UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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
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UNIVERSAL DISPLAY CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2372688
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Bala Plaza East
Suite 104
Bala Cynwyd, Pennsylvania 19004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 617-4010
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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)
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(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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment of this Form 10-KSB [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 3, 1998, was approximately $28,829,896. 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 17, 1998, the Registrant had
outstanding 10,302,268 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
11, 1998, are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
PART 1
Page
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ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
EXECUTIVE OFFICERS OF THE REGISTRANT 8
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 7. FINANCIAL STATEMENTS 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT 11
ITEM 10. EXECUTIVE COMPENSATION 11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 11
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This document contains certain forward-looking statements that are subject to
risks and uncertainties. Forward-looking statements include certain information
relating to the flat panel display industry, OLED technology, strategy, markets,
research, development, manufacturing, intellectual property, competition, and
properties, as well as information contained elsewhere in this Report where
statements are preceded by, followed by or include the words "believes,"
"expects", "anticipates", "potential" or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the private Securities Litigation Reform
Act of 1995. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in this Report and in the documents
incorporated herein by reference.
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. The research
is being performed by Princeton University and the University of Southern
California ("USC") (collectively "Research Partners") pursuant to a certain
Sponsored Research Agreement funded by the Company (See: Business- "Research").
The Company has the exclusive right to commercialize the technology being
developed pursuant to a certain License Agreement (See: Business- "Intellectual
Property"). 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 this 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. 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, portable electronic
devices, digital watches, calculators,
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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, viewing angle, power requirements, cost and
manufacturability. The dominant technology for 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 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 image and color quality, brightness, contrast, scalability and
viewing angles comparable to CRT displays, and 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 innovative technology and the Company is not
aware of any full color, flat panel displays utilizing OLED technology currently
being marketed and sold, although there are numerous companies engaged in
research and development efforts respecting OLED technology. Pioneer Corporation
of Japan is currently marketing and selling a monochrome OLED device for
automotive applications. 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 ("LED's") are solid-state semiconductor devices that emit
light when electrical current passes through them. The color of light emitted
depends on the bandgap of the semiconductor material; narrow bandgap materials
emit light in the red/orange range and wide bandgap 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. Presently, the Company's OLED technology is designed around four
technology platforms: transparency, flexibility, vertically stacked pixels, and
lasing.
The Company believes that flat panel displays utilizing its OLED technology, if
successfully developed, will provide image and color quality, brightness,
contrast and viewing angles comparable or superior to CRT displays and superior
to LCD; will be manufacturable from light weight, 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 light weight and
portability; and will be scaleable for use in large area, high resolution, high
information, full color, flat panel displays.
One technology platform being researched by the Company and its Research
Partners is based upon the ability to create a transparent organic display. In
the March 7, 1996 issue of the scientific journal Nature, the researchers at
Princeton University and USC announced the laboratory demonstration of the first
transparent, thin film organic light emitting device, ("TOLED") which is
believed to be the crucial first step toward realizing high-definition,
full-color organic displays. In addition, it provides the ability to develop
head up, transparent
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and high contrast displays using organic materials. In December 1997, a patent
was issued respecting aspects of the TOLED technology. See
"Business--Intellectual Property"
A second technology platform being researched by the Company and its Research
Partners is based upon the vertically stacked pixel structure. In the June 27,
1997 issue of the scientific journal Science, the researchers at Princeton
University and USC announced the laboratory demonstration of an independently
controlled, tunable three color organic light emitting device employing a novel
vertically stacked pixel architecture ("SOLED") which 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, greyscale 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. In
January and February 1998, two patents were issued respecting aspects of the
SOLED technology. See: "Business--Intellectual Property"
A third technology platform being researched by the Company and its Research
Partners is the ability to fabricate organic displays on flexible substrates. In
the February 1, 1997 issue of the scientific journal, Optics Letters, the
researchers at Princeton University and USC announced the laboratory
demonstration of an OLED deposited on a flexible plastic film (FOLED). Flat
panel displays are commonly built on glass. The Company believes that this is
the first time that small molecule organic layers have been deposited on a
flexible plastic substrate, flexibility being a property that was previously
believed to be unique to polymer materials. This development may also allow the
potential for fabricating FOLED products using low cost "roll to roll"
processing methods.
A fourth technology platform 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 a electrically pumped solid state lasers based on organic thin
films
While significant advances have been made in the research on OLEDs being
sponsored by the Company, 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
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.
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Commercialization Strategy and Markets
The Company's present commercialization strategy is to continue the research and
development of OLED technology and to license the technology or enter into joint
ventures or other strategic relationships with experienced manufacturers (who
may have much of the needed infrastructure already in place) for the
manufacture, distribution and sale of OLED display products or laser products.
The Company believes that an initial market may be for low information content
applications using segmented or character displays such as for cellular phones,
instrumentation displays, or consumer electronics. These applications may be
multicolor or monochrome. There are also potential markets for a transparent
device, for example, as head-up displays on vehicle windshields. The Company
also believes that the OLED technology under development could also have
significant applicability for small, full color displays, such as for 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 technology has potential application in large
area, full color displays such as laptop computers, desktop computers and
televisions and in numerous defense-related markets. 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.
The Company is part of a team that includes Princeton University, the University
of Southern California, and Hughes Research Laboratories that was awarded a $3
million research contract from the U.S.Department of Defense Advanced Research
Projects Agency ("DARPA") to fund the development of "Multi-Color
Ultralightweight Organic Light Emitting Diode (OLED) Displays." The three year
contract commenced September 1, 1997 and the Company expects to receive
approximately $700,000 for its part of the project relating principally to the
fabrication of prototypes and reliability improvements.
In September 1997, the Company and Princeton University were jointly
awarded a $100,000 Phase I grant by the National Science Foundation ("NSF")
under the Small Business Technology Transfer Program for further development of
its OLED technology principally related to more fully saturated colors. The
grant is expected to be completed within one year, and if successful can
possibly lead to a Phase II proposal for additional funding from the NSF.
In September 1997, the Company and Princeton University received a $100,000
contract award from the New Jersey Commission on Science and Technology for
further development of its OLED technology and to study the feasibility of
manufacturing OLED displays in New Jersey.
In September 1997 the Company joined 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 14 members on the Governing Board of USDC.
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Research
Research relating to the OLED technology is being conducted at Princeton
University's Advanced Technology Center for Photonics and Optoelectronics
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 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 $347,374 in 1997 pursuant to the Sponsored
Research Agreement. The 1997 Sponsored Research Agreement requires the Company
to pay up to $4.4 million to Princeton University from July 1998 thorough 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.
Intellectual Property
The Company's rights to the OLED technology are governed by the 1997 Sponsored
Research Agreement and the 1997 License Agreement. Pursuant to such agreements,
all patents and other intellectual property rights relating to the OLED
technology are the property of Princeton University, or USC, as applicable, and
the Company is the worldwide exclusive licensee.
In December 1997, the first patent, titled "Transparent Contacts for Organic
Light Emitters", was issued to Princeton University by the U.S. Patent and
Trademark Office in connection with the Sponsored Research. In January and
February, 1998, two additional patents relating to Multicolor Organic Light
Emitting Devices were issued to Princeton University. Princeton University and
USC have filed approximately 30 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 and 1997 Sponsored Research Agreement
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and licensed to the Company pursuant to the 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.
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 and 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 it's 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, and the Company 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.
The United States government, through the Defense Advanced Research Projects
Agency ("DARPA"), has provided funding to Princeton University 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
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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 1994 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 1994 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. CRT displays are
not currently available for flat panel display applications. 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 essentially employ an array of miniature CRTs, may be
efficient in converting
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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 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, 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 Electronic Corporation, Sharp Corporation, Sanyo
Corporation, TDK Corporation, Mitsubishi Chemical Corporation, Seiko-Epson
Corporation and Idemitsu Corporation are engaged in research and development
activities with respect to technology using OLEDs. There can be no assurance
that the Company will be able to compete successfully or develop commercial
applications for its OLED technology.
Employees
The Company has thirteen employees, six of whom are full-time employees.
Facilities
The Company's corporate offices are located at Three Bala Plaza East, Suite 104,
Bala Cynwyd, Pennsylvania.
ITEM 2. PROPERTIES
The Company currently leases approximately 2,700 square feet of office space in
Bala Cynwyd, Pennsylvania. The Company also leases approximately 900 square feet
in Princeton, New Jersey, and certain of its employees are guest researchers at
the Princeton University Center for Photonic and Optoelectronic Materials,
("POEM")
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where they are entitled to use the laboratories and facilities. The Company also
leases approximately 620 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
1997.
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 62 Chairman, Chief Executive Officer and Director
Steven V. Abramson 46 President, Chief Operating Officer and Director
Sidney D. Rosenblatt 50 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary and Director
</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 President and Chief Operating Officer of Global
and a member of its Board of Directors. From March, 1992-- May, 1996 he was Vice
President, General Counsel, Secretary and Treasurer of Roy F. Weston, Inc. a
worldwide environmental consulting and engineering firm. From 1982-1991 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.
11
<PAGE>
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 and Chief Executive
Officer of S. Zitner Company since August 1990. 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS 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 The Nasdaq Stock 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
------ -----
1996
Second Quarter (from April 11, 1996) 10 1/2 4
Third Quarter 8 4 5/8
Fourth Quarter 6 5/8 4 3/4
1997
First Quarter 7 3/8 3 5/8
Second Quarter 5 3/4 3 7/8
Third Quarter 6 4
Fourth Quarter 7 7/8 4 1/4
As of March 20, 1998, there were approximately 199 holders of record of the
Company's Common Stock. The Company's Common Stock is listed on the small cap
segment of The Nasdaq Stock Market under the symbol PANL.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Since inception, the Company has engaged, and for the foreseeable future expects
to continue to be engaged, exclusively in the research and development and
commercialization of its OLED 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, 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
$10,780,495 at December 31, 1997.
12
<PAGE>
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company had a net loss of $5,927,718 (or $.64 per share) for the year
ended December 31, 1997 compared to a net loss of $1,768,995 (or $.21 per share)
for the year ended December 31, 1996. The increase in the net loss was primarily
attributable to increased research and development expenses of which $3,120,329
was a non-cash expense related to the issuance of Common Stock and warrants to
Princeton University and USC, and increased general and administrative expenses
in 1997 compared to 1996. Exclusive of the non-cash expenses, the Company's net
loss was $2,807,389 (or $.30 per share) in 1997. The Company earned $93,605 from
contract research revenue in 1997 compared to no revenue in 1996. The revenue
was derived primarily from a subcontract with Princeton University pursuant to a
3-year, $3 million contract Princeton University received from the Defense
Advanced Research Projects Administration.
Research and development expenses were $4,207,898 for the year ended December
31, 1997 compared to $948,568 for the year ended December 31, 1996. For the year
ended December 31, 1997, research and development expenses consisted of (i) the
issuance of common stock and warrants in connection with the Company's 1997
Sponsored Research Agreement, which resulted in a non-cash charge of $3,120,329;
(ii) payments in the amount of $347,374 to Princeton University under the 1994
Sponsored Research Agreement; and (iii) payments in the amount of $740,195 for
patent applications, prosecution, and other intellectual property rights
expenses. Research and development expenses for the same period in 1996
consisted primarily of payments to Princeton University under the 1994 Sponsored
Research Agreement.
General and administrative expenses were $1,986,628 for the year ended December
31, 1997 compared to $938,741 for the year ended December 31, 1996. The
increased general and administrative expenses in 1997 compared to 1996 were
primarily related to the increased general and administrative expenses
associated with the hiring of executives, technical personnel, and support staff
and leasing of office space for the Company's headquarters and a non-cash charge
in the amount of $100,000 relating to a Consulting Agreement with the
Underwriter of the Company's 1996 Public Offering.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company had a net loss of $1,768,995 (or $.21 per share) for the year ended
December 31, 1996 compared to a net loss of $3,072,661 (or $.45 per share) for
the year ended December 31, 1995. The reduction in the net loss was primarily
attributable to research and development expenses for 1994 and 1995 being
expensed and paid in 1995, and a non-recurring payment for the sublicense of
certain technologies in 1995.
Research and development costs were $948,568 for the year ended December 31,
1996 compared to $2,073,739 for the year ended December 31, 1995. In 1996, the
research and development expenses were attributed to payments under the 1994
Sponsored Research Agreement with Princeton University and patent expenses. For
the year ended December 31, 1995, the Company incurred $2,073,739 in research
and development expenses. Such expenses consisted of (i) repayment of $674,000
to ABC for amounts previously paid to Princeton University by ABC under the 1994
Sponsored Research Agreement; (ii) payment of $500,000 to ABC to acquire the
sublicense under the 1993 Sponsored Research Agreement; (iii) payments in the
aggregate amount of $549,739 made to Princeton University under the 1994
Sponsored Research Agreement; and (iv) a nonrecurring, non-cash expense of
$350,000 representing the fair market value of 200,000 shares of Series A
Preferred Stock issued to ABC in connection with the Technology Transfer
Agreement.
13
<PAGE>
General and administrative costs were $938,741 for the year ended December 31,
1996 compared to $998,922 for the year ended December 31, 1995. The 1996
expenses were primarily associated with the hiring of executives, support staff
and leasing of office space for the Company's headquarters compared to 1995
general and administrative expenses which were primarily professional fees and
fees associated with financing activities.
Liquidity and Capital Resources
As of December 31, 1997, the Company had cash of $85,470 and short-term
investments of $4,539,570 compared to cash of $638,225 and short-term
investments of $2,430,000 at December 31, 1996. During 1997, private placement
warrants to purchase 1,124,000 shares of the Company's Common Stock were
exercised, resulting in net cash proceeds of $3,940,800 to the Company. On April
11, 1996, the Company completed 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 administrative expenses).
Net working capital increased to $5,003,863 at December 31, 1997 from working
capital of $3,023,010 at December 31, 1996, as a result of the exercise of the
warrants. The Company's net cash used in operating activities was $2,441,698;
$2,370,449; and $1,921,787 in 1997, 1996 and 1995 respectively. Non-cash
expenses related to the issuance of Common Stock, warrants and options were
$3,436,329; $25,000; and $9,950 in 1997, 1996, and 1995 respectively.
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 at least the current fiscal year. 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 requires the Company to pay up
to $4.4 million to Princeton University from July 1998 thorough July 2002, which
period is subject to extension. Substantial additional funds will be required
thereafter for the 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.
The Company is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance. The Company does not expect that the
cost to modify such infrastructure to Year 2000 compliance will be material to
its financial condition or results of operations. The Company does not
anticipate any material disruption in its operations as a result of any failure
by the Company to be in compliance.
ITEM 7. FINANCIAL STATEMENTS WITHIN THE 10-KSB
The financial statements and notes thereto of the Company are attached
hereto beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
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 11, 1998, 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 8 herein.
ITEM 10. 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 11. 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 12. 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
15
<PAGE>
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.
EXHIBIT INDEX
Exhibit Page
Number Description Number
- ------- ----------- ------
3.1 Articles of Incorporation of the Company. (Exhibit 3.1)(1)
3.2 Bylaws of the Company. (Exhibit 3.1)(1)
4.1 Specimen stock certificate representing the Common Stock.
(Exhibit 4.1)(3)
4.2 Specimen warrant certificate representing the Warrants.
(Exhibit 4.2)(3)
4.3 Form of Public Warrant Agreement. (Exhibit 4.3)(1)
4.4 Form of Underwriter's Warrant Agreement. (Exhibit 4.4)(1)
4.5 Statement of Designations and Preferences of Series A
Non-Convertible Preferred Stock. (Exhibit 4.5)(2)
10.1 License Agreement dated August 1, 1994 between The Trustees of
Princeton University and American Biomimetics Corporation.
(Exhibit 10.1)(3)
10.2 Amendment to License Agreement (August 1, 1994) dated April
11, 1995 between the Trustees of Princeton University and
American Biomimetics Corporation. (Exhibit 10.2)(2)
10.3 Sponsored Research Agreement dated August 1, 1994 between the
Trustees of Princeton University and American Biomimetics
Corporation. (Exhibit 10.3)(3)
10.4 Letter Amendment dated May 5, 1995, between the Trustees of
Princeton University and American Biomimetics Corporation.
(Exhibit 10.4)(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.
(Exhibit 10.5)(2)
10.6 Technology Transfer Agreement dated June 22, 1995 between
American Biomimetics Corporation and Universal Display
Corporation. (Exhibit 10.6)(2)
16
<PAGE>
10.7 Assignment and Assumption of License dated June 22, 1995
between American Biomimetics Corporation and Universal Display
Corporation. (Exhibit 10.7)(3)
10.8 Sublicense Agreement and Option dated June 22, 1995 between
American Biomimetics Corporation and Universal Display
Corporation. (Exhibit 10.8)(3)
10.9 Assignment and Assumption of Agreement dated August 1, 1995
between the Trustees of Princeton University and the
University of Southern California. (Exhibit 10.9)(2)
10.10 Subcontract No. 341-4014-1 dated August 16, 1995 between the
Trustees of Princeton University and the University of
Southern California. (Exhibit 10.10)(3)
10.11 Assignment of 1994 Sponsored Research Agreement dated November
1, 1995 between American Biomimetics Corporation and Universal
Display Corporation. (Exhibit 10.11)(2)
10.12# Stock Option Agreement dated as of June 23, 1995 between
Universal Display Corporation and Thomas D. Hays, III.
(Exhibit 10.12)(2)
10.13# Stock Option Agreement dated as of June 23, 1995 between
Universal Display Corporation and Harvey Nachman. (Exhibit
10.13)(2)
10.14 Registration Rights Agreement dated as of June 23, 1995
between Universal Display Corporation and Thomas D. Hays, III.
(Exhibit 10.14)(2)
10.15 Registration Rights Agreement dated as of June 23, 1995
between Universal Display Corporation and Harvey Nachman.
(Exhibit 10.15)(2)
10.16 Form of Registration Rights Agreement between Universal
Display Corporation and Certain Subscribers to Purchase Common
Stock of Universal Display Corporation. (Exhibit 10.16)(2)
10.17# Form of Stock Option Agreement dated as of June 23, 1995
between Universal Display Corporation and Sidney D.
Rosenblatt. (Exhibit 10.17)(2)
10.18# 1992 Stock Option Plan. (Exhibit 10.18)(2)
10.19# 1995 Stock Option Plan. (Exhibit 10.19)(2)
10.20# Employment Agreement dated as of November 1, 1995 between
Universal Display Corporation and Sherwin I. Seligsohn.
(Exhibit 10.20)(2)
10.21 Form of Services Agreement dated as of December 1, 1995
between Universal Display Corporation and Dean L. Ledger.
(Exhibit 10.21)(2)
17
<PAGE>
10.22# Form of Stock Option Agreement dated as of June 23, 1995
between Universal Display Corporation and Sidney D.
Rosenblatt. (Exhibit 10.22)(2)
10.23# Form of Stock Option Agreement dated as of September 1, 1995
between Universal Display Corporation and Stephen R. Forrest.
(Exhibit 10.23)(2)
10.24# Form of Stock Option Agreement dated as of September 1, 1995
between Universal Display Corporation and Mark E. Thompson.
(Exhibit 10.24)(2)
10.25# Form of Stock Option Agreement dated as of September 1, 1995
between Universal Display Corporation and Paul E. Burrows.
(Exhibit 10.25)(2)
10.26 License Agreement dated January 26, 1996 between Universal
Display Corporation and University of Southern California.
(Exhibit 10.26)(2)
10.27 Letter Agreement dated September 20, 1995 Agreeing to a
Royalty Rate between the Trustees of Princeton University and
Universal Display Corporation. (Exhibit 10.27)(2)
10.28 Agreement and Plan of Reorganization dated as of April 6, 1995
between Enzymatics, Inc., Enzymatics Merger Subsidiary, Inc.
and Universal Display Corporation. (Exhibit 10.28)(2)
10.29 Form of Consulting Agreement between the Universal Display
Corporation and Whale Securities Co., L.P. (Exhibit 10.29)(2)
10.30# Warrant Agreement dated April 25, 1996 between the Company and
Steven V. Abramson (Exhibit 10.30)(4)
10.31# Warrant Agreement dated April 25, 1996 between the Company and
Sherwin I. Seligsohn (Exhibit 10.31)(4)
10.32# Warrant Agreement dated April 25, 1996 between the Company and
Dean L. Ledger (Exhibit 10.32)(4)
10.33# Warrant Agreement dated April 25, 1996 between the Company and
Sidney D. Rosenblatt (Exhibit 10.33)(4)
10.34* 1997 Sponsored Research Agreement between the Company and
Princeton University
10.35* 1997 Amended License Agreement between the Company, Princeton
University and the University of Southern California
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP
18
<PAGE>
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, Three Bala Plaza, Suite 104 East, Bala Cynwyd, Pennsylvania
19004.
(b) No reports were filed on Form 8-K.
Explanation of Footnotes to Listing of Exhibits
* Filed herewith
# Compensation Plan or Agreement
(1) Filed as an Exhibit to Registered Statement (No. 33-80703) on Form
SB-2 filed with the Securities and Exchange Commisson on December 21,
1995
(2) 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 on March 20, 1996
(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 on March 20, 1996
(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 on March 31, 1996
19
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of the Company:
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 and F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997 and the period from
inception (June 17, 1994) to December 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997 and the period from inception (June
17, 1994) to December 31, 1997, in conformity with generally accepted accounting
principles.
Philadelphia, PA ARTHUR ANDERSEN LLP
March 3, 1998
F-2
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (See Note 3) $ 85,470 $ 638,225
Short-term investments (See Note 3) 4,539,570 2,430,000
Contract research receivables 88,366 --
Receivable from related party 51,906 --
Prepaid consulting fee 428,985 --
Other current assets 89,806 59,091
------------ ------------
Total current assets 5,284,103 3,127,316
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $39,353 and $11,955 57,401 61,512
DEPOSITS 76,073 93,419
------------ ------------
Total assets $ 5,417,577 $ 3,282,247
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 280,240 $ 104,306
------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized, 200,000 shares
designated
Series A Nonconvertible Preferred
Stock, par value $.01 per share, 200,000 issued
and outstanding (liquidation value of $7.50 per
share or $1,500,000) 2,000 2,000
Common Stock, par value $.01 per share, 25,000,000
shares authorized, 10,302,268 and 8,937,268 shares
issued and outstanding, respectively (see Note 2) 103,023 89,373
Additional paid-in capital 15,812,809 7,939,345
Deficit accumulated during development-stage (10,780,495) (4,852,777)
------------ ------------
Total shareholders' equity 5,137,337 3,177,941
------------ ------------
Total liabilities and shareholders' equity $ 5,417,577 $ 3,282,247
============ ============
</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>
Period from Inception
Year Ended Year Ended Year Ended (June 17, 1994) to
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1997
----------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
REVENUE:
Contract research revenue $ 93,605 $ -- $ -- $ 93,605
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Research and development (See Note 3) 4,207,898 948,568 2,073,739 7,230,205
General and administrative 1,986,628 938,741 998,922 3,935,412
----------- ----------- ----------- ------------
Total operating expenses 6,194,526 1,887,309 3,072,661 11,165,617
----------- ----------- ----------- ------------
Operating loss (6,100,921) (1,887,309) (3,072,661) (11,072,012)
INTEREST INCOME 173,203 118,314 -- 291,517
----------- ----------- ----------- ------------
NET LOSS $(5,927,718) $(1,768,995) $(3,072,661) $(10,780,495)
----------- ----------- ----------- ------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE
$ (0.64) $ (0.21) $ (0.45)
----------- ----------- -----------
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC AND DILUTED
NET LOSS PER COMMON SHARE 9,327,521 8,287,268 6,847,305
----------- ----------- -----------
</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 Additional
----------------------- Common Stock Paid-In
Shares Amount Shares Amount Capital
------- ------ ---------- -------- -----------
<S> <C> <C> <C> <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. (Note 2) -- -- 523,268 59,233 (243,393)
Issuance of Common Stock options to former
sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability (Note 2) -- -- -- -- 140,000
Issuance of Series A Nonconvertible Preferred
Stock in connection with assignment of
research and license agreements (Note 2) 200,000 2,000 -- -- 348,000
Issuance of Common Stock through private
placements, net of issuance expenses of
$50,000 (Note 2) -- -- 1,114,000 11,140 2,166,860
Issuance of Common Stock options (Note 2) -- -- -- -- 9,950
Net loss -- -- -- -- --
------- ------ ---------- -------- -----------
BALANCE, DECEMBER 31, 1995 200,000 2,000 7,637,268 76,373 2,421,417
Issuance of Common Stock in Initial Public
Offering on April 11, 1996 (Note 2) -- -- 1,300,000 13,000 5,492,928
Issuance of Common Stock warrants (Note 6) -- -- -- -- 25,000
Net loss -- -- -- -- --
------- ------ ---------- -------- -----------
BALANCE, DECEMBER 31, 1996 200,000 2,000 8,937,268 89,373 7,939,345
Exercise of private placement warrants -- -- 1,124,000 11,240 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 (Note 4) -- -- 200,000 2,000 3,118,329
Exercise of Common Stock options and warrants -- -- 41,000 410 80,590
Net loss -- -- -- -- --
------- ------ ---------- -------- -----------
BALANCE, DECEMBER 31, 1997 200,000 $2,000 10,302,268 $103,023 $15,812,809
======= ====== ========== ======== ===========
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Development Shareholders'
Stage (Equity/Deficit)
------------ ----------------
<S> <C> <C>
BALANCE, INCEPTION - (JUNE 17, 1994) $ -- $ 6,000
Net Loss (11,121) (11,121)
----------- ----------
BALANCE, DECEMBER 31, 1994 (11,121) (5,121)
Recapitalization by issuance of Common Stock to
Enzymatics, Inc. (Note 2) -- (184,160)
Issuance of Common Stock options to former
sole director of Enzymatics, Inc. to satisfy an
Enzymatics, Inc. liability (Note 2) -- 140,000
Issuance of Series A Nonconvertible Preferred
Stock in connection with assignment of
research and license agreements (Note 2) -- 350,000
Issuance of Common Stock through private
placements, net of issuance expenses of
$50,000 (Note 2) -- 2,178,000
Issuance of Common Stock options (Note 2) -- 9,950
Net loss (3,072,661) (3,072,661)
----------- ----------
BALANCE, DECEMBER 31, 1995 (3,083,782) (583,992)
Issuance of Common Stock in Initial Public
Offering on April 11, 1996 (Note 6) -- 5,505,928
Issuance of Common Stock warrants (Note 6) -- 25,000
Net loss (1,768,995) (1,768,995)
----------- ----------
BALANCE, DECEMBER 31, 1996 (4,852,777) 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 (Note 4) -- 3,120,329
Exercise of Common Stock options and warrants -- 81,000
Net loss (5,927,718) (5,927,718)
----------- ----------
BALANCE, DECEMBER 31, 1997 $(10,780,495) $5,137,337
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY
(a development-stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31,1997 December 31,1996 December 31,1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,927,718) $(1,768,995) $(3,072,661)
Depreciation 27,398 10,926 1,029
Issuance of Common Stock options and warrants 316,000 25,000 9,950
Issuance of Common Stock and warrants in connection with
amended research and license agreements 3,120,329 -- --
Acquired in-process technology -- -- 350,000
Adjustments to reconcile net loss to net cash used in
operating activities:
(Increase) decrease in assets:
Contract research receivables (88,366) -- --
Receivable from related party (51,906) -- --
Other current assets (30,715) (59,091) --
Deposits 17,346 (93,419) --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 175,934 (379,394) 439,540
Payable to related parties -- (105,476) 350,355
----------- ----------- -----------
Net cash used in operating activities (2,441,698) (2,370,449) (1,921,787)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (23,287) (67,294) (6,173)
Purchases of short-term investments (5,019,570) (2,430,000) --
Proceeds from sale of short-term investments 2,910,000 -- --
----------- ----------- -----------
Net cash used in investing activities (2,132,857) (2,497,294) (6,173)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 4,021,800 5,505,928 1,928,000
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (552,755) 638,185 40
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD 638,225 40 --
CASH AND CASH EQUIVALENTS, END OF PERIOD: $ 85,470 $ 638,225 $ 40
=========== =========== ===========
<CAPTION>
Period from
Inception
(June 17, 1994) to
December 31, 1997
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,780,495)
Depreciation 39,353
Issuance of Common Stock options and warrants 350,950
Issuance of Common Stock and warrants in connection with
amended research and license agreements 3,120,329
Acquired in-process technology 350,000
Adjustments to reconcile net loss to net cash used in
operating activities:
(Increase) decrease in assets:
Contract research receivables (88,366)
Receivable from related party (51,906)
Other current assets (89,806)
Deposits (76,073)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 236,080
Payable to related parties 250,000
------------
Net cash used in operating activities (6,739,934)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (96,754)
Purchases of short-term investments (7,449,570)
Proceeds from sale of short-term investments 2,910,000
------------
Net cash used in investing activities (4,636,324)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 11,461,728
------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 85,470
CASH AND CASH EQUIVALENT, BEGINNING OF PERIOD --
CASH AND CASH EQUIVALENTS, END OF PERIOD: 85,470
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 2.
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 4). 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 patents and pending patent applications 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 4). The Company's Chairman and Chief Executive Officer holds
similar positions in ABC, a company which is controlled by members of his
family. See Notes 2 and 8.
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. Notwithstanding the risks discussed above, the
Company anticipates, based on management's internal forecasts and assumptions
relating to its operations, that it has sufficient cash to meet its obligations
for at least the current fiscal year. There is no assurance that such financing
will be available to the Company when needed, 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.
2. 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 Universal Display Corporation (herein referred to
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, obtain 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
F-8
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 6) 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 (see Notes 3 and 4); (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 Notes 3 and 6) with
a fair value of $350,000.
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 account as shown on the accompanying Consolidated
Balance Sheets (see Note 8). 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).
3. 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 2). All
significant intercompany transactions and accounts have been eliminated.
F-9
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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. Investments
are carried at market value, and at December 31, 1997, are classified as
short-term investments. At December 31, 1997, all of the Company's investments
are classified as available for sale pursuant to Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," (SFAS 115). Therefore, any unrealized holding gains or
losses should be presented as a separate component of shareholders' equity. At
December 31, 1997, unrealized holding gains or losses were not material. The
gross proceeds from sales and maturities of investments were $2,910,000 for the
year ended December 31, 1997. Gross realized gains and losses for the year ended
December 31, 1997, were not material. For the purpose of determining gross
realized gains and losses, the cost of securities sold is based upon specific
identification.
Cash, cash equivalents and short-term investments consisted of the following:
December 31
--------------------------
1997 1996
---------- ---------
Cash and cash equivalents:
Money market funds and demand accounts $ 85,470 $ 638,225
========== =========
Short-term investments:
Certificates of deposit 2,622,014 1,830,000
Corporate bonds 1,917,556 600,000
---------- ----------
$4,539,570 $2,430,000
========== ==========
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over 3 years.
Net Loss Per Common Share
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share", which supersedes APB Opinion No. 15 ("APB
No. 15"), "Earnings per Share", and which is effective for all periods ending
after December 15, 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for complex capital structures on the face of
the Statements of Operations. 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 of conversion of
securities into common stock. For the years ended December 31, 1997, 1996, and
1995, the effects of the exercise of outstanding stock options and warrants were
excluded from the calculation of diluted EPS because their effect was
antidilutive.
As a result of the Company's adoption of SFAS 128, the Company's reported loss
per share for 1996 and 1995 was restated. The effect of this accounting change
on previously reported loss per share data was as follows:
1996 1995
------ ------
Loss per share as reported - primary and fully diluted $(0.20) $(0.38)
Effect of SFAS 128 (0.01) (0.07)
------ ------
Loss per share as restated - basic and diluted $(0.21) $(0.45)
====== ======
F-10
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Payments made to Princeton University under the 1994
Sponsored Research Agreement (See Note 2) $ 347,374 $713,815 $549,739
Patent application and prosecution expenses 715,406 234,753 --
Issuance of 200,000 shares of the Company's Common Stock
and warrants to purchase 250,000 shares of Common Stock
under the 1997 Sponsored Research Agreement (See Note 4) 3,120,329 -- --
Reimbursement of ABC payments made to Princeton
University under the 1994 Sponsored Research Agreement
(See Note 2) -- -- 674,000
Payment made to ABC for sublicense under the 1993
Sponsored Research Agreement (See Note 2) accounted for
as acquired in-process technology -- -- 500,000
Issuance of 200,000 shares of the Company's Series A
Nonconvertible Preferred Stock to ABC in connection with
the Transfer Agreement (See Notes 2 and 6) accounted for
as in-process technology -- -- 350,000
---------- -------- ----------
Other Expenses 24,789 -- --
---------- -------- ----------
$4,207,898 $948,568 $2,073,739
========== ======== ==========
</TABLE>
The 200,000 shares of the Company's Series A Nonconvertible Preferred Stock were
valued at $1.75 per share which was based upon an independent appraisal.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS No. 109 requires the liability method of accounting for deferred
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.
4. SPONSORED RESEARCH AGREEMENT WITH PRINCETON UNIVERSITY
On October 9, 1997, the Company entered into a new 5-year Sponsored Research
Agreement (the "1997 Sponsored Research Agreement"), with Princeton University
and entered into an Amended License Agreement with Princeton University and USC
amending its 1994 License Agreement with Princeton University (the "1997 Amended
License Agreement"). The 1997 Sponsored Research Agreement continues and expands
the sponsored research which commenced in 1994 underwhich 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. In addition, Princeton has acknowledged that approximately $1
million of amounts paid under the 1994 Sponsored Research Agreement were not
expended and are expected to be used through July 31, 1998.
Under the 1997 License Agreement, the Company has the exclusive
worldwide 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
F-11
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 affilates), 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. The
Company is required to pay minimum royalties to Princeton of $25,000 in 1999,
$50,000 in 2000, $75,000 in 2001, and $100,000 in 2002 and thereafter
while the 1997 License Agreement is in effect. In connection with the 1997
License Agreement and Sponsored Research Agreement, in October 1997, the Company
has 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. The value of the warrants was determined in
accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation." This charge is included in
research and development expenses in the accompanying Consolidated Statement of
Operations.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
December 31, 1997 December 31, 1996
----------------- -----------------
Accrued professional fees $156,857 $ 65,076
Other 123,383 39,230
-------- --------
$280,240 $104,306
======== ========
6. SERIES A NONCONVERTIBLE PREFERRED STOCK, 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 Notes 2 and 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.
Stock Options
Enzymatics 1992 Stock Option Plan
The stock options granted prior to the merger by Enzymatics under the 1992 Stock
Option Plan and which have been assumed by the Company and after giving effect
to the reverse stock split, 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. All of such options are currently exercisable and expire on
December 31, 1998.
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. In 1997, the Shareholders
approved the Plan to increase the number of Common shares reserved for the 1995
Plan to 800,000 options. The 1995 Plan provides for the granting of both
incentive and nonqualified stock options to employees, officers, directors and
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 prices of $2.00 per share,
which approximated the fair market value of the Common Stock at the grant date.
These options vest as follows: 20,000 options vested immediately upon grant with
the remaining 50,000 options vesting in equal amounts over three years.
Accordingly, as of December 31, 1997, 53,333 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
1997. These options vested on the grant date. The Company recorded a charge of
$9,950, which represents the difference between the deemed value of the Common
Stock for accounting purposes and the exercise price of the options at the grant
date. This charge is included in general and administrative expenses in the
accompanying Consolidated Statements of Operations.
F-12
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Accordingly, as of December 31, 1997, options to purchase
240,000 shares of Common Stock were exercisable. These options expire in 2005.
In 1996, the Company granted nonqualified 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
approximated 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. As of December 31,
1997, options to purchase 16,000 shares of Common Stock were exercisable. These
options expire in 2006.
In 1997, the Company granted incentive and nonqualfied stock options to several
employees, officers, and principal investigators. The Company granted options to
purchase an aggregate of 271,500 shares of Common Stock at exercise prices
ranging from $4.06 to $5.25 per share, which approximated 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, which represents the value of the options as determined in accordance
with SFAS 123. This charge is included in general and administrative expenses in
the accompanying Consolidated Statement of Operations. As of December 31, 1997,
options to purchase 220,900 shares of Common Stock were exercisable. These
options expire in 2007.
Other Options
In connection with NHA's services relative to consummation of the merger
discussed in Note 2, 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, 1997, 69,234
options were exercisable. These options expire in 2005.
The following table summarizes all stock option activity:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 449,772 $3.72 419,772 $3.69
Granted 271,500 $4.99 30,000 $4.12
Exercised (25,000) $1.00 -- --
Forfieted (6,000) $4.12 -- --
------- ----- ------- ------
Outstanding at end of year 690,272 $4.17 449,772 $3.72
------- ----- ------- -----
Exercisable at end of year 604,006 $4.16 316,439 $3.80
------- ----- ------- -----
Available for future grant 189,500 155,000
------- -------
Weighted average fair value of
options granted $3.85 $3.18
===== =====
<CAPTION>
1995
----------------------------
Weighted Average
Shares Exercise Price
------- ----------------
Outstanding at beginning of year 20,538 $20.67
Granted 399,234 $2.82
Exercised -- --
Forfieted -- --
------- -----
Outstanding at end of year 419,772 $3.69
------- -----
Exercisable at end of year 208,772 $3.86
------- -----
Available for future grant 185,000
-------
Weighted average fair value of
options granted $2.54
=====
</TABLE>
The weighted average remaining contractual life for options outstanding at
December 31, 1997, 1996 and 1995 was 8 years, 8 years and 9 years, respectively.
Common Stock Warrants
In connection with the June 22, 1995 private placement and the July 17, 1995
private placement (See Note 2), 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.
F-13
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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. These warrants expire in
2006.
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, which represents the value of
the warrant as determined in accordance with SFAS 123. This charge is included
in general and administrative expenses in the accompanying Consolidated
Statements of Operations.
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 at 25% at the date of grant and the
remaining 75% vest 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 4)
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
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 1997, the Company recorded a charge of
$100,000, which is included in general and administrative expenses in the
accompanying Consolidated Statement of Operations. The unamortized portion of
this charge is recorded as prepaid consulting fee on the accompanying
Consolidated Balance Sheet.
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." Accordingly, no
compensation expense has been recognized other than the $9,950 charge relating
to 5,000 options granted to an officer in the Company in 1995. In 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 establishes a fair value based method of accounting for stock-based
compensation plans. SFAS 123 requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for the plan. Had the Company
recognized compensation cost for its stock based compensation plans consistent
with the provisions of SFAS 123, the Company's net loss and net loss per share
would have been increased to the following pro forma amounts:
F-14
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1996 1995
----------- ----------- ------------
Net Loss:
As Reported $(5,927,718) $(1,768,995) $(3,072,661)
Pro Forma (6,985,174) (2,432,979) (3,373,918)
Net Loss per Share:
As Reported $(.64) $(.21) $(.45)
Pro Forma $(.75) (.29) (.49)
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 1997, 1996 and 1995, respectively: risk-free
interest rates of 5.9% to 6.7%, 6.6% and 5.9% to 6.1%, expected dividend yields
of zero for each year, expected volatility of 81%, 80% and 80% and expected
lives of 7 years for each year.
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.
7. RESEARCH CONTRACTS
Contract research revenue consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Department of Defense Advanced Research Projects Agency (DARPA) $72,630
New Jersey Commission on Science and Technology (NJCST) 15,736
National Science Foundation (NSF) 5,239
-------
$93,605
=======
</TABLE>
8. RELATED PARTY TRANSACTIONS
ABC paid professional fees of $16,154, as well as certain other administrative
expenses of $138,019 on behalf of the Company from November 1994 through
December 1995. As of December 31, 1995, the Company had reimbursed ABC for
$63,245 of such expenses. ABC provided the Company with certain administrative
services, however there was no charge from ABC to the Company for these services
for the period from inception (June 17, 1994) to December 31, 1994 and for the
year ended December 31, 1995.
As discussed in Note 2, the Company had a payable to ABC of $1,174,000 (due to
the Transfer Agreement) and a receivable from ABC of $250,000 (see Note 2). As
of December 31, 1995, the Company had reimbursed ABC the net amount due of
$924,000.
In 1997, the Company shared certain administrative support and office space with
Global Photonic Energy Corporation managed by certain officers of the Company
and in which certain shareholders have a significant minority interest. The
officers of the Company are also the officers of this related company. The
Company charged Global Photonic Energy Corporation $51,906 in 1997 for these
services. This amount is included in receivable from related party on the
accompanying consolidated balance sheet.
F-15
<PAGE>
UNIVERSAL DISPLAY CORPORATION
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS
Lease Commitments
The Company has several operating lease arrangements for office space and office
equipment. Total rent expense was $78,078 for the year ended December 31, 1997.
Minimum future rental payments for operating leases as of December 31, 1997 are
as follows:
Year Amount
---- --------
1998 $ 91,467
1999 $ 88,089
2000 $ 84,698
2001 $ 35,049
--------
$299,303
========
10. INCOME TAXES
The components of income taxes are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current $ -- $ -- $ --
Deferred (2,015,424) (601,344) (966,152)
----------- --------- ---------
(2,015,424) (601,344) (966,152)
Increase in valuation
allowance provision 2,015,424 601,344 966,152
----------- --------- ---------
$ -- $ -- $ --
=========== ========= =========
</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, 1997, the Company had net operating loss carryforwards of
approximately $5,500,000, 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 as
of December 31, 1997 and 1996 are as follows:
December 31, 1997 December 31, 1996
----------------- -----------------
Gross deferred tax assets
Net operating loss carryforwards $2,051,418 $ 747,961
Capitalized start-up costs 1,192,472 590,458
Capitalized technology license 170,000 170,000
Other 169,030 59,077
----------- -----------
3,582,920 1,567,496
Valuation allowance (3,582,920) (1,567,496)
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 1998. The Company's management has concluded that the
realizability of the deferred tax assets is uncertain.
F-16
<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 31, 1998
--------------
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 31, 1998
- ------------------------ Executive Officer
Sherwin I. Seligsohn
/s/ STEVEN V. ABRAMSON President, Chief Operating Officer March 31, 1998
- ------------------------ and Director
Steven V. Abramson
/s/ SIDNEY D. ROSENBLATT Executive Vice President, Chief March 31, 1998
- ------------------------ Financial Officer, Treasurer,
Sidney D. Rosenblatt Secretary and Director
/s/ DEAN L. LEDGER Executive Vice President and Director March 31, 1998
- ------------------------
Dean L. Ledger
/s/ ELIZABETH H. GEMMILL Director March 31, 1998
- ------------------------
Elizebeth H. Gemmill
/s/ CAMILLE NAFFAH Director March 31, 1998
- ------------------------
Camille Naffah
</TABLE>
PRINCETON UNIVERSITY
RESEARCH AGREEMENT
This Research Agreement, effective August 1, 1997 between the Trustees of
Princeton University, a not-for-profit, private educational institution existing
in the State of New Jersey, hereinafter referred to as "Princeton" and UDC Inc.,
a New Jersey Corporation and a wholly owned subsidiary of Universal Display
Corporation, hereinafter referred to as "Sponsor" or "UDC."
1. Statement of Work
Princeton, through its Advanced Technology Center for Photonics and
Optoelectronic Materials, has valuable experience, skill and ability in full
color flat panel emissive display technology employing crystalline organic and
metal/organic semiconductor light emitting diodes, organic semiconductor lasers
or other organic technologies. Sponsor desires to have Princeton continue to
undertake a research project in the above-named area in accordance with the
scope of work outlined in Exhibit A, Research Proposal entitled Organic Light
Emitters: Research and Engineering submitted May 31, 1997. Princeton agrees to
use reasonable effort to perform the research project described therein and
hereafter referred to as the "Research." Sponsor acknowledges that Princeton
makes no expressed or implied warranties for the research.
2. Principal Investigator
The Research will be supervised by Professor Stephen Forrest at Princeton
and Professor Mark Thompson at the University of Southern California (USC). If
for any reason Professor Forrest is unable to continue to serve as Principal
Investigator and a successor acceptable to both Princeton and Sponsor is not
available, this Agreement shall be terminated as provided in Article 6. The
technical point of contact will be Professor Forrest.
3. Period of Performance
This research will be conducted during the period August 1, 1997 through
July 30, 2002, but may be extended for an additional two years at Princeton's
discretion. Further extensions can be made by mutual written agreement of the
Parties.
4. Reimbursement of Costs
Princeton shall be reimbursed by Sponsor for all costs incurred in
connection with the research at a maximum level of $4,400,000 plus any remaining
funds from phase one. While it is estimated that this amount is sufficient to
conduct the research, Princeton may submit to Sponsor a revised budget
requesting additional funds. Sponsor is not liable for any cost in excess of the
amount specified herein unless this Agreement is modified in writing. Any funds
paid to Princeton and not expended upon expiration or termination of this
Agreement (including all extensions thereof) shall be paid to UDC.
1
<PAGE>
5. Payment Schedule
Payments shall be made to Princeton by Sponsor in accordance with Exhibit
B, appended herein. Checks shall be made payable to Princeton University,
referencing Account Number 341-4046, and sent to:
Raymond J. Clark, Treasurer
P.O. Box 35
Princeton University
Princeton, New Jersey 08544
6. Termination
This Agreement and the License Agreement of even date herewith between
Princeton, USC and UDC are integral parts of the relationship between the
parties. The parties intend that termination of both Agreements are to occur
only under extreme situations, and in the absence of any reasonable
alternatives, as described herein. This Agreement is designed to provide maximum
flexibility to perform the Research. Therefore, not achieving the desired
objective is not a ground for termination of this Agreement.
Princeton may terminate this Agreement if circumstances beyond its control
preclude continuation of the research. Princeton or UDC can terminate this
agreement only if a) the Principal Investigator leaves Princeton; b) both
parties agree that the Research is not progressing in a satisfactory manner; or
c) both parties agree on any material breach or default of this Agreement. In
such cases, both parties will take reasonable steps to cure such breach or
default. If such measures fail, the parties will settle the dispute in
accordance with Article 21 "Arbitration".
Upon termination, Princeton will be reimbursed for all costs and
non-cancelable commitments incurred in the performance of the research and not
yet paid for, such reimbursement together with other payments not to exceed the
total estimated project costs specified in Article 4.
7. Intellectual Property
Title to any inventions first conceived by Princeton personnel in the
performance of the work funded under this Agreement shall vest in Princeton
University. Princeton hereby grants to Sponsor the exclusive license to any and
all such inventions on terms and conditions of a certain License Agreement of
even date herewith.
Title to any inventions first conceived by USC personnel in the performance
of the work funded under this Agreement shall vest in USC, and shall be managed
by Princeton in accordance with the Management Agreement between Princeton and
USC, provided that USC notifies Princeton of such inventions. Sponsor shall have
the exclusive license to any and all such inventions on terms and conditions of
a certain License Agreement of even date herewith.
2
<PAGE>
Princeton shall promptly provide a complete written disclosure for each and
every invention first conceived or discovered in the performance of the work
funded under this Agreement, including USC technologies, provided that USC
notifies Princeton of such inventions. All such inventions shall automatically
become subject to the License Agreement.
Subject to the provisions of Exhibit C, title to any inventions first
conceived jointly by personnel from Princeton, USC provided that USC notifies
Princeton of such inventions, or UDC shall vest jointly in the names of
Princeton, USC, or UDC as appropriate, and shall be subject to the License
agreement.
8. Publication
Princeton shall have the right, at its discretion, to release information
or to publish any material resulting from the Research. Princeton shall furnish
Sponsor with a copy of any proposed publication thirty (30) days in advance of
the proposed publication date, to allow Sponsor to take appropriate steps to
protect the patentability of any potential Invention described therein. Such
delay shall not, however, be imposed on the filing of any student thesis or
dissertation.
Princeton shall give Sponsor the option of receiving an acknowledgment in
any publication for its sponsorship of the Research. Sponsor understands that
the basic objective of research activities at Princeton is the generation of new
knowledge and its expeditious dissemination. Therefore, in review of any
publication, Sponsor shall provide all reasonable cooperation in meeting this
objective.
9. Consultation
Selected personnel of Sponsor, designated by Sponsor to Princeton, shall
have the right to confer with the Principal Investigator and his or her
associates for such reasonable periods and at such times as are mutually
agreeable.
10. Visiting Personnel
Princeton and Sponsor agree that Sponsor can have visiting collaborators on
the Princeton campus for agreed upon terms to engage in collaborative,
non-commercial research and technology transfer with the Principal Investigator
and his team, subject to the discretion of the Principal Investigator and
Princeton. The terms outlined in Exhibit C shall apply to all Visiting
Personnel.
11. Publicity and Use of Names
Neither party shall use the name of the other in connection with any
products, promotional literature, or advertising material without the prior
consent of the other party, which shall not be unreasonably withheld, or except
to the extent required by law. This shall not include internal documents
available to the public that identify the existence of the Agreement.
3
<PAGE>
Princeton shall use reasonable efforts to acknowledge UDC as the exclusive
licensee of organic LED technologies in any press releases.
12. Reports
Princeton shall furnish Sponsor calendar year quarterly reports during the
term of this Agreement summarizing the research conducted. A final report
setting forth the accomplishments and significant research findings shall be
prepared by Princeton and submitted to Sponsor within ninety (90) days of the
expiration of the Agreement.
Princeton shall also furnish to Sponsor an annual expenditure report,
outlining spending by major budget categories listed in the proposal budget.
13. Proprietary/Confidential Information
All written information marked or designated in writing as confidential
given to Sponsor by Princeton or by Sponsor to Princeton designated recipients
under this Agreement shall be used only for the purposes given and shall be held
in confidence by the receiving party so long as such information (i) remains
unpublished by the giving party or does not otherwise become in the public
domain, (ii) is not lawfully received by the receiving party from a third party,
or (iii) is independently developed by the receiving party without the benefit
of such information. Princeton and Sponsor agree to use all reasonable efforts
to maintain the confidentiality of the information provided to it by the other
party. Princeton designated recipients shall only be Professor Stephen Forrest,
Professor Paul Burrows, and Joseph Montemarano.
Princeton retains the right to refuse to accept any such information which
it does not consider to be essential to the completion of the Research.
14. Indemnification
Sponsor agrees to indemnify and hold Princeton harmless from any loss,
claim, damage, or liability of any kind involving an employee of Sponsor arising
out of or in connection with this Agreement, except to the extent that such
loss, claim, damage, or liability arises in whole or in part from the gross
negligence or willful misconduct of Princeton.
15. Warranties
Princeton makes no warranties, express or implied, as to any matter
whatsoever, including, without limitation, the condition of the research or any
inventions(s) or product(s), whether tangible or intangible, conceived,
discovered, or developed under this Agreement; or the ownership,
merchantability, or fitness for a particular purpose of the research or any such
invention or product. Princeton shall not be liable for any direct,
consequential, or other damages suffered by any licensee or any others resulting
from the use of the research or any such invention or product.
4
<PAGE>
16. Equipment
Title to any equipment purchased or manufactured in the performance of the
work funded under the Agreement shall vest in Princeton.
17. Assignment
Neither party shall assign this Agreement to another without the prior
written consent of the other party; provided, however, that Sponsor may assign
this Agreement to a successor in ownership of all or substantially all its
business assets. Such successor shall expressly assume in writing the obligation
to perform in accordance with the terms and conditions of this Agreement. Any
other purported assignment shall be void.
18. Independent Inquiry
Nothing in this Agreement shall be construed to limit the freedom of
researchers who are not participants in this Agreement from engaging in similar
research inquiries made independently under other grants, contracts or
agreements with parties other than Sponsor.
19. Governing Law
This Agreement shall be governed by the laws of the State of New Jersey.
20. Subcontract to USC
This research collaboration includes a subcontract with USC, which
Princeton will execute and manage. The terms of that research agreement will be
substantially the same as their current arrangement, and Princeton agrees to
disclose those terms to Sponsor at Sponsor's request.
21. Arbitration
Any and all claims, disputes or controversies arising under, out of, or in
connection with this Agreement, which have not been resolved by good faith
negotiations between the parties, shall be resolved by mediation. Such mediation
shall occur as soon as reasonable practicable and no later than 30 days from the
effective date one party requests mediation of a dispute. If such dispute is not
resolved by mediation, then it will be resolved by final and binding arbitration
in Princeton, New Jersey under any rules of the American Arbitration Association
then obtaining. The arbitrators shall have no power to add to, or subtract from
or modify any of the terms or conditions of this Agreement. The arbitrators
shall have the option of future specific performance or monetary compensation in
lieu of termination. Any award rendered in such arbitration may be enforced by
either party in either the courts of the State of New Jersey or in the United
States to whose jurisdiction of such purposes Princeton and Sponsor each hereby
irrevocable consent and submit.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate by proper persons thereunto duly authorized.
UDC Inc., a wholly owned subsidiary of The Trustees of Princeton University
Universal Display Corporation
By: /s/ Steven Abramson By: /s/ Allen J. Sinisgalli
----------------------------- ----------------------------
Steven Abramson Allen J. Sinisgalli
President Associate Provost for
Research & Project Administration
Date: Date: 10/9/97
--------------------------- --------------------------
Professor Stephen Forrest
Principal Investigator /s/ Stephen Forrest Date: 10/9/97
------------------- ----------------
PRINCETON UNIVERSITY
The UNIVERSITY OF SOUTHERN CALIFORNIA
UNIVERSAL DISPLAY CORPORATION
AMENDED LICENSE AGREEMENT
This Agreement, made and entered into this ________ day of ________, 1997,
(the Effective Date) by and between The Trustees of PRINCETON UNIVERSITY a not
for profit educational institution duly organized and existing under the laws of
the STATE OF NEW JERSEY, USA (hereinafter referred to as "PRINCETON"), the
UNIVERSITY OF SOUTHERN CALIFORNIA, a California nonprofit corporation with its
principal place of business at University Park, Los Angeles, California 90089
and UNIVERSAL DISPLAY CORPORATION, a corporation duly organized under the laws
of Pennsylvania and having its principal office at Three Bala Plaza, East, Suite
104, Bala Cynwyd, PA 19004 (hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, PRINCETON and USC are the owner of certain "Patent Rights" (as
later defined herein) relating to technical information and inventions made by
PRINCETON and USC faculty and staff, have the right to grant licenses under
said Patent Rights, subject only to a royalty-free, nonexclusive license
heretofore granted to the United States Government; and have granted LICENSEE
the exclusive license to such Patent Rights pursuant to a certain License
Agreement dated August 1, 1994 (the "August 1994 License Agreement").
WHEREAS, PRINCETON and USC have filed a number of patent applications
relating to full color flat panel emissive display technology employing
crystalline organic and metal/organic semiconductor light emitting diodes,
organic semiconductor lasers and other organic technologies (the "Technology")
which inventions arose out of research conducted in the Princeton Advanced
Technology Center for Photonics and Optoelectronic Materials, and USC under the
direction of Professor(s) Stephen Forrest and Mark Thompson
WHEREAS, PRINCETON, USC and LICENSEE have entered into a continuation of a
Sponsored Research Agreement, effective August 1, 1997 (hereinafter the
"Sponsored Research Agreement" and attached hereto as Appendix A), to continue
to support basic research in the field of the Technology under the supervision
of Professor(s) Forrest at PRINCETON and Professor Thompson at USC in the amount
of four million dollars ($4,000,000) over five (5) years, granting LICENSEE the
exclusive worldwide license, with the right to sublicense, under any inventions
and confidential information, including any Patent Rights which may be obtained
thereon, arising out of said Sponsored Research Agreement, said license to be
exclusive to LICENSEE subject only to any license heretofore granted to the
United States Government;
1
<PAGE>
WHEREAS, PRINCETON, USC and LICENSEE contemplate that additional patent
applications based on inventions and information arising out of the Research
Program will be filed in the future; and, LICENSEE shall be the exclusive
licensee of any and all such applications and all existing Patent Rights on the
terms and conditions set forth herein, and that this Amended License Agreement
shall supersede the August 1994 License Agreement.
WHEREAS, LICENSEE has represented to PRINCETON, to induce PRINCETON to
enter into this Agreement, that Licensee is experienced in the development,
production, manufacture, marketing and sale of products similar to the "Licensed
Product(s)" (as later defined herein) and/or the use of the "Licensed Processes"
(as later defined herein) and that it shall commit itself to a thorough,
vigorous and diligent program of exploiting the Patent Rights so that public
utilization shall result therefrom; and
WHEREAS, LICENSEE acknowledges that if funds obtained from the U.S.
Government are commingled with funds obtained from LICENSEE in support of the
Sponsored Research under the Sponsored Research Agreement, then any license
granted would be subject to rights in the U.S. Government under 37 CFR part 401;
WHEREAS, Professor Thompson transferred to USC in August, 1995; USC is a
subcontractor to PRINCETON under the Sponsored Research Agreement; has entered
into an Interinstitutional Agreement with PRINCETON that provides for PRINCETON
to manage the Sponsored Research Agreement and this License Agreement; and
intends that any inventions under the Sponsored Research Agreement be subject to
this License Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "LICENSEE" shall mean Universal Display Corporation and any Subsidiary
or Affiliate of Universal Display Corporation;
1.2 "Subsidiary" shall mean any corporation, company, or other entity more
than fifty percent (50) of whose voting stock is owned or controlled directly or
directly by Universal Display Corporation;
2
<PAGE>
1.3 "Affiliates" shall mean any entity respecting which a majority of the
voting stock, or an otherwise effective controlling interest, is owned by the
Shareholders of Universal Display Corporation.
1.4 "Patent Rights" shall mean the United States and foreign patent
applications set forth in Appendix B attached hereto and made a part hereof
(hereinafter referred to as the "Patent Rights Patent Application(s)", and the
United States patents and Foreign patents, including utility models and patents
of importation and additions, issuing from said United States and Foreign patent
applications or later-filed foreign applications based upon any of said United
States patents and applications (hereinafter referred to as the "Patent Rights
Patent(s)") and any continuations, continuations-in-part, divisions, reissues or
extensions of any of the foregoing arising out of the Research Program as set
forth in the Research Agreement, and any new inventions arising out of the
Research Program.
1.5 "Licensed Product(s)" shall mean any product which:
(a) is covered in whole or in part by (i) a pending claim contained in a
Patent Rights Patent Application in the country in which the Licensed
Product(s) is made, used or sold, (ii) a valid and unexpired claim
contained in a Patent Rights Patent in the country in which the
Licensed Product(s) is made, used or sold.
(b) is manufactured by using a process which is covered in whole or in part
by (i) a pending claim contained in a Patent Rights Patent Application
in the country in which the Licensed Process(es) is used or (ii) a
valid and unexpired claim contained in a Patent Rights Patent in the
country in which the Licensed Process(es) is used.
(c) is used according to a method which is covered in whole or in part by a
valid and unexpired claim contained in the Patent Rights in the country
in which the method is used.
1.6 "Licensed Process(es)" shall mean a process or method which is covered
in whole or in part by (i) a pending claim contained in a Patent Rights Patent
Application or (ii) a valid and unexpired claim contained in a Patent Rights
Patent in the country in which the process or method is used.
1.7 "Net Sales Price" shall mean LICENSEE'S billings for the Licensed
Product(s) produced hereunder less the sum of the following:
(a) trade, cash and quantity discounts or rebates actually allowed or
taken;
(b) credits or allowances given or made for rejection or return of, and for
uncollectible amounts on, previously sold Licensed Products or for
3
<PAGE>
retroactive price reductions;
(c) any separately invoiced tax or government charge, (other than an income
tax) levied on the sale, transportation or delivery of a Licensed
Product and borne by the seller thereof; and
(d) any separately invoiced charges for freight or insurance.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. Licensed Product(s) shall be considered
"sold" when billed out or invoiced.
New Sales Price shall not include sales or transfers between LICENSEE and
its subsidiaries, or sublicensees, except that where such subsidiary or
sublicensee utilizes the Licensed Products or Licensed processes for the
performance of commercial services for third party customers, Net Sales Price
shall be based on subsequent final sales of such Licensed Products to third
parties by such Sublicensees, unless the intermediate sales price to
intermediate Sales Price shall control.
ARTICLE II - GRANT
2.1 Subject only to the prevailing rights of and obligations to the U.S.
Government with respect to Patent Rights derived in the course of federally
sponsored research, including without limitation, any such rights and
obligations set forth in 37 CFR Part 401, should they exist, PRINCETON and USC
hereby grant to LICENSEE a worldwide exclusive right and license under the
Patent Rights, to make, have made, use, lease and/or sell the Licensed
Product(s) under the Patent Rights and Copyrights rights, and to practice the
Licensed Process(es) to the full end of the term for which the Patent Rights and
copyright Rights are granted unless sooner terminated as hereinafter provided.
2.2 LICENSEE shall have the right to sublicense worldwide any of the
rights, privileges and license granted hereunder during the term of this
Agreement.
2.3 LICENSEE hereby agrees that every sublicensing agreement to which it
shall be a party and which shall relate to the rights, privileges and license
granted hereunder shall include, to the extent applicable, all the rights of and
obligations due to PRINCETON and USC, (and, if applicable, to the United States
Government), that are contained in this Agreement.
2.4 LICENSEE agrees to forward to PRINCETON a copy of any and all fully
executed sublicense agreements, and further agrees to forward to PRINCETON
annually a copy of such reports received by LICENSEE from its sublicensees
during the preceding twelve (12) month period under the sublicenses as shall be
pertinent to a royalty accounting under said sublicense agreements.
4
<PAGE>
ARTICLE III - DUE DILIGENCE
3.1 LICENSEE shall use commercially reasonable efforts to bring the
Licensed Product(s) and/or Licensed Process(es) to market through a thorough,
vigorous and diligent program for exploitation of the Patent Rights.
3.2 In addition, LICENSEE shall adhere to the following milestones:
(a) LICENSEE shall perform the Sponsored Research Agreement in accordance
with its terms.
(b) LICENSEE shall send copies of all press releases and publicly filed
documents to PRINCETON, relating to its progress in commercializing the
Patent Rights.
(c) LICENSEE shall meet with PRINCETON annually to discuss its
commercialization plans for the next ensuing year.
3.3 LICENSEE'S failure to perform in accordance with Paragraphs 3.1 and 3.2
above shall be grounds for PRINCETON to terminate this Agreement pursuant to
Paragraph 7.3 hereof.
3.4 Notwithstanding anything to the contrary contained herein, provided
that LICENSEE performs the Sponsored Research Agreement, and upon termination or
expiration of the Sponsored Research Agreement, LICENSEE invests a minimum of
$800,000 per year in research, development, patenting or commercialization
efforts respecting the Patent Rights, this Article III shall be deemed to be
satisfied.
ARTICLE IV - ROYALTIES
4.1 Because the Tax Reform Act of 1986, Public Law 99-514, may require
PRINCETON to cause a research sponsor to pay a competitive price for its use of
the technology, and further requires that the prices paid by the sponsoring
party be determined at the time the technology is available for use rather than
at an earlier time, the parties agree that the licensing terms and conditions
set forth in this Agreement shall be as good as or better than could be obtained
from an unrelated party, if applied to Licensed Products and Licensed Processes.
Therefore, subject to right to require negotiations on any Licensed
Products/Licensed Processes, if in PRINCETON'S sole opinion the resulting
technology is the subject of an agreement covered by Public Law 99-514 and the
price or other terms of this Agreement are not competitive for the resulting
technology at the time the technology is first reduced to practice, it is agreed
as follows:
5
<PAGE>
4.2 For the rights, privileges and license granted hereunder, LICENSEE
shall pay to PRINCETON (except for the Common Stock and Warrants which shall be
distributed in accordance with Article 4), in the manner hereinafter provided to
the end of the term of the Patent Rights or until this Agreement shall be
terminated as hereinafter provided:
(a) (i) 3% of the Net Sales Price of the Licensed Product (s) and/or
Licensed Processes used, leased or sold by LICENSEE; (ii) 3% of revenues
received by LICENSEE from sublicensing the patent rights; and (iii) 23% of
revenues received by LICENSEE from final judgments in infringement actions
respecting the Patent Rights (after deducting costs and expenses, including
attorneys fees); and
(b) 200,000 shares of Common Stock of Universal Display Corporation; and
(c) Warrants to purchase 250,000 shares of Common Stock in Universal
Display Corporation at a per share purchase price equal to the closing sale
price of Universal Display Corporation Common Stock on the date of execution of
this Agreement, such Warrants expiring ten (10) years from such date.
(d) Minimum royalties shall be payable as follows:
1997--$0.
1998--$0.
1999--$25,000.
2000--$50,000.
2001--$75,000.
2002 and thereafter--$100,000./yr
In the event that Princeton has not received at least the above referenced
amount in royalty payments in any calendar year, LICENSEE shall pay Princeton
the difference between the royalties paid and the Minimum royalty for such
calendar year on December 31.
4.3 No multiple royalties shall be payable because the Licensed Product(s),
its manufacture, lease or sale are or shall be covered by more than one patent
application or patent licensed under this Agreement.
4.4 Royalty payments shall be paid in United States dollars in Princeton,
New Jersey, or at such other place as PRINCETON may reasonably designate
consistent with the laws and regulations controlling in any foreign country. Any
withholding taxes which LICENSEE or any sublicensee shall be required by law to
withhold on remittance of the royalty payments shall be deducted from royalty
paid to PRINCETON. LICENSEE shall furnish PRINCETON the original copies of all
official receipts for such taxes. If any currency conversion shall be required
in connection with the payment of royalties
6
<PAGE>
hereunder, such conversion shall be made by using the exchange rate prevailing
at a first-class foreign exchange bank on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
4.5 With respect to the possible renegotiation of royalty rates, if
required, under the Tax Reform Act of 1986;
(a) Fair Consideration. PRINCETON and LICENSEE have determined that the
consideration payable to PRINCETON pursuant to this Agreement is fair
and competitive with respect to all Licensed Products, including most
particularly the technologies and their applications which represent
the prime focus of the Sponsored Research Agreement.
(b) Limited Renegotiation Events. If, notwithstanding the above, Licensed
Products are developed during the term of this Agreement which were not
reasonable conceivable as arising out of or resulting from the
Sponsored Research as of the date hereof, and with respect to which the
consideration payable to PRINCETON is not reasonably believed by
PRINCETON to be competitive, PRINCETON shall notify LICENSEE in writing
of such determination; provided, however, that any such renegotiation
right of PRINCETON shall cease with respect to any Licensed Product 180
days after the first Patent Rights Patent Application is filed or other
intellectual property protection is first sought (or, in the case of a
Biological Material, after the time such Biological Material is first
indicated as a possible Licensed Product by LICENSEE). In the event
LICENSEE disputes such determination of PRINCETON and the request for
renegotiation, LICENSEE shall have a right to submit the issue to
arbitration pursuant to Article VIII hereunder.
(c) Renegotiation Process. If LICENSEE agrees to renegotiate the
consideration payable without arbitration or if the arbitrator
determines the issues in favor of PRINCETON, LICENSEE shall have an
exclusive right for 60 days to negotiate with PRINCETON on a royalty
arrangement acceptable to PRINCETON, which shall use reasonable efforts
to reach satisfactory agreement with LICENSEE.
(d) Failure to Agree. In the event that PRINCETON and LICENSEE are unable
to reach agreement with such 60 day period despite their best efforts
to do so, or in the event that LICENSEE does not elect to enter into an
agreement with PRINCETON by exercise of its right of first refusal,
PRINCETON shall then have the right to negotiate with third parties
other than LICENSEE with respect to the exclusive licensing of the
Licensed Products, and LICENSEE shall relinquish its exclusive right to
license said Licensed Product.
7
<PAGE>
4.6 Securities Law Representations. PRINCETON and USC are obtaining the
Common Stock and Warrants as principal and not with a view towards resale or
distribution. PRINCETON and USC are aware that the securities have not been
registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any state or jurisdiction, and are being obtained in reliance
on the exemptions from the registration requirements of such Acts. PRINCETON and
USC agree not to sell or otherwise dispose of the Securities acquired hereunder
unless such Securities are subsequently registered under the Act and such state
securities laws as are applicable, or unless there are available exemptions from
such registration that are supported by an opinion of counsel for PRINCETON or
USC, as applicable, which opinion is satisfactory in form and substance to
Universal Display Corporation.
4.7 The Common Stock and Warrants shall be issued directly to Princeton
University and the University of Southern California, respectively, in the
amounts set forth in the Interinstitutional Agreement.
ARTICLE V - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account containing
all particulars that may be necessary for the purpose of showing the amount
payable to PRINCETON by way of royalty as aforesaid. Said books of account shall
be kept at LICENSEE'S principal place of business or the principal place of
business of the appropriate Division of LICENSEE to which this Agreement
relates. Said books and the supporting data shall be open at all reasonable
times, but not more often than once each year, for five (5) years following the
end of the calendar year to which they pertain, to the inspection of the
PRINCETON Internal Audit Division and/or an independent certified public
accountant employed by PRINCETON for the purpose of verifying LICENSEE'S royalty
statement or compliance in other respects with this Agreement.
5.2 LICENSEE, within sixty (60) days after each calendar quarter of the
License Year shall deliver a report in writing setting forth sales of Licensed
Products (including a negative report, if appropriate) and will accompany such
report with such particulars of the business conducted by LICENSEE during the
preceding three-month period under this Agreement as shall be pertinent to a
royalty accounting hereunder. These shall include at least the following:
(a) All Licensed Products manufactured and sold.
(b) Total billings for Licensed Product sold.
(c) Accounting for all the Licensed Process(es) used or sold.
(d) Deductions applicable as provided in Paragraph 4.2.
8
<PAGE>
(e) Total Royalties due.
(f) Names and addresses of all sublicensees of LICENSEE.
(g) Licensed Products manufactured and sold to the United States
Government. (No royalty obligations shall arise due to use for or on behalf of
the United States Government in view of the royalty-free, non-exclusive license
heretofore granted to the United States government.
(h) Annually, the LICENSEE'S certified financial statements for the
preceding twelve (12) months including, at a minimum, a Balance Sheet and an
Operating Statement.
5.3 With each such report submitted, LICENSEE shall pay to PRINCETON the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
5.4 Any payments due hereunder on sales outside of the United States shall
be payable in U.S. Dollars at the rate of exchange of the currency of the
country in which the sales are made at the average of the following: the
exchange rate as reported in the Wall Street Journal for the first business day
of the calendar quarter for which royalties are payable plus the exchange rate
as reported in the Wall Street Journal for the last business day of the calendar
quarter for which royalties are payable, divided by two (2).
5.5 Payments which are delayed beyond the sixty (60) days after the end of
the quarter in which they become due shall be subject to an interest charge
equal to 8% per annum in excess of the "Prime Rate" as published in The Wall
Street Journal, provided however that if royalty payments are withheld due to a
good faith dispute, then the interest charge shall be five percent (5) per annum
in excess of the Prime Rate. Whenever such Prime Rate, as so published, changes,
the interest rate described above shall correspondingly change, effective upon
the opening of business on the date of publication of such change.
ARTICLE VI - PATENT PROSECUTION
6.1 LICENSEE may designate by notice to PRINCETON or to the Patent
Attorneys, after consultation with PRINCETON, countries where Licensed Patent
Applications shall be filed, which may include the United States or any other
country. LICENSEE agrees to pay for all reasonable and necessary out-of-pocket
expenses incurred in the preparation, filing, prosecution, maintenance, renewal
and continuation of Patent Applications in said designated countries, including
all taxes, official fees and attorneys' fees. The patent law firm selected shall
be mutually acceptable to PRINCETON and LICENSEE. PRINCETON shall be the client
in the attorney-client relationship with such law firm and may provide
instructions to such law firm regarding
9
<PAGE>
the scope and content of Patent Applications to be filed and prosecuted, subject
to the right of LICENSEE to request PRINCETON to instruct such law firm, or
instruct the law firm directly after consultation with PRINCETON, to cover any
additional matters as LICENSEE may desire to assure that such Application covers
all items of commercial interest and importance. PRINCETON will not unreasonably
refuse requests of LICENSEE. PRINCETON and LICENSEE each shall receive copies of
all correspondence with respect to such preparation, filing, prosecution,
renewal and continuation of Patent Rights Patent Applications, and shall consult
with each other regarding all such matters and the costs associated therewith.
6.2 LICENSEE may elect in writing to be released from its License in any of
the Patent Rights Patents and Patent Rights Patent Applications in a particular
country at any time after initial filing costs have been paid, in which event it
shall thereafter, upon notice of such election being given to PRINCETON shall
have no obligation to reimburse Princeton for any subsequent expenses relating
to such patent, or application in such country, nor any other right thereto.
6.3 All inventions conceived or discovered under the Sponsored Research
Agreement, by PRINCETON, USC, or jointly, shall automatically become subject to
this License Agreement. PRINCETON shall use reasonable efforts to ensure that
Patent Rights Applications are promptly filed and prosecuted.
6.4 LICENSEE has the right to file of record in the Patent Office for each
Patent Rights Application that it is the exclusive licensee of the Patent
Rights.
ARTICLE VII - TERMINATION
7.1 If LICENSEE shall become bankrupt or insolvent, or shall file a
petition in bankruptcy, or if the business of LICENSEE shall be placed in the
hands of a receiver, assignee or trustee for the benefit of creditors, whether
by the voluntary act of LICENSEE or otherwise, this Agreement shall be
terminable by PRINCETON. Provided, however, in the event of an involuntary
action, if LICENSEE arranges for the dismissal of such action within 90 days of
the date thereof, such right to terminate shall cease.
7.2 Should LICENSEE fail in its payment to PRINCETON of royalties due in
accordance with the terms of this Agreement, PRINCETON shall have the right to
serve notice of default upon LICENSEE by certified mail at the address
designated in Article XIV hereof. If LICENSEE shall not have paid all such
royalties due and payable, within forty five (45) days of the delivery of such
Notice, the rights, privileges and license granted hereunder shall be terminable
by PRINCETON delivering a Notice of Termination, unless LICENSEE disputes that
such royalties are due and payable, in which event the dispute shall be settled
in accordance with Article VIII "Arbitration", and this Agreement will not then
be terminated.
10
<PAGE>
7.3 Upon any material breach or default of this Agreement by LICENSEE,
other than those occurrences set out in Paragraphs 7.1 and 7.2 hereinabove,
which shall always take precedence in that order over any material breach or
default referred to in this Paragraph 7.3, Princeton shall have the right to
give written notice of such default to LICENSEE. If LICENSEE shall fail to cure
such default, or fail to have taken reasonable steps to cure such default,
within forty five (45) days of the effective date of such notice, PRINCETON
shall have the right to terminate this Agreement by a second written Notice of
Termination to Licensee, specifying the effective date of termination. Provided,
however, if LICENSEE disputes the existence of such material breach or default,
or the failure to cure or take reasonable steps to cure, than the dispute will
be settled in accordance with Article VIII "Arbitration", and the Agreement
will not then be terminated.
7.4 LICENSEE shall have the right to terminate this Agreement at any time
on six (6) months' notice by certified mail to PRINCETON.
7.5 Upon termination of this Agreement for any reason, nothing herein shall
be construed to release either party from any obligation that matured prior to
the effective date of such termination. LICENSEE and/or any sublicensee thereof
may however, after the effective date of such termination, sell all Licensed
Products, and complete Licensed Products in the process of manufacture at the
time of such termination and sell the same, provided that LICENSEE shall pay to
PRINCETON the royalties thereon as required by Article IV of this Agreement and
shall submit the reports required by Article V hereof on the sales of Licensed
Products.
7.6 Upon any such termination of this Agreement PRINCETON, if LICENSEE
shall have granted a sublicense hereunder, any such sublicensee shall become a
direct licensee of PRINCETON, but only if such sublicensee is then in full
compliance with its sublicense and all payments owed to PRINCETON with respect
to that sublicense have been paid and the sublicensee agrees to assume all
obligations of LICENSEE hereunder, provided that such sublicensee shall remain
obligated to the terms and conditions of this Agreement protective of PRINCETON.
ARTICLE VIII - ARBITRATION
8.1 Except as to issues relating to the validity, construction or effect of
any patent licensed hereunder, any and all claims, disputes or controversies
arising under, out of, or in connection with this Agreement, which have not been
resolved by good faith negotiations between the parties, shall be resolved by
mediation. Such mediation shall occur as soon as reasonably practicable and no
later than 30 days from the effective date one party requests mediation of a
dispute. If such dispute is not resolved by mediation then it will be resolved
by final and binding arbitration in Princeton, New Jersey under the rules of the
American Arbitration Association then obtaining. The arbitrators shall have no
power to add to, subtract from or modify any of the terms or conditions of this
11
<PAGE>
Agreement. The arbitrators shall have the option of specific future performance
or monetary compensation in lieu of termination. Any award rendered in such
arbitration may be enforced by either party in either the courts of the State of
New Jersey or in the United States to whose jurisdiction of such purposes
PRINCETON and LICENSEE each hereby irrevocably consents and submits.
8.2 Claims, disputes or controversies concerning the validity, construction
or effect of any patent licensed hereunder shall be resolved in any court having
jurisdiction thereof.
8.3 In the event that, in any arbitration proceeding, any issue shall arise
concerning the validity, construction or effect of any patent licensed
hereunder, the arbitrators shall assume the validity of all claims as set forth
in such patent; in any event the arbitrators shall not delay the arbitration
proceeding for the purpose of obtaining or permitting either party to obtain
judicial resolution of such issue, unless an order staying such arbitration
proceeding shall be entered by a court of competent jurisdiction. Neither party
shall raise any issue concerning the validity, construction or effect of any
patent licensed hereunder in any proceeding to enforce any arbitration award
hereunder or in any proceeding otherwise arising out of any such arbitration
award.
ARTICLE IX - INFRINGEMENT
9.1 LICENSEE and PRINCETON shall promptly inform the other in writing of
any alleged infringement of which it shall have notice by a third party or any
patents within the Patent Rights and provide such other with any available
evidence of infringement.
9.2 During the term of this Agreement, LICENSEE shall have the right, but
shall not be obligated, to prosecute at its own expense any such infringements
of the Patent Rights and, in furtherance of such rights, PRINCETON hereby agrees
that LICENSEE may join PRINCETON as a party plaintiff in any such suit, without
expense to PRINCETON. The total cost of any such infringement action commenced
or defended solely by LICENSEE shall be borne by LICENSEE, and LICENSEE shall
keep any recovery or damages for past infringement derived therefrom, except for
that portion to be paid to PRINCETON pursuant to Article IV hereof. Princeton
shall make the inventors available and cooperate in the litigation. No
settlement, consent judgment or other voluntary final disposition of the suit
may be entered into without the consent of PRINCETON, which consent shall not
unreasonably be withheld. LICENSEE shall indemnify PRINCETON against any order
for costs that may be made against PRINCETON in such proceedings.
9.3 If within eighteen (18) months after having been notified of any
alleged infringement, LICENSEE shall have been unsuccessful in persuading the
alleged infringer
12
<PAGE>
to desist and shall not have brought and shall not be diligently prosecuting an
infringement action, or if LICENSEE shall notify PRINCETON at any time prior
thereto of its intention not to bring suit against any alleged infringer, then,
and in those events only, PRINCETON shall have the right, but shall not be
obligated, to prosecute at its own expense any infringement of the Patent
Rights, and PRINCETON may, for such purposes, use the name of LICENSEE as party
plaintiff.
9.4 In the event that LICENSEE shall undertake the enforcement and/or
defense of the Patent Rights by litigation, LICENSEE may withhold up to fifty
percent (50%) of the royalties otherwise thereafter due PRINCETON hereunder and
apply the same toward reimbursement of its expenses, including reasonable
attorneys' fees, in connection therewith. Any recovery of damages by LICENSEE
for any such suit shall be applied first in satisfaction with any unreimbursed
expenses and legal fees of LICENSEE relating to the suit, and next toward
reimbursement of PRINCETON for any royalties past due or withheld and applied
pursuant to this Article IX.
9.5 In any infringement suit that either party may institute to enforce the
Patent Rights pursuant to this Agreement, the other party shall, at the request
and expense of the party initiating such suit, cooperate in all respects and, to
the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
9.6 LICENSEE, during the exclusive period of this Agreement, shall have the
sole right in accordance with the terms and conditions herein to sublicense any
alleged infringer under the Patent Rights.
ARTICLE X - PRODUCT LIABILITY
10.1 PRINCETON and USC by this Agreement makes no representation as to the
patentability and/or discoveries involved in a Licensed Patent. PRINCETON and
USC by this Agreement makes no representation as to patents now held or which
will be held by others in the field of the Licensed Products for a particular
purpose. PRINCETON AND USC MAKE NO EXPRESS OR IMPLIED WARRANTIES OR
MERCHANTABILITY OF FITNESS FOR A PARTICULAR PURPOSE.
10.2 LICENSEE agrees to defend, indemnify and hold PRINCETON and USC
harmless from and against all liability, demands, damages, expense or losses for
death, personal injury, illness or property damage arising (a) out of use by
LICENSEE or its transferees of inventions licensed or information furnished
under this Agreement, or (b) out of any use, sale or other disposition by
LICENSEE or its transferees or products made by use of such inventions or
information. As used in this clause, PRINCETON and USC includes its Trustees,
Officers, agents, Employees and Students and "LICENSEE" includes its Affiliates,
Subsidiaries, Contractors and Sub-Contractors.
13
<PAGE>
10.3 In discharge of the above LICENSEE will maintain general liability
insurance in the amount of at least One Million Dollars ($1,000,000) per
occurrence with a deductible of not more than $10,000 per occurrence with such
insurers and on such terms as PRINCETON approves in writing against damage to or
destruction of property and injury to or death of individuals and against such
other risks as PRINCETON may reasonable request arising out of or in connection
with any of the Licensed Products. "PRINCETON" and its respective officers,
trustees, and insurance will also provide that PRINCETON will be given notice of
any modification thereof and at least ten (10) days prior written notice of
cancellation or termination and the reason therefore. LICENSEE will furnish
PRINCETON upon request and in any event on execution of this Agreement and on
each anniversary of the effective date of this Agreement, written confirmation
issued by the issuer or an independent insurance agent confirming that insurance
is maintained in accordance with the above requirements.
ARTICLE XI - ASSIGNMENT
11.1 In addition to assignment permitted under Section 2.2 hereof, LICENSEE
may assign or otherwise transfer this Agreement and the license granted hereby
and the rights acquired by it hereunder so long as such assignment or transfer
shall be accompanied by a sale or other transfer of LICENSEE's entire business
or of that part of LICENSEE's business to which the license granted hereby
relates. LICENSEE shall give PRINCETON thirty (30) days prior notice of such
assignment and transfer and if PRINCETON raises no reasonable objection to such
assignment or transfer, in writing within thirty (30) days after the giving of
such notice and stating the reasons for such objection, then PRINCETON shall be
deemed to have approved such assignment or transfer; provided, however,
PRINCETON shall not be deemed to have approved such assignment and transfer
unless such assignee or transferee shall have agreed in writing to be bound by
the terms and conditions of this Agreement. Upon such assignment or transfer and
agreement by such assignee or transferee, the term LICENSEE as used herein shall
include such assignee or transferee. If LICENSEE shall sell or otherwise
transfer its entire business or that part of its business to which the license
granted hereby relates and the transferee shall not have agreed in writing to be
bound by the terms and conditions of this Agreement, or new terms and conditions
shall not have been agreed upon within sixty (60) days of such sale or transfer,
PRINCETON shall have the right to terminate this Agreement.
ARTICLE XII - NON-USE OF NAMES
12.1 Neither party shall use the names of the others in connection with any
products, promotion or advertising without the prior consent of the other party,
which consent shall not be unreasonably withheld, or to the extent reasonably
required by law. LICENSEE may state that it is licensed by PRINCETON and USC
under one or more of the patents and/or applications comprising the Patent
Rights.
14
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ARTICLE XIII - EXPORT CONTROLS
13.1 It is understood that PRINCETON and USC are subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities (including the Arms Export
Control Act, as amended, and the Export Administration Act of 1979), and its
obligations hereunder are contingent on compliance with applicable United States
export laws and regulations. The transfer of certain technical data and
commodities may require a license from the cognizant agency of the United States
Government and/or written assurances by LICENSEE that LICENSEE shall not export
data or commodities to certain foreign countries without prior approval of such
agency. PRINCETON and USC neither represent that a license shall not be required
nor that, if required, it shall be issued.
ARTICLE XIV - PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
14.1 Any payment, notice or other communication, pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, postage prepaid, addressed to it at its address
below or as it shall designate by written notice given to the other party;
In the case of PRINCETON UNIVERSITY:
Office of Technology and Trademark Licensing
Princeton University
5 New South Building, P. O. Box 36
Princeton, New Jersey 08544
Attention: John F. Ritter
Associate Director of Technology Transfer
In the case of THE UNIVERSITY OF SOUTHERN CALIFORNIA:
Office of Patent and Copyright Administration
University of Southern California
3716 South Hope Street, Suite 313
Los Angeles, CA 90007-4344
In the case of LICENSEE:
Universal Display Corporation
3 Bala Plaza East, Suite 104
Bala Cynwyd, PA 19004
Attention: Steven V. Abramson
President and Chief Operating Officer
15
<PAGE>
ARTICLE XV - INTERINSTITUTIONAL AGREEMENT
15.1 PRINCETON and USC have entered into an Interinstitutional Agreement,
attached hereto as Appendix C and incorporated herein, whereby, inter-alia,
PRINCETON shall be the manager of this License Agreement and the Sponsored
Research Agreement, and LICENSEE shall interact with PRINCETON, on behalf of
itself as well as USC, on all matters respecting those agreements.
ARTICLE XVI - MISCELLANEOUS PROVISIONS
16.1 This Agreement shall be construed, governed, interpreted and applied in
accordance with the laws of the State of New Jersey, except that questions
affecting the construction and effect of any patent shall be determined by the
law of the country in which the patent was granted.
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change of modification except by
the execution of a written instrument subscribed to by the parties hereto.
16.3 The provisions of this Agreement are severable, and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the Licensed Products sold in the United States
with all applicable United States patent numbers. All Licensed Products shipped
to or sold in other countries shall be marked in such a manner as to confirm
with the patent laws and practice of the country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to insist
upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals and duly executed this License Agreement the day and year set forth below.
Attest: The Trustees of Princeton University
By:
- ------------------------------- --------------------------------
Title: Title:
- ------------------------------- -----------------------------
Date:
------------------------------
Attest: The UNIVERSITY OF
SOUTHERN CALIFORNIA
By:
- ------------------------------- --------------------------------
Title: Title:
- ------------------------------- -----------------------------
Attest: UNIVERSAL DISPLAY CORPORATION
By:
- ------------------------------- --------------------------------
Title: Title:
- ------------------------------- -----------------------------
17
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-KSB into Universal Display's previously filed
Registration Statement File No. 333-27901 and File No. 33-80703.
Arthur Andersen LLP
Philadelphia, PA
March 31, 1998
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<SECURITIES> 4,539,570
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