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<SEC-DOCUMENT>0000950116-01-000518.txt : 20010330
<SEC-HEADER>0000950116-01-000518.hdr.sgml : 20010330
ACCESSION NUMBER: 0000950116-01-000518
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: UNIVERSAL DISPLAY CORP \PA\
CENTRAL INDEX KEY: 0001005284
STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575]
IRS NUMBER: 232372688
STATE OF INCORPORATION: PA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-12031
FILM NUMBER: 1584039
BUSINESS ADDRESS:
STREET 1: THREE BALA PLAZA, SUITE 104E
CITY: BALA CYNWYD
STATE: PA
ZIP: 19004
BUSINESS PHONE: 6106174010
MAIL ADDRESS:
STREET 1: THREE BALA PLAZA EAST
STREET 2: SUITE 104
CITY: BALA CYNWYD
STATE: PA
ZIP: 19004
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
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<DESCRIPTION>10-K405
<TEXT>
<PAGE>
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period
from _____________ to ______________
Commission File Number 1-12031
UNIVERSAL DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2372688
------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Phillips Boulevard
Ewing, New Jersey 08618
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 671-0980
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $0.01 per share)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of Common Stock reported by The
NASDAQ Stock Market on March 20, 2001, was approximately $93,368,327. For the
purposes of calculation, all executive officers and directors of the Company and
all beneficial owners of more than 10% of the Company's stock (and their
affiliates) were considered affiliates.
As of March 20, 2001, the Registrant had outstanding 16,785,899 shares of Common
Stock.
Documents Incorporated by Reference
Portions of the Company's Proxy Statement to be filed with the Securities and
Exchange Commission for the Annual Meeting of Shareholders to be held on June
28, 2001 are incorporated by reference into Part III of this report.
<PAGE>
TABLE OF CONTENTS
PART 1
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EXECUTIVE OFFICERS OF THE REGISTRANT
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
2
<PAGE>
All statements in this document that are not historical are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, subject to risks and uncertainties that could cause actual results to
differ materially for Universal Display Corporation from those projected,
including, but not limited to, statements regarding Universal Display
Corporation's beliefs, expectations, hopes or intentions regarding the future.
Forward-looking statements in this document also include statements regarding
any financial forecasts or market growth predictions. Universal Display
Corporation expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking statements contained
herein to reflect any change in Universal Display Corporation's expectations
with regard thereto or any change in events, conditions, or circumstances on
which any such statements are based. It is important to note that actual
outcomes and Universal Display Corporation's actual results could differ
materially from those in such forward-looking statements. Factors that could
cause actual results to differ materially include risks and uncertainties such
as: uncertainties relating to developments and advances in display technologies,
including OLED, TOLED and FOLED technology; the expansion of applications for
OLED technology; the success of UDC and its development partners in
accomplishing technological advances; the ability of Universal Display
Corporation to enter into alliances with product manufacturers; product
development, manufacturing, and marketing acceptance; uncertainties related to
cost and pricing of Universal Display Corporation products; dependence on
collaborative partners; and other competition, risks relating to intellectual
property of others and the uncertainties of patent protection.
PART I
ITEM 1. BUSINESS
General
Universal Display Corporation (the "Company") is engaged in the research,
development and commercialization of Organic Light Emitting Diode ("OLED")
technology for use in flat panel displays and other applications. Research is
being performed by the Company, Princeton University and the University of
Southern California ("USC") (together, the "Research Partners") pursuant to a
certain Sponsored Research Agreement funded by the Company (See: "Business -
Research and Development"). The Company has the exclusive right to commercialize
the technology being developed by the Research Partners pursuant to a certain
License Agreement (See: "Business - Intellectual Property"). The Company is also
engaged in research, development and commercialization activities at its
headquarters in Ewing, New Jersey. The Company moved its operations to this
facility in the fourth quarter of 1999.
The Company's present commercialization strategy is to enter into licensing
arrangements, joint ventures, and other strategic alliances for the volume
manufacturing of products utilizing the Company's OLED technology. The Company
does not presently intend to become a volume manufacturer. The Company
anticipates that its OLED technology, if successfully developed, may have a
variety of applications, including full color, large area, high resolution, high
information content displays, such as laptop and notebook computer screens,
computer monitors and televisions. Potential applications also include
multi-color and monochrome small area, low information content displays, such as
consumer electronic equipment, vehicular dashboard displays, cellular phones and
other telecommunication displays, computer games and personal digital
assistants, as well as transparent applications such as head-up displays for
automobile windshields.
The Company was incorporated under the laws of the Commonwealth of Pennsylvania
in April 1985 under the name Enzymatics, Inc. ("Enzymatics"). Another
corporation named "Universal Display Corporation" ("UDC") was incorporated under
the laws of the State of New Jersey in June 1994. On June 22, 1995, a wholly
owned subsidiary of Enzymatics merged with and into UDC (the "Merger"). UDC, the
surviving corporation in the Merger, became a wholly owned subsidiary of
Enzymatics and changed its name to "UDC, Inc." Simultaneously with the
consummation of the Merger, Enzymatics changed its name to "Universal Display
Corporation."
Flat Panel Display Industry
The market for flat panel displays has been driven by a number of market forces,
including, but not limited to, the increasing popularity of portable computers
and other consumer electronic devices, the increasing availability of
information and visual content of electronic formats, the proliferation of
graphical interfaces and emerging multimedia applications and the conversion of
traditional analog displays to digital or graphical displays. Existing products
that use flat panel displays include notebook and laptop computers, portable
televisions, video cameras, cellular phones, pagers, electronic organizers,
internet access devices, portable electronic devices, digital watches,
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calculators, electronic games and audiovisual equipment, copiers, fax machines,
telephones and answering machines. In addition, flat panel displays have been
utilized in military applications, including missile controls, ground support
and communications equipment and avionics.
The Company believes that competition in this market, particularly for full
color, large area, high resolution, high information content displays, is based
upon image and color quality, range of viewing angle, power requirements, cost
and manufacturability. The dominant technology for all displays today is the
cathode ray tube ("CRT"), the type of technology in most televisions and
computer monitors. The dominant technology today for flat panel displays is
liquid crystal display ("LCD") technology, the type of technology in most laptop
computers. The Company believes LCD technology has certain limitations, such as
a limited viewing angle, limited scalability, narrow acceptable temperature
ranges, low contrast and inferior image and color quality when compared to CRT
displays. The Company believes that flat panel displays utilizing its OLED
technology, if successfully developed, will provide for flat panel displays
image and color quality, brightness, contrast, scalability and viewing angles
comparable or superior to CRT displays and superior to LCD, be manufacturable
from light weight, low cost materials and require a relatively low power source.
The Company's OLED Technology
OLED technology is an emerging technology. There are numerous companies engaged
in research, development and commercialization efforts relating to OLED
technology. Pioneer Electric Corporation of Japan is currently marketing and
selling multi-color OLED devices for applications including automotive displays,
consumer electronics equipment and cellular phones. The Company believes that
its OLED technology, if fully developed, will have the capability to address
many of the limitations of LCD and other developing technologies.
Light emitting diodes ("LEDs") are solid-state semiconductor devices that emit
light when electrical current passes through them. The color of light emitted by
LEDs depends on the band gap of the semiconductor material; narrow band gap
materials emit light in the red/orange range and wide band gap materials emit
green or blue light. Traditional LEDs are created from inorganic semiconductors.
The OLED technology currently under development by the Company and its research
partners at Princeton University and USC utilizes a new type of LED created from
organic materials.
The Company believes that flat panel displays utilizing its OLED technology, if
successfully developed, will provide for flat panel displays image and color
quality, brightness, contrast and viewing angles comparable or superior to CRT
displays and superior to LCD; will be manufacturable from lightweight, low cost
materials; will demonstrate efficiency in converting electrical power into light
and require very low voltage for operation, which will make the OLED technology
compatible for a variety of flat panel display applications which require
lightness and portability; and will be scaleable for use in large area, high
resolution, high information, full color, flat panel displays.
The Company is currently focusing its research, development and
commercialization efforts on a number of innovative technology applications for
OLEDs. One technology application is based on the fabrication of transparent
cathodes. Traditional OLEDs use a reflective metal cathode and a transparent
anode. The Company's transparent cathode technology, called TOLED, for
transparent OLED, provides the ability to develop transparent and high contrast
displays using organic materials. It also provides the ability to build OLEDs on
opaque surfaces or active matrix thin film transistors (TFTs) with a greater
fill factor and aperture ratio.
A second technology application is based upon a novel, vertically stacked pixel
structure. This SOLED (Stacked OLED) application vertically stacks the red,
green and blue pixels on top of each other, rather than side by side as in CRTs
and LCD's, theoretically providing for very high image resolution, since one
pixel can occupy the same space as three or more pixels would in a side-by-side
architecture. The SOLED, which was made possible by the creation of the TOLED,
permits the independent tuning of color, grayscale and intensity and is expected
to allow an individual pixel to emit red, blue and green, either at the same
time or separately. Combinations of such colors create additional colors so that
each individual pixel will be capable of producing a full range of colors.
A third technology application is the fabrication of small molecule organic
displays on flexible substrates. Flat panel displays are commonly built on
glass. The Company believes that its research partners were the first group to
announce the deposition of small molecule OLEDs on a flexible substrate,
flexibility being a property that was previously believed to be unique to
polymer materials. The FOLED (Flexible OLED) may allow the potential for
conformable, lighter weight and thinner electronic displays. It also provides
4
<PAGE>
the possibility of fabricating FOLEDs using potentially low cost "roll to roll"
processing methods.
A fourth technology application being researched by the Company and its Research
Partners is based upon the ability to fabricate an optically pumped organic
laser. In the September 25, 1997 issue of the scientific journal, Nature, the
researchers at Princeton University and USC announced what they believed to be
the first evidence of lasing from vacuum deposited thin films of organic
molecules. The Company believes this is a significant first step towards the
realization of an electrically pumped, solid-state laser based on organic thin
films.
A fifth technology application involves the use of novel materials and device
structures for high efficiency OLEDs. This area includes materials and device
structures that emit light in OLEDs through the process of phosphorescence. In
conventional OLEDs, the light emission is based on the process of fluorescence.
The use of electrophosphorescent materials as dopants enables significantly
higher efficiencies for OLED displays. The Company has entered into a
Development and License Agreement with PPG Industries, Inc. to assist it in the
development and commercialization of OLED materials.
A sixth technology application is called Organic Vapor Phase Deposition (OVPD).
OVPD involves the use of a carrier gas stream in a hot walled reactor at low
pressure to precisely deposit the thin layers of organic materials used in OLED
displays. Conventional OLED fabrication equipment evaporates the organic
molecules at high vacuum. The Company has entered into a Development and License
Agreement with Aixtron AG, a German company that manufactures precision
semiconductor production equipment for inorganic LEDs, to further develop,
commercialize and produce manufacturing equipment for OLEDs based on this
technology.
The Company and its Research Partners are also working on technologies related
to processing, patterning, encapsulation, novel device concepts and other areas
of development for OLED technologies.
While significant advances have been made in the research and development
efforts on OLEDs being conducted by the Company and its Research Partners,
substantial additional research and development work needs to be performed
before products utilizing this technology are manufactured and sold, including
issues of operating life, reliability, the development of additional and more
fully saturated colors, integration with drive electronics and issues related to
scalability into a production environment and cost effective fabrication
technologies for monochrome, transparent, flexible and full color, large area
and small area applications. The development of an electrically pumped laser is
also necessary before products based on the organic laser are manufactured and
sold.
There can be no assurance that the necessary research and development work will
be successfully completed and that the Company or its licensees will
successfully commercialize any products based upon its proprietary technology.
Commercialization Strategy and Markets
The Company's approach to developing technology and penetrating the electronic
display market has three major components: (i) to continuing to fund the
research and development of OLED technology with its Research Partners and at
other academic institutions; (ii) the development of reliable product and
process technologies; and (iii) licensing the technology and entering into joint
ventures or other strategic relationships with experienced manufacturers (who
may have much of the needed infrastructure already in place), suppliers and
users of display products, materials and equipment for the manufacture,
distribution and sale of OLED display products, materials or equipment using the
Company's technology. The Company does not presently intend to become a volume
manufacturer of OLED products.
The Company believes that the OLED technology under development, could have
significant applicability for displays, such as cellular phones, instrumentation
displays, consumer electronics, personal digital assistants, projection
displays, viewfinders in camcorders, video phones, hand held computers and
numerous industrial, medical and military uses. The Company also believes that
the OLED technology has potential application in large area, full color displays
such as laptop computers, desktop computers and televisions and in numerous
defense-related markets. There are also potential markets for transparent
devices, for example, as head-up displays on vehicle windshields. The Company
believes that an electrically pumped organic semiconductor laser could have
applications in a number of markets, including fiber-optic communications, audio
compact discs (CDs), CD-ROM drives, DVD Discs, DVD-ROM's, laser printers,
rewritable optical storage drives, bar code scanners and digital printing
presses.
There can be no assurance that the Company will be able to enter into
appropriate licensing, joint ventures or other strategic relationships, or that
the terms of such relationships, if entered into, would be favorable to the
Company.
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<PAGE>
During 2000, the Company completed three transactions with commercial entities.
In July 2000 the Company entered into a Development and License Agreement with
Aixtron AG, a German company, to further develop and commercialize manufacturing
equipment for OLEDs based on a proprietary UDC technology called Organic Vapor
Phase Deposition (OVPD). Aixtron AG is a world leader in the production of
manufacturing equipment for LEDs using MOCVD (Metal-organic chemical vapor
deposition) technology. Under the Agreement UDC and Aixtron will engage in a
joint development program to commercialize OVPD equipment. Aixtron has the
exclusive license to produce and sell equipment based on this technology and UDC
will receive a royalty from the sale of the Equipment.
In September 2000 the Company entered into a License Agreement with Motorola,
Inc., whereby the Company obtained an exclusive license, with the sole right to
sublicense, to 70 US patents, 4 US patents pending , and certain foreign patents
of Motorola, Inc. related to OLEDs. The agreement with Motorola also includes
the opportunity to meet with their product development group, although there are
no assurances that Motorola, Inc. will purchase any products from the Company or
its licensees, or use any of the Company's technology in its products. In
connection with the rights granted to the Company under the agreement with
Motorola, the Company issued to Motorola 200,000 shares of the Company's common
stock, 300,000 shares of the Company's Convertible Preferred Stock, and Warrants
to purchase an additional 150,000 shares. See Note 6 in Notes to Consolidated
Financial Statements.
In October 2000, the Company entered into a Development and License Agreement
and a Supply Agreement with PPG Industries, Inc. (PPG). A team of PPG scientists
and engineers will assist the Company in developing and commercializing the
proprietary OLED materials for which the Company has licensing rights. Based
upon projected staffing requirements, PPG's services have an estimated value of
approximately $11 million over the five-year initial period of the Development
and License Agreement. Present staffing levels will provide the full time
services of seven PPG employees, plus managerial services. Based upon current
staffing levels, and the average price of the Company's Common Stock as defined
in the Agreement, the Company anticipates issuing to PPG approximately 110,000
shares of its Common Stock annually for the period from January 1, 2001 through
December 31, 2005. In addition, the Company anticipates issuing to PPG annually
warrants to purchase up to an additional 110,000 shares of its Common Stock over
the period from January 1, 2001 through December 31, 2005. The amount of equity
to be obtained by PPG under the agreements is subject to adjustment under
certain circumstances. See Note 8 in Notes to the Consolidated Financial
Statements. PPG also has the right to request that the Company grant
royalty-bearing licenses to PPG for use of UDC's OLED technology in certain
applications. Under the Supply Agreement, PPG will be the exclusive supplier of
UDC's proprietary materials through December 31, 2007. PPG will sell the
materials to the Company, which will resell them to OLED manufacturers.
The Company currently has contracts for three programs with agencies of the
United States Government.
In June 2000, the company was awarded a Prime Contract from the U.S. Department
of Defense Advanced Research Projects Agency ("DARPA") for the development of
"Ruggedized full-color flexible OLED displays." The 18-month program commenced
on July 1, 2000, and is valued at $1,500,000. Pursuant to this contract, the
government will pay the Company and its subcontractors $750,000, and the team
members need to supply $750,000 in goods and services towards the objective of
the contract, which is known as a cost share. The subcontractors on the
Company's team are Princeton University; USC; Vitex Systems, a Battelle Company;
and L-3 Communications Corporation. As of December 31, 2000 the Company has
recognized $165,499 in revenue related to this contract. In 2000, a 3-year
contract that was awarded by DARPA in 1997 to a team that included Princeton
University, USC, Hughes Research Laboratories and the Company to fund the
development of "Multi-Color Ultra lightweight Organic Light Emitting Diode
(OLED) Displays." was concluded. The Company recognized $700,000 in revenue over
the three years related to the concluded DARPA contract.
In October 1999, the Company was awarded a two-year, $400,000 Phase II contract
from the National Science Foundation ("NSF") under the Small Business Technology
Transfer Program (after the successful completion of a Phase I program) for
further development of its SOLED technology. This award followed the successful
completion by the Company of a Phase I contract. Princeton University is a
subcontractor under this contract. As of December 31, 2000 the company has
recognized $294,464 in revenue related to this contract.
During 2000, the Company successfully completed a Phase I Department of Defense
("DoD"), Small Business Innovative Research Contract (SBIR) for the development
of high-resolution monochrome displays. As a result of the success in the Phase
I program, the Company was awarded a $750,000 Phase II program. The term of the
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new program is from February 1, 2001 until March 31, 2003. The Company has
subcontracts with Princeton University and USC relating to this Phase II
contract.
In October 1999 the Company entered into a two year co-marketing agreement with
L-3 Communications Corporation whereby the parties agreed that L-3 will act as
the Company's product development, marketing, sales and distribution partner for
the sale of its OLED displays to the military, avionics and medical market
sectors. The parties will initially jointly identify and pursue projects to
develop and deliver display prototypes to potential customers on a
project-by-project basis.
The Company is a member of the United States Display Consortium ("USDC"), a
cooperative industry/government effort aimed at developing an infrastructure to
support a North American flat panel display infrastructure. The USDC's role is
to provide a common platform for flat panel display manufacturers, developers,
users and the manufacturing equipment and supplier base. It has more than 130
members, as well as support from DARPA. The Company is one of 18 members on the
Governing Board of USDC.
Research and Development
Research relating to the OLED technology is being conducted at Princeton
University's Advanced Technology Center for Photonics and Optoelectronic
Materials and at the USC Synthetic Materials Laboratories (on a subcontract
basis with Princeton University). In October 1997, the Company entered into a
new five year Sponsored Research Agreement (the "1997 Sponsored Research
Agreement") for research activities related to Organic Light Emitters, which
continues and expands the scope of the Sponsored Research Agreement dated August
1, 1994 (the "1994 Sponsored Research Agreement"). In October 1997, the Company,
Princeton University and USC also entered into an Amended License Agreement (the
"1997 License Agreement"). See "Business--Intellectual Property". The Company is
also engaged in research, development and commercialization activities at an
11,000 square foot facility, which it leases in Ewing, New Jersey. The Company
moved its operations to this facility in the fourth quarter of 1999.
The development of commercially viable applications for the OLED technology is
principally dependent on the success of the research efforts of Dr. Stephen
Forrest and Dr. Mark Thompson (the "Principal Investigators") conducted pursuant
to such agreements. The scope and technical aspects of the research and the
resources and efforts directed to such research is subject to the control of
Princeton University and the Principal Investigators.
The Company paid Princeton University $733,230 in 2000 pursuant to the 1997
Sponsored Research Agreement. The 1997 Sponsored Research Agreement requires the
Company to pay up to $4.4 million to Princeton University from July 1998 through
July 2002, which period is subject to extension. The 1997 Sponsored Research
Agreement provides that if Dr. Forrest is unavailable to continue to serve as a
Principal Investigator, either because he is no longer associated with Princeton
University or otherwise, and a successor acceptable to both the Company and
Princeton University is not available, Princeton University has the right to
terminate the 1997 Sponsored Research Agreement. The Company believes that
additional research and development efforts are required for the development of
products based upon the OLED technology. See "Business--The Company's OLED
Technology". Loss to the Company of the Principal Investigators' services or
termination of the 1997 Sponsored Research Agreement would have a material
adverse effect on the Company.
In December 1999, the Company and the University of California, Berkeley,
entered into a Collaboration Agreement under which the parties are engaged in
co-development activities and UDC is funding research at that University
respecting very low temperature polysilicon TFT fabrication technology
compatible with the Company's FOLED technology. Work is continuing under that
Collaboration Agreement.
In September, 2000 the Company entered into a Collaboration Agreement with Penn
State University under which the parties are engaged in co-development
activities and UDC is funding research at that University respecting amorphous
silicon TFT technology compatible with UDC's phosphorescent materials system.
Intellectual Property
The Company currently owns or has licensing rights to approximately 106 issued
US patents, 70 US patents pending and numerous foreign patents and applications.
The Company's OLED technology rights are derived principally from two sources.
One set of rights is governed by the 1997 Sponsored Research Agreement, and the
1997 License Agreement with Princeton University and USC. Pursuant to such
agreements, all patents and other intellectual property rights relating to the
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OLED technology are the property of Princeton University, or USC, as applicable,
and the Company is the worldwide exclusive licensee. The other set of rights are
governed by the License Agreement with Motorola, Inc., whereby the Company
obtained the license, with the sole right to sublicense, to 74 issued and
pending US patents (and additional foreign patents) relating to OLED technology
and owned by Motorola, Inc.
Thirty-six patents have been issued to Princeton University and the University
of Southern California by the U.S. Patent and Trademark Office in connection
with the Sponsored Research. Princeton University and USC have filed
approximately 50 additional patent applications relating to the OLED technology
in the United States, and have filed for intellectual property protection
internationally. In addition, the Company has obtained an exclusive worldwide
royalty-free license from USC (the "USC License") to manufacture and market
products based on inventions claimed in a patent issued to USC in May 1994,
relating to, among other things, a method of depositing ultra-thin, very smooth,
ordered organic layers using vacuum deposition.
Under an Interinstitutional Agreement between Princeton University and USC,
Princeton University manages the intellectual property rights being developed
pursuant to the 1994 Sponsored Research Agreement and 1997 Sponsored Research
Agreement and licensed to the Company pursuant to the 1997 License Agreement,
and the Company is required to reimburse Princeton University for all costs
incurred in filing, prosecuting and maintaining patent applications and patents.
The Company has the worldwide exclusive license to manufacture and market
products based on such patents, pending patent applications and any future
patent applications and inventions conceived or discovered under the 1997
Sponsored Research Agreement, and to sublicense those rights. In circumstances
where the Company sublicenses the OLED technology (except to affiliates), or
sells products utilizing the OLED technology, the Company is required to pay to
Princeton University a royalty in the amount of 3% of the Company's net
sublicense fees or net sales of products utilizing the OLED technology. This
royalty rate is subject to upward adjustments under certain conditions.
Under the Motorola License Agreement, the Company obtained a license, with the
sole right to sublicense, to 74 issued and pending US patents, and certain
foreign patent rights, related to OLED technology and owned by Motorola Inc.
These patents cover many aspects of OLED technology, including mixed layer and
single layer device architectures, packaging and encapsulation, and proprietary
materials and drive circuit architectures. Motorola Inc. received equity in the
Company in consideration for the license. The Company is also obligated to make
certain minimum royalty payments to Motorola, Inc. and pay Motorola, Inc. a
royalty on the Company's licensing revenues. See Notes 6 and 11 to Notes to
Consolidated Financial Statements.
There can be no assurance that patents applied for will be obtained or that any
such patents will afford the Company and Princeton University commercially
significant protection of its OLED technology. In addition, the patent laws of
other countries may differ from those of the United States as to the
patentability of the OLED technology and the degree of protection afforded.
Other companies and institutions may independently develop equivalent or
superior technologies and may obtain patent or similar rights with respect
thereto. There are a number of other companies and organizations that have been
issued patents and are filing additional patent applications relating to OLED
technology including Eastman Kodak Company and the companies described in
"Competition" below. There can be no assurance that the exercise of the
Company's licensing rights respecting its OLED technology being developed by
Princeton University and USC will not infringe on the patents of others. In the
event of infringement, the Company and Princeton University could, under certain
circumstances, be required to obtain a license or modify its methods or other
aspects of the OLED technology. Under the 1997 License Agreement, the Company
has the right to prosecute at its own expense any infringement of the patent
rights. Princeton is entitled to 23% of the net proceeds, if any, received from
final judgments in infringement actions respecting the patent rights.
In connection with the 1997 License Agreement and the 1997 Sponsored Research
Agreement, the Company issued to Princeton University 140,000 shares of Common
Stock and 10 year warrants to purchase 175,000 shares of Common Stock at an
exercise price of $7.25 per share. The Company also issued to USC 60,000 shares
of Common Stock and 10 year warrants to purchase 75,000 shares of Common Stock
at an exercise price of $7.25 per share. Under the 1997 License Agreement, the
Company is required to use commercially reasonable efforts to bring the OLED
technology to market. This requirement is deemed satisfied provided the Company
performs its obligations under the 1997 Sponsored Research Agreement and, upon
expiration or termination thereof, the Company invests a minimum of $800,000 per
year in research, development, commercialization or patenting efforts respecting
the OLED technology. Princeton University has the right to terminate the 1997
License Agreement in certain specified circumstances, and prior to any
termination, all disputes under the 1997 License Agreement and the 1997
Sponsored Research Agreement are subject to mediation and arbitration, except
those relating to the validity, construction or effect of patents.
8
<PAGE>
The United States government, through DARPA, has provided funding to Princeton
University and the Company for research activities related to certain aspects of
its OLED technology. In the event that all or certain aspects of its OLED
technology developed (if any) from the Company's funding to Princeton University
is deemed to fall within the planned and committed activities of DARPA's
funding, the federal government, pursuant to federal law, could have certain
rights relating to the OLED technology, including a license to practice or have
practiced on its behalf any such technology and, if the federal government
determines that the Company has not taken effective steps to achieve practical
application of such technology in a field of use in a reasonable time, require
the Company to grant licenses to other parties in any such field of use. In
addition, the federal government's rights could restrict the Company's ability
to market the OLED technology to the federal government for military and other
applications which could have a material adverse effect on the Company. There
can be no assurance as to which aspects of the OLED technology the federal
government has any rights and the extent of such rights. Continued funding of
Princeton University's research activities by the federal government, which is
anticipated, may give the federal government rights to aspects of the OLED
technology developed in the future.
In order to protect Princeton University's tax exempt status, the 1997 License
Agreement provides that Princeton University may, in its sole discretion,
determine whether, pursuant to the provisions of the Tax Reform Act of 1986, it
is required to negotiate the royalties and other considerations payable to
Princeton University on products not reasonably conceivable by the parties at
the time of execution of the 1994 License Agreement. If Princeton University
reasonably concludes that the consideration payable by the Company for any such
product is not fair and competitive, Princeton University may exercise its right
to renegotiate the royalties and other consideration payable by the Company for
any such product prior to the expiration of 180 days after the first patent is
filed or other intellectual property protection is sought. The Company has the
right to commence arbitration proceedings to challenge Princeton University's
exercise of such renegotiation rights. If the parties are unable to agree to
royalties and other consideration for such products within a specified period of
time, then Princeton University is free to license third parties without
repayment of any funds provided under the 1997 Sponsored Research Agreement.
The Company and Princeton University may also rely on proprietary know-how and
trade secrets and employ various methods to protect concepts, ideas and
documentation of their technology. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's or Princeton
University's know-how, trade secrets, concepts, ideas and documentation.
Competition
The display industry is characterized by intense competition. CRTs currently
dominate the television and desktop computer monitor market and improvements in
CRTs have further increased display quality. Flat panel displays have been
developed and are in commercial use in certain applications where the weight,
power requirements, and bulky size of the CRT inhibit its use. Flat panel
displays have been available for a significant period of time and a variety of
advancements in flat panel displays have been made over the last several years.
However, flat panel displays with the capabilities necessary to replace CRTs in
all applications have not been developed.
The flat panel display market is currently dominated by products utilizing LCD
technology and is expected to be dominated by LCD technology for the foreseeable
future. The Company believes that LCDs have certain limitations, such as a
limited viewing angle, limited scalability, low response rate, low contrast and
inferior image and color quality when compared to CRT displays (the current
standard for display quality). LCDs are also more expensive to produce than
CRTs. However, compared to CRTs, LCD displays are smaller, have lower power
requirements (leading to longer battery life), emit no measurable radiation, are
not affected by magnetic fields generated by speakers or VCRs and have uniform
brightness throughout the screen. Numerous companies, however, are making
substantial investments in, and conducting research to improve these
characteristics of LCD technology.
Several other flat panel display technologies have recently been developed or
are being developed, such as field emissive, inorganic electroluminescent,
polymeric light emitting diode, gas plasma, and vacuum fluorescent displays.
Field emissive displays, which essentially employ an array of miniature CRTs,
may be efficient in converting electrical power into light at a relatively low
cost, but high voltage power sources and high temperature fabrication equipment
may be required. Inorganic electroluminescent displays offer better contrast and
broader viewing angles than LCDs and gas plasma displays, but also use more
power than LCDs and are difficult to view in bright ambient light. Displays
utilizing polymeric light emitting diodes may, if successfully developed, offer
better image and color quality and broader viewing angles than LCDs, but require
improvements in operating life, saturated colors and manufacturing technologies.
Gas plasma displays, used in outdoor signs, some laptop computers and recently
9
<PAGE>
introduced for large screen televisions are durable and reliable, have long
lives and superior video speed (useful in video applications) but have high
power requirements; dot matrix display panels on copiers, microwave ovens and
video cassette recorders, have superior brightness, are inexpensive and are
capable of providing full color, but are difficult to manufacture and have high
power requirements, making them unsuitable for portable products.
The Company believes that each of these developing technologies may have one or
more of the limitations associated with LCD technology or other limitations,
such as lack of reliability, high power requirements (restricting portability),
high production cost and/or difficulty of manufacture. The Company believes that
flat panel displays utilizing its OLED technology, if successfully developed,
will provide image and color quality, brightness, contrast, scalability and
viewing angles comparable to CRT displays, be manufacturable from light weight,
low cost materials and require a relatively low power source.
Numerous domestic and foreign companies have developed or are developing CRT,
LCD, gas plasma and other display technologies. Substantially all of these
competitors, including Sony Corporation, NEC Corporation, Matsushita
Corporation, Fujitsu Corporation, Hitachi Corporation, Toshiba Corporation and
Samsung Corporation, have greater name recognition and financial, technical,
marketing, personnel and research capabilities than the Company. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and applications that are more cost effective, have fewer display
limitations than or have other advantages as compared to its OLED technology.
In addition, a number of companies, including those mentioned above, and Eastman
Kodak Company, Pioneer Electric Corporation, Sharp Corporation, Sanyo
Corporation, TDK Corporation, Mitsubishi Chemical Corporation, Ritek
Corporation, Lite Array Corporation, Nippon Seiki Corporation, Seiko-Epson
Corporation and Idemitsu Corporation are engaged in research, development and
commercialization activities with respect to technology using OLEDs. Pioneer
Electric Corporation is presently manufacturing products using OLED technology,
and other companies have announced plans to manufacture products based on OLEDs.
According to published reports, Eastman Kodak Company has licensed its OLED
technology to third parties. There can be no assurance that the Company will be
able to compete successfully, license its technology, or develop commercial
applications for its OLED technologies.
Employees
As of December 31, 2000, the Company has 31 employees, 29 of whom are full-time
employees.
Facilities
The Company's corporate offices and research facility are located at 375
Phillips Boulevard, Ewing, New Jersey.
ITEM 2. PROPERTIES
The Company currently leases approximately 11,000 square feet of space for its
operations in Ewing, New Jersey. The Company entered into a new lease for an
additional 10,000 square feet in the Ewing location, which will commence in
April 2001. The Company also leases approximately 890 square feet in Coeur
D'Alene, Idaho.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth quarter of
2000.
10
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Sherwin I. Seligsohn 65 Chairman, Chief Executive Officer and Director
Steven V. Abramson 49 President, Chief Operating Officer and Director
Sidney D. Rosenblatt 53 Executive Vice President, Chief Financial Officer, Treasurer, Secretary and Director
Julia J. Brown 40 Vice President of Technology Development
</TABLE>
Executive Officers are elected annually and hold office until their successors
are elected and qualified.
Sherwin I. Seligsohn has been Chairman and Chief Executive Officer of the
Company since the Company's inception. He was President of the Company until May
1996. Mr. Seligsohn founded, and since August 1991 has served as sole Director,
Chairman, President and Secretary of, American Biomimetics Corporation ("ABC"),
International Multi-Media Corporation ("IMMC"), and Wireless Unified Network
Systems Corporation ("WUNSC"). He is also Chairman and Chief Executive Officer
of Global Photonic Energy Corporation ("Global"). From June 1990 to October
1991, Mr. Seligsohn was Chairman Emeritus of InterDigital Communications, Inc.
("InterDigital"), formerly International Mobile Machines Corporation. Mr.
Seligsohn was the founder of InterDigital and from August 1972 to June 1990
served as its Chairman. Mr. Seligsohn is a member of the Advisory Board of the
Advanced Technology Center for Photonics and Optoelectronic Materials (POEM) at
Princeton University.
Steven V. Abramson joined Universal Display Corporation as President and Chief
Operating Officer in May 1996. He is also a member of the Board of Directors.
Mr. Abramson is also a member of the Board of Directors of Global. From March
1992 to May 1996 he was Vice President, General Counsel, Secretary and Treasurer
of Roy F. Weston, Inc., a worldwide environmental consulting and engineering
firm. From 1982 to 1991 he was with InterDigital, where he held various
positions, including General Counsel, Executive Vice President and General
Manager of the Technology Licensing Division. Mr. Abramson is a member of the
Advisory Board of the Advanced Technology Center for Photonics and
Optoelectronic Materials (POEM) at Princeton University and a member of the
Board of Governors of the USDC.
Sidney D. Rosenblatt has been Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company since June 1995. He has been a member of
the Board of Directors since May 1996. Mr. Rosenblatt is also Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of Global, and a
member of its Board of Directors. Mr. Rosenblatt is the owner of and has served
as the President of S. Zitner Company from August 1990 through December 1998.
From May 1982 to August 1990, Mr. Rosenblatt served as the Senior Vice
President, Chief Financial Officer and Treasurer of InterDigital. Mr. Rosenblatt
sits on the Board of Directors and Executive Committee for the Greater
Philadelphia Chamber of Commerce, Chairman of the Board for the Small Business
Division of the Greater Philadelphia Chamber of Commerce and sits on various
Boards for non-profit organizations.
Dr. Julia J. Brown has been Vice President, Technology Development since June
1998. From November 1991 to June 1998 she was a Research Department Manager at
Hughes Research Laboratories where she directed the pilot line production of
high-speed Indium Phosphide-based integrated circuits for insertion into
advanced airborne radar and satellite communication systems. She received her
B.S. in Electrical Engineering from Cornell University in 1983 and then worked
at Raytheon Company (1983-1984) and AT&T Bell Laboratories (1984-1986) before
returning to graduate school. Dr. Brown received an M.S. (1988) and Ph.D. (1991)
in Electrical Engineering/Electrophysics at the University of Southern
California under the advisement of Professor Stephen R. Forrest. Dr. Brown has
served as an Associate Editor of Journal of Electronic Materials and as an
elected member of the Electron Device Society Technical Board. She co-founded an
IEEE-sponsored international engineering mentoring program. She is a Senior
Member of the IEEE and has served on numerous technical conference committees
and is presently a member of the Society of Information Display.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the high and low sales prices of the Company's
Common Stock as reported by The NASDAQ National Market for the period indicated.
The Company completed its initial public offering of Common Stock on April 11,
1996, at $5.00 per share.
High Low
Close Close
1999
First Quarter 4.625 3.5625
Second Quarter 4.25 3.375
Third Quarter 5.125 3.3125
Fourth Quarter 16.75 3.375
2000
First Quarter 34.25 12.625
Second Quarter 29.6875 11.875
Third Quarter 31.875 19.1875
Fourth Quarter 20.75 6.00
As of March 20, 2001, there were more than 300 holders of record of the
Company's Common Stock. The Company's Common Stock is listed on The NASDAQ
National Market under the symbol PANL.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been derived from and
should be read in conjunction with the audited consolidated financial statements
of the Company, and the notes thereto, and with "Management's Discussion and
Analysis of Results of Operations and Financial Condition", included elsewhere
herein and incorporated herein by this reference.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Operating Results:
Contract Revenue $ 492,756 $ 519,536 $ 368,794 $ 93,605 $ -
Research and development 7,109,205 3,171,497 1,419,394 4,207,898 948,568
General and administrative 3,261,113 2,727,856 1,933,976 1,986,628 938,741
Net loss (9,529,046) (5,125,006) (2,793,842) (5,927,718) (1,768,995)
Net loss per share, basic and diluted (.62) (.42) (.27) (.64) (.21)
Balance Sheet Data:
Total Assets $32,079,794 $10,316,850 $ 3,078,994 $ 5,417,577 $ 3,282,247
Current liabilities 1,670,016 873,761 495,320 280,240 104,306
Capital lease obligations 16,619 20,021 - - -
Shareholders' equity 29,826,804 9,426,470 2,583,674 5,137,337 3,177,941
Other Financial Data:
Working Capital $ 9,252,130 $ 5,704,913 $2,429,390 $5,003,863 $ 3,023,010
Capital Expenditures 1,540,577 3,680,122 26,689 23,287 67,294
Acquired Technology 16,924,968 - - - -
Weighted average Common Shares, basic
and diluted 15,260,837 12,269,943 10,310,353 9,327,521 8,287,268
Shares of Common Stock outstanding 16,440,286 13,714,563 10,312,943 10,302,268 8,937,268
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Since inception, the Company has been engaged, and for the foreseeable future
expects to continue to be engaged, exclusively in the research and development
and commercialization of its OLED technology for use in flat panel displays and
other applications. To date, the Company has generated minimal revenues and does
not expect to generate any meaningful revenues for the foreseeable future and
until such time, if ever, that it successfully demonstrates that its OLED
technology is commercially viable for one or more flat panel display and other
applications and enters into license agreements, joint ventures or strategic
alliances with third parties with respect to the technology. The Company has
incurred significant losses since its inception, resulting in an accumulated
deficit of $ 28,228,389 at December 31, 2000.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
The Company had a net loss of $9,529,046 (or $.62 per share) for the year ended
December 31, 2000 compared to a net loss of $5,125,006 (or $.42 per share) for
the year ended December 31, 1999. The increase in net loss was primarily
attributable to the increase in research and development expenses, as described
below.
Research and development expenses were $7,109,205 for the year ended December
31, 2000 compared to $3,171,497 for the year ended December 31, 1999. For the
year ended December 31, 2000, research and development expenses consisted of:
(i) payments in the amount of $733,230 to the Company's Research Partners (see
Note 5 in Notes to Consolidated Financial Statements) under the 1997 Sponsored
Research Agreement, (ii) payments in the amount of $1,227,184 for patent
applications, prosecution and other intellectual property rights, (iii) costs
incurred in the amount of $2,057,202 for the development of and operations in
the Company's new facility, (iv) costs in the amount of $1,364,996 for the
expansion and further development of the Company's research and development
team, (v) a non-cash charge in the amount of $663,111 incurred in connection
with the PPG development agreement (see Notes 8 and 9 in Notes to Consolidated
Finanacial Statements), (vi) a non-cash charge in the amount of $602,683
recorded for the warrants and options issued to Scientific Advisory Board
members (see Notes 9 and 14 in Notes to Consolidated Financial Statements) and
(vii) a non-cash charge of $460,799 for the amortization of the Company's
acquired technology (see Note 6 in Notes to Consolidated Financial Statements).
Research and development expenses in 1999 consisted of (i) payments in the
amount of $544,450 to the Company's Research Partners (see Note 5 in Notes to
Consolidated Financial Statements) under the 1997 Sponsored Research Agreement,
(ii) payments in the amount of $854,463 for patent applications, prosecution and
other intellectual property rights, (iii) costs incurred in the amount of
$807,191 for the development and construction of and operations in the Company's
new facility and (iv) costs in the amount of $965,393 for the expansion and
further development of the Company's research and development team.
General and administrative expenses were $3,261,113 for the year ended December
31, 2000 compared to $2,727,856 for the year ended December 31, 1999. The
increase in general and administrative expenses is mainly due to the
commencement of operations in the Company's new facility.
The Company earned $492,756 from contract revenue in 2000 compared to $519,536
in 1999. In 2000, contract revenue consisted of: (i) $20,680 recognized from the
final payments a subcontract with Princeton University, pursuant to a three
year, $3 million dollar contract Princeton University received from DARPA, (ii)
$70,000 recognized from the completion of a DoD SBIR Phase I program, (iii)
$42,113 recognized from a DoD SBIR Phase I Option, (iv) $194,464 recognized from
an NSF Phase II program and (v) $165,499 recognized from a DARPA Phase I
program. In 1999, contract revenue was derived primarily from the continuation
of a subcontract with Princeton University, pursuant to a three year, $3 million
dollar contract Princeton University received from DARPA and the initial payment
from the NSF Phase II program.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company had a net loss of $5,125,006 (or $.42 per share) for the year ended
December 31, 1999 compared to a net loss of $2,793,842 (or $.27 per share) for
the year ended December 31, 1998. The increase in net loss was primarily
attributable to the increase in research and development expenses and to an
increase in general and administrative expenses, as described below.
13
<PAGE>
Research and development expenses were $3,171,497 for the year ended December
31, 1999 compared to $1,419,394 for the year ended December 31, 1998. For the
year ended December 31, 1999, research and development expenses consisted of:
(i) payments in the amount of $544,450 to Princeton University under the 1997
Sponsored Research Agreement, (ii) payments in the amount of $854,463 for patent
applications, prosecution and other intellectual property rights, (iii) costs
incurred in the amount of $807,191 for development and operations in the
Company's new facility and (iv) costs in the amount of $965,393 for the
expansion and further development of the Company's research and development
team. Research and development expenses for the same period in 1998 consisted of
(i) payments in the amount of $125,842 to Princeton University under the 1997
Sponsored Research Agreement; (ii) payments in the amount of $630,929 for patent
applications, prosecution and other intellectual property rights; and (iii)
costs in the amount of $662,623 associated with the Company's development team
located at Princeton.
General and administrative expenses were $2,727,856 for the year ended December
31, 1999 compared to $1,933,976 for the year ended December 31, 1998. The
increase in general and administrative expenses is due to stock issued and cash
paid as a bonus to two executive employees, resulting in a compensation charge
of $764,660 in 1999.
The Company earned $519,536 from contract revenue in 1999 compared to $368,794
in 1998. The revenue was derived primarily from the continuation of the
subcontract with Princeton University, pursuant to a three year, $3 million
dollar contract Princeton University received from DARPA and the initial payment
from the NSF Phase II program.
Liquidity and Capital Resources
As of December 31, 2000, the Company had cash and cash equivalents of $7,701,040
and short-term investments of $2,704,220 compared to cash and cash equivalents
of $1,558,473 and short-term investments of $4,300,060 at December 31, 1999. In
December 2000, the Company sold in a private placement 631,527 units, each unit
consisting of one share of the Company's Common Stock and one warrant with an
exercise price of $10.00, resulting in proceeds of $5,367,979. The units were
issued at $8.50 per unit. Also, during 2000, warrants and options to purchase
1,754,353 shares of the Company's Common Stock were exercised, resulting in cash
proceeds of $6,854,843.
In May 1999, the Company completed a private placement for 1,414,034 shares of
the Company's Common Stock at a price of $3.75 for a unit consisting of one
share of Common Stock and a warrant to purchase one share of the Company's
Common Stock at an exercise price ranging from $4.28 - $4.31. The completion of
the private placement resulted in proceeds of $4,792,797, net of costs
associated with the completion of the private placement, in the amount of
$488,220. Also, during 1999, warrants and options to purchase 1,687,586 shares
of the Company's Common Stock were exercised, resulting in cash proceeds of
$6,236,980.
In 1999, the Company completed the construction of its new facility in Ewing,
New Jersey. Costs incurred and paid in 1999 relating to the construction and
purchase of equipment for the new facility amounted to $3,229,101.
Net working capital increased to $9,252,130 at December 31, 2000 from working
capital of $5,704,913 at December 31, 1999, due primarily to the proceeds
received in connection with the private placement and exercise of warrants and
options during 2000. The Company's net cash used in operating activities was
$6,493,590, $4,298,026, and $2,247,731 in 2000, 1999 and 1998 respectively.
Non-cash expenses related to the issuance of Common Stock, warrants and options
were $1,275,794, $507,025 and $234,916 in 2000, 1999 and 1998 respectively.
As of March 19, 2001, the Company had obtained additional cash proceeds of
$1,170,432, net of $311,313 for expenses, from the completion of its private
placement, issuing an additional 158,704 units and from the exercise of 11,000
warrants and options to purchase the Company's Common Stock.
The Company anticipates, based on management's internal forecasts and
assumptions relating to its operations (including assumptions regarding working
capital requirements of the Company, the progress of research and development,
the availability and amount of other sources of funding available to Princeton
University for research relating to the OLED technology and the timing and costs
associated with the preparation, filing and prosecution of patent applications
and the enforcement of intellectual property rights) that it has sufficient cash
to meet its obligations for 2001. The 1997 Sponsored Research Agreement requires
the Company to pay up to $4.4 million to Princeton University from July 1998
through July 2002, which period is subject to extension. The remaining
obligation of the Company under that agreement is $2,006,464. The Company
expects funding under this agreement in 2001 to be less than $1.1 million
maximum per the agreement. Substantial additional funds will be required for the
14
<PAGE>
research, development and commercialization of OLED technology, obtaining and
maintaining intellectual property rights, working capital and other purposes,
the timing and amount of which is difficult to ascertain. There can be no
assurance that additional funds will be available when needed, or if available,
on commercially reasonable terms.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments, which could expose the Company to
significant market risk. The Company's primary market risk exposure with regard
to financial instruments is to changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto of the Company are attached hereto
beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this item is set forth in the Company's definitive
Proxy Statement (the "Proxy Statement") to be filed with the Securities and
Exchange Commission for the Annual Meeting of Shareholders to be held on June
28, 2001 under the headings "Nominees for Election as Directors" and "Compliance
with Section 16(a) of the Exchange Act" and is incorporated herein by reference.
Information regarding the Company's executive officers is included in Part I on
page 11 herein.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is set forth in the Proxy Statement under
the heading "Executive Management Compensation" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the ownership of securities of the Company by
certain persons is set forth in the Proxy Statement under the heading "Principal
Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to transactions with management and others is set forth
in the Proxy Statement under the heading "Certain Transactions," and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this 10-K:
1. Financial Statements:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
15
<PAGE>
2. Financial Statement Schedules:
None.
3. Exhibits:
The following is a list of exhibits filed as part of this
Annual Report on Form 10-K. Where so indicated by footnote,
exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated
parenthetically, together with a reference to the filing
indicated by footnote.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company. (1)
3.2 Articles of Amendment to the Company's Articles of Incorporation filed with the
Department of State of the Commonwealth of Pennsylvania on July 31, 2000. (2)
3.3 Articles of Amendment to the Company's Articles of Incorporation filed with the
Department of State of the Commonwealth of Pennsylvania on July 31, 2000. (2)
3.4 Bylaws of the Company. (1)
4.1 Specimen stock certificate representing the Common Stock. (3)
4.2 Specimen warrant certificate representing the Warrants. (3)
4.3 Form of Public Warrant Agreement. (1)
4.4 Form of Underwriter's Warrant Agreement. (1)
4.5 Statement of Designations and Preferences of Series A Non-Convertible Preferred
Stock. (3)
10.1 License Agreement dated August 1, 1994 between The Trustees of Princeton
University and American Biomimetics Corporation. (3)
10.2 Amendment to License Agreement (August 1, 1994) dated April 11, 1995 between the
Trustees of Princeton University and American Biomimetics Corporation. (3)
10.3 Sponsored Research Agreement dated August 1, 1994 between the Trustees of
Princeton University and American Biomimetics Corporation. (3)
10.4 Letter Amendment dated May 5, 1995, between the Trustees of Princeton University
and American Biomimetics Corporation. (3)
10.5 Amendment to Sponsored Research Agreement (August 1, 1994) dated April 18, 1995
between the Trustees of Princeton University and American Biomimetics
Corporation. (3)
10.6 Technology Transfer Agreement dated June 22, 1995 between American Biomimetics
Corporation and the Company. (3)
10.7 Assignment and Assumption of License dated June 22, 1995 between American
Biomimetics Corporation and the Company. (3)
10.8 Sublicense Agreement and Option dated June 22, 1995 between American Biomimetics
Corporation and the Company. (3)
10.9 Assignment and Assumption of Agreement dated August 1, 1995 between the Trustees
of Princeton University and the University of Southern California. (3)
10.10 Subcontract No. 341-4014-1 dated August 16, 1995 between the Trustees of
Princeton University and the University of Southern California. (3)
10.11 Assignment of 1994 Sponsored Research Agreement dated November 1, 1995 between
American Biomimetics Corporation and the Company. (3)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.12 # Stock Option Agreement dated as of June 23, 1995 between the Company
and Thomas D. Hays, III. (3)
10.13 # Stock Option Agreement dated as of June 23, 1995 between the Company
and Harvey Nachman. (3)
10.14 Registration Rights Agreement dated as of June 23, 1995 between the Company
and Thomas D. Hays, III. (3)
10.15 Registration Rights Agreement dated as of June 23, 1995 between the Company
and Harvey Nachman. (3)
10.16 Form of Registration Rights Agreement between the Company and
Certain Subscribers to Purchase Common Stock of the Company. (3)
10.17 # Form of Stock Option Agreement dated as of June 23, 1995 between the Company
and Sidney D. Rosenblatt. (3)
10.18 # 1992 Stock Option Plan. (3)
10.19 # 1995 Stock Option Plan. (3)
10.20 # Employment Agreement dated as of November 1, 1995 between the Company
and Sherwin I. Seligsohn. (3)
10.21 # Form of Services Agreement dated as of December 1, 1995 between the Company
and Dean L. Ledger. (3)
10.22 # Form of Stock Option Agreement dated as of June 23, 1995 between the Company
and Sidney D. Rosenblatt. (3)
10.23 # Form of Stock Option Agreement dated as of September 1, 1995 between the Company
and Stephen R. Forrest. (3)
10.24 # Form of Stock Option Agreement dated as of September 1, 1995 between the Company
and Mark E. Thompson. (3)
10.25 # Form of Stock Option Agreement dated as of September 1, 1995 between the Company
and Paul E. Burrows. (3)
10.26 License Agreement dated January 26, 1996 between the Company
and University of Southern California. (3)
10.27 Letter Agreement dated September 20, 1995 Agreeing to a Royalty Rate between the
Trustees of Princeton University and the Company. (3)
10.28 Agreement and Plan of Reorganization dated as of April 6, 1995 between
Enzymatics, Inc., Enzymatics Merger Subsidiary, Inc. and the Company. (3)
10.29 Form of Consulting Agreement between the Company and Whale
Securities Co., L.P. (3)
10.30 # Warrant Agreement dated April 25, 1996 between the Company and Steven V. Abramson. (4)
10.31 Warrant Agreement dated April 25, 1996 between the Company and Sherwin I.
Seligsohn. (4)
10.32 # Warrant Agreement dated April 25, 1996 between the Company and Dean L. Ledger. (4)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.33 # Warrant Agreement dated April 25, 1996 between the Company and Sidney D.
Rosenblatt. (4)
10.34 1997 Sponsored Research Agreement between the Company and Princeton University. (5)
10.35 1997 Amended License Agreement between the Company, Princeton University and the
University of Southern California. (5)
10.36 License Agreement between the Company and Motorola, Inc. dated as of
September 29, 2000. (2)
10.37 Development and License Agreement dated as of October 1, 2000 by and between
PPG Industries, Inc. and the Company. (6)
10.38 Form of Warrant Agreement issuable by the Company to PPG Industries, Inc.
pursuant to the Development and License Agreement. (6)
10.39 Amendment Number 1 to the Development and License Agreement dated as of
March 7, 2001 by and between PPG Industries, Inc. and the Company. (6)
10.40 #* Form of Warrant Agreement dated as of April 18, 2000 between the Company and
Julia Brown.
21 * Subsidiaries of the Registrant.
23 * Consent of Arthur Andersen LLP
</TABLE>
Explanation of Footnotes to Listing of Exhibits
* Filed herewith
# Management contract or compensatory plan or arrangement
(1) Filed as an Exhibit to Registration Statement (No. 33-80703) on Form
SB-2 filed with the Securities and Exchange Commission.
(2) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 filed with the Securities and
Exchange Commission.
(3) Filed as an Exhibit to Amendment No. 1 to Registration Statement (No.
33-80703) on Form SB-2 filed with the Securities and Exchange
Commission.
(4) Filed as an Exhibit to the Annual Report on Form 10K-SB for the year
ended December 31, 1996 filed with the Securities and Exchange
Commission.
(5) Filed as Exhibit to the Annual Report on Form 10 KSB for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
(6) Filed as an Exhibit to Amendment No. 1 to Registration Statement (No.
333-50990) on Form S-3 filed with the Securities and Exchange
Commission.
Note: Any of the exhibits listed in the foregoing index not included with this
Annual Report on Form 10-K may be obtained without charge by writing to Mr.
Sidney D. Rosenblatt, Corporate Secretary, Universal Display Corporation, 375
Phillips Boulevard, Ewing, New Jersey 08618.
(b) No reports were filed on Form 8-K during the fiscal quarter ended
December 31, 2000.
(c) Exhibits required to be filed by the Company pursuant to Item 601
of Regulation S-K are contained in Exhibits listed in response to Item 14(a)(3)
and are incorporated herein by reference.
(d) Financial statement schedules required to be filed by the Company
pursuant to Regulation S-X are listed in response to Item 14(a)(2) and are
incorporated herein by reference.
18
<PAGE>
UNIVERSAL DISPLAY CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, Universal Display Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized:
UNIVERSAL DISPLAY CORPORATION
By: /s/ Sherwin I. Seligsohn
-------------------------
Sherwin I. Seligsohn
Chairman of the Board and Chief Executive Officer
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Sherwin I. Seligsohn Chairman of Board and Chief March 30, 2001
- -------------------------- Executive Officer
Sherwin I. Seligsohn
/s/ Steven V. Abramson President, Chief Operating Officer March 30, 2001
- -------------------------- and Director
Steven V. Abramson
/s/ Sidney D. Rosenblatt Executive Vice President, Chief March 30, 2001
- -------------------------- Financial Officer, Treasurer,
Sidney D. Rosenblatt Secretary and Director
/s/ Leonard Becker Director March 31, 2001
- ---------------------------
Leonard Becker
/s/ Elizabeth Gemmil Director March 30, 2001
- --------------------------
Elizabeth Gemmil
/s/ C. Keith Hartley Director March 30, 2001
- --------------------------
C. Keith Hartley
/s/ Lawrence Lacerte Director March 30, 2001
- --------------------------
Lawrence Lacerte
</TABLE>
19
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders'
Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Universal Display Corporation:
We have audited the accompanying consolidated balance sheets of Universal
Display Corporation (a Pennsylvania corporation in the development-stage) and
subsidiary as of December 31, 2000 and 1999, and the related consolidated
statements of operations, and shareholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 2000 and for the period
from inception (June 17, 1994) to December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Universal Display Corporation and subsidiary as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000 and for the period from inception
(June 17, 1994) to December 31, 2000, in conformity with generally accepted
accounting principles in the United States.
Philadelphia, Pennsylvania ARTHUR ANDERSEN LLP
March 1, 2001
F-2
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (see Note 4) $ 7,701,040 $ 1,558,473
Short-term investments (see Note 4) 2,704,220 4,300,060
Contract research receivables 312,076 267,423
Prepaid and other current assets 204,810 452,718
------------ ------------
Total current assets 10,922,146 6,578,674
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $713,884 and $123,600 4,630,257 3,679,965
ACQUIRED TECHNOLOGY, net of accumulated amortization of
$460,799 and $0 16,489,919 -
DEPOSITS 37,472 58,211
------------ ------------
$ 32,079,794 $ 10,316,850
============ ============
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 816,131 $ 651,837
Accrued expenses 850,126 218,522
Short term portion of capital lease obligation 3,759 3,402
------------ ------------
Total current liabilities 1,670,016 873,761
------------ ------------
LONG TERM PORTION CAPITAL LEASE OBLIGATIONS 12,860 16,619
------------ ------------
REDEEMABLE COMMON STOCK (See Note 8) 570,114 -
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000
shares Series A Nonconvertible Preferred Stock, 200,000 issued and outstanding
(liquidation value of $7.50 per share or $1,500,000), 300,000 shares Series B
Convertible Preferred Stock, issued and outstanding (liquidation value of
$21.48 per shares or $6,444,000) 5,000 2,000
Common Stock, par value $.01 per share, 50,000,000 shares authorized, 16,440,286
and 13,714,563 shares issued and
outstanding, respectively 164,403 137,146
Additional paid-in capital 57,885,790 27,986,667
Deficit accumulated during development-stage (28,228,389) (18,699,343)
------------ ------------
Total shareholders' equity 29,826,804 9,426,470
------------ ------------
$ 32,079,794 $ 10,316,850
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
Period from Inception
(June 17, 1994) to
2000 1999 1998 December 31, 2000
------------ ------------ ------------ ---------------------
<S> <C> <C> <C> <C>
REVENUE:
Contract research revenue $ 492,756 $ 519,536 $ 368,794 $ 1,474,691
------------ ------------ ------------ --------------
OPERATING EXPENSES:
Research and development (See Note 4) 7,109,205 3,171,497 1,419,394 18,930,301
General and administrative 3,261,113 2,727,856 1,933,976 11,858,357
------------ ------------ ------------ --------------
Total operating expenses 10,370,318 5,899,353 3,353,370 30,788,658
------------ ------------ ------------ --------------
Operating loss (9,877,562) (5,379,817) (2,984,576) (29,313,967)
INTEREST INCOME 348,516 254,811 190,734 1,085,578
------------ ------------ ------------ --------------
NET LOSS $ (9,529,046) $ (5,125,006) $ (2,793,842) $ (28,228,389)
============ ============ ============ ==============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.62) $ (0.42) $ (0.27)
============ ============ ============
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC AND DILUTED NET
LOSS PER COMMON SHARE 15,260,837 12,269,943 10,310,353
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Nonconvertible
Preferred Stock
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) -- $ --
Net Loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1994 -- --
Recapitalization by issuance of Common Stock to Enzymatics, Inc. (see Note 3) -- --
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability -- --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements (see Note 3) 200,000 2,000
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000
(see Note 3) -- --
Issuance of Common Stock options (see Note 3) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1995 200,000 2,000
Issuance of Common Stock in Initial Public Offering on April 11, 1996 (see Note 3) -- --
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1996 200,000 2,000
Exercise of private placement warrants -- --
Issuance of Common Stock warrants -- --
Issuance of Common Stock options -- --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement
(see Note 5) -- --
Exercise of Common Stock options and warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1997 200,000 2,000
Exercise of private placement warrants -- --
Exercise of Common Stock options and warrants --
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
Balance, December 31, 1998 2,000 --
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock in connection with the executive employee bonus -- --
Issuance of Common Stock options to non employees -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1999 200,000 2,000
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $311,313 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock options to non employees -- --
Issuance of Redeemable Common Stock, options and warrants in connection with the Development
Agreements -- --
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles -- --
Issuance of Common Stock options and warrants to Scientific Advisory Board -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 2000 200,000 $ 2,000
============= =============
</TABLE>
F-5
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(continued)
<TABLE>
<CAPTION>
Series B Convertible
Preferred Stock
---------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) -- $ --
Net Loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1994 -- --
Recapitalization by issuance of Common Stock to Enzymatics, Inc. (see Note 3) -- --
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability -- --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements (see Note 3) -- --
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000
(see Note 3) -- --
Issuance of Common Stock options (see Note 3) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1995 -- --
Issuance of Common Stock in Initial Public Offering on April 11, 1996
(see Note 3) -- --
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1996 -- --
Exercise of private placement warrants -- --
Issuance of Common Stock warrants -- --
Issuance of Common Stock options -- --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement
(see Note 5) -- --
Exercise of Common Stock options and warrants -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1997 -- --
Exercise of private placement warrants -- --
Exercise of Common Stock options and warrants
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
Balance, December 31, 1998 $ -- $ --
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock in connection with the executive employee bonus -- --
Issuance of Common Stock options to non employees -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1999 -- --
Exercise of Common Stock options and warrants -- --
Issuance of Common Stock and warrants through private placement, net of expenses of $311,313 -- --
Issuance of Common Stock for purchase of equipment -- --
Issuance of Common Stock options to non employees -- --
Issuance of Redeemable Common Stock, options and warrants in connection with the Development
Agreements -- --
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles 300,000 3,000
Issuance of Common Stock options and warrants to Scientific Advisory Board -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 2000 300,000 $ 3,000
============= =============
</TABLE>
F-5 (cont'd)
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(continued)
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Shares Amount
--------------- ---------------
<S> <C> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) 6,000,000 $ 6,000
Net Loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1994 6,000,000 6,000
Recapitalization by issuance of Common Stock to Enzymatics, Inc. (see Note 3) 523,268 59,233
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability -- --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements (see Note 3) -- --
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000
(see Note 3) 1,114,000 11,140
Issuance of Common Stock options (see Note 3) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1995 7,637,268 76,373
Issuance of Common Stock in Initial Public Offering on April 11, 1996
(see Note 3) 1,300,000 13,000
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1996 8,937,268 89,373
Exercise of private placement warrants 1,124,000 11,240
Issuance of Common Stock warrants -- --
Issuance of Common Stock options -- --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement
(see Note 5) 200,000 2,000
Exercise of Common Stock options and warrants 41,000 410
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1997 10,302,268 103,023
Exercise of private placement warrants 675 7
Exercise of Common Stock options and warrants 10,000 100
Issuance of Common Stock warrants (see Note 9) -- --
Net loss -- --
------------- -------------
Balance, December 31, 1998 10,312,943 103,130
Exercise of Common Stock options and warrants 1,687,586 16,876
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 1,414,034 14,140
Issuance of Common Stock for purchase of equipment 100,000 1,000
Issuance of Common Stock in connection with the executive employee bonus 200,000 2,000
Issuance of Common Stock options to non employees -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 1999 13,714,563 137,146
Exercise of Common Stock options and warrants 1,754,353 17,544
Issuance of Common Stock and warrants through private placement, net of expenses of $311,313 631,527 6,315
Issuance of Common Stock for purchase of equipment 89,843 898
Issuance of Common Stock options to non employees -- --
Issuance of Redeemable Common Stock, options and warrants in connection with the Development
Agreements -- --
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles 250,000 2,500
Issuance of Common Stock options and warrants to Scientific Advisory Board -- --
Net loss -- --
------------- -------------
BALANCE, DECEMBER 31, 2000 16,440,286 $ 164,403
============= =========
</TABLE>
F-5 (cont'd)
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(continued)
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Paid-in During
-------------- Development
Capital Stage
-------------- ---------------
<S> <C> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) $ -- $ --
Net Loss -- (11,121)
------------ -------------
BALANCE, DECEMBER 31, 1994 -- (11,121)
Recapitalization by issuance of Common Stock to Enzymatics, Inc. (see Note 3) (243,393) --
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability 140,000 --
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements (see Note 3) 348,000 --
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000
(see Note 3) 2,166,860 --
Issuance of Common Stock options (see Note 3) 9,950 --
Net loss -- (3,072,661)
------------ -------------
BALANCE, DECEMBER 31, 1995 2,421,417 (3,083,782)
Issuance of Common Stock in Initial Public Offering on April 11, 1996
(see Note 3) 5,492,928 --
Issuance of Common Stock warrants (see Note 9) 25,000 --
Net loss -- (1,768,995)
------------ -------------
BALANCE, DECEMBER 31, 1996 7,939,345 (4,852,777)
Exercise of private placement warrants 3,929,560 --
Issuance of Common Stock warrants 528,985 --
Issuance of Common Stock options 216,000 --
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement
(see Note 5) 3,118,329 --
Exercise of Common Stock options and warrants 80,590 --
Net loss -- (5,927,718)
------------ -------------
BALANCE, DECEMBER 31, 1997 15,812,809 (10,780,495)
Exercise of private placement warrants 2,356 --
Exercise of Common Stock options and warrants 2,800 --
Issuance of Common Stock warrants (see Note 9) 234,916 --
Net loss -- (2,793,842)
------------ -------------
Balance, December 31, 1998 $ 16,052,881 $ (13,574,337)
Exercise of Common Stock options and warrants 6,220,104 --
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 4,778,657 --
Issuance of Common Stock for purchase of equipment 430,000
Issuance of Common Stock in connection with the executive employee bonus 421,220
Issuance of Common Stock options to non employees 83,805 --
Net loss -- (5,125,006)
------------ -------------
BALANCE, DECEMBER 31, 1999 27,986,667 (18,699,343)
Exercise of Common Stock options and warrants 6,837,299 --
Issuance of Common Stock and warrants through private placement, net of expenses of $311,313 5,050,351 --
Issuance of Common Stock for purchase of equipment 386,325
Issuance of Common Stock options to non employees 10,000 --
Issuance of Redeemable Common Stock, options and warrants in connection with the Development
Agreements 92,997 --
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles 16,919,468 --
Issuance of Common Stock options and warrants to Scientific Advisory Board 602,683 --
Net loss -- (9,529,046)
------------ --------------
BALANCE, DECEMBER 31, 2000 $ 57,885,790 $ (28,228,389)
============ =============
</TABLE>
F-5 (cont'd)
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(continued)
<TABLE>
<CAPTION>
Total
Equity/(Deficit)
----------------
<S> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) $ 6,000
Net Loss (11,121)
------------
BALANCE, DECEMBER 31, 1994 (5,121)
Recapitalization by issuance of Common Stock to Enzymatics, Inc. (see Note 3) (184,160)
Issuance of Common Stock options to former sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability 140,000
Issuance of Series A Nonconvertible Preferred Stock in connection with assignment of research
and license agreements (see Note 3) 350,000
Issuance of Common Stock through private Placements, net of issuance expenses of $50,000
(see Note 3) 2,178,000
Issuance of Common Stock options (see Note 3) 9,950
Net loss (3,072,661)
------------
BALANCE, DECEMBER 31, 1995 (583,992)
Issuance of Common Stock in Initial Public Offering on April 11, 1996 (see Note 3) 5,505,928
Issuance of Common Stock warrants (see Note 9) 25,000
Net loss (1,768,995)
------------
BALANCE, DECEMBER 31, 1996 3,177,941
Exercise of private placement warrants 3,940,800
Issuance of Common Stock warrants 528,985
Issuance of Common Stock options 216,000
Issuance of Common Stock and warrants in connection with 1997 Sponsored Research Agreement
(see Note 5) 3,120,329
Exercise of Common Stock options and warrants 81,000
Net loss (5,927,718)
------------
BALANCE, DECEMBER 31, 1997 5,137,337
Exercise of private placement warrants 2,363
Exercise of Common Stock options and warrants 2,900
Issuance of Common Stock warrants (see Note 9) 234,916
Net loss (2,793,842)
------------
Balance, December 31, 1998 2,583,674
Exercise of Common Stock options and warrants 6,236,980
Issuance of Common Stock and warrants through private placement, net of expenses of $488,220 4,792,797
Issuance of Common Stock for purchase of equipment 431,000
Issuance of Common Stock in connection with the executive employee bonus 423,220
Issuance of Common Stock options to non employees 83,805
Net loss (5,125,006)
------------
BALANCE, DECEMBER 31, 1999 9,426,470
Exercise of Common Stock options and warrants 6,854,843 Issuance of Common
Stock and warrants through private placement, net of expenses of $311,313
5,056,666 Issuance of Common Stock for purchase of equipment 387,223 Issuance
of Common Stock options to non employees 10,000 Issuance of Redeemable Common
Stock, options and warrants in connection with the Development
Agreements 92,997
Issuance of Common Stock, Preferred Stock Series B, and warrants in connection with the
purchase of intangibles 16,924,968
Issuance of Common Stock options and warrants to Scientific Advisory Board 602,683
Net loss (9,529,046)
------------
BALANCE, DECEMBER 31, 2000 $ 29,826,804
============
</TABLE>
F-5 (cont'd)
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Year Ended December 31, Inception
---------------------------------------------------- (June 17, 1994) to
2000 1999 1998 December 31, 2000
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,529,046) $ (5,125,006) $ (2,793,842) $ (28,228,389)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 590,284 56,368 27,879 713,884
Amortization of intangibles 460,799 -- -- 460,799
Issuance of Common Stock options and warrants
for services 10,000 83,805 234,916 679,671
Issuance of Common Stock and warrants in
connection with Amended research and license -- -- -- 3,120,329
agreements
Issuance of Common Stock in connection with
executive compensation -- 423,220 -- 423,220
Issuance of Redeemable Common Stock, options and
warrants in connection with Development Agreement 663,111 -- -- 663,111
Issuance of Common Stock options and warrants for
Scientific Advisory Board 602,683 -- -- 602,683
Acquired in-process technology -- -- -- 350,000
(Increase) decrease in assets:
Contract research receivables (44,653) (145,482) (33,575) (312,076)
Receivable from related party -- -- 51,906 --
Prepaids and other current assets 247,908 (5,832) 71,905 224,175
Deposits 20,739 39,862 (22,000) (37,472)
Increase in liabilities:
Accounts payable and accrued expenses 484,585 375,039 215,080 1,354,644
Payable to related parties -- -- -- 250,000
------------ ------------ ------------ -------------
Net cash used in operating activities (6,493,590) (4,298,026) (2,247,731) (19,735,421)
------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (1,153,353) (3,229,101) (26,689) (4,505,897)
Purchases of intangibles (25,750) -- -- (25,750)
Purchases of short-term investments (3,368,621) (7,776,880) (270,932) (18,866,003)
Proceeds from sale of short-term investments 4,964,461 4,004,322 4,283,000 16,161,783
------------ ------------ ------------ -------------
Net cash provided by (used) in
investing activities 416,737 (7,001,659) 3,985,379 (7,235,867)
------------ ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Common Stock 5,367,979 4,792,797 -- 21,627,767
Proceeds from the exercise of Common Stock
options and warrants 6,854,843 6,236,980 5,263 13,047,963
Principal payment on capital lease (3,402) -- -- (3,402)
------------ ------------ ------------ -------------
Net cash provided by financing activities 12,219,420 11,029,777 5,263 34,672,328
------------ ------------ ------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,142,567 (269,908) 1,742,911 7,701,040
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD 1,558,473 1,828,381 85,470 --
------------ ------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,701,040 $ 1,558,473 $ 1,828,381 $ 7,701,040
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BACKGROUND:
Universal Display Corporation (the "Company"), a development-stage company, is
engaged in the research and development and commercialization of organic light
emitting diode ("OLED") technology for potential flat panel display
applications.
The Company, formerly known as Enzymatics, Inc. ("Enzymatics"), was incorporated
under the laws of the Commonwealth of Pennsylvania on April 24, 1985 and
commenced its current business activities on August 1, 1994. The New Jersey
corporation formerly known as Universal Display Corporation ("UDC") was
incorporated under the laws of the State of New Jersey on June 17, 1994 (see
Note 3).
Research and development of the OLED technology is being conducted at the
Advanced Technology Center for Photonics and Optoelectronic Materials at
Princeton University and at the University of Southern California ("USC") (on a
subcontract basis with Princeton University), pursuant to a Sponsored Research
Agreement dated August 1, 1994, as amended (the "1994 Sponsored Research
Agreement"), originally between the Trustees of Princeton University ("Princeton
University") and American Biomimetics Corporation ("ABC"), a privately held
Pennsylvania corporation and affiliate of the Company. In October 1997, the
Company entered into a new 5-year Sponsored Research Agreement with Princeton
University and USC (the "1997 Sponsored Research Agreement") for research and
development of the OLED technology (see Note 5). Pursuant to a license agreement
dated August 1, 1994 (the "1994 License Agreement") between Princeton University
and ABC, assigned to the Company by ABC in June 1995, the Company has a
worldwide exclusive license to manufacture and market products based on
Princeton University's pending patent application relating to the OLED
technology and the right to obtain a similar license to inventions conceived or
discovered under the 1994 Sponsored Research Agreement and to sublicense such
rights. In October 1997, the Company amended the 1994 License Agreement (the
"1997 Amended License Agreement") to modify certain terms of the license (see
Note 5).
The Company is also engaged in research, development and commercialization
activities at its 11,000 square foot facility, which is leased in Ewing, New
Jersey. The Company moved its operations to this facility in the fourth quarter
of 1999.
The Company is a development-stage entity with no significant operating activity
to date. Expenses incurred have primarily been in connection with research and
development funding, obtaining financing and administrative activities. The
developmental nature of the activities is such that significant inherent risks
exist in the Company's operations. To the extent that Princeton University's
research efforts do not result in the development of commercially viable
applications for the OLED technology, the Company will not have any meaningful
operations. Even if a product incorporating the OLED technology is developed and
introduced into the marketplace, additional time and funding may be necessary
before significant revenues are realized. Completion of the commercialization of
the Company's technology will require funds substantially greater than the
Company currently has available. There is no assurance that such financing will
be available to the Company, on commercially reasonable terms or at all. Also,
while the Company funds the OLED technology research, the scope of and technical
aspects of the research and the resources and efforts directed to such research
is subject to the control of Princeton University and the principal
investigators. Accordingly, the Company's success is dependent on the efforts of
Princeton University and the principal investigators. The 1997 Sponsored
Research Agreement provides that if certain of the principal investigators are
unavailable to continue to serve as principal investigators, because such
persons are no longer associated with Princeton University or otherwise, and
successors acceptable to both the Company and Princeton University are not
available, the 1997 Sponsored Research Agreement will terminate.
F-7
<PAGE>
2. LIQUIDITY:
As of December 31, 2000, the Company has an accumulated deficit of $28,228,389.
In addition, the Company has incurred losses since its inception and is subject
to those risks associated with companies in the early stages of development. The
completion of the commercialization of the Company's technology may require
funds substantially greater than the Company currently has available. Management
believes that its cash and cash equivalents and short-term investments as of
December 31, 2000 are sufficient to fund its operations during 2001.
3. STOCK TRANSACTIONS, MERGER, RECAPITALIZATION AND PUBLIC OFFERING:
On June 22, 1995, a wholly owned subsidiary of the Company consummated an
Agreement and Plan of Reorganization ("Merger Agreement") with a New Jersey
corporation formerly known as UDC. At the time of the merger, UDC was engaged in
the business which is currently being conducted by the Company. Prior to the
merger, the Company was known as Enzymatics, an inactive Pennsylvania
corporation, and was engaged in a business separate from and unrelated to that
of UDC. Enzymatics had incurred significant losses since its inception in 1985
and, notwithstanding a public offering, failed to find significant alternative
sources of financing to enable it to continue its operations on any scale. In
June 1994, the shareholders of Enzymatics approved the sale of substantially all
of its assets to a third party. Management of UDC concluded that merging with a
former publicly traded company, and acquiring access to its shareholder base,
would facilitate its ability to raise additional capital in the private or
public markets. Management of UDC determined that such additional capital would
be necessary to fulfill its financial obligations under the Transfer Agreement
(as herein defined) pursuant to which it obtained certain rights and obligations
related to the OLED technology, obtained funds to commercialize the OLED
technology, fund the acquisition of additional intellectual property rights
useful to the OLED technology and to fund working capital. As of June 22, 1995,
Enzymatics had 523,268 shares issued and outstanding (after giving effect to a
reverse stock split of 10.9672) which were not actively traded. Pursuant to the
Merger Agreement, the former Enzymatics shareholders received 523,268 shares of
the merged entity's Common Stock. Additionally, Nachman, Hays & Associates
(NHA), a consulting firm, received options to purchase 84,234 shares of the
merged entity's Common Stock at an exercise price of $.29 per share (see Note 8)
as payment of NHA's consulting services in connection with the wind-down of
Enzymatics. These options were issued to satisfy a liability which was reflected
on the balance sheet of Enzymatics on the date of the merger. The sole director
of Enzymatics, is also a principal of NHA.
The merger was treated, for accounting purposes, as a recapitalization of UDC
whereby UDC issued 523,268 shares of Common Stock to the Enzymatics shareholders
and assumed Enzymatics shareholders' deficit of $184,160. The assets and
liabilities of both companies have been recorded at their historical book values
in these financial statements. The assets of Enzymatics consisted of cash and
its liabilities consisted of payables related to the merger and other
professional fees.
Upon consummation of the merger, UDC's shareholders collectively owned
approximately 92% of the outstanding shares of the merged entity, with the
former Enzymatics shareholders retaining the balance of approximately 8%. UDC
was the surviving corporation in the merger, changed its name to UDC, Inc., and,
as a result of the merger, became a wholly owned subsidiary of Enzymatics. At
the effective time of the merger, Enzymatics changed its name to Universal
Display Corporation. Universal Display Corporation and its wholly owned
subsidiary, UDC, Inc., are herein referred to collectively as the "Company."
Contemporaneous with the merger, the Company and ABC entered into a Technology
Transfer Agreement dated June 22, 1995 (the "Transfer Agreement") pursuant to
which, among other things, ABC assigned the 1994 License Agreement to the
Company, and granted to the Company an exclusive worldwide sublicense to patents
and other intellectual property rights to display technology developed under a
Sponsored Research Agreement dated October 22, 1993 between ABC and Princeton
University (the "1993 Sponsored Research Agreement") in exchange of (i)
reimbursement of ABC's scheduled payments and expenses previously made to
Princeton University under the 1994 Sponsored Research Agreement in the amount
of $674,000 and a payment of $500,000 for the sublicense under the 1993
Sponsored Research Agreement which were charged to research and development
expense; (ii) the Company's assumption of ABC's obligation to pay all future
scheduled payments under the 1994 Sponsored Research Agreement, which were
approximately $1,610,000, plus expenses related thereto estimated to be $500,000
for a total of $2,110,000; and (iii) 200,000 shares of the Company's Series A
Nonconvertible Preferred Stock (see Note 9) with a fair value of $350,000.
F-8
<PAGE>
Also, contemporaneous with the merger, the Company sold 781,500 units ("Units")
at a price of $2.00 per Unit, in a private placement, which generated proceeds
of $1,513,000, net of offering expenses in the amount of $50,000. Each Unit
consisted of one share of Common Stock and one warrant to purchase one share of
Common Stock at an exercise price of $3.50 per share. Additionally, 125,000
Units with a fair value of $250,000, based upon the price of the Units, were
transferred to a non-affiliate debt holder of ABC to satisfy $250,000 of ABC's
outstanding debt. Therefore, the Company had a receivable of this amount from
ABC. Accordingly, ABC netted this $250,000 receivable against the Company's
payable to related parties. In addition, on July 17, 1995, the Company sold an
additional 207,500 Units which generated gross proceeds of $415,000. On April
11, 1996, the Company consummated a public offering of 1,300,000 shares of
Common Stock at a price of $5.00 per share and redeemable warrants to purchase
1,495,000 shares of Common Stock at an exercise price of $3.50 per share, at a
price of $.10 per warrant. The Company received net cash proceeds of $5,282,665
from the public offering (excluding $223,263 representing a portion of the
offering expenses previously charged to general and administration expenses).
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Universal Display
Corporation and its wholly owned subsidiary, UDC, Inc. (see Note 3). All
significant intercompany transactions and accounts have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 2000, unrealized holding gains or losses were not material. The gross
proceeds from sales and maturities of investments were $4,964,461 and $4,004,322
for the years ended December 31, 2000 and 1999, respectively. Gross realized
gains and losses for the years ended December 31, 2000 and 1999 were not
material. For the purpose of determining gross realized gains and losses, the
cost of securities sold is based upon specific identification.
Fair Value of Financial Instruments
Cash and cash equivalent, short-term investments, contract research receivables,
prepaids and other current assets, accounts payable, accrued expenses and
redeemable common stock are reflected in the accompanying financial statements
at fair value due to the short-term nature of those instruments. The carrying
amount of capital lease obligations approximate fair value at the balance sheet
dates.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over 3 to 7 years for office and lab equipment, furniture and fixtures,
and the lease term for leasehold improvements. Repair and maintenance costs are
charged to expense as incurred. Additions and betterments are capitalized.
F-9
<PAGE>
Property, plant and equipment consists of the following:
December 31
--------------------------
2000 1999
----------- -----------
Office and lab equipment $ 1,742,667 $ 628,281
Furniture and fixtures 102,014 90,804
Leasehold improvements 1,034,533 996,652
Construction-in-progress 2,464,927 2,087,828
----------- ------------
5,344,141 3,803,565
Less- Accumulated depreciation (713,884) (123,600)
----------- ------------
$ 4,630,257 $ 3,679,965
=========== ============
Depreciation expense was $590,284, $56,368 and $27,879 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Construction-in-progress costs consist of costs incurred for the acquisition of
lab equipment for the Company's new facility. Upon commencement of operation of
the lab equipment, the costs associated with such assets will be depreciated
over the estimated useful life of the lab equipment.
Acquired Technology
Acquired technology consists of acquired license rights for patents and know-how
obtained from PD-LD, Inc. and Motorola (see Note 6). The intangible asset at
December 31, 2000 consisted of the following:
PD-LD, Inc. $ 1,481,250
Motorola 15,469,468
------------
16,950,718
Less: Accumulated Amortization (460,799)
------------
Acquired Technology, net $ 16,489,919
============
Acquired technology is amortized on a straight-line basis over its estimated
useful life of ten years.
Long-Lived Assets
The Company continually evaluates whether events and circumstances have occurred
that indicate that the remaining estimated useful life of long-lived assets may
warrant revision or that the remaining balance may not be recoverable. When
factors indicate that long-lived assets should be evaluated for possible
impairment, the Company uses an estimate of the related undiscounted cash flows
in measuring whether the long-lived asset should be written down to fair value.
Measurement of the amount of the impairment will be based on generally accepted
valuation methodologies, as deemed appropriate. As of December 31, 2000,
management believes that no revision to the remaining useful lives or write-down
of long-lived assets is required.
Net Loss Per Common Share
Basic EPS is computed by dividing net income by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution from the exercise, or conversion of securities into Common Stock. For
the years ended December 31, 2000, 1999 and 1998 the effects of the exercise of
outstanding stock options and warrants were excluded from the calculation of
diluted EPS because their effect was antidilutive.
F-10
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended in 1999 by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 -
an amendment of comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As the Company does not
currently hold derivative instrument or engage in hedging activities, the
adoption of this pronouncement is expected to have no impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB101"). The Bulletin draws on existing accounting rules and provides
specific guidance on how those accounting rules should be applied. SAB 101 is
effective for fiscal years beginning after December 15, 1999. The Company
adopted SAB 101 and it did not have a material impact on its method of revenue
recognition.
Contract Research Revenue
Contract research revenues are recognized as the related expenses are incurred.
Research and Development
Expenditures for research and development are charged to operations as incurred.
Research and development expenses consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
2000 1999 1998
----------- ----------- -------------
<S> <C> <C> <C>
Payments made to Princeton University
and Southern California under the 1997 Sponsored
Research Agreements (see Note 5) $ 733,230 $ 544,450 $ 125,842
Patent application expenses 1,227,184 854,463 630,929
PPG development agreement (see Notes 8 and 9) 663,111 -- --
Scientific Advisory Board Compensation
(see Notes 9 and 14) 602,683 -- --
Development and operations in the new facility 2,057,202 807,191 --
Expansion of the Company's research and development team 1,364,996 965,393 --
Amortization of intangibles 460,799 -- --
Other expenses -- -- 662,623
----------- ----------- -------------
$ 7,109,205 $ 3,171,497 $ 1,419,394
=========== =========== =============
</TABLE>
Statement of Cash Flow Information
Capital lease obligations of $27,120 were incurred on equipment leases entered
into in 1999. In 2000 and 1999, the Company issued 89,843 and 100,000 shares of
its Common Stock to a vendor in consideration for lab equipment. The shares were
valued at $4.31 per share, which was the approximate fair market value at the
transaction date. In 2000, in connection with PD-LD agreement (see Note 6), the
Company issued 50,000 shares of its Common Stock valued at $1,481,250, which was
the fair market value at the transaction date. In 2000, in connection with the
Motorola agreement (see Note 6) the Company issued 200,000 shares of its Common
Stock valued at $4,412,500, and 300,000 shares of its Series B Convertible
Preferred Stock valued at $6,618,750, and a warrant to purchase 150,000 shares
of Common Stock at $21.60 per share, which was the approximate fair market value
at the transaction date. In connection with the PPG agreement (see Note 8), the
Company issued 26,448 of Redeemable Common Shares and a warrant to purchase
26,448 shares of Common Stock at $24.29 per share. In 2000, the Company accrued
for $311,313 in private placement fees which was a component of additional paid
in capital (see Note 9).
F-11
<PAGE>
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the tax rate expected to be in effect when taxes are actually paid or
recovered.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
5. SPONSORED RESEARCH AGREEMENT WITH PRINCETON UNIVERSITY:
On October 9, 1997, the Company entered into the 1997 Sponsored Research
Agreement with Princeton University and entered into a 1997 Amended License
Agreement with Princeton University and USC amending its 1994 License Agreement
with Princeton University. The 1997 Sponsored Research Agreement continues and
expands the sponsored research which commenced in 1994 under which the Company
funds additional research and development work at Princeton University (and at
USC under a subcontract with Princeton University) in OLED technology. The 1997
Sponsored Research Agreement requires the Company to pay up to $4.4 million
commencing on July 31, 1998 through July 31, 2002, which period is subject to
extension. The amounts due to Princeton University will be expensed when paid by
the Company. Under the 1997 License Agreement, the Company has the worldwide
exclusive and perpetual license to manufacture and market products, and to
sublicense those rights, based on Princeton University's and USC's pending
patent applications relating to the OLED technology and conceived under the 1994
and 1997 Sponsored Research Agreements. The Company is required to pay Princeton
University a royalty in the amount of 3% of the Company's net sales of products
utilizing the OLED technology. In circumstances where the Company sublicenses
the OLED technology (except to affiliates), the royalty required to be paid by
the Company was reduced in the 1997 License Agreement from 50% to 3%. These
royalty rates are subject to upward adjustments under certain conditions. In
October 1997, in connection with the 1997 License Agreement and Sponsored
Research Agreement, the Company issued 140,000 Common Shares and 175,000
warrants to purchase Common Stock to Princeton University as well as 60,000
Common Shares and 75,000 warrants to purchase Common Stock to the University of
Southern California. The Company recorded a charge of $3,120,329 related to the
issuance of the Common Stock and warrants to purchase Common Stock to research
and development expenses. The value of the warrants was determined in accordance
with Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation."
6. ACQUIRED TECHNOLOGY:
On July 19, 2000, the Company, PD-LD, Inc. ("PD-LD") and Princeton University
entered into a Termination, Amendment and License Agreement whereby the Company
acquired all PD-LD's rights to certain issued and pending patents and technology
known as organic vapor phase deposition ("OVPD") in exchange for 50,000 shares
of the Company's Common Stock. Pursuant to this transaction, the Company has
included in its License Agreement with Princeton the exclusive license to all
Princeton patents and technology related to OVPD, whether developed pursuant to
its research agreements with Princeton or otherwise. The acquisition of these
patents had a fair value of $1,481,250 (see Note 4).
On September 29, 2000, the Company entered into a license agreement with
Motorola, Inc. ("Motorola"). Pursuant to the license agreement, the Company
licensed from Motorola 67 US patents, 7 US patent applications, and additional
foreign patents. These patents expire between 2012 and 2018. The Company has the
sole right to sublicense these Motorola patents to manufacturers. As
consideration for the licenses, the Company issued to Motorola 200,000 shares of
its Common Stock (valued at $4,412,500), 300,000 shares of its Series B
Convertible Preferred Stock (valued at $6,618,750), and a warrant to purchase
150,000 shares of its Common Stock at $21.60 per share. The warrant becomes
exercisable on September 29, 2001 and will remain exercisable until September
29, 2008. The warrant was recorded at fair market value ($2,206,234) based on
the Black-Scholes option-pricing model and has been recorded as a component of
the costs of the acquired technology. The Company also issued a warrant to
acquire 150,000 shares of Common Stock as a finder's fee in connection with this
transaction. The warrant was granted with an exercise price of $21.60 per share.
The warrant is exercisable immediately and will remain exercisable until
September 29, 2007. This warrant was accounted for at its fair value
($2,206,234) based on the Black-Scholes option pricing model and has been
recorded as a component of the cost of the acquired technology. In addition, the
Company incurred $25,750 of direct cash transaction costs that have been
included in the cost of the acquired technology. In total, the Company recorded
an intangible asset of $15,469,468 for the technology acquired from Motorola
(see Note 4). In addition, the Company will pay to Motorola a royalty based on
F-12
<PAGE>
future sales of products incorporating OLED technology (see Note 11). Such
royalty payments may be made, at the Company's discretion, in either all cash or
(50%) cash and (50%) in shares of Common Stock. The number of shares of common
stock used to pay the royalty portion shall be equal to 50% of the royalty due
divided by the average daily closing price per share of stock over the ten
trading days ending two business days prior to the date the common stock is
issued.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31
----------------------
2000 1999
--------- ---------
Accrued professional fees $ 239,293 $ 142,575
Payroll 102,914 -
Utilities 83,557 -
Vacation 100,154 63,922
Private placement fees 311,313 -
Other 12,895 12,025
--------- ---------
$ 850,126 $ 218,522
========= =========
Professional fees of $398,000 and $369,519 were included in accounts payable at
December 31, 2000 and 1999, respectively.
8. REDEEMABLE COMMON STOCK
On October 1, 2000, the Company entered into a 5 year Development and License
Agreement with PPG Industries, Inc. (PPG) to leverage the Company's OLED flat
panel display technology with PPG's expertise in the development and
manufacturing of organic materials. A team of PPG scientists and engineers are
assisting the Company in developing and commercializing its proprietary OLED
material system. In consideration for PPG's services under the agreement, UDC
will issue shares of its Common Stock and warrants to acquire its Common Stock
to PPG on an annual basis over the period from January 1, 2001 through December
31, 2005. The amount of securities issued is subject to adjustment under certain
circumstances, as defined in the agreement.
On November 11, 2000, in consideration for PPG's services through December 31,
2000, UDC issued 26,448 shares of Redeemable Common Shares and an 11.5%
promissory note in the amount of $535,300. The note is only payable if the
Redeemable Common Shares issued are not registered with the SEC by May 31, 2001.
The amount of the note is based on the fair market value of the services
rendered by PPG through December 31, 2000. The company recorded a charge to
research and development expense of $535,500. If the note is paid then PPG will
return the Common Shares previously issued.
In accordance with the PPG agreement, UDC issued 1,720 shares of Common Stock on
January 31, 2001. The additional shares were issued as a result of the final
accounting for actual costs incurred by PPG. The promissory note was also
increased to reflect actual costs incurred through December 31, 2000.
Accordingly, the Company accrued $34,814 of additional research and development
expense as of December 31, 2000, for these additional shares.
9. SERIES A NONCONVERTIBLE PREFERRED STOCK, SERIES B CONVERTIBLE PREFERRED
STOCK, SHAREHOLDERS' EQUITY (DEFICIT), STOCK OPTIONS AND WARRANTS:
Series A Nonconvertible Preferred Stock
In 1995, the Company issued 200,000 shares of Series A Nonconvertible Preferred
Stock ("Series A") to ABC (see Note 3), which has a liquidation value of $7.50
per share. Series A holders, as a single class, have the right to elect two of
the Company's Board of Directors. The holders of Series A shares are entitled to
one vote per share on matters which shareholders are generally entitled to vote.
The Series A holders are not entitled to any dividends. The Series A were valued
at $1.75 per share which was based upon an independent appraisal.
F-13
<PAGE>
Series B Convertible Preferred Stock
In 2000, the Company issued 300,000, shares of Series B Convertible Preferred
Stock ("Series B") to Motorola (see Note 6), upon liquidation, the Series B
shares will rank senior to the Common Stock and any other capital stock of the
Company. The Series B has a liquidation value of $21.48 per share, plus accrued
and unpaid dividends. Each share of the Series B Preferred Stock is convertible,
at the option of the holder, into such number of fully paid and nonassessable
shares of Common Stock as determined by dividing the original purchase price by
the conversion price applicable to such share determined as provided, in effect
on the date the certificate is surrendered for conversion. The conversion price
shall initially be the original issuance price per share of Common Stock. The
Series B is convertible at a rate of 75,000 per year for four years. The
conversion price may be subject to change if the Company's average stock price
falls below $12.00 for the thirty-day period preceding the conversion dates. The
Company has the option to pay the Series B holders an amount of cash equal to
the difference between $12.00 and the Average Price (as defined) multiplied by
the number of shares of Common Stock into which the shares of Series B would be
convertible. As of December 31, 2000, the conversion feature has not been
triggered. All outstanding shares of Series B shall be converted automatically
into shares of Common Stock after 4 years. The holders of Series B shares are
entitled to that number of votes equal to the largest of whole shares of Common
Stock into which the Series B could be converted on matters which shareholders
are generally entitled to vote. The Series B holders are entitled to dividends
that are declared or paid to the Common Stock holders.
Shareholders' Equity
In May 1999, the Company completed a private placement, and issued 1,414,034
units, each consisting of one share of Common Stock and one warrant, resulting
in net proceeds of $4,792,797. The units were issued at $3.75 per unit. The
shares of Common Stock and the warrants were valued at $2.27 and $1.48,
respectively, based on their relative fair values. The warrants were issued with
an exercise price ranging from $4.28 to $4.31, which was 120% of the approximate
fair value at the grant date.
On July 19, 2000, the Company issued 50,000 shares of unregistered Common Stock
to PD-LD, in accordance with the Termination, Amendment and License Agreement
(see Note 6). These shares were recorded on the fair market value of the Common
Stock. Accordingly, the Company recorded an intangible asset of $1,481,250.
On September 29, 2000, the Company issued to Motorola 200,000 shares of its
Common Stock, 300,000 shares of its Series B and a warrant to purchase 150,000
shares of Common Stock in accordance with the termination, amendment and license
agreement (see Note 6). The Company also issued a warrant to purchase 150,000
shares of Common Stock as a finder's fee in connection with this transaction.
The warrants were valued using the Black Scholes option-pricing model.
Accordingly, the Company recorded an intangible asset of $15,469,468.
In December of 2000, the Company sold 631,527 units in a private placement, each
consisting of one share of Common Stock and one warrant, resulting in gross
proceeds of $5,367,979. The units were issued at $8.50 per unit. The shares of
Common Stock and the warrants were valued at $4.66 and $3.84 based on their
relative fair values, respectively. The warrants vest immediately, have an
exercise price of $10.00 and expire in 10 years. In connection with the private
placement, the Company issued an additional 161,000 warrants as finders' fees,
which vest immediately, have an exercise price of $10.00 and expire in 10 years.
The warrants were valued using the Black Scholes option-pricing model at
$890,722 which was recorded as a component of additional paid in capital. During
January 2001, the private placement was completed and the Company then issued an
additional 158,704 units, each consisting of one share of Common Stock and one
warrant, resulting in additional net proceeds of $1,037,671.
Enzymatics 1992 Stock Option Plan
The stock options granted prior to the merger by Enzymatics under the 1992 Stock
Option Plan which have been assumed by the Company were converted into options
to purchase 20,538 shares of Common Stock of the Company at exercise prices
ranging from $11.74 to $29.61 per share. In 1999, 11,992 of such options
expired. The remaining 8,546 of such options expire 2001.
1995 Stock Option Plan
In 1995, the directors of the Company adopted the 1995 Stock Option Plan (the
"1995 Plan"), under which a maximum of 500,000 options may be granted at prices
not less than 100% of the fair market value of the Common Stock on the date of
grant as determined by the Board of Directors. Through 2000, the Shareholders
have approved the Plan to increase the number of Common Shares reserved for the
1995 Plan to 2,000,000. The 1995 Plan provides for the granting of both
incentive and nonqualified stock options to employees, officers, directors and
F-14
<PAGE>
consultants of the Company. The stock options are exercisable over a period
determined by the Board of Directors, but no longer than ten years after the
grant date.
In June 1995, the Company granted options to purchase 70,000 shares of Common
Stock to an officer of the Company at an exercise price of $2.00 per share,
which approximated the fair market value of the Common Stock at the grant date.
These options vested over a period of three years. As of December 31, 2000,
70,000 options were exercisable. These options expire in 2005. In addition, in
June 1995, the Company granted options to purchase 5,000 shares of Common Stock
to the same officer of the Company at an exercise price of $.01 per share, all
of which were exercised in October 1998. These options vested on the grant date.
The Company recorded a charge of $9,950, to general and administrative expenses,
which represented the difference between the deemed value of the Common Stock
for accounting purposes and the exercise price of the options at the grant date.
In 1995, the Company granted nonqualified stock options to three principal
investigators who are conducting research under the 1994 Sponsored Research
Agreement and the 1993 Sponsored Research Agreement. The Company granted options
to purchase an aggregate of 240,000 shares of Common Stock to the three
principal investigators at an exercise price of $4.00 per share, which
approximated the fair market value of the Common Stock at the grant date. These
options vest as follows: 33% at the grant date with the remaining 67% vesting
over two years. As of December 31, 2000, options to purchase 220,000 shares of
Common Stock were exercisable. These options expire in 2005.
In 1996, the Company granted nonqualified and incentive stock options to two
employees and one consultant. The Company granted options to purchase an
aggregate of 30,000 shares of Common Stock at an exercise price of $4.12 per
share, which was the fair market value of the Common Stock at the date of grant.
These options vest as follows: 10,000 shares at the grant date with the
remaining 20,000 shares vesting over 5 years. During 1997, 6,000 of these
options were forfeited when an employee left the Company and an additional 2,000
options were forfeited in 2000. As of December 31, 2000, options to purchase
12,000 shares of Common Stock were exercisable. These options expire in 2006.
In 1997, the Company granted incentive and nonqualified stock options to several
employees, officers, and principal investigators. The Company granted options to
purchase an aggregate of 274,500 shares of Common Stock at exercise prices
ranging from $4.06 to $5.25 per share, which was the fair market value of the
Common Stock at the date of grant. These options vest either immediately upon
grant or over a five-year period. As 55,000 of these options were granted to
non-employee principal investigators, the Company recorded a charge of $216,000,
to general and administrative expense, which represents the value of the options
as determined in accordance with SFAS 123. As of December 31, 2000, options to
purchase 236,353 shares of Common Stock were exercisable. These options expire
in 2007.
In 2000, 1999 and 1998, the Company granted nonqualified and incentive stock
options to several employees. The Company granted options to purchase an
aggregate of 432,000, 431,750 and 303,000 shares of Common Stock at exercise
prices ranging from $9.44 to $24.38, $3.375 to $4.19 and $3.75 to $6.22 per
share, respectively, which was the fair market value of the Common Stock at the
date of grant. These options vest either immediately upon grant or over a
five-year period. In 2000 and 1999, 12,000 and 60,992 options were forfeited,
respectively. As of December 31, 2000, options to purchase 695,608 shares of
Common Stock were exercisable. The options granted in 2000, 1999 and 1998 expire
in 2010, 2009 and 2008 respectively.
In 2000 and 1999, the Company granted options to consultants to purchase 2,000
and 27,500 shares of Common Stock at exercise prices of $24.38 and $3.13 to
$4.19 per share, respectively. The options vest immediately and expire in 2010
and 2009, respectively. These options were valued using the Black Scholes
pricing model. Accordingly, the Company recorded a charge of $10,000 and
$83,805, in 2000 and 1999 respectively which was included in general and
administrative expenses.
Other Options
In connection with NHA's services relative to consummation of the merger
discussed in Note 3, in June 1995, the Company granted options to purchase
84,234 shares of Common Stock at an exercise price of $.29 per share to NHA.
These options were used to satisfy a liability reflected on the balance sheet of
Enzymatics on the date of the merger. These options vested 100% upon grant and
15,000 were exercised in 1997. Accordingly, as of December 31, 2000, 42,117
options were exercisable. These options expire in 2005.
In accordance with the terms of the PPG agreement, on December 14, 2000, UDC
granted options to PPG employees to acquire 20,000 shares of Common Stock. These
options vest over a one-year period, have an exercise price of $9.44 per share
F-15
<PAGE>
and expire in 10 years. On December 31, 2000, the Company recorded a charge of
$7,072 to research and development expense for the fair market value, determined
in accordance with the Black-Scholes option-pricing model, of the stock option
awards that were earned. These awards are considered variable and will be
measured each reporting period.
The following table summarizes all stock option activity:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- --------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,359,530 $ 4.19 986,272 $ 4.38 707,810 $ 4.54
Granted 434,000 13.19 459,250 3.95 303,000 4.66
Exercised (132,181) 3.94 (25,000) 3.52 (10,000) .29
Forfeited (12,000) 4.19 (60,992) 5.79 (14,538) 20.67
---------- ---------- ----------
Outstanding at end of year 1,649,349 6.58 1,359,530 4.19 986,272 4.38
Exercisable at end of year 1,260,371 5.55 973,503 3.97 792,951 4.00
Available for future grant 158,470 180,470 377,991
Weighted average fair value of
options granted $ 8.28 $ 2.99 $ 3.60
======= ====== ======
</TABLE>
The weighted average remaining contractual life for options outstanding at
December 31, 2000, 1999 and 1998 was 8 years.
Common Stock Warrants
In connection with the June 22, 1995 private placement and the July 17, 1995
private placement (see Note 3), the Company issued 906,500 warrants and 207,500
warrants, respectively each warrant entitled the holder to purchase one share of
Common Stock at an exercise price of $3.50 per share. In 1997, all of these
outstanding warrants were exercised.
On April 11, 1996, in connection with the Company's public offering, the Company
sold redeemable warrants to purchase 1,495,000 shares of Common Stock at an
exercise price of $3.50 per share at a price of $.10 per share. These warrants
expired April 12, 1999 (see Note 3). In connection with the public offering, the
Company issued warrants to its underwriter to purchase up to 130,000 shares of
Common Stock at an exercise price of $8.25 per share and warrants to purchase an
additional 130,000 shares of Common Stock at an exercise price of $3.675 per
share. In April 1996, the Company issued warrants to third parties to purchase
up to 578,000 shares of Common Stock at an exercise price of $4.125 per share.
In August 1996, the Company granted warrants to purchase 20,000 shares of Common
Stock to an individual in exchange for consulting services. These warrants have
an exercise price of $6.00 per share, vest immediately, and expire in August
2006. The Company recorded a charge of $25,000 to general and administrative
expenses, which represents the value of the warrant as determined in accordance
with SFAS 123.
In April 1996, the Company granted warrants to four employees and one consultant
to purchase 925,000 shares of the Company's Common Stock at an exercise price of
$4.125 per share, which approximated the fair market value of the Common Stock
at the date of grant. These warrants vest 25% at the date of grant and the
remaining 75% over 5 years, provided these employees are employed by the Company
on the vesting date. These warrants expire in 2006.
In 1997, the Company granted warrants to Princeton University and the University
of Southern California under the 1997 Sponsored Research Agreement (see Note 5)
to purchase an aggregate of 250,000 shares of Common Stock at an exercise price
of $7.25 per share, which approximated the fair market value of the Common Stock
F-16
<PAGE>
at the date of grant. These warrants vest immediately upon grant and expire in
2007. Also in 1997, the Company granted warrants to consultants to purchase
200,000 shares of Common Stock at an exercise price of $4.80 per share. These
warrants vest immediately upon grant and expire in 2002. The Company valued the
warrants in accordance with SFAS 123. The warrants will be expensed over the
three-year consulting period. In 2000, 1999 and 1998, the Company recorded a
charge of $76,329, $176,328 and $176,328, respectively which is included in
general and administrative expenses in the accompanying consolidated statement
of operations.
In 1998, the Company granted warrants to two employees and two directors to
purchase 400,000 shares of Common Stock at an exercise price of $6.38 per share,
which was the fair market value of the Common Stock at the date of grant. These
warrants vest immediately and expire in 2008.
In 1998, the Company granted warrants to consultants to purchase 125,000 shares
of Common Stock at exercise prices ranging from $3.375 to $7.25 per share. Of
the 125,000 warrants granted in 1998, 25,000 warrants were granted to one
consultant which vested immediately. These warrants were valued using the Black-
Scholes option-pricing model. Accordingly, the Company recorded a charge in 1998
to record expense in the amount of $154,247, which is included in general and
administrative expenses. The remaining 100,000 warrants were granted to another
consultant of which 25,000 vested immediately and 75,000 will vest based upon
the Company's successful entrance into the Taiwanese market. Only the 25,000
which vested were valued using the Black-Scholes option-pricing model. The
remaining 75,000 will be valued upon ultimate determination of performance. The
unamortized portion ($80,669) of this charge is recorded as prepaid consulting
fee on the accompanying Consolidated Balance Sheets.
In 2000, the Company granted warrants to one employee and two Scientific
Advisory board members to purchase 290,000 shares of the Company's Common Stock
at exercise prices ranging from $14.12 to $16.75, which was the fair market
value of the Common Stock at the date of grant. These warrants vest over three
years and expire in 2010 (see Note 14).
In accordance with the PPG agreement, the Company issued warrants to PPG to
acquire 28,168 shares of its Common Stock as part of the consideration for
services performed during 2000. The fair market value of the warrants was
determined using Black-Scholes pricing model. The warrants vest immediately,
have an exercise price of $24.29 and a contractual life of 7 years. Accordingly,
the Company recorded a charge of $85,918 to research and development expense
during 2000 based on the fair market value of the warrants. The Company recorded
this charge based on a measurement date of December 31, 2000, which is the date
upon which the warrants were earned by PPG.
As of December 31, 2000, 3,485,749 warrants to acquire Common Stock were
exercisable.
Pro Forma Disclosure for Stock-Based Compensation
The Company accounts for its employee stock-based compensation plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Had the Company
recognized compensation cost for its stock based compensation plans consistent
with the provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net loss
and net loss per share would have been increased to the following pro forma
amounts:
Year Ended December 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Net loss:
As reported $ (9,529,046) $ (5,125,006) $ (2,793,842)
Pro forma (11,937,622) (6,000,155) (5,803,012)
Net loss per share:
As reported $ (0.62) $ (0.42) $ (.27)
Pro forma (0.78) (0.49) (.56)
The fair value of each option or warrant granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 2000, 1999 and 1998. Risk-free interest rates of
4.7% to 6.8%, expected dividend yields of zero for each year, expected
volatility ranging from 60% to 81% and expected lives ranging from 7 years to 10
years for each.
F-17
<PAGE>
Because the SFAS 123 method of accounting has not been applied to options and
warrants granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
10. RESEARCH CONTRACTS:
Contract research revenue consists of the following:
<TABLE>
<CAPTION>
December 31
---------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Department of Defense Advanced Research
Projects Agency (DARPA) $ 186,179 $ 419,536 $ 190,008
Small Business Innovative Research (SBIR) Army
Phase I & Army Phase I Option 112,113 -- --
New Jersey Commission on Science and Technology
(NJCST) -- -- 94,521
National Science Foundation (NSF) 194,464 100,000 84,265
--------- --------- ---------
$ 492,756 $ 519,536 $ 368,794
========= ========= =========
</TABLE>
11. COMMITMENTS:
Lease Commitments
The Company has several operating lease arrangements for office space and office
equipment. During 1999, the Company entered into one capital lease. Total rent
expense was $207,104, $311,996 and $91,467, for the years ended December 31,
2000, 1999 and 1998, respectively. Minimum future rental payments for operating
and capital leases as of December 31, 2000 are as follows:
Operating Capital
Year Leases Lease
---- --------- ---------
2001 $ 369,502 $ 5,424
2002 337,385 5,424
2003 260,885 5,424
2004 670 4,520
--------- --------
$ 968,442 20,792
=========
Less amount representing interest (4,173)
--------
Present value of capital lease $ 16,619
========
Other Commitments
At December 31, 2000, the Company has commitments outstanding in connection with
capital expenditures of equipment acquired during 1999. According to the
purchase agreement, the Company has agreed to pay the vendor in both stock and
cash. At December 31, 2000, the Company owed $126,634 in cash and stock valued
at $43,778. All payments are expected to be paid in year 2001.
Under the terms of the Motorola license agreement (see Note 6), the Company has
agreed to make minimum royalty payments. To the extent that the royalties
payable based on sales are not sufficient to meet the minimums, the Company
shall pay, at its discretion, the shortfall in all cash or in cash (50%) and
Common Stock (50%) within 90 days after the end of each two-year period
specified below in which the shortfall occurs. The minimum royalty payments are
as follows:
September 29, 2000 - December 31, 2002 $ 150,000
January 1, 2003 - December 31, 2004 $ 500,000
January 1, 2005 - December 31, 2006 $1,000,000
F-18
<PAGE>
In the normal course of business, the Company is party to various claims and
legal proceedings. Although the ultimate outcome of these matters is presently
not determinable, management of the Company, after consultation with legal
counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial position or results of operations.
12. INCOME TAXES:
The components of income taxes are as follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Current $ -- $ -- $ --
Deferred (3,019,639) (2,063,624) (484,848)
------------ ------------ ------------
(3,019,639) (2,063,624) (484,848)
Increase in valuation allowance provision 3,019,639 2,063,624 484,848
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
The difference between the Company's federal statutory income tax rate and its
effective income tax rate is primarily due to non-deductible expenses and the
valuation allowance.
As of December 31, 2000, the Company had net operating loss carryforwards of
approximately $16,900,000, which will begin to expire in 2010. The net operating
loss carryforwards differ from the accumulated deficit principally due to the
timing of the recognition of certain expenses. In accordance with the Tax Reform
Act of 1986, the net operating loss carryforwards could be subject to certain
limitations.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
December 31
------------------------------
2000 1999
------------ ------------
Gross deferred tax assets:
Net operating loss carryforwards $ 5,738,172 $ 3,650,365
Capitalized start-up costs 2,710,141 1,844,133
Capitalized technology license 170,000 170,000
Other 532,718 466,894
------------ ------------
9,151,031 6,135,392
Valuation allowance (9,151,031) (6,131,392)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
A valuation allowance was established for 100% of the net deferred tax asset,
since the Company has incurred substantial operating losses and expects
additional losses in 2001. The Company's management has concluded that the
realizability of the deferred tax assets is uncertain.
F-19
<PAGE>
13. DEFINED CONTRIBUTION PLAN:
During 2000, the Company adopted the Universal Display Corporation 401(k) Plan
(the Plan) in accordance with the provisions of Section 401(k) of the Internal
Revenue Code (Code). The Plan covers substantially all full-time employees of
the Company. Participants may contribute up to 15% of their total compensation
to the Plan, not to exceed the limit as defined in the Code, with the Company
matching 50% of the participant's contribution, limited to 6% of the
participant's total compensation. For the year ending December 31, 2000, the
Company contributed $52,125 to the Plan.
14. QUARTERLY SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Year ended December 31, 1999: Three Months Ended
----------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 117,233 $ 69,732 $ 145,532 $ 187,039
Net loss (593,866) (1,677,994) (987,225) (1,865,912)
Basic and diluted loss per share (.06) (0.14) (0.07) (0.15)
<CAPTION>
Year ended December 31, 2000: Three Months Ended
---------------------------------------------------------------------------------------------
(1) (2) (3) (1) (2) (3)
---------------------------------------------------------------------------------------------
March 31 March 31 June 30 June 30
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,909 $ - $ 5,909 $ 126,746 $ - $ 126,746
Net loss (1,803,249) (208,887) (2,012,136) (2,152,080) (812,842) (2,964,922)
Basic and diluted loss per share (0.12) (0.01) (0.13) (0.14) (0.05) (0.19)
<CAPTION>
Year ended December 31, 2000: Three Months Ended
------------------------------------------------------------
(1) (2) (3) (4)
------------------------------------------------------------
September 30 September 30 December 31
------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $ 124,812 $ - $ 124,812 $ 235,289
Net loss (1,824,263) (250,133) (2,074,396) (2,477,592)
Basic and diluted loss per share (0.12) (0.02) (0.14) (.16)
</TABLE>
(1) Interim results as reported in the Company's Form 10Q.
(2) In February 2000, the Company granted warrants to purchase 200,000 shares
of Common Stock to two Scientific Advisory Board members. The warrants were
granted with an exercise price of $14.12 per share, a ten-year life and
vest ratably over three years. The Company did not account for these
warrants during the first three interim periods. In accordance with the
FASB Interpretation No. (FIN) 44, "Accounting for Certain Transactions
involving Stock Compensation; An Interpretation of APB 25", which became
effective during 2000, awards granted to Advisory Board members are treated
as awards granted to non-employees. The Company has restated the interim
periods above to show the impact of the accounting for these warrants. As
the warrants were granted to non-employees and vest over a three year
period, the warrants are accounted for as a variable plan award and
research and development expense has been recorded based on the fair market
value of the warrants. The fair market value of the warrants has been
determined by using the Black- Scholes option-pricing model.
(3) Restated interim results
(4) The results for the three months ended December 31, 2000 include a
reduction to research and development expense of $809,213 as a result of
the decrease in fair market value of the Company's common stock.
F-20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.40
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXHIBIT 10.40
<TEXT>
<PAGE>
WARRANT
WARRANT HOLDER: Julia J. Brown ARRANT NO. 2000-13
1405 Westover Road
Yardley, PA 19067
NUMBER OF WARRANT SHARES: 90,000
THE WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE WARRANT AND SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION, AND MAY NOT BE DISPOSED OF WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.
UNIVERSAL DISPLAY CORPORATION
Common Stock Purchase Warrant
Universal Display Corporation, a Pennsylvania corporation (the
"Company"), for value received, hereby grants to the warrant holder identified
above, its successors and permitted assigns (collectively, the "Holder"), this
right (the "Warrant"), subject to the terms set forth below, to purchase at the
Exercise Price (as defined in Section 1.1 below), up to 90,000 shares of common
stock, $.01 par value per share, of the Company (the "Common Stock"), subject to
adjustment as herein provided. The total number of shares of Common Stock that
may be purchased hereunder are referred to herein as the "Warrant Shares."
I. Exercise of Warrant.
-------------------
1.1 Purchase Price. The Warrant may be exercised, subject to the terms
specified herein, at the purchase price of $16.75 per Warrant Share (as may be
adjusted from time to time, the "Exercise Price"), by payment of lawful money of
the United States.
1.2 Exercise and Vesting Period. The Warrant will vest 1/3 (30,000
Warrants) on the date issued and 1/3 (30,000 Warrants) on each of the subsequent
anniversary dates, if you are still a member of the Company. The vested amount
may be exercised at any time for a period of ten years from the date hereof.
1.3 Exercise in Full. Subject to the limitations stated above, this
Warrant may be exercised in full at the option of the Holder by surrender of
this Warrant, with the form of subscription at the end hereof duly executed by
the Holder, to the Company at its principal office in the United States,
accompanied by payment in the amount obtained by multiplying the number of
Warrant Shares for which this Warrant may be exercised by the Exercise Price.
1.4 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in subsection
1.3 along with payment in the amount determined by multiplying (a) the number of
<PAGE>
Warrant Shares designated by the Holder in the subscription at the end hereof by
(b) the Exercise Price. On any such partial exercise, the Company at its expense
will forthwith issue and deliver to or upon the order of the Holder a new
Warrant or Warrants of like tenor, in the name of the Holder or as the Holder
(upon payment by the Holder of any applicable transfer taxes) may request,
representing in the aggregate the number of Warrant Shares for which such
Warrant or Warrants may still be exercised.
1.5 Cashless Exercise.
(a) During the period in which the Common Stock is listed or
admitted to trading on any national securities exchange or is quoted on the
NASDAQ Small Cap Market or a similar organization, all or any portion of this
Warrant may be exercised on a "cashless" basis, by stating in the form of
subscription the Holder's intention to purchase Warrant Shares in consideration
of cancellation of Warrants in payment for such exercise. The number of Warrant
Shares the Holder shall receive upon such cashless exercise shall equal the
difference between the number of Warrant Shares for which such exercise is made
(the "Cashless Exercise Number") and the quotient that is obtained when the
product of the Cashless Exercise Number and the then current Exercise Price is
divided by the Current Market Price per share of Common Stock on date of
exercise (as hereinafter determined).
(b) The "Current Market Price" per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
most recent five trading days prior to such date. The closing price for any day
shall be the last reported sales price or, in case no such reported sale takes
place on such day, the closing bid price, in either case on the principal
national securities exchange (including, for purposes hereof, the NASDAQ
National Market or the NASDAQ Small Cap Market) on which the Common Stock is
listed or admitted to trading, or, in case no such bid prices are available on
such day, the highest reported bid price for the Common Stock as furnished by
the National Association of Securities Dealers, Inc. through NASDAQ or a similar
organization if NASDAQ is no longer reporting such information.
I. Delivery of Share Certificates on Exercise.
------------------------------------------
2.1 As soon as practicable after the exercise of this Warrant in full
or in part, the Company, at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder, or as the Holder (upon payment by the Holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable Warrant Shares (or Other Securities, as defined
below) to which the Holder shall be entitled on such exercise, plus, in lieu of
any fractional share to which the Holder would otherwise be entitled, cash equal
to such fraction multiplied by the Current Market Price (as defined above) of
one full share, together with any other stock or other securities and property
(including cash, where applicable) to which the Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. "Other Securities" refers to any
stock (other than the Warrant Shares) or other securities of the Company or any
other person (corporate or otherwise) that the Holder at any time shall be
entitled to receive, or shall have received, on the exercise of this Warrant, in
lieu of or in addition to the Warrant Shares, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of the
Warrant Shares, including securities of the same class issued in exchange for or
in respect of the Warrant Shares pursuant to a plan of merger, consolidation,
recapitalization or reorganization, the sale of substantially all of the
Company's assets or a similar transaction.
<PAGE>
I. Covenants.
---------
3.1 Issuance of Shares upon Exercise. All Warrant Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company will at
all times have authorized and reserved, free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, issuance or sale of securities or otherwise, avoid or
take any action that would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, and shall at all times in good faith assist in carrying out all of the
provisions of this Warrant. If any Warrant Shares required to be reserved for
the purpose of exercise of this Warrant require registration with or approval of
any governmental authority under any federal law (other than the Securities Act
of 1933, as amended (the "Securities Act")) or under any state law, before such
Warrant Shares may be issued upon exercise of this Warrant, the Company shall,
at its expense, use commercially reasonable efforts to cause such Warrant Shares
to be duly registered or approved, as the case may be.
3.2 Restrictions on Transfer. By acceptance of this Warrant, Holder
represents to the Company that it is acquiring the Warrant for its own
investment account and without a view to the subsequent public distribution of
the Warrant or Warrant Shares otherwise than pursuant to an effective
registration statement under the Securities Act and applicable state securities
laws. This Warrant and each certificate for Warrant Shares issued to the Holder
and any subsequent holder that have not been sold to the public pursuant to an
effective registration statement under the Securities Act or as to which the
restrictions on transfer have not been removed as hereinafter provided, shall
bear a restrictive legend reciting that the same have not been registered
pursuant to the Securities Act and applicable state securities laws and may not
be transferred in the absence of an effective registration statement under the
Securities Act. Each proposed transfer shall be accompanied by a notice which
shall describe the manner of the proposed transfer and shall be accompanied by
an opinion of counsel experienced in securities laws matters and reasonably
acceptable to the Company and its counsel to the effect that the proposed
transfer may be effected without registration under the Securities Act,
whereupon, the holder of such Warrants or Warrant Shares shall be entitled to
transfer such securities in accordance with the terms of its notice and such
opinion. Restrictions imposed under this Section 3 upon the transferability of
the Warrants or of Warrant Shares shall cease when:
(a) a registration statement covering such Warrant Shares
becomes effective under the Securities Act and such Warrant Shares have been
disposed of pursuant to such effective registration statement, or
(b) the Company receives from the holder thereof an opinion of
counsel experienced in securities laws matters, which counsel shall be
reasonably acceptable to the Company, that such restrictions are no longer
required in order to insure compliance with the Securities Act.
When such restrictions terminate, the Company shall, or shall instruct the
warrant agent or transfer agent, if any, to issue new securities in the name of
the holder not bearing the legends required by this Section 3.
<PAGE>
I. Adjustment for Reorganization; Consolidation or Merger. If at any time or
from time to time, the Company shall (a) effect a plan of merger, consolidation,
recapitalization or reorganization or similar transaction with a corporation
(the "Acquiror") whereby the shareholders of the Company will exchange their
shares of the Company for the shares of the Acquiror, or (b) transfer all or
substantially all of its properties or assets to any other person (which along
with any transactions set forth in (a) hereof shall be an "Extraordinary
Transaction"), then as a condition of such Extraordinary Transaction, adequate
provision will be made whereby the holder of this Warrant will have the right to
acquire and receive upon exercise of this Warrant in lieu of the Warrant Shares
immediately theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of Warrant Shares immediately theretofore
acquirable and receivable upon exercise of this Warrant had such Extraordinary
Transaction not taken place. In any such case, the Company will make appropriate
provision to insure that the provisions of this Section 4 hereof will thereafter
be applicable as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the exercise of this Warrant. The
Company will not effect any Extraordinary Transaction unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Section 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.
I. Adjustments for Other Events.
----------------------------
5.1 If the outstanding shares of Common Stock shall be subdivided or
split into a greater number of shares, or a dividend in shares of Common Stock
shall be paid in respect of the shares of Common Stock, then the Exercise Price
in effect immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such subdivision or
split or immediately after the record date of such dividend, be proportionately
reduced. If the outstanding shares of Common Stock shall be combined or
reverse-split into a smaller number of shares, then the Exercise Price in effect
immediately prior to such combination or reverse-split shall, simultaneously
with the effectiveness of such combination or reverse-split be proportionately
increased. When any adjustment is required to be made in the Exercise Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
changed to the number determined by dividing (i) an amount equal to the number
of Warrant Shares issuable upon the exercise of this Warrant immediately prior
to such adjustment, multiplied by the Exercise Price in effect immediately prior
to such adjustment, by (ii) the Exercise Price in effect immediately after such
adjustment.
5.2 Except as provided in Sections 4, 5.1 and 5.6, if and whenever on
or after the date of issuance of this Warrant, the Company issues, or in
accordance with Section 5.3(c) hereof is deemed to have issued, any shares of
Common Stock ("Additional Stock"), for no consideration or for a consideration
per share less than the Exercise Price on the date of issuance of such
Additional Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock outstanding immediately prior to the
Dilutive Issuance, plus (y) the quotient of the aggregate consideration,
calculated as set forth in Section 5.3 hereof, received by the Company upon such
Dilutive Issuance divided by the Exercise Price in effect immediately prior to
the Dilutive Issuance, and (ii) the denominator of which is the number of shares
of Common Stock outstanding immediately prior to the Dilutive Issuance, plus the
number of shares of such Additional Stock; provided that, for purposes of this
Section 5.2, all shares of Common Stock (except as otherwise provided in Section
5.3) issuable upon the conversion, exchange or exercise of any convertible
<PAGE>
preferred stock, warrant, option, right or other security shall be deemed to be
outstanding, and immediately after any shares of Additional Stock are deemed to
be issued pursuant to Section 5.3(c), such shares of Additional Stock shall be
deemed to be outstanding. In such event, the number of Warrant Shares issuable
upon the exercise of this Warrant shall be increased to the number obtained by
dividing (x) the product of (A) the number of Warrant Shares issuable upon the
exercise of this Warrant before such adjustment, and (B) the Exercise Price in
effect immediately prior to the issuance giving rise to this adjustment by (y)
the new Exercise Price.
5.3 For the purposes of any adjustment of the Exercise Price pursuant
to subsection 5.2 above, the following provisions shall be applicable:
(a) In the case of the issuance of shares of Common Stock for
cash, the consideration shall be deemed to be the amount of cash received by the
Company therefor.
(b) In the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the "fair value" of such consideration, as
determined in the good faith judgment of the board of directors of the Company.
(c) In the case of the issuance of any (x) option to purchase
or right to subscribe for shares of Common Stock, (y) security by its terms
convertible into or exchangeable for shares of Common Stock or (z) option to
purchase or right to subscribe for such convertible or exchangeable security:
(i) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of any such option to purchase or right to
subscribe for shares of Common Stock shall be deemed to have been issued at the
time such option or right was issued and for a consideration equal to the
consideration (determined in the manner provided in Sections 5.3(a) and 5.3(b)
above), if any, received by the Company upon the issuance of such option or
right, plus the minimum purchase price provided in such option or right for the
shares of Common Stock covered thereby;
(ii) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of such option to purchase or right
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such option or right was issued and for a
consideration equal to the consideration received by the Company for any such
security and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the additional consideration, if
any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subdivisions (a) and (b)
above);
(iii) on any change in the consideration payable to
the Company upon exercise of any such option or right or upon the conversion or
exchange of any such convertible or exchangeable security (other than a change
resulting from the anti-dilution provisions thereof), the Exercise Price in
effect at the time of such change shall forthwith be readjusted to the Exercise
Price that would have been in effect at such time had such option, right or
convertible or exchangeable securities still outstanding at such time provided
for such changed consideration at the time initially granted, issued or sold;
and
<PAGE>
(iv) on the expiration of any such option or right,
the termination of any right to convert or exchange or the expiration of any
option or right related to such convertible or exchangeable securities, the
Exercise Price then in effect shall forthwith be readjusted to the Exercise
Price that would have been in effect at the time of such expiration or
termination had such options, rights, securities or options or rights related to
such securities, to the extent outstanding immediately prior to such expiration
or termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(d) In the case of the issuance of (v) shares of Common Stock,
(w) options to purchase or rights or warrants to subscribe for shares of Common
Stock, (x) securities by their terms which are convertible into or exchangeable
for shares of Common Stock, or (y) options to purchase or rights or warrants to
subscribe for such convertible or exchangeable securities (each of the
securities referred to in the clauses (v), (w), (x) or (y) above, an "Additional
Security"), together with other shares or securities (including another
Additional Security) of the Company, the consideration for such Additional
Securities and other shares or securities shall be the proportion of the
aggregate consideration received for such Additional Securities and other shares
or securities, computed as provided in (a), (b) and (c) above, as determined
reasonably and in good faith by the board of directors of the Company.
5.4 No adjustment in the per share Exercise Price shall be required
unless such adjustment would require an increase or decrease in the Exercise
Price of at least $0.01; provided, however, that any adjustments which by reason
of this Section 5.4 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
5.5 Whenever the Exercise Price or the number of Warrant Shares
issuable upon exercise of the Warrants shall be adjusted as provided in this
Section 5, the Company shall forthwith file, at its principal office or at such
other place as may be designated by the Company, a statement, signed by its
president or chief financial officer and by its treasurer, showing in detail the
facts requiring such adjustment to the Exercise Price and the number of Warrant
Shares issuable upon exercise of the Warrants that shall be in effect after such
adjustment. The Company shall within 15 business days of any adjustment cause a
copy of such statement to be sent by first-class, certified mail, return receipt
requested, postage prepaid, to each Holder of Warrants at such holder's address
appearing in the Company's records. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of this Warrant.
5.6 No adjustment to the Exercise Price will be made (i) upon the
exercise of any warrants, options or convertible securities granted, issued and
outstanding as of the date of issuance of the Warrant; (ii) upon the exercise of
the Warrant or (iii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Company now existing or to be implemented in the future, so long as the issuance
of such stock or options is approved by a majority of the independent members of
the Board of Directors of the Company or a majority of the members of a
committee of independent directors established for such purpose.
Notices of Record Date, etc. In the event of:
6.1 any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
<PAGE>
6.2 any merger, consolidation or capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company
with or into any other person, or any transfer of all or substantially all of
the assets of the Company, or
6.3 any voluntary or involuntary dissolution, liquidation or winding-up
of the Company, then and in each such event the Company will mail or cause to be
mailed to the Holder a notice specifying (a) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(b) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of shares of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 30
days prior, and not more than 90 days prior, to the date specified in such
notice on which any such action is to be taken.
I. Transfers.
---------
7.1 The Warrants and the Warrant Shares are not transferable, in whole
or in part, without compliance with the Securities Act, and any applicable state
securities laws.
7.2 Subject to Section 7.1, this Warrant, or any portion hereof, may be
transferred by the Holder's execution and delivery of the form of assignment
attached hereto along with this Warrant upon reasonable prior notice to the
Company. Any transferee shall be required, as a condition to the assignment, to
deliver all such documentation as the Company deems appropriate. However, until
such assignment and such other documentation are presented to the Company at its
principal offices in the United States, the Company shall be entitled to treat
the registered holder hereof as the absolute owner hereof for all purposes.
7.3 Upon a transfer of this Warrant in accordance with this Section 7,
the Company, at its expense, will issue and deliver to or on the order of the
Holder a new Warrant or Warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, representing the aggregate number of Warrant Shares represented by the
Warrant or Warrants so surrendered. If this Warrant is divided into more than
one Warrant, or if there is more than one Holder thereof, all references herein
to "this Warrant" shall be deemed to apply to the several Warrants, and all
references to "the Holder" shall be deemed to apply to the several Holders,
except in either case to the extent that the context indicates otherwise.
Replacement of Warrants.
-----------------------
8.1 On receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of any Warrant and, in the case of
any such loss, theft or destruction of any Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver in the Holder's
name in exchange and substitution for the Warrant so lost, stolen, destroyed or
mutilated, a new Warrant of like tenor.
<PAGE>
I. Notices.
-------
9.1 All notices required hereunder shall be deemed to have been given
and shall be effective only when personally delivered or sent by Federal
Express, DHL or other express delivery service or by certified or registered
mail to the address of the Company's principal office in the United States as
follows:
Universal Display Corporation
375 Phillips Boulevard
Ewing, NJ 08618
in the case of any notice to the Company, and until changed by notice to the
Company, to the address of the Holder set forth above in the case of any notice
to the Holder.
I. Miscellaneous.
-------------
10.1 This Warrant and any term hereof may be changed, waived,
discharged or terminated, other than on expiration, only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and enforced
in accordance with and governed by the laws of the Commonwealth of Pennsylvania.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer on the date set forth below.
UNIVERSAL DISPLAY CORPORATION
By: __________________________________
Sidney D. Rosenblatt, Corporate Secretary
Date: April 18, 2000
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO :
-----------------------------------------
The undersigned, the holder of the attached Warrant, hereby
irrevocably elects to exercise such Warrant for, and to purchase thereunder,
__________ Warrant Shares (as defined in the Warrant Agreement governing the
attached Warrant) and herewith makes payment of $________ therefor, including
(i) $_______ by certified or bank cashier's check, and (ii) cancellation of
Warrant to purchase _____Warrant Shares based upon a Cashless Exercise Number
(as therein defined) of ______, in accordance with the terms thereof,
representing the full Exercise Price for such Warrant Shares at the price per
share provided for in such Warrant, and requests that the certificates for such
shares be issued in the name of, and delivered to ____________________, whose
address is________________________________________.
Dated:_____________ ___________________________________________
(Signature must conform in all respects to
name of holder as specified on
the face of the Warrant)
___________________________________________
___________________________________________
(Address)
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ____________________________ the right represented by the
attached Warrant to purchase __________ Warrant Shares (as defined in the
Warrant Agreement governing the attached Warrant) to which the within Warrant
relates, and appoints ____________________ Attorney to transfer such right on
the books of ______________________ with full power of substitution in the
premises.
Dated:_______________________ ________________________________________
(Signature must conform in all respects
to name of holder as specified on
the face of the Warrant)
_______________________________________
_______________________________________
(Address)
Signed in the presence of:
_______________________________
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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