NOTE PURCHASE AGREEMENT

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Exhibit 10.17

NOTE PURCHASE AGREEMENT

        This Note Purchase Agreement (this "Agreement"), dated as of February 12 1999, by and between Displaytech, Inc., a Colorado corporation (the "Issuer" or the "Company"), and Hewlett-Packard Company, a Delaware corporation (the "Purchaser").

W I T N E S S E T H:

        WHEREAS, subject to the terms and conditions of this Agreement, the Company will authorize the issuance and sale of up to $10,000,000 aggregate Principal amount of its 9% Convertible Notes (the "Notes"); and

        WHEREAS, the Issuer wishes to issue and sell the Notes to the Purchaser, and the Purchaser wishes to purchase the Notes from the Issuer, on the terms and subject to the conditions of this Agreement; and

        WHEREAS, the offer and sale of the Notes to the Purchaser, and the offer and sale of the shares of Preferred Stock of the Issuer issuable upon conversion of the Notes, and of the Common Stock of the Issuer issuable upon conversion of the Preferred Stock will be made without registration of the Notes, such shares of Preferred Stock, or such shares of Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption from the registration requirements of the Securities Act;

        NOW THEREFORE, in consideration of the premises and the mutual promises set forth herein, the parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

        Section 1.1.    As used in this Agreement, the following terms shall have the following meanings:

        "Affiliate" has the meaning ascribed to such term in Rule 405 promulgated under the Securities Act.

        "Board of Directors" means the board of directors of the Issuer or any duly authorized committee of such board.

        "Business Day" means any day which is not a day on which banking institutions in the Cities of New York, Denver or San Francisco are authorized or obligated by law, regulation or executive order to close.

        "Business Plan" means the plans described in the Issuer's Business and Industry Overview, dated December 3, 1998, as amended by a letter dated February 11, 1999, dealing with outsource manufacturing, attached hereto as Exhibit A.

        "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and the amount of any such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP.

        "Capital Stock" means any and all shares of capital stock of the Issuer (however designated and whether voting or nonvoting), and shall include, but not be limited to, the Common Stock and the Preferred Stock.

        "Cash Equivalents" means (a) securities with maturities of 90 days or less from the date of acquisition that are issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days

or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic Person (other than an individual) rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Xxxxx'x Investors Service, Inc. ("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition, or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

        "Change of Control" means the occurrence of any of the following events:(a) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other property; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66²/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation.

        "Closing Date" has the meaning set forth in Section 3.2 herein.

        "Common Stock" means the Common Stock, par value $.001 per share, of the Company and all shares hereafter authorized of any class of common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a consolidation or merger of the Company with or into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event.

        "Conditional Notes" has the meaning set forth in Section 2.2(b) herein.

        "Control" means with respect to any specified person, the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "Controlling" and "Controlled" have meanings correlative to the foregoing.

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        "Designation of Rights" means the Certificate of Designation and Determination of Preferences of the Series HP Convertible Preferred Stock of the Issuer, dated February 17, 1999, creating the Preferred Stock, in substantially the form attached hereto as Exhibit B.

        "Event of Default" has the meaning set forth in Section 9.1 herein.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "First Closing Date" has the meaning set forth in Section 3.1 herein.

        "First Disbursement Note" has the meaning set forth in Section 2.2(a) herein.

        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by significant segment of the accounting profession of the United States of America, which are applicable from time to time and are consistently applied.

        "Holder" means any person owning or having the right to acquire Registrable Securities or any permitted assignee thereof.

        "Indebtedness" means, with respect to any Person, without duplication, (a) all liabilities of such Person for borrowed money or for the deferred purchase price of property or services, excluding any (i) trade account payables arising in the ordinary course of business and (ii) other accrued current liabilities incurred in the ordinary course of business, including, without limitation, all obligations, contingent or otherwise, of such Person in connection with any letters of credit, banker's acceptance or other similar credit transaction; (b) all obligations of such Person evidenced by bonds, debentures or other similar instruments; (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business; (d) all Capitalized Lease Obligations of such Person; (e) all Indebtedness referred to in the preceding clauses of other Persons and all dividends of other Persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (the amount of such obligation being deemed to be the lesser of the value of such property or asset or the amount of the obligation so secured); (f) all guarantees of Indebtedness referred to in this definition by such Person; and (g) all obligations under or in respect of currency agreements and interest rate protection obligations of such Person.

        "Intellectual Property" means all patents, trade secrets, trademarks, trade names, copyrights, mask-work rights and other similar proprietary rights owned or licensed by the Issuer, its Subsidiaries and used in its business.

        "Interest" means, with respect to any Note, the amount of all interest accruing on such Note, including all interest accruing subsequent to the occurrence of any events specified in Sections 9(d) which would have accrued but for any such event, whether or not such claims are allowable under applicable law.

        "Interest Payment Date" means, with respect to each Note issued hereunder, the Maturity Date thereof or the date that interest is paid as a result of a prepayment pursuant to the terms therein.

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        "Investors" means Kingdon Associates, L.P., Kingdon Partners, L.P., X. Xxxxxxx Offshore NV, Century Partners-Dtech, L.P., J. Xxxxxx Xxxxxxxxxx, Xx., InterWest Capital, Inc., and Hewlett-Packard Company, as parties to the Stock Purchase Agreements, by and among Displaytech, Inc. and the Investors.

        "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind; provided that, except as set forth in the next succeeding sentence, in no event shall an operating lease be deemed to constitute a Lien. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease Obligation or other title retention agreement.

        "Maturity Date" means, with respect to each Note issued hereunder, the third anniversary of the date the First Disbursement Note is first issued, as set forth on the face thereof.

        "Notes" means the instruments of Indebtedness that are issued under this Agreement, substantially in the form of Exhibit C attached hereto.

        "Officer" means the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, or the Secretary of the Issuer.

        "Officers' Certificate" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Issuer.

        "Opinion of Counsel" means a written opinion from legal counsel. The counsel may be an employee of or counsel to the Issuer or Purchaser, as applicable hereunder.

        "Outstanding Securities" has the meaning set forth in Section 5.1(b) herein.

        "Permitted Indebtedness" has the meaning set forth in Section 8.1(b) herein.

        "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, charitable foundation, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

        "Preferred Stock" means the shares of the Company's Series HP Convertible Preferred Stock, par value $.001 per share.

        "Principal" means, with respect to any debt security, including the Notes, the principal amount of the security plus, when appropriate, the premium, if any, on the security and any interest on overdue principal.

        "Purchase Price" has the meaning set forth in Section 2.1 herein.

        "Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective Registration, as amended, covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the price per share of Common Stock shall be not less than $30.00 per share.

        "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

        "Registrable Securities" means (i) the Common Stock acquired or acquirable by the Investors pursuant to the Stock Purchase Agreements and, the shares of Common Stock issuable upon exercise of the warrants acquired or acquirable pursuant to the Stock Purchase Agreements

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between the Investors and the Issuer (including, without limitation, the "Anti-dilution Warrants" as defined in the Stock Purchase Agreements) and (ii) any Common Stock issued as a dividend or distribution with respect to or in exchange for such Common Stock, excluding in all cases, however, (i) any Common Stock that would otherwise be Registrable Securities transferred in a transaction in which the Investors' rights under Section 2 of such Shareholders' Rights Agreement are not properly assigned pursuant to Section 2.13 of such Shareholders' Rights Agreement and (ii) any Common Stock that would otherwise be Registrable Securities, if such securities, in the hands of the Holder thereof (A) are no longer restricted securities under the Securities Act or (B) may be sold, together with all other Common Stock (whether Registrable Securities or otherwise) held by such Holder, in any single three-month period, because the volume limitations of Rule 144 are not applicable or otherwise.

        "SEC" means the Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of the Agreement such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time.

        "Second Disbursement Note" has the meaning set forth in Section 2.2(a) herein.

        "Securities Act" means the Securities Act of 1933, as amended from time to time.

        "Shareholders' Rights Agreement" means the Shareholders' Rights Agreement, dated as of October 2, 1995, by and among the Issuer and the Investors, as amended by Amendment No. 1, dated as of October 10, 1997, and Amendment No. 2, dated as of January 27, 1998.

        "Stock Purchase Agreement" means each of that certain Stock Purchase Agreement, dated as of March 31, 1995, as amended, by and among the Issuer, J. Xxxxxx Xxxxxxxxxx, Xx. and Century Partners-Dtech, L.P., that certain Stock and Warrant Purchase Agreement, dated as of October 2, 1995, as amended, by and among the J. Xxxxxx Xxxxxxxxxx, Xx., Century Partners-Dtech, L.P., and Kingdon Associates, L.P., Kingdon Partners, L.P. and X. Xxxxxxx Offshore NV, that certain Stock Purchase Agreement, dated as of October 11, 1997, as amended, between the Issuer and InterWest Capital, Inc., and that certain Stock Purchase Agreement, dated as of January 27, 1998, as amended, by and among the Issuer and the Purchaser (the "HP Stock Purchase Agreement" and collectively with the other agreements described herein, the "Stock Purchase Agreements").

        "Subsequent Closing Date" has the meaning set forth in Section 3.2 herein.

        "Subsidiary" means, with respect to the Issuer, (i) a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by the Issuer, by one or more Subsidiaries of the Issuer or by the Issuer and one or more Subsidiaries and (ii) any other Person (other than a corporation), including, without limitation, a joint venture, in which the Issuer, one or more Subsidiaries or the Issuer and one or more Subsidiaries, directly or indirectly, at the date of determination thereof, has at least majority ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other Person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary.

        "Third Disbursement Note" has the meaning set forth in Section 2.2(a) herein.

        "Transaction Documents" means this Agreement, the Note and the Designation of Rights.

        "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof under ordinary circumstances have the power to vote in the election of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, Capital Stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency).

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SECTION 2. SALE AND PURCHASE OF NOTES.

        Section 2.1.    Subject to the terms and conditions of this Agreement, the Issuer agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, up to $10,000,000 aggregate Principal amount of Notes on the Closing Dates. The purchase price of the Notes purchased by the Purchaser shall be 100% of the Principal amount thereof (the "Purchase Price").

Section 2.2.    Forms and Dating of Notes.

        (a)   The Notes shall be in substantially the form of Exhibit C attached hereto, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Agreement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any applicable law. The Notes shall be issued in the Principal amounts of $5,000,000, $3,000,000, and $2,000,000 (the "First Disbursement Note", the "Second Disbursement Note" and the "Third Disbursement Note," respectively).

        (b)   On the First Closing Date, the Issuer agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, the First Disbursement Note. The First Disbursement Note shall be dated as of the First Closing Date. Subject to the terms and conditions of Section 2.3 of this Agreement, the Issuer agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, the Second Disbursement Note and the Third Disbursement Note (collectively, the "Conditional Notes"). Each Conditional Note shall be dated as of its respective Closing Date.

Section 2.3.    Conditions Precedent to Sale and Purchase of the Conditional Notes.    In addition to the conditions with respect to a Subsequent Closing specified in Section 4, prior to the issuance, sale and purchase of each of the Conditional Notes, the following conditions will have been met: the Chief Financial Officer of the Issuer shall have provided to the Purchaser a written notice (the "Initial Notice") (a) setting forth a Subsequent Closing Date (which Subsequent Closing Date will be at least 60 days after the Initial Notice Date) for the issuance of the Conditional Note to which such Initial Notice relates, (b) attesting that (i) the amount of cash and Cash Equivalents available to the Issuer will be less than $1,000,000 on such Subsequent Closing Date and (ii) the Issuer is executing the Business Plan, and (c) setting forth as the date of such Initial Notice (the "Initial Notice Date"). The Purchaser will (subject to the conditions specified in this Section 2.3 and Section 4) purchase the Conditional Note that is the subject of the Initial Notice on the Subsequent Closing Date set forth therein if the Purchaser shall determine that, in its reasonable opinion in discussion with the Issuer, the Issuer is executing the Business Plan. The Purchaser shall deliver to the Issuer as soon as practicable but in no event later than 10 Business Days after receipt of the Initial Notice, a notice (the "Responsive Notice") stating either that (x) the Purchaser will proceed with the transaction contemplated by the Initial Notice (a "Favorable Responsive Notice") or (y) the Purchaser has determined that, in its reasonable opinion in discussion with the Issuer, the Issuer is not executing the Business Plan and the Purchaser will not proceed with the transaction contemplated by the Initial Notice (an "Unfavorable Responsive Notice").

SECTION 3. CLOSING

        Section 3.1.    The closing of the issuance and sale of the First Disbursement Note (the "First Closing") shall be held at the offices of the Issuer, in Colorado, at 9:00 a.m., local time, on February 17, 1999, or at such later date and time as the parties shall mutually agree (the "First Closing Date"). The First Disbursement Note shall be registered in the name of the Purchaser and shall be in such denominations as the Purchaser may request not less than three (3) Business Days prior to the Closing Date.

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        Section 3.2.    After the conditions of Section 2.3 have been met by the Issuer, the closing of the issuance and sale of each of the Conditional Notes (each, a "Subsequent Closing") shall be held at the offices of the Issuer, in Colorado, at a date and time specified by the Issuer or at such other place or date and time as the parties shall mutually agree (each, a "Subsequent Closing Date") (the First Closing Date and each of the Subsequent Closing Dates, collectively, the "Closing Dates"). Each Conditional Note shall be registered in the name of the Purchaser and shall be in such denominations as the Purchaser may request not less than three (3) Business Days prior to the respective Subsequent Closing Date.

        Section 3.3.    The Purchaser shall pay the Purchase Price to the Issuer on the Closing Date by wire transfer of immediately available federal funds or in other immediately available funds to the account set forth on Exhibit D attached hereto.

        In addition to delivery of the Notes, the Issuer shall, at the request of the Purchaser, execute and deliver at the Closing such receipts, endorsements and other documents acknowledging receipt of the Purchase Price as the Purchaser may reasonably request.

SECTION 4. CONDITIONS TO THE CLOSING

        Section 4.1.    The obligation of the Purchaser to purchase each of the Notes and pay the Purchase Price is subject to (i) performance by the Issuer of all its obligations under this Agreement to be performed by it on or prior to the Closing Date for such Note, (ii) as of such Closing Date, the accuracy (as of their dates) of the statements of the Transaction Documents related thereto, and (iii) satisfaction of the conditions set forth below to the extent such conditions relate to the applicable Closing Date:

        (a)   As of each Closing Date, no fact or condition shall exist under applicable law, rule or regulation or interpretations thereof by any regulatory authority which in the Purchaser's reasonable opinion would make it illegal for the Issuer to issue and sell the Note to be issued at such Closing Date, or for the Issuer or any of the other parties thereto to perform their respective obligations under the Transaction Documents related thereto.

        (b)   As of each Closing Date, the representations and warranties made by the Issuer in this Agreement shall be true and correct on and as if they had been made on the respective Closing Date (except to the extent a different date is reasonably specified in any such Transaction Document); the Issuer shall have performed and complied with all agreements and conditions hereof required to be performed or complied with by it on or before each Closing Date; and no event shall have occurred and no condition shall exist which would constitute an Event of Default under this Agreement.

        (c)   As of the First Closing Date, this Agreement shall have been duly authorized, executed and delivered by the Issuer, and shall be in full force and effect on each Closing Date.

        (d)   The Issuer shall have delivered the Note to be purchased at such Closing Date in accordance with the terms of Section 2 hereof, and, as of the First Closing Date, the Purchaser and the Issuer shall each have received a fully executed counterpart original and any required conformed copies of this Agreement and any related documents delivered at or prior to the First Closing Date.

        (e)   The Purchaser shall have received an Opinion of Counsel satisfactory to it, dated such Closing Date, substantially in the forms of Exhibit E.

        (f)    The Purchaser shall have received an Officer's Certificate, dated as of the respective Closing Date, in form and substance reasonably satisfactory to it and its counsel to the effect that the issuance, sale and delivery of the Note being issued at such Closing Date by the Issuer, and

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each Transaction Document to which it is a party and any other documents executed by or on behalf of the Issuer in connection with the transactions contemplated for such Closing Date have been duly authorized.

        (g)   Any taxes, fees and other governmental charges which are due and payable in connection with the execution, delivery and performance of this Agreement and the execution, delivery, sale and performance of the Notes which are required to be paid by the Issuer shall have been paid by the Issuer, at or prior to the Closing Dates.

        (h)   As of the First Closing Date, the Issuer shall have received a written waiver substantially in the form of Exhibit F attached hereto.

        Section 4.2.    The obligation of the Issuer to issue and sell each of the Notes is subject to satisfaction of the conditions set forth below to the extent such conditions relate to the applicable Closing Date:

        (a)   As of each Closing Date, the representations and warranties made by the Purchaser in this Agreement shall be true and correct on and as if they had been made on the respective Closing Date.

        (b)   The Issuer shall have received an Opinion of Counsel satisfactory to it, dated such Closing Date, substantially in the form of Exhibit G attached hereto.

        (c)   The Issuer shall have received a certificate, dated as of the respective Closing Date, in form and substance reasonably satisfactory to it and its counsel to the effect that the transactions contemplated for such Closing Date have been duly authorized.

        (d)   As of the First Closing Date, the Issuer shall have received a written waiver substantially in the form of Exhibit F attached hereto.

        Section 4.3.    If any of the conditions specified in this Section 4 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all respects satisfactory in form and substance to the Purchaser with respect to Section 4.1 hereof, or the Issuer, with respect to Section 4.2 hereof, this Agreement and all obligations of the Purchaser or the Issuer, as the case may be, hereunder may be canceled at, or at any time prior to, the Closing Dates by the Purchaser or the Issuer, as the case may be. Notice of such cancellation shall be given to the Purchaser or the Issuer, as the case may be, in writing or by telephone or telecopy confirmed in writing. In any case of cancellation hereunder, any Notes theretofore issued, and all rights and obligations in connection therewith (including, but not by way of limitation the rights and obligations set forth in Section 7 of, and all other ongoing similar provisions under, this Agreement), shall survive such cancellation and shall remain outstanding in full force and effect in accordance with the terms and provisions thereof.

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SECTION 5. REPRESENTATIONS AND WARRANTIES

        Section 5.1.    The Issuer hereby represents and warrants to the Purchaser that, except as set forth on the Schedule of Exceptions furnished to the Purchaser and attached hereto as Exhibit H, specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder:

        (a)    Organization, Good Standing and Qualification.    The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado and has all requisite power and authority to carry on its business as now conducted and as proposed to be conducted in its Business Plan previously furnished to the Purchaser and to enter into and perform this Agreement and the other agreements to be entered into in connection herewith. The Issuer is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.

        (b)    Capitalization.    The Issuer is authorized to issue 10,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, par value $.001 per share, of which 176,100 shares of Series A Preferred Stock was issued on August 31, 1987, all of which has been converted into Common Stock and no other series of preferred stock has been issued. There are 1,920,237 shares of Common Stock, 265,744 warrants exercisable for a total of 265,744 shares of Common Stock, and 769,250 options and exercisable for a total of shares of Common Stock, that are currently outstanding (the "Outstanding Securities"; the total number of shares of Common Stock so issued and issuable being referred to as the "Current Outstanding Common Stock"). The issuance and sale or grant of such outstanding shares, options and warrants (and the offer of the shares of Common Stock issuable upon exercise of such warrants and options) were and are exempt from Registration, and such shares were issued in conformity with the permit or qualification requirements of all applicable state securities laws. There are no Outstanding Securities other than the options and warrants described above that are, or upon completing the transactions contemplated herein will be, excercisable or convertible into any shares of Capital Stock, other than the Notes and the Preferred Stock.

        (c)    Subsidiaries.    Other than Displaytech International, Inc., a Colorado corporation, the Issuer does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity.

        (d)    Authorization.    All corporate action on the part of the Issuer, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the Notes and the Designation of Rights, the performance of all obligations of the Issuer hereunder and thereunder and the authorization, issuance (or reservation for issuance) and delivery of the Notes and the Preferred Stock and Common Stock issuable upon conversion of the Notes has been taken or will be taken prior to the Closings and this Agreement and the Notes constitute the valid, binding and enforceable obligations of the Issuer in accordance with the terms, subject, as to the enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and to general principles of equity.

        (e)    Valid Issuance of Preferred Stock and Common Stock.

          (i)  The shares of Preferred Stock and the shares of Common Stock, if any, issuable pursuant to Section 10 herein, when issued, sold and delivered in accordance with the terms herein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of the Purchaser in this Agreement, will be issued in compliance with all applicable federal and state securities laws.

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         (ii)  The Outstanding Securities are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws.

        (f)    Governmental Consents.    No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Issuer is required in connection with the consummation of the transaction contemplated by this Agreement.

        (g)    Litigation.    There is no action, suit, proceeding or investigation pending or, to the knowledge of the Issuer, currently threatened against the Issuer which questions the validity of this Agreement or the right of the Issuer to enter into it, or to consummate the transactions contemplated thereby, or which might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Issuer, financially or otherwise, or any change in the current equity ownership of the Issuer, nor is the Issuer aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or, to the Issuer's knowledge, threatened (or any basis therefor known to the Issuer) involving the prior employment of any of the Issuer's employees, their use in connection with the Issuer's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Issuer is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Issuer currently pending or which the Issuer intends to initiate.

        (h)    Patents and Trademarks.    To the Issuer's knowledge, it has sufficient title and ownership or rights to use of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted as described in the Business Plan without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Issuer bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. A list of all patents, patent applications, trademarks and trademark applications issued since January 27, 1998 is set forth on the Schedule of Exceptions. The Issuer has not received any communications alleging that the Issuer has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Issuer aware of any such violations. The Issuer is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of the employee's best efforts to promote the interests of the Issuer or that would conflict with the Issuer's business as proposed to be conducted. Neither the execution nor delivery of this Agreement or the other Transaction Documents, nor the carrying on of the Issuer's business by the employees of the Issuer, nor the conduct of the Issuer's business as proposed, will, to the Issuer's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Issuer does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Issuer. Each of the Issuer's employees has executed a Proprietary Information, Non-Competition and Patent Assignment Agreement substantially in the form provided as Exhibit D to the HP Stock Purchase Agreement.

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        (i)    Compliance with Other Instruments.

          (i)  The Issuer is not in violation or default of any provisions of its articles of incorporation as amended ("Articles of Incorporation") or bylaws, as amended ("Bylaws") or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, of any provision of federal or state statute, rule or regulation applicable to the Issuer, except to the extent that any such violation or default could not, either individually or in the aggregate, have a material adverse effect on the Issuer's business, financial condition or prospects or on the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time or giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Issuer.

         (ii)  To its knowledge, the Issuer has avoided every condition, and has not performed any act, the occurrence of which would result in the Issuer's loss of any right granted under any license, distribution or other agreement, the loss of which could have, either individually or in the aggregate, a material adverse effect on the Issuer's business, financial condition or prospects or on the transactions contemplated hereby.

        (j)    Agreements; Action.

          (i)  Except for the Stock Purchase Agreements and the Shareholders' Rights Agreement, there are no agreements, understandings or proposed transactions between the Issuer and any of its officers, directors or affiliates, or any affiliate thereof (including any entity in which any such officer, director or affiliate has an ownership interest).

         (ii)  With the exception of the transactions contemplated by this Agreement or as previously disclosed in the HP Stock Purchase Agreement, there are no material agreements, understandings, instruments, contracts or proposed transactions to which the Issuer is a party or by which it is bound which involve (i) obligations of, or payments to the Issuer in excess of, $100,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Issuer. A true and complete copy of each agreement listed on the Schedule of Exceptions (other than agreements identified as United States government contracts, and agreements which, in the opinion of the Issuer, if disclosed, would breach an obligation of confidentiality) is attached thereto.

        (iii)  With the exception of the transactions contemplated by this Agreement or as previously disclosed in the HP Stock Purchase Agreement, the Issuer has not (w) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (x) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000, (y) made any loans or advances to any person, other than ordinary advances for travel expenses or loans for stock purchases exceeding $10,000, or (z) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

        (iv)  The Issuer is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Articles of Incorporation or Bylaws, which materially adversely affects its business as now conducted or as proposed to be conducted in the Business Plan, its properties or its financial condition or prospects.

        (k)    Disclosure.    The Issuer has fully provided the Purchaser with all the information which the Purchaser has requested for deciding whether to purchase the Notes and all information which the Issuer believes is reasonably necessary to enable the Purchaser to make such decision. Neither

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this Agreement nor any other statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading.

        (l)    Business Plan.    The Business Plan has been prepared in good faith by the Issuer and, when taken together with information disclosed on the Schedule of Exceptions, does not contain any untrue statement of a material fact nor does it omit to state a material fact necessary to make the statements made in the Business Plan not misleading, when taken together with all other statements contained in the Business Plan, except that with respect to projections contained in the Business Plan, the Issuer represents only that such projections were prepared in good faith and that the Issuer reasonably believes there is a reasonable basis for such projections based on the assumptions contained in the Business Plan.

        (m)    Registration Rights.    Since January 27, 1998, the Issuer has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity.

        (n)    Corporate Documents.    The Articles of Incorporation and Bylaws of the Issuer are in the form previously provided to the Purchaser.

        (o)    Title to Property and Assets.    The Issuer owns its property and assets free and clear of all Liens except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Issuer's ownership or use of such property or assets. With respect to the property and assets it leases, the Issuer is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any Liens.

        (p)    Financial Statements.    The Issuer has delivered to the Purchaser its audited financial statements (balance sheet and profit and loss statement, statement of shareholders' equity and statement of cash flows) as of September 30, 1998 and for the year then ended and its unaudited financial statements (balance sheet and profit and loss statement) as of December 31, 1998 and for the month then ended (collectively the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated, except for the failure of the unaudited Financial Statements to include the footnotes required by GAAP. The Financial Statements fairly set out and describe the financial condition and operating results of the Issuer as of the dates, and for the periods, indicated therein, subject, in the case of the unaudited financial statements, to normal year-end audit adjustments which will not in the aggregate be material. Except as set forth in the Financial Statements, the Issuer has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 1998 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Issuer. The Issuer maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.

        (q)    Changes.    Since December 31, 1998, there has not been:

          (i)  any change in the assets, liabilities, financial condition or operating results of the Issuer from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, in the aggregate, materially adverse to the Issuer;

         (ii)  any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan);

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        (iii)  any waiver by the Issuer of a valuable right or of a material debt owed to it;

        (iv)  any satisfaction or discharge of any Lien or payment of any obligation by the Issuer, except in the ordinary course of business or which is not material to the assets, properties, financial condition, operating results or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan);

         (v)  any material change or amendment to a material contract or arrangement by which the Issuer or any of its assets or properties is bound or subject;

        (vi)  any material change in any compensation arrangement or agreement with any employee; or

       (vii)  to the Issuer's knowledge, any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, operating results or business of the Issuer (as such business is presently conducted and as it is proposed to be conducted in the Business Plan).

        (r)    Employee Benefit Plans.    The Issuer does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), except for the Issuer's 401(K) Plan. The Issuer has complied and currently is in compliance in all material respects with the applicable provisions of ERISA with respect to such plan.

        (s)    Tax Returns, Payments and Elections.    The Issuer has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Issuer has paid all taxes and other assessments due, except those contested by it in good faith which are listed in the Schedule of Exceptions. The provision for taxes of the Issuer as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Issuer has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a material effect on the Issuer, its financial condition, its business as presently conducted or as proposed to be conducted in the Business Plan or any of its properties or material assets.

        (t)    Insurance.    The Issuer has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed.

        (u)    Minute Books.    The minute books of the Issuer contain a complete summary of all meetings of directors and shareholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. A true and complete copy of the minute books has been made available to the Purchaser.

        (v)    Labor Agreements and Actions.    The Issuer is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Issuer, has sought to represent any of the employees, representatives or agents of the Issuer. There is no strike or other material labor dispute involving the Issuer pending, or to the knowledge of the Issuer threatened, nor is the Issuer aware of any labor organization activity involving its employees. The Issuer is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Issuer, nor does the Issuer have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Issuer is terminable at the will of the Issuer.

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        (w)    Licenses.    The Issuer possesses from the appropriate agency, commission, board and government body and authority, whether state, local or federal, all licenses, permits, authorizations, approvals, franchises and other rights (collectively, "Licenses") which are necessary for it to engage in the business currently conducted by it as described in the Business Plan, except to the extent the failure to have any such License, individually or in the aggregate with the failure to possess any other Licenses, could not have a material adverse effect on the Issuer's business, financial condition or prospects.

        Section 5.2.    The Purchaser hereby represents and warrants that:

        (a)    Authorization.    The Purchaser (i) is a corporation duly organized and validly existing under the laws of Delaware; and (ii) has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby, including, without limitation, the purchase of the Note, and the performance of its obligations thereunder.

        (b)    Purchase Entirely for Own Account.    The Purchaser understands that the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof, have not been Registered under the Securities Act nor pursuant to the securities or blue sky laws of any State. The Purchaser is not acquiring any Note, or any shares of Preferred Stock of the Issuer issuable upon conversion of the Notes, or any Common Stock of the Issuer issuable upon conversion of the Preferred Stock, with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act.

        (c)    Disclosure of Information.    The Purchaser believes it has received (or, in connection with each transaction contemplated to be concluded on a Subsequent Closing, will receive) all the information it considers necessary or appropriate for deciding whether to purchase the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The Purchaser further represents that in making its investment decision to purchase the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof, it has conducted (or, in connection with each transaction contemplated to be concluded on a Subsequent Closing, will conduct) such investigation of the Issuer, including a review of the information set forth in the Business Plan and the projections contained therein, as it has deemed (or, in connection with each transaction contemplated to be concluded on a Subsequent Closing, then deems) reasonably necessary and has had an opportunity to ask questions of and receive answers from the Issuer regarding the terms and conditions of the offering of the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The foregoing, however, does not limit or modify the representations and warranties of the Issuer in Section 5.1 of this Agreement or the right of the Purchaser to rely thereon.

        (d)    Investment Experience; Principal Place of Business.    The Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The Purchaser is an "accredited investor" within the meaning of such term set forth in Rule 501 promulgated under the Securities Act and has not been organized for the purpose of acquiring the Notes, the shares of Preferred Stock and the shares of Common Stock issuable upon conversion thereof. The principal place of business of the Purchaser is the address set forth in Section 13.2 of this Agreement.

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SECTION 6. EXPENSES

        Section 6.1.    Whether or not the transactions contemplated hereby or in the Transaction Documents or in any of the transactions contemplated hereby and thereby shall be consummated, the Issuer and Purchaser shall each pay its own expenses.

SECTION 7. AFFIRMATIVE COVENANTS

        Section 7.1.    The Issuer hereby covenants and agrees that, so long as any of the Notes are outstanding:

        (a)   The Issuer shall reserve, free from preemptive rights, out of its authorized but unissued Preferred Stock sufficient shares to provide for the conversion of the Notes, based on the Note Conversion Price (as such term is defined in the Notes).

        (b)   The Issuer shall reserve, free from preemptive rights, out of its authorized but unissued Common Stock, sufficient shares to provide for the conversion of the shares of Preferred Stock, at the Conversion Ratio (as such term is defined in the Preferred Stock and the Designation of Rights) from time to time in effect.

        (c)   No later than five (5) Business Days after the occurrence of an Event of Default, the Issuer will deliver, or cause to be delivered, to Purchaser notice of such Event of Default. Notwithstanding the previous sentence, if an event is an Event of Default specified in Section 9.1(d), the Issuer will deliver, or cause to be delivered, to the Purchaser notice of such Event of Default at such time that the Board of Directors or all of the members of the Board of Directors receive information about such Event of Default.

        (d)   If the Issuer defaults in the required payments, including Principal, Interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same becomes due and payable, the Chief Financial Officer of the Issuer will deliver, or cause to be delivered to the Purchaser, within 5 Business Days, notice of such default ("First Default Notice"). If after such notice is delivered, the Issuer fails to cure such default within the applicable grace or cure period provided with respect to such required payment, if any, the Chief Financial Officer of the Issuer will deliver, or cause to be delivered to the Purchaser, within 5 Business Days of the date that such grace or cure period expires, notice that the Issuer has failed to cure such default within the applicable grace or cure period ("Second Default Notice"). The Issuer agrees to provide any notice contemplated by this Section 7.1(d) without regard to any waiver of the grace or cure period, subsequent cure, or notice provisions of the Permitted Indebtedness.

        (e)   The Issuer shall pay or discharge or cause to be paid or discharged before the same shall become delinquent all payments of the Notes as set forth therein.

Section 7.2    Information.    The Issuer further covenants and agrees that so long as one or more of the Notes is outstanding or the Purchaser owns at least 30,000 shares of Preferred Stock or Common Stock (including any Preferred Stock or Common Stock issued or issuable pursuant to Section 10 herein) it shall deliver to the Purchaser the information specified in this Section unless the Purchaser at any time specifically requests that such information not be delivered to it.

        (a)    Monthly Financial Statement.    As soon as available, but in any event not later than 30 days after the end of each month (other than the last month of any fiscal quarter of the Issuer), the unaudited consolidated balance sheet of the Issuer and its subsidiaries as at the end of each such month and the related unaudited consolidated statements of income and cash flows of the Issuer and its subsidiaries for such month and for the elapsed period in such fiscal year, all in reasonable detail and stating in comparative form (i) the figures as of the end of and for the comparable periods of the preceding fiscal year and (ii) the figures reflected in the operating

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budget for such period as specified in the financial plan of the Issuer delivered pursuant to paragraph (e) hereof. All such financial statements shall be complete and correct in all material respects, shall be prepared in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein and shall be accompanied by a certificate of the Issuer's chief executive officer or chief financial officer to such effect.

        (b)    Quarterly Financial Statements.    As soon as available, but in any event not later than 45 days after the end of each of the first three fiscal quarters, the unaudited consolidated balance sheet of the Issuer and its subsidiaries as at the end of each such period and the related unaudited consolidated statement of operations, stockholders' equity and cash flows of the Issuer and its subsidiaries for such quarterly period and for the elapsed period in such fiscal year, all in reasonable detail and stating in comparative form (i) the figures as at the end of and for the comparable periods of the preceding fiscal year and (ii) the figures reflected in the operating budget for such period as specified in the financial plan of the Issuer delivered pursuant to paragraph (e) hereof. All such financial statements shall be complete and correct in all material respects, shall be prepared in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein, and shall be accompanied by a certificate of the Issuer's chief executive officer or chief financial officer to such effect.

        (c)    Annual Financial Statements.    As soon as available, but in any event within 90 days after the end of each fiscal year of the Issuer, a copy of the audited consolidated and consolidating balance sheet of the Issuer and its subsidiaries as at the end of such fiscal year and the related audited consolidated statements of operations, stockholders' equity and cash flows of the Issuer and its subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the figures as at the end of and for the previous fiscal year, accompanied by an opinion of an accounting firm of recognized national standing selected by the Issuer, which opinion shall state that such accounting firm's audit was conducted in accordance with generally accepted auditing standards. All such financial statements shall be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP applied on a consistent basis throughout the periods reflected therein except as stated therein.

        (d)    Management's Discussion.    Each financial statement delivered pursuant to paragraph (a), (b) or (c) hereof shall be accompanied by a brief informal narrative description of material business and financial trends and developments and significant transactions that have occurred in the appropriate period or periods covered thereby equivalent to the Management's Discussion and Analysis required by Item 303 of Regulation S-K under the Exchange Act, or subsequently enacted rules, as then in effect.

        (e)    Budgets and Other Information.    As soon as available, but in any event not later than 30 days prior to the end of each fiscal year of the Issuer, the financial plan of the Issuer for the next succeeding fiscal year, including but not limited to a cash flow projection and operating budget, calculated monthly, as contained in its operating plan approved by the Board of Directors as well as any updates or revisions to such plan as soon as available. From time to time, such additional information regarding results of operations, financial condition, business or prospects of the Issuer and its subsidiaries, including without limitation cash flow analyses, projections and minutes of any meetings of the Board of Directors, as the Purchaser may reasonably request. The Issuer shall also afford to the Purchaser access, at reasonable times and on reasonable prior notice, to the books, records and properties of the Issuer.

        (f)    Accountants' Management Letters, etc.    Promptly after receipt by the Issuer, copies of all accountants' management letters and all management and board responses to such letters, and all certificates as to compliance, defaults, material adverse changes, material litigation or similar matters relating to the Issuer and its Subsidiaries.

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        (g)    Shareholders' Lists.    As soon as available, but in any event within 30 days after the end of each of the first three fiscal quarters, a shareholders' list, showing, as of the end of each fiscal quarter, the authorized and outstanding shares by class (including the Common Stock equivalents of any convertible security), the holders of all outstanding shares (both before giving effect to dilution and on a fully-diluted basis) and all outstanding options, warrants and convertible securities, and detailing all options granted, exercised or lapsed and all shares issued or sold.

        (h)    Option Plans.    Within 60 days after the end of each fiscal year, the information requested in paragraph (g) above, and in addition, copies of all stock option plans, and a list detailing all options granted, issued or lapsed; all warrants granted or issued (whether to directors, in connection with financings or otherwise) or lapsed; and all stock issued or sold (including in each case, without limitation, all option and warrant exercise prices, stock issuance prices, and other terms).

        (i)    Other Reports and Statements.    Promptly (but in any event within 10 days) after any distribution to its shareholders generally, to its directors or to the financial community of an annual report, proxy statement or other report or communication, a copy of each such report, proxy statement or other report or communication and promptly (but in any event within 10 days) after any filing by the Issuer with the SEC or with any national securities exchange, of any publicly available annual or periodic or special report or proxy statement or Registration, a copy of such report or statement and copies of all press releases and other statements made available generally by the Issuer to the public concerning material developments in the Issuer's business.

        (j)    Material Litigation.    Within 15 days after the Issuer learns of the commencement or written threat of commencement of any material litigation or proceeding against the Issuer or its assets, written notice of the nature and extent of such litigation or proceeding.

        (k)    Notice of Action Relating to Impending Insolvency.    The Issuer will deliver or cause to be delivered to the Purchaser such information or notice relating to any proposed action relating to insolvency or bankruptcy action at such time that the Board of Directors or all of the members of the Board of Directors receive information about such insolvency or bankruptcy action.

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        (l)    Non-Disclosure.    The Purchaser agrees that, except as otherwise required by law, it will keep confidential and will not disclose or divulge any confidential, proprietary or secret information which the Purchaser may obtain from the Issuer, and which the Issuer has prominently marked "Confidential," "Proprietary" or "Secret" or has otherwise identified in writing as being such, pursuant to financial statements, reports and other materials submitted by the Issuer as required hereunder unless such information is or becomes known to the Purchaser from a source other than the Issuer or is or becomes publicly known, or unless the Issuer gives its written consent to the Purchaser's release of such information, except that no such written consent shall be required (and the Purchaser shall be free to release such information), if such information is to be provided to the Purchaser's lawyer, accountant, or to an employee, officer, director or partner of the Purchaser or of the Purchaser's affiliate, provided that the Purchaser shall inform the recipient of the confidential nature of such information, and shall instruct the recipient to treat the information as confidential.

SECTION 8. NEGATIVE COVENANTS

        Section 8.1.

        (a)   The Issuer will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment of (in each case, to "incur") any Indebtedness, except as provided in Section 8.1(b) below.

        (b)   Notwithstanding the provisions of Section 8.1(a), the Issuer and its Subsidiaries may, to the extent specifically set forth below, incur each and all of the following (the "Permitted Indebtedness"):

        (i)    Indebtedness of the Issuer evidenced by the Notes;

        (ii)   Indebtedness of the Issuer, or any Subsidiary outstanding on the Issue Date (the "Existing Indebtedness"), as disclosed on Schedule 8.1 attached hereto as Exhibit I.

        (iii)  Indebtedness, including Existing Indebtedness, of the Issuer or any Subsidiary in an aggregate Principal amount at any one time outstanding not to exceed U.S. $20,000,000 (or the foreign currency equivalent thereof) or, with the written consent of the Purchaser (such consent not to be unreasonably withheld), U.S. $25,000,000; provided that, the Issuer will provide notice to the Purchaser when such aggregate Principal amount exceeds U.S. $10,000,000 and U.S. $15,000,000.

        (iv)  Indebtedness of the Issuer or any Subsidiary represented by letters of credit for the account of the Issuer or such Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business.

        Section 8.2.    The Issuer will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien that secures obligations under any pari passu Indebtedness or subordinated Indebtedness on any asset or property of the Issuer or such Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the obligations so secured (provided that any Lien securing subordinated Indebtedness shall be subordinate and junior to the Lien securing the Notes with the same relative priority as such Subordinated Indebtedness shall have with respect to the Notes) or until such time as such obligations are no longer secured by a Lien.

        Section 8.3.    The Issuer will not in any way hypothecate or create or permit to exist any lien, security interest, charge, or encumbrance on or other interest in any of its Intellectual Property, and the Issuer, except in the ordinary course of business, will not sell, transfer, assign, pledge, collaterally assign, exchange, or otherwise dispose of any substantial part of its Intellectual Property.

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Notwithstanding the foregoing, the Issuer shall not be prohibited from granting licenses to use its Intellectual Property to third parties in the ordinary course of business.

        Section 8.4.    The Issuer will not issue any class of stock which shall have a preference of equal or greater value than the Preferred Stock that is designated the Series HP Convertible Preferred Stock.

        Section 8.5.    The Issuer will not create or adopt any stock option plan that creates options or warrants for shares of Common Stock, or issues shares of Common Stock, other than its new Stock Option Plan (the "New Plan") and will not increase the total number of shares of Common Stock initially issuable pursuant to all such Plans to a number of shares that exceeds 300,000.

        Section 8.6.

        (a)   Except as set forth in Section 8.6(b) below with respect to a Qualified Public Offering:

        (i)    Prior to the earlier of the issuance of the Third Disbursement Note under this Agreement or the delivery of an Unfavorable Responsive Notice under Section 2.3 of this Agreement, the Issuer will not sell any further equity interest in itself, other than the Notes pursuant to this Agreement or pursuant to currently existing rights to purchase Current Outstanding Common Stock or rights granted under the New Plan or the Issuer's 1988 Incentive Stock Option Plan (which expired on October 11, 1998).

        (ii)   The Issuer will not enter into substantive negotiations (which term shall not include preliminary discussions prior to the execution of a letter of intent or similar document or, if there shall be no letter of intent or similar document, the entry into substantive negotiations of a draft definitive agreement) to offer to sell or sell any such further equity interest until the earlier to occur of the Subsequent Closing of the Second Disbursement Note or the delivery of an Unfavorable Responsive Notice; provided, however, the Issuer may enter into such substantive negotiations with, and may offer to sell and sell such further equity interest to, any Investor at any time if the Purchaser and the Investors are informed of all related discussions promptly and are offered the opportunity to purchase such further equity in the Issuer, such purchase to be in accordance with the terms of the relevant Stock Purchase Agreement if and to the extent such Stock Purchase Agreement is applicable in accordance with its terms.

        (iii)  The Purchaser and the Investors will participate in the purchase of such further equity interest, if they elect to do so, in proportion to the number of shares of Common Stock (treating the Notes and any other securities of the Issuer held by them as if converted or exercised for Common Stock in accordance with the terms thereof) taken as a percentage of the total number of shares of Common Stock then issued or so issuable then owned by the Purchaser and each of the Investors, or as the Purchaser and the Investors may otherwise designate.

        (b)   The provisions of Section 8.6(a) above to the contrary, notwithstanding, the Issuer may:

        (i)    Enter into substantive negotiations at any time with respect to a Qualified Public Offering.

        (ii)   File a Registration at any time with respect to a Qualified Public Offering.

        (iii)  Effect a Registration at any time after the earlier to occur of the Subsequent Closing of the Second Disbursement Note with respect to a Qualified Public Offering or delivery of an Unfavorable Responsive Notice under Section 2.3 hereof and take all steps that are necessary or appropriate to consummate the transactions contemplated by such Registration.

19

SECTION 9. EVENTS OF DEFAULT

        Section 9.1.    An "Event of Default" means any of the following events:

        (a)   the Issuer fails to pay the Principal of or interest on any of the Notes when due, pursuant to the terms and conditions therein.

        (b)   the Issuer does not perform or comply with any one or more of its material obligations in the Notes or this Agreement (other than a default under (a) above) for a period of 45 days after written notice of such default shall have been given to the Issuer by the Purchaser.

        (c)   one or more defaults in the required payments, including Principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Issuer has failed to cure such default or defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure, or notice provisions of the Permitted Indebtedness.

        (d)   the Issuer, pursuant to or under or within any applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or like law (i) commences a voluntary case or proceeding; (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iii) makes a general assignment for the benefit of its creditors; (iv) shall generally not pay its debts when such debts become due or shall admit in writing its inability to pay its debts generally, (v) a court of competent jurisdiction (or like entity) shall enter an order or decree under any applicable law described above that is for relief against the Issuer in an involuntary case or proceeding, appoints a custodian for the Issuer or such other entity for all or substantially all its properties or orders the liquidation of the Issuer or such other entity, as applicable, and in each such case in this clause (v), the order or decree remains unstayed and in effect for 60 days; or (vi) the Issuer or such other entity shall take any corporate action regarding any of the foregoing.

        Section 9.2.    Remedies on Default.    Upon the occurrence of an Event of Default pursuant to Section 9.1, the Purchaser may, in lieu of any other rights Purchasers may have, convert the remaining Principal of the outstanding Notes to shares of Preferred Stock and be paid in cash, or convert into shares of Preferred Stock, at the Issuer's option, any accrued Interest pursuant to the terms and conditions of the Notes, provided that, if the Issuer chooses to pay such Interest in cash, the Purchaser shall have the option to convert such Interest into shares of Preferred Stock pursuant to the terms and conditions of Section 6.2 of the Notes.

SECTION 10. CONVERSION

        Section 10.1.    The Notes may be converted into shares of Preferred Stock according to the terms and conditions contained therein.

        Section 10.2.    Any converted Preferred Stock shall, except that under certain circumstances in the Designation of Rights may, then be converted into shares of Common Stock pursuant to terms and conditions in the Designation of Rights.

SECTION 11. REGISTRATION RIGHTS

        Section 11.1.    Upon conversion of the Preferred Stock to Common Stock, the holder of such shares of Common Stock shall be entitled to the rights of a stockholder, as regards such converted Common Stock, under the Shareholders' Rights Agreement.

20

SECTION 12. RESERVATION OF BOARD SEATS

        Section 12.1.    The holders of Series HP Convertible Preferred Stock shall have the right, at their option, to designate for election to the Board of Directors one (1) person subject to the approval of the then current Board of Directors, which approval will not be unreasonably withheld. In the event that the Issuer's Board of Directors fails to approve such designee, the holders of shares of Series HP Convertible Preferred Stock shall have the right, at their option, to designate another person who shall be reasonably acceptable to the then current Board of Directors.

        Section 12.2.    Notwithstanding the provisions of this Section 12, if the holders of Series HP Convertible Preferred Stock obtained some or all of such stock pursuant to a remedy described in Section 9.2 hereof, such holders shall have the right, at their option, to designate two (2) persons for election as members of the Board of Directors subject to the approval of the then current Board of Directors, which approval will not be unreasonably withheld. In the event that the Issuer's Board of Directors fails to approve any such designee, the holders of Series HP Convertible Preferred Stock shall have the rights, at their option, to designate another person reasonably acceptable to the then current Board of Directors.

        Section 12.3.    The Board of Directors shall take such actions as may be necessary to facilitate and implement the provision of this Section 12 and carry out the intents and purposes hereof, including (but not by way of limitation) amendments to the Issuer's Bylaws to increase the size of the Board of Directors and to elect the appropriately designated persons to the vacancies thereby created.

        Section 12.4.    The rights of holders of Series HP Convertible Preferred Stock to designate persons for election as members of the Board of Directors shall terminate upon a Qualified Public Offering. The members of the Board of Directors designated pursuant to Section 12.1 or Section 12.2 agree to remove themselves if required by an underwriter in anticipation of a Qualified Public Offering, provided that such members may also remove themselves at will.

SECTION 13. MISCELLANEOUS

        Section 13.1.    All agreements, indemnities, covenants, representations and warranties (which representations and warranties shall be deemed to be made as of the date specified therefor) made by the Issuer herein and in certificates and other instruments delivered pursuant to this Agreement (and the representations and warranties of the Purchaser in Section 5.2 hereof, which representations and warranties shall be deemed to be made as of each Closing Date) shall survive the execution and delivery of this Agreement and the delivery of the Notes to the Purchaser and shall continue in effect so long as any Note remains outstanding.

        Section 13.2.    All notices, demands and other communications hereunder shall be in writing and hand delivered, telecopied, mailed (by registered or certified mail, postage prepaid) or delivered by a nationally recognized overnight courier service addressed:

        (a)   if to the Issuer, to:

Chief Executive Officer
Displaytech, Inc.
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000

21

with a copy to:

General Counsel
Displaytech, Inc.
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000

        (b)   if to the Purchaser:

Controller
Hewlett-Packard Company
Display Products Division
00000 Xxxxxxx Xxxxxxxxx
Xxxx Xxxx 000
Xxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000

with a copy to:

Hewlett-Packard Company
0000 Xxxxxxx Xxxxxx, XX 20BQ
Xxxx Xxxx, XX 00000
Attention: General Counsel
Telephone: (000) 000-0000
Telecopier: (000) 000-0000

or to such other address as may hereafter be designated in the manner above provided by any party for such purpose, and shall be effective upon receipt.

        All payments to be made to the Purchaser shall be made by wire transfer to its account specified in Exhibit D attached hereto.

        Section 13.3.    This Agreement shall be binding upon, and shall inure to the benefit of, the Issuer and the Purchaser, and their respective successors and assigns. Nothing expressed herein is intended or shall be construed to give any Person other than the Persons referred to in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement.

        Section 13.4.    If any provision hereof shall be invalid, illegal or unenforceable in any jurisdiction, the remaining provisions shall continue to be valid and enforceable in such jurisdiction and such provision shall continue to be valid and enforceable in all other jurisdictions.

        Section 13.5.    This Agreement shall be construed and enforced in accordance with, and the rights of the parties hereto shall be governed by, the internal laws of the State of Colorado, without regard to conflict of laws. This Agreement may not be waived, modified or amended without the written consent of the party against whom such waiver, modification or amendment is claimed. This Agreement may be executed in any number of counterparts, and by the different parties on different counterparts, each counterpart constituting an original, but all together constituting only one agreement.

        Section 13.6.    Notwithstanding anything contained herein to the contrary, none of the Issuer's directors, officers, employees, Affiliates or agents shall be personally liable for, or for any loss in respect of, any of the statements, representations, warranties, agreements, covenants or obligations of the Issuer hereunder.

22

        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written.

		DISPLAYTECH, INC.
		By	/s/  XXXX X. XXXXXXXX
			Name: Xxxx X. Xxxxxxxx
			Title: President
		HEWLETT-PACKARD COMPANY
		By	/s/  XXXXX X. XXXXXXX
			Name: Xxxxx X. Xxxxxxx
			Title: Manufacturing Manager

EXHIBIT A

BUSINESS PLAN

Xx. Xxxxx Xxxxxxx
Display Products Division
Hewlett Packard Company
00000 Xxxxxxx Xxxx.
XX 000
Xxxxx, XX 00000-0000 February 11, 1999

Dear Xxxxx,

        Attached please find a an amendment to your copy (#786) of Displaytech's Business and Industry Overview dated December 3, 1998. The amendment replaces the section entitled "manufacturing approach" on page 6 and more accurately reflects Displaytech's recent progress and planning in this important area.

        Should you have any questions please call.

Yours truly,

/s/ X.X. Xxxxxxx X.X. Xxxxxxx
Chief Financial Officer

0000 Xxxxxx Xxxxx Xxxxx, Xxxxxxxx, XX 00000-0000 XXX Telephone: 000-000-0000 Fax: 000-000-0000
Website: xxxx://xxx.xxxxxxxxxxx.xxx

DISPLAYTECH, INC.

0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxx, XX 00000

xxxx://xxx.xxxxxxxxxxx.xxx

000-000-0000

BUSINESS AND INDUSTRY OVERVIEW

CONFIDENTIAL

        This document contains confidential information proprietary to Displaytech, Inc. and may be viewed only by individuals who are obligated under a Confidential Disclosure Agreement to maintain its confidentiality. Nothing contained herein shall be construed as an offer to sell or solicit securities.

TABLE OF CONTENTS

INTRODUCTION			3
COMPANY OVERVIEW			4
	COMPANY PROFILE		4
	COMPANY HISTORY AND BACKGROUND		4
	SALES STRUCTURE		5
TECHNOLOGY			7
	FERROELECTRIC LIQUID CRYSTALS (FLCS)		7
	BACKPLANE TECHNOLOGY		8
	ADDITIONAL TECHNICAL INFORMATION		9
PRODUCTS			10
	INTRODUCTION		10
	PRODUCT CHARACTERISTICS		10
	PRODUCT DESCRIPTIONS		13
MARKET ANALYSIS			15
	THE DISPLAY MARKET		15
	THE MAGNIFIED VIEW MARKET		17
	THE PROJECTION MARKET		20
COMPETITIVE ANALYSIS			23
	INTRODUCTION		23
	TECHNOLOGY CATEGORIES		23
	NLC-ON-SI		26
	PDLC		26
	DMD		27
	GLV		27
	a-SI TFT-LCD		27
	POLY-SI TFT-LCD		27
	X-SI TFT-LCD		28
	AMEL		28
	FED		29
	LED		29
INTELLECTUAL PROPERTY			31
	PIONEER PATENTS		31
	DISPLAYTECH PATENTS		32
	DISPLAY SYSTEMS		32
	UNIVERSITY OF COLORADO		32
MANAGEMENT AND BOARD OF DIRECTORS			33
	MANAGEMENT		33
	BOARD OF DIRECTORS		35
APPENDIX A			37
	DISPLAYTECH LIGHTCASTER TECHNOLOGY		37

2

INTRODUCTION

        Displaytech designs, manufactures, and markets miniature display products for use in magnified and projected view applications, as well as electro-optical products for photonic applications. As the leader in the industry, the company holds critical patents on many device designs, materials, and fabrication techniques. Its products, which utilize ferroelectric liquid crystals (FLCs) and possess significant advantages over alternatives, are sold to original equipment manufacturers (OEMs). Product applications include monitors or viewing screens in desktop, laptop, and palmtop computers, large screen televisions, wireless telephones, conference room and personal projectors, and portable DVD viewers. All market applications have multi-million unit annual volume potential.

        The company recently began commercial production and has customer relationships and/or strategic partnerships with multi-billion dollar revenue domestic and international firms.

        The following gives an overview of Displaytech's business and its industry. More detailed information will be made available during a site visit at the company's plant and headquarters location in Longmont, Colorado.

        The company's financial data is available as a separate document.

        Additional data can also be obtained through the company web site at xxx.xxxxxxxxxxx.xxx.

        Please let an appropriate Displaytech representative know when you would like more information.

3

COMPANY OVERVIEW

COMPANY PROFILE

        Displaytech designs, manufactures, and markets products that are based on the use of proprietary FLC materials. The primary product focus is on high-resolution, full-color miniature electronic displays that are sold to OEMs. Uses for the images created on the Displaytech display panels are with very small form factor portable electronic devices AND large or very large projection devices. Examples of such uses include the viewing screens for laptop, palmtop, desktop, and wearable computers, wireless telephones, televisions, personal and conference room projectors, portable DVD viewers, digital cameras, and other high information content devices for business, medicine, entertainment, and the military.

        The actual display panels are the size of a computer chip. Images created on these chips are optically magnified or projected to create a large display with the size, resolution, and viewing performance comparable to a high quality desktop CRT monitor or television. Displaytech displays that are mounted into eyeglass frames provide portable, lightweight viewing. The same Displaytech displays, when used in a projection mode, provide compact, lightweight large screen viewing for conference room presentations or desktop computer monitor and television replacement.

        Displaytech's miniature FLC displays make mobile communication, computing and entertainment comfortable and easy. By providing wide fields of view, high resolution, brilliant color clarity, minimum power consumption, high brightness and low cost volume production, Displaytech display panels allow full motion video, graphics, and text to be comfortably viewed and affordably priced.

COMPANY HISTORY AND BACKGROUND

        Displaytech was incorporated in 1984 with headquarters in Boulder, Colorado. The corporate goal was to commercialize the fundamental inventions and discoveries of highspeed, surface stabilized FLCs. Displaytech's founders, faculty members in physics and chemistry at the University of Colorado, hold the pioneer patents for FLCs and helped develop subsequent related patents.

        During its first ten years in business, Displaytech developed core technical competence in materials, device design, and device fabrication. During that period, Displaytech was a major participant in the US Small Business Innovation Research (SBIR) program. It won more than $12 million in research and development contracts and grants from NASA, the US Department of Commerce, the US Department of Defense, the US National Science Foundation and the US Department of Health and Human Services. These projects have provided Displaytech with an extensive body of knowledge and a powerful patent position in FLC technology and its applications.

        In 1994, Displaytech began its transition from research and core technology development to product manufacturing and sales. The company won a $1.7 million Advanced Technology Program (ATP) award from the Department of Commerce. This funding was specifically targeted to develop mass production techniques and improved FLC materials for display products. Following the ATP award, Displaytech received private capital and crossed the threshold to commercialization.

        In December 1996, the company moved into its first full-scale production facility. This facility has 50,000 square feet and is located in Longmont, Colorado, which is just northeast of Boulder and 30 miles north of Denver. This facility, which is large enough to produce over 1,000,000 displays per month, also houses the company headquarters. Initially, the company utilized about half of the plant space. The balance of the floor space was occupied during the winter of 1997-98.

        During the winter of 1997-98 the company also:

•

Received its first major multi-year, multi-million dollar order from a multi-billion dollar Asian electronics manufacturer.

4

•

Completed an equity participation agreement and expanded its already strong product and business development alliance with a Fortune 50 electronics firm.

SALES STRUCTURE

        Displaytech sells it products as components or subsystems through OEM relationships. In North America, the company sells to and supports customers directly through its own staff. Internationally, Displaytech works with channel partners (distributors and representatives) to sell and support customers. In addition, the company has a branch office in Seoul that services the Korean market and supports sales efforts in other parts of Asia.

Manufacturing Approach

        Displaytech has recently revised its manufacturing plan to leverage established high volume liquid crystal device capacity at an offshore location. Selection of this manufacturing resource was based on a number of critical factors including:

1)

experienced small parts handling capability

2)

leverage off existing mass production capacity

3)

excellent facilities

4)

proven competence in final device assembly and quality programs

        In this way, the company will continue to develop essential, application-specific ferroelectric liquid crystal (FLC) materials in-house, while outsourcing more conventional device production.

        Today, Displaytech is now in pilot production at its 50,000 square foot facility in Longmont, Colorado. Recently, an outsource agreement was reached with an experienced Japanese, high volume precision parts manufacturer, Miyota Co., Ltd., located in Nagano. This combination of in-house and contract manufacturing capacity will meet current customer requirements through 2001 and leave room to add several additional strategic accounts in targeted consumer electronics markets.

        Miyota is now actively installing back-end capacity to serve as Displaytech's source later in calendar 1999. Current plans anticipate Miyota's installation of front-, middle, and back-end process lines for high volume applications during calendar year 2000.

        Displaytech's manufacturing approach focuses investments on internal process development, equipment, and facilities in areas where its proprietary materials and methods offer unique added value. In other areas, the company uses outsourcing and contract manufacturing.

        Displaytech's operations management is designed to efficiently coordinate and control suppliers, internal operations, and contract manufacturers in a high volume environment. Statistical process control methods are being refined to minimize variation and maintain target yields. The company's basic manufacturing flow for integrated circuit displays (ICDs) combines outsourced CMOS wafer fabrication, internal FLC production, a combination of internal and external display cell fabrication, and outsourced integrated circuit back-end processing.

        If a customer orders a complete system rather than a stand alone display panel, final assembly (which is performed in-house, as well as by a contract manufacturer) integrates the ICD with viewing optics, illumination, precision mechanics and electronics. Final test and quality assurance remain in-house Displaytech responsibilities. The company has, and will maintain a comprehensive pilot production line entirely in-house (except CMOS fabrication) to provide prototype capacity, help develop process improvements, and better monitor the efficiency of the outsourced suppliers and contract manufacturers.

5

TECHNOLOGY

        Displaytech's miniature displays take advantage of microsecond switching speeds of patented ferroelectric liquid crystal (FLC) materials and technology. FLC materials switch fast enough to enable field sequential color techniques to operate flicker-free at full frame video rates of 60 Hz and higher.

        The FLC is on an integrated circuit and the integrated circuit controls the FLC on a pixel by pixel basis which in turn generates a reflection so that light bounces off and optics form an image of pixels for viewing.

        Taking advantage of established CMOS fabrication technology, Displaytech panels are reflective, thereby covering the underlying circuitry. Pixels are very small (~12 x12 mm), as are the interpixel gaps (~1 mm). This combination of closely packed, small pixels ensures a display with smooth continuous images—avoiding the common black matrix or "screen door" effect. The resulting high fill factor (or aperture ratio) eliminates pixelation effects, providing an excellent viewing experience.

        Minimizing pixel geometry also reduces cost in several important ways. First, display panel costs are greatly influenced by the cost of the reflective CMOS backplane. Smaller display backplanes allow more dice to be included on a single wafer. Additionally, smaller die size results in higher production yields, another cost advantage.

FERROELECTRIC LIQUID CRYSTALS (FLCs)

        In 1985, Displaytech developed the first commercial room temperature FLC mixture, with an 18°C wide FLC temperature range. This development resulted in a flurry of worldwide research activity, which catalyzed the formation of the basis of FLC materials and devices, as we know it today.

        FLC materials used in all Displaytech panels are responsible for all electro-optical properties, in particular the contrast, luminous efficiency (or throughput), switching speed (which determines the grayscale depth), and temperature range.

        The dramatic progress that Displaytech has achieved after years of intensive research (1,500 new compounds and 4,000 mixtures) gives the company the fastest switching, broadest temperature range FLC mixtures in the world. An FLC temperature range has been achieved from -40°C to +83°C. This range allows extremely durable storage temperatures and remarkably wide operating temperatures that meet specifications for business, consumer, and military applications. Fast switching speeds allow for full 24-bit color depth (16.7 million colors) in displays resulting in photo-realistic quality at video speeds.

        The ability to quickly formulate and optimize new FLC material performance to a particular application—whether it be a hand-held miniature display or a projection display, has given Displaytech a unique advantage over its competition: the ability to respond to device/materials opportunities and achieve performance improvement goals rapidly and efficiently.

        Displaytech's state-of-the-art analytical lab gives the company reliable quality control in both single compounds and the complex FLC mixtures developed for use in high-volume, business products. Displaytech is the only company in the world that has developed an automatic liquid crystal property tester resulting in an increase in our productivity over a hundred-fold. The current facility is designed to have FLC production capacity of up to one million displays a month.

        With the strength of its patents, a wealth of proprietary technology in FLC materials synthesis and formulation, and a strong, well-directed R&D effort—Displaytech is in excellent position to retain its market leadership.

6

BACKPLANE TECHNOLOGY

        The fast switching speed of Displaytech's proprietary liquid crystal materials allows them to be driven with lower voltages than competing technologies. This advantage permits the use of standard silicon backplanes, made in standard CMOS process technologies, running at standard voltages (3.3 and 5.0 V). Displaytech plans to ride the wave of higher CMOS densities and lower costs by increasing the amount of circuitry included in the display chips, increasing the aperture ratio by making the interpixel gaps smaller, and producing high resolution devices on small silicon die. A major focus of our in-house materials chemistry group is the development of materials that have fast switching speeds at lower voltages. This continuing development will allow Displaytech to continue to use standard CMOS processes as the semiconductor industry moves to lower voltages—from 5.0 down to 1.8 V over the next few years.

        The Displaytech display panel backplane consists of a custom-designed silicon memory chip similar to a standard SRAM or DRAM device. Each bit of the memory is connected to a shiny metal pad on the surface of the chip, which acts as both a mirror and an electrode for the liquid crystal above it. (Making this metal as shiny as possible is the only non-standard processing step in the production of the silicon wafers). The overlying FLC is switched between two optical states, depending on whether the memory bit is a logical 0 or 1. In one state, the FLC rotates the plane of incoming polarized light, while in the other state it does not. External polarizers cause the light either to exit the optical system and be viewed as a bright pixel, or be absorbed in the polarizer and be seen as a dark pixel. The light is not appreciably absorbed by the FLC itself, making high light-intensity projection applications possible.

        An important feature of Displaytech's technology is that the display is an entirely digital device. Conversion to and from analog signals is never required, allowing the sharpest possible pictures to be produced. This becomes especially important at higher resolutions, where traditional high bandwidth analog signals are difficult to handle.

        Over the past two years, Displaytech has increased the sophistication of the circuitry surrounding the active display area of our chips. Our most recent projection TV display panel includes several different operating modes, such as reversing the up/down and left/right scan directions, which simplifies the optical and mechanical design of end-user systems. We also employ industry standard JTAG circuitry to allow the electrical operation of each device to be probed and tested at the wafer level before any displays are built.

        We expect this trend toward increased integration to continue even further. In the near future, we plan to integrate control functions into the display panel, allowing minimum component count systems to be built. Since Displaytech's manufacturing process already requires some additional silicon area outside the active area, we can populate this region of silicon with our own control functions or third-party cores with very little impact on the cost of the silicon. This extra silicon region provides a major benefit to our customers, by enabling them to add value to our design and differentiate their products by including their own custom circuitry on our device. Although we originally used schematic based tools to design our chips, we are now working in a high-level language synthesis environment which, among other benefits, is also more compatible with other third-party IP core vendors.

        For panels larger than VGA (640 × 480), we are developing a standard interface which will make changes to the control electronics trivial as our customers move up to XGA (1024 × 768), SXGA (1280 × 1024), UXGA (1600 × 1200) and beyond.

ADDITIONAL TECHNICAL INFORMATION

        See Appendix A for more information on Displaytech's technical advantages.

7

PRODUCTS

INTRODUCTION

        Displaytech's primary product focus is on full-color, high-resolution miniature display panels for projected and magnified imaging applications. Both systems take advantage of the benefits of virtual displays.

        In traditional direct view display systems like a standard TV set, the picture viewed by the user is the same size as the picture on the display panel. In projection systems, the picture viewed by the user is significantly larger than the original image. This is also true of a virtual display system. However, in a virtual display, the display panel is significantly smaller (typically less than 1-inch) and less expensive than either of the other systems. Additionally, the image can be projected or magnified to almost any size, depending on the type of optics used.

        In many applications, especially those requiring pocket-sized portability, a direct view display is a noteworthy disadvantage. For example, miniaturization of a laptop computer is limited by its useful screen size. Here, a virtual display could easily include the rich color, high resolution, and flicker-free video motion we expect from a cathode ray tube (CRT). All of these features are included in our virtual display engine, in a package smaller than a two-inch cube.

        All Displaytech products use proprietary FLC materials and manufacturing techniques designed to optimize performance while minimizing cost.

PRODUCT CHARACTERISTICS

Full Color on Every Pixel

        LightCaster™ miniature displays are the first to offer both high resolution and full color on every pixel, implementing sequential color techniques. Sequential color means that each pixel on the display is illuminated with the proper mix of red, green, and blue colors in fast enough succession for the human eye to fuse the sequence into a single, smooth color picture. Sequential color requires the fast (microsecond) switching speed of FLC materials.

        Other active matrix liquid crystals are made with slower nematic liquid crystals (NLCs). These more conventional AMLCDs employ triads of sub-pixels, which spatially separate red, green, and blue sub-pixels. This difference is especially noticeable when displays are physically small. LightCaster technology creates a much smoother (less grainy) color image than triad displays, even at the same resolution. With one third fewer pixels, our LightCaster display panels can also be made smaller, permitting a greater degree of product miniaturization and inherently lower production costs.

High Resolution

        With LightCaster displays, pixel size and display resolutions are determined by the design of the VLSI backplane. For this reason, Displaytech can offer significant flexibility in OEM product specifications. For the cost of a new backplane design and a CMOS production run, displays can be produced with customer-specified resolution and pixel pitch, without significantly altering the downstream production process.

        VLSI backplanes are fabricated for high resolutions with extremely small pixels. Displaytech has successfully demonstrated pixels as small as 5.7 microns (4500 dpi), and has demonstrated fully operational SXGA (1280 × 1024) panels with 7.6-micron pixels (3300 dpi). Competing liquid crystal technologies use much thicker LC layers, causing lateral electric field cross talk, even with much larger pixels. This cross-talk problem limits usable small panel resolution.

8

Production Ease/Competitive Cost

        Production costs of miniature displays are dominated by the cost of the active matrix backplane. Our LightCaster Display backplane is an integrated circuit produced using standard CMOS processing in a commercial foundry. By itself, this fact assures us of lower unit and capital costs, when compared to the competition. Additionally, the small die size further increases this advantage.

        Integrated circuit costs rise dramatically as chip size increases, for very understandable reasons. First, chips are produced on wafers whose cost is independent of the number or type of chips it carries. Physically smaller integrated circuits allow more chips to fit on an individual wafer, lowering the unit cost (per chip).

        Second, not all chips on a wafer are usable. Yields are always less than 100% due to randomly distributed defects. Statistically, smaller chips lower the probability that a particular chip will contain a defect. In this way, smaller chips increase yield factors and ultimately reduce unit costs.

        Displaytech has developed a scalable manufacturing process for miniature display production. As customers move from Developer Kits to prototype and pre-production runs, Displaytech can continue to meet increasing demands. The process is then scaled to meet volume production requirements.

Miniaturization

        Market demand is driving consumer product manufacturers to smaller form factors for increased portability and reduced cost. For Displaytech, smaller VLSI backplanes lower production costs. This combination of low cost and small size is key to consumer products for mobile communications, computing, and photography.

        LightCaster technology enables physically small products to include visually large displays. For product designers, Displaytech Display Engine products are virtual display components with the potential (depending on the customer application) for out-of-the-box functionality.

Durability

        By itself, miniaturization does not ensure portability. Portable products must:

•

be resistant to shock



•

operate over a broad temperature range



•

enable battery powered operation



•

have long operational lifetimes.

        Displaytech's integrated materials and device design approach ensures the necessary durability.

Speed

        The importance of display speed becomes apparent to consumers of display products only when displays under-perform. CRT flicker, unreadable text on miniature AMLCDs, and cursors that submarine when moved rapidly are all familiar display artifacts which indicate insufficient response time. Displaytech FLC-based display products avoid these common problems with proprietary materials, device designs, and drive algorithms.

9

PRODUCT DESCRIPTIONS

LightCaster Display Developer Kit

        The Developer Kit is sold to customers to enable them to get first hand experience with the technology.

        The LightCaster Developer Kit is an assembly of components that provides OEM product designers with a complete miniature display system that works right out of the box. It allows display designers to focus on their end product design, not on the technical details of miniature display implementation. OEM customers can thus streamline their product development process and reduce their time to market.

        Developer Kits, which began shipping in March 1997, have proven to be an attractive entry point into the display market. This Kit consists of: a VGA (640 × 480) imaging panel, magnification and polarization optics, an illumination system, and drive electronics that plug into a standard PCI port, common in every IBM compatible PC.

LightCaster Display Engine

        The LightCaster Display Engine is an OEM sub-assembly that customers can design into their end user products.

        The Display Engine includes all the necessary imaging components in a small, lightweight module—ready for integration into a variety of hand held and head-mounted display products.

        The Displaytech optical design resolves every pixel on the VGA Display Panel. Single pixel fonts and ultra-fine features are clear and sharp. Careful attention has been paid throughout system design to preserve this pixel-level detail. The VGA Display Engine is ergonomically designed for high-resolution images, engineering drawings, and reference materials.

        The LightCaster VGA Display Engine provides:

•

VGA imaging panel,



•

magnification and viewing optics,



•

illumination system and



•

control electronics.

        This opto-mechanical subsystem design integrates easily into handheld and head-mounted products and can greatly reduce product integration time and time to market.

LightCaster Display Panels

        LightCaster Display Panels are full-color, high-resolution, video-capable electronic displays. These products are sold to customers who want to design a custom engine for their end user application. The miniature FLC reflective display panels are mounted on a flexible circuit and designed using established CMOS technology. Their high performance makes them suitable for a range of product applications—from handheld and head-mounted displays to well-known consumer products like wireless telephones, digital cameras, televisions, and computer monitors.

VGA Resolution (640 × 480)

        These compact, lightweight panels can be designed into portable, battery powered applications. In the near term, VGA resolution displays will be used in a variety of applications including handheld,

10

portable, and wearable computers, personal DVD players, and head-mounted display systems for medical, military, and industrial use.

XGA Resolution (1024 × 768)

        XGA is a popular display resolution and is commonly used in laptop computer systems. Manufacturers of ultra compact and lightweight portable projection systems prefer this resolution, due to the large installed base of laptop users. The Displaytech XGA panel provides these manufacturers with a single- or multi-chip solution to their low cost, weight, and power consumption requirements.

SXGA Resolution (1280 × 1024)

        LightCaster SXGA Display Panels are designed specifically for projection applications, such as conference room projectors (portable and stationary) and desktop computer monitors. Both front and rear projection systems will take advantage of the important feature benefits of LightCaster technology: clear, bright color with no graininess or edge fading.

UXGA Resolution (1600 × 1200)

        UXGA is the next level of resolution in Displaytech's development plans. OEMs are designing future devices that will utilize this very high-resolution display. This resolution is particularly attractive in computer workstations and desktop computer monitors.

Custom Display Panels

        Displaytech has also been successful in developing custom display panels for specific customers for rear-projection and head-mounted display applications.

11

MARKET ANALYSIS

THE DISPLAY MARKET

Introduction

        The display market can be classified by technology, application, viewing configuration, or information content. Since Displaytech's products, and hence its targeted markets, deal with high information content, we first screen for information content. Once low information content applications like LEDs and vacuum fluorescent displays (wristwatches and simple calculators, for example) have been eliminated from the analysis, the focus is on the viewing configuration to classify the variety of applications in the display market.

        The three standard viewing configurations for displays are direct, virtual, and projected. Direct view means that the size of the image produced by the display is the same size as the image viewed by the user. Transmissive LCDs have long dominated the flat panel display (FPD) market place with direct view products. Most CRTs are direct view.

        A virtual view display is essentially a display engine that produces an image less than 1-inch in size and then enlarges it to any size required by the application. Virtual view displays can be magnified or projected. Displaytech's LightCaster VGA Display Engine is an example of a magnified virtual display.

        In projection configurations, the use of lenses allows the size of the image to be re-sized before being viewed. A projection system can be made with the screen between the projector and viewer (rear projection) or with the projector between the screen and the viewer (front projection). Rear projection is most popular for home theatre applications while front projection is most popular for business presentation applications.

Market Size

        The overall worldwide display market (i.e., CRT and FPD) accounted for $34.8 billion in revenue in 1997. It is projected that over 84.2 million CRT displays were sold last year with revenues of $20.9 billion.(1) Flat panel displays accounted for $13.9 billion in revenue in 1997.(2) Revenues are forecasted to reach $31.6 billion by the year 2003. The growth of CRT displays will be slower and revenues are forecasted $28.8 billion in 2003.(3)

(1)

Electronic Display World, Stanford Resources, July 1997

(2)

Electronic Buyers News, January 26,1998

(3)

Electronic Buyers News, January 26,1998

Market Trends

Internet—The explosive growth of the Internet and Intranets is accelerating the convergence of computing and communications and stimulating a new generation of information devices. As such products incorporate personal computing features, they require displays capable of satisfying the expectations of personal computer users (e.g., text, e-mail, financial reports, graphic and video images, music, sound, and animation).

Mobility—The US workforce is increasingly mobile. Xxxxxxxxx Research estimates that over 48 million workers(4) (or 40% of the workforce) are traveling at any given time. With portable computing devices becoming smaller and the demand for richer content increasing, interest in miniature magnified displays is increasing. Interest is particularly high for those displays that are designed to be small virtual devices capable of delivering the same (or better) clarity, resolution, and color depth that users have come to expect from their desktop systems. Displaytech is able to provide

12

this type of display and meet the requirements of OEM manufacturers as they look to design for flexibility and innovation.

(4)

Quoted in Xxxxxx, Xxxxxxxxx, "Introduction Market Drivers."

Improvements to Existing Display Products—The introduction of Advanced Television (ATV, or High Definition Television [HDTV]) and the Digital Versatile Disk (DVD) signals the public introduction of digital broadcasting. The industry's need for high definition (i.e., resolution) and different aspect ratios provides an opportunity for the FPD industry to define the standard for digital displays. As this technology improves and prices decline, the adoption of flat panel monitors should increase dramatically. The projection market also provides an excellent opportunity to overturn the dominance of the CRT display. With the introduction of LCD- and chip-based portable projection displays, the portable projector market has grown significantly.

Displaytech Market Strategy

        Concentrate on the development of panels and materials to become world leader in high definition, low cost, miniature imaging devices for projected- and magnified-view applications.

•

Tailor products to new applications where information content is high



•

Offer a significant price/performance advantage over established technologies



•

Prove large-scale manufacturing capability at consistently high yields—from pilot to mass production



•

Continue to strengthen OEM relationships

Product Mix

        Displaytech's primary business is the design and manufacturing of high quality display panels to meet the needs of its market segments. Its goal is to produce the highest quality, full color displays over the range of resolutions available to various applications. As higher resolutions become necessary to fulfill OEM requirements, Displaytech will develop product to meet their customers' needs. Display products presently in design and/or manufacturing are listed below along with their actual or potential market applications.

Table I. Displaytech Product Mix

Applications		SLM 256 × 256		VGA 640 × 480		XGA 1024 × 768		CUSTOM 1024 × 768		CUSTOM 1280 × 768		SXGA 1280 × 1024		UXGA 1600 × 1200
Digital Phones				•
Digital Cameras				•								•
Notebooks				•		•		•
Wearable Computers				•		•		•
Optical Computing		•										•
Handheld Personal Computer				•		•		•
Digital Versatile Disk						•				•		•		•
Advanced Television (HDTV)						•				•		•		•
Rear Projection						•						•		•
Desktop/Mobile Projection						•						•		•

13

THE MAGNIFIED VIEW MARKET

Introduction

        Recently, there has been a renewed and increased interest in miniature, magnified displays. Largely, this is a result of advances in miniature display technology, an increase in bandwidth and data transmission capabilities, the decrease in the size of electronic products, and the integration of multi-functional applications into mobile products. "Smart" telephones transmit and receive not only voice data but also information from the computer, faxes from the office, or e-mail. Small electronic address books have grown to become scaled down versions of Windows 95™ (e.g., Windows CE™) that allow the user to word process, work on a spreadsheet, receive faxes or e-mail, or surf the web. Even cameras have gone digital and now allow the photographer to preview a picture or view the actual picture prior to "exposure."

        These changes, along with rising consumer expectations of product functionality, are pushing manufacturers to re-evaluate their requirements for displays. Interest is particularly high for virtual displays that are able to deliver the same (or better) clarity, resolution, and color depth that users have come to expect from their desktop systems. Up until now, most miniature display manufacturers have concentrated on one-eighth or one-quarter VGA black and white devices. However, as OEM manufacturers indicate greater interest in miniature displays and their ability to provide high information content, vendors are moving towards integrating displays that have full color VGA capability.

Market Trends for Miniature Imaging Devices

•

System components have gotten smaller leading to smaller electronic devices



•

Product size and form factor are now constrained by the display size



•

Direct view displays consume a major portion of a product's power budget(5)



•

Present display size limits the information content on a single screen



•

Availability of the contents of the web, including text and graphics



•

Expanding digital bandwidth of worldwide cellular networks



•

Demand pull of the mobile work force

Market Segments

        The primary market segments for magnified displays are:

"Smart" Telephones—are digital telephones that incorporate at least one other type of information content (e.g., e-mail, faxes, Internet use, etc.) beyond voice. The digital telephone market in the US is still relatively new and the infrastructure is not complete. However, given the popularity of digital "smart" telephones in Europe (estimated 1998 revenues = $604 M vs. $269 M in the US(6)), it is forecasted that the US market will grow significantly over the next 5 years (1997-2001: 77.8% CAGR forecasted(2)).

Digital Cameras—have been available for a number of years; mainly concentrated at the high-end of the photography market. In the last 12-18 months, this market has grown rapidly (estimated sales quadrupled between 1995 and 1996 and are expected to double in 1997(7)) and has moved down the price curve to incorporate sub-$500 offerings.

(5)

DisplaySearch

(6)

Source: IDC, June 3, 1997

14

(7)

Source: The Economist, August 30, 1997

Table 2. Critical Requirements for Magnified Displays by Segment

Application		High Resolution		Picture Quality		Accurate Color		Low Power		Low Cost		Small Size
Smart Phones		•		•		•		•		•		•
Digital Cameras		•		•		•		•		•		•
Digital Camcorders								•		•		•
Handheld Computers		•						•		•		•
Medical		•		•		•
Laptops		•		•		•
Wearables		•		•		•		•

Digital Camcorders—This is the most mature market segment in terms of using small displays. Most camcorders today have a viewfinder feature. The viewfinder displays are generally 2-5" in both monochrome and color. They are direct view displays primarily based on TFT-LCDs.

Handheld PCs—are becoming increasingly sophisticated as new operating systems evolve and become implemented (e.g., Windows CE and PalmPilot Grafitti). Some systems support e-mail retrieval, fax capability, and web browsing. The Windows CE operating system now supports color. Sharp, which uses a proprietary OS introduced the first color PDA in Japan in 1997; HP introduced its first color HPC in January 1998.

Medical—applications primarily involve surgical instruments like endoscopes. This segment is less price-sensitive than others, but not particularly large. Color displays, with resolutions above SVGA, are required.

Laptop Computers—represent the largest potential segment for miniature magnified displays (over 14M units were forecasted to ship in 1997(8)). For any miniature display to penetrate this market, it must be capable of delivering the same (or better) clarity, resolution, and color depth that users have come to expect from their desktop systems.

(8)

Data extrapolated from: Frost and Xxxxxxxx: 1995; DataQuest 6/97

Wearable Computers—combine the functionality of laptop computers with the portability required of the new mobile products. Many of these products have neither a full-size display screen nor a keyboard. Rather, they use voice recognition software for data input and a monocular miniature magnified display for data output. The miniature monocular display allows an individual to use the wearable computer as a reference resource and still work within their particular function.

Primary Target Markets

        Based on the potential market forecasts within these segments, Displaytech will target the "smart" telephone, digital camera, wearable computer, handheld computer, and laptop computer segments. The camcorder viewfinder market is small (approximately 500,000 units forecasted), maturing, dominated by the Japanese, and low priced ($30/display). The industrial/medical instrumentation market is also small and segmented. It would be quite difficult to get sufficient volume business from any one supplier.

15

Table 3. Targeted Magnified-View Market Segments: Unit Forecast (000)

		1997		1998		1999		2000		2001
"Smart" Phones		577		1,618		3,264		5,600		8,792
Digital Cameras		1,500		2,500		3,500		5,000		7,000
Notebooks and Wearables		14,040		16,567		19,052		21,339		23,472
HPCs		3,660		6,005		8,949		12,464		16,198
Total		19,777		26,690		34,765		44,403		55,462

16

THE PROJECTION MARKET

Introduction

        The worldwide market for all types of projection devices is significantly larger and more mature than the magnified display marketplace. In 1997, 1.56 million projectors were sold for $6.4 billion (for an average price per unit of $4,103). Sales are forecasted to increase to 3.8 million units and $11.2 billion in 2004(9) (for an average price per unit of $2947). The projection market is presently dominated by the rear CRT projection systems but major growth is occurring in the front- and rear-LCD and chip-based projector market. The business segment, particularly in the portable and ultra-portable projector area, is the fastest growing segment in this market. Stanford Resources estimates that this part of the business segment will grow to 1 million units (or 26% of total projector unit sales) by 2004.(10)

(9)

Electronic Display World, November 1997

(10)

Electronic Display World, November 1997

Projection Market Trends

•

The mobile workforce demand for portable projectors has helped to decrease the price and weight of LCD projectors while increasing the product features (especially brightness and resolution).



•

CRT-based projectors continue to dominate the consumer rear projection market.



•

VGA resolution is no longer sufficient (except for its video capability). XGA is the chosen resolution in the short-term market.



•

Data-only projectors are being surpassed by video, or multimedia projectors.



•

A shakeout is expected in the market as too many vendors (over 65) chase too few customers. The leading CRT-projector vendors are Sony, Barco, Electrohome, and NEC. The leading front LCD projector vendors are Sharp, In Focus, and Proxima; with Epson leading in the XGA segment.



•

The Japanese continue to focus on LCD- and chip-based portable projectors while American manufacturers focus on the Digital Light Processing (DLP) technology of Texas Instruments. Presently 16 vendors (including a non-American vendor, Sony) have, or are developing projectors based on this technology.



•

Distribution channels, particularly for the small portables, are moving away from audio-visual dealers and towards computer distributors and dealers.

Market Segments

        The projection market is generally divided into a Business Segment and a Consumer Segment. The consumer segment focuses on the "big screen television" market and is predominately rear CRT projection-based. Stanford Resources projects that CRTs will dominate this portion of the market with over an 85% market share through 2002(11). Growth in the business segment of the projector market is driven by the need of mobile workers to make presentations while traveling. The business segment is expected to grow at 31% annually through 2004.

(11)

Electronic Display World, September 1997

17

Table 4. Projection Market Segments

APPLICATION		SEGMENT		CHARACTERISTIC		DOMINANT TECHNOLOGY		RESOLUTION		PRICE ($)
Conference Room		Business		Fixed location		LCD/CRT		XGA, SXGA		9000+
Portable Desktop		Business		Light-weight, multimedia		LCD		VGA, SVGA, XGA		2-3000; 3-8000
Rear Projection Television		Consumer		Standard TV		CRT		SDTV		3-5000+
Rear Projection Monitor		Business		20" + diagonal		CRT		SVGA, XGA, SXGA		1-3000

Table 5. Critical Requirements for Projectors by Segment(12)

APPLICATION		LIGHT EFFICIENCY		HIGH RESOLUTION		PICTURE QUALITY		LOW POWER		ACCURATE COLOR		LOW COST		SMALL SIZE
Conference Room		•		•		•
Multimedia Projector		•		•		•						•
Portable Projector		•		•		•		•				•		•
Projection TV		•				•				•		•
Projection Monitors		•				•

(12)

Modified from DisplaySearch, Flat Panel Video Analyst, April 1997.

Consumer Projection Market

        The consumer segment of the projection market in the United States is growing at approximately 25% annually. The primary driving force behind this growth rate is sales of home theatre applications. The prices for home theater products have dropped significantly in the United States (i.e., below $2000) over the past two years while the prices in the rest of the world are still proportionately high. CRT-based systems dominate this market despite their large size and weight. In part, this is an indication of market maturity and the relative competitive pricing and, in part, it is a result of the high price, and until recently, the lower quality, of flat panel displays. With the arrival of ATV (or HDTV), and the subsequent increase in costs to make CRT projection units, it is anticipated that the price differential between these two technologies will decrease.

        The companies that are trying to compete in the FPD market along with some of their key characteristics are listed in the following chart:

COMPANY		RESOLUTION(1)		COLOR METHOD(2)		APPLICATIONS		PRODUCTION STATUS		COMPANY STATUS
Reflective
DISPLAYTECH FLC on Si xxx.xxxxxxxxxxx.xxx		VGA, XGA, SXGA		Sequential		Personal viewer, projector, optical computing, digital camera, desktop monitor, smart phone		shipping volume		Privately held
1. NLC-on-Si
Colorado MicroDisplay		SVGA		Sequential		eyeglasses		developer kits		Early stage venture capital funding
Spatialight xxx.xxxxxxxxxxx.xxx		VGA		Sequential		Projector, HMD, optical computing		In development		Early stage publicly traded

18

IBM Japan		SXGA		Sequential		Projector		In production		Major Corporation
S-VISION xxx.xxxx.xxx		SVGA		Sequential		Projector, personal viewer		In development		Early stage public on Montreal Exchange
Micro-Display www. xxxxxxxxxxxx.xxx		VGA		Sequential		Personal viewer, projector		Shipping prototypes		Early stage venture capital funding
2. PDLC
Raychem/Siliscape xxx.xxxxxxx.xxx xxx.xxxxxxxxx.xxx		SVGA		Sequential		Pager, smart phone, PDA		In development		Venture capital funding
National Semiconductor/ Three-Five xxx.xxxxxxxx.xxx www.threefive. com		SVGA SXGA		Sequential		Personal viewer, projector		In development		Major Corporation
3. DMD
Texas Instruments xxx.xx.xxx/xxx		SVGA		Sequential		Projector		Volume		Major Corporation
4. GLV
Silicon Light Machines xxx.xxxxxxxxxxxx.xxx				Sequential		Personal viewer, projector		In development		Early stage venture capital funded
Transmissive
5. a-Si TFT-LCD
Hitachi xxx.xxxxxxx.xxx		VGA		Triads		Projector, HMD		Shipping volume monochrome and color prototypes		Major Corporation
6. poly-Si TFT-LCD
Sarif xxx.xxxxx.xxx		VGA		Triads		Personal viewer, projector		Target date for samples—11/97		Early Stage Privately held
Sony xxx.xxx.xxxx.xxx/xxx I		VGA		Triads		Projector, eyeglasses		Volume production		Major Corporation
Seiko-Epson xxx.xxxxx.xx.xx		XGA		Triads		Projector		Volume production		Major Corporation
7. x-Si TFT-LCD
Kopin xxx.xxxxx.xxx		1/4 VGA		Sequential		Personal viewer, smart phone, digital camera		Developer Kits, Samples		Early stage publicly traded
Emissive
8. AMEL
Planar xxx.xxxxxx.xxx		VGA				Industrial HMD		Volume production		Publicly traded
9. FED
Micron Display xxx.xxxxxx.xxx/xxx		1/4 VGA		N/A		Industrial, military HMD		In development		Funded by parent company

19

10. LED
Reflection Technology xxx.xxxxxxxxxx.xxx		VGA				Fax reader, gaming		Volume production		Early stage
Motorola xxx.xxx-xxx.xxx		1/8 VGA		N/A		personal viewer		Engineering samples		Major Corporation

(1)

Resolutions—VGA-640 × 480 pixels; SVGA-800 × 600 pixels; XGA-1024 × 768 pixels; SXGA-1280 × 1024 pixels.

(2)

Color method—Sequential color creates full color on each pixel, giving a clear image. Color triads use three pixels (one red, one green, one blue) to make one color, producing a grainy image.

20

NLC-ON-SI

        In this technology, each pixel stores analog voltage to provide grayscale using twisted nematic LC. The pixel circuits are made in silicon with integrated row and column drivers.

Colorado MicroDisplay (CMD)—CMD has developer kits out in the field. Their developer kit is SVGA resolution and is small with low power consumption. CMD's materials run at 9 volts, which is not compatible with the standard 3.3 volt CMOS process, resulting in more difficult and more expensive production. They do no in-house manufacturing, giving them limited control over production schedule and quantity.

Spatialight—Spatialight is a small company that has no commercial product to date. Their plan is to produce 1024 X 768 reflective SLMs targeted to various applications.

IBM—IBM has recently entered the miniature display market with SXGA and UXGA panels for projection applications. They are making and selling very expensive ($20K) three panel projectors and three panel projection display engines to OEMs that cost around $6,300. The SXGA panel has a 1.3" diagonal with a 20-mm pixel pitch, and the UXGA panel has a 1.3" diagonal with 15.5 mm pixel pitch.

S-Vision—S-Vision is developing an XGA projector. They also plan to make display components targeted to projection markets which would have them trying to compete with some of their potential customers. They have an SVGA developer kit for OEM evaluation.

MicroDisplay—In November 1997 MicroDisplay announced a plan to manufacture 200,000 miniature reflective LCD screens in 1998. They plan to sell their product into portable applications (magnified and projection). Their projection display will be initially priced at $3,000.

PDLC

        PDLC design encapsulates drops of LC in plastic polymer material, which is coated onto glass and bonded to a mirrored semiconductor substrate. The randomly oriented LC capsules scatter incident light out of the image or transmit it into the image. The pixel circuits are made in Si.

Raychem—Siliscape is buying Raychem's PDLC displays for their Optiscape™ display engine, Siliscape is positioning itself as having the "widest field of view" and the "highest image clarity" in the industry. They plan to have volume delivery in mid-1998, however, we understand that PDLCs are currently only being produced at the engineering sample level. Raychem displays suffer from a low contrast ratio (40:1).

National Semiconductor—In August 1997 National Semiconductor announced a partnership with Three-Five Systems to make miniature displays. They plan to manufacture SVGA and SXGA resolutions on a custom basis. Three-Five is the largest LCD manufacturer in North America. They expect to begin volume production in the second half of 1998. National and Three-Five are exclusive suppliers to each other for the products covered by this agreement.

DMD

        This is a micro electromechanical system (MEMs) where pixels are active-matrix MEM mirrors that store digital voltage and cause the mirror to tilt one way or another. One tilt reflects incident light into the image, while the other tilt reflects it out of the image. Fast switching speed gives true sequential color and grayscale. The pixel circuits and mirrors are made in silicon with integrated row and column drivers.

Texas Instruments—TI is making single-, two-, and three-panel display engines for large- area projection applications (VGA and SVGA). Customers include In Focus, ASK, Davis, Liesegang, n-View, Proxima, AmPro, Digital Projection, Electrohome, Sony, Synelec, Projectavision and Vidikron.

21

TI is a recognized brand with an established distribution system. They have high switching speeds and the capability to use unpolarized light. However, manufacturing the DMD is challenging—fabrication requires 18 mask steps, and the die size is large which makes the cost of the device high. The device is intrinsically large due to its complex optical system. SXGA and higher resolutions are very hard to make, and size will increase as resolution increases. The DMD micro-mirrors only tilt +10 to -10 degrees, creating a limited acceptance angle for light.

GLV

        Another micro-electro-mechanical system, this technology is an active-matrix micro-mechanical diffraction grating. Each pixel stores digital voltage which causes its micro-grating to either reflect incident light into the image or to diffract it out of the image. High switching speed gives true sequential color and grayscale, and pixel circuits are made in silicon with integrated row and column drivers.

Silicon Light Machines (SLM)—Originally called Echelle, Inc., SLM was founded in 1994. They have no commercial product to date. In the summer of 1997, SLM laid off about a third of its staff in a redirection of its effort to bring its GLV technology to market.

a-SI TFT-LCD

        In this AMLCD technology, each pixel stores analog voltage to provide grayscale using twisted nematic (TN) LC. It is necessary to use color triads with color filter plate and black matrix. The row and column drivers are separate.

Hitachi—Hitachi makes a high cost/high priced 1" VGA monochrome LCD and a 1" VGA color LCD. Other weaknesses include high power consumption and large circuit size.

POLY-SI TFT-LCD

        Like in a-Si TFT LCD each pixel stores analog voltage to provide grayscale using twisted nematic LC and color triads with color filter plate and black matrix are necessary. Poly-Silicon technology improves amorphous silicon by enabling integrated row and column drivers. The general advantages and disadvantages of poly-Si TFT LCD are the same as for a-Si TFT LCD except poly-Si TFT enables the use of integrated drivers.

Sarif—-Sarif's product plans include a 0.6" VGA panel that will be targeted toward the personal viewer market and 1.3" SVGA & 1.7" SXGA panels targeted toward the projector market. However, they have low fill factor which causes high-resolution panels to be large, low light and power efficiency and the necessary use of triads.

Sony—Sony has several display products on the market. They manufacture a variety of panels from sub-VGA resolutions to XGA. They have several advantages: name recognition, proven manufacturing for their technology, an established distribution system and market penetration in projection. However, their fill factor is low along with their light and power efficiencies.

Epson—Epson's advantages and disadvantages are very similar to Sony's. They have low fill factor and low light and power efficiency. Epson also makes their own projector—making it difficult to remain a supplier to other OEMs in the projection display market.

X-SI TFT-LCD

        In x-Si technology, each pixel stores analog voltage to provide grayscale using twisted nematic LC. The pixel circuits are made in silicon, then peeled off and transferred to glass to be transmissive. This technology is capable of sequential color and has integrated row and column drivers. It is differentiated

22

from a-Si and poly-Si because it doesn't need color triads (it does sequential color) and has no black matrix. X-Si is also capable of lower power consumption.

Kopin—Kopin has announced development deals with companies like Motorola, Siemens, and Fuji Film Micro Devices. Their focus is on producing small, dense displays with the low pixel cost. They are making a ¹/4 VGA device, which has a low power requirement and small size. ¹/4 VGA is not an acceptable resolution for most applications. They have problems in color with blue light—silicon absorbs blue light, so the manufacturing trade-off is between yield and color production. Thin silicon increases the risk of breakage, and thick silicon increases blue light absorption. At optional operating temperatures, slow NLCs are barely capable of the 180 Hz switching speeds necessary for color sequencing. As temperature falls, Kopin's liquid crystals slow down, causing flicker and blur. They have the same problems with low aperture ratio as Hitachi. Kopin's manufacturing process is proprietary and outsourced to Unipac in Taiwan, giving limited control over production schedules and quality.

AMEL

        This technology consists of a phosphor stack deposited on top of a VLSI chip. Disadvantages to using AMEL include Lambertian emission hard to magnify efficiently; high cost; unproven manufacturing; limited color gamut; needs high voltage.

Planar—In September of 1997 Planar announced their plan to acquire Xxxxxxxx Industries, a LCD manufacturer. This makes Planar the largest independent FPD supplier in the US. It gives them more of an edge in LCDs, which have been growing at faster rates than their AMEL product. Planar also has an agreement with dpiX (a Xerox company) to jointly develop, manufacture and sell AMLCDs into military applications. Planar's color miniature display product is a 0.75" VGA display with poor image quality. The AMEL

        display produces light that is weak in blue, giving a yellow-tinged display. This display requires high voltage to operate. The voltage problem is proven by the weakness in blue light since blue phosphors are the most voltage sensitive. The RGB color filter over the AMEL makes the display dim and adds to its cost and complexity. The power required by the AMEL-RGB display is very high (>4 xxxxx).

FED

        FED is an active matrix of CRTs in which each pixel stores analog voltage that controls the electron current to the pixel's phosphor, causing it to emit light. It uses color triads for color generation. The pixel circuits are fabricated in silicon with row and column drivers. Disadvantages include: Lambertian emission hard to magnify efficiently; poor pixel brightness uniformity; high voltage FEDs have problems with flashover, while low voltage FEDs have problems with fast phosphor burn-in; volt drivers are large, impacting miniaturization.

Micron Display Technology—Micron makes the most advanced miniature FED display in the industry. It is only suitable for magnified applications. They have a relatively wide operating temperature range (-30 to +80 C). However, the technology limits the minimum pixel size, making high resolution, small devices unlikely. In small displays, pixel uniformity problems have produced grainy images. This problem is exacerbated by the use of color triads. As with AMEL, color production is voltage- dependent making blue a problem. The company pulled back a private placement offering of stock of several million dollars in September 1997. Instead, they have been reabsorbed as a division of their parent company, Micron Technology Inc. In an effort to expand their development program into the volume computer market, they are focusing much of their resources on large FEDs (12" and 17"). Their key customers are military.

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LED

        In LED technology, there is a single column of LEDs, one for each display row. The LEDs are modulated in brightness while being electro-mechanically scanned to provide a 2-D image. Disadvantages include low resolution; low grayscale and color capability; low information content; bulky packaging; row and column drivers' separate, vibration.

Reflection Technology—Reflection's scanned linear array technology produces an odd-looking display that is typically red-on-black. They announced a full-color VGA product in September 1996, however, it hasn't been seen in the market. The technology is inherently large and only suitable for magnified applications. It is sometimes considered for head-mounted products; however, the unit tends to vibrate (due to the vibrating mirror). The SLA technology is used in Reflection's FaxView personal fax reader and was used in Nintendo's 3-D portable game system, Virtual Boy, which was unsuccessful in the marketplace. The company announced a manufacturing agreement with Omron Corporation in January 1998. Omron Corporation specializes in automated manufacturing and is headquartered in Kyoto, Japan.

Motorola—Motorola's ¹/8-VGA monochrome LED is a weak product with a substantial manufacturing challenge. Neither color nor higher resolution is expected in the near future. However, in December 1997 Motorola announced the development of an LCD-based VirtuoVue module using Kopin's CyberDisplay technology. The deal combines Motorola's semiconductor technology and optical units with Kopin's ¹/4 VGA LCDs. They expect the first product from a third party to hit the market mid-1998 and that volume production will begin in 1999. Plans are to offer their LED product to industrial applications in larger sizes (4-8"). They are not exclusively committed to Kopin as a LCD supplier and are open to other development deals.

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INTELLECTUAL PROPERTY

        Displaytech has a substantial body of intellectual property, which provides a distinctive and powerful position with respect to competitors making miniature display products. The company has a license to the family of pioneer FLC device patents that covers the use of ferroelectric liquid crystals in all practical electro-optic devices. The company also has 24 allowed or issued patents and 23 pending patents of its own, some of which cover the liquid crystal materials used in its products, and others of which cover the essential features of reflective, color-sequential display systems. In addition, the company maintains its manufacturing processes as trade secrets. Finally, the company has an agreement with the University of Colorado that gives it exclusive access to new FLC related developments from the laboratories of its founders and currently licenses issued patents under this agreement on an exclusive basis.

PIONEER PATENTS

Surface stabilized Ferroelectric Liquid Crystals (FLCs)

        During the summer of 1979, Xxxx Xxxxx (a company founder and current Board Member) and Xxxx Xxxxxxxxx discovered what had eluded other researchers for decades: a low voltage, microsecond electro-optic effect. The discovery was enabled by a key invention: a technique called surface stabilization, to suppress the unwanted helical structure in ferroelectric liquid crystals. This "SSFLC" invention has been protected by a family of US and foreign patents, including many US continuations, some of which have just been issued, and hence provide coverage through the year 2013. Displaytech has worldwide exclusive licenses to all the Xxxxx/Lagerwall SSFLC patents, except as noted below, for all "direct drive" (each pixel is operated by its own electrical signal) devices of 4.5 cm diagonal or smaller. It has non-exclusive licenses for all other SSFLC devices.

        The surface-stabilized FLC device concept enables a very wide range of devices and applications. Displaytech's exclusive and non-exclusive licenses give it a large, sheltered playing field in which it can develop and license new products inside and outside the display area.

        Two other license holders have rights in the area of small direct-drive SSFLC devices—Canon Inc. of Japan and FLC Innovation, a small Swedish company formed by Lagerwall, both hold a non-exclusive license (without the right to sublicense small direct-drive devices) to all SSFLC devices. Canon has chosen to concentrate its FLC efforts solely on producing large (>12 inches) passive matrix flat panel displays primarily for desktop computers. Displaytech is in negotiations with the Swedish company to purchase its right to make SSFLC devices. In either case, Displaytech's own FLC materials display system patents (described below) would prevent either company from easily utilizing FLCs in miniature displays.

DISPLAYTECH PATENTS

FLC Materials

        When the SSFLC effect was discovered in 1979, there were only two known ferroelectric liquid crystal materials. Both exhibited the ferroelectric phase only at temperatures closer to the boiling point of water than to room temperature, and both decomposed when exposed to atmospheric humidity. One of the company's founders and current Board Member, Xxxx Xxxxx, synthesized the world's first room temperature FLC material in 1985. Since then, Displaytech chemists have synthesized over 1000 new FLC compounds. By blending these compounds together in carefully designed formulations, Displaytech has developed state-of-the-art FLC materials that exhibit all the qualities necessary to yield practical devices (such as chemical stability, broad temperature range, fast switching, and high contrast alignment).

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        Displaytech patents those families of its compounds that offer exceptional performance properties. The company has 14 issued materials patents, and has 2 pending applications (not counting foreign correspondents of US patents or applications). A representative FLC mixture used in Displaytech devices is comprised of 12-16 compounds, of which 50% are typically covered by Displaytech patents. The remainder of the compounds is commercially available or in the public domain; Displaytech maintains the formulation of the mixture as a trade secret.

DISPLAY SYSTEMS

        Displaytech's miniature displays exploit the basic binary SSFLC effect driven in novel ways by a simple binary-logic CMOS backplane to display xxxx-scale and full-color images on a single panel. The display panels are combined with Displaytech-designed sequential-color illuminators and magnifying optics to make complete miniature display systems. The company has been awarded several patents on features of the display panel itself, but expects the strongest protection to come from its display system patents.

UNIVERSITY OF COLORADO

        In addition to the Xxxxx/Lagerwall licenses, Displaytech has an agreement with the University of Colorado Research Corporation. Under this agreement, the company receives the option to license (on an exclusive basis) all FLC-related inventions coming out of the laboratories of Xxxx Xxxxx and Xxxxx Xxxxx (Founders, Board Members, and Professors at the University of Colorado).

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MANAGEMENT AND BOARD OF DIRECTORS

        The management and board of directors of Displaytech are comprised of a seasoned team of experienced individuals. They have a combination of start-up company success, highly regarded technical talent, and significant large company experience.

MANAGEMENT

Xxxxxxxx Xxxxxx, Chief Executive Officer

        Xxxxxxxx Xxxxxx joined the Displaytech Board of Directors in 1994 and became CEO of the company in early 1995. Prior to joining Displaytech, he founded and led Avalanche Development Corporation, a company innovative in the use of pattern recognition techniques for electronic publishing applications. Avalanche was sold to Interleaf and he became Interleaf's Senior Vice President and Chief Scientist. He received his Ph.D. and MBA from the Xxxxxxx School at the University of Pennsylvania, and has held faculty positions at the University of Colorado at Boulder and the University of Denver.

Xxxx Xxxxxxxx, President and Chief Scientist

        Xxxx Xxxxxxxx is a founder of Displaytech and has directed the company's research since its inception. He was named President of Displaytech in 1993. Xxxx received his Ph.D. in physics from the University of Colorado in 1983 where he worked with Xxxx Xxxxx (another company founder) and conducted some of the first experimental and theoretical studies of surface-stabilized ferroelectric liquid crystal electro-optic devices. At Displaytech, he has developed a number of FLC light modulators and led development of the company's LightCaster chips.

Xxxxxxx Xxxxxx, Chief Operating Officer

        Xxxxxxx joined the Displaytech team as Chief Operating Officer in 1998 and is responsible for manufacturing, product engineering, quality, materials and FLC mixture operating functions. Prior to joining Displaytech, Dick directed manufacturing for Planar America, a leading producer of Electroluminescent (EL) display panels. He received his BSEE from Xxxxxxxx University and has held various manufacturing and engineering leadership positions during his career.

Xxx Xxxxxxx, Chief Financial Officer

        Xxx Xxxxxxx has served as Displaytech's CFO since October of 1998. He is responsible for overseeing the finance, accounting, information systems, human resource and administration functions. Previous to joining the Displaytech executive team, Xxxxxxx was CFO of Xxxxxxx Imaging Corporation, a manufacturer and global distributor of medical X-ray equipment. He also has held significant financial posts with TECO Energy, Allied-Signal Corporation and United Technologies. Xxxxxxx earned a BA in economics from Beloit College and an MBA from the Xxxx Xxxx School of Business Administration at Dartmouth College.

Xxxxxxx Xxxxxxxxxx, Senior Director of Sales and Marketing

        Xxxxxxx Xxxxxxxxxx joined Displaytech in 1996 and currently directs the company's sales and marketing activities. Xxxxxxx has fifteen years experience in electro-optic product research, development, sales, and marketing management. He received his BS in Physics from Xxxxxxxx College in 1983. Prior to joining Displaytech, he held positions as Sales and Marketing Manager at Meadowlark Optics and Optics Product Manager at Melles Griot. Xxxxxxx also sits on the Board of Directors for the Colorado Photonics Industry Association (CPIA).

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Xxxxxx X. Xxxxxx, General Counsel and Secretary/Treasurer

        Xxxxxx Xxxxxx joined Displaytech in 1990 as legal counsel after serving as the company's outside counsel. He is responsible for the company's legal matters and government contracts. Prior to joining Displaytech, Xxxxxx was in private practice where he represented start-up and established high-technology businesses. Xxxxxx also served as General Counsel for The Great Western Sugar Company, and its wholly owned subsidiaries Xxxxxxxx-Xxxxxxxxx Sugar Company and Northern Ohio Sugar Company which, combined, had annual sales over a half billion dollars and factories in eight states. Xxxxxx received his JD from the University of Colorado.

Xxxxxxx Xxxx, Vice President of Materials Research

        Xxxxxxx Xxxx has directed Displaytech's chemical laboratory facilities since the company's inception. Xxxxxxx is the inventor of many novel FLC materials, and has developed numerous formulations that optimize FLC properties such as switching speed, temperature range, birefringence (controls operational light wavelength) and contrast. He has been awarded 13 patents and 7 patent applications filed relating to new FLC materials. Xxxxxxx received his B.S. from Rensselaer Polytechnic Institute in Chemistry and his Ph.D. in organic chemistry from the University of Colorado, Boulder.

BOARD OF DIRECTORS

        Displaytech's Board of Directors is comprised of seven individuals: the CEO, three founders, and three investors.

Xxxxxx Xxxxxxxxxx, Xx., Chairman of the Board

        J. Xxxxxx Xxxxxxxxxx Xx. has been a Director of Displaytech since 1995 and Chairman of the Board since June 1996. Xxxxxx has been a private business consultant since 1995. Prior to that time, he was Senior Vice President, Secretary and General Counsel for M/A-COM, Inc.; a managing director of Century Partners Incorporated, a private investment partnership; and Senior Vice President, Legal and Governmental Affairs and General Counsel, for Georgia-Pacific Corporation, a NYSE multi-billion dollar forest products firm. Xxxxxx has a law degree from the University of Virginia.

Xxxx Xxxxx, Director

        Xxxx Xxxxx is a founder of Displaytech and has been a Director of the company since its inception. Xxxx invented surface stabilized ferroelectric liquid crystals (the technology utilized by Displaytech) with Xxxx Xxxxxxxxx, a Swedish scientist. Xxxx served as Chairman of the Board of Directors of Displaytech from the company's beginning until June 1996 when Xxxxxx Xxxxxxxxxx was named Chairman of the Board and Xxxx was named to chair the company's new Technical Advisory Committee. He is a physics professor at the University of Colorado, Boulder. Prior to joining the University of Colorado staff, Xxxx was research fellow and faculty member at Harvard University where he pioneered the study of suspended smectic films. Xxxx received his Ph.D. in physics from the Massachusetts Institute of Technology.

Xxxx Xxxxxxxx, President and Director

See biography in "Management."

Xxxxxxx Xxxxx, Director

        Xxxxxxx Xxxxx has been a Director of Displaytech since 1995. He is a Managing Partner with Century Partners, a private investment partnership, in Darien, CT. He is also Chairman of

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Intermountain Industries, Inc., a natural gas distribution, energy marketing and production company. Xxxxxxx received his AB from Princeton University.

Xxxxxxx Xxxxxxxxxxx, Director

        Xxxxxxx Xxxxxxxxxxx has been a Director of Displaytech since 1995. Since August 1995, Xxxxxxx has been a portfolio manager for private equity investments for Kingdon Capital Management Corp. In April 1994, he co-founded RAM Investment Corp., a venture capital company. March 1993 to March 1994, he served as a portfolio manager for Kingdon Capital Management Corp. From December 1989, he worked as executive editor for Arts of Asia Magazine. Xxxxxxx graduated from Cambridge University with a degree in Engineering.

Xxxxx Xxxxx, Director

        Xxxxx Xxxxx has been a Director of Displaytech since its founding. He is a Professor of Chemistry at the University of Colorado, Boulder where he designed and synthesized some of the first room-temperature FLC materials. Xxxxx received his Ph.D. in chemistry from the California Institute of Technology and did post-doctoral work at the University of California, Los Angeles.

Xxxxxxxx Xxxxxx, CEO and Director

See biography in "Management."

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APPENDIX A

DISPLAYTECH LIGHTCASTER TECHNOLOGY

        Displaytech panels are based on a relatively new liquid crystal display technology. They have characteristics which result in superior performance but which depart substantially from the way older liquid crystal displays operate. The following information describes the differences and their significance for system design and shows the technical basis for the performance advantages that Displaytech offers.

        Displaytech displays have a number of advantages, which stem from the spatial light modulator (SLM) structure and FLC characteristics:

        FLC materials switch quickly in either direction. Changing a pixel from OFF to ON happens as quickly as changing the pixel from ON to OFF. Most LC materials change slowly and the change in one direction takes much longer than the change in the other direction. The slowness and switching asymmetry leads to image smear in most LC displays. This does not occur with fast switching FLC materials.

        The FLC layer is only one micron (1mm) thick. The layer thickness of other LC technologies is often several microns thick. Additionally, the interpixel gap between adjacent pixel mirrors is one micron wide. It is a characteristic of liquid crystal layers that the boundary between two pixels, which are in opposite states, has a width about equal to the layer thickness. Thus in the FLC, the boundary is about one micron wide and is confined entirely within the inter-pixel gap. Consequently, the large fill factor applies even for highest spatial frequency that the pixel array can render. In addition, the narrow inter-pixel gap greatly reduces the electrical fringing fields between adjacent pixels, which have the same state. Therefore, the FLC material between such pixels switches into the same state; there is no light scattering caused by LC field-induced non-uniformities to reduce contrast.

        FLC materials switch all the way to the surface. This important fact means that the optic axis of the FLC retarder layer is uniform throughout the thickness of the layer, even close to its boundaries. There is no twist, bend, or splay in the FLC optical properties. In other LC technologies, it is often necessary to add birefringent compensator films to correct the residual retardance, which can spoil the device contrast. The Displaytech panel does not require this extra film.

        FLC materials switch in plane. The fact that both optical states have the optic axis in the plane of the layer means that Displaytech can modulate light from faster illumination beams without the loss of contrast or shifting color. An optical system using the Displaytech panel can run at f/1.4 or faster, while a MEM panel, for example, is conventionally limited to f/2.8.

        High mirror reflectance. The intrinsic reflectance of the aluminum mirrors will rise during 1998 to about 90% from the current 85%.

        High geometric fill factor. The 1-micron interpixel gaps correctly represent the operational fill factor of 83% for current pixel designs. This is true, since the thin FLC layer confines the LC domain walls which exist between oppositely switched pixels to the geometric gaps. Every pixel is thus switched to the selected state over its entire area.

        High maximum luminous flux. Since there are no photocurrent effects for SRAM display panels, the highest luminous flux is limited by the temperature rise produced at the panel by the incident light. Prototypes have been tested at a level equivalent to over 2000 lumens on a 0.85-inch chip with no ill effects detected. Calculations indicate that it should be possible to put as much as 8500 lumens on such a chip with minimal heat sinking of the panel. The upper limit is currently unknown. The imminent increase in metal reflectance will increase the limit still further.

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        Integrated row and column drivers. The CMOS backplane is ideal for the integration of row and column drivers onto the display panel. Row and column circuitry is conveniently located beside the panel.

        Future display panels will also integrate other functions; such as the control functions related to conversion from raster order data, Frame Buffer memory and a PanelLink receiver. Customer Intellectual Property, in the form of custom data processing capability, can also be integrated onto the display chip in future.

        The LightCaster display uses field sequential color techniques and produces grayscale by digital pulse width modulation. These confer the following advantages:

        The SRAM pixel circuit is used for projection display systems, ensuring that the Display Panel is insensitive to photoconductive charge produced in the display chip by absorbed incident light. In contrast, most competing reflective LC technologies use an analog voltage of about 5 volts/256 xxxx levels (or 0.05 volts) for each xxxx level to drive an analog LC response. Photocurrent noise voltages can easily be hundreds of millivolts in projection applications, leading to serious limitations of the true grayscale range and/or departures from grayscale linearity.

        The FLC and the pixel circuit both operate in saturation. The pixel circuit, which drives the FLC, is loaded with digital data, which it stores, and the circuit is switched into saturation. This is true of SRAM pixel circuits in which a six-transistor latch holds the data, and it is true of DRAM pixel circuits where the charge storage capacitor is fully charged to one supply rail. The voltage thus applied to the FLC always drives it into saturation, fully switching it in either of its states. The most notable advantage gained is a very high immunity to electrical noise of various kinds, which is difficult to achieve with the analog xxxx pixels used in other LC displays.

        Grayscale is produced with digital accuracy, since there are no on-chip D/A converters needed to drive the pixel circuits.

        The digital Display Panel is compatible with an all-digital display architecture incorporating a digital image source as well as digital image data transmission and the ultimate display system.

        Displaytech produces its own liquid crystal materials for all of its products. This capability results in substantial advantages for the Displaytech displays. Several of these advantages are listed below:

        Application-specific liquid crystal materials result in highest performance. Projection LC materials are designed to supply highest contrast, throughput, and grayscale speed at the elevated temperatures encountered inside projection systems.

        Materials are formulated for high performance over the operating temperature range. The FLC controlling properties depend on cell design, manufacturing processes, and grayscale techniques, as well as on intrinsic FLC material parameters. Custom formulation guarantees that the panel design is optimized in the context of these complex component-wide interactions.

        FLC materials are compatible with future CMOS foundry processes, which have finer, line design rules and lower operating voltages. FLCs can operate at these lower voltages, whereas other LC materials will almost certainly continue to need higher operating voltage to maintain even their current slow switching.

        Displaytech continuously improves its materials and the way in which they are used. In particular, investigations are underway regarding the use of the bistability effect in FLCs. FLCs also have various analog electro-optical effects, which are under study for display applications, and could be put into production should the light shielding problem, which currently plagues analog LC displays, submit to further developments. Displaytech is also pursuing display applications of nematic LC materials and could put them into products, if their properties improve to offer potential advantages.

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        Displaytech Panel fabrication is characterized by the following facts.

        No exotic equipment needs to be developed, built or maintained to expand production capacity. Instead, standard equipment with known supply channels and lead times facilitate predictable and orderly expansion.

        No special materials are required, besides the custom FLC materials. All other materials are readily available from well-known suppliers.

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EXHIBIT B

FORM OF DESIGNATION OF RIGHTS

CERTIFICATE OF DESIGNATION
AND DETERMINATION OF PREFERENCES OF
THE SERIES HP CONVERTIBLE
PREFERRED STOCK OF
DISPLAYTECH, INC.
a Colorado corporation

        1.    Designation.    750,000 shares of preferred stock are hereby designated Series HP Convertible Preferred Stock with the powers and rights and qualifications, restrictions and limitations thereof, specified in this Certificate.

        2.    Definitions.

"Capital Stock" means any and all shares of capital stock of the Company (however designated and whether voting or nonvoting), and shall include, but not be limited to, the Common Stock and the preferred stock.

"Capital Stock Rights" means any warrants, options or other rights to purchase Capital Stock or any securities convertible into Capital Stock or any participations or other interests (other security interests) in Capital Stock.

"Certificate" means this Certificate of Designation and Determination of Preferences of the Series HP Convertible Preferred Stock of Displaytech, Inc.

"Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other property; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66²/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation.

"Common Stock" means the Common Stocks, par value $.001 per share, of the Company and all shares hereafter authorized of any class of common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a consolidation or merger of the Company with or into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event.

"Conversion Ratio" means, initially, a ratio of one share of Preferred Stock for one share of Common Stock as adjusted in accordance with the provisions of Section 9.

"Effective Date of Conversion" means the date on which all or some part of the Series HP Convertible Preferred Stock is converted into Common Stock in accordance with the terms hereof.

"Holder" of the Series HP Convertible Preferred Stock means the Person in whose name this Series HP Convertible Preferred Stock is registered on the books of the Company.

"Indemnity" means, if a mutilated certificate evidencing shares of Series HP Convertible Preferred Stock is surrendered to the Company, or if the Holder of such certificate claims such certificate has been lost, destroyed or willfully taken and provides an indemnity bond or agreement or other security sufficient, in the reasonable judgment of the Company, to protect the Company and any of its officers, directors, employees or representatives from any loss which any of them may suffer if such certificate is replaced (an "Indemnity"), then the Company shall, pursuant to such Indemnity, issue a replacement certificate of like tenor and dated the date of such certificate.

"Note Conversion Price" means the per share purchase price at which the 9% Convertible Notes of the Company were converted into Series HP Convertible Preferred Stock.

"Person" means an individual, a corporation, a partnership, a joint venture, an association, a joint stock company, a trust, a business trust, a government or any agency or any political subdivision, any unincorporated organization or any other entity.

"Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the price per share of Common Stock shall be not less than $30.00 per share.

        3.    Rank.    The Series HP Convertible Preferred Stock, with respect to dividend rights or a Liquidation Preference, shall rank senior to all other series of preferred stock and prior to any series or class of Common Stock. Holders of Series HP Convertible Preferred Stock then outstanding shall be entitled to be paid, dividend rights or a Liquidation Preference, before any payment shall be made in respect to any other class or series of the Company's preferred or common stock.

        4.    Dividends.

Section 4.1.    Right to Dividends.    The Holders of outstanding Series HP Convertible Preferred Stock shall be entitled to receive dividends in any fiscal year, only when, as, and if declared by the Board of Directors, out of any assets at the time legally available in cash. Such dividends may be payable quarterly or otherwise as the Board of Directors may from time to time determine.

        (A)  Priority of Dividend. The Company shall make no distributions or payments to the holders of shares of Common Stock or to the holders of any other series of preferred stock unless and until dividends shall have been paid or declared and set apart upon all shares of Series HP Convertible Preferred Stock.

        5.    Liquidation Preference.

Section 5.1.  Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Holder of each share of the Series HP Convertible Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to the Note Conversion Price for each share of Series HP Convertible Preferred Stock then held by such Holder (such amount being herein called the "Liquidation Preference") before any payment shall be made or any assets distributed to the holders of any series or class of the Company's Common Stock and before any payment shall be made to the holders of any series of the Company's preferred stock. If the assets of the Company are not sufficient to pay in full the payments payable to the Holders of outstanding shares of Series HP Convertible Preferred Stock upon the liquidation, dissolution or winding up of the affairs of the Company, then the Holders of all such shares shall share ratably with all other Holders of shares of Series HP Convertible Preferred Stock in such distribution of assets in proportion to the Liquidation Preference of the respective shares.

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Section 5.2.  For the purposes of this Section 5, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Company nor the consolidation or merger of the Company with or into one or more other corporations or other entities shall be deemed to be a liquidation, dissolution or winding up of the Company, voluntarily or involuntarily.

        6.    Mandatory Conversion.

Section 6.1.    Conversion upon IPO.    Outstanding shares of Series HP Convertible Preferred Stock shall be converted automatically into the number of shares of Common Stock into which such shares are convertible at the then effective Conversion Ratio, immediately upon the closing of a Qualified Public Offering.

Section 6.2.    Notice of Mandatory Conversion.    Within five (5) Business Days after the date on which outstanding shares of Series HP Convertible Preferred Stock convert into shares of Common Stock pursuant to Section 6.1 (the "Mandatory Conversion Date"), the Company shall mail a notice of conversion by first class mail, postage prepaid, to the Holders of shares of Series HP Convertible Preferred Stock, addressed to the Holder at its last address shown on the books of the Company. The shares of Series HP Convertible Preferred Stock shall be converted automatically and without any further action by the Holder thereof on the Mandatory Conversion Date, whether or not such shares of Series HP Convertible Preferred Stock are surrendered to the Company. The Company shall be obligated to issue (i) certificates evidencing the shares of Common Stock issuable upon such conversion, and (ii) a check or cash in respect of any fractional shares of Common Stock issuable upon such conversion, as provided in Section 8 hereof, and all declared but unpaid dividends of Series HP Convertible Preferred Stock, but not until three (3) days after the certificate evidencing the shares of Series HP Convertible Preferred Stock is either delivered to the Company or the Holder notifies the Company that the certificate has been lost, stolen or destroyed and provides to the Company an Indemnity in respect thereto.

        7.    Optional Conversion.

Section 7.1.    Conversion Right.    Subject to the terms and conditions of this Certificate, the Holder shall have the right (the "Conversion Right"), at its option, to convert the shares of Series HP Convertible Preferred Stock, at the Conversion Ratio in effect on the date such conversion is deemed to be effective, into fully paid and nonassessable shares of Common Stock.

Section 7.2.    Exercise of Conversion Right.

        (a)   In order to effect a conversion pursuant to Section 7.1, the Holder shall surrender the certificate or certificates evidencing the shares of Series HP Convertible Preferred Stock to the Company and shall give written notice to the Company (a "Conversion Notice") that the Holder elects to convert the Series HP Convertible Preferred Stock, as specified in the Conversion Notice, into shares of Common Stock. Promptly upon receipt of a Conversion Notice and surrender of such certificate or certificates, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder (i) certificates evidencing the shares of Common Stock issuable upon such conversion in accordance with the provisions of this Section 7, and (ii) a check or cash in respect of any fractional shares of Common Stock issuable upon such conversion, as provided in Section 8 hereof, and all declared but unpaid dividends of Series HP Convertible Preferred Stock.

        (b)   Each conversion shall be deemed to have been effected on the date (the "Optional Conversion Date") on which certificate or certificates evidencing the shares of Series HP Convertible Preferred Stock has been surrendered to the Company and a Conversion Notice with respect to Series HP Convertible Preferred Stock shall have been received by the Company as described in Section 7.2(a). Any person in whose name any certificate or

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certificates for shares of Common Stock shall be issuable upon conversion shall be deemed to have become the Holder of record of the shares represented thereby on the Optional Conversion Date.

Section 7.3.    No Other Adjustments.    Except as otherwise provided in this Section 7 and Sections 6 and 9, no payment or adjustment will be made for dividends or other distributions with respect to any shares of Common Stock issuable upon conversion of the Series HP Convertible Preferred Stock provided herein.

        8.    No Fractional Shares.    No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion (whether optional or mandatory) of the Series HP Convertible Preferred Stock. If any fractional shares of Common Stock would, but for this Section 8, be issuable upon the conversion of the Series HP Convertible Preferred Stock, the Company shall make a payment therefor in check or cash in an amount equal to the Fair Market Value of such fractional shares. The term "Fair Market Value" of any share of Common Stock shall mean the fair market value of the shares of Common Stock as determined in good faith by the Board of Directors of the Company, which determination shall be conclusive.

        9.    Adjustment of Conversion Ratio.

Section 9.1.  In the event that the Company shall at any time after the date hereof: (i) declare a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide or reclassify shares of its outstanding Common Stock into a greater number of shares, (iii) combine shares of its outstanding Common Stock into a smaller number of shares, (iv) pay a dividend or make a distribution on its Common Stock in shares of any series of its Capital Stock (other than Common Stock), or (v) issue by reclassification of its Common Stock shares of any series of its Capital Stock or any Capital Stock Rights, then the Conversion Ratio in effect immediately prior to such event shall be adjusted so that the Holder of the Series HP Convertible Preferred Stock shall be entitled to receive on conversion of such shares of Series HP Convertible Preferred Stock, the number of shares of Common Stock, other Capital Stock or Capital Stock Rights of the Company which such Holder would have owned or have been entitled to receive after the happening of any of the events described above had the shares of Series HP Convertible Preferred Stock been converted immediately prior to the happening of such event. Any adjustment made pursuant to this Section 9 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event referred to above shall occur.

Section 9.2.  If, after the date hereof, the Company issues any shares of its Common Stock (other than shares issuable upon exercise of options or warrants heretofore or hereafter granted or issued to employees, officers or directors, in their capacities as such, of, or customers, consultants or vendors (all in their respective capacities as such) of, the Company) or there is a Change of Control Transaction at a price per share of Common Stock that is in effect lower than the Note Conversion Price on the date of the closing of the sale of such shares of Common Stock, then the Conversion Ratio shall be adjusted in accordance with the following formula: upon each such issuance, the number of shares of Common Stock issuable for each share of Preferred Stock will be divided by a fraction, the numerator of which shall be such lower price and the denominator of which shall be the Note Conversion Price in effect immediately prior thereto; provided, however, that the numerator shall thereupon become the Note Conversion Price for the next succeeding adjustment of the Conversion Ratio, if any.

Section 9.3.  After adjustment of the Conversion Ratio pursuant to Section 9.1 and 9.2, the Company shall give prompt written notice thereof to the Holder of shares of Series HP Convertible Preferred Stock, which notice shall state the Conversion Ratio resulting from such

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adjustment and shall set forth in reasonable detail the method of calculation of such Conversion Ratio and the facts upon which such calculation was based.

        10.    Redemption.

Section 10.1.    General.    The Company shall have no right to redeem all or any portion of the outstanding shares of Series HP Convertible Preferred Stock.

        11.    Voting Rights.

Section 11.1.    General.    The Holders of record of shares of Series HP Convertible Preferred Stock shall be entitled to vote on any matters presented to the stockholders of the Company for approval, and shall vote with the holders of the Common Stock as a single class, with each share of Common Stock having one vote with respect to each matter to be voted upon and each share of Series HP Convertible Preferred Stock having the number of votes determined in accordance with the next succeeding sentence. At the record date for the relevant meeting presenting matters to the stockholders of the Company for approval, each share of Series HP Convertible Preferred Stock shall be entitled to the number of votes accorded to the number of shares Common Stock for which the Series HP Convertible Preferred Stock could be converted pursuant to the provisions of Section 7 of this Certificate.

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EXHIBIT C

FORM OF NOTES

CONVERTIBLE NOTE

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.

DISPLAYTECH, INC.

CONVERTIBLE NOTE
DUE FEBRUARY 17, 2002

$ Longmont, Colorado
February    , 1999

        FOR VALUE RECEIVED, the undersigned, Displaytech, Inc., a Colorado corporation (the "Company"), promises to pay to the order of Hewlett-Packard Company, a Delaware corporation (the "Purchaser"), or permitted assigns the principal sum of                        Million dollars ($            ) on February 17, 2002, with interest thereon as provided herein.

        1.    Purchase Agreement.    This Convertible Note (this "Note") is one of a series of Notes that may be issued pursuant to the Note Purchase Agreement, dated as of February 12, 1999, by and between the Company and the Purchaser (the "Purchase Agreement").

        2.    Definitions.    As used in this Note, the following terms have the meanings indicated:

"Affiliate" has the meaning ascribed to such term in Rule 405 promulgated under the Securities Act.

"Business Combination" means any merger, consolidation, sale of all or substantially all assets or similar transaction.

"Capital Stock" means any and all shares of capital stock of the Company (however designated and whether voting or nonvoting), and shall include, but not be limited to, the Common Stock and the Preferred Stock.

"Capital Stock Rights" means any warrants, options or other rights to purchase Capital Stock or any securities convertible into Capital Stock or any participations or other interests (other security interests) in Capital Stock.

"Change of Control" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 50% of the total voting power of the Company; (b) the Company consolidates with, or merges with or into, another Person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is converted into or exchanged for cash, securities or other property; (c) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66²/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation.

"Common Stock" means the Common Stocks, par value $.001 per share, of the Company and all shares hereafter authorized of any class of common stock of the Company, and, in the case of a reclassification, recapitalization or other similar change in such Common Stock or in the case of a consolidation or merger of the Company with or into another Person, such consideration to which a holder of a share of Common Stock would be entitled upon the occurrence of such event.

"Control" means, with respect to any specified person, the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "Controlling" and "Controlled" have meanings correlative to the foregoing.

"Conversion Right" has the meaning set forth in Section 6.1 hereof.

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"Designation of Rights" means the Certificate of Designation and Determination of Preferences of the Series HP Convertible Preferred Stock of the Company, dated February 17, 1999, creating the Preferred Stock.

"Event of Default" has the meaning set forth in Section 11 hereof.

"Holder" of this Note means the Person in whose name this Note is registered on the books of the Company.

"Indemnity" has the meaning set forth in Section 13(f) hereof.

"Junior Stock" shall mean the currently outstanding Common Stock and the Notes, warrants to purchase Common Stock and options to purchase Common Stock that are or may be issued or granted by the Company and are referred to in Section 8.5 of the Note Purchase Agreement, as well as any other Common Stock and any preferred stock that ranks junior in right of preference and priority to the Series HP Convertible Preferred Stock.

"Maturity Date" means February 17, 2002.

"Minimum Convertible Portion" means such portion of the outstanding principal amount of this Note as shall constitute 50% or more of original principal amount of this Note.

"Note Conversion Price" means an amount initially equal to Twenty Four dollars ($24.00) as such amount shall be adjusted from time to time in accordance with the provisions of Section 8 hereof.

"Person" means an individual, a corporation, a partnership, a joint venture, an association, a joint stock company, a trust, a business trust, a government or any agency or any political subdivision, any unincorporated organization or any other entity.

"Preferred Stock" means the shares of the Company's Series HP Convertible Preferred Stock, par value $.001 per share.

"Qualified Public Offering" means a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of Common Stock in which (i) proceeds to the Company, net of underwriting discounts and commissions, are at least U.S. $15,000,000, and (ii) the price per share of Common Stock shall be not less than $30.00 per share.

        Any other capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement.

        3.    Payment of Principal and Interest.    (a) Subject to Section 5 and Section 6 hereof, the principal amount of this Note shall be due and payable on the Maturity Date.

        (b)   The Company promises to pay interest on the outstanding principal amount of this Note at the rate of 9% per annum. Interest on this Note shall accrue from the date of issuance and shall be due and payable on the Maturity Date or such earlier date as the principal amount shall have been repaid or converted, as the case may be, in full. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Interest shall be payable as specified in Section 13(a), except that if this Note is converted upon a Qualified Public Offering pursuant to Section 5 or if the Holder of this Note exercises its Conversion Right (other than the exercise of such Conversion Right upon a Change of Control or Event of Default) pursuant to Section 6.1, then the Company, at its option, may elect to pay the interest accrued on the principal amount of this Note being converted by issuing additional fully paid and nonassessable shares of Preferred Stock (the "PIK Interest Shares") with the number of PIK Interest Shares to be issued to be calculated by dividing

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the amount of interest accrued on the principal amount being converted by the Note Conversion Price then in effect.

        4.    Prepayment.    The Company may, at its option, at any time and from time to time after the first anniversary of the Note and prior to the Maturity Date, prepay all or 50% of the principal amount of this Note, without prepayment penalty or premium, provided that concurrently with such prepayment the Company shall pay all accrued interest (and any other amounts due hereunder) on the principal amounts prepaid to the date of prepayment. The Company shall give Purchaser prior written notice of its irrevocable election to prepay this Note as provided above (identifying the date of prepayment), which written notice shall be delivered to Purchaser at least sixty (60) Days prior to any such prepayment date. Each prepayment pursuant to this Section 4 shall be applied first to cost of collection or other similar amounts due hereunder, second to accrued but unpaid interest and then to the principal amount outstanding at the time of such prepayment, provided, however, that the Purchaser may, at its option, convert the remaining principal amount of the Note into shares of Preferred Stock, and if any interest is also being paid, the Purchaser is entitled to receive a cash payment in accordance with Section 13(a) for the accrued interest, or at the option of the Company, may convert such accrued interest into shares of Preferred Stock, all in accordance with Section 6.

        5.    Mandatory Conversion.

5.1    Conversion upon IPO.    The outstanding principal amount of this Note shall be converted automatically into the number of shares of Preferred Stock obtained by dividing such principal amount by the then effective Note Conversion Price, immediately upon the closing of a Qualified Public Offering.

5.2.    Notice of Mandatory Conversion.    Within five (5) Business Days after the date on which this Note converts into shares of Preferred Stock pursuant to Section 5.1 (the "Mandatory Conversion Date"), the Company shall mail a notice of conversion by first class mail, postage prepaid, to the Holder, addressed to the Holder at its last address shown on the books of the Company. This Note shall be converted automatically and without any further action by the Holder hereof on the Mandatory Conversion Date, whether or not this Note is surrendered to the Company. The Company shall be obligated to issue (i) certificates evidencing the shares of Preferred Stock issuable upon such conversion, and, (ii) as provided in Section 7 hereof, a check or cash in respect of any fractional shares of Preferred Stock issuable upon such conversion and, in accordance with Section 13(a), all accrued but unpaid interest on the outstanding principal amount of the Note being converted, but not until three (3) days after this Note is either delivered to the Company or the Holder notifies the Company that this Note has been lost, stolen or destroyed and provides to the Company an Indemnity in respect thereto. Anything to the contrary in this Section 5.2 notwithstanding, the Company, at its option, may elect to pay the interest accrued on the principal amount of this Note by issuing PIK Interest Shares, with the number of PIK Interest Shares to be issued to be calculated by dividing the amount of interest accrued on the principal amount of this Note on the Mandatory Conversion Date by the Note Conversion Price then in effect.

        6.    Optional Conversion.

6.1    Conversion Right.    Subject to the terms and conditions of this Agreement, (i) on the Maturity Date, (ii) upon the occurrence of any Event of Default, (iii) following notice of prepayment of the Note pursuant to Section 4, and (iii) upon a Change of Control, the Holder shall have the right (the "Conversion Right"), at its option, to convert the principal amount of this Note, or the Minimum Convertible Portion, into that number of fully paid and nonassessable shares of Preferred Stock obtained by dividing such principal amount or Minimum Convertible Portion, respectively, by the Note Conversion Price in effect on the date such conversion is deemed to be effective.

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6.2    Exercise of Conversion Right.

        (a)   In order to effect a conversion pursuant to Section 6.1, the Holder shall surrender this Note to the Company and shall give written notice, in substantially the form of Exhibit A attached hereto, to the Company (a "Conversion Notice") that the Holder elects to convert this Note, or the Minimum Convertible Portion as is specified in the Conversion Notice, into shares of Preferred Stock. Promptly upon receipt of a Conversion Notice and surrender of this Note, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder (i) a certificate or certificates for the number of full shares of Preferred Stock issuable upon the conversion of this Note, or the Minimum Convertible Portion, in accordance with the provisions of this Section 6, and, (ii) as provided in Section 7, a check or cash in respect of any fractional shares of Preferred Stock issuable upon such conversion and, in accordance with Section 13(a), all accrued but unpaid interest on the principal amount of this Note being converted. The foregoing notwithstanding, except if a Holder exercises its Conversion Right upon a Change of Control or Event of Default, the Company, at its option, may elect to pay the interest accrued on the principal amount of this Note by issuing PIK Interest Shares, with the number of PIK Interest Shares to be issued to be calculated by dividing the amount of interest accrued on the principal amount of this Note or the Minimum Convertible Portion being converted on the Optional Conversion Date by the Note Conversion Price then in effect. If the Holder exercises its Conversion Right upon a Change of Control or Event of Default, the election to receive PIK Interest Shares in lieu of interest accrued shall be at the option of the Holder. If less than the entire principal amount of this Note is being converted, the Company shall issue and deliver, or cause to be issued and delivered, to the Holder, without charge to the Holder, a new Note in a principal amount equal to the unconverted principal amount of this Note and dated the date of this Note.

        (b)   Each conversion shall be deemed to have been effected on the date (the "Optional Conversion Date") on which this Note shall have been surrendered to the Company and a Conversion Notice with respect to this Note shall have been received by the Company as described in Section 6.2(a). Any person in whose name any certificate or certificates for shares of Preferred Stock shall be issuable upon conversion shall be deemed to have become the holder of record of the shares represented thereby on the Optional Conversion Date.

6.3    No Other Adjustments.    Except as otherwise provided in this Section 6 and Section 5 and Section 8, no payment or adjustment will be made for dividends or other distributions with respect to any shares of Preferred Stock issuable upon conversion of this Note as provided herein.

        7.    No Fractional Shares.    No fractional shares of Preferred Stock or scrip representing fractional shares shall be issued upon conversion (whether optional or mandatory) of the principal amount and interest, if applicable, of this Note or the Minimum Convertible Portion. If any fractional shares of Preferred Stock would, but for this Section 7, be issuable upon the conversion of this Note or the Minimum Convertible Portion, the Company shall make a payment therefor in check or cash in an amount equal to the Fair Market Value of such fractional shares. The term "Fair Market Value" of any share of Preferred Stock shall mean the fair market value of the shares of Preferred Stock as determined in good faith by the Board of Directors of the Company, which determination shall be conclusive.

        8.    Adjustment of Note Conversion Price.    (a) In the event that the Company shall at any time after the date hereof: (i) declare a dividend or make a distribution on its Preferred Stock in shares of Preferred Stock, (ii) subdivide or reclassify shares of its outstanding Preferred Stock into a greater number of shares, (iii) combine shares of its outstanding Preferred Stock into a smaller number of shares, (iv) pay a dividend or make a distribution on its Preferred Stock in shares of any series of its Capital Stock (other than Preferred Stock) or in any Capital Stock Rights, or (v) issue by reclassification of its Preferred Stock shares of any series of its Capital Stock or in any Capital Stock

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Rights, then the Note Conversion Price in effect immediately prior to such event shall be adjusted so that the Holder of this Note shall be entitled to receive on conversion of this Note or the Minimum Convertible Portion, the number of shares of Preferred Stock, other Capital Stock or Capital Stock Rights of the Company which such Holder would have owned or have been entitled to receive after the happening of any of the events described above had this Note or the Minimum Convertible Portion been converted immediately prior to the happening of such event. Any adjustment made pursuant to this Section 8 shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event referred to above shall occur.

        (b)   If, after the date hereof, the Company issues any shares of its Common Stock (other than shares issuable upon exercise of options or warrants heretofore or hereafter granted or issued to employees, officers or directors, in their capacities as such, of, or customers, consultants or vendors (all in their respective capacities as such) to, the Company) at a price per share of Common Stock that is less than the Note Conversion Price in effect on the date of the closing of the sale of such shares of Common Stock, then the Note Conversion Price shall be reduced to such lower price.

        (c)   In the event of a Business Combination or other Change of Control transaction where the price per share of Common Stock is less than the Note Conversion Price in effect on the date of the closing of such Change of Control transaction, then the Note Conversion Price shall be reduced to such lower price.

        (d)   Upon an adjustment of the Note Conversion Price pursuant to Section 8(a), the Company shall give prompt written notice thereof to the Holder of this Note, which notice shall state the Note Conversion Price resulting from such adjustment and shall set forth in reasonable detail the method of calculation of such Note Conversion Price and the facts upon which such calculation was based.

        (e)   In case at any time:

        (i)    the Company shall determine to declare any dividend or make any distribution on its shares of Preferred Stock other than in shares of Capital Stock or in Capital Stock Rights;

        (ii)   the Company shall determine to offer for subscription pro rata to the holders of its shares of Preferred Stock any shares of its Capital Stock or any Capital Stock Rights;

        (iii)  there shall be an impending Business Combination; or

        (iv)  there shall be an impending voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of said cases, the Company shall give written notice of the action in question to the Holder of this Note. Such notice shall describe the material terms and conditions of such action and shall specify (y) in the case of a dividend, distribution or subscription right, the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription right and the date as of which holders of shares of Preferred Stock of record shall participate in such dividend, distribution or subscription right, and (z) in the case of a Business Combination, dissolution, liquidation or winding up of the Company, the date on which such Business Combination, dissolution, liquidation or winding up shall take place and the date as of which the holders of Capital Stock shall be entitled to exchange their Capital Stock for securities or other property deliverable upon such Business Combination, dissolution, liquidation or winding up. Such written notice shall be given at least ten (10) Business Days prior to the action in question and not less than ten (10) Business Days prior to the record date or the date on which the Company's stock transfer books are closed in respect hereof.

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        9.    Taxes on Shares Issued.    The issuance of stock certificates upon conversion of this Note or the Minimum Convertible Portion pursuant to Sections 5 or 6 shall be made without charge to the converting Holder for any transfer, stamp or similar tax in respect of the issuance thereof.

        10.    Reservation of Shares.    The Company shall reserve, free from preemptive rights, out of its authorized but unissued shares, or out of shares held in its treasury, sufficient shares of Preferred Stock to provide for the conversion, based on the Conversion Price from time to time in effect, of the full principal amount of this Note from time to time outstanding. The Company covenants that all shares of Preferred Stock which may be issued upon conversion of this Note or the Minimum Convertible Portion will upon issuance be duly authorized, validly issued, fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issuance thereof.

        11.    Events of Default.

        (a)   Each of the following shall constitute an "Event of Default" hereunder:

        (i)    the Company shall default in the payment of the principal of this Note when due; or

        (ii)   the Company shall default in the payment of any interest on this Note when due and such default shall continue for a period of seven (7) days after receipt of notice from the Holder of non-payment; or

        (iii)  the Company does not perform or comply with any one or more of its material obligations in the Notes or this Agreement (other than a default under (i) or (ii) above) for a period of 45 days after written notice of such default shall have been given to the Company by the Purchaser.

        (iv)  one or more defaults in the required payments, including Principal, interest, premium, rent or leasehold payments, if any, on any Permitted Indebtedness, when the same becomes due and payable, or the occurrence of any other event of default under any Permitted Indebtedness (in accordance with the terms thereof), and the Company has failed to cure such default or defaults within the applicable grace period or period to cure such default or defaults, without regard to any waiver of the grace or cure periods, subsequent cure, or notice provisions of the Permitted Indebtedness.

        (v)   the Company, pursuant to or under or within any applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or like law (a) commences a voluntary case or proceeding; (b) consents to the entry of an order for relief against it in an involuntary case or proceeding; (c) makes a general assignment for the benefit of its creditors; (d) shall generally not pay its debts when such debts become due or shall admit in writing its inability to pay its debts generally, (e) a court of competent jurisdiction (or like entity) shall enter an order or decree under any applicable law described above that is for relief against the Company in an involuntary case or proceeding, appoints a custodian for the Company or such other entity for all or substantially all its properties or orders the liquidation of the Company or such other entity, as applicable, and in each such case in this clause (e), the order or decree remains unstayed and in effect for 60 days; or (f) the Company or such other entity shall take any corporate action regarding any of the foregoing.

        (b)   The following are the consequences of an Event of Default:

        (i)    if an Event of Default specified in clause (i), (ii), or (iii) of Section 11(a) above shall occur, the Holder of this Note may, at its option, by notice in writing to the Company, declare the unpaid principal of this Note, together with all interest accrued and unpaid thereon, to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable; and

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        (ii)   if an Event of Default specified in clause (v) of Section 11(a) above shall occur, the unpaid principal of this Note, together with all interest accrued and unpaid thereon, shall be and become immediately due and payable;

        (iii)  if an Event of Default specified in clauses (i) through (v) of Section 11(a) above shall occur, the Holder of this Note shall have the Conversion Right specified in Section 6 hereof.

        (c)   The rights and remedies of the Holder of this Note upon the occurrence of an Event of Default set forth above are in addition to and not in derogation of any other rights such Holder may have under applicable law.

        12.    Other Agreements.    The Company will not, without the prior written consent of the Holder:

        (a)    Agreements of the Company.

        (i)    amend the Designation of Rights so as to alter any existing provision relating to the Preferred Stock or the holders thereof; or

        (ii)   authorize or issue (x) any shares of Preferred Stock (other than upon conversion of the Notes) or (y) any shares of Capital Stock of the Company of any other class or series other than shares of Junior Stock.

        (b)    Agreements of the Holder.    By its acceptance hereof, the Holder agrees that its rights to payment, and the Company's obligations hereunder are subordinate in all respects to the rights of Transamerica Business Credit Corporation ("Transamerica") under the Master Lease Agreement, dated as of July 6, 1998, by and among the Company and Transamerica.

        13.    Miscellaneous.

        (a)   All payments hereunder shall be made by wire transfer of immediately available federal funds to such account as the Holder of this Note shall specify from time to time by notice in writing to the Company.

        (b)   This Note shall be governed by the laws of the State of Colorado without giving effect to principles of conflicts of laws thereof.

        (c)   The Company hereby waives presentment, protest, notice of non-payment, dishonor and notice of dishonor, except to the extent expressly required hereby.

        (d)   All notices hereunder shall be given in the manner specified for notices under the Purchase Agreement.

        (e)   The Company agrees to pay all costs of collection, including reasonable attorneys' fees and disbursements, in the event this Note is not paid when due.

        (f)    If a mutilated Note is surrendered to the Company, or if the Holder of this Note claims this Note has been lost, destroyed or willfully taken and provides an indemnity bond or agreement or other security sufficient, in the reasonable judgment of the Company, to protect the Company and any of its officers, directors, employees or representatives from any loss which any of them may suffer if this Note is replaced (an "Indemnity"), then the Company shall issue a replacement Note of like tenor and dated the date of this Note.

        (g)   The Company shall, at its expense and upon written request of the Holder of this Note and surrender of this Note for such purpose, issue new Notes in exchange therefor in such denominations of at least $500,000 as shall be specified by the Holder of this Note, in an aggregate principal amount equal to the then unpaid principal amount of this Note and substantially in the form of this Note, with appropriate insertions and variations, and dated the date of this Note.

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        (h)   This Note may not be sold, assigned, transferred or otherwise disposed of ("Transfer"), except that the Purchaser or any subsequent Holder of this Note may Transfer this Note to an Affiliate of the Purchaser.

        (i)    The Company shall keep at its principal office a register in which the Company shall provide for the registration of this Note and of transfers of this Note. Upon surrender of this Note for transfer at the principal office of the Company, duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder hereof or its attorney duly authorized in writing, the Company shall execute and deliver in the name of the designated transferee a new promissory note in a principal amount equal to the unpaid principal amount of, and dated the date of this Note, and otherwise in the form of this Note.

        (j)    Amendments and modifications to this Note may be made only in the manner provided in Section 13.5 of the Purchase Agreement.

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        IN WITNESS WHEREOF, the Company has caused this Note to be executed by an officer thereunto duly authorized this            day of February 1999.

		DISPLAYTECH, INC.
		By:	Name: Title:

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EXHIBIT A

To: Displaytech, Inc.

        The undersigned holder of this Convertible Note hereby irrevocably exercises the option to convert this Convertible Note, or the portion below designated, into Series HP Preferred Stock of Displaytech, Inc. (the "Company") as permitted by the Articles of Incorporation of the Company, in accordance with the terms of this Convertible Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated by assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto.

Date:

		in whole		in part
						Portion of principal amount of the Convertible Note to be converted:
						$
						Signature (for conversion only)

Please print or typewrite Name and Address, including Zip Code, and Social Security or Other Identifying Number.

EXHIBIT D

PAYMENT INSTRUCTIONS

        (1)   Name of Purchaser: Hewlett Packard Company

        (2)   The Purchase Price for the Notes shall be made by wire transfer of immediately available funds for credit to:

	Bank Name: Colorado Community First National Bank (f/k/a Boulder Valley Bank & Trust or Mountain Parks Bank)
	0000 Xxxxxxxx Xxxxxx Xxxxxxx, XX 00000
	Bank Routing Number:		000000000
	Online Bank:		COMM FST FARGO
	Beneficiary:		CCFNB-Boulder
	Account Number:		6310380394
	For Further Credit:
	Account Name:		Displaytech, Inc.
	Account Number:		116411

        (3)   All payments on account of the Notes shall be made by wire transfer of immediately available funds for credit to:

Account No.

[Bank]

ABA No.:

EXHIBIT E

FORM OF OPINION OF COUNSEL FOR THE ISSUER

February 19, 1999

To:

Hewlett-Packard Company
0000 Xxxxxxx Xxxxxx, X.X. Xxx 00000
Xxxx Xxxx, Xxxxxxxxxx 00000

        I am General Counsel to Displaytech, Inc., a Colorado corporation (the "Company"), and have represented the Company in connection with the sale of the Company's 9% Convertible Notes ("Notes") pursuant to that certain Note Purchase Agreement dated February 12, 1999 between the Company and Hewlett-Packard Company (the "Agreement"), and Amendment Three to the Shareholders' Rights Agreement (the "Shareholders' Agreement"). The Notes are convertible into shares of Series HP Convertible Preferred Stock as created by the Certificate of Designation and Determination of Preferences dated as of February 17, 1999 (the "Certificate"). The shares of Series HP Convertible Preferred Stock are convertible into shares of the Company's common stock in accordance with the terms and provisions of the Certificate. This opinion is being rendered to you in accordance with Section 4.1.(e) of the Agreement. Capitalized terms not otherwise defined in this letter have the meaning given them in the Agreement.

        In connection with this opinion, I have examined originals, or copies of originals, or copies certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates, and other instruments as I have deemed necessary or advisable for purposes of this opinion.

        Based upon and in reliance upon the foregoing, and subject to the further limitations set forth below, I am of the opinion that:

        1.     The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of Colorado and is in good standing under such laws. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and proposed to be conducted.

        2.     The Company has all requisite legal and corporate power to execute and deliver the Agreement and the Shareholders' Agreement, to sell and issue the Notes pursuant to the Agreement, to issue the Series HP Convertible Preferred Stock and the common stock issuable upon conversion of the Series HP Convertible Preferred Stock and to otherwise carry out and fully perform its obligations under the terms of the Agreement and the Shareholders' Agreement.

        3.     The authorized capital stock of the Company consists of 5,000,000 shares of Preferred Stock, none of which is issued and outstanding, and 10,000,000 shares of Common Stock, of which (i) 1,920,237 shares are issued and outstanding, (ii) 769,250 shares are reserved for issuance under the Company's 1988 Incentive Stock Option Plan, and for other individual grants of stock options, and (iii) 265,744 shares are reserved for issuance upon conversion of warrants which have been, or will be, issued. To the best of my knowledge, all of such issued and outstanding shares of common stock have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights contained in the Company's Articles of Incorporation or Bylaws or any agreement by which the Company is bound. The Notes issued and to be issued under the Agreement are authorized obligations of the Company. The shares of Series HP Convertible Preferred Stock issuable upon conversion of the Notes, and the shares of common stock issuable upon conversion of the Series HP Convertible Preferred Stock, when issued in accordance with the terms of the Agreement, will be validly issued, and to the best of my knowledge, fully paid and nonassessable, free of preemptive or similar rights contained in the Company's Articles of Incorporation or Bylaws or any agreement by which the Company is bound, provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth in the Agreement and the Shareholders' Agreement.

        4.     All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution and delivery of the Agreement and the Shareholders' Agreement, the authorization, sale, issuance and delivery of the Notes, the Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, and the performance of the Company's obligations

under the Agreement and Shareholders' Agreement have been taken. The Agreement and the Shareholders' Agreement have been duly and validly executed and delivered by the Company and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. Without in any way limiting the foregoing, the voting provisions of section 3 of the Shareholders' Agreement constitute valid and binding obligations of the parties thereto, enforceable against them in accordance with their terms.

        5.     The Company is not in violation of any term of its Articles of Incorporation or Bylaws. Neither the Articles of Incorporation nor the Bylaws of the Company are in violation of the Colorado Business Corporation Act. The execution, delivery and performance of and compliance with the terms of the Agreement and the Shareholders' Agreement, and the issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, do not violate any provision of the Articles of Incorporation or Bylaws of the Company, or of any provision of any applicable federal or state law, rule or regulation.    The execution, delivery and performance of and compliance with the terms of the Agreement and the Shareholders' Agreement, and the issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, have not resulted and will not result in any violation of, or constitute a default under (or an event which with the passage of time or the giving of notice would constitute a default under), or be in conflict with any contract, agreement, instrument, judgment or decree binding upon the Company which, individually or in the aggregate, would have a material adverse effect on the business or financial condition of the Company.

        6.     There are no actions, suits, proceedings or, to the best of my knowledge, investigations pending against the Company, its properties or its officers and directors (in connection with the discharge of their duties as officers and directors) before any court or government agency (nor, to the best of my knowledge, is there any written threat thereof), which if adversely determined could reasonably be expected to result in a material adverse change in the business or financial condition of the Company or which questions the validity of the Agreement or the Shareholders' Agreement or any action taken or to be taken by the Company in connection therewith.

        7.     Except for the Certificate, no consent, approval or authorization of or designation, declaration of filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreement and the Shareholders' Agreement or the consummation of any transactions contemplated thereby, or the offer, sale or issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof.

        8.     Subject to the accuracy of the Investors' representations in Section 5.2 of the Agreement, the offer, sale and issuance of the Notes, Series HP Convertible Preferred Stock and common stock issuable upon conversion thereof, in conformity with the terms of the Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended.

        In my examination and in rendering the foregoing opinions, I have assumed and relied upon (and I have no knowledge contradicting) the following:

        (a).  the due authorization, execution and delivery of the Agreement and Shareholders' Agreement by all of the parties thereto other than the Company; and

        (b).  the absence of fraud, duress or mutual mistake of fact in connection with the transactions which are the subject of this opinion.

        The foregoing opinions are subject to the following:

        (i)    When used herein, the expression "to the best of my knowledge" means as to matters of fact that, after an examination of documents in my files, the Company's books and records

2

available to me as of this date, and after inquiries of other executive officers of the Company, I find no reason to believe that the opinions expressed are factually incorrect.

        (ii)   The enforceability of the terms and provisions of the Agreement and Shareholders' Agreement is subject to (A) federal and state laws relating to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws; (B) the application of principles of equity, and the possible unavailability of the remedy of specific performance and other forms of equitable relief, whether in an action at law or a proceeding in equity; (C) limitations on the rights of the parties imposed by common law requirements of materiality of default and the implied covenants of good faith and fair dealing; (D) the effect of any delay occasioned by proceedings to resist enforcement of the Agreement and the Shareholders' Agreement (including without limit any stay of enforcement in bankruptcy proceedings); and (E) a requirement imposed by certain courts that the parties act in a commercially reasonable manner and that the parties not breach the Agreement or the Shareholders' Agreement, or violate any law in connection with enforcement of the Agreement or Shareholders' Agreement.

        (iii)  I express no opinion on the enforceability of those provisions of the Agreement or Shareholders' Agreement which do not have a term the length of which may be calculated from the provisions of such agreement.

        I am admitted to practice law only in the State of Colorado, and the foregoing opinions are limited to matters involving the federal laws of the United States and the laws of the State of Colorado.

        This opinion letter may be relied upon by its addressees only in connection with the transactions described herein. This opinion letter may not be used or relied upon by any other person or for any other purpose whatsoever. This opinion letter speaks only as of its date, and I have no obligation to advise the addressees of any change of law, facts or conclusions that may subsequently arise.

Sincerely,

Xxxxxx X. Xxxxxx
General Counsel

3

EXHIBIT F

FORM OF WAIVER

WAIVER AND AGREEMENT

        The undersigned is the holder of certain securities issued by Displaytech, Inc., a Colorado corporation (the "Company"), and a party to the Stock Purchase Agreement (this term to include that certain Stock Purchase Agreement, dated as of March 31, 1995, as amended, by and among the Company, J. Xxxxxx Xxxxxxxxxx, Xx. and Century Partners-Dtech, L.P., that certain Stock and Warrant Purchase Agreement, dated as of October 2, 1995, as amended, by and among J. Xxxxxx Xxxxxxxxxx, Xx., Century Partners-Dtech, L.P., and Kingdon Associates, L.P., Kingdon Partners, L.P. and X. Xxxxxxx Offshore NV, that certain Stock Purchase Agreement, dated as of October 11, 1997, as amended, between the Company and InterWest Capital, Inc., that certain Stock Purchase Agreement, dated as of January 27, 1998, as amended, by and among the Company and the Hewlett-Packard Company) and the Shareholders' Rights Agreement, dated as of October 2, 1995, as amended, by and among the Company, Hewlett-Packard Company, a Delaware corporation, and certain other persons including the undersigned (the "Shareholders' Rights Agreement"), granting certain rights to Anti-dilution Warrants and a Right of First Refusal, as such terms are defined in the Stock Purchase Agreement, and certain Registration Rights and Conversion Rights, as such terms are defined in the Shareholders' Rights Agreement. The Company is proposing to issue and sell up to $10,000,000 aggregate principal amount of its 9% Convertible Notes (the "Notes") to Hewlett-Packard Company (the "Purchaser"). The Notes may be converted in part or in whole into shares of a new series of preferred stock of the Company, that is designated the Series HP Convertible Preferred Stock. In connection with the rights granted to the holder of Series HP Convertible Preferred Stock, as described in its Certificate of Designation and Determination, the Series HP Convertible Preferred Stock may be converted into shares of Common Stock of the Company (the "Underlying Common Stock"). Furthermore, as contemplated in the Note Purchase Agreement, to be dated on or about February 12, 1999 (the "Note Purchase Agreement"), pursuant to which the Notes shall be issued and sold, the Shareholders' Rights Agreement will be amended to extend the rights therein to the shares of Common Stock into which the Notes may ultimately be converted.

        By signing this Waiver, the undersigned agrees to the following:

        1.     Notwithstanding the provisions of the Stock Purchase Agreement pursuant to which the undersigned has been granted Anti-dilution Warrants by the Company, the undersigned hereby irrevocably waives any and all rights it may have to receive or exercise such Anti-dilution Warrants in connection with the issuance and sale of the Notes, the HP Convertible Preferred Stock and the Underlying Common Stock, as contemplated by the Note Purchase Agreement.

        2.     Notwithstanding the provisions of the Stock Purchase Agreement pursuant to which the undersigned has been granted a Right of First Refusal, the undersigned hereby irrevocably waives any and all right to exercise such Right of First Refusal in connection with the issuance and sale of the Notes, the HP Convertible Preferred Stock and the Underlying Common Stock, as contemplated by the Note Purchase Agreement.

        3.     Notwithstanding the provisions of Section 3.7 of the Shareholders' Rights Agreement pursuant to which the undersigned has been granted certain Conversion Rights with respect to Common Stock, the undersigned hereby irrevocably waives any and all right to exercise such Conversion Rights only in connection with the issuance and sale of the Notes, the HP Convertible Preferred Stock and the Underlying Common Stock, as contemplated by the Note Purchase Agreement.

        4.     The undersigned agrees to an amendment to the Shareholders' Rights Agreement in accordance with the terms of Section 4.1 therein to extend the rights granted pursuant to the Shareholders' Rights Agreement to the shares of Common Stock into which the Notes may ultimately be converted in accordance with the terms and conditions of the Note Purchase Agreement.

        The undersigned understands that the Company and the Purchaser will proceed with the issuance and sale of the Notes and the consummation of the transactions contemplated by the Note Purchase Agreement in reliance on this Waiver and Agreement.

        The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Waiver and Agreement, and that, upon request, the undersigned will execute any additional documents necessary or desirable in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors, and assigns of the undersigned.

By:
Name:
Title:

Accepted and agreed as of
the date first above written:

DISPLAYTECH, INC.

By:

Name:
Title:

EXHIBIT G
FORM OF OPINION OF COUNSEL FOR THE PURCHASER

*DRAFT*

February 17, 1999

Displaytech, Inc.
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000

Re:

Note Purchase Agreement dated February 12, 1999
Between Displaytech, Inc. and Hewlett-Packard Company

Ladies and Gentlemen:

        I have acted as counsel for Hewlett-Packard Company, a Delaware corporation (AHP@), in connection with the Note Purchase Agreement, dated February 12, 1999 (the APurchase Agreement@), between Displaytech, Inc., a Colorado corporation ("DT") and HP. This opinion is given to you pursuant to Section 4.1(e) of the Purchase Agreement. Capitalized terms used but not defined herein have the meanings given them in the Purchase Agreement.

        In connection with this opinion, I have examined and relied upon such original copies of records, documents, certificates, memoranda and other instruments as in my judgment are necessary to enable me to render this opinion.

        In addition, I have assumed the genuineness and authenticity of all signatures on original documents, the authenticity of all documents submitted to me as originals, the conformity to original documents of documents submitted to me as copies thereof, the accuracy, completeness and genuineness of certificates of public officials and the due authorization, execution and delivery of all documents by all parties other than HP where due authorization, execution and delivery are a prerequisite to the effectiveness thereof. As to any questions of fact material to this opinion, I have relied, when relevant facts were not independently established, upon certificates and statements of officers and representatives of HP, public officials and others which I deemed reasonable and appropriate. Except to the extent expressly set forth herein, I have not undertaken any special or independent investigation to determine the accuracy of such certificates or statements, and any limited inquiry undertaken by me during the preparation of this opinion letter should not be regarded as such investigation. No inference as to my knowledge of the existence of facts or circumstances should be drawn merely from my representation of HP.

        I do not hold myself out as being expert in any laws other than the law of the State of California and the federal law of the United States. I express no opinion herein concerning any law other than the existing law of the State of California and the existing federal law of the United States.

        In addition, I express no opinion as to (a) the effect of rules of law governing specific performance, injunctive relief or other equitable remedies, (b) compliance with the antifraud provisions of federal and state statutory or common law, (c) any tax consequences of the transactions contemplated by the Purchase Agreement, (d) any applicable laws relating to antitrust matters or restraint of trade, (e) the enforceability of any provision providing for indemnification as it may be affected by public policy considerations or court decisions which may limit the right of any indemnified party to obtain indemnification, or (f) the effect of applicable state or federal laws pertaining to bankruptcy, insolvency, reorganization, readjustment of debt, arrangement, liquidation, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors or secured parties generally. I also express no opinion to the extent that the enforceability of the Purchase Agreement may be limited by, subject to or affected by general principles of equity (including without limitation concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or law)), may otherwise contravene public policy or may be subject to the discretion of the court before which any proceeding may be brought.

        I have assumed that there are no agreements, understandings or negotiations among the parties to the Purchase Agreement that would modify the terms of the Purchase Agreement or the rights or obligations of the parties thereunder.

        On the basis of the foregoing, I am of the opinion that:

        1.     HP has the corporate power and authority to enter into the Purchase Agreement and to perform its obligations thereunder.

        2.     The Purchase Agreement has been duly authorized by all necessary corporate action on its part. The Purchase Agreement has been duly executed and delivered by HP and constitutes the legal, valid and binding obligation of HP enforceable against HP in accordance with its terms.

        This opinion is limited to the matters expressly set forth above, and no opinion is implied or may be inferred beyond the matters expressly so stated. I assume no obligation to advise you of any further changes in the facts or law relating to the matters covered by this opinion. This opinion is furnished by me, as counsel to HP, solely for your benefit in connection with the Purchase Agreement, is not to be used, circulated, quoted or otherwise referred to for any other purpose, and may not be used or relied upon by anyone else, without my prior written consent.

Sincerely,

*DRAFT*

Xxx X. Xxxxxxx
Senior Managing Counsel

EXHIBIT H

SCHEDULE OF EXCEPTIONS

EXHIBIT H

SCHEDULE OF EXCEPTIONS

        The following is a schedule of exceptions ("Schedule of Exceptions") to the representations and warranties made by Displaytech, Inc. (the "Company") in Section 5.1 of the Note Purchase Agreement (the "Agreement") dated February 12, 1999, by and between the Company and Hewlett-Packard Company ("Purchaser"), except that lists set forth herein shall not be considered exceptions unless specifically stated as such with respect to a specific representation and warranty. By agreement of the Parties, the exceptions listed herein represent exceptions arising only since January 27, 1998, the date the Parties entered into a Stock Purchase Agreement.

Section 5.1(g). Litigation.    In February 1998 approximately forty-five gallons of hexane, a flammable liquid, leaked from a fifty five gallon steel drum which was stored in a shed attached to the rear of the Company's building located at 0000 Xxxxxx Xxxxx Xxxxx. The hexane leaked onto the cement floor of the shed, and from there, seeped through an expansion joint at the juncture of the rear of the shed and the building wall to a compacted backfilled compartment immediately below the shed, and, further, to subgrade soil below and around the shed. The spill was immediately reported to the Longmont Fire Department, the U.S. Environment Protection Agency and the Colorado Department of Health and Environment. As a result of the spill, it is probable that Displaytech will have to remediate the effects of the spill, dismantle the shed, and remove the debris. The environmental consulting firm retained by the Company estimates that the cost of remediation will be between $60,000 and $70,000.

Section 5.1(h).    Patents and Trademarks.

(1)

The Company is a party to a Technology License and Industrial Research Agreement dated June 1, 1994 with University Research Corporation (the "URC Agreement") under which the Company has an option to exclusively license all FLC related inventions produced in the laboratories of University of Colorado Professors Xxxx Xxxxx and Xxxxx Xxxxx. The Agreement was for an initial term of three years commencing on May 1, 1994 and has been extended pursuant to Section 6 of such Agreement until April 30, 2000. A copy of the URC Agreement is attached to Exhibit A to the HP Stock Purchase Agreement. A copy of the Company's letter extending the Agreement is attached hereto as Attachment H.1.

(2)

On June 15, 1998, the Company entered into an agreement with a customer, the name of which cannot be disclosed because of confidentiality restrictions (the "1998 Agreement"). Section 7.a of the 1998 Agreement provides that, except as stated otherwise in any SOW under the 1998 Agreement, the Company shall have exclusive rights to all Intellectual Property Rights and Inventions made or conceived or reduced to practice by the Company in the course of performing the NRE Projects. Any Intellectual Property Right made or conceived or reduced to practice by the parties jointly in the course of performing the NRE Projects are jointly owned by the parties. Any Intellectual Property Right made, conceived or reduced to practice solely by the other party to the 1998 Agreement based upon, resulting from or arising out of any NRE Project shall be the sole property of the other party to the 1998 Agreement; provided that such party shall grant the Company a worldwide, nonexclusive, royalty-free right and license, with the right to sublicense to such Intellectual Property Right. A redacted copy of this Agreement is attached hereto as Attachment H.2.

(3)

The Company is a party to a License Agreement dated November 30, 1998 (the "GTRC Agreement") with Georgia Tech Research Corporation ("GTRC"). The GTRC Agreement provides for the grant to the Company of an exclusive, irrevocable (except in regard to exclusivity), nontransferable, world-wide royalty bearing license under its Intellectual Property Rights in an invention owned by GTRC and improvements separately developed by GTRC or which are made under the Company's contract with the United States Air Force, to make, have made, use, sell, import, and offer for sale products in the Field of Use identified therein. A redacted copy of the GTRC Agreement is attached hereto as Attachment H.3.

(4)

The Company is a party to a License Agreement dated September 18, 1998 with a customer, the name of which cannot be disclosed because of confidentiality restrictions (the "License

Agreement"), which provides for the grant to the customer of a nonexclusive, nontransferable right and license to use certain trade secrets for the purpose of developing, improving, manufacturing and selling Control Electronics to be used with the Company's FLCD's. A copy of the License Agreement, excluding exhibits to preserve confidentiality, is attached hereto as Attachment H.4.

(5)

A list of all patents, patent applications, trademarks and trademark applications issued or applied for since January 27, 1998 is set forth in Attachment H.5 to this Schedule of Exceptions.

Section 5.1(j)(i).    Agreements; Action—Transactions between the Company and its Officers, Directors or Affiliates.

(1)

The exception listed in paragraph (1) of Section 5. l(h) of this Schedule of Exceptions is incorporated herein as exceptions to Section 5.1(j)(i) of the Agreement.

(2)

On March 27, 1998, a resolution was adopted by the disinterested members of the Company's Board of Directors to increase the annual fee payable to J. Xxxxxx Xxxxxxxxxx, Xx. for serving as Chairman of the Board to $100,000.00.

Section 5.1(j)(ii).    Agreements; Action—Material Agreements, Understandings, Instruments, Contracts or Proposed Transactions in Excess of $100,000.00.

(1)

Since January 27, 1998, the Company has one (1) contract and one (1) grant with the following agencies or departments of the U.S. government, each of which provides for payments in excess of $100,000 to the Company in exchange for research and development:

Agency		Contract Price			Amount Remaining			Expiration Date
NSF		$	299,967		$	239,974		6/30/00
AF		$	747,459		$	673,549		8/01/00

(2)

Since January 27,1998, the Company has one (1) open contract or purchase order which involves payments to the Company in excess of $100,000 as follows. A copy of the agreement related to this exception is attached hereto as Attachment H.2.

Customer		Total Order			Payment Remaining
[confidential]		$	3,628,000		$	1,997,000

(3)

The Company is a party to a Manufacturing Agreement dated December 10, 1998 with Miyota Co., Ltd., a copy of which is attached hereto as Attachment H.6, which provides for manufacturing services for the Company's products in Japan.

(4)

Reference is made to Section 5.l(h) of this Schedule of Exceptions. All exceptions listed therein are incorporated herein as exceptions to Section 5.l(j)(ii) of the Agreement.

Section 5.1(j)(iii).    Agreements; Action—Dividends, Indebtedness, Loans and Disposal of Assets or Rights.

(1)

Since January 27, 1998, the Company has five (5) open contracts or invoices which involve payments by the Company in excess of $100,000, as follows.

Vendor		Description		Total Order			Payment Remaining
Xxxx Xxxx		SUSS MA6 ISA Mask Aligner		$	311,315		$	233,485
ESC		Apollo pick & place machine; rotary bond head, spare parts kit		$	189,300		$	129,300
Newtom		Spacer application machine		$	225,000		$	145,000
Hewlett Packard		PTS dummy wafer, Pl mask, PTS proto wafer, Pl lot charge, Pl full mask set, charge collector		$	169,300		$	169,300
Xxxxxxxx		Equipment purchases for manufacturing expansion project, including filtration units, HVAC units, digital DDC controls, humidification units, cleanroom lighting, reheat coil unit and ionization unit		$	250,000		$	250,000

(2)

The Company is a party to a Master Lease Agreement dated July 6, 1998 with Transamerica Business Credit Corporation, a copy of which is attached hereto as Attachment H.7. A complete copy of the exhibits and schedules to the Agreement is on file at the office of the Company and available for review by the Purchaser.

(3)

The Company is a party to four (4) Equipment Lease Agreements with Colonial Pacific Leasing. A copy of the leases are attached hereto as Attachment H.8.

ATTACHMENT H.5

DISPLAYTECH CONFIDENTIAL

U.S. and Foreign Issued Patents Issued Since January 27, 1998

Law Firm Docket # U.S. ISSUED		Patent/App. Number		Invention Title		Inventors		File Date		PCT Date		Issue Date		Expiration Date		Contact No.		Licensed
Shear DIS1P010		U.S. 5,694,147		A LC Integrated Circuit Display Including an Arrangement for Maintaining the LC at a Controlled Temperature		SG, MAH		4/14/95				12/02/97		12/02/2014
Shear DIS1P003		U.S. 5,748,164		Active Matrix Liquid Crystal Image Generator		MAH, MRM		12/22/94		06/29/96		05/05/98		05/05/2015		XXXX00-00-X-X000		0/
X&X 00-00X		X.X. 5,753,139		High Contrast Distorted Helix Effect Electro-Optic Devices & Tight Ferroelectric Pitch FLC Compositions Useful Therein.		MDW		05/26/95				05/19/98		05/19/2015				Excl to Hoechst for dvca > 10cm
Shear DIS1P004		U.S. 5,757,348		Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme		MAH, MRM, BTM		12/22/94				05/26/98		05/26/2015		DAAH01-94-C-R154		1/
Shear DIS1P005		5,808,800		Optics Arrangements Including Light Source Arrangements for an Active Matrix LC Image Generator		MAH, MRM, HC		12/22/94				9/15/98				DAAH01-94-C-R154		1/ License to the Gov dated 10/27/98
G&W 21-91A		5,866,036		High Tilt FLC Compounds and Compositions		MDW, RTV, DMW, SDM		02/02/94				2/2/99						1/

Law Firm Docket # FOREIGN ISSUED		Patent/App. Number		Invention Title		Inventors		File Date		PCT Date		Issue Date		Expiration Date		Contract No.		Licensed
G&W 8-90 EPO		91914316.4 granted		FLCs Containing Dioxyldihalo Chiral Tails		WNT, DMW, MDW		07/22/91				05/10/95				ISI-8722712 (117)		Non/Exc to Hoechst 1/
G&W 8-90 CA		2,087,592 granted				WNT, DMW, MDW										ISI-8722712 (117)		Non/Exc to Xxxxxxx

0

XXXXXXXXXXX XXXXXXXXXXXX

U.S. Allowed Applications

Law Firm Docket # ALLOWED		Patent/App. Number		Invention Title		Inventors		File Date		PCT Date		Issue Date		Expiration Date		Contract No.		Licensed
Shear DISP012		09/026,988		Display System Including a Polarizing Beam Splitter		MAH, NAC		02/20/98

U. S. and Foreign Pending Patent Applications Since January 27, 1998

Law Firm Docket # U.S. PENDING		Patent/App. Number		Invention Title		Inventors		File Date		PCT Date		Issue Date		Expiration Date		Contract No.		Licensed
Shear DISP011		09/025,160		A Continuously Viewable, DC Field Balanced, Reflective, Ferroelectric Liquid Crystal Image Generator		X. Xxxxxxxx		02/18/98
Shear DISP013		09/026,762		Beam Splitter for Use in a Display System		X. Xxxxx		02/20/98
Shear DIS1P003C		09/045,247		Active Matrix Liquid Crystal Image Generator		MAH, MRM		03/20/98
Shear DIS1P004C		09/045,253		Active Matrix Liquid Crystal Image Generator with Hybrid Writing Scheme		MAH, MRM, BTM		03/20/98
Shear DIS1P005A		09/046,898		Optics Arrangements Including Light Source Arrangements for an Active Matrix Liquid Crystal Image Generator		MAH, MRM, HC		03/24/98
Shear DIS1P017				Optical Correlator Having Multiple Active Components Formed on a Single Integrated Circuit		MJO		1/28/99

DISPLAYTECH CONFIDENTIAL

Law Firm Docket # FOREIGN PENDING		Patent/App. Number		Invention Title		Inventors		File Date		PCT Date		Issue Date		Expiration Date		Contract No.		Licensed
G&W 25-91CH		CH 9300375-4 under exam		High Contrast DH Effect E-optic Devices & Tight Ferroelectric Pitch FLC Compositions Used Therein		MDW, RTV, MAH, CE		02/05/93								(102 (108	) )	" " "
G&W 25-91DE		DE P4303335.0 pending		"		"		02/05/93								(102 (108	) )	" " "

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All inventions developed under a U.S. Government contract or grant are subject to the retention by the U.S. Government of a worldwide, royalty-free, nonexclusive, nontransferable license to practice, or have practiced for or on its behalf, the subject invention for government purposes only.

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Displaytech, Inc.
List Of Trademarks

U.S. PATENT AND TRADEMARK OFFICE

General Information						Pending Application				Registration				Future Filings		Symbol
Xxxx		Class		Description of Goods/Services		Serial No.		Date Filed		Registration No.		Date Registered		Document to be Filed		Symbol to be Used
CHRONOCHROME		9		Electronic field sequential color displays and spatial light modulators		75-109,479		May 24, 1996		ABANDONED
CHRONOCOLOR		9		Electronic field sequential color displays and spatial light modulators		75-104,168		May 14, 1996		2,164,479		June 9, 1998		§8-15 Affidavit 6/8/2003- 6/8/2004		®
DISPLAYTECH		9		Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in the television, computer and telecommunications industries.		75-515,486		July 8, 1998								™
LIGHTCASTER		9		Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.		75-516,686		July 10, 1998								™

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Displaytech, Inc.
List Of Foreign Trademarks

General Information						Pending Application				Registration				Future Filings		Symbol
Xxxx		Country		Description of Goods/Services		Serial No.		Date Filed		Registration No.		Date Registered		Document to be Filed		Symbol to be Used
DISPLAYTECH		Japan		Spatial light modulators for displays; head-mounted ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; hand-held ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; ferroelectric liquid crystal projection displays for computer and/or television and other electrical communication apparatus & instruments; and other displays for computer and/or television and other electrical communication apparatus & instruments; display shutters; color filters for displays; polarization rotators; and other electrical communication apparatus and instruments & electronic machines, instruments and their parts; power distribution and/or control apparatus; electric waires & cables; photographic apparatus & instruments; cinematographic apparatus & instruments; optical apparatus & instruments; measuring or testing machines & instruments.				Filing Date has not been received								™
DISPLAYTECH		South Korea		Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in the television, computer and telecommunications industries.				Filing Date has not been received								™
DISPLAYTECH		European Community		Ferroelectric Liquid Crystal Displays, including head-mounted displays, hand-held displays and front and rear projection displays; shutters; spatial light modulators; color filters; and polarization rotators; for use in the television, computer and telecommunications industries.				Filing Date has not been received								™
LIGHTCASTER		Japan		Head-mounted ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; hand-held ferroelectric liquid crystal displays for computer and/or television and other electrical communication apparatus & instruments; ferroelectric liquid crystal projection displays for computer and/or television and other electrical communication apparatus & instruments; and other displays for computer and/or television and other electrical communication apparatus & instruments; and other electrical communication apparatus and instruments & electronic machines, instruments and their parts; power distribution and/or control apparatus; electric waires & cables; photographic apparatus & instruments; cinematographic apparatus & instruments; optical apparatus & instruments; measuring or testing machines & instruments.				1/5/99								™
LIGHTCASTER		South Korea		Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.				Filing Date has not been received								™
LIGHTCASTER		European Community		Ferroelectric liquid crystal displays, including head-mounted displays, hand-held displays and front and rear projection displays for use in the television, computer and telecommunications industries.				Filing Date has not been received								™

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EXHIBIT I

SCHEDULE 8.1

SCHEDULE 8.1
CURRENT INDEBTEDNESS

Description		Equipment Leased		Original Lease Amount		Principal Remaining
Colonial Pacific—Capital Equipment Lease—# 1		UV Meter, Vacuum Oven		66,673.33		47,234.50
Colonial Pacific—Capital Equipment Lease—# 2		Temp/Humidity Chamber		18,436.85		11,099.44
Colonial Pacific—Capital Equipment Lease—# 3		Chromotagraph Sampler, Misc		66,695.78		47,803.94
Colonial Pacific—Capital Equipment Lease—# 4		Microscope, Lens Tester		43,197.42		33,583.11
Transamerica—Capital Equipment Lease—# 1		HPLC, Bond Tester		182,849.85		149,004.92
Transamerica—Capital Equipment Lease—# 2		Visual, Intradocs, Various		206,214.96		168,048.73
Transamerica—Capital Equipment Lease—# 3		Autobreaker		119,057.55		105,614.17
Transamerica—Capital Equipment Lease—# 4		Calorimeter, Various		141,537.46		129,021.67
Transamerica—Capital Equipment Lease—# 5		Wire Bonder		199,615.00		181,963.64
Transamerica—Capital Equipment Lease—# 6		Nanospec and Spectrometer		439,790.90		422,644.37
Transamerica—Capital Equipment Lease—# 7		Yield Up Wafer Dryer		110,870.00		106,570.13
TOTAL				1,594,939.10		1,402,588.62

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