OLED

Business Context and Reporting Period

Company: Universal Display Corporation
Filing Type: Form 8-K (Current Report)
Report Date: September 6, 2001
Event Date: August 22, 2001
Context: The Company completed a private placement transaction with two institutional investors, Pine Ridge Financial Inc. and Strong River Investments, Inc., to raise capital through a mix of equity and debt instruments.

Key Financial Metrics and Transaction Details

Capital Raised: Aggregate gross proceeds of $20 million from the initial closing.
Instrument Breakdown:

• Series C Convertible Preferred Stock: $5 million (5,000 shares at $1,000 stated value).
• Secured Convertible Promissory Notes: $15 million (two notes of $7.5 million each).

Future Obligations: Investors are obligated to purchase an additional $5 million in Series D Convertible Preferred Stock upon the effective date of a Form S-3 Registration Statement (subject to conditions).
Warrants Issued:

• To Investors: 744,452 shares at an exercise price of $15.24 per share.
• To Placement Agent (GKM): 186,114 shares at an exercise price of $15.24 per share.

Costs: Cash commission of $300,000 paid to placement agent Gerard Klauer Mattison & Co., Inc. (GKM), plus additional contingent commissions of 6% on Series D purchases and Note conversions.
Security/Collateral: The $15 million Note proceeds are pledged as collateral to secure irrevocable standby letters of credit issued by First Union National Bank.

Material Changes and Terms

Debt Structure: The $15 million in Notes mature on August 22, 2004. Interest accrues daily based on money market rates and compounds annually. The Notes are secured by letters of credit, meaning the cash proceeds are currently restricted until the Notes are converted or repaid.
Equity Terms:

• Series C Stock: Initial conversion price of $12.70. Stated value increases by $4.16 per month.
• Series D Stock: Conversion price based on the Volume Weighted Average Price (VWAP) of Common Stock prior to the Second Closing.
• Conversion Limits: Holders cannot convert if it results in ownership exceeding 9.99% of outstanding Common Stock.

Voting Rights: Investors assigned their voting rights for shares issuable upon conversion and warrant exercise to the Company. Preferred Stock holders generally do not have voting rights.

Guidance, Risks, and Contingencies

Registration Requirements: The Company must file a Form S-3 Registration Statement by September 21, 2001, to register the resale of shares issuable upon conversion and warrant exercise. A second registration statement for Note shares must be filed within 30 days of the first becoming effective.
Acceleration Risks: Note holders may demand immediate repayment of principal and accrued interest if:

• The Note Shares Registration Statement is not declared effective by January 9, 2002.
• The Company sells Common Stock or convertible securities at a price below $13.97 per share.
• An event of default occurs.

Prepayment Rights:

• Holder Right: Holders may require prepayment after 120 or 240 days post-registration effectiveness, depending on the outstanding principal amount.
• Company Right: The Company may prepay Notes in full at any time by paying 105% of the outstanding principal plus accrued interest.

Liquidity Impact: The $15 million in Note proceeds is currently held in an interest-bearing account and pledged as collateral. Funds become accessible only as Notes are converted or repaid.

Investor Verification Checklist

• Registration Status: Verify if the Form S-3 Registration Statement was filed by September 21, 2001, and declared effective by January 9, 2002, to avoid Note acceleration.
• Stock Price Performance: Monitor the Common Stock price relative to the $13.97 threshold (for Note acceleration) and the conversion prices ($12.70 for Series C, VWAP-based for Series D).
• Series D Closing: Confirm the conditions for the Second Closing are met to trigger the additional $5 million investment.
• Dilution Impact: Assess the potential dilution from the 744,452 investor warrants, 186,114 agent warrants, and the conversion of $20 million in current securities plus the potential $5 million Series D.
• Cash Availability: Understand that the $15 million Note proceeds are restricted as collateral until conversion or repayment occurs.