminated by the Company at any time for Cause. For purposes of this Agreement, "Cause" shall mean (i) Executive's dishonesty in the performance of his duties hereunder, (ii) an act or acts on Executive's part constituting a felony under the laws of the United States or any state thereof, or (iii) Executive's material breach of his obligations under Section 6 and 7 hereof, which breach shall remain uncured by Executive for thirty (30) days following receipt of notice from the Company specifying such breach. If Executive's employment is terminated by the Company for Cause, the Company shall pay Executive a lump sum amount equal to the Base Salary through the last day of his actual employment by the Company. The payment to Executive of any other benefits following the termination of Executive's employment pursuant to this Section 5.2 shall be determined by the Chief Executive Officer in its sole discretion in accordance with the policies and practices of the Company. 5.3 Disability. Executive's employment hereunder may be terminated by ---------- the Company at any time in the event of the Disability of the Executive. For purposes of this Agreement, "Disability" shall mean the inability of Executive to substantially perform his duties hereunder due to physical or mental disablement which continues for a period of six (6) consecutive months during the Employment Term, as determined by an independent qualified physician mutually acceptable to the Company and Executive (or his personal representative) or, if the Company and Executive (or such representative) are unable to agree on an independent qualified physician, as determined by a panel of three physicians, one designated by the Company, one designated by Executive (or his personal representative) and one designated by the two physicians so designated. If Executive's employment is terminated by the Company for Disability, the Company shall pay Executive an amount equal to the Base Salary plus any benefits to which Executive is entitled under Section 4.3 of this Agreement (to the extent permitted by the then-current terms of the applicable benefit plans and subject to any employee contribution requirements applicable to Executive on the date of termination) through the date on which Executive is first eligible to receive payment of disability benefits in lieu of Base Salary under the Company's employee benefit plans as then in effect. The payment to Executive of any other benefits following the termination of Executive's employment pursuant to this Section 5.3 shall be determined by the Chief Executive Officer in its sole discretion in accordance with the policies and practices of the Company. 5.4 Death. Executive's employment hereunder shall automatically ----- terminate in the event of the Executive's death. If Executive's employment is terminated by the death of Executive, the Company shall pay to Executive's estate or legal representative an amount equal to the Base Salary at the rate in effect at the time of Executive's death through the day in which his death occurs. The payment to Executive of any other benefits following the termination of Executive's employment pursuant to this Section 5.4 shall be determined by the Chief Executive Officer in its sole discretion in accordance with the policies and practices of the Company. 5.5 Termination by Executive. Executive's employment hereunder may be ------------------------ terminated by Executive at any time upon not less than sixty (60) days prior written notice from Executive to the Company. If Executive terminates his employment with the Company pursuant 4 to this Section 5.5, the Company shall pay Executive an amount equal to the Base Salary through the last day of his actual employment by the Company; provided, however, if such voluntary termination is by reason of a demotion of Executive or a decrease in the Base Salary of Executive, the Company shall pay Executive a lump sum amount equal to the prior Base Salary plus any benefits to which Executive is entitled under Section 4.3 of this Agreement (to the extent permitted by the then-current terms of the applicable to Executive on the date of termination) through the conclusion of a period of six months from the date of such termination. 5.6 Notice of Termination. Any purported termination of employment by --------------------- the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 9 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. 5.7 Survival. The provisions of Sections 6 and 7 shall survive the -------- termination of this Agreement. 6. Non-Competition. Executive acknowledges and recognizes the highly --------------- competitive nature of the businesses of the Company and accordingly agrees that during the Employment Term and for a period of one (1) year after expiration or termination of Executive's employment hereunder: 6.1 Executive will not engage in any activity including without limitation becoming an employee, investor (except for passive investments of not more than one percent (1%) of the outstanding shares of, or any other equity interest in, a company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent, partner or director of, or other participant in, any firm, person or other entity in any geographic area which is engaged in any activities in the field of the development, manufacturing, marketing, sale, distribution or commercialization of FEDs. Notwithstanding any provision of this Agreement to the contrary, upon the occurrence of any breach of this Section 6.1, if Executive is employed by the Company, the Company may immediately terminate the employment of Executive for Cause in accordance with the notice provisions contained in Sections 5.6 and 9, and, whether or not Executive is employed by the Company, the Company shall immediately cease to have any obligations to make payments to Executive under this Agreement. 6.2 Executive will not directly or indirectly assist others in engaging in any of the activities in which Executive is prohibited to engage by clause 6.1 above. 6.3 Executive will not directly or indirectly (a) induce any employee of the Company to engage in any activity in which Executive is prohibited from engaging by clause 6.1 above or to terminate his or her employment with the Company, or (b) employ or offer employment to any person who was employed by the Company unless such person shall have ceased to be employed by the Company for a period of at least one (1) year. 5 6.4 It is expressly understood and agreed that (a) although Executive and the Company consider the restrictions contained in this Section 6 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is unenforceable, this Agreement shall not be rendered void but shall be deemed to be enforceable to such maximum extent as such court may judicially determine or indicate to be enforceable and (b) if any restriction contained in this Agreement is determined to be unenforceable and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 7. Confidentiality. Executive will not at any time (whether during or --------------- after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other organization, entity or enterprise other than the Company, any Confidential Information. As used herein, the term "Confidential Information" shall mean, without limitation, all Proprietary Materials (as defined below), any and all information about inventions, improvements, modifications, discoveries, costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, concepts, technical processes and applications, and other business affairs and methods of the Company and of its affiliates, licensees, collaborators, consultants, suppliers, and customers, as well as any other information not readily available to the public, including without limitation any information supplied by third parties to the Company under an obligation of confidence. As used in this Agreement "Proprietary Materials" shall include, without limitation, the following materials: any and all materials used in construction of field emission displays and completed field emission display samples as well as any and all derivatives or replications derived from or relating to such materials. Confidential Information may be contained in various media, including without limitation patent applications, computer programs in object and/or source code, flow charts and other program documentation, manuals, plans, drawings, designs, technical specifications, laboratory notebooks, supplier and customer lists, internal financial data, and other documents and records of the Company, whether or not in written form and whether or not labeled or identified as confidential or proprietary. Executive further agrees that (a) upon termination or expiration of his employment hereunder, Executive will return immediately to the Company any Proprietary Materials and any materials containing Confidential Information then in Executive's possession or under Executive's control and (b) he will not retain or use for his account at any time any trade name, trademark or other proprietary business designation used or owned in connection with the business of the Company. 8. Specific Performance. Executive acknowledges and agrees that the -------------------- Company's remedies at law for a breach or threatened breach of any of the provisions of Section 6 or Section 7 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining orders, temporary or permanent injunctions or any other equitable remedy which may then be available. 6 9. Notices. Any notice hereunder by either party to the other shall be ------- given in writing by personal delivery, telecopy or registered mail, return receipt requested, addressed, if to the Company, to the attention of the Chief Executive Officer at the Company's executive offices or to such other address as the Company may designate in writing at any time or from time to time to the Executive, and if to the Executive, to his most recent address on file with the Company. Notice shall be deemed given, if by personal delivery, on the date of such delivery or, if by telex or telecopy, on the business day following receipt of answer back or telecopy information or, if by registered mail, on the date shown on the applicable return receipt. 10. Assignment. This Agreement may not be assigned by either party ---------- without the prior written consent of the other party. The Company shall require any persons, firm or corporation succeeding to all or substantially all of the business or assets of the Company whether by purchase, merger or consolidation to expressly assume and agree to perform this Agreement. 11. Entire Agreement. This Agreement contains the entire agreement ---------------- between the Company and Executive with respect to the subject matter thereof and there have been no oral or other agreements of any kind whatsoever as a condition precedent or inducement to the signing of this Agreement or otherwise concerning this Agreement or the subject matter hereof. 12. Expenses. Each party shall pay its own expenses incident to the -------- performance or enforcement of this Agreement, including all fees and expenses of its counsel for all activities of such counsel undertaken pursuant to this Agreement, except as otherwise herein specifically provided. If any action at law or equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reimbursement of reasonable attorney's fees and other costs incurred by such party in connection with such action, in addition to any other relief to which such party is entitled. 13. Arbitration. In the event any dispute shall arise between the Company ----------- and the Executive with respect to any of the terms and conditions of this Agreement, then such dispute shall be submitted and finally settled by arbitration in Boise, Idaho under the rules of the American Arbitration Association. The award rendered by the arbitrator shall be final and binding upon the parties hereto, and judgment upon the award rendered may be entered by either party in any court that would ordinarily have jurisdiction over the parties or the subject matter of the controversy or claim. Each party shall pay its own expenses incident to such arbitration, including attorneys' fees. The parties agree not to institute any litigation or proceedings against each other in connection with this Agreement except as provided in this Section 13. 14. Waivers and Further Agreements. Any waiver of any terms or conditions ------------------------------ of this Agreement shall not operate as a waiver of any other breach of such terms or conditions or any other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof; provided, however, that no such written wavier, unless it, by its own terms, explicitly provides to the contrary, shall be construed to effect a continuing waiver of the provision being waived and no such waiver in any instance shall constitute a waiver in any other instance or for any other purpose or impair the right of the party 7 against whom such waiver is claimed in all other instances or for all other purposes to require full compliance with such provision. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 15. Amendments. This Agreement may not be amended, nor shall any waiver, ---------- change, modification, consent or discharge be effected except by an instrument in writing executed by or on behalf of the party against whom enforcement of any waiver, change, modification, consent or discharge is sought. 16. Severability. If any provision of this Agreement shall be held or ------------ deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case. 17. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and in pleading or proving any provision of this Agreement, it shall not be necessary to produce more than one of such counterparts. 18. Section Headings. The headings contained in this Agreement are for ---------------- reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 19. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the law (other than the law governing conflict of law questions) of the state of Delaware. 8 IN WITNESS WHEREOF, the parties have been executed or caused to be executed this Agreement as of the date first above written. PIXTECH, INC. By: /s/ Dieter Mezger --------------------------------------------- Name: Dieter Mezger Title: President and Chief Executive Officer JAMES J. CATHEY /s/ James J. Cathey 5/20/99 ------------------------------------------------- 9 SCHEDULE A ---------- Business Relationships ---------------------- Employment Agreement with Micron Technology, Inc. 10 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 7,017 0 322 0 1,348 12,161 28,604 14,393 49,065 16,711 0 223 0 4 13,362 49,065 178 492 85 7,717 0 0 (98) (8,029) 0 0 0 0 0 (8,029) 0.43 0
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