Prospectus Supplement
(To prospectus dated July 10, 2002)
1,277,014 Shares
UNIVERSAL DISPLAY CORPORATION
Common Stock
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Universal Display Corporation is offering up to 1,277,014 shares of
common stock in this offering.
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Our common stock is traded on the Nasdaq National Market under the
symbol "PANL" and on the Philadelphia Stock Exchange under the symbol "PNL." The
last reported sale price of our common stock on the Nasdaq National Market on
August 2, 2002 was $5.36 per share.
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Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4 of the attached prospectus and on page S-4 of this
prospectus supplement.
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Per Share Total
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Offering Price to Public................................... $5.09 $6,500,001
Placement Agent's Commissions.............................. $0.23 $293,713
Offering Proceeds to Us.................................... $4.86 $6,206,288
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the attached prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
We have retained Gerard Klauer Mattison & Co., Inc. to act, on a best
efforts basis, as the placement agent in marketing this offering to selected
institutional investors. Prior to the closing date, all investor funds will be
placed in escrow with an escrow agent. Before accepting investor funds, we will
deposit with The Depository Trust Company the shares to be credited to the
accounts of the investors. However, if we do not accept funds from any investor,
the escrow agent will promptly refund that investor's money. We expect to
deliver the shares of common stock to investors on August 8, 2002.
GERARD KLAUER MATTISON
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August 5, 2002
TABLE OF CONTENTS
Prospectus Supplement
Page
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About This Prospectus Supplement.............................................S-3
Risk Factors.................................................................S-4
Recent Developments..........................................................S-6
Use of Proceeds..............................................................S-7
Dilution.....................................................................S-7
Plan of Distribution.........................................................S-8
Legal Matters...............................................................S-10
Where You Can Find More Information.........................................S-10
Prospectus
Cautionary Statement Concerning Forward-Looking Statements.....................1
About this Prospectus..........................................................2
Where You Can Find More Information............................................2
Risk Factors...................................................................4
Our Company...................................................................12
Securities Offered by this Prospectus.........................................12
Use of Proceeds...............................................................12
Certain Ratios................................................................13
Description of Preferred Stock................................................13
Description of Warrants.......................................................20
Plan of Distribution..........................................................21
Legal Matters.................................................................24
Experts.......................................................................24
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You should rely only on the information contained in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference. We have not authorized anyone to provide you with information
different from that contained in any of these documents. The information
contained in these documents is accurate only as of the date of each document,
as the case may be, regardless of the time of delivery of this prospectus
supplement and accompanying prospectus or of any sale of common stock. Our
business, financial condition, results of operations and prospects may change
after the date set forth in each document in which the information is presented.
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S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about this offering of shares of our
common stock in two separate documents: (a) the accompanying prospectus, which
provides general information, some of which may not apply to this offering; and
(b) this prospectus supplement, which describes the specific details regarding
this offering. Generally, when we refer to this "prospectus," we are referring
to both documents combined. Additional information is incorporated by reference
in this prospectus. See "Where You Can Find More Information."
If information in this prospectus supplement is inconsistent with the
accompanying prospectus, you should rely on this prospectus supplement.
This prospectus supplement, the accompanying prospectus and the
documents incorporated by reference contain some "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to us that is based on the beliefs of our management, as well as
assumptions made by, and the information currently available to, our management.
Among other things, these statements include, but are not limited to, the
statements in this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference regarding:
o our commercialization and technology development strategy;
o the potential commercial applications of our OLED technology, including the
types of products in which it may be used;
o future demand for our technology;
o the comparative advantages of our OLED technology against competing
technologies;
o the nature and extent of the development that we will pursue in the future
with third parties;
o the amount and type of securities that we will issue in the future to these
parties;
o the potential limitations of the technology being developed by our
competitors;
o the protection afforded to us by the patents that we own or license;
o the nature of the technology that our competitors will seek to develop in
the future;
o the payments that will be made to us in the future under our existing
contracts;
o our future capital requirements;
o our future exposure to market risk;
o our use of proceeds from this offering; and
o our future revenues and results of operations.
In addition, when used in these documents, the words "estimate,"
"project," "believe," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. These statements reflect
our current views with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in these forward-looking statements, including those risks
discussed in this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus supplement, the
accompanying prospectus or the documents incorporated by reference, as the case
may be. Except for special circumstances in
S-3
which a duty to update arises when prior disclosure becomes materially
misleading in light of subsequent events, we do not intend to update any of
these forward-looking statements to reflect events or circumstances after the
date of this prospectus or to reflect the occurrence of unanticipated events.
RISK FACTORS
Before purchasing our common stock, you should carefully consider the
risks described below in this section, risks described under the heading "Risk
Factors" beginning on page 4 of the accompanying prospectus and the risks
described in the documents incorporated by reference in this prospectus
supplement and the accompanying prospectus.
The exercise price of certain warrants to purchase our shares of common stock
will be reduced following the issuance of the common stock being offered by this
prospectus.
On August 22, 2001, we issued to Pine Ridge Financial Inc. and Strong
River Investments, Inc. warrants to purchase an aggregate of 744,452 shares of
our common stock. The terms of these warrants were amended in November 2001. As
so amended, the warrants are exercisable at any time through and including
August 22, 2011. Warrants to purchase 429,492 shares of common stock have an
exercise price of $15.24 per share, while warrants to purchase the remaining
314,960 shares of common stock have an exercise price of $9.9225 per share.
The exercise price of these warrants is subject to "weighted average"
anti-dilution protection, and will be reduced upon our issuance of shares of
common stock at a purchase price per share less than the applicable per share
exercise price of each respective warrant. Accordingly, upon our issuance of
shares of our common stock in this offering at a purchase price per share of
$5.09, and assuming the issuance and sale of all 1,277,014 shares being offered,
the exercise price of the warrants exercisable at an exercise price of $15.24
per share will be reduced to $14.5837 per share, while the exercise price of the
warrants exercisable at an exercise price of $9.61 per share will be reduced
to $9.2474 per share.
In addition, on August 22, 2001, we issued to the Placement Agent
warrants to purchase 186,114 shares of common stock, exercisable at any time
through and including August 21, 2008. These warrants have an exercise price of
$15.24 per share.
The exercise price of these warrants is subject to "weighted average"
anti-dilution protection in accordance with a formula contained in the form of
these warrants, and will be reduced upon our issuance of shares of common stock
at a purchase price per share less than the applicable per share exercise price
of each respective warrant. Accordingly, upon our issuance of shares of our
common stock in this offering at a purchase price per share of $5.09, and
assuming the issuance and sale of all 1,277,014 shares being offered and a fair
market value of the common stock of $5.36 per share, the last reported sale
price of the common stock on the Nasdaq National Market on the date of this
prospectus supplement, the exercise price of these warrants will be reduced to
$14.2546 per share.
Sales of the shares issuable upon exercise of any of the warrants in
the future could reduce the market price of our common stock.
S-4
The conversion price of our convertible promissory notes due August 22, 2004
will be reduced following the issuance of the common stock being offered by this
prospectus supplement.
On August 22, 2001, we issued two convertible promissory notes, each in
the original principal amount of $7.5 million, payable to the order of Pine
Ridge Financial Inc. and Strong River Investments, Inc., respectively. The
entire original principal amount of each of these notes, $15.0 million in the
aggregate, is outstanding as of the date of this prospectus supplement. These
notes are convertible into shares of our common stock, upon the terms and
conditions set forth in the notes at a conversion price of $13.97 per share. The
conversion price is subject to adjustment in certain circumstances, such as upon
our issuance of shares of common stock at a purchase price per share less than
$13.97. Accordingly, upon our issuance of shares of our common stock in this
offering, the conversion price of the notes will be reduced to the per share
purchase price in this offering. Prior to our issuance of the shares of common
stock being offered by this prospectus supplement, the notes were convertible
into 1,073,729 shares of our common stock. Upon our issuance of shares of our
common stock in this offering at a purchase price per share of $5.09, the notes
would be convertible into 2,946,955 shares of our common stock. If the holders
of the notes elect to convert their notes following the adjustment of the
conversion price, the holders of our common stock, including the purchasers of
the shares of common stock being offered by this prospectus supplement, will
experience immediate and substantial dilution of their ownership interest.
Substantial sales of these shares could reduce the market price of our common
stock.
We have the right to prepay the amounts due under these notes, upon 30
trading days' prior written notice to the holders of the notes. We may exercise
our prepayment rights following the closing of this offering. In order to redeem
the notes, we would be required under the terms of the notes to pay to the
holder of each note an amount equal to the outstanding principal balance of the
note, plus all accrued but unpaid interest thereon, plus a prepayment premium
equal to 5% of the outstanding principal amount of the note being repaid.
During the 30 trading days following our notice of redemption and
preceding the date of redemption of the notes, the holders of the notes have the
right to convert the notes. If we were to exercise our right to redeem the
notes, we would not do so until after the issuance of the shares being offered
by this prospectus supplement. Thus, the conversion price of the notes would be
adjusted, as described above, to reflect that issuance. Accordingly, if the
holders of the notes elect to convert their notes during that period, the
holders of our common stock, including the purchasers of the shares of common
stock being offered by this prospectus supplement, will experience immediate and
substantial dilution of their ownership interest. Sales of the shares issuable
upon conversion of the notes could reduce the market price of our common stock.
We are offering the common stock on a best efforts basis and we cannot be
certain that we will raise the full amount contemplated in this offering.
We have retained Gerard Klauer Mattison & Co., Inc. under a placement
agency agreement to act as our exclusive placement agent in connection with this
offering. The placement agent is not obligated and does not intend to purchase
any of the common stock offered hereby. The closing of this offering is not
conditioned on the sale of all of the shares offered hereby, and we may sell all
or any portion of such shares. Accordingly, we cannot be
S-5
certain of the number of shares that will be purchased by investors. We
currently anticipate that the closing will take place on August 8, 2002, but we
cannot be certain that this will be the case. If the closing has not taken place
within 10 business days after such date, the offering will terminate and any
funds deposited with the escrow agent will promptly be returned to the
investors. See "Plan of Distribution."
The common stock being offered by this prospectus ranks junior to our
outstanding shares of preferred stock.
In addition to our authorized but unissued shares of preferred stock,
our board has designated and issued two series of preferred stock which are
currently outstanding: (a) 200,000 shares of Series A Preferred Stock and (b)
300,000 shares of Series B Convertible Preferred Stock. In the event of a
liquidation, dissolution or winding-up of our company, the holders of these
shares of preferred stock will have the right to receive distributions of our
assets prior to distributions to the holders of our common stock. In addition,
the holders of these shares, under some circumstances, will have the right to
treat certain types of merger and similar transactions which we may effect in
the future as a liquidation event requiring the making of such a distribution.
This right could have one or more of the effects described in the prospectus
under the caption "Risk Factors -- We can issue shares of preferred stock that
can adversely affect your rights as a shareholder."
Our management will have broad discretion with respect to the use of proceeds of
this offering.
Our management will have broad discretion as to how to use the proceeds
of this offering. You will be relying on the judgement of our management
regarding the application of the proceeds of this offering. The results and
effectiveness of the use of the proceeds are uncertain.
RECENT DEVELOPMENTS
Change in Independent Public Accountants
On July 30, 2002, upon recommendation of the Audit Committee of our
Board of Directors, we dismissed Arthur Andersen LLP as our independent public
accountants, and engaged KPMG LLP to serve as our independent public accountants
for 2002. KPMG LLP has not audited or reviewed the financial statements referred
to in the prospectus under the caption "Experts."
In connection with the engagement of KPMG LLP, we reviewed certain of
our accounting policies, including our policies with respect to the treatment of
equity instruments that are conditionally transferred to another party and
subject to forfeiture for non-performance as issued. In connection with this
review, we identified a $2,486,000 overstatement of prepaid expenses and total
shareholders' equity as of March 31, 2002 relating to accounting for common
stock issued to PPG Industries, Inc. as consideration for future services. In
addition, we determined that the previously reported weighted average shares
outstanding for the quarter ended March 31, 2002 should be reduced by 258,924
shares. We will file on August 6, 2002 an amendment to our quarterly report on
Form 10-Q for the three months ended March 31, 2002 to correct this
overstatement and to reduce the previously reported weighted average shares
outstanding for the quarter ended March 31, 2002 by 258,924 shares. The
reclassification has no effect on reported expenses, net loss, net loss per
share and cash flow for the quarter ended March 31, 2002. In addition, the
revised accounting for the stock issuance has no impact on the previously filed
Annual Report on Form 10-K for the years ended December 31, 2001 and 2000.
Amendment of Our Stock Incentive Plan
At our annual meeting of shareholders held on June 27, 2002, our
shareholders approved an increase in the number of shares of common stock that
may be issued upon the exercise of options granted under our Stock Incentive
Plan from 2,800,000 shares to 3,800,000 shares.
S-6
USE OF PROCEEDS
We expect the net proceeds from this offering to be up to approximately
$6.1 million after deducting the placement agent's discounts and commissions and
our estimated offering expenses. If we exercise the right to prepay the
convertible promissory notes payable to the order of Pine Ridge Financial Inc.
and Strong River Investments, Inc., as discussed above in "Risk Factors -- The
conversion price of our convertible promissory notes due August 22, 2004 will be
reduced following the issuance of the common stock being offered by this
prospectus supplement," we intend to use cash that we hold in a restricted
account in order to fund that portion of the prepayment amount consisting of the
entire outstanding principal balance due under the notes. We intend to use the
net proceeds from the offering to fund the remainder of the prepayment amount,
which consists of all accrued but unpaid interest on the outstanding principal
balance being prepaid, as well as a prepayment premium equal to 5% of the
outstanding principal amount being repaid (the maximum prepayment premium is
$750,000). The aggregate principal amount due under such promissory notes at
August 2, 2002 was $15,000,000, and as of that date this indebtedness bore
interest at a rate of approximately 1.9%. These promissory notes mature at
August 22, 2004. All net proceeds of this offering not used to fund a portion of
the prepayment amount of the notes, if we exercise our right to prepay the notes
and the notes are not converted prior to prepayment, or all of the proceeds of
this offering, if we do not prepay the notes, will be used for working capital
and general corporate purposes. Pending such uses, we intend to invest any
excess proceeds in short-term, investment grade, interest-bearing securities.
The indebtedness evidenced by the promissory notes to be discharged was
utilized to fund the restricted cash account described above.
DILUTION
Our net tangible book value as of March 31, 2002 was approximately
$20.0 million, or $1.10 per share of common stock, and incorporates the
reduction of our previously reported shareholders' equity by $2,486,000 and
shares outstanding by 258,924 shares from an amendment to our quarterly report
on Form 10-Q for the three months ended March 31, 2002 which we will file on
August 6, 2002 as discussed above in "Recent Developments -- Change in
Independent Accountants." Net tangible book value per share is determined by
dividing our net tangible book value, which consists of tangible assets less
total liabilities, by the number of shares of common stock outstanding on that
date. Without taking into account any other changes in the net tangible book
value after March 31, 2002, as amended, other than to give effect to our receipt
of the estimated net proceeds from the sale of the maximum number of shares that
may be sold in this offering (1,277,014 shares), at an offering price of $5.09
per share, less the placement agent's commissions and our estimated offering
expenses, our net tangible book value as of March 31, 2002, as amended, after
giving effect to the items above would have been approximately $26.1 million, or
$1.34 per share. This represents an immediate increase in the net tangible book
value of $0.24 per share to existing stockholders and an immediate dilution of
$3.75 per share to new investors. The following table illustrates this per share
dilution:
Offering Price................................................................. $5.09
Net tangible book value per share, as amended, before the offering........ $1.10
Increase in net tangible book value per share, as amended, attributable
to the offering ....................................................... 0.24
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Net tangible book value per share, as amended, after the offering.............. 1.34
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Dilution per share to new investors............................................ $3.75
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This table is based on the number of outstanding shares as of March 31,
2002 and does not include the following:
o 2,210,856 shares of common stock issuable upon exercise of outstanding
stock options as of March 31, 2002 at a weighted average exercise price of
$6.97 per share;
o 4,732,841 shares of common stock issuable upon exercise of outstanding
warrants as of March 31, 2002 at a weighted average exercise price of $5.16
per share; and
o 1,073,729 shares of common stock issuable upon conversion of outstanding
convertible notes as of March 31, 2002 at a conversion price of $13.97.
S-7
PLAN OF DISTRIBUTION
We are offering the common stock on a best efforts basis principally to
selected institutional investors. We have retained Gerard Klauer Mattison & Co.,
Inc. under a placement agency agreement to act as our exclusive placement agent
in connection with this offering. The placement agent is not obligated and does
not intend to purchase any of the common stock offered hereby.
Arrangement with the Placement Agent. We have agreed to pay to the
placement agent a fee equal to $0.23 per share of the proceeds of this offering
as selling commissions. In addition, we will reimburse the placement agent for
certain expenses incurred in connection with this offering, including the
reasonable legal fees and expenses of the placement agent. We have agreed to
indemnify the placement agent against certain liabilities, including liabilities
under the Securities Act of 1933, and to contribute payments that the placement
agent may be required to make in respect thereof.
Offering and Closing Procedure. Confirmations and definitive
prospectuses will be distributed to all investors who agree to purchase shares
of the common stock at the time of pricing, informing investors of the closing
date. We currently anticipate that the closing will take place on August 8,
2002. Investors will also be informed of the date on which they must deposit the
purchase price into an escrow account established for the benefit of investors
with an independent escrow agent. If an order of common stock is not accepted,
the escrow agent will promptly return such investor's funds. If the order is
accepted, the escrow agent will maintain the funds in the escrow account until
the scheduled closing date.
On the scheduled closing date, the following will occur:
o We will deposit with The Depository Trust Company the common stock to
be credited to the respective accounts of investors,
o The escrow agent will transfer to us investor funds together with any
interest thereon, and
o The placement agent will be paid its fee.
The offering will not continue after the closing date. If the closing has
not taken place within 10 business days after August 8, 2002, the offering will
terminate and any funds deposited with the escrow agent will promptly be
returned to the investors.
Negotiation of Price. We negotiated the price to the public for the
common stock offered in this offering with the placement agent. The factors
considered in determining the price to the public included the recent market
price of our common stock, the general condition of the securities market at the
time of this offering, the history of and prospects for the industry in which we
compete, our past and present operations, our historical results of operations
and our prospects for future earnings.
We estimate that the total expenses of this offering, excluding the
placement agent's commissions, will be approximately $150,000, all of which will
be paid by us.
S-8
We, our directors, our executive officers and our 10% stockholder have
entered into "lock-up agreements" with the placement agent under which we and
they have agreed with the placement agent not to offer, sell, pledge, purchase
any option to sell, grant any option for the purchase of, lend or otherwise
dispose of, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, for a period of 90 days after the
date of this prospectus supplement, without the prior consent of the placement
agent, subject to limited exceptions, such as issuances of shares of our common
stock to persons in connection with business acquisitions and strategic
alliances, and provided that such persons agree to the lock-up referred to in
the preceding sentence, or pursuant to employee stock option plans existing on,
or upon the conversion or exchange of convertible or exchangeable securities
outstanding as of the date of this prospectus supplement. The placement agent
may in its sole discretion, at any time without notice, release all or a portion
of the shares subject to the lock-up agreements.
The placement agent also holds warrants to purchase 186,114 shares of
our common stock, at an initial exercise price of $15.24 per share, subject to
adjustment under certain circumstances, which expire in August 2008. See "Risk
Factors -- The exercise price of certain warrants to purchase our shares of
common stock will be reduced following the issuance of the common stock being
offered by this prospectus." These warrants were issued in connection with our
August 2001 private placement of preferred stock and notes, in which the
placement agent also served as placement agent.
We have agreed to indemnify the placement agent against some
liabilities, including civil liabilities under the Securities Act.
Our common stock is listed on the Nasdaq National Market under the
symbol "PANL" and on the Philadelphia Stock Exchange under the symbol "PNL."
S-9
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania, will pass upon
the validity of the securities offered hereby and some other legal matters on
behalf of Universal Display Corporation. Legal matters in connection with the
offering will be passed upon for the placement agent by Morrison & Foerster LLP,
New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. Therefore, we file reports, proxy statements
and other information with the SEC. You can read and copy all of our filings at
the SEC's public reference facilities in Washington, D.C., New York, New York
and Chicago, Illinois. You may obtain information on the operation of the SEC's
public reference facilities by calling the SEC at 1-800-SEC-0300. You can also
read and copy all of our filings at the offices of the Nasdaq Stock Market, 1735
K Street N.W., Washington, D.C. 20006. You may also obtain our SEC filings from
the SEC's Web site on the Internet that is located at http://www.sec.gov.
We "incorporate by reference" the information we file with the SEC,
which means that we can disclose important information to you by referring you
to another document we file with the SEC. The information incorporated by
reference is an important part of this prospectus supplement and accompanying
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
after the date of this prospectus supplement but before the end of any offering
made under this prospectus supplement and accompanying prospectus:
o our annual report on Form 10-K for the fiscal year ended December 31,
2001;
o our quarterly report on Form 10-Q for the quarter ended March 31, 2002;
o our current report on Form 8-K filed with the SEC on July 30, 2002;
o our proxy statement filed on April 30, 2002; and
o the description of our common stock contained in our registration
statement on Form 8-A filed with the SEC on August 6, 1996.
You should read the information relating to us in this prospectus
supplement and accompanying prospectus together with the information in the
documents incorporated by reference.
Any statement contained in a document incorporated by reference herein,
unless otherwise indicated therein, speaks as of the date of the document.
Statements contained in this prospectus supplement and accompanying prospectus
may modify or replace statements contained in the documents incorporated by
reference. In addition, some of the statements contained in one or more of the
documents incorporated by reference may be modified or replaced by statements
contained in a document incorporated by reference that is filed thereafter.
You may request a copy of any or all of these filings, at no cost, by
writing or telephoning us at Universal Display Corporation, 375 Phillips
Boulevard, Ewing, New Jersey 08618, Attention: Investor Relations, Telephone:
(609) 671-0980.
S-10
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1,277,014 Shares
UNIVERSAL DISPLAY CORPORATION
Common Stock
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Prospectus Supplement
August 5, 2002
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GERARD KLAUER MATTISON
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