-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UPgcJf+fwr5ywlm8+Pu75AznPhzx6icyMFcd8x6dkE57i1cIxWVYqxEg9APJ936z beWzQpedrunLPOEDewr9KQ== 0000950116-01-500785.txt : 20010907 0000950116-01-500785.hdr.sgml : 20010907 ACCESSION NUMBER: 0000950116-01-500785 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20010906 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events FILED AS OF DATE: 20010906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL DISPLAY CORP \PA\ CENTRAL INDEX KEY: 0001005284 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 232372688 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12031 FILM NUMBER: 1732260 BUSINESS ADDRESS: STREET 1: THREE BALA PLAZA, SUITE 104E CITY: BALA CYNWYD STATE: PA ZIP: 19004 BUSINESS PHONE: 6106174010 MAIL ADDRESS: STREET 1: THREE BALA PLAZA EAST STREET 2: SUITE 104 CITY: BALA CYNWYD STATE: PA ZIP: 19004 8-K 1 eightk.txt 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): September 6, 2001 ----------------- (August 22, 2001) UNIVERSAL DISPLAY CORPORATION -------------------------------------- (Exact Name of Registrant Specified in Charter) Pennsylvania 1-12031 23-2372688 --------------------- ---------------- ---------- (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification No.) Incorporation) 375 Phillips Boulevard Ewing, NJ 08618 - --------------------------------------------- --------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (609) 671-0980 --------------- Not Applicable ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Item 2. Acquisition or Disposition of Assets On August 22, 2001, Universal Display Corporation (the "Company") issued an aggregate of $15 million in Secured Convertible Promissory Notes (the "Notes") to purchasers in a private placement transaction. At the direction of the Company, the proceeds from the sale of the Notes were deposited in an interest-bearing bank account maintained by UDC, Inc., the Company's wholly-owned subsidiary (the "Subsidiary"). The Company's obligations under the Notes are secured by irrevocable standby letters of credit, issued with an aggregate face amount equal to the outstanding principal of the related Notes. The $15 million in proceeds from the sale of the Notes has been pledged by the Subsidiary as collateral to the bank issuing the letters of credit. For a more detailed description of this transaction, please see Item 5 below. Item 5. Other Events. On August 22, 2001, Universal Display Corporation (the "Company") completed a $25 million private placement with two institutional investors, Pine Ridge Financial Inc. and Strong River Investments, Inc. (the "Purchasers"), pursuant to the terms of a Securities Purchase Agreement among the Company and the Purchasers (the "Purchase Agreement"). The private placement was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act. The placement consisted of $5 million in Series C Convertible Preferred Stock, par value $0.01 per share (the "Series C Stock"), and $15 million in Secured Convertible Promissory Notes (the "Notes"), which resulted in aggregate gross proceeds of $20 million to the Company. In addition, pursuant to the terms of the Purchase Agreement, the Company will subsequently designate a new series of preferred stock called Series D Convertible Preferred Stock (the "Series D Stock"). The Purchasers are, subject to the satisfaction of certain conditions that are outside of their control, obligated to purchase $5 million of the Series D Stock following the effective date of a Registration Statement on Form S-3 registering the resale of the shares of the Company's Common Stock issuable upon the conversion of the Series C Stock and the Series D Stock (collectively, the "Preferred Stock"). In connection with the sale of the Preferred Stock and Notes, the Company granted the Purchasers five-year warrants (the "Warrants") to purchase an aggregate of 744,452 shares of Common Stock at an exercise price of $15.24 per share, which may change in the future based on certain anti-dilution and other adjustments. The Purchasers have assigned to the Company their rights to vote the shares of Common Stock issuable upon the conversion of the Preferred Stock and Notes, and upon the exercise of the Warrants. The Company is obligated to register the resale of the shares of Common Stock issuable upon conversion of the Preferred Stock and Notes, as well as upon the exercise of the Warrants, on a Registration Statement on Form S-3 to be filed with the Securities and Exchange Commission (the "SEC"). The Company has agreed to file a Registration Statement covering the shares issuable upon the conversion of the Preferred Stock and the exercise of the Warrants on or before September 21, 2001 (the "Initial Registration Statement"), and to file a Registration Statement covering the shares of Common Stock issuable upon the conversion of the Notes (the "Note Shares Registration Statement") within 30 days after the Initial Registration Statement has been declared effective by the SEC. Preferred Stock Holders of Preferred Stock are not entitled to voting rights except as otherwise required by law. Each share of Preferred Stock has a stated value of $1,000, which increases by $4.16 for each month during which such share of Preferred Stock is outstanding. The Company issued 5,000 shares of Series C Stock as of August 22, 2001, and upon the closing of the sale of the Series D Stock (the "Second Closing"), shall issue 5,000 shares of Series D Stock to the Purchasers. Conversion Price The number of shares of Common Stock issuable upon conversion of a share of Preferred Stock equals the quotient obtained by dividing the stated value of one share of Preferred Stock by the conversion price then in effect. The initial conversion price of the Series C Stock is $12.70, and may change in the future based on certain anti-dilution and other adjustments. The initial conversion price of the Series D Stock will equal the average of the volume weighted average prices (the "VWAP") of the Company's Common Stock for the 24 trading days commencing on the 11th trading day prior to the date on which the Company or the Purchasers, as applicable, gives the other notice that the shares of Series D Stock are to be purchased in accordance with the terms of the Purchase Agreement. This notice may be given after the Initial Registration Statement has been declared effective by the SEC. The Second Closing shall occur on the 14th trading day after the date on which the notice is given. If certain conditions outside of the control of the Purchasers are met, the Purchasers are obligated to purchase $5 million of the Series D Stock at the Second Closing. Methods of Conversion (a) Holders of Preferred Stock may elect to convert such shares at any time at the then-applicable conversion price until August 21, 2004. A holder may not convert shares of Preferred Stock, however, to the extent that it would then own, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. (b) If, at any time after the shares of Common Stock underlying the Preferred Stock have been registered for resale with the SEC, the VWAP of the Company's Common Stock exceeds 135% of the then-applicable conversion price for 20 consecutive trading days, the Company may require the conversion of all of the Preferred Stock at the then-applicable conversion price. Such conversion, however, shall not be effected to the extent that it would result in a holder of Preferred Stock owning, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. (c) All shares of Preferred Stock automatically convert into shares of Common Stock on the third anniversary of the date of issuance thereof at the then-applicable conversion price, unless the Company is in default of a material provision of the Purchase Agreement, any other agreement entered into thereunder, or any instrument or security issued pursuant thereto, in which case the Purchasers may require the Company to repurchase the Preferred Stock for an amount equal to the stated value thereof. Such conversion, however, shall not be effected to the extent that it would result in a holder of Preferred Stock owning, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. 2 Notes Each of the two Notes issued by the Company is in the original principal amount of $7.5 million and has a maturity date of August 22, 2004. Interest accrues daily on the outstanding principal amount of the Notes but compounds annually, at a rate per annum equal to the rate of interest paid from time to time on money market accounts held at First Union National Bank, and is payable quarterly in cash. The Notes are convertible into shares of the Company's Common Stock (the "Note Shares") at a price per share equal to the conversion price then in effect. The initial conversion price of the Notes is $13.97, and may change in the future based on certain anti-dilution and other adjustments. Methods of Conversion and Conversion Price The Notes may be converted as follows: (a) The entire outstanding principal amount of the Notes will automatically convert at the then-applicable conversion price if the following conditions are met: 1. the product of the VWAP and the trading volume of the Company's Common Stock exceeds $726,691 on each of any 20 consecutive trading days; 2. no event of default under the Note is continuing at the end of such 20 trading day period; 3. the VWAP for each of such 20 trading days exceeds 125% of the then-applicable conversion price of the Notes; 4. the Note Shares may be sold under a Note Shares Registration Statement or pursuant to Rule 144(k) promulgated under the Securities Act of 1933 (i.e., at least two years after August 22, 2001, the date on which the purchase price for the Notes was paid); 5. the Company's shares of Common Stock have been listed or quoted on the Nasdaq National Market, the Nasdaq SmallCap Market, or a national securities exchange during each of such 20 trading days; 6. the Company has a sufficient number of shares of Common Stock available to deliver upon conversion of the Notes; and 7. the Company has not failed to timely deliver certificates representing shares of Common Stock upon conversion of the Notes twice in any six month period. 3 Such conversion, however, shall not be effected to the extent that it would result in a holder of a Note owning, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. If the entire principal amount of the Note has not been automatically converted for 150 days due to the 9.99% limitation on ownership, then the Company may prepay the Note without premium or penalty by paying the holder thereof the outstanding principal amount of such Note and all accrued but unpaid interest thereon. (b) Holders of the Notes may convert all or a portion of the Notes at any time. During the period when the Note Shares may be sold under a Note Shares Registration Statement or pursuant to Rule 144(k) promulgated under the Securities Act of 1933, the holders of the Notes must convert at least $1.5 million of the principal amount of each Note per month if the following conditions are met: 1. the product of the VWAP and the trading volume of the Company's Common Stock exceeds $726,691 on each of the 10 trading days ending on the last trading day before the last day of any calendar month; 2. no event of default under the Note is continuing at the end of such month; 3. the average of the VWAPs of the Company's Common Stock for all of the trading days in such calendar month exceeds 110% of the then-applicable conversion price of the Notes; 4. the Company's shares of Common Stock have been listed or quoted on the Nasdaq National Market, the Nasdaq SmallCap Market, or a national securities exchange during such month; 5. the Company has a sufficient number of shares of Common Stock available to deliver upon conversion of the Notes; and 6. the Company has not failed to timely deliver certificates representing shares of Common Stock upon conversion of the Notes twice in any six month period. A holder may not convert its Note, however, to the extent that it would then own, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. (c) Commencing on February 8, 2002, if the following conditions are met, the Company shall have the right to require the conversion of up to $1.5 million of the principal amount of each Note per month by delivering notice to the Note holder of its election to exercise such right (the "Company Conversion Notice"): 1. the product of the VWAP and the trading volume of the Company's Common Stock exceeds $726,691 on each of the 10 trading days ending on the last trading day before the date that is 30 days after the date of the Company Conversion Notice (the "Company Conversion Date"); 4 2. the Note Shares may be sold: (a) under a Note Shares Registration Statement during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date; or (b) pursuant to Rule 144(k) promulgated under the Securities Act of 1933; 3. no event of default under the Note is continuing; 4. the Company's shares of Common Stock have been listed or quoted on the Nasdaq National Market, the Nasdaq SmallCap Market, or a national securities exchange during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date; 5. the Company has a sufficient number of shares of Common Stock available to deliver upon conversion of the Notes; and 6. the Company has not failed to timely deliver certificates representing shares of Common Stock upon conversion of the Notes twice in any six month period. Such conversion, however, shall not be effected to the extent that it would result in a holder of a Note owning, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. If the Company exercises its right to cause a Note conversion, the conversion price of the applicable Note shall be the lesser of (a) the then-applicable conversion price or (b) an amount equal to 87% of the average of the VWAPs of the Company's Common Stock for the 12 consecutive trading days ending on the last trading day immediately preceding the date on which such conversion is effectuated; provided, however, if the conversion price so calculated is less than an amount equal to the product of (A) 90% of the VWAP on the date on which the Company notifies the Purchaser of its election to exercise this right and (B) .87 (such product is referred to as the "Minimum Price"), then the conversion pursuant to the Company Conversion Notice shall not be required, but the Purchaser, at its sole option, may elect to convert all or any portion of the amount to be converted as set forth in the Company's notice at the Minimum Price. Prepayment A holder of a Note has the right to require the Company prepay all or a portion of its Note, plus all accrued but unpaid interest thereon, at any on time on or after: 1. the 120th day following the date on which the SEC declares a Note Shares Registration Statement effective, if more than $3.75 million of the principal amount of such Note is then outstanding; and 5 2. the 240th day following the date on which the SEC declares a Note Shares Registration Statement effective, if more than $1.875 million of the principal amount of such Note is then outstanding. The Company must prepay the specified amount of the Note within one business day after receiving notice from the holder that it is requiring the Company to prepay its Note. The Company has the right to prepay each of the Notes in full at any time by paying the holder thereof 105% of the outstanding principal amount of such Note and all accrued but unpaid interest thereon. The Company must prepay the Note on the thirtieth trading day after the date on which it notifies the Note holder that it is exercising its prepayment rights. Acceleration of Note In the event that either (i) a Note Shares Registration Statement has not been declared effective by the SEC on or prior to January 9, 2002 or (ii) the Company sells shares of its Common Stock or other securities convertible into or exercisable for shares of its Common Stock at a price less than $13.97 per share, then the Note holders may elect to demand repayment of the principal amount of the Notes then outstanding, plus accrued but unpaid interest thereon. In addition, upon the occurrence of events of default under the Notes, the holders thereof may demand repayment of the principal amount of the Notes then outstanding, plus accrued but unpaid interest thereon, and may also be entitled to liquidated damages. Security The Company's obligations under each Note are secured by an irrevocable letter of credit, issued with a face amount equal to the outstanding principal of the related Note. The $15 million in proceeds from the sale of the Notes has been pledged as collateral to the bank issuing the letters of credit. Under the terms of the applicable agreements, the face amount of each letter of credit is reduced as the outstanding principal amount of the related Note is reduced. Thus, as each Note is converted or repaid, the face amount of the related letter of credit will be reduced and, likewise, the amount pledged to the bank as collateral relating to that letter of credit will be reduced. Accordingly, as the Notes are converted or repaid, the Company will be able to access the funds raised from the sale of the Notes in amounts corresponding to the portion of the Notes that are converted or repaid. Warrants Warrants to purchase 157,480 shares of Common Stock are exercisable commencing on the earlier of (x) the date of the Second Closing or (y) August 22, 2004. The remaining Warrants to purchase 586,972 shares of Common Stock are exercisable immediately. However, the Warrants may not be exercised to the extent that a holder thereof would then own, together with its affiliates, more than 9.99% of the Company's Common Stock then outstanding. 6 Placement Agent Commissions As payment of placement agent commissions, the Company paid Gerard Klauer Mattison & Co., Inc. ("GKM") cash commissions of $300,000 and granted GKM seven-year warrants to purchase 186,114 shares of the Company's Common Stock at an exercise price of $15.24 per share, which may change in the future based on certain anti-dilution and other adjustments. The Company has agreed to include the shares issuable upon the exercise of these warrants in the Initial Registration Statement. The Company has agreed to pay additional cash commissions to GKM equal to 6% of the aggregate initial stated value of Series D Stock purchased by the Purchasers at the Second Closing, as well as 6% of the principal amount of the Notes that are converted. These additional commissions will be paid upon the occurrence of the Second Closing and as the Notes are converted, respectively. This summary description of the private placement transaction contemplated by the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement and the other documents and instruments that are filed as Exhibits hereto. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits. Exhibit Number Exhibit Title - -------------- ------------- 4.1 Statement of Designations, Preferences and Rights of Series C Convertible Preferred Stock 4.2 Form of Terms of Series D Convertible Preferred Stock 4.3 Convertible Promissory Note dated as of August 22, 2001 payable to the order of Pine Ridge Financial Inc. 4.4 Convertible Promissory Note dated as of August 22, 2001 payable to the order of Strong River Investments, Inc. 4.5 Warrant of Pine Ridge Financial Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001 4.6 Warrant of Pine Ridge Financial Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001 4.7 Warrant of Pine Ridge Financial Inc. to Purchase 214,746 Shares of Common Stock dated as of August 22, 2001 4.8 Warrant of Strong River Investments, Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001 4.9 Warrant of Strong River Investments, Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001 4.10 Warrant of Strong River Investments, Inc. to Purchase 214,746 Shares of Common Stock dated as of August 22, 2001 7 4.11 Warrant of Gerard Klauer Mattison & Co., Inc. to Purchase 186,114 Shares of Common Stock dated as of August 22, 2001 10.1 Securities Purchase Agreement dated as of August 22, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investors 10.2 Registration Rights Agreement dated as of August 21, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investments, Inc. 10.3 Voting Agreement dated as of August 21, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investments, Inc. 10.4 Pledge Agreement dated as of August 22, 2001 by UDC, Inc. in favor of First Union National Bank 10.5 Control Agreement dated as of August 22, 2001 among First Union National Bank, in its capacity as the issuer of two standby letters of credit, UDC, Inc. and First Union National Bank, in its capacity as custodian 10.6 Guaranty and Suretyship Agreement dated as of August 22, 2001 made by the Company in favor of First Union National Bank 10.7 Irrevocable Standby Letter of Credit issued by First Union National Bank in favor of Pine Ridge Financial Inc. 10.8 Irrevocable Standby Letter of Credit issued by First Union National Bank in favor of Strong River Investments, Inc. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNIVERSAL DISPLAY CORPORATION (Registrant) By /s/ Sidney Rosenblatt -------------------------- Sidney Rosenblatt Chief Financial Officer Dated: September 6, 2001 9 EXHIBIT INDEX Exhibit Number Description ------ ----------- Exhibit Number Exhibit Title - -------------- ------------- 4.1 Statement of Designations, Preferences and Rights of Series C Convertible Preferred Stock* 4.2 Form of Terms of Series D Convertible Preferred Stock* 4.3 Convertible Promissory Note dated as of August 22, 2001 payable to the order of Pine Ridge Financial Inc.* 4.4 Convertible Promissory Note dated as of August 22, 2001 payable to the order of Strong River Investments, Inc.* 4.5 Warrant of Pine Ridge Financial Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001* 4.6 Warrant of Pine Ridge Financial Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001* 4.7 Warrant of Pine Ridge Financial Inc. to Purchase 214,746 Shares of Common Stock dated as of August 22, 2001* 4.8 Warrant of Strong River Investments, Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001* 4.9 Warrant of Strong River Investments, Inc. to Purchase 78,740 Shares of Common Stock dated as of August 22, 2001* 4.10 Warrant of Strong River Investments, Inc. to Purchase 214,746 Shares of Common Stock dated as of August 22, 2001* 4.11 Warrant of Gerard Klauer Mattison & Co., Inc. to Purchase 186,114 Shares of Common Stock dated as of August 22, 2001* 10.1 Securities Purchase Agreement dated as of August 22, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investors* 10.2 Registration Rights Agreement dated as of August 21, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investments, Inc.* 10.3 Voting Agreement dated as of August 21, 2001 among the Company, Pine Ridge Financial Inc. and Strong River Investments, Inc.* 10.4 Pledge Agreement dated as of August 22, 2001 by UDC, Inc. in favor of First Union National Bank* 10.5 Control Agreement dated as of August 22, 2001 among First Union National Bank, in its capacity as the issuer of two standby letters of credit, UDC, Inc. and First Union National Bank, in its capacity as custodian* 10.6 Guaranty and Suretyship Agreement dated as of August 22, 2001 made by the Company in favor of First Union National Bank* 10.7 Irrevocable Standby Letter of Credit issued by First Union National Bank in favor of Pine Ridge Financial Inc.* 10.8 Irrevocable Standby Letter of Credit issued by First Union National Bank in favor of Strong River Investments, Inc.* ------------ * Filed herewith. 10 EX-4.1 3 ex4-1.txt EX-4.1 STATEMENT OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF UNIVERSAL DISPLAY CORPORATION UNIVERSAL DISPLAY CORPORATION, a corporation organized and existing under the laws of the Commonwealth of Pennsylvania (the "Company"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Company pursuant to the provisions of Section 1522 of the Pennsylvania Business Corporation Law, as amended (the "BCL"): RESOLVED, that pursuant to the authority vested in the Board of Directors pursuant to the provisions of the BCL and the Company's Articles of Incorporation, as amended, the Corporation is authorized to issue, out of the 5,000,000 shares of preferred stock, $.01 par value per share, of the Corporation authorized in the Company's Articles of Incorporation, as amended, a series of preferred stock to be designated as "Series C Convertible Preferred Stock," $.01 par value per share, with the following preferences, limitations, and special rights: 1. Designation, Amount and Par Value. The series of preferred stock shall be designated as the Company's Series C Convertible Preferred Stock (the "Preferred Stock"), and the number of shares so designated shall be 5,000. Each share of Preferred Stock shall have a par value of $.01 per share and a stated value initially equal to $1,000 as increased from time to time pursuant to Section 4 below (the "Stated Value"). 2. Definitions. In addition to the terms defined elsewhere in this Certificate of Designations, (a) the terms set forth in Exhibit A hereto shall have the meanings indicated therein, and (b) the following terms have the meanings indicated: "Company" means Universal Display Corporation, a Pennsylvania corporation. "Conversion Price" means $12.70, as adjusted pursuant to Section 15 hereof. "Equity Conditions" means, with respect to a specified issuance of Common Stock, that each of the following conditions is satisfied: (i) the number of authorized but unissued and otherwise unreserved shares of Common Stock is sufficient for such issuance; (ii) such shares of Common Stock are registered for resale by the Holders pursuant to an effective Conversion Shares Registration Statement or all such shares may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the Common Stock is listed or quoted (and is not suspended from trading) on an Eligible Market; (iv) such issuance would be permitted in full without violating Section 16 hereof or the rules or regulations of any Trading Market; and (v) the Company is not in default with respect to any material obligation hereunder or under (A) any other agreement between the Company and any Holder dated as of August 22, 2001, as may hereafter be amended, including, without limitation, the Purchase Agreement and the Notes or (B) any instrument or security issued pursuant to any of the agreements referred to in the preceding clause (A). "Holder" means any holder of Preferred Stock. "Junior Securities" means the Common Stock and all other equity or equity equivalent securities of the Company other than those securities that are outstanding on the Original Issue Date and are explicitly senior in dividend rights or liquidation preference to the Preferred Stock; except that any shares of Series D Convertible Preferred Stock issued pursuant to the provisions of the Purchase Agreement shall not be Junior Securities but shall rank pari passu with the Preferred Stock. "Original Issue Date" means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates that may be issued to evidence such Preferred Stock. "Purchase Agreement" means the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the original purchasers of the Preferred Stock. 3. Dividends. (a) Holders shall not be entitled to receive dividends on the Preferred Stock. 4. Stated Value. The "Stated Value" shall be increased by $4.16 on the last day of each month beginning on September 30, 2001. 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to receive an amount equal to $1,000 for each share of Preferred Stock, payable out of the assets of the Company, whether such assets are capital or surplus, and before any distribution or payment may be made to the holders of any Junior Securities. If the assets of the Company are insufficient to pay such amounts in full, then the entire amount of assets to be distributed shall be distributed among the Holders ratably in accordance with the amount each Holder would have received if such assets were sufficient to pay all such amounts in full. The Company shall provide notice of any Liquidation or Change of Control to each record Holder on the earlier of the day on which the Company (a) publicly announces such event or proposed action, or (b) notifies its shareholders of such event or proposed action. At the request of any Holder, which must be delivered prior to the effective date of a Change of Control (or, if later, within five Trading Days after such Holder receives notice of such Change of Control from the Company), such Change of Control will be treated as a Liquidation with respect to such Holder. 2 6. No Payments on Junior Securities. So long as any Preferred Stock is outstanding, (i) neither the Company nor any Subsidiary shall, directly or indirectly, redeem, purchase or otherwise acquire any Junior Securities or set aside any monies for such a redemption, purchase or other acquisition, and (ii) the Company shall not pay or declare any dividend or make any distribution on any Junior Securities, except stock dividends on the Common Stock payable in additional shares of Common Stock and dividends due and paid in the ordinary course on preferred stock of the Company at such times as the Company is in compliance with its payment and other obligations hereunder. 7. Registration of Preferred Stock. The Company shall register shares of the Preferred Stock, upon records to be maintained by the Company for that purpose (the "Preferred Stock Register"), in the name of the record Holders thereof from time to time. The Company may deem and treat the registered Holder of shares of Preferred Stock as the absolute owner thereof for the purpose of any conversion hereof or any distribution to such Holder, and for all other purposes, absent actual notice to the contrary. 8. Registration of Transfers. The Company shall register the transfer of any shares of Preferred Stock in the Preferred Stock Register, upon surrender of certificates evidencing such shares to the Company at its address specified herein. Upon any such registration or transfer, a new certificate evidencing the shares of Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder. 9. Conversion. (a) Conversion at Option of Holder. At the option of any Holder, any Preferred Stock held by such Holder may be converted into Common Stock based on the then-applicable Conversion Price. A Holder may convert Preferred Stock into Common Stock pursuant to this paragraph at any time and from time to time after the Original Issue Date and prior to August 22, 2004, by delivering to the Company a conversion notice, in the form attached hereto as Exhibit B (a "Conversion Notice"), appropriately completed and duly signed, and the date any such Conversion Notice is delivered to the Company (as determined in accordance with the notice provisions hereof) is a "Conversion Date." A Holder shall simultaneously deliver a copy of the Conversion Notice to the Transfer Agent; provided, however, a Holder's failure to deliver such a copy shall not render such Conversion Notice invalid or ineffective. (b) Conversion at Option of Company. If, at any time after the Effective Date, the Closing Price for twenty (20) consecutive Trading Days exceeds 135% of the Conversion Price (the "Threshold Price"), the Company may require the Holders to convert all of the Preferred Stock into Common Stock based on the then-applicable Conversion Price. The Company may require a conversion pursuant to this paragraph by delivering irrevocable written notice of such election to the Holders, and the thirtieth Trading Day after the date any such notice is delivered to the Holders (as determined in accordance with 3 the notice provisions hereof) will be the "Conversion Date" for such required conversion. Notwithstanding the foregoing, the Company may not require any conversion under this paragraph (and any notice thereof will be void), unless from the beginning of the period of twenty consecutive Trading Days through the Conversion Date, the Equity Conditions (except for the condition set forth in Section 16(a), which need not be satisfied for this purpose) are satisfied with respect to all of the Underlying Shares then issuable upon conversion in full of all outstanding Preferred Stock. (c) Automatic Conversion. Notwithstanding Section 16(a) hereof or any other provision to the contrary contained herein, but subject to the satisfaction of the Equity Conditions and the provisions of Section 16(b) hereof, on the third anniversary of the Original Issue Date, all the shares of Preferred Stock shall be converted as if the Holder had delivered a Conversion Notice with respect to such shares on such day. In the event the Equity Conditions (other than the requirements set forth in Sections 16(a) and 16(b), which need not be satisfied for this purpose) are not satisfied on such date, the Holder, at its option, may require the Company to repurchase the Preferred Stock for an amount equal to the Stated Value of the Preferred Stock on such date. The Holder shall exercise this option by delivering to the Company written notice to that effect and the Company shall repurchase the Preferred Stock on the fifth Business Day following the receipt of such notice against delivery of the Preferred Stock. 10. Mechanics of Conversion. (a) The number of Underlying Shares issuable upon any conversion of a share of Preferred Stock hereunder shall equal the Stated Value on the Conversion Date of such share of Preferred Stock to be converted, divided by the Conversion Price in effect on the Conversion Date. (b) Upon conversion of any Preferred Stock, the Company shall promptly (but in no event later than four Trading Days after the Conversion Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate (i) a certificate for the Underlying Shares issuable upon such conversion, free of restrictive legends unless a registration statement covering the resale of the Underlying Shares and naming the Holder as a selling stockholder thereunder is not then effective and such Underlying Shares are not then freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act, and (ii) a bank check in the amount of all accrued and unpaid dividends on the Preferred Stock so converted (if the Company has elected or is required to pay such accrued dividends in cash). Within three Trading Days after receipt thereof, the Holder will deliver the original certificate(s) evidencing the Preferred Stock so converted to the Company, unless the Holder is awaiting receipt of a new certificate evidencing such shares from the Company pursuant to another provision hereof. The Holder, or any Person so designated by the Holder to receive Underlying Shares, shall be deemed to have become holder of record of such Underlying Shares as of the Conversion Date. The Company shall, upon request of the Holder, use its best efforts to deliver Underlying Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. 4 (c) If a Holder is converting less than all shares of Preferred Stock represented by the certificate or certificates delivered by such Holder to the Company in connection with such conversion, or if such conversion cannot be effected in full for any reason, the Company shall promptly deliver to such Holder a new certificate representing the number of shares of Preferred Stock not converted. (d) The Company's obligations to issue and deliver Underlying Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by any Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by any Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by any Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to any Holder in connection with the issuance of such Underlying Shares. 11. Voting Rights. Except as otherwise provided herein or as required by applicable law, the Holders shall not be entitled to vote on any matters. So long as any shares of Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of two thirds (2/3) of the shares of Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) except for Series D Preferred Stock, authorize or create any class of stock ranking as to dividends or distribution of assets upon a Liquidation senior to or otherwise pari passu with the Preferred Stock, (c) amend its certificate or articles of incorporation or other charter documents so as to affect adversely any rights of the Holders, or (d) increase the authorized number of shares of Preferred Stock. 12. Charges, Taxes and Expenses. Except as otherwise provided in this Section 12, issuance of certificates for shares of Preferred Stock and for Underlying Shares issued on conversion of (or otherwise in respect of) the Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall be entitled to withhold any applicable taxes with respect to the actual or deemed payment of any dividends on the Preferred Stock (whether in cash or in shares of stock) and with respect to the payment of any cash in lieu of the issuance of fractional shares pursuant to Section 17 hereof; and further provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Common Stock or Preferred Stock in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Preferred Stock or receiving Underlying Shares in respect of the Preferred Stock. 5 13. Replacement Certificates. If any certificate evidencing Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 14. Reservation of Underlying Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Underlying Shares as required hereunder, the number of Underlying Shares which are then issuable and deliverable upon the conversion of (and otherwise in respect of) all outstanding Preferred Stock (taking into account the adjustments of Section 15), free from preemptive rights or any other contingent purchase rights of persons other than the Holder. The Company covenants that all Underlying Shares so issuable and deliverable shall, upon issuance in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 15. Certain Adjustments. The Conversion Price is subject to adjustment from time to time as set forth in this Section 15. (a) Stock Dividends and Splits. If the Company, at any time while Preferred Stock is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (other than regular dividends on the Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any other shares of capital stock, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clauses (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification. If any event requiring an adjustment under this paragraph occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event. 6 (b) Pro Rata Distributions. If the Company, at any time while Preferred Stock is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then, at the request of any Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to such Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that such Holder would have been entitled to receive in respect of the Underlying Shares for which such Holder's Preferred Stock could have been converted immediately prior to such record date. If such Distributed Property is not delivered to a Holder pursuant to the preceding sentence, then upon any conversion of Preferred Stock that occurs after such record date, such Holder shall be entitled to receive, in addition to the Underlying Shares otherwise issuable upon such conversion, the Distributed Property that such Holder would have been entitled to receive in respect of such number of Underlying Shares had the Holder been the record holder of such Underlying Shares immediately prior to such record date. (c) Fundamental Transactions. If, at any time while Preferred Stock is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion of Preferred Stock, each Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination of the Variable Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then each Holder shall be given the same choice as to the Alternate Consideration it 7 receives upon any conversion of Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new series of preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (d) Subsequent Equity Sales. (i) If, at any time while Preferred Stock is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock sometimes hereinafter called "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Conversion Price (as adjusted hereunder to such date), then the Conversion Price shall be reduced to equal the Effective Price. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Conversion Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. (ii) If, at any time while Preferred Stock is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent conversion, the Effective Price will be determined separately on each Conversion Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Conversion Date (regardless of whether any such holder actually acquires any shares on such date). 8 (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 13(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the shares authorized under such plans during the immediately preceding year), (b) the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors; (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate; (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof; (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 3.1(g) to the Purchase Agreement, a copy of which is on file at the offices of the Company and which will be made available to any Holder upon request; or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 3.1(g) to the Purchase Agreement, a copy of which is on file at the offices of the Company and which will be made available to any Holder upon request; (e) Calculations. All calculations under this Section 15 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 15, the Company at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to each Holder and to the Transfer Agent. 9 (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to each Holder a notice describing the material terms and conditions of such transaction, on the earlier of the day on which the Company (a) publicly announces such proposed action or (b) notifies its Shareholders of such proposed action, and the Company will take all steps reasonably necessary in order to insure that each Holder is given the practical opportunity to convert its Preferred Stock prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 16. Limitation on Conversion. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by any Holder upon any conversion of Preferred Stock (or otherwise in respect of the Preferred Stock) shall be limited to the extent necessary to insure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of a Conversion Notice by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Underlying Shares requested in such Conversion Notice is permitted under this paragraph. By written notice to the Company, any Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to such Holder and not to any other Holder. (b) Notwithstanding anything contained to the contrary herein, the number of shares of Common Stock that may be acquired by any Holder upon any conversion of Preferred Stock (or otherwise in respect of the Preferred Stock) shall be limited to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in 10 accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 14(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 14(b) applies, the determination of the extent to which the Preferred Stock is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice or the Company is requiring conversion pursuant to Section 9(b) in either case, that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum amount permitted to be converted on such Conversion Date. 17. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Underlying Shares on conversion of Preferred Stock. If any fraction of an Underlying Share would, except for the provisions of this Section, be issuable upon conversion of Preferred Stock, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Conversion Date multiplied by such fraction; provided that, unless a Holder requests otherwise, no payment shall be required to be made to a Holder pursuant to this sentence until the aggregate amount payable to such Holder in connection with such conversion (together with unpaid amounts from prior conversions) exceeds $1,000, at which time all previously deferred payments shall be made. 18. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618, facsimile: (609) 671-0995, Attention Sidney Rosenblatt, or (ii) if to a Holder, to the address or facsimile number appearing on the Company's stockholder records or such other address or facsimile number as such Holder may provide to the Company in accordance with this Section. 11 19. Miscellaneous. (a) The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof. (b) No waiver of any default with respect to any provision, condition or requirement of this Certificate of Designations shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 12 EXHIBIT A ADDITIONAL DEFINITIONS "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Change of Control" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of more than one-half of the voting rights or equity interests in the Company, (ii) a replacement of more than one-half of the members of the Company's board of directors that is not approved by those individuals who are members of the board of directors on the date hereof in one or a series of related transactions, (iii) a merger or consolidation of the Company or any Subsidiary or a sale of all or substantially all of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of the Company's securities prior to the first such transaction continue to hold at least a majority of the voting rights and equity interests in of the surviving entity or acquirer of such assets, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). "Closing Price" means, for any date the VWAP for such date (or the nearest preceding date) all as reported by Bloomberg L.P. or any successor to its function for reporting VWAP. "Common Stock" means the common stock of the Company, par value $.01 per share. "Conversion Shares Registration Statement" means a registration statement covering the resale of the Underlying Shares by the Holders and any additional registration statements with respect thereto, including (in each case) the prospectus included in such registration statement, and any amendments and supplements to such registration statement or prospectus including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. 13 "Effective Date" means the date that a Conversion Shares Registration Statement is declared effective by the Commission. "Eligible Market" means the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Motorola Agreement" means collectively the License Agreement dated as of September 29, 2000 between the Company and Motorola, Inc., the Stock Purchase Warrant granted to Motorola, Inc. on September 29, 2000 and the Securities Purchase Agreement, dated as of September 29, 2000 between the Company and Motorola, Inc. "Notes" means $15,000,000 in aggregate principal amount of Convertible Promissory Notes due August 22, 2004 issued by the Company to the Holders. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "PPG Agreement" means collectively, the Development and License Agreement dated as of October 1, 2000 between the Company and PPG Industries, Inc., as amended, and the Stock Purchase Warrant granted to PPG Industries, Inc. on October 1, 2000. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means any subsidiary of the Company. "Trading Day" means (a) any day on which the Common Stock is traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted on any national securities exchange, market or trading or quotation facility, then a day on which trading occurs on the New York Stock Exchange (or any successor thereto). "Trading Market" means the NASDAQ National Market System or any other national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted. "Transfer Agent" means American Stock Transfer & Trust Company or such other entity that the Company shall designate as its transfer agent from time to time, provided that the Company has given notice to the Holder that it has designated a new Transfer Agent. "Underlying Shares" means the shares of Common Stock issuable upon conversion of the Preferred Stock. "VWAP" means Volume Weighted Average Price of a share of Common Stock. 14 EXHIBIT B FORM OF CONVERSION NOTICE (To be executed by the registered Holder in order to convert shares of Preferred Stock) The undersigned hereby elects to convert the number of shares of Series C Convertible Preferred Stock indicated below into shares of common stock, par value $.01 per share (the "Common Stock"), of Universal Display Corporation, a Pennsylvania corporation (the "Company"), according to the conditions hereof, as of the date written below. --------------------------------------------------- Date to Effect Conversion --------------------------------------------------- Number of shares of Preferred Stock owned prior to Conversion --------------------------------------------------- Number of shares of Preferred Stock to be Converted --------------------------------------------------- Stated Value of shares of Preferred Stock to be Converted --------------------------------------------------- Number of shares of Common Stock to be Issued --------------------------------------------------- Applicable Conversion Price --------------------------------------------------- Number of shares of Preferred Stock subsequent to Conversion The undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the "Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated as of August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. ----------------------------------------- Name of Holder By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- 15 EX-4.2 4 ex4-2.txt EX-4.2 TERMS OF PREFERRED STOCK 1. Designation, Amount and Par Value. The series of preferred stock shall be designated as the Company's Series D Convertible Preferred Stock (the "Preferred Stock"), and the number of shares so designated shall be 5,000. Each share of Preferred Stock shall have a par value of $.01 per share and a stated value initially equal to $1,000 as increased from time to time pursuant to Section 4 below (the "Stated Value"). 2. Definitions. In addition to the terms defined elsewhere in this Certificate of Designations, (a) the terms set forth in Exhibit A hereto shall have the meanings indicated therein, and (b) the following terms have the meanings indicated: "Company" means Universal Display Corporation, a Pennsylvania corporation. "Conversion Price" means $___[the average Closing Price for the 24 Trading Days beginning on the 11th Trading Day prior to the giving of a Second Tranche Notice as contemplated by Section 2.3 of the Purchase Agreement]*, as adjusted pursuant to Section 15 hereof. "Equity Conditions" means, with respect to a specified issuance of Common Stock, that each of the following conditions is satisfied: (i) the number of authorized but unissued and otherwise unreserved shares of Common Stock is sufficient for such issuance; (ii) such shares of Common Stock are registered for resale by the Holders pursuant to an effective Conversion Shares Registration Statement or all such shares may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the Common Stock is listed or quoted (and is not suspended from trading) on an Eligible Market; (iv) such issuance would be permitted in full without violating Section 16 hereof or the rules or regulations of any Trading Market; and (v) the Company is not in default with respect to any material obligation hereunder or under any other (A) any other agreement between the Company and any Holder, dated as of August 22, 2001, as may hereafter be amended; including, without limitation, the Purchase Agreement and the Notes or (B) any instrument or security issued pursuant to any of the agreements referred to in the preceding clause (A). "Holder" means any holder of Preferred Stock. "Junior Securities" means the Common Stock and all other equity or equity equivalent securities of the Company other than those securities that are outstanding on the Original Issue Date and are explicitly senior in dividend rights or liquidation preference to the Preferred Stock; except that any shares of Series C Convertible - -------- * to be completed Preferred Stock issued pursuant to the provisions of the Purchase Agreement shall not be Junior Securities but shall rank pari passu with the Preferred Stock. "Original Issue Date" means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates that may be issued to evidence such Preferred Stock. "Purchase Agreement" means the Securities Purchase Agreement, dated August 22, 2001, among the Company and the original purchasers of the Preferred Stock. 3. Dividends. (a) Holders shall not be entitled to receive dividends on the Preferred Stock. 4. Stated Value. The "Stated Value" shall be increased by $4.16 on the last day of each month beginning on ______ __, 200_ [the last day of the month in which the Second Closing Date occurs unless the Second Closing Date occurs on or after the 16th day of the month in which case it shall be the last day of the month following the month in which the Second Closing Date occurs]*. 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to receive an amount equal to $1,000 for each share of Preferred Stock, payable out of the assets of the Company, whether such assets are capital or surplus, and before any distribution or payment may be made to the holders of any Junior Securities. If the assets of the Company are insufficient to pay such amounts in full, then the entire amount of assets to be distributed shall be distributed among the Holders ratably in accordance with the amount each Holder would have received if such assets were sufficient to pay all such amounts in full. The Company shall provide notice of any Liquidation or Change of Control to each record Holder on the earlier of the day on which the Company (a) publicly announces such event or proposed action, or (b) notifies its shareholders of such event or proposed action. At the request of any Holder, which must be delivered prior to the effective date of a Change of Control (or, if later, within five Trading Days after such Holder receives notice of such Change of Control from the Company), such Change of Control will be treated as a Liquidation with respect to such Holder. 6. No Payments on Junior Securities. So long as any Preferred Stock is outstanding, (i) neither the Company nor any Subsidiary shall, directly or indirectly, redeem, purchase or otherwise acquire any Junior Securities or set aside any monies for such a redemption, purchase or other acquisition, and (ii) the Company shall not pay or declare any dividend or make any distribution on any Junior Securities, except stock dividends on the Common Stock payable in - -------- * to be completed 2 additional shares of Common Stock and dividends due and paid in the ordinary course on preferred stock of the Company at such times as the Company is in compliance with its payment and other obligations hereunder. 7. Registration of Preferred Stock. The Company shall register shares of the Preferred Stock, upon records to be maintained by the Company for that purpose (the "Preferred Stock Register"), in the name of the record Holders thereof from time to time. The Company may deem and treat the registered Holder of shares of Preferred Stock as the absolute owner thereof for the purpose of any conversion hereof or any distribution to such Holder, and for all other purposes, absent actual notice to the contrary. 8. Registration of Transfers. The Company shall register the transfer of any shares of Preferred Stock in the Preferred Stock Register, upon surrender of certificates evidencing such shares to the Company at its address specified herein. Upon any such registration or transfer, a new certificate evidencing the shares of Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder. 9. Conversion. (a) Conversion at Option of Holder. At the option of any Holder, any Preferred Stock held by such Holder may be converted into Common Stock based on the then-applicable Conversion Price. A Holder may convert Preferred Stock into Common Stock pursuant to this paragraph at any time and from time to time after the Original Issue Date and prior to August 22, 2004, by delivering to the Company a conversion notice, in the form attached hereto as Exhibit B (a "Conversion Notice"), appropriately completed and duly signed, and the date any such Conversion Notice is delivered to the Company (as determined in accordance with the notice provisions hereof) is a "Conversion Date." A Holder shall simultaneously deliver a copy of the Conversion Notice to the Transfer Agent; provided, however, a Holder's failure to deliver such a copy shall not render such Conversion Notice invalid or ineffective. (b) Conversion at Option of Company. If, at any time after the Effective Date, the Closing Price for twenty (20) consecutive Trading Days exceeds 135% of the Conversion Price (the "Threshold Price"), the Company may require the Holders to convert all of the Preferred Stock into Common Stock based on the then-applicable Conversion Price. The Company may require a conversion pursuant to this paragraph by delivering irrevocable written notice of such election to the Holders, and the thirtieth Trading Day after the date any such notice is delivered to the Holders (as determined in accordance with the notice provisions hereof) will be the "Conversion Date" for such required conversion. Notwithstanding the foregoing, the Company may not require any conversion under this paragraph (and any notice thereof will be void), unless from the beginning of the period of twenty consecutive Trading Days through the Conversion Date, the Equity Conditions (except for the condition set forth in Section 16(a), which need not be satisfied for this purpose) are satisfied with respect to all of the Underlying Shares then issuable upon conversion in full of all outstanding Preferred Stock. 3 (c) Automatic Conversion. Notwithstanding Section 16(a) hereof or any other provision to the contrary contained herein, but subject to the satisfaction of the Equity Conditions and the provisions of Section 16(b) hereof, on the third anniversary of the Original Issue Date, all the shares of Preferred Stock shall be converted as if the Holder had delivered a Conversion Notice with respect to such shares on such day. In the event the Equity Conditions (other than the requirements set forth in Sections 16(a) and 16(b), which need not be satisfied for this purpose) are not satisfied on such date, the Holder, at its option, may require the Company to repurchase the Preferred Stock for an amount equal to the Stated Value of the Preferred Stock on such date. The Holder shall exercise this option by delivering to the Company written notice to that effect and the Company shall repurchase the Preferred Stock on the fifth Business Day following the receipt of such notice against delivery of the Preferred Stock. 10. Mechanics of Conversion. (a) The number of Underlying Shares issuable upon any conversion of a share of Preferred Stock hereunder shall equal the Stated Value on the Conversion Date of such share of Preferred Stock to be converted, divided by the Conversion Price in effect on the Conversion Date. (b) Upon conversion of any Preferred Stock, the Company shall promptly (but in no event later than four Trading Days after the Conversion Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate (i) a certificate for the Underlying Shares issuable upon such conversion, free of restrictive legends unless a registration statement covering the resale of the Underlying Shares and naming the Holder as a selling stockholder thereunder is not then effective and such Underlying Shares are not then freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act, and (ii) a bank check in the amount of all accrued and unpaid dividends on the Preferred Stock so converted (if the Company has elected or is required to pay such accrued dividends in cash). Within three Trading Days after receipt thereof, the Holder will deliver the original certificate(s) evidencing the Preferred Stock so converted to the Company, unless the Holder is awaiting receipt of a new certificate evidencing such shares from the Company pursuant to another provision hereof. The Holder, or any Person so designated by the Holder to receive Underlying Shares, shall be deemed to have become holder of record of such Underlying Shares as of the Conversion Date. The Company shall, upon request of the Holder, use its best efforts to deliver Underlying Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (c) If a Holder is converting less than all shares of Preferred Stock represented by the certificate or certificates delivered by such Holder to the Company in connection with such conversion, or if such conversion cannot be effected in full for any reason, the Company shall promptly deliver to such Holder a new certificate representing the number of shares of Preferred Stock not converted. 4 (d) The Company's obligations to issue and deliver Underlying Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by any Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by any Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by any Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to any Holder in connection with the issuance of such Underlying Shares. 11. Voting Rights. Except as otherwise provided herein or as required by applicable law, the Holders shall not be entitled to vote on any matters. So long as any shares of Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of two-thirds (2/3) of the shares of Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends or distribution of assets upon a Liquidation senior to or otherwise pari passu with the Preferred Stock, (c) amend its certificate or articles of incorporation or other charter documents so as to affect adversely any rights of the Holders, or (d) increase the authorized number of shares of Preferred Stock. 12. Charges, Taxes and Expenses. Except as otherwise provided in this Section 12, issuance of certificates for shares of Preferred Stock and for Underlying Shares issued on conversion of (or otherwise in respect of) the Preferred Stock shall be made without charge to the Holders for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall be entitled to withhold any applicable taxes with respect to the actual or deemed payment of any dividends on the Preferred Stock (whether in cash or shares of stock) and with respect to the payment of any cash in lieu of the issuance of fractional shares) pursuant to Section 17 hereof; and further provided, however, that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the registration of any certificates for Common Stock or Preferred Stock in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Preferred Stock or receiving Underlying Shares in respect of the Preferred Stock. 13. Replacement Certificates. If any certificate evidencing Preferred Stock or Underlying Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for such certificate, a new certificate, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 5 14. Reservation of Underlying Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Underlying Shares as required hereunder, the number of Underlying Shares which are then issuable and deliverable upon the conversion of (and otherwise in respect of) all outstanding Preferred Stock (taking into account the adjustments of Section 15), free from preemptive rights or any other contingent purchase rights of persons other than the Holder. The Company covenants that all Underlying Shares so issuable and deliverable shall, upon issuance in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 15. Certain Adjustments. The Conversion Price is subject to adjustment from time to time as set forth in this Section 15. (a) Stock Dividends and Splits. If the Company, at any time while Preferred Stock is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (other than regular dividends on the Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any other shares of capital stock, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clauses (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification. If any event requiring an adjustment under this paragraph occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event. (b) Pro Rata Distributions. If the Company, at any time while Preferred Stock is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then, at the request of any Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to such Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that such Holder would have been entitled to receive in respect of the Underlying Shares for which such Holder's Preferred Stock could have been converted immediately prior to such record date. If such Distributed Property is not delivered to a Holder pursuant to the preceding sentence, then upon any conversion of Preferred Stock that occurs after such record date, such Holder shall be entitled to receive, in addition to 6 the Underlying Shares otherwise issuable upon such conversion, the Distributed Property that such Holder would have been entitled to receive in respect of such number of Underlying Shares had the Holder been the record holder of such Underlying Shares immediately prior to such record date. (c) Fundamental Transactions. If, at any time while Preferred Stock is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion of Preferred Stock, each Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination of the Variable Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then each Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new series of preferred stock consistent with the foregoing provisions and evidencing the Holders' right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (d) Subsequent Equity Sales. (i) If, at any time while Preferred Stock is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock sometimes hereinafter 7 called "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Conversion Price (as adjusted hereunder to such date), then the Conversion Price shall be reduced to equal the Effective Price. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Conversion Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. (ii) If, at any time while Preferred Stock is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent conversion, the Effective Price will be determined separately on each Conversion Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Conversion Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 13(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the shares authorized under such plans during the immediately preceding year), (b) the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement (d) up to 1,000,000 of CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors; (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate; (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof; (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution 8 provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 3.1(g) to the Purchase Agreement, a copy of which is on file at the offices of the Company and which will be made available to any Holder upon request; or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on; Schedule 3.1(g) to the Purchase Agreement, a copy of which is on file at the offices of the Company and which will be made available to any Holder upon request; (e) Calculations. All calculations under this Section 15 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 15, the Company at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to each Holder and to the ^ Transfer Agent. (g) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to each Holder a notice describing the material terms and conditions of such transaction, on the earlier of the day on which the Company (a) publicly announces such proposed action or (b) notifies its Shareholders of such proposed action, and the Company will take all steps reasonably necessary in order to insure that each Holder is given the practical opportunity to convert its Preferred Stock prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 16. Limitation on Conversion. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by any Holder upon any conversion of Preferred Stock (or otherwise in respect of the Preferred Stock) shall be limited to the extent necessary to insure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be 9 aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of a Conversion Notice by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Underlying Shares requested in such Conversion Notice is permitted under this paragraph. By written notice to the Company, any Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to such Holder and not to any other Holder. (b) Notwithstanding anything contained to the contrary herein, the number of shares of Common Stock that may be acquired by any Holder upon any conversion of Preferred Stock (or otherwise in respect of the Preferred Stock) shall be limited to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 14(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 14(b) applies, the determination of the extent to which the Preferred Stock is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice or the Company is requiring conversion pursuant to Section 9(b) in either case, that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum amount permitted to be converted on such Conversion Date. 17. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Underlying Shares on conversion of Preferred Stock. If any fraction of an Underlying Share would, except for the provisions of this Section, be issuable upon conversion of Preferred Stock, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Conversion Date multiplied by such fraction; provided that, unless a Holder requests otherwise, no payment shall be required to be made to a Holder pursuant to this sentence until the aggregate amount payable to such Holder in connection 10 with such conversion (together with unpaid amounts from prior conversions) exceeds $1,000, at which time all previously deferred payments shall be made. 18. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service.. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618, facsimile: (609) 671-0995, Attention Sidney Rosenblatt, or (ii) if to a Holder, to the address or facsimile number appearing on the Company's stockholder records or such other address or facsimile number as such Holder may provide to the Company in accordance with this Section. 19. Miscellaneous. (a) The headings herein are for convenience only, do not constitute a part of this Certificate of Designations and shall not be deemed to limit or affect any of the provisions hereof. (b) No waiver of any default with respect to any provision, condition or requirement of this Certificate of Designations shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 11 EXHIBIT A ADDITIONAL DEFINITIONS "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Change of Control" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of more than one-half of the voting rights or equity interests in the Company, (ii) a replacement of more than one-half of the members of the Company's board of directors that is not approved by those individuals who are members of the board of directors on the date hereof in one or a series of related transactions, (iii) a merger or consolidation of the Company or any Subsidiary or a sale of all or substantially all of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of the Company's securities prior to the first such transaction continue to hold at least a majority of the voting rights and equity interests in of the surviving entity or acquirer of such assets, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). "Closing Price" means, for any date the VWAP for such date (or the nearest preceding date) all as reported by Bloomberg L.P. or any successor to its function for reporting VWAP. "Common Stock" means the common stock of the Company, par value $.01 per share. "Conversion Shares Registration Statement" means a registration statement covering the resale of the Underlying Shares by the Holders and any additional registration statements with respect thereto, including (in each case) the Prospectus included in such registration statement and in any amendments and supplements to such registration statement or prospectus including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Effective Date" means the date that a Conversion Shares Registration Statement is declared effective by the Commission. 12 "Eligible Market" means the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Motorola Agreement" means collectively the License Agreement dated as of September 29, 2000 between the Company and Motorola, Inc., the Stock Purchase Warrant granted to Motorola, Inc. on September 29, 2000 and the Securities Purchase Agreement, dated as of September 29, 2000 between the Company and Motorola, Inc. "Notes" means $15,000,000 in aggregate principal amount of Convertible Promissory Notes due August 22, 2004 issued by the Company to the Holders. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "PPG Agreement" means collectively, the Development and License Agreement dated as of October 1, 2000 between the Company and PPG Industries, Inc., as amended, and the Stock Purchase Warrant granted to PPG Industries, Inc. on October 1, 2000. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means any subsidiary of the Company. "Trading Day" means (a) any day on which the Common Stock is traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted on any national securities exchange, market or trading or quotation facility, then a day on which trading occurs on the New York Stock Exchange (or any successor thereto). "Trading Market" means the NASDAQ National Market System or any other national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted. "Transfer Agent" means American Stock Transfer & Trust Company or such other entity that the Company shall designate as its transfer agent from time to time, provided that the Company has given notice to the Holder that it has designated a new Transfer Agent. "Underlying Shares" means the shares of Common Stock issuable upon conversion of the Preferred Stock. "VWAP" means Volume Weighted Average Price of a share of Common Stock. 13 EXHIBIT B FORM OF CONVERSION NOTICE (To be executed by the registered Holder in order to convert shares of Preferred Stock) The undersigned hereby elects to convert the number of shares of Series D Convertible Preferred Stock indicated below into shares of common stock, par value $.01 per share (the "Common Stock"), of Universal Display Corporation, a Pennsylvania corporation (the "Company"), according to the conditions hereof, as of the date written below. ------------------------------------------------------------- Date to Effect Conversion ------------------------------------------------------------- Number of shares of Preferred Stock owned prior to Conversion ------------------------------------------------------------- Number of shares of Preferred Stock to be Converted ------------------------------------------------------------- Stated Value of shares of Preferred Stock to be Converted ------------------------------------------------------------- Number of shares of Common Stock to be Issued ------------------------------------------------------------- Applicable Conversion Price ------------------------------------------------------------- Number of shares of Preferred Stock subsequent to Conversion The undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the "Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. ----------------------------------------- Name of Holder By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 15 EX-4.3 5 ex4-3.txt EX-4.3 NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. August 22, 2001 $7,500,000 UNIVERSAL DISPLAY CORPORATION CONVERTIBLE PROMISSORY NOTE DUE AUGUST 22, 2004 FOR VALUE RECEIVED, Universal Display Corporation, a Pennsylvania corporation having its principal place of business at 375 Phillips Boulevard, Ewing, New Jersey, 08618 (the "Company") promises to pay to the order of Pine Ridge Financial, Inc., or its registered assigns (the "Holder"), the principal sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) on the Maturity Date (as defined in Section 3) and to pay interest thereon at a rate equal to the rate of interest paid from time to time on money market accounts held at First Union Bank, payable in arrears on each March 31, June 30, September 30 and December 31 of each year during which this Convertible Promissory Note (this "Note") remains outstanding (for purposes of payment of interest, each such date being an "Interest Payment Date"), in cash. Interest shall be calculated on the basis of a 360-day year of twelve thirty-day months and shall accrue daily (but compound annually) commencing on the "Original Issue Date" (as defined in Section 8) until payment (whether through conversion of all outstanding principal amount hereunder or otherwise) in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Holder. Upon the occurrence and during the continuance of an "Event of Default" (as defined in Section 4) (except for a default occurring on account of Section 4(a)(viii) all amounts due hereunder, whether by acceleration or otherwise, shall bear interest at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) to accrue daily, from the third "Business Day" (as defined in Section 8) following the date on which such payment is due hereunder through and including the date of payment), payable in cash. All cash payments to be made under this Note shall be made in such coin or currency as shall constitute legal tender for the payment of private or private debts in the United States and all cash payments and deliveries required under this Note shall be made to the Holder at c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd., Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands. This Note is subject to the following additional provisions: Section 1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange. Section 2. This Note is one of a series of duly authorized and issued notes of the Company, designated as its Convertible Promissory Notes, due August 22, 2004, in the aggregate original principal amount of Fifteen Million Dollars ($15,000,000) (the "Notes"). This Note has been issued pursuant to the "Purchase Agreement" (as defined in Section 8), is subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged to another "Person" (as defined in Section 8) only in compliance with the Purchase Agreement. Section 3. Maturity Date. Except as otherwise provided in Section 4, the entire unpaid principal balance of this Note and all accrued but unpaid interest thereon and any other amounts otherwise payable under this Note shall be due and payable on August 22, 2004. The date on which the entire unpaid principal balance of this Note and all other amounts owing under this Note is due and payable, whether by acceleration or otherwise, is herein referred to as the "Maturity Date". Section 4. Events of Default. (a) Event of Default, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body): (i) except as otherwise provided in clause (xiii) below, any default in the payment of the principal of, interest on or any other amount in the aggregate in excess of $4,900 due in respect of, this Note or any of the other Notes or any of the other "Transaction Documents" (as defined in Section 8), free of any claim of subordination, by the fifth Business Day following the date the same shall become due and payable (whether on an Interest Payment Date or the Maturity Date, by acceleration or otherwise); (ii) the Company shall fail to observe or perform in all material respects any other covenant, agreement or warranty contained in, or otherwise commit any material breach of, any provision of this Note or any of the Transaction Documents, other than those matters that are the specific subject of another Event of Default under this Section, and such failure or breach shall continue for a period of twenty Business Days after the date on which notice of such failure or breach shall have been given; 2 (iii) the Company or any of its subsidiaries shall commence, or there shall be commenced against the Company or any of its subsidiaries, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any of its subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any of its subsidiaries or there is commenced against the Company or any of its subsidiaries any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty days; or the Company or any of its subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any of its subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty days; or the Company or any of its subsidiaries makes a general assignment for the benefit of creditors; or the Company or any of its subsidiaries shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any of its subsidiaries shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any of its subsidiaries for the purpose of effecting any of the foregoing; (iv) the Company shall default in any of its payment obligations under any other promissory note, debenture or other evidence of indebtedness, or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding five hundred thousand dollars ($500,000), whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable without such indebtedness having been discharged in full or any acceleration of such indebtedness having been rescinded or annulled in full within the applicable grace period; (v) the Company for any reason shall fail to deliver certificates to the Holder on or prior to the "Delivery Date" (as defined in Section 8) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of this Note in accordance with the terms hereof; or 3 (vi) the Common Stock shall not be quoted for trading on the Nasdaq National Market ("NASDAQ") or, if the Common Stock shall hereafter become listed or quoted for trading on the Nasdaq SmallCap Market, the New York Stock Exchange, or American Stock Exchange (each, a "Subsequent Market"), it shall fail to be quoted or listed for trading on such Subsequent Market, for an aggregate of five "Trading Days" (as defined in Section 8); (vii) the Company shall be a party to any "Change of Control Transaction" (as defined in Section 8), shall agree to sell or dispose of all or substantially all of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), or shall redeem or repurchase shares of Common Stock or other equity securities of the Company; (viii) a "Note Shares Registration Statement" (as defined in the Registration Rights Agreement) shall not have been declared effective by the "Commission" (as defined in Section 8) on or prior to January 9, 2002; (ix) if, during the "Effectiveness Period" (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement (as defined in the Registration Rights Agreement) lapses for any reason or the Holder shall not be permitted to resell "Registrable Securities" (as defined in the Registration Rights Agreement) under a Registration Statement, in either case, for an aggregate of more of than twenty Trading Days (which need not be consecutive Trading Days) in any twelve month period; (x) a "Note Event" (as defined in the Registration Rights Agreement) shall not have been cured to the reasonable satisfaction of the Holder within ten Business Days of the occurrence of such Note Event; (xi) the Company shall fail for any reason to deliver the payment in cash pursuant to a "Buy-In" (as defined in Section 5(f)(iii)) within five Business Days after written notice demanding payment for such Buy-In is provided; (xii) the Letter of Credit (as defined in Section 12) (A) shall be revoked, withdrawn or disaffirmed by the Bank (as defined in Section 12) or (B) shall not be renewed on or prior to the 15th day prior to its date of termination; or (xiii) the failure of the Company to timely make any payment required under Section 6(a). 4 (b) If any Event of Default occurs (i) the full principal amount of this Note (and, at the Holder's option, all other Notes then held by such Holder), plus (ii) all accrued but unpaid interest thereon, plus (iii) all other costs and expenses due under this Note and any of the other Transaction Documents, plus (iv) in the case of an Event of Default described in Section 4(a)(v), 4(a)(x) or 4(a)(xi)), the "Liquidated Damages Amount" (as defined in Section 8) and in the case of the Event of Default described in Section 4(a)(vii) 60% of the Liquidated Damages Amount shall become, at the Holder's election immediately due and payable in cash. Section 5. Conversion. (a) Conversion at Option of Holder. (i) This Note may be converted, in whole or in part, at any time at the option of the Holder into shares of Common Stock at a price per share equal to the "Conversion Price" (as defined in Section 5(c)) then in effect. The Holder shall effect conversions hereunder by delivering to the Company and the Transfer Agent (as defined in Section 8) by facsimile a completed conversion notice in the form attached as Exhibit A (a "Holder Conversion Notice") and delivery to the Company within three Trading Days thereafter of this Note. Each Holder Conversion Notice shall specify the date on which such conversion is to be effected, which date may not be prior to the date such Holder Conversion Notice is deemed to have been delivered hereunder (a "Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder Conversion Notice, the Holder Conversion Date shall be the date that such Holder Conversion Notice is deemed delivered hereunder. Subject to Section 5(f), each Holder Conversion Notice, once given, shall be irrevocable. If the Holder is converting less than all of the principal amount represented by this Note, or if a conversion hereunder cannot be effected in full for any reason, the Company shall honor such conversion to the extent permissible hereunder and shall promptly deliver to the Holder (in the manner and within the time set forth in Section 5(f)) a new note for such principal amount as has not been converted. (ii) If on the last day of any calendar month (1) the conditions set forth in Section 5(b)(ii)(A (except that for purposes of this Section 5(a)(ii) only, the term "Company Conversion Date" shall refer to "Holder Conversion Date"), Section 5(b)(ii)(C), Section 5(b)(ii)(E) and Section 5(b)(ii)(F) have occurred or have been satisfied and (2) a Note Shares Registration Statement has been declared effective and the prospectus thereunder is available to the Holder for resale of the Underlying Shares issuable upon such conversion during the entire month or the Underlying Shares could have been sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act (as defined in Section 8) during the entire month (all of the conditions set forth in clauses (1) and (2) being hereinafter called the "Required Conversion Conditions"), and (3) the Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent Market during such entire calendar month, and (4) the average Per Share Market Value for all of the Trading Days in such month exceeds 110% of the Conversion Price and is less than 125% of the Conversion Price (the "PSMV Price Condition"), then and in such event on such day the Holder shall be deemed to have given a Holder Conversion Notice to convert on the fourth Trading Day following such day at the applicable Conversion Price a principal amount of this Note which shall be equal to (a) $1,500,000 minus (b) the amount of all conversions of this Note, if any, made during such month, whether pursuant to a Holder Conversion Notice, a Company Conversion Notice or otherwise; it being understood that if such amount is a negative number no such conversion shall occur. 5 (iii) If for any twenty consecutive Trading Days (the "Measuring Period") (1) the conditions set forth in Section 5(b)(ii)(A) (except that for purposes of this Section 5(a)(iii) only the term "Company Conversion Date" shall refer to "Holder Conversion Date"), Section 5(b)(ii)(C), Section 5(b)(ii)(E) and Section 5(b)(ii)(F) and (2) a Note Shares Registration Statement has been effective and the prospectus thereunder is available to the Holder for resale of the Underlying Shares issuable upon such conversion during the entire Measuring Period or the Underlying Shares could have been sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act during the entire Measuring Period, (3) the Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent Market during each of such 20 Trading Days, and (4) the average Per Share Market Value for all of the Trading Days in such Measuring Period exceeds 125% of the Conversion Price in effect from time to time then and in such event on such day the Holder shall be deemed to have given a Holder Conversion Notice to convert on the fourth Trading Day following such day the entire principal amount of this Note then outstanding. (b) Conversion at Option of the Company. (i) In the event all of the conditions set forth in Section 5(b)(ii) are satisfied, and subject to the provisions of Section 5(b)(iii) and (iv), the Company may require the conversion of all or a portion of the outstanding principal balance of this Note. The Company shall exercise its right to require conversions under this Section 5(b)(i) by delivering to the Holder a completed conversion notice in the form attached as Exhibit B (a "Company Conversion Notice"). Except as otherwise provided in Section 5(b)(iv), each Company Conversion Notice shall specify the principal amount of the Note to be converted and the date on which such conversion is to be effected. The date on which such conversion is to be effected shall be the date that is thirty days from the date of such Company Conversion Notice (a "Company Conversion Date"). On or before the Company Conversion Date, the Holder shall deliver this Note to the Company against receipt of the Underlying Shares. If the Company is requiring conversion of less than the full principal amount represented by this Note, or if a conversion hereunder cannot be effected in full for any reason, the Company shall honor such conversion to the extent permissible hereunder and shall promptly deliver to such Holder (in the manner and within the time set forth in Section 5(f)) a new Note for such principal amount as has not been converted. (ii) Notwithstanding any other provision of this Section 5(b) to the contrary, no conversion under this Section 5(b) shall take place and no Company Conversion Notice shall be effective without the consent of the Holder unless and until all of the following conditions are satisfied: (A) the product of the daily VWAP and the trading volume of the Common Stock for each of the ten consecutive Trading Days ending on the last Trading Day before a Company Conversion Date exceeds $726,691.00; (B) the Note Shares Registration Statement shall be effective and the prospectus thereunder available to the Holders for the resale of all Underlying Shares issuable upon such conversion during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date or the Underlying Shares may be sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act on the Company Conversion Date; (C) the 6 Company has available sufficient unreserved and available shares of Common Stock to fulfill its share delivery requirements upon such conversion; (D) the Common Stock is listed or quoted for trading on the NASDAQ or a Subsequent Market during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date; (E) no Event of Default shall have occurred and be continuing; and (F) the Company at all times while this Note has been outstanding shall not have failed to comply with Section 5(f) twice in any consecutive 180 day period. In addition, no conversion pursuant to Section 5(b)(i) shall take place and no Company Conversion Notice shall be effective to the extent that the result obtained by dividing (A) the aggregate number of shares of Common Stock owned by the Holder plus the number of any shares of Common Stock issuable to the Holder upon (x) exercise of any warrants, options or other rights to acquire shares of the Company's capital stock and (y) conversion of any convertible securities then held by the Holder by (B) the aggregate of the total number of shares of Common Stock issued and outstanding plus the number of any shares of Common Stock issuable to the Holder upon (x) exercise of any warrants, options or other rights to acquire shares of the Company's capital stock and (y) conversion of any convertible securities then held by the Holder exceeds 0.09999. In order to effectuate the foregoing, no later than 5:00 p.m. New York City time on the day immediately preceding Company Conversion Date, the Company shall certify in writing to the Holder the number of shares of the Company's capital stock actually issued and outstanding as of the such date and no later than 9:00 a.m. New York City time on the Company Conversion Date and the Holder shall notify the Company in writing as to whether the limitation described in the preceding sentence is applicable. (iii) Notwithstanding anything contained to the contrary in this Section 5(b), the Company may not exercise its rights under this Section 5(b): (x) before February 8, 2002, (y) at any time there is outstanding a Company Conversion Notice or (z) within thirty days of any other Company Conversion Date or within thirty days of any required conversion under Section 5(a)(ii). (iv) The maximum principal amount of this Note that may be converted on any Company Conversion Date shall be $1,500,000. (c) Conversion Price. (i) The conversion price of this Note (the "Conversion Price") shall initially equal $13.97 (the "Initial Conversion Price") but shall be adjusted from time to time throughout the term of this Note as provided in this Section 5(c). 7 (ii) In the event the Company exercises its rights pursuant to Section 5(b), the Conversion Price shall be the lesser of (a) the Conversion Price then in effect or (b) an amount equal to 87% of the average Per Share Market Value for the twelve consecutive Trading Days ending on the last Trading Day immediately preceding the Company Conversion Date; provided, however, if the Conversion Price as so calculated is less than an amount equal to (A) 90% of the Per Share Market Value on the date of the Company Conversion Notice multiplied by (B) .87 (the result being called the "Minimum Price"), neither the Company nor the Holder shall be required to convert any portion of this Note pursuant to such Company Conversion Notice; provided, however, that the Holder, at its sole option, may require the Company to convert all or any portion of the amount to be converted as set forth in such Company Conversion Notice at the Minimum Price. (iii) The Conversion Price, as in effect from time to time, shall be adjusted as follows: (A) Stock Dividends and Splits. If the Company, at any time while this Note is outstanding (1) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (other than regular dividends on the Preferred Stock), (2) subdivides outstanding shares of Common Stock into a larger number of shares, (3) combines outstanding shares of Common Stock into a smaller number of shares, or (4) issues by reclassification of shares of the Common Stock any other shares of capital stock, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 5(c)(iii)(A)(1) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and any adjustment pursuant to clauses (2), (3) or (4) above shall become effective immediately after the effective date of such subdivision, combination or re-classification. If any event requiring an adjustment under this Section 5(c)(iii)(A) occurs during the Period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event. (B) Pro Rata Distributions. If the Company, at any time while this Note is outstanding, distributes to all holders of Common Stock (1) evidences of its indebtedness, (2) any security (other than a distribution of Common Stock covered by the preceding paragraph), (3) rights or warrants to subscribe for or purchase any security, or (4) any other asset (in each case, "Distributed Property"), then, at the request of the Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to the Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that the Holder would have been entitled to receive in respect of the Underlying Shares. If such Distributed Property is not delivered to the Holder pursuant to the preceding sentence, then upon any conversion of this Note that occurs after such record date, such Holder shall be entitled to receive, in addition to the Underlying Shares otherwise issuable upon such conversion, the Distributed Property that the Holder would have been entitled to receive in respect of such number of Underlying Shares had the Holder been the record holder of such Underlying Shares immediately prior to such record date. 8 (C) Fundamental Transactions. If, at any time while this Note is outstanding, (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new note identical in all respects to this Note and consistent with the foregoing provisions and evidencing the Holders' right to convert such note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(c)(iii)(C) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (D) Subsequent Equity Sales. (1) If, at any time while this Note is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock sometimes hereinafter called "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Conversion Price (as adjusted hereunder to such date), then the Conversion Price shall be reduced to equal the Effective Price. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Conversion Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. 9 (2) If, at any time while this Note is outstanding, the Company or any of its subsidiaries has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent conversion, the Effective Price will be determined separately on each Holder Conversion Date or Company Conversion Date, as the case may be, and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Conversion Date (regardless of whether any such holder actually acquires any shares on such date). (3) Notwithstanding the foregoing, no adjustment will be made under this Section 5(c)(iii)(D) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement (as defined in the Purchase Agreement) or the Motorola Agreement (as defined in the Purchase Agreement) (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors; (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate; (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof; (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto; or (g) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (iv) All calculations under Section 5(c)(iii) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. No adjustments in the Conversion Price shall be required if such adjustment is less than $0.01, provided, however, that any adjustments which by reason of this Section 5(c)(iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. 10 (v) Whenever the Conversion Price is adjusted pursuant to Section 5(c)(iii), the Company shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (vi) If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall provide notice to the Holder, on the earlier of the day on which the Company (a) publicly announces such proposed action, or (b) notifies its shareholders of such proposed action, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder may convert this Note during the period commencing the date of such notice to the effective date of the event triggering such notice. (vii) In case of any (1) merger or consolidation of the Company with or into another Person, or (2) sale by the Company of all or substantially all the assets of the Company in one or a series of related transactions, in lieu of any rights the Holder may have to accelerate the Maturity Date of this Note pursuant to Section 4, the Holder shall have the right to (A) convert the aggregate principal amount of this Note then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which such aggregate principal amount of this Note could have been converted immediately prior to such merger, consolidation or sales would have been entitled, or (B) require the surviving entity to issue convertible notes with such aggregate stated value or in such face amount, as the case may be, equal to the aggregate principal amount of this Note, plus all accrued and unpaid interest and other amounts owing thereon, which newly issued notes shall have terms identical (including with respect to conversion) to the terms of this Note and shall be entitled to all of the rights and privileges of a Holder of this Note set forth herein and the other Transaction Documents (including, without limitation, as such rights relate to the acquisition, transferability, registration and listing of such shares of stock other securities issuable upon conversion thereof), and simultaneously 11 with the issuance of such convertible notes, shall have the right to convert such notes only into shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger or consolidation. In the case of clause (B), the conversion price applicable for the newly issued convertible notes shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holders the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events. Nothing in this Section 5(c)(vii) shall prevent the Company from exercising its conversion rights pursuant to and in accordance with Section 5(b). (d) Number of Underlying Shares Issuable Upon Conversion. (i) The number of shares of Common Stock issuable upon a conversion of this Note shall be the quotient obtained by dividing (x) the principal amount of this Note to be converted and (y) the Conversion Price. (ii) Notwithstanding anything to the contrary contained herein, if on any Holder Conversion Date or any Company Conversion Date: (1) the number of shares of Common Stock at the time authorized, unissued and unreserved for all purposes, or held as treasury stock, is insufficient to permit issuance of the shares upon conversion; (2) after the effective date of the Note Shares Registration Statement such shares of Common Stock (x) are not registered for resale pursuant to an effective Registration Statement and (y) may not be sold without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as determined by counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent in the form and substance reasonably acceptable to the Holder and such transfer agent; (3) the Common Stock is not listed or quoted for trading on the NASDAQ or on a Subsequent Market or the Company has received a Listing Deficiency Notice; or (4) the issuance of such shares of Common Stock would result in a violation of Section 5(e)(ii); then, at the option of the Holder, the Company, in lieu of delivering shares of Common Stock pursuant to Section 5(f), shall deliver, on the relevant Holder Conversion Date or Company Conversion Date, as the case may be, an amount in cash equal to the sum of (a) the outstanding principal amount of this Note to be converted on such Date plus (b) all accrued but unpaid interest thereon plus (c) all other reasonable costs and expenses incurred by the Holder in connection with the related Holder Conversion Notice or Company Conversion Notice, as the case may be, plus (d) any other amounts due under this Note or any of the other Transaction Documents with respect to the amount referred to in clause (a). 12 (e) Certain Conversion Restrictions. (i) The Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 5(e)(i) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 5(e)(i) applies, the determination of the extent to which the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Holder Conversion Notice with respect to this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Holder Conversion Date and, at the option of the Holder, either retain any principal amount tendered for conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount to the Holder. The Holder may waive the provisions of this Section 5(e)(i) upon not less than sixty-one days prior notice to the Company. (ii) Notwithstanding anything to the contrary that may be contained herein or any of the other Transaction Documents, this Note may not be converted to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 5(e)(ii) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 5(e)(ii) applies, the determination of the extent to which a portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If a Holder Conversion Notice or a Company Conversion Notice, as the case may be, for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Holder Conversion Date or Company Conversion Date, as the case may be. 13 (f) Delivery of Certificates. (i) On or before the Delivery Date, the Company will deliver to the Holder (A) a certificate or certificates, which shall be free of restrictive legends and trading restrictions (other than those required by Section 4.1 of the Purchase Agreement or in the event that the Holder does not execute and deliver to the Company by fax the undertaking set forth in the Conversion Notice within three Trading Days after a Company Conversion Date on Holder Conversion Date, as the case may be (provided that in such event, the Company shall cause any legend to be removed immediately upon receipt of such undertaking)), representing the number of shares of Common Stock being acquired upon the conversion of this Note, (B) a note (identical in every respect to this Note) in a principal amount equal to the principal amount of this Note not converted, and (C) a bank check in the amount of any and all payments due in connection with such Holder Conversion Date; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of the principal amount of this Note until this Note is delivered for conversion to the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and provides the Company with an affidavit and indemnity, reasonably satisfactory to the Company, to indemnify the Company from any loss incurred by it in connection therewith. The Company shall, upon request of the Holder, if available, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 5(f) electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. If, in the case of any Holder Conversion Notice or any Company Conversion Notice, the certificates, notes or payments described in this Section 5(f) are not delivered to or as directed by the Holder by the applicable Delivery Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificates, notes or payments thereafter, to rescind such Holder Conversion Notice or Company Conversion Notice, as the case may be, in which event the Company shall immediately return this Note as tendered by the Holder. (ii) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5(f) by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 4 for the Company's failure to deliver certificates representing shares of Common Stock issuable upon conversion within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. Further, if the Company shall not have delivered any cash due in respect of the conversion of this Note or as payment of interest thereon by the Delivery Date, the Holder may, by notice to the Company, require the Company to issue shares of Common Stock pursuant to Section 5(d), except that for such purpose the Conversion Price applicable thereto shall be the lesser of the Conversion Price on the applicable Conversion Date and the Conversion Price on the date of such demand. Any such shares will be subject to the provision of this Section 5. 14 (iii) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to Section 5(f) by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Conversion Price of the Common Stock on the applicable Conversion Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under Section 5 shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted conversion of Notes with respect to which the Conversion Price of the Underlying Shares on the applicable Conversion Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (g) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5(c)(iii)) upon the conversion of the outstanding principal amount of this Note. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement has been declared effective under the Securities Act, registered for public sale in accordance with such Registration Statement. (h) Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 15 (i) Except as otherwise provided in this Section 5(i), the issuance of this Note and the certificates for shares of the Common Stock upon conversion of this Note shall be made without charge to the Holder hereof for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 6. Redemption; Prepayment. (a) At any time on or after (i) the date that is 120 calendar days after the effective date of the Note Shares Registration Statement (the "NRS Effective Date") if more than $3,750,000 of the principal amount of this Note is outstanding, (ii) the date that is 240 calendar days after the NRS Effective Date if more than $1,875,000 of the principal amount of this Note is outstanding, or (iii) 360 days after the NRS Effective Date, the Holder shall have the option to require the Company to prepay all or a portion of this Note, and all accrued but unpaid interest thereon, by notifying the Company in writing of its election to do so (a "Prepayment Notice"). Any prepayment pursuant to a Prepayment Notice shall be due and payable on the next Business Day following the date of the Prepayment Notice. The Company's failure to timely comply with the Prepayment Notice shall constitute an Event of Default under Section 4. The Holder's right to demand prepayment under this Section 6 shall not apply with respect to any portion of the principal amount of this Note that is subject to a valid and effective Company Conversion Notice or Holder Conversion Notice delivered prior to the date of the Prepayment Notice. (b) Subject to the terms and conditions set forth herein, the Company shall have the right at all time and any time after the Original Issue Date, upon thirty Trading Days' prior written notice to the Holder (an "Optional Prepayment Notice" and the date such notice is received by the Holder, the "Optional Prepayment Notice Date"), to prepay all (but not less than all) of the outstanding principal balance of this Note and all accrued but unpaid interest thereon and the Prepayment Premium (collectively, the "Optional Prepayment Price"). Once delivered, an Optional Prepayment Notice shall be irrevocable by the Company. The Company may only deliver an Optional Prepayment Notice to the Holder if, on the Notice Date: (i) either (x) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the issued Underlying Shares as are issuable upon conversion in full of the outstanding principal balance of this Note or (y) all of such issued or issuable Underlying Shares may be sold without volume restrictions pursuant to Rule 144 promulgated under the Securities Act, as determined by counsel to the Company pursuant to a written opinion letter, addressed and delivered prior to the Notice Date to the Company's transfer agent in the form and substance acceptable to the Holder and such transfer agent and (ii) the Underlying Shares are listed for trading on NASDAQ or on a Subsequent Market and the Company has not received nor is it aware that it is about to 16 receive a Listing Deficiency Notice. If any of the foregoing conditions shall cease to be in effect during the period between the Optional Prepayment Notice Date and the date on which the Optional Prepayment Price is paid in full, then the Holder may elect, by written notice to the Company given at any time after any of the foregoing conditions shall cease to be in effect, to invalidate ab initio such prepayment, notwithstanding anything herein contained to the contrary. The Holder may convert any portion of the outstanding principal balance of this Note subject to an Optional Prepayment Notice prior to the date that the Optional Prepayment Price is due and paid in full. (c) The Optional Prepayment Price with respect to the amount outstanding on such thirtieth Trading Day is due on the thirtieth Trading Day following the Optional Prepayment Notice Date (the "Due Date"). If the Optional Prepayment Price shall not be paid by the Company on the Due Date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until the Optional Prepayment Price plus all such interest is paid in full. In addition, to the extent the Optional Prepayment Price remains unpaid after such date (the "Unpaid Prepayment Amount"), the Holder may elect with respect to such unpaid portion by written notice to the Company to either: (x) to treat the Optional Prepayment Notice as a Company Conversion Notice to which the provisions of Section 5(b) apply or (y) invalidate ab initio such optional prepayment, notwithstanding anything herein contained to the contrary. If the Holder elects option (y) above, the outstanding principal amount of this Note and all interest due hereunder shall be increased by the Unpaid Prepayment Amount and the Company shall no longer have any prepayment rights under this Note. If, upon an election under option (x) above, the Company fails to deliver the shares of Common Stock issuable upon conversion of the Unpaid Prepayment Amount within the time period set forth in this Section, the Company shall pay to the Holder in cash, as liquidated damages and not as a penalty, $5,000 per day until such shares are delivered to the Holder. (d) If the conditions set forth in Section 5(a)(iii) have been met but the entire principal amount of this Note has not been converted on account of the provisions of Section 5(e)(ii) hereof, then at all times beginning on the 150th day after the day on which such conditions have been met the Company shall, at any time thereafter, have the right upon five days prior written notice to prepay the outstanding principal balance of this Note and all accrued and unpaid interest thereon without penalty or premium; provided however that if at any time during such 150 day period the Holder is not able to sell all of the Underlying Shares either pursuant to the Note Shares Registration Statement and or under Rule 144(k) then such 150 day period shall be extended by such number of days that the Note Shares Registration Statement and/or Rule 144(k) were not available . (e) If the Company shall issue CS Securities at an Effective Price lower than $13.97 per share, then the Holder, at its option, may elect to declare the entire unpaid principal amount of this Note plus the accrued but unpaid interest thereon to be immediately due and payable by delivering written notice of such election to the Company within 10 Business Days of the receipt of the notice referred to in Section 5(c)(v). The repayment of the outstanding principal balance of this Note and the accrued interest thereon pursuant to this Section 6(e) shall be due and payable on the day following the Business Day on which the Holder's notice is delivered to the Company; provided that the foregoing shall not apply with respect to the issuance of any CS Securities that are set forth in Sections 5(c)(iii)(A), 5(c)(iii)(B) and 5(c)(iii)(D)(3) hereof. 17 Section 7. Unconditional Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation of the Company. As long as this Note is outstanding, the Company shall not and shall cause it subsidiaries not to, without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holders (creation of a class of preferred stock that does not otherwise alter the relative rights, preferences or terms of this Note or otherwise breach other provisions of the Transaction Documents will not violate this clause) or (ii) enter into any agreement with respect to the foregoing. Section 8. Definitions. For the purposes hereof, the following terms shall have the following meanings: "Blackout Period" means any period during which the Company suspends offers and sales or delays the effectiveness of any Registration Statement pursuant to Section 2(d) of the Registration Statement. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Change of Control Transaction" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (ii) a replacement at one time or over time of more than one-half of the members of the Company's board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (iii) the merger of the Company with or into another entity that is not wholly-owned by the Company, sale of all or substantially all of the assets of the Company in one or a series of related transactions, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock, par value $.01 per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. 18 "Delivery Date" means the date that is the fourth Trading Day after any Holder Conversion Date or any Company Conversion Date, as the case may be. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Release Date" means the day following a period of twenty consecutive Trading Days during which the Per Share Market Value on each of such Trading Days is at least 125% of the Initial Conversion Price. "Liquidated Damages Amount" means an amount equal to 25% of the principal amount to which such payment relates. "Listing Deficiency Notice" a notice from any entity responsible for the operation of NASDAQ or any Subsequent Market with respect to the Company's compliance or non-compliance with the listing requirements of NASDAQ or any Subsequent Market. "Measurement Date" means the twentieth trading Day following the 90th day following the Original Issue Date and each twentieth Trading Day thereafter. "Measurement Period" means the twenty consecutive Trading Days ending on a Measurement Date. "Original Issue Date" means the date of the first issuance of this Note regardless of the number of transfers of this Note and regardless of the number of instruments that may be issued to replace this Note. "Original Principal Amount" means $7,500,000. "Per Share Market Value" means on any particular date the VWAP on such date, or if there is no such VWAP on such date, then the VWAP on the date nearest preceding such date, all as reported by Bloomberg L.P. or any successor to its function for reporting VWAP ("Bloomberg"). "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Prepayment Premium" means an amount equal to 5% of the principal amount of this Note that is being prepaid pursuant to Section 6. "Preferred Stock" means collectively the Company's Series C Convertible Preferred Stock, par value $.01 per share and the Company's Series D Convertible Preferred Stock, par value $.01 per share. "Purchase Agreement" means the Securities Purchase Agreement, dated August 22, 2001, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. 19 "Registration Rights Agreement" means the Registration Rights Agreement, dated August 22, 2001, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. "Securities Act" means the Securities Act of 1933, as amended. "Trading Day" means (a) a day on which the shares of Common Stock are traded on NASDAQ, or (b) if the shares of Common Stock are not listed on NASDAQ, a day on which the shares of Common Stock are traded on a Subsequent Market, or (c) if the shares of Common Stock are not quoted on NASDAQ or any Subsequent Market, a day on which the shares of Common Stock are quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided that in the event that the shares of Common Stock are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean any Business Day; and provided further that a Trading Day shall not include any day during a Blackout Period. "Transfer Agent" means American Stock Transfer & Trust Company or such other entity that the Company shall designate as its transfer agent from time to time, provided that the Company has given notice to the Holder that it has designated a new Transfer Agent. "Transaction Documents" shall have the meaning set forth in the Purchase Agreement. "Underlying Shares" means the shares of Common Stock issuable upon conversion of this Note. "VWAP" means Volume Weighted Average Price of a share of Common Stock as reported by Bloomberg L.P. "Warrants" shall have the meaning set forth in the Purchase Agreement. Section 9. This Note shall not entitle the Holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof. Section 10. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company. Section 11. In addition to the principal amount of this Note and all accrued but unpaid interest thereon, the Company shall reimburse the Holder for all costs and expenses, including reasonable attorneys fees, incurred by the Holder in connection with the enforcement, administration and collection of this Note. 20 Section 12. (a) This Note is the note referred to in an irrevocable letter of credit issued by First Union National Bank (the "Bank") in favor of Holder, a copy of which is annexed hereto (the "Letter of Credit") and is entitled to all of the benefits thereof. The Company hereby acknowledges that the Holder and any subsequent Holder shall be entitled to the benefits of the Letter of Credit and covenants and agrees that it will not impair the Holder's rights under the Letter of Credit and (except to the extent provided in this Section 12) shall maintain the Letter of Credit in full force and effect. (b) The Holder agrees that the face amount of the Letter of Credit shall be reduced as follows: (i) On the date of any prepayment pursuant to Section 6 to the extent the Original Principal Amount is prepaid in accordance with a Prepayment Notice issued by the Holder or an Optional Prepayment Notice issued by the Company; (ii) On the Holder Conversion Date to the extent any portion of the Original Principal Amount is converted into shares of Common Stock on such date pursuant to a Holder Conversion Notice; (iii) On a Company Conversion Date to the extent any portion of the Original Principal Amount is converted into shares of Common Stock on such date pursuant to an effective and valid Company Conversion Notice; (iv) The date on which the Company pays any principal on this Note to the extent of such payment; and (v) On the Final Release Date, the Letter of Credit shall be cancelled. The Holder shall deliver written notice to the Bank of the occurrence of any of the foregoing events within four Trading Days thereof. (c) Upon the failure of the Company to pay to the Holder any amount which is then due and payable to the Holder under this Note, whether pursuant to Section 4(b), Section 6 or otherwise, the Holder shall be entitled to draw on the Letter of Credit to the extent of any payment so due to the Holder. (d) All amounts received by the Holder pursuant to a draw on the Letter of Credit shall be applied against the obligations of the Company under this Note. 21 Section 13. This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of laws thereof. The Company and the Holder hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Section 14. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing. Section 15. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. Section 16. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Section 17. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Section 18. THE COMPANY HEREBY ACKNOWLEDGES AND AGREES THAT ITS OBLIGATIONS UNDER THIS NOTE, INCLUDING ITS OBLIGATIONS TO MAKE PAYMENTS HEREUNDER, ARE ABSOLUTE AND UNCONDITIONAL AND THE COMPANY WAIVES THE RIGHT TO ASSERT ANY DEFENSE, OR ANY RIGHT OF SETOFF, COUNTERCLAIM OR ANY SIMILAR RIGHT IN ANY ACTION INVOLVING ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS NOTE OR ANY ACTION INVOLVING THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS NOTE; AND THE COMPANY HEREBY AGREES NOT TO ASSERT ANY DEFENSE, RIGHT OF SETOFF, COUNTERCLAIM OR ANY SIMILAR RIGHT IN ANY ACTION BY THE HOLDER OF THIS NOTE INVOLVING ANY PAYMENT OR THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS NOTE. 22 Section 19. Waiver of Right to Jury Trial. In any action, suit or proceeding in respect of or arising out of or under this Warrant, the Company and the Holder each waive its right to trial by jury. Section 20. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618, facsimile: (609) 671-0995, Attention Sidney Rosenblatt, or (ii) if to a Holder, to the address or facsimile number appearing on the Company's stockholder records or such other address or facsimile number as such Holder may provide to the Company in accordance with this Section. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS] 23 IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to be duly executed by a duly authorized officer as of the date first above indicated. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt --------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 24 EXHIBIT A HOLDER CONVERSION NOTICE (To be Executed by the Registered Holder in order to Convert the Note) The undersigned hereby elects to convert the attached Note into shares of the Common Stock (the "Common Stock") of Universal Display Corporation (the "Company") according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. The undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the ("Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. Conversion calculations: --------------------------------------------- Date to Effect Conversion --------------------------------------------- Principal Amount of Notes to be Converted --------------------------------------------- Number of shares of Common Stock to be Issued --------------------------------------------- Applicable Conversion Price --------------------------------------------- Signature --------------------------------------------- Name --------------------------------------------- Address EXHIBIT B COMPANY CONVERSION NOTICE (To be Executed by the Company to Require the Conversion of Notes) The undersigned authorized officer of Universal Display Corporation (the "Company") hereby requires the conversion of the principal amount of the Company's Notes held by the registered holder addressee hereof of the Company's Common Stock (the "Common Stock") pursuant to the conditions of the Debentures as of the date written below. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. Conversion calculations: --------------------------------------------- Date to Effect Conversion --------------------------------------------- Principal Amount of Notes to be Converted --------------------------------------------- Number of shares of Common Stock to be Issued --------------------------------------------- Applicable Conversion Price --------------------------------------------- Signature --------------------------------------------- Name and Office In order to induce the Company to issue shares without restrictive legend, the undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the "Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. --------------------------------- Signature --------------------------------- Name 2 EX-4.4 6 ex4-4.txt EX-4.4 NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. August 22, 2001 $7,500,000 UNIVERSAL DISPLAY CORPORATION CONVERTIBLE PROMISSORY NOTE DUE AUGUST 22, 2004 FOR VALUE RECEIVED, Universal Display Corporation, a Pennsylvania corporation having its principal place of business at 375 Phillips Boulevard, Ewing, New Jersey, 08618 (the "Company") promises to pay to the order of Strong River Investments, Inc., or its registered assigns (the "Holder"), the principal sum of Seven Million Five Hundred Thousand Dollars ($7,500,000) on the Maturity Date (as defined in Section 3) and to pay interest thereon at a rate equal to the rate of interest paid from time to time on money market accounts held at First Union Bank, payable in arrears on each March 31, June 30, September 30 and December 31 of each year during which this Convertible Promissory Note (this "Note") remains outstanding (for purposes of payment of interest, each such date being an "Interest Payment Date"), in cash. Interest shall be calculated on the basis of a 360-day year of twelve thirty-day months and shall accrue daily (but compound annually) commencing on the "Original Issue Date" (as defined in Section 8) until payment (whether through conversion of all outstanding principal amount hereunder or otherwise) in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Holder. Upon the occurrence and during the continuance of an "Event of Default" (as defined in Section 4) (except for a default occurring on account of Section 4(a)(viii) all amounts due hereunder, whether by acceleration or otherwise, shall bear interest at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) to accrue daily, from the third "Business Day" (as defined in Section 8) following the date on which such payment is due hereunder through and including the date of payment), payable in cash. All cash payments to be made under this Note shall be made in such coin or currency as shall constitute legal tender for the payment of private or private debts in the United States and all cash payments and deliveries required under this Note shall be made to the Holder at c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd., Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands. This Note is subject to the following additional provisions: Section 1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange. Section 2. This Note is one of a series of duly authorized and issued notes of the Company, designated as its Convertible Promissory Notes, due August 22, 2004, in the aggregate original principal amount of Fifteen Million Dollars ($15,000,000) (the "Notes"). This Note has been issued pursuant to the "Purchase Agreement" (as defined in Section 8), is subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged to another "Person" (as defined in Section 8) only in compliance with the Purchase Agreement. Section 3. Maturity Date. Except as otherwise provided in Section 4, the entire unpaid principal balance of this Note and all accrued but unpaid interest thereon and any other amounts otherwise payable under this Note shall be due and payable on August 22, 2004. The date on which the entire unpaid principal balance of this Note and all other amounts owing under this Note is due and payable, whether by acceleration or otherwise, is herein referred to as the "Maturity Date". Section 4. Events of Default. (a) Event of Default, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body): (i) except as otherwise provided in clause (xiii) below, any default in the payment of the principal of, interest on or any other amount in the aggregate in excess of $4,900 due in respect of, this Note or any of the other Notes or any of the other "Transaction Documents" (as defined in Section 8), free of any claim of subordination, by the fifth Business Day following the date the same shall become due and payable (whether on an Interest Payment Date or the Maturity Date, by acceleration or otherwise); (ii) the Company shall fail to observe or perform in all material respects any other covenant, agreement or warranty contained in, or otherwise commit any material breach of, any provision of this Note or any of the Transaction Documents, other than those matters that are the specific subject of another Event of Default under this Section, and such failure or breach shall continue for a period of twenty Business Days after the date on which notice of such failure or breach shall have been given; 2 (iii) the Company or any of its subsidiaries shall commence, or there shall be commenced against the Company or any of its subsidiaries, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any of its subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any of its subsidiaries or there is commenced against the Company or any of its subsidiaries any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty days; or the Company or any of its subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any of its subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of sixty days; or the Company or any of its subsidiaries makes a general assignment for the benefit of creditors; or the Company or any of its subsidiaries shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any of its subsidiaries shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any of its subsidiaries for the purpose of effecting any of the foregoing; (iv) the Company shall default in any of its payment obligations under any other promissory note, debenture or other evidence of indebtedness, or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding five hundred thousand dollars ($500,000), whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable without such indebtedness having been discharged in full or any acceleration of such indebtedness having been rescinded or annulled in full within the applicable grace period; (v) the Company for any reason shall fail to deliver certificates to the Holder on or prior to the "Delivery Date" (as defined in Section 8) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of this Note in accordance with the terms hereof; or 3 (vi) the Common Stock shall not be quoted for trading on the Nasdaq National Market ("NASDAQ") or, if the Common Stock shall hereafter become listed or quoted for trading on the Nasdaq SmallCap Market, the New York Stock Exchange, or American Stock Exchange (each, a "Subsequent Market"), it shall fail to be quoted or listed for trading on such Subsequent Market, for an aggregate of five "Trading Days" (as defined in Section 8); (vii) the Company shall be a party to any "Change of Control Transaction" (as defined in Section 8), shall agree to sell or dispose of all or substantially all of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), or shall redeem or repurchase shares of Common Stock or other equity securities of the Company; (viii) a "Note Shares Registration Statement" (as defined in the Registration Rights Agreement) shall not have been declared effective by the "Commission" (as defined in Section 8) on or prior to January9, 2002; (ix) if, during the "Effectiveness Period" (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement (as defined in the Registration Rights Agreement) lapses for any reason or the Holder shall not be permitted to resell "Registrable Securities" (as defined in the Registration Rights Agreement) under a Registration Statement, in either case, for an aggregate of more of than twenty Trading Days (which need not be consecutive Trading Days) in any twelve month period; (x) a "Note Event" (as defined in the Registration Rights Agreement) shall not have been cured to the reasonable satisfaction of the Holder within ten Business Days of the occurrence of such Note Event; (xi) the Company shall fail for any reason to deliver the payment in cash pursuant to a "Buy-In" (as defined in Section 5(f)(iii)) within five Business Days after written notice demanding payment for such Buy-In is provided; (xii) the Letter of Credit (as defined in Section 12) (A) shall be revoked, withdrawn or disaffirmed by the Bank (as defined in Section 12) or (B) shall not be renewed on or prior to the 15th day prior to its date of termination; or (xiii) the failure of the Company to timely make any payment required under Section 6(a). 4 (b) If any Event of Default occurs (i) the full principal amount of this Note (and, at the Holder's option, all other Notes then held by such Holder), plus (ii) all accrued but unpaid interest thereon, plus (iii) all other costs and expenses due under this Note and any of the other Transaction Documents, plus (iv) in the case of an Event of Default described in Section 4(a)(v), 4(a)(x) or 4(a)(xi)), the "Liquidated Damages Amount" (as defined in Section 8) and in the case of the Event of Default described in Section 4(a)(vii) 60% of the Liquidated Damages Amount shall become, at the Holder's election immediately due and payable in cash. Section 5. Conversion. (a) Conversion at Option of Holder. (i) This Note may be converted, in whole or in part, at any time at the option of the Holder into shares of Common Stock at a price per share equal to the "Conversion Price" (as defined in Section 5(c)) then in effect. The Holder shall effect conversions hereunder by delivering to the Company and the Transfer Agent (as defined in Section 8) by facsimile a completed conversion notice in the form attached as Exhibit A (a "Holder Conversion Notice") and delivery to the Company within three Trading Days thereafter of this Note. Each Holder Conversion Notice shall specify the date on which such conversion is to be effected, which date may not be prior to the date such Holder Conversion Notice is deemed to have been delivered hereunder (a "Holder Conversion Date"). If no Holder Conversion Date is specified in a Holder Conversion Notice, the Holder Conversion Date shall be the date that such Holder Conversion Notice is deemed delivered hereunder. Subject to Section 5(f), each Holder Conversion Notice, once given, shall be irrevocable. If the Holder is converting less than all of the principal amount represented by this Note, or if a conversion hereunder cannot be effected in full for any reason, the Company shall honor such conversion to the extent permissible hereunder and shall promptly deliver to the Holder (in the manner and within the time set forth in Section 5(f)) a new note for such principal amount as has not been converted. (ii) If on the last day of any calendar month (1) the conditions set forth in Section 5(b)(ii)(A (except that for purposes of this Section 5(a)(ii) only, the term "Company Conversion Date" shall refer to "Holder Conversion Date"), Section 5(b)(ii)(C), Section 5(b)(ii)(E) and Section 5(b)(ii)(F) have occurred or have been satisfied and (2) a Note Shares Registration Statement has been declared effective and the prospectus thereunder is available to the Holder for resale of the Underlying Shares issuable upon such conversion during the entire month or the Underlying Shares could have been sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act (as defined in Section 8) during the entire month (all of the conditions set forth in clauses (1) and (2) being hereinafter called the "Required Conversion Conditions"), and (3) the Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent Market during such entire calendar month, and (4) the average Per Share Market Value for all of the Trading Days in such month exceeds 110% of the Conversion Price and is less than 125% of the Conversion Price (the "PSMV Price Condition"), then and in such event on such day the Holder shall be deemed to have given a Holder Conversion Notice to convert on the fourth Trading Day following such day at the applicable Conversion Price a principal amount of this Note which shall be equal to (a) $1,500,000 minus (b) the amount of all conversions of this Note, if any, made during such month, whether pursuant to a Holder Conversion Notice, a Company Conversion Notice or otherwise; it being understood that if such amount is a negative number no such conversion shall occur. 5 (iii) If for any twenty consecutive Trading Days (the "Measuring Period") (1) the conditions set forth in Section 5(b)(ii)(A) (except that for purposes of this Section 5(a)(iii) only the term "Company Conversion Date" shall refer to "Holder Conversion Date"), Section 5(b)(ii)(C), Section 5(b)(ii)(E) and Section 5(b)(ii)(F) and (2) a Note Shares Registration Statement has been effective and the prospectus thereunder is available to the Holder for resale of the Underlying Shares issuable upon such conversion during the entire Measuring Period or the Underlying Shares could have been sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act during the entire Measuring Period, (3) the Common Stock has been listed or quoted for trading on the NASDAQ or a Subsequent Market during each of such 20 Trading Days, and (4) the average Per Share Market Value for all of the Trading Days in such Measuring Period exceeds 125% of the Conversion Price in effect from time to time then and in such event on such day the Holder shall be deemed to have given a Holder Conversion Notice to convert on the fourth Trading Day following such day the entire principal amount of this Note then outstanding. (b) Conversion at Option of the Company. (i) In the event all of the conditions set forth in Section 5(b)(ii) are satisfied, and subject to the provisions of Section 5(b)(iii) and (iv), the Company may require the conversion of all or a portion of the outstanding principal balance of this Note. The Company shall exercise its right to require conversions under this Section 5(b)(i) by delivering to the Holder a completed conversion notice in the form attached as Exhibit B (a "Company Conversion Notice"). Except as otherwise provided in Section 5(b)(iv), each Company Conversion Notice shall specify the principal amount of the Note to be converted and the date on which such conversion is to be effected. The date on which such conversion is to be effected shall be the date that is thirty days from the date of such Company Conversion Notice (a "Company Conversion Date"). On or before the Company Conversion Date, the Holder shall deliver this Note to the Company against receipt of the Underlying Shares. If the Company is requiring conversion of less than the full principal amount represented by this Note, or if a conversion hereunder cannot be effected in full for any reason, the Company shall honor such conversion to the extent permissible hereunder and shall promptly deliver to such Holder (in the manner and within the time set forth in Section 5(f)) a new Note for such principal amount as has not been converted. (ii) Notwithstanding any other provision of this Section 5(b) to the contrary, no conversion under this Section 5(b) shall take place and no Company Conversion Notice shall be effective without the consent of the Holder unless and until all of the following conditions are satisfied: (A) the product of the daily VWAP and the trading volume of the Common Stock for each of the ten consecutive Trading Days ending on the last Trading Day before a Company Conversion Date exceeds $726,691.00; (B) the Note Shares Registration Statement shall be effective and the prospectus thereunder available to the Holders for the resale of all Underlying Shares issuable upon such conversion during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date or the Underlying Shares may be sold by the Holder subject to such conversion without volume limitation under Rule 144(k) promulgated under the Securities Act on the Company Conversion Date; (C) the Company has available sufficient unreserved and available shares of Common Stock 6 to fulfill its share delivery requirements upon such conversion; (D) the Common Stock is listed or quoted for trading on the NASDAQ or a Subsequent Market during the entire period beginning on the date of the Company Conversion Notice and ending on the Company Conversion Date; (E) no Event of Default shall have occurred and be continuing; and (F) the Company at all times while this Note has been outstanding shall not have failed to comply with Section 5(f) twice in any consecutive 180 day period. In addition, no conversion pursuant to Section 5(b)(i) shall take place and no Company Conversion Notice shall be effective to the extent that the result obtained by dividing (A) the aggregate number of shares of Common Stock owned by the Holder plus the number of any shares of Common Stock issuable to the Holder upon (x) exercise of any warrants, options or other rights to acquire shares of the Company's capital stock and (y) conversion of any convertible securities then held by the Holder by (B) the aggregate of the total number of shares of Common Stock issued and outstanding plus the number of any shares of Common Stock issuable to the Holder upon (x) exercise of any warrants, options or other rights to acquire shares of the Company's capital stock and (y) conversion of any convertible securities then held by the Holder exceeds 0.09999. In order to effectuate the foregoing, no later than 5:00 p.m. New York City time on the day immediately preceding Company Conversion Date, the Company shall certify in writing to the Holder the number of shares of the Company's capital stock actually issued and outstanding as of the such date and no later than 9:00 a.m. New York City time on the Company Conversion Date and the Holder shall notify the Company in writing as to whether the limitation described in the preceding sentence is applicable. (iii) Notwithstanding anything contained to the contrary in this Section 5(b), the Company may not exercise its rights under this Section 5(b): (x) before February 8, 2002, (y) at any time there is outstanding a Company Conversion Notice or (z) within thirty days of any other Company Conversion Date or within thirty days of any required conversion under Section 5(a)(ii). (iv) The maximum principal amount of this Note that may be converted on any Company Conversion Date shall be $1,500,000. (c) Conversion Price. (i) The conversion price of this Note (the "Conversion Price") shall initially equal $13.97 (the "Initial Conversion Price") but shall be adjusted from time to time throughout the term of this Note as provided in this Section 5(c). 7 (ii) In the event the Company exercises its rights pursuant to Section 5(b), the Conversion Price shall be the lesser of (a) the Conversion Price then in effect or (b) an amount equal to 87% of the average Per Share Market Value for the twelve consecutive Trading Days ending on the last Trading Day immediately preceding the Company Conversion Date; provided, however, if the Conversion Price as so calculated is less than an amount equal to (A) 90% of the Per Share Market Value on the date of the Company Conversion Notice multiplied by (B) .87 (the result being called the "Minimum Price"), neither the Company nor the Holder shall be required to convert any portion of this Note pursuant to such Company Conversion Notice; provided, however, that the Holder, at its sole option, may require the Company to convert all or any portion of the amount to be converted as set forth in such Company Conversion Notice at the Minimum Price. (iii) The Conversion Price, as in effect from time to time, shall be adjusted as follows: (A) Stock Dividends and Splits. If the Company, at any time while this Note is outstanding (1) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (other than regular dividends on the Preferred Stock), (2) subdivides outstanding shares of Common Stock into a larger number of shares, (3) combines outstanding shares of Common Stock into a smaller number of shares, or (4) issues by reclassification of shares of the Common Stock any other shares of capital stock, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 5(c)(iii)(A)(1) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and any adjustment pursuant to clauses (2), (3) or (4) above shall become effective immediately after the effective date of such subdivision, combination or re-classification. If any event requiring an adjustment under this Section 5(c)(iii)(A) occurs during the Period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event. (B) Pro Rata Distributions. If the Company, at any time while this Note is outstanding, distributes to all holders of Common Stock (1) evidences of its indebtedness, (2) any security (other than a distribution of Common Stock covered by the preceding paragraph), (3) rights or warrants to subscribe for or purchase any security, or (4) any other asset (in each case, "Distributed Property"), then, at the request of the Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to the Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that the Holder would have been entitled to receive in respect of the Underlying Shares. If such Distributed Property is not delivered to the Holder pursuant to the preceding sentence, then upon any conversion of this Note that occurs after such record date, such Holder shall be entitled to receive, in addition to the Underlying Shares otherwise issuable upon such conversion, the Distributed Property that the Holder would have been entitled to receive in respect of such number of Underlying Shares had the Holder been the record holder of such Underlying Shares immediately prior to such record date. 8 (C) Fundamental Transactions. If, at any time while this Note is outstanding, (1) the Company effects any merger or consolidation of the Company with or into another Person, (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "Alternate Consideration"). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new note identical in all respects to this Note and consistent with the foregoing provisions and evidencing the Holders' right to convert such note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(c)(iii)(C) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (D) Subsequent Equity Sales. (1) If, at any time while this Note is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock sometimes hereinafter called "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Conversion Price (as adjusted hereunder to such date), then the Conversion Price shall be reduced to equal the Effective Price. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time 9 upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Conversion Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. (2) If, at any time while this Note is outstanding, the Company or any of its subsidiaries has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent conversion, the Effective Price will be determined separately on each Holder Conversion Date or Company Conversion Date, as the case may be, and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Conversion Date (regardless of whether any such holder actually acquires any shares on such date). (3) Notwithstanding the foregoing, no adjustment will be made under this Section 5(c)(iii)(D) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement (as defined in the Purchase Agreement) or the Motorola Agreement (as defined in the Purchase Agreement) (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors; (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate; (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof; (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto; or (g) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. 10 (iv) All calculations under Section 5(c)(iii) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. No adjustments in the Conversion Price shall be required if such adjustment is less than $0.01, provided, however, that any adjustments which by reason of this Section 5(c)(iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (v) Whenever the Conversion Price is adjusted pursuant to Section 5(c)(iii), the Company shall promptly mail to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. (vi) If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall provide notice to the Holder, on the earlier of the day on which the Company (a) publicly announces such proposed action, or (b) notifies its shareholders of such proposed action, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder may convert this Note during the period commencing the date of such notice to the effective date of the event triggering such notice. (vii) In case of any (1) merger or consolidation of the Company with or into another Person, or (2) sale by the Company of all or substantially all the assets of the Company in one or a series of related transactions, in lieu of any rights the Holder may have to accelerate the Maturity Date of this Note pursuant to Section 4, the Holder shall have the right to (A) convert the aggregate principal amount of this Note then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger, consolidation or sale, and such Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the shares of Common Stock into which such aggregate principal amount of this Note could have been converted immediately prior to such merger, consolidation or sales would have been entitled, or (B) require the surviving entity to issue convertible notes with such aggregate stated value or in such face amount, as the case may be, equal to the aggregate principal amount of this 11 Note, plus all accrued and unpaid interest and other amounts owing thereon, which newly issued notes shall have terms identical (including with respect to conversion) to the terms of this Note and shall be entitled to all of the rights and privileges of a Holder of this Note set forth herein and the other Transaction Documents (including, without limitation, as such rights relate to the acquisition, transferability, registration and listing of such shares of stock other securities issuable upon conversion thereof), and simultaneously with the issuance of such convertible notes, shall have the right to convert such notes only into shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Stock following such merger or consolidation. In the case of clause (B), the conversion price applicable for the newly issued convertible notes shall be based upon the amount of securities, cash and property that each share of Common Stock would receive in such transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holders the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events. Nothing in this Section 5(c)(vii) shall prevent the Company from exercising its conversion rights pursuant to and in accordance with Section 5(b). (d) Number of Underlying Shares Issuable Upon Conversion. (i) The number of shares of Common Stock issuable upon a conversion of this Note shall be the quotient obtained by dividing (x) the principal amount of this Note to be converted and (y) the Conversion Price. (ii) Notwithstanding anything to the contrary contained herein, if on any Holder Conversion Date or any Company Conversion Date: (1) the number of shares of Common Stock at the time authorized, unissued and unreserved for all purposes, or held as treasury stock, is insufficient to permit issuance of the shares upon conversion; (2) after the effective date of the Note Shares Registration Statement such shares of Common Stock (x) are not registered for resale pursuant to an effective Registration Statement and (y) may not be sold without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as determined by counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent in the form and substance reasonably acceptable to the Holder and such transfer agent; (3) the Common Stock is not listed or quoted for trading on the NASDAQ or on a Subsequent Market or the Company has received a Listing Deficiency Notice; or (4) the issuance of such shares of Common Stock would result in a violation of Section 5(e)(ii); then, at the option of the Holder, the Company, in lieu of delivering shares of Common Stock pursuant to Section 5(f), shall deliver, on the relevant Holder Conversion Date or Company Conversion Date, as the case may be, an amount in cash equal to the sum of (a) the outstanding principal amount of this Note to be converted on such Date plus (b) all accrued but unpaid interest thereon plus (c) all other reasonable costs and expenses incurred by the Holder in connection with the related Holder Conversion Notice or Company Conversion Notice, as the case may be, plus (d) any other amounts due under this Note or any of the other Transaction Documents with respect to the amount referred to in clause (a). 12 (e) Certain Conversion Restrictions. (i) The Holder may not convert this Note to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 4.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 5(e)(i) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 5(e)(i) applies, the determination of the extent to which the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Holder Conversion Notice with respect to this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Holder Conversion Date and, at the option of the Holder, either retain any principal amount tendered for conversion in excess of the permitted amount hereunder for future conversions or return such excess principal amount to the Holder. The Holder may waive the provisions of this Section 5(e)(i) upon not less than sixty-one days prior notice to the Company. (ii) Notwithstanding anything to the contrary that may be contained herein or any of the other Transaction Documents, this Note may not be converted to the extent such conversion would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of this Note after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 5(e)(ii) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 5(e)(ii) applies, the determination of the extent to which a portion of the principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If a Holder Conversion Notice or a Company Conversion Notice, as the case may be, for a principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum principal amount permitted to be converted on such Holder Conversion Date or Company Conversion Date, as the case may be. 13 (f) Delivery of Certificates. (i) On or before the Delivery Date, the Company will deliver to the Holder (A) a certificate or certificates, which shall be free of restrictive legends and trading restrictions (other than those required by Section 4.1 of the Purchase Agreement or in the event that the Holder does not execute and deliver to the Company by fax the undertaking set forth in the Conversion Notice within three Trading Days after a Company Conversion Date on Holder Conversion Date, as the case may be (provided that in such event, the Company shall cause any legend to be removed immediately upon receipt of such undertaking)), representing the number of shares of Common Stock being acquired upon the conversion of this Note, (B) a note (identical in every respect to this Note) in a principal amount equal to the principal amount of this Note not converted, and (C) a bank check in the amount of any and all payments due in connection with such Holder Conversion Date; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of the principal amount of this Note until this Note is delivered for conversion to the Company, or the Holder notifies the Company that this Note has been lost, stolen or destroyed and provides the Company with an affidavit and indemnity, reasonably satisfactory to the Company, to indemnify the Company from any loss incurred by it in connection therewith. The Company shall, upon request of the Holder, if available, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 5(f) electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. If, in the case of any Holder Conversion Notice or any Company Conversion Notice, the certificates, notes or payments described in this Section 5(f) are not delivered to or as directed by the Holder by the applicable Delivery Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificates, notes or payments thereafter, to rescind such Holder Conversion Notice or Company Conversion Notice, as the case may be, in which event the Company shall immediately return this Note as tendered by the Holder. (ii) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5(f) by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 4 for the Company's failure to deliver certificates representing shares of Common Stock issuable upon conversion within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. Further, if the Company shall not have delivered any cash due in respect of the conversion of this Note or as payment of interest thereon by the Delivery Date, the Holder may, by notice to the Company, require the Company to issue shares of Common Stock pursuant to Section 5(d), except that for such purpose the Conversion Price applicable thereto shall be the lesser of the Conversion Price on the applicable Conversion Date and the Conversion Price on the date of such demand. Any such shares will be subject to the provision of this Section 5. 14 (iii) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to Section 5(f) by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Conversion Price of the Common Stock on the applicable Conversion Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under Section 5 shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted conversion of Notes with respect to which the Conversion Price of the Underlying Shares on the applicable Conversion Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (g) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5(c)(iii)) upon the conversion of the outstanding principal amount of this Note. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement has been declared effective under the Securities Act, registered for public sale in accordance with such Registration Statement. (h) Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock. 15 (i) Except as otherwise provided in this Section 5(i), the issuance of this Note and the certificates for shares of the Common Stock upon conversion of this Note shall be made without charge to the Holder hereof for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 6. Redemption; Prepayment. (a) At any time on or after (i) the date that is 120 calendar days after the effective date of the Note Shares Registration Statement (the "NRS Effective Date") if more than $3,750,000 of the principal amount of this Note is outstanding, (ii) the date that is 240 calendar days after the NRS Effective Date if more than $1,875,000 of the principal amount of this Note is outstanding, or (iii) 360 days after the NRS Effective Date, the Holder shall have the option to require the Company to prepay all or a portion of this Note, and all accrued but unpaid interest thereon, by notifying the Company in writing of its election to do so (a "Prepayment Notice"). Any prepayment pursuant to a Prepayment Notice shall be due and payable on the next Business Day following the date of the Prepayment Notice. The Company's failure to timely comply with the Prepayment Notice shall constitute an Event of Default under Section 4. The Holder's right to demand prepayment under this Section 6 shall not apply with respect to any portion of the principal amount of this Note that is subject to a valid and effective Company Conversion Notice or Holder Conversion Notice delivered prior to the date of the Prepayment Notice. (b) Subject to the terms and conditions set forth herein, the Company shall have the right at all time and any time after the Original Issue Date, upon thirty Trading Days' prior written notice to the Holder (an "Optional Prepayment Notice" and the date such notice is received by the Holder, the "Optional Prepayment Notice Date"), to prepay all (but not less than all) of the outstanding principal balance of this Note and all accrued but unpaid interest thereon and the Prepayment Premium (collectively, the "Optional Prepayment Price"). Once delivered, an Optional Prepayment Notice shall be irrevocable by the Company. The Company may only deliver an Optional Prepayment Notice to the Holder if, on the Notice Date: (i) either (x) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the issued Underlying Shares as are issuable upon conversion in full of the outstanding principal balance of this Note or (y) all of such issued or issuable Underlying Shares may be sold without volume restrictions pursuant to Rule 144 promulgated under the Securities Act, as determined by counsel to the Company pursuant to a written opinion letter, addressed and delivered prior to the Notice Date to the Company's transfer agent in the form and substance acceptable to the Holder and such transfer agent and (ii) the Underlying Shares are listed for trading on NASDAQ or on a Subsequent Market and the Company has not received nor is it aware that it is about to 16 receive a Listing Deficiency Notice. If any of the foregoing conditions shall cease to be in effect during the period between the Optional Prepayment Notice Date and the date on which the Optional Prepayment Price is paid in full, then the Holder may elect, by written notice to the Company given at any time after any of the foregoing conditions shall cease to be in effect, to invalidate ab initio such prepayment, notwithstanding anything herein contained to the contrary. The Holder may convert any portion of the outstanding principal balance of this Note subject to an Optional Prepayment Notice prior to the date that the Optional Prepayment Price is due and paid in full. (c) The Optional Prepayment Price with respect to the amount outstanding on such thirtieth Trading Day is due on the thirtieth Trading Day following the Optional Prepayment Notice Date (the "Due Date"). If the Optional Prepayment Price shall not be paid by the Company on the Due Date, interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by applicable law, whichever is less) until the Optional Prepayment Price plus all such interest is paid in full. In addition, to the extent the Optional Prepayment Price remains unpaid after such date (the "Unpaid Prepayment Amount"), the Holder may elect with respect to such unpaid portion by written notice to the Company to either: (x) to treat the Optional Prepayment Notice as a Company Conversion Notice to which the provisions of Section 5(b) apply or (y) invalidate ab initio such optional prepayment, notwithstanding anything herein contained to the contrary. If the Holder elects option (y) above, the outstanding principal amount of this Note and all interest due hereunder shall be increased by the Unpaid Prepayment Amount and the Company shall no longer have any prepayment rights under this Note. If, upon an election under option (x) above, the Company fails to deliver the shares of Common Stock issuable upon conversion of the Unpaid Prepayment Amount within the time period set forth in this Section, the Company shall pay to the Holder in cash, as liquidated damages and not as a penalty, $5,000 per day until such shares are delivered to the Holder. (d) If the conditions set forth in Section 5(a)(iii) have been met but the entire principal amount of this Note has not been converted on account of the provisions of Section 5(e)(ii) hereof, then at all times beginning on the 150th day after the day on which such conditions have been met the Company shall, at any time thereafter, have the right upon five days prior written notice to prepay the outstanding principal balance of this Note and all accrued and unpaid interest thereon without penalty or premium; provided however that if at any time during such 150 day period the Holder is not able to sell all of the Underlying Shares either pursuant to the Note Shares Registration Statement and or under Rule 144(k) then such 150 day period shall be extended by such number of days that the Note Shares Registration Statement and/or Rule 144(k) were not available . (e) If the Company shall issue CS Securities at an Effective Price lower than $13.97 per share, then the Holder, at its option, may elect to declare the entire unpaid principal amount of this Note plus the accrued but unpaid interest thereon to be immediately due and payable by delivering written notice of such election to the Company within 10 Business Days of the receipt of the notice referred to in Section 5(c)(v). The repayment of the outstanding principal balance of this Note and the accrued interest thereon pursuant to this Section 6(e) shall be due and payable on the day following the Business Day on which the Holder's notice is delivered to the Company; provided that the foregoing shall not apply with respect to the issuance of any CS Securities that are set forth in Sections 5(c)(iii)(A), 5(c)(iii)(B) and 5(c)(iii)(D)(3) hereof. 17 Section 7. Unconditional Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct obligation of the Company. As long as this Note is outstanding, the Company shall not and shall cause it subsidiaries not to, without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holders (creation of a class of preferred stock that does not otherwise alter the relative rights, preferences or terms of this Note or otherwise breach other provisions of the Transaction Documents will not violate this clause) or (ii) enter into any agreement with respect to the foregoing. Section 8. Definitions. For the purposes hereof, the following terms shall have the following meanings: "Blackout Period" means any period during which the Company suspends offers and sales or delays the effectiveness of any Registration Statement pursuant to Section 2(d) of the Registration Statement. "Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Change of Control Transaction" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (ii) a replacement at one time or over time of more than one-half of the members of the Company's board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (iii) the merger of the Company with or into another entity that is not wholly-owned by the Company, sale of all or substantially all of the assets of the Company in one or a series of related transactions, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock, par value $.01 per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed. 18 "Delivery Date" means the date that is the fourth Trading Day after any Holder Conversion Date or any Company Conversion Date, as the case may be. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Release Date" means the day following a period of twenty consecutive Trading Days during which the Per Share Market Value on each of such Trading Days is at least 125% of the Initial Conversion Price. "Liquidated Damages Amount" means an amount equal to 25% of the principal amount to which such payment relates. "Listing Deficiency Notice" a notice from any entity responsible for the operation of NASDAQ or any Subsequent Market with respect to the Company's compliance or non-compliance with the listing requirements of NASDAQ or any Subsequent Market. "Measurement Date" means the twentieth trading Day following the 90th day following the Original Issue Date and each twentieth Trading Day thereafter. "Measurement Period" means the twenty consecutive Trading Days ending on a Measurement Date. "Original Issue Date" means the date of the first issuance of this Note regardless of the number of transfers of this Note and regardless of the number of instruments that may be issued to replace this Note. "Original Principal Amount" means $7,500,000. "Per Share Market Value" means on any particular date the VWAP on such date, or if there is no such VWAP on such date, then the VWAP on the date nearest preceding such date, all as reported by Bloomberg L.P. or any successor to its function for reporting VWAP ("Bloomberg"). "Person" means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency. "Prepayment Premium" means an amount equal to 5% of the principal amount of this Note that is being prepaid pursuant to Section 6. "Preferred Stock" means collectively the Company's Series C Convertible Preferred Stock, par value $.01 per share and the Company's Series D Convertible Preferred Stock, par value $.01 per share. "Purchase Agreement" means the Securities Purchase Agreement, dated August 22, 2001, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. 19 "Registration Rights Agreement" means the Registration Rights Agreement, dated August 22, 2001, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms. "Securities Act" means the Securities Act of 1933, as amended. "Trading Day" means (a) a day on which the shares of Common Stock are traded on NASDAQ, or (b) if the shares of Common Stock are not listed on NASDAQ, a day on which the shares of Common Stock are traded on a Subsequent Market, or (c) if the shares of Common Stock are not quoted on NASDAQ or any Subsequent Market, a day on which the shares of Common Stock are quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided that in the event that the shares of Common Stock are not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean any Business Day; and provided further that a Trading Day shall not include any day during a Blackout Period. "Transfer Agent" means American Stock Transfer & Trust Company or such other entity that the Company shall designate as its transfer agent from time to time, provided that the Company has given notice to the Holder that it has designated a new Transfer Agent. "Transaction Documents" shall have the meaning set forth in the Purchase Agreement. "Underlying Shares" means the shares of Common Stock issuable upon conversion of this Note. "VWAP" means Volume Weighted Average Price of a share of Common Stock as reported by Bloomberg L.P. "Warrants" shall have the meaning set forth in the Purchase Agreement. Section 9. This Note shall not entitle the Holder to any of the rights of a stockholder of the Company, including, without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into shares of Common Stock in accordance with the terms hereof. Section 10. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company. Section 11. In addition to the principal amount of this Note and all accrued but unpaid interest thereon, the Company shall reimburse the Holder for all costs and expenses, including reasonable attorneys fees, incurred by the Holder in connection with the enforcement, administration and collection of this Note. 20 Section 12. (a) This Note is the note referred to in an irrevocable letter of credit issued by First Union National Bank (the "Bank") in favor of Holder, a copy of which is annexed hereto (the "Letter of Credit") and is entitled to all of the benefits thereof. The Company hereby acknowledges that the Holder and any subsequent Holder shall be entitled to the benefits of the Letter of Credit and covenants and agrees that it will not impair the Holder's rights under the Letter of Credit and (except to the extent provided in this Section 12) shall maintain the Letter of Credit in full force and effect. (b) The Holder agrees that the face amount of the Letter of Credit shall be reduced as follows: (i) On the date of any prepayment pursuant to Section 6 to the extent the Original Principal Amount is prepaid in accordance with a Prepayment Notice issued by the Holder or an Optional Prepayment Notice issued by the Company; (ii) On the Holder Conversion Date to the extent any portion of the Original Principal Amount is converted into shares of Common Stock on such date pursuant to a Holder Conversion Notice; (iii) On a Company Conversion Date to the extent any portion of the Original Principal Amount is converted into shares of Common Stock on such date pursuant to an effective and valid Company Conversion Notice; (iv) The date on which the Company pays any principal on this Note to the extent of such payment; and (v) On the Final Release Date, the Letter of Credit shall be cancelled. The Holder shall deliver written notice to the Bank of the occurrence of any of the foregoing events within four Trading Days thereof. (c) Upon the failure of the Company to pay to the Holder any amount which is then due and payable to the Holder under this Note, whether pursuant to Section 4(b), Section 6 or otherwise, the Holder shall be entitled to draw on the Letter of Credit to the extent of any payment so due to the Holder. (d) All amounts received by the Holder pursuant to a draw on the Letter of Credit shall be applied against the obligations of the Company under this Note. 21 Section 13. This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of laws thereof. The Company and the Holder hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Section 14. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing. Section 15. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. Section 16. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Section 17. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Section 18. THE COMPANY HEREBY ACKNOWLEDGES AND AGREES THAT ITS OBLIGATIONS UNDER THIS NOTE, INCLUDING ITS OBLIGATIONS TO MAKE PAYMENTS HEREUNDER, ARE ABSOLUTE AND UNCONDITIONAL AND THE COMPANY WAIVES THE RIGHT TO ASSERT ANY DEFENSE, OR ANY RIGHT OF SETOFF, COUNTERCLAIM OR ANY SIMILAR RIGHT IN ANY ACTION INVOLVING ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS NOTE OR ANY ACTION INVOLVING THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS NOTE; AND THE COMPANY HEREBY AGREES NOT TO ASSERT ANY DEFENSE, RIGHT OF SETOFF, COUNTERCLAIM OR ANY SIMILAR RIGHT IN ANY ACTION BY THE HOLDER OF THIS NOTE INVOLVING ANY PAYMENT OR THE PERFORMANCE OF ANY OTHER OBLIGATION UNDER THIS NOTE. 22 Section 19. Waiver of Right to Jury Trial. In any action, suit or proceeding in respect of or arising out of or under this Warrant, the Company and the Holder each waive its right to trial by jury. Section 20. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618, facsimile: (609) 671-0995, Attention Sidney Rosenblatt, or (ii) if to a Holder, to the address or facsimile number appearing on the Company's stockholder records or such other address or facsimile number as such Holder may provide to the Company in accordance with this Section. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE FOLLOWS] 23 IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to be duly executed by a duly authorized officer as of the date first above indicated. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt -------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 24 EXHIBIT A HOLDER CONVERSION NOTICE (To be Executed by the Registered Holder in order to Convert the Note) The undersigned hereby elects to convert the attached Note into shares of the Common Stock (the "Common Stock") of Universal Display Corporation (the "Company") according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. The undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the ("Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. Conversion calculations: --------------------------------------------- Date to Effect Conversion --------------------------------------------- Principal Amount of Notes to be Converted --------------------------------------------- Number of shares of Common Stock to be Issued --------------------------------------------- Applicable Conversion Price --------------------------------------------- Signature --------------------------------------------- Name --------------------------------------------- Address EXHIBIT B COMPANY CONVERSION NOTICE (To be Executed by the Company to Require the Conversion of Notes) The undersigned authorized officer of Universal Display Corporation (the "Company") hereby requires the conversion of the principal amount of the Company's Notes held by the registered holder addressee hereof of the Company's Common Stock (the "Common Stock") pursuant to the conditions of the Debentures as of the date written below. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. Conversion calculations: --------------------------------------------- Date to Effect Conversion --------------------------------------------- Principal Amount of Notes to be Converted --------------------------------------------- Number of shares of Common Stock to be Issued --------------------------------------------- Applicable Conversion Price --------------------------------------------- Signature --------------------------------------------- Name and Office In order to induce the Company to issue shares without restrictive legend, the undersigned hereby covenants and agrees that the undersigned (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered pursuant to this Conversion Notice (the "Shares") except pursuant to an effective registration statement (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), (ii) will sell the Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Registration Statement (the "Prospectus"), (iii) will comply with the requirements of the Act when selling or otherwise disposing of the Shares, including, but not limited to, the prospectus delivery requirements of the Act, (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Shares (and any certificates representing the Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Shares, and (v) will indemnify and hold harmless the Company, its directors, officers, agents and employees, each person who controls the Company (within the meaning of Section 15 of the Act and Section 20 of the Securities Exchange Act of 1934, as amended), and the directors, officers, agents or employees of such controlling persons, to the fullest extent permitted by applicable law, from and against all Losses (as defined in the Registration Rights Agreement dated August 22, 2001 by and between the Company and the investors signatory thereto) arising out of or based upon any breach by the undersigned of any of the covenants contained herein. ----------------------------------- Signature ----------------------------------- Name 2 EX-4.5 7 ex4-5.txt EX-4.5 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. A-2 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Pine Ridge Financial, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 78,740 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, 2 irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and 3 expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, 4 "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and if upon the happening of such Change of Control (A) the Company or its successors is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such 5 Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each 6 Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the number of shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. 7 (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. 8 A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the 9 extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 10 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. 11 (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt --------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. A-2 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): Dated: _______________, ____ Name of Holder: (Print)___________________________________ By:_______________________________________ Name:_____________________________________ Title:____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ __________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) __________________________________________ Address of Transferee __________________________________________ __________________________________________ In the presence of: _____________________ EX-4.6 8 ex4-6.txt EX-4.6 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. B-2 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Pine Ridge Financial, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 78,740 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the earlier of (a) August 22, 2004 and (b) the Second Closing Date (the earlier of such dates being the "Commencement Date") and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Commencement Date to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". (c) In the event the Commencement Date shall not have occurred on or before August 22, 2002, the Company may redeem this Warrant by paying $100.00 to the Holder. 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at 2 any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 3 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. 4 (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and if upon the happening of such 5 Change of Control (A) the Company or its successors is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. 6 (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the number of shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased 7 number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. 9 Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of 9 Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; 10 facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree 11 upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt -------------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. B-2 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): Dated: _______________, ___ Name of Holder: (Print) -------------------------- By: ------------------------------ Name: ---------------------------- Title: ---------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ --------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) --------------------------------- Address of Transferee --------------------------------- --------------------------------- In the presence of: - -------------------------- EX-4.7 9 ex4-7.txt EX-4.7 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. C-2 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Pine Ridge Financial, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 214,746 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, 2 irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and 3 expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, 4 "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and if upon the happening of such Change of Control (A) the Company or its successors is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such 5 Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each 6 Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the number of shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not 7 include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. (j) Exception. Notwithstanding anything contained to the contrary in Section 9(d), in the event, and only in the event, an Event of Default under Section 4(a)(viii) of the Notes has occurred, and no other Event of Default (as defined in the Notes) has occurred, then Section 9(d) hereof shall only apply to the extent sales of CS Securities by the Company exceed $15 million in the aggregate. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. 8 Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then 9 outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; 10 facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. 11 (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt --------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. C-2 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Dated: _______________, ____ Name of Holder: (Print)___________________________________ By:_______________________________________ Name:_____________________________________ Title:____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ _______________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) _______________________________________ Address of Transferee _______________________________________ _______________________________________ In the presence of: ___________________________ EX-4.8 10 ex4-8.txt EX-4.8 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. A-1 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Strong River Investments, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 78,740 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". 5. Delivery of Warrant Shares. -------------------------- (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. 2 (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 3 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. 4 (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and 5 if upon the happening of such Change of Control (A) the Company or its successors is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. 6 (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the number of shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. 7 (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. 8 Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then 9 outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; 10 facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. 11 (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt ------------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. A-1 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Dated: _______________, ____ Name of Holder: (Print)___________________________________ By:_______________________________________ Name:_____________________________________ Title:____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ __________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) __________________________________________ Address of Transferee __________________________________________ __________________________________________ In the presence of: ______________________________ EX-4.9 11 ex4-9.txt EX-4.9 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. B-1 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Strong River Investments, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 78,740 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the earlier of (a) August 22, 2004 and (b) the Second Closing Date (the earlier of such dates being the "Commencement Date") and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Commencement Date to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". (c) In the event the Commencement Date shall not have occurred on or before August 22, 2002, the Company may redeem this Warrant by paying $100.00 to the Holder. 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at 2 any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 3 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. 4 (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and if upon the happening of such Change of Control (A) the Company or its successors is not traded on the New 5 York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. 6 (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased 7 number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. 8 Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then outstanding shares of 9 Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; 10 facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree 11 upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt ---------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. B-1 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): Dated: _______________, ____ Name of Holder: (Print) -------------------------- By: ------------------------------ Name: ---------------------------- Title: --------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ --------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) --------------------------------- Address of Transferee --------------------------------- --------------------------------- In the presence of: - -------------------------- EX-4.10 12 ex4-10.txt EX-4.10 NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. UNIVERSAL DISPLAY CORPORATION WARRANT ------- Warrant No. C-1 Dated: August 22, 2001 Universal Display Corporation, a Pennsylvania corporation (the "Company"), hereby certifies that, for value received, Strong River Investments, Inc. or its registered assigns (the "Holder"), is entitled to purchase from the Company up to a total of 214,746 shares of common stock, $.01 par value per share (the "Common Stock"), of the Company (each such share, a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise price equal to $15.24 per share (as adjusted from time to time as provided in Section 9, the "Exercise Price"), at any time and from time to time from and after the date hereof and through and including August 22, 2006 (the "Expiration Date"), and subject to the following terms and conditions. 1. Definitions. In addition to the terms defined elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of August 22, 2001, among the Company and the Purchasers identified therein (the "Purchase Agreement"). 2. Registration of Warrant. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. 3. Registration of Transfers. Subject to Section 12 hereof, the Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Transfer Agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant. 4. Exercise and Duration of Warrants. (a) This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the date hereof to and including the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value; provided that, if the Closing Price on the Expiration Date is greater than 102% of the Exercise Price on the Expiration Date, then this Warrant shall be deemed to have been exercised in full (to the extent not previously exercised) on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration Date. (b) Subject to Section 12 hereof, a Holder may exercise this Warrant by delivering to the Company (i) an Exercise Notice, in the form attached hereto, appropriately completed and duly signed; (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a "cashless exercise" if so indicated in the Exercise Notice); and (iii) this Warrant (or a New Warrant, as described in Section 5(b)), unless the Holder is awaiting receipt of a New Warrant from the Company pursuant to another provision hereof. The date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an "Exercise Date". 5. Delivery of Warrant Shares. (a) Upon exercise of this Warrant, the Company shall promptly (but in no event later than four Trading Days after the Exercise Date (the "Delivery Date")) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective and the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares as of the Exercise Date. The Company shall, upon request of the Holder, use its best efforts to deliver Warrant Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (b) This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares. If less than all of the Warrant Shares which may be purchased under this Warrant are exercised at any time, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares. (c) The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, 2 irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. (d) If the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after the Delivery Date until such certificates are delivered. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to deliver certificates representing shares of Common Stock upon exercise within the period specified herein and the Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other provision hereof or under applicable law. (e) In addition to any other rights available to the Holder, if the Company fails to deliver to the Holder such certificate or certificates pursuant to this Section 5 by the Delivery Date, and if after such Delivery Date the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Underlying Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Holder (in addition to any remedies available to or elected by the Holder) the amount by which (x) the Holder's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the Exercise Price of the Common Stock on the applicable Exercise Date, in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in connection with an attempted exercise of this Warrant with respect to which the Exercise Price of the Underlying Shares on the applicable Exercise Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $9,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In. (f) The provisions of Sections 5(d) and 5(e) shall not apply to an exercise under Section 4(a). 6. Charges, Taxes and Expenses. Except as otherwise provided in this Section 6, issuance of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which 3 taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof. 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 8. Reservation of Warrant Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9. (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. (b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, 4 "Distributed Property"), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company's independent certified public accountants that regularly examine the financial statements of the Company (an "Appraiser"). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental Transaction"), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the "Alternate Consideration"). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. At the Holder's request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control and if upon the happening of such Change of Control (A) the Company or its successors is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (B) the Company or its successor, as the case may be, for the 90 day period prior thereto (1) had an average daily trading volume of its common stock of less than 100,000 shares or (2) had an average daily Closing Price of its common stock of less than $10 per share, then at the request of the Holder delivered before the 90th day after such 5 Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five Trading Days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. (d) Subsequent Equity Sales. (i) If, at any time while this Warrant is outstanding, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "Common Stock Equivalents" and together with Common Stock hereinafter called the "CS Securities") at an effective price per share of Common Stock (the "Effective Price") less than the Exercise Price, then the Exercise Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. However, upon termination or expiration of any Common Stock Equivalents the issuance of which resulted in an adjustment to the Exercise Price pursuant to this paragraph, the Exercise Price shall be recomputed to equal the price it would have been had the adjustments in this paragraph been made, at the time of issuance of such Common Stock Equivalents, only with respect to that number of shares of the Common Stock actually issued upon conversion, exercise or exchange of such Common Stock Equivalents and at the Effective Prices actually paid in connection therewith. (ii) If, at any time while this Warrant is outstanding, the Company or any Subsidiary has outstanding any Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "Floating Price Security"), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each 6 Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this Section 9(d) in respect of (a) any grant of options to employees, officers, directors or consultants of the Company pursuant to any stock option plan duly adopted by the Company's board of directors (provided, that the number of shares of Common Stock which are the subject of any such plan may not exceed 2,800,000, subject to annual increases of up to 40% of the number of shares authorized under such plans during the immediately preceding year), (b) in respect of the issuance of CS Securities upon exercise of any such options, (c) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (d) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (e) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (e) shall only apply to the first 50,000 shares in the aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (f) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (g) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 1 hereto, or (h) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter) all of which are set forth on Schedule 2 hereto. (e) Special Adjustment. Notwithstanding anything to the contrary that may be contained herein, if at any time on or after the date hereof, the Holder has pursuant to the Notes converted in excess of $1,500,000 of principal amount of such Notes on account of the Company having delivered a "Company Conversion Notice" pursuant to such Note, then upon each such conversion in excess of $1,500,000 (a "Subsequent Conversion") the Exercise Price shall be reduced (but not increased) to 110% of the Conversion Price in effect for each such Subsequent Conversion. (f) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased or decreased, as the case may be, proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. (g) Calculations. All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not 7 include shares owned or held by or for the account of the Company; provided, however, the provisions of this Section 9 shall apply to any sale, issuance, distribution or disposition of any such shares by the Company. (h) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company's Transfer Agent. (i) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company; then in each case, the Company shall on the earlier of the day on which the Company (A) publicly announces such proposed action, or (B) notifies its shareholders of such proposed action deliver to the Holder a notice describing the material terms and conditions of such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. (j) Exception. Notwithstanding anything contained to the contrary in Section 9(d), in the event, and only in the event, an Event of Default under Section 4(a)(viii) of the Notes has occurred, and no other Event of Default (as defined in the Notes) has occurred, then Section 9(d) hereof shall only apply to the extent sales of CS Securities by the Company exceed $15 million in the aggregate. 10. Payment of Exercise Price. The Holder shall pay the Exercise Price in one of the following manners: (a) Cash Exercise. The Holder may deliver immediately available funds; or (b) Cashless Exercise. The Holder may satisfy its obligation to pay the Exercise Price through a "cashless exercise," in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y [(A-B)/A] where: X = the number of Warrant Shares to be issued to the Holder. 8 Y = the number of Warrant Shares with respect to which this Warrant is being exercised. A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price. For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement. 11. Limitation on Exercise. (a) Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Maximum Percentage") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The Company's obligation to issue shares of Common Stock in excess of the limitation referred to in this Section shall be suspended (and shall not terminate or expire notwithstanding any contrary provisions hereof) until such time, if any, as such shares of Common Stock may be issued in compliance with such limitation. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Warrants. (b) Notwithstanding anything to the contrary contained herein, this Warrant may not be exercised to the extent such exercise would result in the Holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon exercise of this Warrant after application of this Section. Since the Holder will not be obligated to report to the Company the number of shares of Common Stock it may hold at the time of an exercise hereunder, unless the conversion at issue would result in the issuance of shares of Common Stock in excess of 9.999% of the then 9 outstanding shares of Common Stock without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section 11(b) will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section 11(b) applies, the determination of the extent to which this Warrant is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered an Exercise Notice for a number of Warrant Shares that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the Exercise Notice to the extent of the maximum number of Warrant Shares permitted to be purchased at such Exercise Date pursuant to the provisions of this Section 11(b). 12. Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the shares of Common Stock issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. 13. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Exercise Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required pursuant to this sentence until the aggregate amount payable exceeds $1,000, at which time all previously deferred payments shall be made. 14. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day or (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service. The addresses for such communications shall be: (i) if to the Company, to 375 Phillips Boulevard, Ewing, New Jersey 08618; 10 facsimile: (609) 671-0995; attention Sidney Rosenblatt, Chief Financial Officer, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section. 15. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder's last address as shown on the Warrant Register. 16. Miscellaneous. (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder. (b) The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof. (d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant. 11 (e) This Warrant shall not entitle the Holder to any voting or other rights as a stockholder of the Company, except to the extent the Holder has purchased any Warrant Shares. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt -------------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer 13 FORM OF EXERCISE NOTICE (To be executed by the Holder to exercise the right to purchase shares of Common Stock under the foregoing Warrant) To: Universal Display Corporation The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Universal Display Corporation, a Pennsylvania corporation (the "Company"), evidenced by Warrant No. C-1 issued by the Company to the undersigned (the "Warrant"). Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): ____________ "Cash Exercise" under Section 10(a) ____________ "Cashless Exercise" under Section 10(b) 2. Payment of Exercise Price. If the holder has elected a Cash Exercise, the holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. If the number of shares of Common Stock issuable upon this exercise shall not be all of the shares of Common Stock which the undersigned is entitled to purchase in accordance with the enclosed Warrant, the undersigned requests that a New Warrant (as defined in the Warrant) evidencing the right to purchase the remaining shares of Common Stock be issued in the name of and delivered to (please print name and address): _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Dated: _______________, ____ Name of Holder: (Print)_________________________ By:_____________________________ Name:___________________________ Title:__________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) FORM OF ASSIGNMENT [To be completed and signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of Universal Display Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of Universal Display Corporation with full power of substitution in the premises. Dated: _______________, ____ _______________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) _______________________________________ Address of Transferee _______________________________________ _______________________________________ In the presence of: ______________________________ EX-4.11 13 ex4-11.txt EX-4.11 THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. -------------------------------------- UNIVERSAL DISPLAY CORPORATION COMMON STOCK PURCHASE WARRANT -------------------------------------- This certifies that, for good and valuable consideration, Universal Display Corporation, a Pennsylvania corporation (the "Company"), grants to Gerard Klauer Mattison & Co., Inc., or registered assigns (the "Warrantholder"), the right to subscribe for and purchase from the Company 186,114 validly issued, fully paid and nonassessable shares (the "Warrant Shares") of the Company's Common Stock, par value $0.01 per share (the "Common Stock"), at the purchase price per share of $15.24 (the "Exercise Price"), from time to time, prior to 5:00PM Eastern Standard Time on August 21, 2008 (the "Expiration Date"), all subject to the terms, conditions and adjustments herein set forth. Capitalized terms shall have the meanings set forth in Section 18 of this Warrant. Certificate No.: D-1 Number of Warrant Shares: 186,114 Name of Warrantholder: Gerard Klauer Mattison & Co., Inc. 1. Duration and Exercise of Warrant; Limitation on Exercise; Payment of Taxes. 1.1. Duration and Exercise of Warrant. Subject to the terms and conditions set forth herein, the Warrant may be exercised, in whole or in part, by the Warrantholder by: (a) the surrender of this Warrant to the Company, with a duly executed Exercise Form specifying the number of Warrant Shares to be purchased, during normal business hours on any Business Day prior to the Expiration Date; and (b) the delivery of payment to the Company, for the account of the Company, by cash, by wire transfer of immediately available funds or by certified or bank cashier's check, of the Exercise Price for the number of Warrant Shares specified in the Exercise Form in lawful money of the United States of America. The Company agrees that such Warrant Shares shall be deemed to be issued to the Warrantholder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid (or as provided in Section 1.2 below). 1.2. Conversion Right (Cashless Exercise). (a) In lieu of the payment of the Exercise Price, the Warrantholder shall have the right (but not the obligation), to require the Company to convert this Warrant, in whole or in part, into shares of Common Stock (the "Conversion Right") as provided for in this Section 1.2. Upon exercise of the Conversion Right, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any of the Exercise Price; provided, however, that the Warrantholder shall be required to pay the par value for any shares of Common Stock so delivered) that number of shares of Common Stock equal to the quotient obtained by dividing (i) the value of the Warrant (or portion thereof being converted) at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price in effect immediately prior to the exercise of the Conversion Right from the aggregate Fair Market Value for the shares of Common Stock issuable upon exercise of the Warrant (or portion thereof being converted) immediately prior to the exercise of the Conversion Right) by (ii) the Fair Market Value of one share of Common Stock immediately prior to the exercise of the Conversion Right. (b) The Conversion Right may be exercised by the Warrantholder on any Business Day prior to the Expiration Date by delivering the Warrant Certificate, together with a duly executed Exercise Form (with the conversion section completed), to the Company, exercising the Conversion Right and specifying the total number of shares of Common Stock the Warrantholder will be issued pursuant to such conversion. 2 (c) Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (i) If the Common Stock is listed on a national securities exchange, then the Fair Market Value shall be the average of the last ten (10) "daily sales prices" of the Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted for trading on the last ten (10) Business Days prior to the Determination Date, or if not listed or traded on any such exchange, then the Fair Market Value shall be the average of the last ten (10) "daily sales prices" of the Common Stock on the National Market (the "National Market") of the National Association of Securities Dealers Automated Quotations System ("Nasdaq") on the last ten (10) Business Days prior to the Determination Date. The "daily sales price" shall be the closing price of the Common Stock at the end of each day; or (ii) If the Common Stock is not so listed or if no such sale is made on at least nine (9) of such days, then the Fair Market Value shall be the fair value as reasonably determined in good faith by the Company's Board of Directors or a duly appointed committee of the Board (which determination shall be described in detail in the written notice delivered to the Warrantholder together with the Common Stock certificates). 1.3. Limitations on Exercise. Notwithstanding anything to the contrary herein, this Warrant may be exercised only upon the delivery to the Company of any certificates or other documents reasonably requested by the Company to satisfy the Company that the proposed exercise of this Warrant may be effected without registration under the Securities Act. 1.4. Warrant Shares Certificate. A stock certificate or certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Warrantholder within ten (10) Business Days after the due exercise of this Warrant in accordance with the terms hereof. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical to this Warrant. 1.5. Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereto; provided, however, that the Warrantholder shall be required to pay any and all taxes which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Warrantholder as reflected upon the books of the Company. 3 1.6. Divisibility of Warrant; Transfer of Warrant. (a) Subject to the provisions of this Section 1.6, this Warrant may be divided into warrants of at least ten thousand (10,000) shares, upon surrender at the principal office of the Company, without charge to any Warrantholder. Upon such division, the Warrants may be transferred of record as the then Warrantholder may specify without charge to such Warrantholder (other than any applicable transfer taxes). In addition, subject to the provisions of this Section 1.6, the Warrantholder shall also have the right to transfer this Warrant in its entirety to any person or entity. (b) Upon surrender of this Warrant to the Company with a duly executed Assignment Form and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants of like tenor in the name of the assignee named in such Assignment Form, and this Warrant shall automatically be canceled. Each Warrantholder agrees that prior to any proposed transfer (whether as the result of a division or otherwise) of this Warrant, such Warrantholder shall give written notice to the Company of such Warrantholder's intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and, if reasonably requested by the Company, shall be accompanied by a written opinion of legal counsel, which opinion shall be addressed to the Company and be reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed transfer of this Warrant may be effected without registration under the Securities Act and is otherwise in accordance with applicable state securities laws. In addition, the Warrantholder and the transferee shall execute any documentation reasonably required by the Company to ensure compliance with the Securities Act. The term "Warrant" as used in this Agreement shall be deemed to include any Warrants issued in substitution or exchange for this Warrant. 2. Restrictions on Transfer; Restrictive Legends. Except as otherwise permitted by this Section 2, each Warrant shall (and each Warrant issued upon direct or indirect transfer or in substitution for any Warrant pursuant to Section 1.6 or Section 4 shall) be stamped or otherwise imprinted with a legend in substantially the following form: THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. 4 Except as otherwise permitted by this Section 2, each stock certificate for Warrant Shares issued upon the exercise of any Warrant and each stock certificate issued upon the direct or indirect transfer of any such Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS. Notwithstanding the foregoing, the Warrantholder may require the Company to issue a Warrant or a stock certificate for Warrant Shares, in each case without a legend, if: (i) such Warrant or such Warrant Shares, as the case may be, have been registered for resale under the Securities Act, (ii) the Warrantholder has delivered to the Company an opinion of legal counsel reasonably satisfactory to the Company, which opinion shall be addressed to the Company and be reasonably satisfactory in form and substance to the Company's counsel, to the effect that such registration is not required with respect to such Warrant or such Warrant Shares, as the case may be, or (iii) such Warrant or Warrant Shares, as the case may be, may be sold without restriction (including, without limitation, as to volume) pursuant to Rule 144(k) promulgated under the Securities Act. 3. Company Representations, Warranties and Covenants. The Company hereby represents, warrants, covenants and agrees as follows: 3.1. All Warrant Shares which are issued upon the exercise of this Warrant will, upon issuance, be validly issued, fully paid, and nonassessable, not subject to any preemptive rights, and free from all taxes, liens, security interests, charges, and other encumbrances (other than those created by the Warrantholder or any predecessor-in-interest thereof) with respect to the issue thereof, other than taxes with respect to any transfer occurring contemporaneously with such issue; 3.2. During the period within which this Warrant may be exercised, the Company will at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant; 3.3. The Company will, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the then effective Exercise Price; 5 3.4. The Company shall not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, spinoff, consolidation, merger, dissolution, issue or sale of securities or any other action or inaction, seek to avoid the observance or performance of any of the terms of this Warrant, and shall at all times in good faith assist in performing and giving effect to the terms hereof and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against dilution or other impairment; 3.5. This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditors' rights; 3.6. The execution and delivery of this Warrant are not, and the issuance of the Warrant Shares upon exercise of this Warrant in accordance with the terms hereof will not be, in violation of the Company's certificate of incorporation or bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a material default under, any material indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency (other than such consents, approvals, notices, actions or filings as have already been obtained or made); and 3.7. The authorized capital stock of the Company consists of (a) 50,000,000 shares of Common Stock, of which 17,047,080 shares were issued and outstanding as of August 17, 2001, and (b) 5,000,000 shares of Preferred Stock, par value $.01 per share, of which 505,000 shares were issued and outstanding as of August 22, 2001. All issued and outstanding shares of the Company have been duly authorized and validly issued, and are fully paid and nonassessable, and such shares have been issued in compliance with all applicable federal and state securities laws. 4. Loss or Destruction of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. 5. Ownership of Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any 6 notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer. 6. Investment Representation. The Warrantholder (i) is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act; (ii) has the ability to bear the economic risks of such Warrantholder's prospective investment, including a complete loss of Warrantholder 's investment in this Warrant and the shares of Common Stock issuable upon the exercise thereof (collectively, the "Securities"); (iii) has been furnished with and has had access to such information as such Warrantholder has considered necessary to make a determination as to the purchase of the Securities together with such additional information as is necessary to verify the accuracy of the information supplied; (iv) has had the opportunity to ask questions concerning the Company and had all questions which have been asked by such Warrantholder satisfactorily answered by the Company; and (v) has not been offered the Securities by any form of advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any such media. The Warrantholder, by acceptance of this Warrant, represents and warrants to the Company that this Warrant and all securities acquired upon any and all exercises of this Warrant are purchased for the Warrantholder 's own account for investment, and not with a view to distribution of either this Warrant or any of the shares of Common Stock issuable upon the exercise thereof. 7. Certain Adjustments. 7.1. The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows: (a) Stock Dividends. If at any time while this Warrant is outstanding (i) the Company shall fix a record date for the issuance of any stock dividend payable in shares of Common Stock or (ii) the number of shares of Common Stock shall have been increased by a subdivision or splitup of shares of Common Stock, then, on the record date fixed for the determination of holders of Common Stock entitled to receive such dividend or immediately after the effective date of such subdivision or split up, as the case may be, the number of shares to be delivered upon exercise of this Warrant will be increased so that the Warrantholder will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised in full immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (h). 7 (b) Combination of Stock. If the number of shares of Common Stock outstanding at any time while this Warrant is outstanding shall have been decreased by a combination of the outstanding shares of Common Stock, then, immediately after the effective date of such combination, the number of shares of Common Stock to be delivered upon exercise of this Warrant will be decreased so that the Warrantholder thereafter will be entitled to receive the number of shares of Common Stock that such Warrantholder would have owned immediately following such action had this Warrant been exercised in full immediately prior thereto, and the Exercise Price will be adjusted as provided below in paragraph (h). (c) Reorganization, Merger, etc. If any capital reorganization of the Company, any reclassification of the Common Stock, any consolidation of the Company with or merger of the Company with or into any other person, or any sale or lease or other transfer of all or substantially all of the assets of the Company to any other person (each, a "Transaction"), shall be effected while this Warrant is outstanding in such a way that the holders of Common Stock shall be entitled to receive stock, other securities or assets (whether such stock, other securities or assets are issued or distributed by the Company or another person) with respect to or in exchange for Common Stock, then, upon exercise of this Warrant, the Warrantholder shall have the right to receive the kind and amount of stock, other securities or assets receivable upon such Transaction by a holder of the number of shares of Common Stock that such Warrantholder would have been entitled to receive upon exercise of this Warrant had this Warrant been exercised in full immediately before such Transaction. On the earlier of the day on which the Company (A) publicly announces such Transaction or (B) notifies its shareholders of such proposed Transaction, the Company shall execute and deliver to the Warrantholder a certificate setting forth the Warrantholder's rights as set forth in the preceding sentence. The successor entity in any such Transaction shall assume the Company's obligations hereunder simultaneously or prior to such Transaction. The provisions of this Section 7.1(c) shall similarly apply to successive Transactions. (d) Stock and Rights Offering at Less than Exercise Price. (i) If the Company, at any time while this Warrant is outstanding shall issue or sell to all holders of its Common Stock, or fix a record date for the issuance or sale to all holders of its Common Stock of, (A) Common Stock or (B) rights, options or warrants entitling the holders thereof to subscribe for or purchase Common Stock (or securities convertible or exchangeable into or exercisable for Common Stock), in any such case, at a price per share (or having a conversion, exchange or exercise price per share) that is less than the Exercise Price on the date of such issuance or sale or on such record date then, immediately after the date of such issuance or sale or such record date, the Exercise Price shall be adjusted by reducing it to the lowest of the following prices: 8 (I) the price calculated by dividing (A) an amount equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale or fixing of record date, multiplied by the then existing Exercise Price, plus (y) the aggregate consideration, if any, received by the Company upon such issue or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale or fixing of record date; and (II) the price calculated by multiplying the then existing Exercise Price by a fraction, (A) the numerator of which is the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale or fixing of record date multiplied by the Fair Market Value per share of Common Stock immediately prior to such issue or sale or fixing of record date plus (y) the cash consideration received by the Company upon such issue or sale, and (B) the denominator of which is the total number of shares of Common Stock outstanding immediately after such issue or sale or fixing of record date times the Fair Market Value per share of Common Stock immediately prior to such issue or sale or fixing of record date. (ii) In case the Company shall issue or sell any Additional Securities while this Warrant is outstanding at a price per share (or having a conversion price, or exchange or exercise price per share) lower than the Exercise Price on the date of such issuance or sale then, immediately after the date of such issuance or sale, the computations, adjustments and readjustments provided for in Section 7.1(d)(i) with respect to the Exercise Price shall be made in a manner as similar as possible to the method so provided and shall be applied to determine the amount of Additional Securities from time to time receivable upon the exercise of this Warrant so as to protect the Warrantholders against such dilution of the purchase right. (e) Distributions to All Holders of Common Stock. Except to the extent adjusted for pursuant to Section 7.1(d)(i) hereof, if the Company shall, at any time while this Warrant is outstanding, distribute to all holders of its Common Stock any shares of capital stock of the Company (other than Common Stock) or evidences of its indebtedness or assets (not including cash dividends or other cash distributions, whether paid from retained earnings of the Company or otherwise) or rights or warrants to subscribe for or purchase any of its securities, then the Warrantholder shall be entitled to receive, upon exercise of the Warrant, that portion of such distribution to which it would have been entitled had the Warrantholder exercised its Warrant immediately prior to the date of such distribution. At the time it fixes the record date for such distribution, the Company shall allocate sufficient reserves to ensure the timely and full performance of the provisions of this 9 Section 7.1(e). The Company shall, on the same day on which it mails such notice to the other holders of its Common Stock, mail by first class, postage prepaid, to the Warrantholder, notice that such distribution will take place. (f) Fractional Shares. No fractional shares of Common Stock shall be issued to any Warrantholder in connection with the exercise of this Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable to such Warrantholder, the Company will pay to such Warrantholder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then current Fair Market Value per share of Common Stock. (g) Carryover. Notwithstanding any other provision of this Section 7, no adjustment shall be made to the number of shares of Common Stock to be delivered to the Warrantholder (or to the Exercise Price) if such adjustment represents less than 1% of the number of shares to be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to 1% or more of the number of shares to be so delivered. (h) Exercise Price Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of this Warrant is adjusted as provided in this Section 7.1, the Exercise Price payable upon the exercise of this Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter. 7.2. Rights Offering. In the event the Company shall effect an offering of Common Stock pro rata among its common stockholders, the Warrantholder shall be entitled to elect to participate in each and every such offering as if this Warrant had been exercised immediately prior to each such offering. The Company shall, on the same day on which it mails such notice to its other holders of its Common Stock, mail by first class, postage prepaid, to the Warrantholder, notice that such rights offering will take place. 7.3. Other Dilutive Events. In case any event shall occur as to which the provisions of Section 7.1 are not strictly applicable, but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such section, then, in each such case, the Board of Directors of the Company shall, in its good faith judgment and at its expense, determine the adjustment, if any, on a basis consistent with the essential intent and principles established in Section 7.1, necessary to preserve without dilution the purchase rights represented by this Warrant. Upon such determination by the Board of Directors, the Company shall make the adjustment so determined. 10 7.4. Notice of Adjustments. Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Company shall promptly mail by first class, postage prepaid, to the Warrantholder, notice of such adjustment or adjustments setting forth in reasonable detail the number of Warrant Shares and the Exercise Price of such Warrant Shares after such adjustment, a brief statement of the facts requiring such adjustment, and the computation by which such adjustment was made. 7.5. Notice of Extraordinary Corporate Events. In case the Company after the date hereof shall propose to (a) distribute any dividend (whether stock or cash or otherwise) to all holders of shares of Common Stock or to make any other distribution to all holders of shares of Common Stock, (b) offer to all holders of shares of Common Stock rights to subscribe for or purchase any additional shares of any class of stock or any other rights or options, or (c) effect any reclassification of the Common Stock (other than a reclassification involving merely the subdivision or combination of outstanding shares of Common Stock), any capital reorganization, any consolidation or merger (other than a merger in which no distribution of securities or other property is to be made to holders of shares of Common Stock), any sale, transfer or other disposition of all or substantially all of its property, assets and business, or the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall mail to each Warrantholder notice of such proposed action, which notice shall specify the date on which (i) the books of the Company shall close, or (ii) a record shall be taken for determining the holders of Common Stock entitled to receive such stock dividends or other distribution or such rights or options, or (iii) such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, dissolution or winding up shall take place or commence, as the case may be, and the date, if any, as of which it is expected that holders of record of Common Stock shall be entitled to receive securities or other property deliverable upon such action. Such notice shall be mailed in the case of any action covered by clause (a),(b) or (c) above on the date on which such notice is mailed to the other holders of the Common Stock. 7.6. Effect of Failure to Notify. Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice, pursuant to Sections 7.1 through Section 7.5 inclusive shall not affect the legality or validity of the adjustment to the Exercise Price, the number of shares purchasable upon exercise of this Warrant, or any transaction giving rise thereto. 8. Registration Rights. 8.1. Shelf Registration Statement. On or prior to the 30th day after the date hereof, the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering the resale of all Registrable Securities unless the Holder notifies the Company in writing of its election to exclude some or all of its Registrable Securities from such 11 Registration Statement. The Registration Statement shall be on Form S-3 or any successor form (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on Form S-1 or another appropriate form). 8.2. Incidental Registration. (a) If at any time the Company proposes to register any of its Common Stock under the Securities Act by registration on any form other than Form S-4 or S-8, whether or not for sale for its own account, it shall each such time give prompt written notice to all registered Holders of Registrable Securities of its intention to do so and of such Holders' rights under this Section 8.2, unless all of the Registrable Securities are included in a Registration Statement pursuant to Section 8.1. Upon the written request of any such Holder (a "Requesting Holder") made as promptly as practicable and in any event within ten (10) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Requesting Holder and the intended method of disposition), the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by the Requesting Holders thereof to the extent required to permit the disposition of such Registrable Securities in accordance with the intended methods thereof described as aforesaid; provided, however, that prior to the effective date of the registration statement filed in connection with such registration, immediately upon notification to the Company from the managing underwriter, if any, of the price at which such securities are to be sold, if such price is below the price which any Requesting Holder shall have indicated to be acceptable to such Requesting Holder, the Company shall so advise such Requesting Holder of such price, and such Requesting Holder shall then have the right to withdraw its request to have its Registrable Securities included in such registration statement; provided, further, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Requesting Holder of Registrable Securities and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the registration expenses in connection therewith), without prejudice, however, to the rights of a Holder under Section 8.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. (b) If the managing underwriter of any underwritten offering under this Section 8.2 shall inform the Company by letter that, in its opinion, the number or type of Registrable Securities requested to be included in such registration would adversely affect such offering, and the 12 Company has so advised the Requesting Holders in writing, then the Company will include in such registration, to the extent of the number and type that the Company is so advised can be sold in (or during the time of) such offering, first, all securities proposed by the Company to be sold for its own account, second, all securities proposed to be registered by the holders of the Preferred Stock, the Notes and the Investor Warrants, as well as holders of the Common Stock issued upon the conversion of or payment of dividends or interest on the Preferred Stock and/or the Notes and upon the exercise of the Investor Warrants; third, such Registrable Securities requested to be included in such registration pursuant to this Warrant, pro rata among such Requesting Holders on the basis of the estimated proceeds from the sale thereof; and fourth, all other securities proposed to be registered. 9. Obligations of the Company. In connection with the registration of the Registrable Securities as contemplated by Sections 8.1 and 8.2, the Company shall: 9.1. Prepare and file promptly with the SEC a registration statement or statements or similar documents (the "Registration Statement") with respect to all Registrable Securities, and thereafter use its reasonable best efforts to cause the Registration Statement to become effective and keep the Registration Statement effective pursuant to Rule 415 at all times during the Effectiveness Period (as such term is defined in Section 9.2 below), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein), in each case, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; 9.2. Prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective (subject to Section 10.6) until the date which is two years after the date that such Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold pursuant to Rule 144(k) (the "Effectiveness Period") and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period; 9.3. Furnish to each Holder whose Registrable Securities are included in the Registration Statement (without charge to the Holders) such number of copies of a prospectus, including a preliminary prospectus and all amendments and supplements thereto and such other documents, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder; the Company consents to the use of the prospectus and any amendment or supplement thereto by each Holder in connection with the offering and the sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto; 13 9.4. Use its best efforts to (a) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or Blue Sky laws of such jurisdictions as the Holders who hold a majority in interest of the Registrable Securities reasonably request, (b) prepare and file in those jurisdictions all required amendments (including post-effective amendments) and supplements, (c) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times the Registration Statement is in effect and (d) take all other actions necessary or advisable to enable the disposition of such securities in all such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 9.4 or to take any action that that would subject it to general service of process in any jurisdiction where it is not then so subject or subject the Company to any tax in any jurisdiction where it is not then subject; 9.5. (a) In the case of registration contemplated by Section 8.2, in the event of an underwritten offering, enter into and perform its obligations under an underwriting agreement with the managing underwriter of such offering, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, and (b) in the case of any non-underwritten offering, provide to broker-dealers participating in any distribution of Registrable Securities reasonable indemnification substantially similar to that provided by Section 12.1; 9.6. Promptly notify each Holder of the happening of any event of which the Company has knowledge, as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances then existing, not misleading, and use its best efforts to prepare promptly a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to each Holder as such Holder may reasonably request; 9.7. Promptly notify each Holder who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any stop order or other suspension of effectiveness of the Registration Statement, and use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible time; 9.8. Permit a single firm of counsel designated as selling stockholders' counsel by the Holders who hold a majority in interest of 14 the Registrable Securities being sold to review the Registration Statement and all amendments and supplements thereto at least three Business Days prior to their filing with the SEC, and shall not file any document in a form to which such counsel reasonably objects within such 3 Business Day period; 9.9. In the case of registration contemplated by Section 8.2, in the event of an underwritten offering, the Company shall, at the request of the Holders who hold a majority in interest of the Registrable Securities being sold in such registration, furnish on the date that Registrable Securities are delivered to an underwriter for sale in connection with the Registration Statement (a) a letter, dated such date, from the Company's independent certified public accountants, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters; and (b) an opinion, dated such date, from counsel representing the Company for purposes of such Registration Statement, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters; 9.10. Make available for inspection by any Holder, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant, or other agent retained by any such Holder or underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company, as shall be reasonably necessary to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with the Registration Statement; 9.11. Cooperate with the Holders who hold Registrable Securities being sold and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be sold pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, and registered in such names as the managing underwriter or underwriters, if any, or the Holders may reasonably request; 9.12. Promptly notify each Holder when the prospectus or any prospectus supplement or post-effective amendment has been filed, and with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective; and 9.13. Maintain a transfer agent for the Company's shares of Common Stock and the Registrable Securities. 10. Obligations of the Holders. 10.1. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Warrant with 15 respect to each Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of such securities as shall be reasonably required to effect the registration of the Registrable Securities and shall execute such documents and agreements in connection with such registration as the Company may reasonably request. At least three (3) Business Days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Holder in writing of the information the Company requires from each such Holder (the "Requested Information") if such Holder elects to have any of its Registrable Securities included in the Registration Statement. If within such three (3) Business Day period the Company has not received the Requested Information from a Holder (a "Non-Responsive Holder") and the Company has properly notified such Holder in accordance with the preceding sentence, then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Holder; 10.2. Each Holder, by its acceptance of the Registrable Securities, agrees to reasonably cooperate with the Company in connection with the preparation and filing of any registration statement hereunder, unless (a) in the case of registration contemplated by Section 8.1, such Holder has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement and thereby waive any rights against the Company under Section 8.1, or (b) in the case of incidental registration pursuant to Section 8.2, such Holder has decided not to participate; 10.3. In the case of registration contemplated by Section 8.2, in the event of an underwritten offering, each Holder agrees to enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Holder has decided not to participate; 10.4. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 9.6, 9.7 or 10.6, such Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 9.6 or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed and, if so directed by the Company, such Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of such destruction) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities at the time of receipt of such notice. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.; 16 10.5. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Holders entitled hereunder to approve such arrangements, (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and (c) agrees to pay such Holder's pro rata portion of all underwriting discounts and commissions; and 10.6. Subject to the last sentence of this Section 10.6, the Company may by written notice require that the Holders immediately cease sales of Registrable Securities (for a period not to exceed five consecutive trading days in any one instance and for a period not to exceed twenty trading days in any twelve-month period) pursuant to a Registration Statement at any time that (i) the Company becomes engaged in a business activity or negotiation which is not disclosed in a Registration Statement (or the prospectus included therein) which the Company reasonably believes must be disclosed therein under applicable law and which the Company desires to keep confidential for business purposes, (ii) the Company determines that a particular disclosure so determined to be required to be disclosed therein would be premature or would adversely affect the Company or its business or prospects or (iii) the Registration Statement can no longer be used under the existing rules and regulations promulgated under the Securities Act (each of (i), (ii) or (iii), a "Material Condition"). The Company shall not be required to disclose to the Holders which of the reasons specified in (i), (ii) or (iii) above is the basis for requiring a suspension of sales due to the occurrence of a Material Condition. The Company will use its reasonable best efforts to ensure that the use of the Registration Statement (and the prospectus included therein) may be resumed as soon as it is practicable. The Company may not suspend sales of Registrable Securities under a Registration Statement pursuant to this Section 10.6 more than four (4) times during any twelve-month period. 11. Expenses of Registration.All expenses (other than underwriting discounts and commissions) incurred in connection with registration, filings or qualifications pursuant to Sections 8 and 9, including, without limitation, all registration, listing, filing and qualification fees, printers and accounting fees, the fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one firm of counsel for the Holders, such fees and disbursements of counsel for the Holders not to exceed an aggregate amount of $25,000. 12. Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement: 12.1. To the extent permitted by law, the Company will indemnify and hold harmless each Holder who holds such Registrable 17 Securities, the directors, if any, of such Holder, the officers, if any, of such Holder, who sign the Registration Statement, each person, if any, who controls such Holder, any underwriter (as defined in the Securities Act) for the Holders, and each person, if any, who controls any such underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an "Indemnified Holder"), against any losses, claims, damages, expenses, liabilities (joint or several) (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented if the Company files any amendment thereof or supplement thereto with the SEC), or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading,. Subject to the restrictions set forth in Section 12.3 with respect to the number of legal counsel, the Company shall reimburse the Holders and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim, whether or not such claim, investigation or proceeding is brought or initiated by the Company or a third party. If multiple claims are brought against an Indemnified Holder in an arbitration proceeding, and indemnification is permitted under applicable law and is provided for under this Section 12 with respect to at least one such claim, the Company agrees that any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 12.1 (x) shall not apply to a Claim arising out of or based upon a Violation which occurs solely in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Holder expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not apply to a Claim arising out of or based upon the Holder's use of an outdated or defective prospectus after the Company has notified such Holder in writing that the prospectus is outdated or defective and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Holder and shall survive the transfer of the Registrable Securities by the Holders pursuant to Section 15. 18 12.2. In connection with any Registration Statement in which a Holder is participating, each such Holder agrees to indemnify and hold harmless, to the same extent and in the same manner set forth in Section 12.1, the Company, each of its directors, each of its officers who sign the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter (collectively and together with an Indemnified Holder, an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs solely in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in connection with such Registration Statement or the Holder's use of an outdated or defective prospectus after the Company has notified such Holder in writing that the prospectus is outdated or defective; and such Holder will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 12.2 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Holder, which consent shall not be unreasonably withheld; provided, further, that the Holder shall in no event be liable under this Section 12.2 for any amount of a Claim that exceeds the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement. 12.3. Promptly after receipt by an Indemnified Party under this Section 11 of notice of the commencement of any action (including any governmental action), such Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 12, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel satisfactory to the Indemnified Parties; provided, however, that an Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel for the Indemnified Party, representation of such Indemnified Party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding. The Company shall pay for only one legal counsel for the Holders; such legal counsel shall be selected by the Holders holding a majority in interest of the Registrable Securities. The failure by an Indemnified Party to deliver written notice to the indemnifying 19 party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Party under this Section 12, except to the extent that such failure to notify results in the forfeiture by the indemnifying party of substantive rights or defenses. The indemnification required by this Section 12 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 13. Contribution. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 12 to the fullest extent permitted by law; provided, however, that (a) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 12, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 14. Reports Under Securities Exchange Act of 1934.With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) comply with the requirements of paragraph (c) of Rule 144 with respect to current public information about the Company; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each Holder so long as such Holder owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the requirements of said Rule 144(c) and the reporting requirements of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Holders to sell such securities without registration. 15. Assignment of Registration Rights. The right to have the Company register Registrable Securities pursuant to this Warrant shall be automatically assigned by the Holders to transferees or assignees of this 20 Warrant or such Registrable Securities, provided that immediately following such transfer or assignment, the further disposition of such securities by the transferee or assignee would be subject to restrictions under the Securities Act. The term "Holders" as used herein shall include permitted assignees and transferees. 16. Amendments. Any provision of this Warrant (including registration rights) may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders who hold a majority in interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 16 shall be binding upon each Holder and the Company. 17. Expiration of the Warrant. The right to exercise this Warrant shall terminate on the Expiration Date. All terms of this Warrant applicable to the Warrant Shares, including, without limitation, Sections 8 through 15, inclusive (but excluding Sections 7.1 through 7.5, inclusive), shall survive exercise and/or expiration of this Warrant. 18. Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: Assignment Form: an Assignment Form in the form annexed hereto as Exhibit B. Additional Securities: all shares of Common Stock or rights, options, warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock, issued or sold by the Company after the date hereof (collectively, "Common Stock Equivalents" and together with Common Stock hereafter called the "CS Securities"), excluding: (i) any CS Securities (or shares of Common Stock issued upon conversion, exchange or exercise, as the case may be, of such Common Stock Equivalents) for which an adjustment has been made pursuant to Section 7.1(a), 7.1(b), 7.1(c), clause (i) of Section 7.1(d) or 7.1(e); (ii) the Warrant Shares; (iii) any options (or shares of Common Stock issued upon exercise of such options) issued pursuant to a stock option plan which is approved by the Board of Directors of the Company; (iv) shares of Common Stock issued upon conversion, exchange, or exercise, as the case may be, of Common Stock Equivalents, for which an adjustment has been made in accordance with Section 7.1(d)(ii) upon issuance of such Common Stock Equivalents; (v) the issuance of CS Securities under the PPG Agreement or the Motorola Agreement, (vi) up to 1,000,000 CS Securities issued in connection with any contractual strategic alliances approved by the Company's Board of Directors, (vii) the issuance of any CS Securities representing or convertible into up to 50,000 shares of Common Stock in any single transaction; provided that this subsection (vii) shall only apply to the first 50,000 shares in the 21 aggregate issued in any consecutive 12 month period and 150,000 in the aggregate, (viii) CS Securities issued or issuable pursuant to the Notes, Preferred Stock, Investor Warrants or any other Transaction Document or pursuant to the anti-dilution provisions thereof, (ix) any CS Securities issuable upon the exercise of, or pursuant to the anti-dilution provisions contained within, any options, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter), or (x) any Common Stock issued upon the conversion of exercise of any Common Stock Equivalents outstanding as of the date hereof (but not to the extent amended hereafter). Business Day: any day other than a Saturday, Sunday or a day on which national banks are authorized by law to close in The City of New York, State of New York. Claims: the meaning specified in Section 12.1. Common Stock: the meaning specified on the cover of this Warrant. Company: the meaning specified on the cover of this Warrant. Consolidated Net Worth: as of any date herein specified, the total consolidated assets of the Company and its Subsidiaries minus the total consolidated liabilities of the Company and its Subsidiaries (exclusive of any liabilities associated with this Warrant) as determined from the consolidated balance sheet of the Company and its Subsidiaries from the most recent fiscal quarter, which consolidated balance sheet shall be prepared in accordance with generally accepted accounting principles, shall be in reasonable detail, and shall be certified as complete and correct by the chief financial or accounting officer of the Company. Determination Date: the meaning specified in Section 1.2(c). Exchange Act: the meaning specified in Section 12.1 or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to a comparable section, if any, of any such similar Federal statute. Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A. Exercise Price: the meaning specified on the cover of this Warrant. Expiration Date: the meaning specified on the cover of this Warrant. Fair Market Value: the meaning specified in Section 1.2(c). Holder(s): holder(s) of Registrable Securities. 22 Indemnified Holder: the meaning specified in Section 12.1. Indemnified Party: the meaning specified in Section 12.2. Inspectors: the meaning specified in Section 9.10. Investor Warrants: the warrants to purchase shares of Common Stock granted by the Company as of August 22, 2001 (other than this Warrant). Motorola Agreement: means collectively the License Agreement dated as of September 29, 2000 between the Company and Motorola, Inc., the Stock Purchase Warrant granted to Motorola, Inc. on September 29, 2000 and the Securities Purchase Agreement dated as of September 29, 2000 between the Company and Motorola, Inc. Nasdaq: the meaning specified in Section 1.2(c)(i). National Market: the meaning specified in Section 1.2(c)(i). Non-Responsive Holder: the meaning specified in Section 10.1. Notes: the Company's Convertible Promissory Notes in the aggregate principal amount of $15 million dated as of August 22, 2001. PPG Agreement: means collectively, the Development and License Agreement dated as of October 1, 2000 between the Company and PPG Industries, Inc., as amended, and the Stock Purchase Warrant granted to PPG Industries, Inc. on October 1, 2000. Preferred Stock: the Company's Series C Convertible Preferred Stock and Series D Convertible Preferred Stock. Registrable Securities: (i) the Warrant Shares and other securities issued or issuable upon exercise of the Warrants and (ii) any securities issued or issuable with respect to any Common Stock or other securities referred to in subdivision (i) by way of stock dividend or stock split or in connection with a combination or other reorganization or otherwise; provided, however, that Registrable Securities shall not include any securities of the Company eligible for sale by the Holder under 144(k) of the Securities Act. Registration Statement: the meaning specified in Section 9.1. Requested Information: the meaning specified in Section 10.1. Requesting Holder: the meaning specified in Section 8.2(a). Rule 144: the meaning specified in Section 14. 23 Rule 415: Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis. SEC: the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act or the Exchange Act, whichever is the relevant statute for the particular purpose. Securities Act: the meaning specified on the cover of this Warrant, or any similar Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar Federal statute. Subsidiary: the meaning specified in Rule 405 under the Securities Act. Transaction: the meaning specified in Section 7.1(c). Transaction Documents: means collectively, (i) the Securities Purchase Agreement and the Registration Rights Agreement, each dated as of August 22, 2001 among the Company and the other signatories named therein, (ii) the Preferred Stock, Notes, Investor Warrants and all shares of Common Stock issuable upon the conversion of or payment of dividends or interest on the Preferred Stock and/or Notes and upon the exercise of the Investor Warrants, (iii) each of the Statements of Designation for the Company's Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, and any other documents or agreements executed in connection with the transactions contemplated by the Securities Purchase Agreement dated as of August 22, 2001 among the Company and the purchasers named therein. Violation: the meaning specified in Section 12.1. Warrantholder: the meaning specified on the cover of this Warrant. Warrant Shares: the meaning specified on the cover of this Warrant. 19. Miscellaneous. 19.1. Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholder with respect to the Warrants. 19.2. Binding Effects; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Company and the Warrantholder and their respective heirs, legal representatives, successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Company and the Warrantholder, or their respective heirs, legal representatives, successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant. 24 19.3. Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and shall not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant. 19.4. Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. 19.5. Further Assurances. Each of the Company and the Warrantholder shall do and perform all such further acts and things and execute and deliver all such other certificates, instruments and documents as the Company or the Warrantholder may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Agreement. 19.6. Notices. All notices and other communications required or permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States mail, postage prepaid, to the parties hereto at the following addresses or to such other address as any party hereto shall hereafter specify by notice to the other party hereto: (a) if to the Company, addressed to: Universal Display Corporation 375 Phillips Blvd. Ewing, NJ 08618 Attn: Sidney D. Rosenblatt (b) if to the Warrantholder, addressed to: the address of such Warrantholder appearing on the books of the Company. Except as otherwise provided herein, all such notices and communications shall be deemed to have been received on the date of delivery thereof, if delivered personally, or on the third Business Day after the mailing thereof. 19.7. Separability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the terms and provisions of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. 19.8. Governing Law. This Warrant shall be deemed to be a contract made under the laws of Pennsylvania and for all purposes shall be 25 governed by and construed in accordance with the laws of such State applicable to such agreements made and to be performed entirely within such State. No Rights or Liabilities as Stockholder. Nothing contained in this Warrant shall be determined as conferring upon the Warrantholder any rights as a stockholder of the Company or as imposing any liabilities on the Warrantholder to purchase any securities whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise. 26 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney Rosenblatt ------------------------------ Name: Sidney Rosenblatt Title: Chief Financial Officer Dated: August 22, 2001 27 Exhibit A --------- EXERCISE FORM ------------- (To be executed upon exercise of this Warrant) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase __________ of the Warrant Shares and herewith tenders (i) payment for such Warrant Shares to the order of Universal Display Corporation in the amount of $__________ or (ii) Warrants to purchase __________ shares of Common Stock in order to exercise the Conversion Right (as defined in Section 1.2 of the Warrant) and payment of the par value for _________ of the Warrant Shares, in either case, in accordance with the terms of this Warrant. The undersigned requests that a certificate for such Warrant Shares be registered in the name of __________________ and that such certificates be delivered to __________________ whose address is _______________ ____________________________________________________. Dated:______________ Signature_____________________________ _____________________________ (Print Name) _____________________________ (Street Address) _____________________________ (City) (State) (Zip Code) Signed in the Presence of: ________________________ Exhibit B --------- ASSIGNMENT FORM --------------- (To be executed only upon transfer of this Warrant) For value received, the undersigned registered holder of the within Warrant hereby sells, assigns and transfers unto ______________________ the right represented by such Warrant to purchase ________________ shares of Common Stock of Universal Display Corporation to which such Warrant relates and all other rights of the Warrantholder under the within Warrant (including, without limitation, the registration rights provided in Section 8 of the within Warrant), and appoints ______________________ Attorney to make such transfer on the books of Universal Display Corporation maintained for such purpose, with full power of substitution in the premises. Dated: ___________________ Signature_____________________________ _____________________________ (Print Name) _____________________________ (Street Address) _____________________________ (City) (State) (Zip Code) Signed in the presence of: _____________________________ EX-10.1 14 ex10-1.txt EX-10.1 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is dated as of August 22, 2001 among Universal Display Corporation, a Pennsylvania corporation (the "Company"), and the purchasers identified on the signature pages hereto (each a "Purchaser" and collectively the "Purchasers"). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933 (the "Securities Act"), the Company desires to issue and sell to the Purchasers, and the Purchasers, severally and not jointly, desire to purchase from the Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated: "Actual Minimum" means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants and convertible Securities, assuming that (a) any previously unconverted Notes or Shares are held until the fifth anniversary of the Closing Date or, if earlier, until maturity, and all interest and dividends thereon are paid in shares of Common Stock, and (b) the Closing Price at all times on and after the date of determination equals 100% of the actual Closing Price on the Trading Day immediately prior to the date of determination. "Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. "Bankruptcy Event" means any of the following events: (a) the Company or any Subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Subsidiary thereof; (b) there is commenced against the Company or any Subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or any Subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states that it is unable to pay or is unable to pay, its debts generally as they become due; or (g) the Company or any Subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing. "Change of Control" means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of more than one-half of the voting rights or equity interests in the Company, (ii) a replacement of more than one-half of the members of the Company's board of directors that is not approved by those individuals who are members of the board of directors on the date hereof in one or a series of related transactions, (iii) a merger or consolidation of the Company or any Subsidiary or a sale of all or substantially all of the assets of the Company in one or a series of related transactions, unless following such transaction or series of transactions, the holders of the Company's securities prior to the first such transaction continue to hold at least a majority of the voting rights and equity interests in of the surviving entity or acquirer of such assets, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii). "Closing" means the closing of the purchase and sale of the Securities pursuant to Section 2.1. "Closing Date" means the date of the Closing. "Closing Price" means, for any date the VWAP for such date (or the nearest preceding date) all as reported by Bloomberg L.P. or any successor to its function for reporting VWAP. "Commission" means the Securities and Exchange Commission. "Common Stock" means the common stock of the Company, par value $.01 per share. "Company Counsel" means Morgan, Lewis & Bockius LLP, counsel to the Company. "Conversion Shares Effective Date" means the date that a Conversion Shares Registration Statement is declared effective by the Commission. 2 "Conversion Shares Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchaser of the Underlying Shares issuable upon conversion of the Shares and exercise of the Warrants. "Eligible Market" means the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "First Certificate of Designation" means a certificate of designation of the Series C Preferred Stock, in the form of Exhibit A. "First Shares" means an aggregate of 5,000 shares of Series C Preferred Stock, which are being purchased by the Purchasers at the Closing. "First Warrants" means Common Stock purchase warrants in the form of Exhibit H, to purchase an aggregate of 157,480 shares of Common Stock. "Motorola Agreement" means collectively the License Agreement dated as of September 29, 2000 between the Company and Motorola, Inc., the Stock Purchase Warrant granted to Motorola, Inc. on September 29, 2000 and the Securities Purchase Agreement dated as of September 29, 2000 between the Company and Motorola, Inc. "Note Shares Effective Date" means the date that a Note Shares Registration Statement is declared effective by the Commission. "Note Shares Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Underlying Shares issuable upon conversion of the Notes. "Notes" means $15,000,000 in aggregate principal amount of Convertible Promissory Notes due August 22, 2004 issued by the Company to the Purchasers at Closing. "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. "PPG Agreement" means collectively, the Development and License Agreement dated as of October 1, 2000 between the Company and PPG Industries, Inc., as amended, and the Stock Purchase Warrant granted to PPG Industries, Inc. on October 1, 2000. "Purchaser Counsel" means Morse, Zelnick, Rose & Lander LLP, counsel to the Purchasers. 3 "Registration Rights Agreement" means the Registration Rights Agreement, dated the Closing Date, among the Company and the Purchasers, in the form of Exhibit C. "Required Effectiveness Date" means the date on which the Conversion Shares Registration Statement is required to become effective pursuant to the Registration Rights Agreement. "Required Minimum" means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants and convertible Securities, assuming that (a) any previously unconverted Notes and Shares are held until the fifth anniversary of the Closing Date or, if earlier, until maturity, and all interest and dividends thereon are paid in shares of Common Stock, and (b) the Closing Price at all times on and after the date of determination equals 50% of the actual Closing Price on the Trading Day immediately prior to the date of determination. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Second Certificate of Designation" means a certificate of designation of the Series D Preferred Stock in the form of Exhibit B (as completed as contemplated therein). "Second Shares" means an aggregate of 5,000 shares of Series D Preferred Stock which are being purchased by the Purchasers on the Second Closing Date. "Second Warrants" means Common Stock purchase warrants in the form of Exhibit I to purchase an aggregate of 157,480 shares of Common Stock. "Securities" means the Shares, Notes, Warrants and the Underlying Shares. "Securities Act" means the Securities Act of 1933, as amended. "Series C Preferred Stock" means the Series C Convertible Preferred Stock of the Company, having the rights and preferences set forth in the First Certificate of Designation. "Series D Preferred Stock" means the Series D Convertible Preferred Stock of the Company having the rights and preferences set forth in the Second Certificate of Designation. "Shares" means the First Shares and the Second Shares. 4 "Subsidiary" means any subsidiary of the Company that is required to be listed in Schedule 3.1(a). "Third Warrants" means Common Stock purchase warrants in the form of Exhibit J to purchase an aggregate of 429,492 shares of Common Stock. "Trading Day" means (a) any day on which the Common Stock is traded on its primary Trading Market, or (b) if the Common Stock is not then listed or quoted on any national securities exchange, market or trading or quotation facility, then a day on which trading occurs on the New York Stock Exchange (or any successor thereto). "Trading Market" means the NASDAQ National Market System or any other national securities exchange, market or trading or quotation facility on which the Common Stock is then listed or quoted. "Transaction Documents" means this Agreement, the Securities, the Registration Rights Agreement, the First Certificate of Designation, the Second Certificate of Designation, the Transfer Agent Instructions, and any other documents or agreements executed in connection with the transactions contemplated hereunder. "Transfer Agent Instructions" means instructions to the Company's transfer agent, in the form of Exhibit D. "Underlying Shares" means the shares of Common Stock issuable upon (i) conversion of the Shares, (ii) conversion of and upon payment of interest on the Notes, (iii) upon exercise of the Warrants, and (iv) in satisfaction of any other obligation of the Company to issue shares of Common Stock pursuant to the Transaction Documents. "Voting Agreement" means the Voting Agreement dated as of the Closing Date among the Company and the Purchasers in the form of Exhibit E. "VWAP" means Volume Weighted Average Price of a share of Common Stock as reported by Bloomberg L.P. "Warrants" means the First Warrants the Second Warrants and the Third Warrants. ARTICLE II PURCHASE AND SALE 2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to the Purchasers, and the Purchasers shall, severally and not jointly, purchase from the Company, the First Shares for an aggregate purchase price of $5,000,000, and the Notes and the Warrants for an aggregate purchase price of $15,000,000. The Closing shall take place at the offices of Purchaser Counsel upon the execution hereof, or at such other location or time as the parties may agree. 5 2.2 Closing Deliveries. (a) At the Closing, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) one or more stock certificates evidencing the number of First Shares indicated below such Purchaser's name on the signature page of this Agreement, registered in the name of such Purchaser; (ii) Notes in the aggregate principal amount indicated below such Purchaser's name on the signature page of this Agreement, registered in the name of such Purchaser; (iii) a First Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire the number of shares of Common Stock indicated below such Purchaser's name on the signature page of this Agreement, on the terms set forth therein; (iv) a Second Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire the number of shares of Common Stock indicated below such Purchaser's name on the signature page of this Agreement, on the terms set forth therein; (v) a Third Warrant, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire the number of shares of Common Stock indicated below such Purchaser's name on the signature page of this Agreement, on the terms set forth therein; (vi) evidence that the First Certificate of Designation has been filed on or prior to the Closing Date with the Secretary of State (or other appropriate office) of Pennsylvania, in form and substance mutually agreed to by the parties; (vii) the legal opinion of Company Counsel, in the form of Exhibit F, executed by such counsel and addressed and delivered to the Purchasers; (viii) a Registration Rights Agreement duly executed by the Company; (ix) Transfer Agent Instructions executed by the Company and delivered to and acknowledged by American Stock Transfer & Trust Company, the Company's transfer agent; and (x) a Letter of Credit issued by First Union National Bank in the form annexed hereto as Exhibit G, in an amount equal to the principal amount of the Notes being issued to such Purchaser. 6 (b) At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the following: (i) the purchase price indicated below such Purchaser's name on the signature page of this Agreement, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; (ii) a Registration Rights Agreement duly executed by such Purchaser; (iii) a Voting Agreement duly executed by such Purchaser; and (iv) a properly executed Treasury Form W-8BEN, 2.3 Second Closing. (a) Subject to the terms and conditions set forth in this Agreement, the Company, on the one hand and the Purchasers, on the other hand shall each have the right to deliver a written notice to the other (the "Second Tranche Notice"), requiring each other to either sell or buy (severally, and not jointly), as the case may be, the Second Shares. The Second Tranche Notice may be delivered no earlier than the day following the Conversion Shares Effective Date and (i) if delivered by the Company, no later than 111th day after the date of this Agreement and (ii) if delivered by the Purchasers, no later than August 22, 2004. The closing of the sale of the Second Shares shall occur on the 14th Trading Day following the giving of the Second Tranche Notice (the "Second Closing Date"). The closing of the purchase and sale of the Second Tranche Securities is referred to as the "Second Closing." (b) At the Second Closing, the Company shall deliver or cause to be delivered to each Purchaser the following: (i) one or more stock certificates evidencing the number of Second Shares indicated below such Purchaser's name on the signature page of this Agreement, registered in the name of such Purchaser; (ii) evidence that the Second Certificate of Designation has been filed on or prior to the Closing Date with the Secretary of State (or other appropriate office) of Pennsylvania, in form and substance mutually agreed to by the parties; and (iii) all other certificates and instruments required hereunder to be delivered by the Company at or prior to the Second Closing. (c) At the Second Closing, each Purchaser shall deliver or cause to be delivered to the Company the purchase price for Second Shares 7 indicated below such Purchaser's name on the signature page to this Agreement, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchasers: (a) Subsidiaries. The Company has no subsidiaries other than those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns all of the capital stock of each Subsidiary free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction (collectively, "Liens"), and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights. (b) Organization and Qualification. Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly subsisting and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (i) render any material provision of any Transaction Document illegal, invalid or unenforceable, (ii) have or result in a material adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) materially and adversely impair the Company's ability to perform fully on a timely basis its obligations under any of the Transaction Documents (any of (i), (ii) or (iii), a "Material Adverse Effect"). (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, except for the Required Approvals or as expressly set forth in any Transaction Document. Each of the Transaction Documents requiring execution by the Company has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. 8 (d) No Conflicts. The execution, delivery and performance of this Agreement, the Notes, the Registration Right Agreement, the Warrants and the Transfer Agent Instructions by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the Required Approvals (as defined below), conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or result in a Material Adverse Effect. (e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filings required under Section 4.8 and the required filing of the First Certificate of Designation pursuant to Section 2.2 and the Second Certificate of Designation pursuant to Section 2.3, (ii) the filing with the Commission of the Conversion Shares Registration Statement and the Note Shares Registration Statement, (iii) the application(s) to each Trading Market for the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iv) applicable Blue Sky filings, (v) shareholder approval under the circumstances contemplated by Sections 4.5(f) and 4.5(g) hereof, and (vi) in all other cases where the failure to obtain such consent, waiver, authorization or order, or to give such notice or make such filing or registration could not have or result in, individually or in the aggregate, a Material Adverse Effect (collectively, the "Required Approvals"). (f) Issuance of the Securities. The Securities (including the Underlying Shares) are duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens created by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock to be issued upon conversion or exercise of the Securities at least equal to the Required Minimum on the date hereof. (g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company is set forth in Schedule 3.1(g). Except as set forth in Schedule 3.1(g), no securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction 9 Documents. Except as a result of the purchase and sale of the Securities and except as disclosed in Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as disclosed in Schedule 3.1(g), the issue and sale of the Securities (including the Underlying Shares) will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities. To the knowledge of the Company, except for the Purchasers or as disclosed in Schedule 3.1(g), no Person or group of related Persons beneficially owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by agreement with or by obligation binding upon the Company, beneficial ownership of in excess of 5% of the outstanding Common Stock. (h) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, together with all exhibits thereto, being collectively referred to herein as the "SEC Reports" and, together with the Schedules to this Agreement, the "Disclosure Materials") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. All material agreements to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any Subsidiary are subject have been filed as exhibits to the SEC Reports as required under the Exchange Act. (i) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the Company's Annual Report filed with the SEC for the year ended December 31, 2000 and any quarterly reports filed with the SEC for any period thereafter, (i) there has been no event, occurrence or development that has had 10 or that could result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. (j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an "Action") which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor to the knowledge of the Company, any director or officer thereof, is or has within the last five years been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. The Company does not have pending before the Commission any request for confidential treatment of information, and the Company does not expect to make any such request prior to the Required Effectiveness Date. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company. The SEC has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. No strike, work stoppage, slow down or other material labor problem exists or, to the knowledge of the Company, is threatened or imminent with respect to any of the employees of the Company or the Subsidiaries. (k) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any evidence of indebtedness, indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or result in a Material Adverse Effect. 11 (l) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. (m) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and owns or has the right to use all personal property that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens that do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance. (n) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports (collectively, the "Intellectual Property Rights"). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, (i) all such Intellectual Property Rights are enforceable and (ii) there is no existing infringement by another Person of any of the Intellectual Property Rights. (o) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. (p) Transactions With Affiliates and Employees. Except as set forth in SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 12 (q) Internal Accounting Controls. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (r) Solvency. Based on the financial condition of the Company as of the Closing Date, (i) the Company's fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company's existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company's assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). (s) Certain Fees. Except as disclosed in Schedule 3.1(s), no brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement. (t) Private Placement. Neither the Company nor any Person acting on the Company's behalf has sold or offered to sell or solicited any offer to buy the Securities by means of any form of general solicitation or advertising. Neither the Company nor any of its Affiliates nor any person acting on the Company's behalf has, directly or indirectly, at any time within the past six months, made any offer or sale of any security or solicitation of any offer to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale of the Securities as contemplated hereby (to the extent Regulation D applies thereto) or (ii) cause the offering of the Securities pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or shareholder approval provisions, including without limitation under the rules and regulations of any Trading Market. The Company is not, and is not an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (u) Form S-3 Eligibility. The Company is eligible to register its Common Stock for resale by the holders thereof under Form S-3 promulgated under the Securities Act. 13 (v) Listing and Maintenance Requirements. The Company has not, in the two years preceding the date hereof, received notice (written or oral) from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. (w) Registration Rights. Except as described in Schedule 3.1(w), the Company has not granted or agreed to grant to any Person any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied. (x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and the Purchasers' ownership of the Securities. (y) Disclosure. Subject to the issuance of the press release contemplated by Section 4.8(i), the Company confirms that neither it nor any other Person acting on its behalf has as of the date of this Agreement provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material non-public information. The Company understands and confirms that the Purchasers will rely on the representation contained in the immediately foregoing sentence in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2. 3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants to the Company as follows: (a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The purchase by such Purchaser of the Securities hereunder has been duly authorized by all necessary action on the part of such Purchaser. Each of this Agreement and the Registration Rights Agreement and the 14 Voting Agreement has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms. (b) Investment Intent. Such Purchaser is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser's right, subject to the provisions of this Agreement and the Registration Rights Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. (c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is an "accredited investor" as defined in Rule 501(a) under the Securities Act. (d) Experience of such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment. (e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (f) Reliance. Such Purchaser understands and acknowledges that (i) the Securities are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to such reliance. (g) Sale of Securities. Such Purchaser understands that it may not sell or otherwise dispose of any Securities except pursuant to an effective registration statement (a "Subject Registration Statement") under the Securities Act, and (ii) may only sell such Securities in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Subject Registration Statement, and otherwise in compliance with the requirements of the Act, including, but not limited to, the prospectus delivery requirements of the Act. 15 ARTICLE IV OTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Company and Company counsel, to the effect that such transfer does not require registration under the Securities Act. Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with any transfer agent for the securities of the Company, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an "accredited investor" as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement the Registration Rights Agreement and the Voting Agreement. (b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of the following legend on the certificates evidencing the Securities: NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THEY ARE CONVERTIBLE/EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED. The shares of Common Stock issuable upon the conversion of the Shares or the exercise of the Warrants shall not contain the legend set forth above nor any other legend while a Conversion Shares Registration Statement is effective under the Securities Act. On the Conversion Shares Effective Date, the Company shall issue the letter attached to the Transfer Agent Instructions to the Company's transfer agent with respect to the shares of Common Stock issuable upon the 16 conversion of the Shares or the exercise of the Warrants. The shares of Common Stock issuable upon the conversion of the Notes shall not contain the legend set forth above nor any other legend while a Note Shares Registration Statement is effective under the Securities Act. On the Note Shares Effective Date, the Company shall issue the letter attached to the Transfer Agent Instructions to the Company's transfer agent with respect to the shares of Common Stock issuable upon the conversion of the Notes. In addition, none of the Securities (including the Underlying Shares) shall contain the legend set forth above nor any other legend (i) following any sale of such Securities pursuant to Rule 144 or (ii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission). The Company agrees that at such time as such legend is no longer required under this Section 4.1(b), it will, no later than four Trading Days following the delivery by a Purchaser to the Company or the Company's transfer agent of a certificate representing Securities (including Underlying Shares) issued with a restrictive legend, deliver or cause to be delivered to such Purchaser a certificate representing such Securities that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section or in the Registration Rights Agreement. (c) If the Company fails to deliver or cause to be delivered to any Purchaser a certificate representing any Securities by the date on which delivery of such certificate is required by any Transaction Document (the "Delivery Date"), the Company shall pay to such Purchaser, in cash, as liquidated damages and not as a penalty, $5,000 for each Trading Day after such Delivery Date until such certificate is delivered. Nothing herein shall limit such Purchaser's right to pursue actual damages for the Company's failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Purchaser from seeking to enforce damages pursuant to any other provision of this Agreement or under applicable law. (d) In addition to any other rights available to a Purchaser, if the Company fails to deliver to such Purchaser a certificate representing Common Stock by the Delivery Date, and if after such Delivery Date such Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of the shares that the Purchaser anticipated receiving from the Company (a "Buy-In"), then the Company shall pay in cash to such Purchaser (in addition to any remedies available to or elected by the such Purchaser ) the amount by which (x) such Purchaser's total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the lesser of (A) the aggregate number of shares of Common Stock that such Purchaser anticipated receiving from the conversion or exercise at issue or (B) the number of shares of Common Stock so purchased, multiplied by (2) the conversion price or exercise price, as the case may be, of the Common Stock on the date on which the applicable notice of conversion or exercise, as the case may be, was given (the "Notice Date"), in which event the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements shall not be so issued. For example, if such Purchaser purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In in 17 connection with an attempted conversion of Shares with respect to which the conversion price of an Underlying Share on the applicable Notice Date multiplied by the number of Underlying Shares was equal to $2,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay such Purchaser $9,000. Such Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In. 4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities (including the Underlying Shares) will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that subject to obtaining all required shareholder approvals, if any, its obligation to issue the Securities (including the Underlying Shares) pursuant to the Transaction Documents is unconditional and absolute, regardless of the effect of any such dilution. 4.3 Furnishing of Information. As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. Upon the request of any such Person, the Company shall deliver to such Person a written certification of a duly authorized officer as to whether it has complied with the preceding sentence. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly available in accordance with paragraph (c) of Rule 144 such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. 4.4 Integration. Except for the sale of the Securities to the Purchasers as contemplated herein the Company shall not, and shall use its best efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market. 4.5 Reservation and Listing of Securities. (a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents. (b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock (the "Remaining Authorized Shares") is less than 125% of (i) the Actual Minimum on such date, minus (ii) the number of shares of Common Stock previously issued pursuant to the Transaction Documents, then the Board of Directors of the Company shall use its best efforts to amend the Company's certificate or articles of incorporation to 18 increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time (minus the number of shares of Common Stock previously issued pursuant to the Transaction Documents), as soon as possible and in any event not later than the 65th day after such date; provided that the Company will not be required at any time to authorize a number of shares of Common Stock greater than the maximum remaining number of shares of Common Stock that could possibly be issued after such time pursuant to the Transaction Documents. (c) If, at the time any Purchaser requests an exercise or conversion of any Securities, the Actual Minimum minus the number of shares of Common Stock previously issued pursuant to the Transaction Documents exceeds the Remaining Authorized Shares, then the Company shall issue to the Purchaser requesting such exercise or conversion a number of Underlying Shares equal to such Purchaser's pro-rata portion of the Remaining Authorized Shares (based on such Purchaser's share of the aggregate purchase price paid hereunder and considering any Underlying Shares previously issued to such Purchaser), and the remainder of the Underlying Shares issuable in connection with such exercise or conversion shall constitute "Excess Shares" pursuant to Section 4.5(g) below. (d) The Company shall (i) in the time and manner required by each Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the greater of (A) the Required Minimum on the Closing Date and (B) the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on each Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the listing of such Common Stock on each such Trading Market or another Eligible Market. (e) If, on any date, the number of shares of Common Stock previously listed on a Trading Market is less than 125% of the Actual Minimum on such date, then the Company shall take the necessary actions to list on such Trading Market, as soon as reasonably possible, a number of shares of Common Stock at least equal to the Required Minimum on such date; provided that the Company will not be required at any time to list a number of shares of Common Stock greater than the maximum number of shares of Common Stock that could possibly be issued pursuant to the Transaction Documents. (f) If any Trading Market is an Eligible Market, then the maximum number of shares of Common Stock that the Company may issue pursuant to the Transaction Documents at an effective purchase price less than the "Market Value" (as defined in Nasdaq Marketplace Rule 4200(a)(20)) of a share of Common Stock on the Trading Day immediately preceding the Closing Date (the "Market Value") equals 3,409,245 shares (the "Issuable Maximum"), unless the Company obtains shareholder approval in accordance with the rules and regulations of such Trading Market. If, at the time any Purchaser requests an exercise or conversion of any Securities, the Actual Minimum (excluding any shares issued or issuable at an effective purchase price in excess of the Market Value on the Trading Day immediately preceding the Closing Date) exceeds the Issuable Maximum (and if the Company has not have previously obtained the required shareholder approval), then the Company shall issue to the Purchaser requesting such 19 exercise or conversion a number of Underlying Shares of Common Stock equal to such Purchaser's pro-rata portion of the Issuable Maximum (based on such Purchaser's share of the aggregate purchase price paid hereunder and considering any Underlying Shares previously issued to such Purchaser), and the remainder of the Underlying Shares issuable in connection with such exercise or conversion shall constitute "Excess Shares" pursuant to Section 4.5(g) below. (g) Any Purchaser whose receipt of Excess Shares upon exercise or conversion of Securities is restricted based on the number of Remaining Authorized Shares or the Issuable Maximum shall have the option, by notice to the Company, to require the Company to either: (i) use its best efforts to obtain the required shareholder approval necessary to permit the issuance of such Excess Shares as soon as is possible, but in any event not later than the 65th day after such notice, or (ii) within five Trading Days after such notice, pay cash to such Purchaser, as liquidated damages and not as a penalty, in an amount equal to the number of Excess Shares times the average Closing Price over the five Trading Days immediately prior to the date of such notice or, if greater, the five Trading Days immediately prior to the date of payment (the "Cash Amount"). If the exercising or converting Purchaser elects the first option under the preceding sentence and the Company fails to obtain the required shareholder approval on or prior to the 65th day after such notice, then within three Trading Days after such 65th day, the Company shall pay the Cash Amount to such Purchaser, as liquidated damages and not as penalty. 4.6 Conversion and Exercise Procedures. The Transfer Agent Instructions and Conversion Notice, as defined in the First Certificate of Designation, the Second Certificate of Designation and the Notes, set forth the totality of the procedures required to with respect to the conversion of the Shares and the Notes. The Transfer Agent Instructions and Form of Election to Purchase under the Warrants set forth the totality of the procedures with respect to the exercise of the Warrants. No additional legal opinion or other information or instructions shall be necessary to enable the Purchasers to convert their Shares and Notes or exercise their Warrants. The Company shall honor conversions of the Shares and Notes and exercises of the Warrants and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents. 4.7 Subsequent Placements. (a) From the date hereof until 90 Trading Days after the Effective Date, the Company will not, directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or the Subsidiaries' equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement"). (b) The Company will not, directly or indirectly, effect any Subsequent Placement from the date hereof until 240 days after the Effective Date, unless (i) the Company delivers to each of the Purchasers a written notice (the "Subsequent Placement Notice") of its intention to effect such Subsequent Placement, which Subsequent Placement Notice shall describe in reasonable detail 20 the proposed terms of such Subsequent Placement, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Placement is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto and (ii) such Purchaser shall not have notified the Company by 6:30 p.m. (New York City time) on the tenth Trading Day after its receipt of the Subsequent Placement Notice of its willingness to provide (or to cause its designee to provide), subject to completion of mutually acceptable documentation, financing to the Company on the same terms set forth in the Subsequent Placement Notice. If the Purchasers shall fail to so notify the Company of their willingness to participate in the full Subsequent Placement, the Company may effect such Subsequent Placement on the terms and to one or more of the Persons set forth in the Subsequent Placement Notice; provided that the Company must provide the Purchasers with a second Subsequent Placement Notice, and the Purchasers will again have the right of first refusal set forth above in this paragraph (b), if the Subsequent Placement subject to the initial Subsequent Placement Notice is not consummated for any reason on the terms set forth in such Subsequent Placement Notice within 40 days after the date of the initial Subsequent Placement Notice with the one or more of the Persons identified in the Subsequent Placement Notice. If the Purchasers indicate a willingness to provide financing in excess of the amount set forth in the Subsequent Placement Notice, then each Purchaser will be entitled to provide financing pursuant to such Subsequent Placement Notice up to an amount equal to such Purchaser's pro rata portion of the aggregate purchase price paid for the Securities under this Agreement, but the Company shall not be required to accept financing from the Purchasers in an amount in excess of the amount set forth in the Subsequent Placement Notice. (c) Except for (i) Registrable Securities, as defined in the Registration Rights Agreement, and (ii) shares of Common Stock issuable upon exercise of any currently outstanding warrants and upon conversion of any currently outstanding convertible securities of the Company, in each case disclosed in Schedule 3.1(g) or pursuant to the anti-dilution provisions contained in any such derivative securities, but not with respect to any amendment or modification thereto, the Company shall not, until 90 Trading Days after the Conversion Shares Effective Date, without the prior written consent of the Purchasers, file a registration statement with the Commission with respect to any securities of the Company or the Subsidiaries other than a registration statement on Form S-8. (d) The 90 Trading Day period set forth in the foregoing paragraphs of this Section 4.7 shall be extended for (i) the number of Trading Days during such periods in which trading in the Common Stock is suspended by any Trading Market, and (ii) the number of Trading Days after the Effective Date during which (A) the Conversion Shares Registration Statement is not effective or (B) the prospectus included in the Conversion Shares Registration Statement may not be used by the holders thereof for the resale of Registrable Securities thereunder. (e) The restrictions contained in paragraphs (a) and (b) of this Section 4.7 shall not apply to (i) the granting of options to employees, officers and directors of the Company pursuant to any stock option plan duly adopted by the Company or to the issuance of Common Stock upon exercise of such options or (ii) the issuance of any securities under the Motorola Agreement, the PPG Agreement or the issuance of Common Stock upon the exercise or conversion of any such securities, (iii) up to 1,000,000 shares of Common Stock issued in 21 connection with any contractual strategic alliances approved by the Company's Board of Directors, and (iv) any securities issuable upon the exercise or conversion of, or pursuant to the anti-dilution provisions contained within, any option, restricted stock awards, preferred stock or warrants outstanding on the date hereof (but not to the extent amended hereafter), all of which are set forth on Schedule 3.1(g) hereto. 4.8 Securities Laws Disclosure; Publicity. The Company shall (i) on the Closing Date, issue a press release acceptable to the Purchasers disclosing the transactions contemplated hereby, (ii) within ten Trading Days after the Closing Date, file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby, and (iii) timely file with the Commission a Form D promulgated under the Securities Act with respect to the transactions contemplated hereby and provide a copy thereof to the Purchasers promptly after the filing thereof. The Company shall, at least two Trading Days prior to the filing or dissemination of any disclosure required by this paragraph, provide a copy thereof to the Purchasers for their review. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or Trading Market with respect to the transactions contemplated hereby, and neither party shall issue any such press release or otherwise make any such public statement, filing or other communication without the prior consent of the other, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement, filing or other communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except to the extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure. 4.9 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company's debt (other than payment of trade payables and accrued expenses in the ordinary course of the Company's business and prior practices), to redeem any Company equity or equity-equivalent securities or to settle any outstanding litigation. 4.10 Reimbursement by Company. If any Purchaser or any Affiliate, officer, director, partner, controlling person, employee or agent of a Purchaser (a "Purchaser Related Person") becomes involved in any capacity in any action, proceeding or investigation brought by or against any Person in connection with or as a result of the transactions contemplated by the Transaction Documents, the Company will reimburse such Purchaser or Purchaser Related Person for its reasonable legal and other expenses (including the costs of any investigation, preparation and travel) incurred in connection therewith, as such expenses are incurred, except to the extent that any such action, proceeding or investigation is due primarily on account of any Purchaser's or Purchaser Related Person's gross negligence or willful misconduct. In addition, the Company shall indemnify and hold harmless each Purchaser and Purchaser Related Person from and against any and all losses, claims, damages, liabilities, costs and expenses (including reasonable legal costs and reasonable costs of investigation, preparation and 22 travel) (collectively, "Losses"), as incurred, arising out of or relating to any breach by the Company of any of the representations, warranties or covenants made by the Company in this Agreement or any other Transaction Document, or any allegation by a third party that, if true, would constitute such a breach, excluding only Losses that result from such Purchaser's or Purchaser Related Person's gross negligence or willful misconduct. The reimbursement and indemnification obligations of the Company under this paragraph shall survive any termination of this Agreement until the 180th day following the day on which no Shares are outstanding, no amount is due on the Notes and the Purchasers do not own any Underlying Shares (the "End Indemnity Day"), and shall be in addition to any liability that the Company may otherwise have, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Purchasers and any such Purchaser Related Persons. The Company also agrees that neither the Purchasers nor any Purchaser Related Persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the transactions contemplated by the Transaction Documents, except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of the applicable Purchaser or Purchaser Related Person in connection with such transactions. If the Company breaches its obligations under any Transaction Document, then, in addition to any other liabilities the Company may have under any Transaction Document or applicable law, the Company shall pay or reimburse the Purchasers on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses). 4.11 Reimbursement by Purchasers. Each Purchaser, severally and not jointly, shall indemnify and hold harmless the Company or any Affiliate, officer, director, controlling person, employee or agent of the Company (a "Company Related Person") from and against any and all Losses, as incurred, arising out of or relating to any breach by such Purchaser of any of the representations, warranties or covenants made by such Purchaser in this Agreement or any other Transaction Document, or any allegation by a third party that, if true, would constitute such a breach, excluding only Losses that result from the Company's or Company Related Person's gross negligence or willful misconduct. The reimbursement and indemnification obligations of the Purchasers under this paragraph shall survive any termination of this Agreement until the End Indemnity Day, and shall be in addition to any liability that such Purchaser may otherwise have, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company and any Company Related Persons. If a Purchaser breaches its obligations under any Transaction Document, then, in addition to any other liabilities such Purchaser may have under any Transaction Document or applicable law, such Purchaser shall pay or reimburse the Company on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses). 4.12 Shareholders Rights Plan. In the event that a shareholders rights plan is adopted by the Company, no claim will be made or enforced by the Company or any other Person that any Purchaser is an "Acquiring Person" under any such plan or in any way could be deemed to trigger the provisions of such plan solely by virtue of receiving Securities under the Transaction Documents. 23 4.13 Covenant Not to Disclose Material Non-Public Information. The Company covenants and agrees that it shall refrain from disclosing, and shall cause its officers, directors, employees and agents to refrain from disclosing, any material non-public information to the Purchasers, in the absence of a confidentiality agreement executed by the Purchasers. 4.14 Voting. During the period in which it owns Securities, each Purchaser agrees to abide by the terms of the Voting Agreement. 4.15 Sale of Securities. Each Purchaser, for itself only, hereby covenants and agrees with the Company that it (i) will not sell or otherwise dispose of the shares of Common Stock to be delivered to it upon conversion of the Shares or the Notes or upon exercise of any of the Warrants (the "Delivered Shares") except pursuant to an effective registration statement (an "Effective Registration Statement") under the Securities Act, (ii) will sell the Delivered Shares only in accordance with the Plan of Distribution set forth in the prospectus forming a part of the Effective Registration Statement (the "Prospectus"), (iii) will comply with the requirements of the Securities Act when selling or otherwise disposing of the Delivered Shares, including, but not limited to, the prospectus delivery requirements of the Securities Act, and (iv) will not sell or otherwise dispose of, and will return immediately to the Company for the purpose of placing a restrictive legend thereon, the Delivered Shares (and any certificates representing the Delivered Shares, if applicable) upon notice from the Company that the Prospectus may not be used for the sale of the Delivered Shares. ARTICLE V CONDITIONS 5.1 Conditions Precedent to the Obligations of the Purchasers. The obligation of each Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the date when made and as of the Closing as though made on and as of such date; (b) Performance. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing; (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents; and (d) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the Commission or 24 any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall have been at all times since such date listed for trading on an Eligible Market. 5.2 Conditions Precedent to the Obligations of the Company. The obligation of the Company to sell Securities at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the following conditions: (a) Representations and Warranties. The representations and warranties of the Purchasers contained herein shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made on and as of such date; (b) Performance. The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing; (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents; 5.3 Conditions Precedent to the Obligation of the Purchasers at the Second Closing. The obligation of each Purchaser to acquire the Second Shares at the Second Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Second Closing Date, of each of the following conditions: (a) First Closing. The Closing shall have occurred, and each of the conditions set forth in Section 5.1 shall be satisfied at the time of the Second Closing (and, for such purpose, references in Section 5.1 to the "Closing" shall be deemed to refer to the Second Closing); (b) Conversion Shares Registration Statement. The Conversion Shares Registration Statement shall have remained effective at all times since its Effective Date, not subject to any actual or threatened stop order or suspension by any regulatory authority; (c) Change of Control. No Change of Control of the Company shall have occurred. (d) Conversion and Exercise Obligations. The Company shall have delivered Underlying Shares upon conversion or exercise of the Securities, if any, in accordance with the Transaction Documents; (e) Certificate of Designation Filed. The Second Certificate of Designation shall have been filed. 25 (f) Reservation of Shares. No approval of the shareholders of the Company shall be required, under the rules of a Trading Market or otherwise, in order to issue the Actual Minimum number of shares of Common Stock (including the Second Shares and any Underlying Shares issuable upon conversion or exercise thereof). The parties agree that, if one or more of the conditions set forth in this Section is not satisfied, each Purchaser shall have the right, in its sole discretion, to purchase at the Second Closing all, any portion or none of the Second Shares otherwise to have been purchased by it. ARTICLE VI MISCELLANEOUS 6.1 Fees and Expenses. At the Closing, the Company shall reimburse the Purchasers for their legal fees and expenses incurred in connection with the preparation and negotiation of the Transaction Documents by paying to the Purchasers, in proportion to their respective purchase prices (or, at the Purchasers' election, directly to Purchaser Counsel), an aggregate of $50,000. At the Second Closing, the Company shall reimburse the Purchasers for 50% of their legal fees and expenses incurred in connection with the preparation and negotiation of the documents related to the Second Closing by paying to the Purchasers, in proportion to their respective purchase prices (or, at the Purchasers' election, directly to Purchaser Counsel), up to an aggregate of $5,000. In lieu of the payments required by the immediately preceding sentence, the Purchasers may retain the amount of such payments instead of delivering such amounts to the Company at the Closing and the Second Closing. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of the Securities. 6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 6.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, or (c) the Trading Day 26 following the date of mailing, if sent by U.S. nationally recognized overnight courier service. The address for such notices and communications shall be as follows: If to the Company: Universal Display Corporation 375 Phillips Boulevard Ewing, New Jersey 08618 Fax No.: 609-671-0995 Attn: Sidney Rosenblatt With a copy to: Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, Pennsylvania 19103 Fax No.(877) 432-9652 Attn: Stephen M. Goodman, Esq. If to a Purchaser: To the address set forth under such Purchaser's name on the signature pages hereof; With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, N.Y. 10022 Att'n: George Lander, Esq. Fax No.: 212-838-9190 or such other address as may be designated in writing hereafter, in the same manner, by such Person. 6.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each of the Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 6.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations 27 hereunder without the prior written consent of the Purchasers. Any Purchaser may assign its rights under this Agreement and the Registration Rights Agreement to any Person to whom such Purchaser assigns or transfers any Securities. 6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Purchaser Related Person and each Company Related Person is an intended third party beneficiary of Section 4.10 and may enforce the provisions of such Section directly against the Company or the Purchasers, as the case may be. 6.8 Governing Law. The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its stockholders. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 6.9 Survival. The representations and warranties set forth in Article III of this Agreement shall survive the Closing for a period of two years and the Second Closing for a period of two years. All other representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery, exercise and/or conversion of the Securities, as applicable until the End Indemnity Day. 6.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 6.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be 28 affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 6.12 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 6.13 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate of interest applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser's election. 29 6.14 Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES FOLLOWS] 30 IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt -------------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE FOR PURCHASER FOLLOWS]
STRONG RIVER INVESTMENTS, INC. By: /s/ Kenneth L. Henderson -------------------------- Name: Kenneth L. Henderson Title: Attorney-in-fact First Closing: ------------- Purchase Price: $10,000,000 Number of Shares of Series C Preferred Stock to be acquired: 2,500 Face Amount of Notes to be acquired: $7,500,000 Warrant Shares subject to First Warrant: 78,740 Warrant Shares subject to Second Warrant: 78,740 Warrant Shares subject to Third Warrant: 214,746 Second Closing: -------------- Purchase Price: $2,500,000 [Number of Shares of Series D Preferred Stock to be acquired]: 2,500 Address for Notice: Strong River Investments, Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 Attention: George Lander, Esq. Facsimile No.: 212-838-9190
PINE RIDGE FINANCIAL INC. By: /s/ Kenneth L. Henderson --------------------------- Name: Kenneth L. Henderson Title: Attorney-in-fact First Closing: ------------- Purchase Price: $10,000,000 Number of Shares of Series C Preferred Stock to be acquired: 2,500 Face Amount of Notes to be acquired: $7,500,000 Warrant Shares subject to First Warrant: 78,740 Warrant Shares subject to Second Warrant: 78,740 Warrant Shares subject to Third Warrant: 214,746 Second Closing: -------------- Purchase Price: $2,500,000 [Number of Shares of Series D Preferred Stock to be acquired]: 2,500 Address for Notice: Pine Ridge Financial Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 Attention: George Lander, Esq. Facsimile No.: 212-838-9190
EX-10.2 15 ex10-2.txt EX-10.2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of August 22, 2001, among Universal Display Corporation, a Pennsylvania corporation (the "Company"), and the investors signatory hereto (each such investor is a "Purchaser" and all such investors are, collectively, the "Purchasers"). WHEREAS, the parties have agreed to enter into this Agreement in connection with, and as a condition to the Closing under, the Securities Purchase Agreement, dated as of the date hereof, among the Company and the Purchasers (the "Purchase Agreement"); NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows: 1. Definitions. In addition to the terms defined elsewhere in this Agreement, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms have the meanings indicated: "Conversion Shares Registration Statement" means the initial registration statement required to be filed hereunder with respect to the Common Stock issuable upon conversion of the Preferred Stock and upon exercise of the Warrants and any additional registration statements related thereto that are contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "CS Required Minimum" means, as of any date, two times the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future upon exercise or conversion in full of all First Shares and Warrants, assuming that (1) any previously unconverted First Shares and unexercised Warrants are held until the fifth anniversary of the Closing Date or, if earlier, until maturity and (2) the Closing Price at all times on and after the date of determination equals 50% of the actual Closing Price on the Trading Day immediately prior to the date of determination. "Filing Date" means (i) with respect to the Conversion Shares Registration Statement required to be filed hereunder, the 30th day following the Closing Date; (ii) with respect to the Note Shares Registration Statement, the 30th day following the date on which the Conversion Shares Registration Statement is declared effective; and (iii) with respect to any additional Registration Statements that may be required pursuant to Section 3(c), the 30th day following the date on which the Company first knows, or reasonably should have known that such additional Registration Statement is required under such Section. "Holder" means any holder, from time to time, of Registrable Securities. "Note Required Minimum" means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future upon conversion in full of all Notes, assuming that (a) any previously unconverted Notes are held until the fifth anniversary of the Closing Date or, if earlier, until maturity and (b) the Closing Price at all times on and after the date of determination equals 50% of the actual Closing Price on the Trading Day immediately prior to the date of determination. "Note Shares Registration Statement" means the initial registration statement required to be filed hereunder with respect to the Common Stock issuable upon conversion of the Notes and any additional registration statements related thereto that are contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "Registrable Securities" means any Common Stock (including Underlying Shares) issued or issuable pursuant to the Transaction Documents. "Registration Statement" means the Conversion Shares Registration Statement and/or the Note Shares Registration Statement as the context requires. "Required Effectiveness Date" means, with respect to the Conversion Shares Registration Statement required to be filed hereunder, the 90th day following the Closing Date, and, with respect to any additional Registration Statements that may be required pursuant to Section 3(c), the 60th day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required under such Section. "Rule 415," "Rule 424" and "Rule 461" means Rule 415, Rule 424 and Rule 461, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or 2 any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Special Counsel" means one special counsel to the Holders. Unless the Holders notify the Company otherwise, the Special Counsel will be the Purchaser Counsel identified in the Purchase Agreement. 2. Shelf Registration (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering the resale of all Registrable Securities required to be included therein as set forth below for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 or any successor form (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on Form S-1 or another appropriate form in accordance herewith as the Holders may consent) and shall contain (except if otherwise directed by the Holders) the "Plan of Distribution" substantially in the form attached hereto as Annex A. The Company shall use its reasonable best efforts to cause the Conversion Shares Registration Statement and the Note Shares Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event, with respect to the Conversion Shares Registration Statement only, prior to the Required Effectiveness Date, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act (subject to Section 3(m) until the date which is two years after the date that such Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold in any calendar quarter pursuant to Rule 144(k) (the "Effectiveness Period"). (b) (i) The initial Conversion Shares Registration Statement to be filed hereunder shall cover the sale by the Holders of at least the CS Required Minimum number of shares of Common Stock. (ii) The initial Note Shares Registration Statement to be filed hereunder shall cover the sale by the Holders of at least the Note Required Minimum number of shares of Common Stock. (c) Each of the following shall constitute a "CS Event" with respect to the Conversion Shares Registration Statement: (i) a Conversion Shares Registration Statement is not filed on or prior to its Filing Date or is filed without the Company affording the Holders the opportunity to review and comment on the same as required by Section 3(a) hereof; (ii) an amendment to a Conversion Shares Registration Statement is not filed by the Company with the Commission within ten Trading Days after the Commission notifies the Company that such 3 amendment is required in order for such Conversion Shares Registration Statement to be declared effective, or the Company fails to respond as promptly as reasonably possible and in any event within ten Trading Days to any comments received from the Commission with respect to a Conversion Shares Registration Statement or any amendment thereto; (iii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 within five days after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Conversion Shares Registration Statement will not be "reviewed" or is not subject to further review; (iv) after the Effective Date of a Conversion Shares Registration Statement, a Holder is not permitted to sell Registrable Securities registered under such Conversion Shares Registration Statement (or a subsequent Conversion Shares Registration Statement filed in replacement thereof) for any reason, except as otherwise provided in Section 3(m); (v) the Common Stock is not listed or quoted, or is suspended from trading, on an Eligible Market for a period of three Trading Days (which need not be consecutive Trading Days); (vi) the exercise or conversion rights of the Holders pursuant to the Transaction Documents are suspended for any reason, without the consent of the Holders or as otherwise permitted by the Transaction Documents; or (vii) the Conversion Shares Registration Statement filed hereunder is not declared effective by the Commission on or prior to its Required Effectiveness Date. Upon the occurrence of any CS Event and on every monthly anniversary thereof until the applicable CS Event is cured, as partial relief for the damages suffered therefrom by the Holders (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price actually paid by such Holder pursuant to the Purchase Agreement for the Preferred Stock for the first month following the date on which such CS Event occurs (the "CS Event Date") and 2% for each month thereafter until such CS Event has been cured. If such CS Event has not been cured either (A) if the CS Event is on account of the provisions of Section 2(c)(i) through 2(c)(vi), within 15 days of the CS Event Date, or (B) if the CS Event is on account of the provisions of Section 2(c)(vii), within 90 days of the CS Event Date then, at any time within thirty days after the later of (1) the expiration of such 15- or 90-day cure period, as the case may be, or (2) the date on which the Holder became aware that it has the right to send a Repurchase Notice (as defined below) the Holder may send a written notice to the Company requiring the Company to repurchase the Preferred Stock held by the Holder for a price equal to the Stated Value of such Preferred Stock (a "Repurchase Notice") as of the date of repurchase, in which event the Company shall repurchase such Preferred Stock on the 5th Trading Day after the giving of such Repurchase Notice. There shall be excluded from the periods set forth in the previous sentences any delays that are attributable solely the failure of the Holders to 4 timely complete their review of the Conversion Shares Registration Statement under Section 3(a). The liquidated damages payable pursuant to the terms hereof shall apply on a pro-rata basis for any portion of a month prior to the cure of a CS Event. (d) Each of the following shall constitute a "Note Event" with respect to the Note Shares Registration Statement: (i) a Note Shares Registration Statement is not filed on or prior to its Filing Date or is filed without the Company affording the Holders the opportunity to review and comment on the same as required by Section 3(a) hereof; (ii) an amendment to a Note Shares Registration Statement is not filed by the Company with the Commission within ten Trading Days after the Commission notifies the Company that such amendment is required in order for such Note Shares Registration Statement to be declared effective, or the Company fails to respond as promptly as reasonably possible and in any event within ten Trading Days to any comments received from the Commission with respect to a Note Shares Registration Statement or any amendment thereto; (iii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 within five days after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Note Shares Registration Statement will not be "reviewed" or is not subject to further review; (iv) after the Effective Date of a Note Shares Registration Statement, a Holder is not permitted to sell Registrable Securities registered under such Note Shares Registration Statement (or a subsequent Note Shares Registration Statement filed in replacement thereof) for any reason, except as otherwise provided in Section 3(m) ; (v) the Common Stock is not listed or quoted, or is suspended from trading, on an Eligible Market for a period of three Trading Days (which need not be consecutive Trading Days); or (vi) the exercise or conversion rights of the Holders pursuant to the Transaction Documents are suspended for any reason, without the consent of the Holders or as otherwise permitted by the Transaction Documents. Upon the occurrence of any Note Event and on every monthly anniversary thereof until the applicable Note Event is cured, as partial relief for the damages suffered therefrom by the Holders (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate purchase price actually paid by such Holder pursuant to the Purchase Agreement for the Notes for the first month following the date on which such Note Event occurs and 2% for each month thereafter until such Note Event has been cured. There shall be excluded from the periods set forth in the 5 previous sentences any delays that are attributable solely the failure of the Holders to timely complete their review of the Note Shares Registration Statement under Section 3(a). The liquidated damages payable pursuant to the terms hereof shall apply on a pro-rata basis for any portion of a month prior to the cure of a Note Event. 3. Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Not less than three Trading Days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to the Holders and their Special Counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders and their Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not be restricted in any manner from including in a Registration Statement the distribution or resale of (i) any securities by PPG or Motorola, provided that such securities are issued and outstanding on the date hereof, are issued upon exercise or conversion of any securities held by PPG or Motorola on the date hereof, or are issued pursuant to preemptive rights of PPG outstanding on the date hereof and (ii) the distribution or resale of up to 200,000 shares of Common Stock issuable upon exercise of warrants granted to Gerard, Klauer Mattison & Co. Inc. on the Closing Date (and any shares issuable pursuant to the antidilution provisions thereof). The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities and their Special Counsel shall reasonably object. (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten Trading Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. 6 (c) If, on any date, the number of shares of Common Stock previously registered under all existing Registration Statements is less than 125% of the Actual Minimum on such date, then the Company shall file an additional Registration Statement covering a number of shares of Common Stock at least equal to (i) the Required Minimum on such date, less (ii) the number of shares of Common Stock previously registered under all existing Registration Statements; provided that the Company will not be required at any time to register a number of shares of Common Stock greater than the maximum number of shares of Common Stock that could possibly be issued pursuant to the Transaction Documents. (d) Notify the Holders of Registrable Securities to be sold and their Special Counsel as promptly as reasonably possible, and ^ confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a "review" of any Registration Statement; (ii) the Commission comments in writing on any Registration Statement (in which case the Company shall deliver to each Holder a copy of such comments and of all written responses thereto); (iii) any Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Registration Statement become ineligible for inclusion therein or any statement made in any Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Registration Statement, Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) Use its reasonable best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (f) Furnish to each Holder and their Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission. (g) Promptly deliver to each Holder and their Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may 7 reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, use its reasonable best efforts to register or qualify or cooperate with the selling Holders and their Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject. (i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request. (j) Upon the occurrence of any event described in Section 3(d)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (k) Comply with all applicable rules and regulations of the Commission. (l) The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement; and each Holder shall furnish any such information to the Company. (m) Subject to the last sentence of this Section 3(m), the Company may by written notice require that the Holders immediately cease sales of Registrable Securities (for a period not to exceed five consecutive Trading Days in any one instance and for a period not to exceed twenty Trading Days in any twelve-month period) pursuant to a Registration Statement at any time that (i) the Company becomes engaged in a business activity or negotiation which is not 8 disclosed in a Registration Statement (or the prospectus included therein) which the Company reasonably believes must be disclosed therein under applicable law and which the Company desires to keep confidential for business purposes, (ii) the Company determines that a particular disclosure so determined to be required to be disclosed therein would be premature or would adversely affect the Company or its business or prospects or (iii) the Registration Statement can no longer be used under the existing rules and regulations promulgated under the Securities Act (each of (i), (ii) or (iii), a "Material Condition"). The Company shall not be required to disclose to the Holders which of the reasons specified in (i), (ii) or (iii) above is the basis for requiring a suspension of sales due to the occurrence of a Material Condition. The Company will use its reasonable best efforts to ensure that the use of the Registration Statement (and the prospectus included therein) may be resumed as soon as it is practicable. The Company may not suspend sales of Registrable Securities under a Registration Statement pursuant to this Section 3(m) more than four (4) times during any twelve-month period. 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (a) all registration and filing fees (including, without limitation, fees and expenses (i) with respect to filings required to be made with any Trading Market, and (ii) in compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders of a majority of the Registrable securities included in such Registration Statement)), (b) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Holders), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company and up to an aggregate of $25,000 (the "Fee Cap") for the Special Counsel for the Holders and (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. The Holders shall pay the fees and expenses of the Special Counsel retained by them in excess of the Fee Cap. 5. Indemnification (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue 9 or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(v)-(vii), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(f). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(v)-(vii), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(f). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an 10 "Indemnified Party"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "Indemnifying Party") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the reasonable expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that 11 resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. 6. Miscellaneous (a) Remedies. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least two-thirds of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from 12 the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (c) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as and to the extent specified in the applicable schedule to the Purchase Agreement, neither the Company nor any Subsidiary has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full. (d) No Piggyback on Registrations. Except as and to the extent specified in the applicable schedule to the Purchase Agreement, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders. The Company shall not be restricted in any manner from including in a Registration Statement (i) the distribution or resale of any securities by PPG or Motorola, provided that such securities are issued and outstanding on the date hereof, are issued upon exercise or conversion of any securities held by PPG or Motorola on the date hereof, or are issued pursuant to preemptive rights of PPG outstanding on the date hereof and (ii) the distribution or resale of up to 200,000 shares of Common Stock issuable upon exercise of warrants granted Gerard, Klauer Mattison & Co. Inc. on the Closing Date (and any shares issuable pursuant to the antidilution provisions thereof). (e) Compliance. Each Holder covenants and agrees that it will: (i) comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement; (ii) sell the Registrable Securities pursuant to the Registration Statement only in transactions that are contemplated by the Plan of Distribution contained in such Registration Statement; and (iii) in connection with sales made pursuant to the Registration Statement, deliver only certificates that represent shares covered by the Registration Statement. The Holder represents and warrants that the requirements set forth in subsections (i), (ii) and (iii) of this paragraph (e) shall be true and correct with respect to every sale of Registrable Securities made pursuant to the Registration Statement at the time of each such sale. (f) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 3(d)(v), 3(d)(vi), 3(d)(vii) or 3(m), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended 13 Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. (g) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered. (h) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) and earlier than 11:59 p.m. (New York City time) on any Trading Day or (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service. The address for such notices and communications shall be as follows: If to the Company: Universal Display Corporation 375 Phillips Boulevard Ewing, New Jersey 08618 Fax No.: (609) 671-0995 Attn: Sidney Rosenblatt With a copy to: Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, Pennsylvania 19103 Fax No.: (877) 432-9652 Attn: Stephen Goodman, Esq. If to a Purchaser: To the address set forth under such Purchaser's name on the signature pages hereof; 14 With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, N.Y. 10022 Fax No: (212) 838-9190 Attn: George Lander, Esq. or such other address as may be designated in writing hereafter, in the same manner, by such Person. (i) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign its rights and obligations hereunder in the manner and to the extent permitted under the Purchase Agreement. (j) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (k) Governing Law. The corporate laws of the Commonwealth of Pennsylvania shall govern all issues concerning the relative rights of the Company and its shareholders. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 15 (m) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (n) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (o) Independent Nature of Purchasers' Obligations and Rights. The obligations of each Purchaser hereunder is several and not joint with the obligations of any other Purchaser hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. (p) Entire Agreement. This Agreement, together with the Transaction Documents, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES TO FOLLOW] 16 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. UNIVERSAL DISPLAY CORP. By: /s/ Sidney D. Rosenblatt --------------------------------- Name: Sidney D. Rosenblatt Title: Chief Financial Officer [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASER TO FOLLOW] 17 STRONG RIVER INVESTMENTS, INC. By: /s/ Kenneth L. Henderson ------------------------ Name: Kenneth L. Henderson Title: Attorney-in-fact Address for Notice: Strong River Investments, Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan With copies to: Morse, Zelnick, Rose & Lander LLP 450 Park Avenue, Suite 902 New York, New York 10022 Fax No.: 212-838-9190 Attn: George Lander, Esq. PINE RIDGE FINANCIAL INC. By: /s/ Kenneth L. Henderson -------------------------------- Name: Kenneth L. Henderson Title: Attorney-in-fact Address for Notice: Strong River Investments, Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan With copies to: Morse, Zelnick, Rose & Lander LLP 450 Park Avenue, Suite 902 New York, New York 10022 Fax No.: 212-838-9190 Attn: George Lander, Esq. Annex A Plan of Distribution -------------------- The Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resale by the broker-dealer for its account; o an exchange distribution in accordance with the rules of the applicable exchange; o privately negotiated transactions; o to cover short sales effected after the date hereof; o broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; o a combination of any such methods of sale; and o any combination of any of the above methods. The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. The Selling Stockholders may also engage in short sales against the box, puts and calls and other transactions in securities of the Company or derivatives of Company securities and may sell or deliver shares in connection with these trades. The Selling Stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a Selling Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Stockholders will be subject to prospectus delivery requirements of the Securities Act. We have informed the Selling Stockholders that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may apply to their sales in the market. The Company is required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the Selling Stockholders, up to $25,000. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. EX-10.3 16 ex10-3.txt EX-10.3 VOTING AGREEMENT VOTING AGREEMENT dated as of August 22, 2001 between Universal Display Corporation, a Pennsylvania corporation ("UDC") and the persons listed on Schedule A hereto (collectively, the "Stockholders"). WHEREAS, the Stockholders and UDC have entered into a Securities Purchase Agreement (as the same may be amended or supplemented, the "Purchase Agreement") pursuant to which the Stockholders: (i) acquired First Shares and Notes convertible into, and Warrants exercisable for, shares of UDC's Common Stock; and (ii) may subsequently acquire Second Shares convertible into shares of UDC's Common Stock; WHEREAS, the First Shares and Second Shares are collectively referred to herein as the "Preferred Stock"; WHEREAS, each Stockholder is the record and beneficial owner of the Preferred Stock, Notes and Warrants set forth opposite such Stockholder's name on Schedule A hereto (such securities, as they may be adjusted by stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other change or transaction of or by UDC, together with securities that may be issued after the date hereof to such Stockholder upon conversion of the Preferred Stock or Notes or exercise of the Warrants are collectively referred to herein as the "Securities"); and WHEREAS, as a condition to its willingness to enter into the Purchase Agreement, UDC has requested that the Stockholders enter into this Agreement; NOW, THEREFORE, to induce UDC to enter into, and in consideration of it entering into, the Purchase Agreement, and in consideration of the premises and the representations, warranties and agreements contained herein, the parties agree as follows: 1. Capitalized Terms. Capitalized terms used herein that are not defined shall have the meanings set forth in the Purchase Agreement. 2. Covenants of the Stockholders. Each Stockholder, severally and not jointly, agrees as follows: (a) Except as otherwise required by law, such Stockholder shall not (i) enter into any voting arrangement, whether by proxy, voting agreement, voting trust, power-of-attorney or otherwise, with respect to the Securities, or (ii) take any other action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the transactions contemplated hereby. (b) Within three Trading Days after requested to do so in writing by UDC, such Stockholder shall certify in writing to UDC the number and type of Securities that such Stockholder owns, beneficially or of record, as of the date indicated in UDC's written request. 3. Grant of Irrevocable Proxy Coupled with an Interest; Appointment of Proxy. (a) Each Stockholder hereby irrevocably grants to, and appoints, any individuals who shall be designated by UDC, and each of them, such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote all of such Stockholder's Securities, or grant a consent or approval in respect of such Securities, at any meeting of Stockholders of UDC or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought (including by written consent). (b) Each Stockholder represents that he/it has not given any proxies in respect of such Stockholder's Securities. (c) Each Stockholder hereby affirms that the proxy set forth in this Section 3 is coupled with an interest and is irrevocable. Such irrevocable proxy shall be valid with respect each Security until such Security is sold, transferred or otherwise disposed of by the Stockholder to a non-Affiliate. (d) Such Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 1759 of the Pennsylvania Business Corporation Law of 1988, as amended. (e) Notwithstanding anything to the contrary that may be contained herein the proxy granted hereunder shall not apply to those items for which a separate vote of the holders of the Preferred Stock are required as set forth in Section 11 of the First Certificate of Designation and Section 11 of the Second Certificate of Designation. 4. Representations and Warranties of the Stockholders. Each Stockholder hereby, severally and not jointly, represents and warrants to UDC as follows: (a) The Stockholder has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Stockholder. This Agreement has been duly executed and delivered by the Stockholder and, assuming this Agreement constitutes a valid and binding obligation of UDC, constitutes a valid and binding obligation of the Stockholders enforceable against the Stockholder in accordance with its terms. (b) The Stockholder's Securities and the certificates representing such Securities are now, and at all times during the term hereof will be, held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, and the Stockholder has good and marketable title to such Securities, free and clear of any liens, proxies, voting trusts or agreements, understandings or arrangements (other than this Agreement). None of the Securities is subject to any voting trust, proxy or other agreement, arrangement or restriction with respect to the voting or disposition of such Securities, except as contemplated by this Agreement. 2 (c) The Stockholder understands and acknowledges that UDC is entering into, the Purchase Agreement in reliance upon the Stockholder's execution and delivery of this Agreement. 5. Representations and Warranties of UDC. UDC hereby represents and warrants to the Stockholders as follows: (a) UDC has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by UDC and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of UDC. This Agreement has been duly executed and delivered by UDC and, assuming this Agreement constitutes a valid and binding obligation of the Stockholders, constitutes a valid and binding obligation of UDC enforceable in accordance with its terms. 6. Further Assurances. Each Stockholder will inform each broker (or other record holder) holding any Securities for its account of the existence and terms of this Agreement, and shall instruct each such broker (or other record holder) in writing to deliver all shareholder solicitation and proxy materials (including proxies) relating to such Securities to the attention of the Chief Executive Officer of UDC at Universal Display Corporation, 375 Phillips Boulevard, Ewing, NJ 08618. Each Stockholder will, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further consents and other instruments as UDC may reasonably request for the purpose of effectively carrying out the transactions contemplated by this Agreement and to vest the power to vote such Stockholder's Securities as contemplated by Section 3. Each Stockholder further agrees that it shall not pledge, hypothecate or otherwise encumber the Securities unless each Person to which any of such Securities, or any interest in any of such Securities, are or may be pledged shall have: (a) executed a counterpart of this Agreement and a proxy substantially similar to that set forth in Section 3 hereof (with such modifications as UDC may reasonably request) and (b) agreed to hold such Securities (or interest in such Securities) subject to all of the terms and provisions of this Agreement. UDC agrees to use reasonable efforts to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements that may be imposed with respect to the transactions contemplated by this Agreement. 7. Termination. Upon a sale of Securities by a Stockholder to a non-Affiliate, such Securities shall no longer be subject to the terms of this Agreement and shall be deemed excluded from the definition of "Securities" as used herein. 8. Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 3 9. General Provisions. (a) Except as otherwise set forth in the Purchase Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. (b) This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. (c) Any notice, demand, or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been sufficiently given or served for all purposes if (i) personally delivered, (ii) mailed by registered or certified first-class mail, prepaid with return receipt requested, (iii) sent by a nationally recognized overnight courier service, to the recipient at the address below indicated or (iv) delivered by facsimile which is confirmed in writing by sending a copy of such facsimile to the recipient thereof pursuant to clause (i) or (iii) above: If to UDC: Universal Display Corporation 375 Phillips Boulevard Ewing, NJ 08618 Attention: Sidney Rosenblatt Chief Financial Officer Telefax: 609-671-0995 with a copy to: Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, PA 19103 Attention: Stephen M. Goodman, Esq. Telefax: 877-432-9652 If to any Stockholder, to: Strong River Investments, Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan and 4 Strong River Investments, Inc. c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Road Town, Tortola, British Virgin Islands Facsimile No.: 212-651-9010 Telephone No.: 212-651-9002 Attn: Danny Golan With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 Attention: George Lander, Esq. Facsimile No.: 212-838-9190 or to such other address as any party hereto may, from time to time, designate in a written notice given in like manner. (d) When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained m this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Wherever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". (e) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. (f) This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. (g) This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to any applicable conflicts of law. 10. Remedies. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in a court of the United States, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby. 5 EACH STOCKHOLDER AGREES THAT, IN CONNECTION WITH ANY LEGAL SUIT OR PROCEEDING ARISING WITH RESPECT TO THIS AGREEMENT, IT SHALL SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA AND AGREES TO VENUE IN SUCH COURTS. EACH STOCKHOLDER HEREBY APPOINTS THE SECRETARY OF UDC AS ITS AGENT FOR SERVICE OF PROCESS FOR PURPOSES OF THE FOREGOING SENTENCE ONLY. EACH PARTY HERETO WAIVES ANY RIGHT TO JURY TRIAL IN CONNECTION WITH ANY SUCH SUIT OR PROCEEDING. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, each of UDC and each Stockholder have caused this Agreement to be signed by its respective officer thereunto duly authorized, all as of the date first written above. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney D. Rosenblatt ------------------------ Name: Sidney D. Rosenblatt Title: Chief Financial Officer PINE RIDGE FINANCIAL INC. By: /s/ Kenneth L. Henderson ------------------------ Name: Kenneth L. Henderson Title: Attorney-in-fact STRONG RIVER INVESTMENTS, INC. By: /s/ Kenneth L. Henderson ------------------------ Name: Kenneth L. Henderson Title: Attorney-in-fact Schedule A
Number and Class of Securities Name and Address of Stockholders Held by such Stockholder -------------------------------- ------------------------ Pine Ridge Financial Inc. 2,500 shares of Preferred Stock c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Note in the original principal amount of $7,500,000 Road Town, Tortola, British Virgin Islands Warrants to purchase an aggregate 372,226 shares of Common Stock Strong River Investments, Inc. 2,500 shares of Preferred Stock c/o Icaza, Gonzalez-Ruiz & Aleman (BVI) Ltd. Vanterpool Plaza, 2nd Floor, Wickhams Cay I Note in the original principal amount of $7,500,000 Road Town, Tortola, British Virgin Islands Warrants to purchase an aggregate 372,226 shares of Common Stock
EX-10.4 17 ex10-4.txt EX-10.4 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (this "Agreement") is made this 22nd day of August, 2001 by UDC, INC., a New Jersey corporation (the "Pledgor") in favor of FIRST UNION NATIONAL BANK, a national banking association (in its capacity as issuer of two standby letters of credit (the "Letters of Credit") under the Letter of Credit Agreements defined below, the "Pledgee"). For good and valuable consideration, and intending to be legally bound hereby: 1. Pledge. Pledgor hereby assigns, pledges and grants to Pledgee a security interest in the cash, instruments, financial assets, investment property and securities, and all documents relative thereto, of Pledgor now owned by or standing in the name of Pledgor or in which Pledgor has a legal or beneficial interest, which are at any time deposited in Account No. [XXXXX] (the "Account") in the name of Pledgor at First Union National Bank, acting not in its capacity as Bank, but in its capacity as custodian (the "Custodian"), as further described in the Control Agreement (the "Control Agreement") dated of even date herewith by and among Pledgor, Pledgee and Custodian (which, together with all additions thereto, rollovers, substitutions or exchanges therefor, security entitlements and proceeds thereof (including cash and non-cash proceeds) and distributions thereon, shall be referred to collectively herein as the "Collateral"), as collateral security for the payment and performance of all indebtedness, liability and obligations of Pledgor to Pledgee, whether for reimbursement obligations under the Letter of Credit Agreements, principal, interest, fees, expenses or otherwise, now existing or hereafter created or arising under the two Applications and Agreements for Irrevocable Standby Letter of Credit dated of even date herewith submitted by Pledgor to Pledgee (the "Letter of Credit Agreements"), and any other documents, agreements and instruments executed thereunder or in connection therewith including without limitation this Agreement and the Control Agreement (herein collectively the "Obligations," with such agreements, documents and instruments evidencing and documenting the Obligations being herein referred to collectively as the "Documents"), all on the terms and conditions set forth herein. 2. Representations and Warranties. Pledgor represents and warrants that: (a) to the extent any Collateral consists of securities, Pledgor has good title to such securities free and clear of all liens and encumbrances except the security interest created hereby; (b) as of the date of this Agreement, the fair market value of the Collateral is no less than Fifteen Million Dollars ($15,000,000); (c) Pledgor has delivered to Pledgee all stock certificates, promissory notes, bonds, debentures or other instruments or documents representing or evidencing the Collateral, and this Pledge Agreement and such powers have been duly and validly executed and are binding and enforceable against Pledgor in accordance with their terms; and (d) the pledge of the Collateral in accordance with the terms hereof creates a valid and perfected first priority security interest in the Collateral securing payment of the Obligations. 3. No Approval. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge by Pledgor of any of the Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Pledgor or (ii) for the exercise by Pledgee of the voting or other rights provided for in this Agreement or the remedies in respect of any of the Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally). 4. Undertakings. Pledgor hereby agrees: (a) not to sell or otherwise dispose of, or grant any option with respect to, any of the Collateral; (b) not to create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, except the security interest under this Agreement; (c) to maintain the fair market value of the Collateral at an amount no less than one hundred percent (100%) of the face amount of the Letters of Credit, subject to reduction from time to time pursuant to the terms of the Letter of Credit Agreements; (d) subject to Section 5 below, to retain all earnings and interest paid on the Collateral in the Account as additional Collateral for the Obligations; and (e) take all actions (and execute and deliver from time to time all instruments and documents) necessary or appropriate or requested by Pledgee, to continue the validity, enforceability and perfected status of the pledge of Collateral hereunder. 5. Interest. So long as Pledgor is in full compliance with the terms hereof and no Event of Default has occurred and is continuing, Pledgor shall be entitled to receive and retain interest payments for the Collateral pledged hereunder. 6. No Notice of Exclusive Control. So long as: (i) Pledgee has not delivered a Notice of Exclusive Control (as defined in the Control Agreement) to the Custodian and (ii) Pledgor is in full compliance with the terms hereof, Pledgor may exercise all voting rights, if any, pertaining to the Collateral for any purpose not inconsistent with the terms hereof or of the Obligations or Documents. In the event any Collateral has been transferred into the name of Pledgee or a nominee or nominees of Pledgee prior to an Event of Default, Pledgee or its nominee will execute and deliver upon request of Pledgor an appropriate proxy in order to permit Pledgor to vote, if applicable, the same. 7. Draw on Account; Reduction of Account. (a) Draw on Account. Upon receipt by Pledgee of a draw certificate on a Letter of Credit, the Pledgee shall be reimbursed automatically from the Account for such amounts drawn. The Pledgee shall have the right to obtain such amount from the Account by notice to the Custodian under the Control Agreement. 2 (b) Reduction of Account. The Pledgee agrees to notify the Custodian to release funds from the Account to Pledgor upon Pledgee's receipt of a reduction certificate under a Letter of Credit in the amount of such reduction certificate. (c) Notice of Termination of Security Interest. The Pledgee agrees to notify the Custodian promptly of Pledgee's termination of its security interest in the Account and in any other Collateral. 8. Definition of Event of Default. Each of the following shall constitute an "Event of Default": (a) Nonpayment; Nonperformance. The failure of Pledgor to immediately reimburse the Pledgee for any draw on a Letter of Credit or to timely perform the other Obligations under this Agreement or any other Document. (b) Cessation; Bankruptcy. The dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Pledgor or Universal Display Corporation, a Pennsylvania corporation. 9. No Liability. Pledgee shall be under no obligation to take any actions and shall have no liability (except for gross negligence or willful misconduct) with respect to the preservation or protection of the pledged Collateral or any underlying interests represented thereby as against any prior or other parties. In the event Pledgor requests that Pledgee take or omit to take action(s) with respect to the Collateral, Pledgee may refuse so to do with impunity if Pledgor does not, upon request of Pledgee, post sufficient, creditworthy indemnities with Pledgee which, in Pledgee's sole discretion, are sufficient to hold it harmless from any possible liability of any kind in connection therewith. 10. Extensions; Modifications. Pledgor and Pledgee may, without affecting Pledgee's rights in the pledged Collateral and without a contemporaneous confirmation of or amendment to this Agreement, grant any extensions, releases or other modifications of any kind respecting the Documents, Obligations and any collateral security therefor. Pledgor hereby waives any rights it has at equity or in law to require Pledgee to apply any rights of marshalling or other equitable doctrines in the circumstances. 11. Notice of Exclusive Control. After the delivery to the Custodian of a Notice of Exclusive Control: (a) Pledgee may transfer or cause to be transferred any of the pledged Collateral into its own or a nominee's or nominees' names; (b) Pledgor shall take any action necessary or required or requested by Pledgee, in order to allow Pledgee fully to enforce the pledge of the Collateral hereunder and realize thereon to the fullest possible extent, including but not limited to the filing of any claims with any court, liquidator or trustee, custodian, receiver or other like person or party; 3 (c) Pledgee shall have all the rights and remedies granted or available to it hereunder, under the Uniform Commercial Code as in effect from time to time in Pennsylvania, under any other statute or the common law, or under any of the Documents, including the right to sell the Collateral or any portion thereof at one or more public or private sales upon ten (10) days' written notice and to bid thereat or purchase any part or all thereof in its own or a nominee's or nominees' names, free and clear of any equity of redemption; and to apply the net proceeds of the sale, after deduction for any expenses of sale, including the payment of all Pledgee's reasonable attorneys' fees in connection with the Obligations and the sale, to the payment of the Obligations in any manner or order which Pledgee in its sole discretion may elect, without further notice to or consent of Pledgor and without regard to any equitable principles of marshalling or other like equitable doctrines; and (d) Pledgee may increase, in its sole discretion, but shall not be required to do so, the Obligations by making additional advances, issuing additional letters of credit or incurring expenses for the account of Pledgor deemed appropriate or desirable by Pledgee in order to protect, enhance or preserve the Collateral or any other property it holds as security for the Obligations. 12. Sale of Securities. (a) Pledgor recognizes that Pledgee may be unable to effect a sale to the public of all or part of the Collateral which constitutes securities by reason of certain prohibitions or restrictions in the federal or state securities laws and regulations (herein collectively called the "Securities Laws"), or the provisions of other federal and state laws, regulations or rulings, but may be compelled to resort to one or more sales to a restricted group of purchasers who will be required to agree to acquire such securities for their own account, for investment and not with a view to the further distribution or resale thereof without restriction. Pledgor agrees that any sale(s) so made may be at prices and on other terms less favorable to Pledgor than if such securities were sold to the public, and that Pledgee has no obligation to delay sale of such securities for period(s) of time necessary to permit the issuer thereof to register securities for sale to the public under any of the Securities Laws. Pledgor agrees that negotiated sales, whether for cash or credit, made under the foregoing circumstances shall not be deemed for that reason not to have been made in a commercially reasonable manner. Pledgor shall cooperate with Pledgee and, to the extent it is able, shall satisfy any requirements under the Securities Laws applicable to the sale or transfer of securities by Pledgee. (b) In connection with any sale or disposition of the Collateral, Pledgee is authorized to comply with any limitation or restriction as it may be advised by its counsel is necessary or desirable in order to avoid any violation of applicable law or to obtain any required approval of the purchaser(s) by any governmental regulatory body or officer and it is agreed that such compliance shall not result in such sale being considered not to have been made in a commercially reasonable manner nor shall Pledgee be liable or accountable by reason of the fact that the proceeds obtained at such sale(s) are less than might otherwise have been obtained. (c) Pledgee may elect to obtain the advice of any independent nationally-known investment banking firm, which is a member firm of the New York Stock Exchange, with respect to the method and manner of sale or other disposition of any of the Collateral, the best price reasonably obtainable 4 therefor, the consideration of cash and/or credit terms, or any other details concerning such sale or disposition. Pledgee, in its sole discretion, may elect to sell on such credit terms which it deems reasonable. 13. Expenses. Pledgor will pay Pledgee the amount of any reasonable expenses including counsel fees and expenses incurred by Pledgee in connection with (i) the administration of this Agreement, (ii) the custody, preservation, sale or collection or realization of the Collateral, (iii) the exercise or enforcement of Pledgee's rights hereunder, or (iv) the failure of Pledgor to perform hereunder. 14. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their successors and assigns and shall be governed as to its validity, interpretation and effect by the laws of the Commonwealth of Pennsylvania, without reference to conflicts-of-law or choice-of-law provisions; and any terms used herein which are defined in the Uniform Commercial Code as enacted in Pennsylvania shall have the meanings therein set forth. 15. Waivers. If either party shall waive any rights or remedies arising hereunder or under any applicable law, such waiver shall not be deemed to be a waiver upon the later occurrence or recurrence of any of said events. No delay by any party in the exercise of any right or remedy shall under any circumstances constitute or be deemed to be a waiver, express or implied, of the same and no course of dealing between the parties hereto shall constitute a waiver of any party's rights or remedies. 16. Attorney-in-fact. Pledgor hereby irrevocably appoints Pledgee as its attorney-in-fact to execute, deliver and record, if appropriate, from time to time any instruments or documents in connection with the Collateral, in Pledgor or Pledgee's names. 17. Entire Understanding. This Agreement represents the entire understanding of the parties with respect to the subject matter and no modification or change herein shall be effective unless contained in a writing signed by the parties hereto. IN WITNESS WHEREOF, the undersigned has executed this Agreement on the date first set forth above. PLEDGOR: UDC, INC. By: /s/ Sidney Rosenblatt ---------------------- Name: Sidney Rosenblatt Title: CFO 5 EX-10.5 18 ex10-5.txt EX-10.5 CONTROL AGREEMENT This Control Agreement (this "Agreement") is made this 22nd day of August, 2001, by and among FIRST UNION NATIONAL BANK, a national banking association, in its capacity as the issuer of two standby letters of credit (the "Letters of Credit") under the Letter of Credit Agreements, as defined below, and not in its capacity as Custodian, as defined below (the "Bank"), UDC, INC., a New Jersey corporation (the "Debtor"), and FIRST UNION NATIONAL BANK, a national banking association, in its capacity as a custodian, and not in its capacity as Bank ("Custodian"). BACKGROUND A. Debtor has opened Account No. [XXXX] with Custodian with an initial deposit of cash, instruments, financial assets, investment property and securities with an initial value of no less than Fifteen Million Dollars ($15,000,000) (the "Account") pursuant to the terms of an agreement, a copy of which is attached hereto as Exhibit A (the "Account Agreement"). To the extent that there is a conflict between this Agreement and the Account Agreement, this Agreement shall control. B. Debtor has executed and delivered Bank two completed copies of the Bank's Application and Agreement for Irrevocable Standby Letter of Credit, copies of which are attached hereto as Exhibit B (the "Letter of Credit Agreements"), pursuant to which Bank will, upon the satisfaction of certain conditions, issue the Letters of Credit for the account of Debtor. Debtor's obligations under the Letter of Credit Agreements are to be secured by a pledge of Debtor's interest and grant of a security interest in all assets in the Account pursuant to the terms of a Pledge Agreement by and between Bank and Debtor dated of even date herewith (the "Pledge Agreement"). C. The parties hereto are entering into this Agreement to perfect the security interest of the Bank in the Collateral (as defined below), and to provide for the control of the Account, as required pursuant to the Letter of Credit Agreements. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: AGREEMENT Section 1. Priority of Lien. (1) Custodian (i) acknowledges that it has received a copy of the Letter of Credit Agreements, (ii) acknowledges and recognizes the security interest in the Account and the assets contained therein (including without limitation any credit balance, cash and/or cash equivalent instruments, investment property and financial assets) or credited thereto from time to time together with all proceeds (including cash and non-cash proceeds, investment property, all rights of Debtor thereto, any rollovers, substitutions or instruments issued in exchange therefor and all documents relative thereto (together with the Account, collectively, the "Collateral") granted thereby by the Debtor to the Bank, and (iii) has marked its records to reflect the security interest of the Bank in the Account. (2) Custodian represents and confirms that it has not previously taken, or granted, a security interest in the Account or any of the Collateral, and Custodian has not been notified of any other security interest in or encumbrance on the Account or any of the Collateral. (3) Custodian hereby waives and releases all liens, claims, encumbrances and rights of setoff it may have against the Account or any of the Collateral and agrees that, except for the payment of its normal and customary fees and commissions pursuant to the Account Agreement, it will not assert any such lien, claim, encumbrance or right of setoff against the Account or any of the Collateral. Section 2. Control. Custodian hereby agrees that it will comply with entitlement orders or any other instructions respecting the Account originated by the Bank, without requiring further consent by the Debtor. Custodian will not disburse any principal amount from the Account other than in accordance with the Bank's written direction. Until the Bank notifies the Custodian that the Bank is exercising exclusive control over the Account (a "Notice of Exclusive Control"), and except as otherwise provided herein, Custodian shall comply with investment instructions and entitlement orders with respect to interest and earnings on the Account originated by the Debtor with respect to the Collateral and shall make trades of financial assets or other Collateral held in the Account pursuant to such instructions, so long as the Collateral consists solely of Permitted Investments (as defined below). Upon Custodian's receipt of a Notice of Exclusive Control, Custodian will immediately cease complying with orders or instructions originated by the Debtor concerning the Account. Section 3. Investments; Interest and Dividends. Pursuant to the terms of Section 2, Debtor shall, upon the effectiveness of this Agreement, instruct the Custodian to purchase Permitted Investments (and only Permitted Investments), to be allocated among various Permitted Investments at the discretion of the Debtor, for deposit in the Account. Prior to the occurrence of an Event of Default (as defined in the Pledge Agreement), Custodian shall comply with Debtor's instructions regarding the distribution of interest payments and cash dividends earned on the securities in the Account. Upon the occurrence and during the continuance of an Event of Default, Custodian shall retain all interest payments and cash dividends earned on the securities in the Account as Collateral. "Permitted Investments" means (i) investments in certificates of deposit issued by the Bank maturing within one (1) year from the date of acquisition thereof, but no later than the expiration date of the Letters of Credit; and (ii) money market funds sponsored by the Bank or an affiliate of the Bank. -2- Section 4. Additional Undertakings of Custodian. Custodian hereby agrees with the Bank and the Debtor that until otherwise notified by the Bank in writing, Custodian: (a) will send Account statements or other statements regarding the Collateral, no less frequently than on a monthly basis, to the Bank, at the address for the Bank provided beneath the signature of Bank at the end of this Agreement or as otherwise provided by Bank in writing, (b) will act as agent and bailee for the Bank, under Bank's sole direction, for the purposes stated herein and in the Pledge Agreement, (c) will not take any action which would adversely affect Bank's interest in the Collateral, including without limitation making loans to the Debtor, taking, or granting, a security interest in the Account or any of the foregoing Collateral or (except as set forth in Section 5 below) setting off against any of it, without prior written consent from the Bank, and (d) will not acknowledge or otherwise accept instructions to exert any control over or to identify, by book entry or other means, any assignment or grant of a security interest in the Account or any of the Collateral to any person or entity other than the Bank, and shall promptly notify Bank if any person or entity asserts a lien, encumbrance or adverse claim against the Account or any of the Collateral. Section 5. Custodian's Expenses. All expenses incurred by Custodian, in the ordinary course of its administration of the Account, will be Debtor's sole responsibility but may be repaid from the Account until such time as the Bank provides a Notice of Exclusive Control to the Custodian, and after delivery of such Notice of Exclusive Control, Custodian's expenses will not be repaid from the Account until all of the Debtor's obligations to the Bank have been indefeasibly repaid in full. Section 6. Responsibility of Custodian. Custodian shall have no responsibility or liability to Bank for making investments or trades of financial assets or any other Collateral in the Account at the instruction of Debtor, or its authorized representatives, or complying with entitlement orders concerning the Account or any Collateral from Debtor, which are received by Custodian before Custodian receives a Notice of Exclusive Control, so long as all such investments, trades and entitlement orders concern only Permitted Investments. Custodian shall have no responsibility or liability to Debtor for complying with a Notice of Exclusive Control or complying with entitlement orders concerning the Account originated by the Bank after the Custodian's receipt of a Notice of Exclusive Control. Custodian shall have no duty to investigate or make any determination as to the validity of or reasons for its receipt of a Notice of Exclusive Control. Neither this Agreement nor either of the Letter of Credit Agreements creates any obligation or duty of Custodian other than those expressly set forth herein. Section 7. Tax Reporting. All items of income, gain, expense and loss recognized in the Account shall be reported to the Internal Revenue Service and all state and local taxing authorities under the name and taxpayer identification number of Debtor as required under foreign, federal, state and local law. -3- Section 8. Termination. The rights and powers granted herein to Bank have been granted in order to perfect its security interest in the Account and any other Collateral, are powers coupled with an interest and will neither be affected by the bankruptcy of Debtor nor by the lapse of time. The obligations of Custodian under Sections 2, 3 and 4 above shall continue in effect until the security interest of the Bank in the Account and any other Collateral has been terminated pursuant to the terms of the Letter of Credit Agreements and Pledge Agreement, and Bank has notified Custodian of such termination in writing. Upon receipt of such notice, the obligations of Custodian under Sections 2, 3 and 4 above with respect to the operation and maintenance of the Account and any other Collateral shall terminate, Bank shall have no further right to originate entitlement orders concerning the Account or any other Collateral, and Custodian shall take such steps as Debtor may request to vest full ownership and control of the Account and any other Collateral in Debtor, including, but not limited to, removing the name of Bank from the Account or transferring all of the financial assets and credit balances, or any other Collateral in the Account, to another securities account in the name of Debtor or its designee. Bank shall promptly notify Debtor and Custodian of Bank's termination of its security interest in the Account and any other Collateral. Section 9. Integration. This Agreement, the schedules and exhibits hereto and the agreements and instruments required to be executed and delivered hereunder set forth the entire agreement of the parties with respect to the subject matter hereof and supersede and discharge all prior agreements (written or oral) and negotiations and all contemporaneous oral agreements concerning such subject matter and negotiations. There are no oral conditions precedent to the effectiveness of this Agreement. Section 10. Amendments. No amendment, modification or termination of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by the party to be affected thereby. Section 11. Severability. If any term or provision set forth in this Agreement shall be invalid or unenforceable, the remainder of this Agreement, or the application of such terms or provisions to persons or circumstances, other than those to which it is held invalid or unenforceable, shall be construed in all respects as if such invalid or unenforceable term or provision were omitted. Section 12. Successors. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. Section 13. Rules of Construction. In this Agreement, words in the singular number include the plural, and in the plural include the singular, words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender and the word "or" is disjunctive but not exclusive. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Agreement. -4- Section 14. Notices. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given: (a) when delivered in person; or (b) when sent by telecopy or other electronic means and electronic confirmation of receipt is received during normal business hours or, if after business hours, on the next business day; or (c) if sent by recognized overnight courier, on the next business day; or (d) if sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below such party's signature at the end of this Agreement, on the third day after being sent. Any party may change its address for notices in the manner set forth above. Section 15. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts. Section 16. Choice of Law. The parties hereto agree that certain material events, occurrences and transactions relating to this Agreement bear a reasonable relationship to the Commonwealth of Pennsylvania. The validity, terms, performance and enforcement of this Agreement, including for purposes of the perfection and priority of the security interest in the Collateral, shall be governed by those laws of the Commonwealth of Pennsylvania, without reference to conflicts of law or choice of law provisions. Section 17. Jury Trial. THE BANK, THE DEBTOR AND THE CUSTODIAN EACH HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. -5- IN WITNESS WHEREOF, the parties hereto have entered into this Agreement on the date first set forth above. Custodian: FIRST UNION NATIONAL BANK, in its capacity as Custodian and not in its capacity as Bank By: /s/ Blake Payne --------------- Name: Blake Payne Title: Vice President 123 South Broad Street Philadelphia, PA 19109 Attn: Blake Payne, Vice President Telephone No.: (215) 786-7611 Facsimile No.: (267) 321-7854 -6- [EXECUTIONS CONTINUED] Debtor: UDC, INC. By: /s/ Sidney Rosenblatt ----------------------- Name: Sidney Rosenblatt Title: CFO 375 Phillips Boulevard Ewing, New Jersey 08618 Attn: Sidney Rosenblatt, CFO Telephone No.: (609) 671-9280 Facsimile No.: (609) 671-0995 Bank: FIRST UNION NATIONAL BANK, in its capacity as Bank and not in its capacity as Custodian By: /s/ Robert J. Fries --------------------- Name: Robert J. Fries Title: Vice President 123 South Broad Street Philadelphia, PA 19109 Attn: Robert J. Fries, Vice President Telephone No.: (215) 985-7383 Facsimile No.: (215) 985-7405 -7- EX-10.6 19 ex10-6.txt EX-10.6 GUARANTY AND SURETYSHIP AGREEMENT THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty"), dated August 22, 2001, is made by UNIVERSAL DISPLAY CORPORATION, a Pennsylvania corporation with an address at 375 Phillips Boulevard, Ewing, New Jersey 08618 (the "Guarantor"), in favor of FIRST UNION NATIONAL BANK, a national banking association with offices at One South Penn Square, Philadelphia, Pennsylvania 19107 (the "Bank"). W I T N E S S E T H : WHEREAS, UDC, Inc., a New Jersey corporation (the "Applicant"), has delivered two Applications and Agreements For Irrevocable Standby Letter of Credit (the "Letter of Credit Agreements") to Bank, requesting the Bank to issue two standby letters of credit (the "Letters of Credit") for the account of Applicant and for the benefit of Pine Ridge Financial Inc. and Strong River Investments Inc. in order to secure payment of certain notes payable by Guarantor to such beneficiaries; WHEREAS, the Guarantor has caused the proceeds of the notes to be contributed to Applicant and Applicant has pledged such proceeds to Bank as collateral for it obligations to Bank under the Letter of Credit Agreements; and WHEREAS, Bank is willing issue the Letters of Credit under the Letter of Credit Agreements subject to the condition, among others, that Guarantor, being the owner of one hundred percent (100%) of the outstanding shares of capital stock of Applicant, shall have executed and delivered to the Bank this Guaranty; NOW, THEREFORE, in order to induce the Bank to issue the Letters of Credit under the Letter of Credit Agreements, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, Guarantor does hereby covenant and agree with Bank as follows: 1. Definitions and Construction. Reference is hereby made to the Letter of Credit Agreements for a statement of the terms thereof. All terms used in this Guaranty which are defined in the Letter of Credit Agreements and not defined herein shall have the respective meanings ascribed to such terms in the Letter of Credit Agreements. 2. Guaranty. Guarantor absolutely and unconditionally guarantees and becomes surety for the full, prompt and punctual payment to Bank, as and when due, whether at maturity, by acceleration or otherwise, of any and all indebtedness, and performance of any and all liabilities and obligations of Applicant to Bank created at any time under, or pursuant to the terms of the Letter of Credit Agreements, whether for reimbursement obligations, principal, interest, premiums, fees, expenses or otherwise (all such indebtedness, liabilities and obligations being herein called collectively the "Obligations"), together with any and all reasonable expenses, including without limitation attorneys' fees and disbursements, which may be incurred by Bank in collecting any or all of the Obligations or enforcing any and all rights against Guarantor under this Guaranty (the "Expenses"). Without limiting Guarantor's obligations hereunder and notwithstanding any purported termination of this Guaranty, if any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation, dissolution, assignment for the benefit of creditors, or similar event with respect to Applicant or any co-guarantor or endorser of all or any of the Obligations shall occur, and such occurrence shall result in the return of (or in such event Bank shall be requested to return) of any payment or performance of any of the Obligations or Expenses, then (a) without further notice, demand or other action, the obligations of Guarantor hereunder shall be reinstated with respect to (i) such payment or performance returned (or requested to be returned) and (ii) with respect to all further obligations arising as a result of such return or request, and (b) Guarantor shall thereupon be liable therefor, without any obligation on the part of Bank to contest or resist any such return. 3. Nature and Term of Guaranty. (a) The obligations and liability of Guarantor under this Guaranty shall be independent, absolute, primary and direct, irrevocable and unconditional, regardless of any non-perfection of any collateral security for the Obligations; any lack of validity or enforceability of the Letter of Credit Agreements or any of the Obligations or Expenses; the voluntary or involuntary liquidation, dissolution, sale or other disposition of all, or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting Applicant or Guarantor or any co-guarantor or endorser of, any or all of the Obligations and Expenses or any of the assets of any of them, or any contest of the validity of this Guaranty in any such proceeding; or any law, regulation or decree now or hereafter in effect in any jurisdiction which might in any manner affect any of such terms or provisions or any of the rights of Bank with respect thereto or which might cause or permit Applicant or any co-guarantor or endorser of the Obligations and Expenses to invoke any defense to, or any alteration in the time, amount or manner of payment of any or all of the Obligations and Expenses or performance of this Guaranty. (b) This Guaranty is a continuing guaranty and shall remain in full force and effect until the Obligations, the Expenses and any and all other amounts payable hereunder shall have been paid in full and no further letters of credit are available under the Letter of Credit Agreements and the period during which any payment by Applicant or Guarantor is or may be subject to rescission, avoidance or refund under the United States Bankruptcy Code (or any similar state statute) shall have expired. 4. Payment in Accordance with Letter of Credit Agreements. (a) Guarantor hereby guaranties that the Obligations and Expenses shall be paid and performed strictly in accordance with the terms of the Letter of Credit Agreements. (b) If any Obligation or Expense is not paid or performed by the Applicant punctually, subject to any applicable grace period, including without limitation any Obligation due by acceleration of the maturity thereof, Guarantor will, upon the Bank's demand, immediately pay or perform such Obligation or Expense or cause the same to be paid or performed. Guarantor will pay to Bank, upon demand, all costs and expenses, including the Expenses, which may be incurred by the Bank in the collection or enforcement of Guarantor's obligations under this Guaranty. 2 5. Rights and Remedies of Bank. Bank, in its sole discretion, may proceed to exercise any right or remedy which it may have under this Guaranty against Guarantor without first pursuing or exhausting any rights or remedies which it may have against Applicant or against any other person or entity or any collateral security, and may proceed to exercise any right or remedy which it may have under this Guaranty without regard to any actions or omissions of any other person or entity, in any manner or order, without any obligation to marshal in favor of Guarantor or other persons or entities and without releasing any of Guarantor's obligations hereunder with respect to any unpaid Obligations and Expenses. No remedy herein conferred upon or reserved to Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Guaranty or now or hereafter existing at law or in equity. 6. Actions by Bank Not Affecting Guaranty. Bank may, at any time or from time to time, in such manner and upon such terms as it may deem proper, extend or change the time of payment or the manner or place of payment of, or otherwise modify or waive any of the terms of, or release, exchange, settle or compromise any or all of the Obligations and Expenses or any collateral security therefor, or subordinate payment of the same, or any part thereof, to the payment of any other indebtedness, liabilities or obligations of Applicant which may at any time be due or owing to Bank or anyone, or elect not to enforce any of Bank's rights with respect to any or all of the Obligations and Expenses or any collateral security therefor, all without notice to, or further assent of Guarantor and without releasing or affecting Guarantor's obligations hereunder. 7. Payments Under Guaranty. All payments by Guarantor hereunder shall be made in immediately available funds and in lawful money of the United States of America to the Bank at such location as Bank shall specify by notice to Guarantor. All payments by Guarantor under this Guaranty shall be made by Guarantor solely from Guarantor's own funds and not from any funds of Applicant. 8. Modifications and Waivers. No failure or delay on the part of Bank in exercising any power or right under this Guaranty shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power under this Guaranty. No modification or waiver of any provision of this Guaranty nor consent to any departure therefrom shall, in any event, be effective unless the same is in writing signed by Bank and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to, or demand on Guarantor, in any case, shall entitle Guarantor to any other or further notice or demand in similar or other circumstances. 9. Guarantor's Waiver. Guarantor hereby waives promptness, diligence, presentment, demand, notice of acceptance and any other notice with respect to any of the Obligations, the Expenses and this Guaranty. 10. Waiver of Subrogation. Guarantor hereby waives (a) any right which Guarantor may now have or hereafter acquire by way of subrogation under this Guaranty, by law or otherwise or by way of reimbursement, indemnity, exoneration, or contribution; or (b) any right to assert defenses as the primary 3 obligor of the Obligations; or (c) any other claim which it now has or may hereafter acquire against Applicant or any other person or against or with respect to Applicant's property (including, without limitation, any property which has been pledged to secure the Obligations); or (d) any right to enforce any remedy which Bank may now have or hereafter acquire against Applicant or any other guarantor, maker or endorser; in any case, whether any of the foregoing claims, remedies and rights may arise in equity, under contract, by payment, statute, common law or otherwise. If in violation of the foregoing any amount shall be paid to Guarantor on account of any such rights at any time, such amount shall be held in trust for the benefit of Bank and shall forthwith be paid to Bank to be credited and applied against the Obligations and Expenses, whether matured or unmatured, in accordance with the terms of the Letter of Credit Agreements. 11. No Setoff by Guarantor. No setoff, counterclaim, deduction, reduction, or diminution of any obligation, or any defense of any kind or nature which Guarantor has or may have against Applicant or Bank shall be available hereunder to Guarantor. 12. Representations and Warranties. Guarantor hereby represents and warrants as follows: (a) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of Pennsylvania, and has full right, power and authority to enter into, and perform this Guaranty. (b) The execution, delivery and performance by Guarantor of this Guaranty has been duly authorized by all necessary actions, and do not and will not contravene any law or any contract binding on, or affecting Guarantor. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Guarantor of this Guaranty. (d) This Guaranty is a legal, valid and binding obligation of Guarantor enforceable against the Guarantor in accordance with its terms. 13. Appointment of Agent for Service of Process. If for any reason Guarantor shall not be subject to service of process in the Commonwealth of Pennsylvania during the term of this Guaranty, Guarantor hereby appoints, without power of revocation, each officer of Guarantor as the agent of Guarantor upon whom may be served all process, pleadings, notices or other documents which may be served upon Guarantor under this Guaranty. 14. Addresses for Notices. All requests, consents, notices and other communications required or permitted hereunder or in connection herewith shall be deemed satisfactorily given if in writing and delivered personally or by registered or certified mail, postage pre-paid, by reliable overnight courier, or by telecopier to the parties at their respective addresses set forth below or at such other address as may be given by any party to the other in writing in accordance with this Section 14: 4 If to Guarantor: Universal Display Corporation 375 Phillips Boulevard Ewing, New Jersey 08618 Attention: Sidney Rosenblatt, CFO Telephone No.: (609) 671-9280 Facsimile No.: (609) 671-0995 If to Applicant: UDC, Inc. 375 Phillips Boulevard Ewing, New Jersey 08618 Attention: Sidney Rosenblatt, CFO Telephone No.: (609) 671-9280 Facsimile No.: (609) 671-0995 If to Bank: First Union National Bank 123 South Broad Street Philadelphia, Pennsylvania 19109 Attention: Robert J. Fries, Vice President Telephone No.: (215) 985-7383 Facsimile No.: (215) 985-7405 15. Continuing Guaranty. This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until the Obligations, the Expenses and all other amounts payable under this Guaranty shall have been paid in full and the period during which any payment by Applicant or Guarantor is or may be subject to avoidance or refund under the United States Bankruptcy Code (or any similar statute) shall have expired, (ii) be binding upon Guarantor and the personal representatives, heirs, successors and assigns of Guarantor, and (iii) inure to the benefit of, and be enforceable by Bank and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), Bank may endorse, assign or otherwise transfer its rights under the Letter of Credit Agreements to any other person or entity, and such other person or entity shall thereupon become vested with all the rights in respect thereof granted to Bank herein or otherwise. 16. Entire Agreement. This Guaranty constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 17. Severability. The invalidity or unenforceability of any one or more portions of this Guaranty shall not affect the validity or enforceability of the remaining portions of this Guaranty. 5 18. Counterparts. This Guaranty may be executed in several separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument. 19. Governing Law. This Guaranty shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania, without regard to conflicts-of-law principles, and for all purposes shall be governed by and construed in accordance with such laws. 20. Jurisdiction, Venue, Trial By Jury. Guarantor hereby (a) agrees that any litigation, action or proceeding arising out of or relating to this Guaranty shall be instituted in the courts of the Commonwealth of Pennsylvania or the United States District Courts for the Districts of Pennsylvania; (b) waives any objection which Guarantor might have now or hereafter to the venue in such courts of any such litigation, action or proceeding; (c) irrevocably submits to the venue and exclusive jurisdiction of such courts in any such litigation, action or proceeding; (d) irrevocably consents to personal jurisdiction in such courts and further agrees that service of process upon Guarantor may be effected by certified mail to the address provided in Section 15 of this Guaranty or by any other means permitted by law; (e) waives any claim or defense of inconvenient forum; and (f) waives any right to trial by jury. The foregoing shall not preclude Bank from seeking to enforce this Guaranty in any other court of competent jurisdiction. IN WITNESS WHEREOF, for good and valuable consideration and intending to be legally bound hereby, this Guaranty has been executed by Guarantor as of the date hereof. UNIVERSAL DISPLAY CORPORATION By: /s/ Sidney Rosenblatt ------------------------ Name: Sidney Rosenblatt Title: CFO 6 EX-10.7 20 ex10-7.txt EX-10.7 COPY
OUR CREDIT NO. ISSUE DATE EXPIRY DATE LETTER OF CREDIT AMOUNT - -------------- ---------- ----------- ----------------------- XXX 08-21-2001 02-21-2003 USD7,500,000.00
BENEFICIARY APPLICANT ----------- --------- PINE RIDGE FINANCIAL INC. UDC, INC. C/O ICAZA, GONZALEZ-RUIZ & ALEMAN 375 PHILLIPS BLVD. (BVI) LTD. EWING, NEW JERSEY 08618 VANDER POOL PLAZA, 2ND FLOOR, WICKHAMS CAY I ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS DEAR BENEFICIARY: WE HEREBY ESTABLISH OUR CLEAN IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR, AS BENEFICIARY, WHICH IS AVAILABLE BY PAYMENT AGAINST THE FOLLOWING DOCUMENTS: 1) A DOCUMENT TITLED ON ITS FACE "SIGHT DRAFT" IN ACCORDANCE WITH EXHIBIT A, ATTACHED HERETO AND APPROPRIATELY COMPLETED. 2) AN ORIGINAL OF A "CERTIFICATE OF DRAW", IN THE FORM OF EXHIBIT B, ATTACHED HERETO, APPROPRIATELY COMPLETED AND SIGNED BY AN AUTHORIZED OFFICER OF THE BENEFICIARY. 3) THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENTS, IF ANY, FOR OUR ENDORSEMENT. (IF YOUR DEMAND REPRESENTS A PARTIAL DRAWING HEREUNDER, WE WILL ENDORSE THE ORIGINAL CREDIT AND RETURN SAME TO YOU FOR POSSIBLE FUTURE CLAIMS. IF, HOWEVER, YOUR DEMAND REPRESENTS A FULL DRAWING OR IF SUCH DRAWING IS PRESENTED ON THE DAY OF THE RELEVANT EXPIRATION DATE HEREOF, WE WILL HOLD THE ORIGINAL FOR OUR FILES AND REMOVE SAME FROM CIRCULATION.) THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING AND SUCH UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED OR AMPLIFIED BY REFERENCE TO ANY DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR IN WHICH THIS LETTER OF CREDIT IS REFERRED TO OR TO WHICH THIS LETTER OF CREDIT RELATES AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT OR INSTRUMENT. WE ENGAGE WITH YOU THAT ALL DOCUMENTS PRESENTED IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY US IF DELIVERED TO FIRST UNION NATIONAL BANK, P.O. BOX 13866, 1345 CHESTNUT STREET, NINTH FLOOR, MAIL CODE PA4928, ATTENTION: LETTER OF CREDIT DEPARTMENT, PHILADELPHIA, PA. 19107 PRIOR TO 3 P.M. ON OR BEFORE THE EXPIRATION DATE HEREOF. SEE CONTINUATION ATTACHED TO AND FORMING PART OF STANDBY CREDIT NO. SM417923P PAGE TWO UPON RECEIPT BY THE UNDERSIGNED OF A CERTIFICATE SUBSTANTIALLY IN THE FORM OF EXHIBIT C ATTACHED HERETO SIGNED BY AN AUTHORIZED OFFICER OF BENEFICIARY, STATING THAT THE AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OF THE NOTE HAS BEEN REDUCED BY EITHER PAYMENT OR CONVERSION INTO CAPITAL STOCK AND SETTING FORTH THE AMOUNT OF SUCH REDUCTION, AND ACCOMPANIED BY THE ORIGINAL COPY OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT, WE WILL ENDORSE THIS IRREVOCABLE STANDBY LETTER OF CREDIT TO REFLECT A REDUCTION OF THE UNDRAWN FACE AMOUNT THEREOF BY AN AMOUNT EQUAL TO THE AMOUNT OF SUCH REDUCTION AS SET FORTH IN SUCH CERTIFICATE, AND WILL RETURN SUCH IRREVOCABLE STANDBY LETTER OF CREDIT TO BENEFICIARY. IT IS A CONDITION OF THIS LETTER OF CREDIT THAT DOCUMENTS MAY ALSO BE PRESENTED AT THE COUNTERS OF OUR NEW YORK BRANCH LOCATED AT 11 PENN PLAZA, NEW YORK, NY 10001 FOR FURTHER DELIVERY TO FIRST UNION NATIONAL BANK, 1345 CHESTNUT STREET, NINTH FLOOR, MAIL CODE PA4928, ATTENTION: LETTER OF CREDIT DEPARTMENT, PHILADELPHIA, PA 19107 . NOTE: IN THE EVENT THAT THE BENEFICIARY ELECTS TO PRESENT DOCUMENTS AT THE COUNTER OF OUR NEW YORK BRANCH, THE BENEFICIARY MUST IMMEDIATELY INSTRUCT THE BRANCH MANAGER TO CONTACT ONE OF THE FOLLOWING PERSONS IN THE STANDBY LETTER OF CREDIT DEPARTMENT: 1) RICH FORTINO, SUPERVISOR (215) 973-3520 2) ANDREA SCHULTZ, TEAM LEADER (215) 973-5981 EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN THIS LETTER OF CREDIT IS SUBJECT TO THE "UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS: (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500". ALL INQUIRIES REGARDING THIS CREDIT SHOULD BE DIRECTED TO US AT OUR PHONE NUMBERS (215) 973-5981; (215) 973-8793; (215) 973-1944; (215) 973-8803. - ---------------------------------------- AUTHORIZED SIGNATURE EXHIBIT A SIGHT DRAFT $__________________ [CITY], [STATE] [MONTH] __, 200_ AT SIGHT, PAY TO THE ORDER OF PINE RIDGE FINANCIAL INC. THE SUM OF [AMOUNT IN WORDS] DOLLARS ($__________). VALUE RECEIVED, AND CHARGE TO THE ACCOUNT OF UDC, INC. DRAWN UNDER FIRST UNION NATIONAL BANK IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX, DATED AUGUST 21, 2001, ISSUED BY FIRST UNION NATIONAL BANK IN FAVOR OF PINE RIDGE FINANCIAL INC. FOR THE ACCOUNT OF UDC, INC. PINE RIDGE FINANCIAL INC. BY:_______________________ NAME: TITLE: PLEASE REMIT PROCEEDS TO OUR ACCOUNT AT: EXHIBIT B CERTIFICATE OF DRAW THE UNDERSIGNED HEREBY CERTIFIES TO FIRST UNION NATIONAL BANK (THE "BANK") WITH REFERENCE TO THE IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER OF CREDIT") ISSUED BY THE BANK IN FAVOR OF PINE RIDGE FINANCIAL INC.,THAT: 1. I AM THE __________ OF PINE RIDGE FINANCIAL INC AND AM AUTHORIZED TO EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF PINE RIDGE FINANCIAL INC. 2. PURSUANT TO SECTION 12( C ) OF THE CONVERTIBLE PROMISSORY NOTE DATED AUGUST 22, 2001, MADE BY UNIVERSAL DISPLAY CORPORATION PAYABLE TO THE ORDER OF PINE RIDGE FINANCIAL INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,500,000.00 (THE "NOTE"), PINE RIDGE FINANCIAL INC. IS ENTITLED TO $_________ UNDER THE LETTER OF CREDIT. 3. THE AMOUNT OF THE LETTER OF CREDIT DISBURSEMENT DEMANDED HEREBY IS $________. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__. PINE RIDGE FINANCIAL INC BY:___________________________ NAME: TITLE: EXHIBIT C CERTIFICATE OF REDUCTION THE UNDERSIGNED HEREBY CERTIFIES TO FIRST UNION NATIONAL BANK (THE "BANK") WITH REFERENCE TO THE IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER OF CREDIT") ISSUED BY THE BANK IN FAVOR OF [NAME OF BENEFICIARY], THAT: 1. I AM THE ____________ OF PINE RIDGE FINANCIAL INC AND AM AUTHORIZED TO EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF PINE RIDGE FINANCIAL INC. 2. THE UNDRAWN FACE AMOUNT OF THE LETTER OF CREDIT AS OF THE DATE HEREOF EQUALS $__________. 3. THE AGGREGATE OUTSTANDING PRINCIPAL AMOUNT UNDER THE CONVERTIBLE PROMISSORY NOTE DATED AUGUST 22, 2001, MADE BY UNIVERSAL DISPLAY CORPORATION PAYABLE TO THE ORDER OF PINE RIDGE FINANCIAL INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,500,000.00 (THE "NOTE") HAS BEEN REDUCED BY [PAYMENT IN THE AMOUNT OF $______ BY UNIVERSAL DISPLAY CORPORATION] [VIRTUE OF THE CONVERSION OF $_________ OF SUCH PRINCIPAL AMOUNT OUTSTANDING ON THE NOTE INTO SHARES OF CAPITAL STOCK OF UNIVERSAL DISPLAY CORPORATION] ON ______, 200_. 4. WE CONSENT TO A REDUCTION IN THE UNDRAWN FACE AMOUNT OF THE LETTER OF CREDIT BY $[INSERT DOLLAR AMOUNT SET FORTH IN PARAGRAPH 3 ABOVE] AS OF [INSERT DATE SET FORTH IN PARAGRAPH 3 ABOVE]. 5. THE ORIGINAL COPY OF THE LETTER OF CREDIT IS ATTACHED HERETO. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__. PINE RIDGE FINANCIAL INC. BY:________________________ NAME: TITLE: EX-10.8 21 ex10-8.txt EX-10.8 COPY OUR CREDIT NO. ISSUE DATE EXPIRY DATE LETTER OF CREDIT AMOUNT - -------------- ---------- ----------- ----------------------- XXX 08-21-2001 02-21-2003 USD7,500,000.00 BENEFICIARY APPLICANT ----------- --------- STRONG RIVER INVESTMENTS INC. UDC, INC. C/O ICAZA, GONZALEZ-RUIZ & ALEMAN 375 PHILLIPS BLVD. (BVI) LTD. EWING, NEW JERSEY 08618 VANDER POOL PLAZA, 2ND FLOOR, WICKHAMS CAY I ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS DEAR BENEFICIARY: WE HEREBY ESTABLISH OUR CLEAN IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR, AS BENEFICIARY, WHICH IS AVAILABLE BY PAYMENT AGAINST THE FOLLOWING DOCUMENTS: 1) A DOCUMENT TITLED ON ITS FACE "SIGHT DRAFT" IN ACCORDANCE WITH EXHIBIT A, ATTACHED HERETO AND APPROPRIATELY COMPLETED. 2) AN ORIGINAL OF A "CERTIFICATE OF DRAW", IN THE FORM OF EXHIBIT B ATTACHED HERETO, APPROPRIATELY COMPLETED AND SIGNED BY AN AUTHORIZED OFFICER OF THE BENEFICIARY. 3) THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENTS, IF ANY, FOR OUR ENDORSEMENT. (IF YOUR DEMAND REPRESENTS A PARTIAL DRAWING HEREUNDER, WE WILL ENDORSE THE ORIGINAL CREDIT AND RETURN SAME TO YOU FOR POSSIBLE FUTURE CLAIMS. IF, HOWEVER, YOUR DEMAND REPRESENTS A FULL DRAWING OR IF SUCH DRAWING IS PRESENTED ON THE DAY OF THE RELEVANT EXPIRATION DATE HEREOF, WE WILL HOLD THE ORIGINAL FOR OUR FILES AND REMOVE SAME FROM CIRCULATION.) THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING AND SUCH UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED OR AMPLIFIED BY REFERENCE TO ANY DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR IN WHICH THIS LETTER OF CREDIT IS REFERRED TO OR TO WHICH THIS LETTER OF CREDIT RELATES AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT OR INSTRUMENT. WE ENGAGE WITH YOU THAT ALL DOCUMENTS PRESENTED IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY US IF DELIVERED TO FIRST UNION NATIONAL BANK, P.O. BOX 13866, 1345 CHESTNUT STREET, NINTH FLOOR, MAIL CODE PA4928, ATTENTION: LETTER OF CREDIT DEPARTMENT, PHILADELPHIA, PA. 19107 PRIOR TO 3 P.M. ON OR BEFORE THE EXPIRATION DATE HEREOF. SEE CONTINUATION ATTACHED TO AND FORMING PART OF STANDBY CREDIT NO. SM417925P PAGE TWO UPON RECEIPT BY THE UNDERSIGNED OF A CERTIFICATE SUBSTANTIALLY IN THE FORM OF EXHIBIT C ATTACHED HERETO SIGNED BY AN AUTHORIZED OFFICER OF BENEFICIARY, STATING THAT THE AGGREGATE OUTSTANDING PRINCIPAL AMOUNT OF THE NOTE HAS BEEN REDUCED BY EITHER PAYMENT OR CONVERSION INTO CAPITAL STOCK AND SETTING FORTH THE AMOUNT OF SUCH REDUCTION, AND ACCOMPANIED BY THE ORIGINAL COPY OF THIS IRREVOCABLE STANDBY LETTER OF CREDIT, WE WILL ENDORSE THIS IRREVOCABLE STANDBY LETTER OF CREDIT TO REFLECT A REDUCTION OF THE UNDRAWN FACE AMOUNT THEREOF BY AN AMOUNT EQUAL TO THE AMOUNT OF SUCH REDUCTION AS SET FORTH IN SUCH CERTIFICATE, AND WILL RETURN SUCH IRREVOCABLE STANDBY LETTER OF CREDIT TO BENEFICIARY. IT IS A CONDITION OF THIS LETTER OF CREDIT THAT DOCUMENTS MAY ALSO BE PRESENTED AT THE COUNTERS OF OUR NEW YORK BRANCH LOCATED AT 11 PENN PLAZA, NEW YORK, NY 10001 FOR FURTHER DELIVERY TO FIRST UNION NATIONAL BANK 1345 CHESTNUT STREET, NINTH FLOOR, MAIL CODE PA4928, ATTENTION: LETTER OF CREDIT DEPARTMENT, PHILADELPHIA, PA 19107. NOTE: IN THE EVENT THAT THE BENEFICIARY ELECTS TO PRESENT DOCUMENTS AT THE COUNTERS OF OUR NEW YORK BRANCH, THE BENEFICIARY MUST IMMEDIATELY INSTRUCT THE BRANCH MANAGER TO CONTACT ONE OF THE FOLLOWING PERSONS IN THE STANDBY LETTER OF CREDIT DEPARTMENT: 1) RICH FORTINO, SUPERVISOR (215) 973-3520 2) ANDREA SCHULTZ, TEAM LEADER (215) 973-5981 EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED HEREIN THIS LETTER OF CREDIT IS SUBJECT TO THE "UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS: (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500". ALL INQUIRIES REGARDING THIS CREDIT SHOULD BE DIRECTED TO US AT OUR PHONE NUMBERS (215) 973-5981; (215) 973-8793; (215) 973-1944; (215) 973-8803. ________________________________________ AUTHORIZED SIGNATURE EXHIBIT A SIGHT DRAFT $__________________ [CITY], [STATE] [MONTH] __, 200_ AT SIGHT, PAY TO THE ORDER OF STRONG RIVER INVESTMENTS INC. THE SUM OF [AMOUNT IN WORDS] DOLLARS ($__________). VALUE RECEIVED, AND CHARGE TO THE ACCOUNT OF [NAME OF ACCOUNT PARTY]. DRAWN UNDER FIRST UNION NATIONAL BANK IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX, DATED AUGUST 21, 2001, ISSUED BY FIRST UNION NATIONAL BANK IN FAVOR OF STRONG RIVER INVESTMENTS INC. FOR THE ACCOUNT OF UDC, INC. STRONG RIVER INVESTMENTS INC. BY:_______________________ NAME: TITLE: PLEASE REMIT PROCEEDS TO OUR ACCOUNT AT: EXHIBIT B CERTIFICATE OF DRAW THE UNDERSIGNED HEREBY CERTIFIES TO FIRST UNION NATIONAL BANK (THE "BANK") WITH REFERENCE TO THE IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER OF CREDIT") ISSUED BY THE BANK IN FAVOR OF [NAME OF BENEFICIARY], THAT: 1. I AM THE ___________ OF STRONG RIVER INVESTMENTS INC. AND AM AUTHORIZED TO EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF STRONG RIVER INVESTMENTS INC. 2. PURSUANT TO SECTION 12(C) OF THE CONVERTIBLE PROMISSORY NOTE DATED AUGUST 22, 2001, MADE BY UNIVERSAL DISPLAY CORPORATION PAYABLE TO THE ORDER OF STRONG RIVER INVESTMENTS INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,500,000 (THE "NOTE"), STRONG RIVER INVESTMENTS INC. IS ENTITLED TO $______ UNDER THE LETTER OF CREDIT. 3. THE AMOUNT OF THE LETTER OF CREDIT DISBURSEMENT DEMANDED HEREBY IS $_______. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__. STRONG RIVER INVESTMENTS INC. BY:___________________________ NAME: TITLE: EXHIBIT C CERTIFICATE OF REDUCTION THE UNDERSIGNED HEREBY CERTIFIES TO FIRST UNION NATIONAL BANK (THE "BANK") WITH REFERENCE TO THE IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXX (THE "LETTER OF CREDIT") ISSUED BY THE BANK IN FAVOR OF STRONG RIVER INVESTMENTS INC., THAT: 1. I AM THE ___________ OF STRONG RIVER INVESTMENTS INC. AND AM AUTHORIZED TO EXECUTE AND DELIVER THIS CERTIFICATE TO THE BANK ON BEHALF OF STRONG RIVER INVESTMENTS INC. 2. THE UNDRAWN FACE AMOUNT OF THE LETTER OF CREDIT AS OF THE DATE HEREOF EQUALS $__________. 3. THE AGGREGATE OUTSTANDING PRINCIPAL AMOUNT UNDER THE CONVERTIBLE PROMISSORY NOTE DATED AUGUST 22, 2001, MADE BY UNIVERSAL DISPLAY CORPORATION PAYABLE TO THE ORDER OF STRONG RIVER INVESTMENTS INC. IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,500,000.00 (THE "NOTE") HAS BEEN REDUCED BY [PAYMENT IN THE AMOUNT OF $_________ BY UNIVERSAL DISPLAY CORPORATION] [BY VIRTUE OF THE CONVERSION OF $___________ OF SUCH PRINCIPAL AMOUNT OUTSTANDING ON THE NOTE INTO SHARES OF CAPITAL STOCK OF UNIVERSAL DISPLAY CORPORATION] ON ______, 200_. 4. WE CONSENT TO A REDUCTION IN THE UNDRAWN FACE AMOUNT OF THE LETTER OF CREDIT BY $[INSERT DOLLAR AMOUNT SET FORTH IN PARAGRAPH 3 ABOVE] AS OF [INSERT DATE SET FORTH IN PARAGRAPH 3 ABOVE]. 5. THE ORIGINAL COPY OF THE LETTER OF CREDIT IS ATTACHED HERETO. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS __ DAY OF _____ 200__. STRONG RIVER INVESTMENTS INC. BY:________________________ NAME: TITLE: -----END PRIVACY-ENHANCED MESSAGE-----