CAMBRIDGE DISPLAY TECHNOLOGY FILES FOR IPO

The U.K.-based company has struggled to raise funding since last year and is said to have recently secured an investment from Samsung SDI. It received a $7.8 million upfront payment from licensee Eastgate Technology last year and sold a 50% stake in its Litrex ink-jet printing subsidiary, while hiring Merrill Lynch to review possible buyers of the company (CED Oct 7 p6). It secured a $15 million revolving credit facility with Lloyds TSB bank July 2.

In documents filed with the SEC, Cambridge didn’t disclose how many shares it planned to offer or at what price. The IPO is being underwritten by SG Cowen & Co., CIBC World Markets and Adam Harkness. Cambridge’s display licensees include Philips -- the first to sign an agreement in 1996 -- as well as Dai Nippon Printing, Delta Electronics, DuPont, Innoled, MicroEmissive Displays, Osram Opto Semiconductors and Seiko Epson. Its material licensees include Covion Organic, Dow Chemical, H.C. Stark and Sumitomo Chemical. For OLED driver circuits, the roster includes Plastic Logic and STMicroelectronics.

Among the company’s display licensees, Philips started shipments with the launch of P-OLED-equipped electric razor in 2002, followed by a mono display for a cellphone this year, Cambridge said. Philips’ full-color ink jet printing pilot line also is producing its first prototypes, Cambridge said. Philips’ license applies to Cambridge patents filed up to Jan. 1, 2001, and expires Dec. 31, 2020, the company said. Delta Electronics has been producing mono P-OLEDs for digital audio players 2 years, while Osram started commercial production this year. Seiko Epson showed 40” and 12.2” prototypes this year and plans to use the technology in TVs starting in 2007.

In the materials agreements, Cambridge is required to provide Sumitomo 12 scientists and engineers for 3 years ending Dec. 2006. Sumitomo supplies 2 scientists for the materials development project. Two U.K. universities -- including Cambridge U. where the company was founded in 1992 -- conduct additional research for Sumitomo, the company said. With Covion, Cambridge provides 10 scientists and engineers under an agreement that also ends in Dec. 2006. It receives royalties on materials sold by Covion, which through 2003 were less than the costs of funding the project, Cambridge said. Cambridge owned 146 patents as of July 12, core versions of which expire in 2010-2011, it said.

In the quarter ended March 31, Cambridge’s net loss widened to $17.7 million from $9 million a year earlier as operating revenue increased to $1.3 million from $506,000. Revenue from licensing and royalty fees jumped to $640,000 from $98,000, while those from technology services and development grew to $676,000 from $33,000.

The quarterly results didn’t include $385,000 in revenue from Litrex recorded a year earlier owing to Cambridge’s sale of a 50% stake to Ulvac, which makes deposition equipment. Ulvac paid $15.1 million for its interest in Litrex and is expected to buy Cambridge’s remaining 50% in Nov. 2005 for at least $10 million, Cambridge said. Under certain circumstances, Cambridge would be required to repurchase Ulvac’s stake for $15.1 million. Cambridge, along with Ulvac, also can be required to provide up to $1.25 million to fund Litrex’s operations the next 12 months. Cambridge acquired Litrex from Gretag Imaging Holding in Nov. 2001 for $10 million.

In the year ended Dec. 31, Cambridge’s net loss fell to $22.7 million from $31.7 million, as revenue rose to $10.6 million from $7 million, Cambridge said. License fees and royalty revenue increased to $4.3 million from $2.5 million, which included the sale of 3 licenses carrying up-front fees, Cambridge said. Technology services and development revenue jumped to $3.1 million from $700,000 a year earlier due to a technology transfer to a Cambridge licensees that produced $3.1 million, the company said.

Cambridge’s first quarter earnings benefited from a reduction in R&D expenses to $3.7 from $5.4 million. About $900,000 of the decrease was tied to the sale of the Litrex stake, partly offset by the addition of $500,000 from the inclusion of CDT Oxford expenses. CDT Oxford, formed from Cambridge’s acquisition of 16% of the former Opsys U.K. Ltd. in 2002, was relocated to Cambridge, U.K., from Oxford last year as the company consolidated its clean room facilities. At the same time, Cambridge reduced its research staff to 75 in March from 108 a year earlier as a result of the consolidation of clean rooms and chemistry development activities, the company said. Cambridge had 113 employees as of July 1 and has 35,302 sq. ft. of clean rooms, laboratories and manufacturing facilities in Godmanchester, U.K. Cambridge opened the Technology Development Center in Godmanchester in Jan. 2002 and can produce display modules on 1"x1"-14"x14” substrates for evaluation, testing and demonstration, it said.

Cambridge terminated an exclusive agreement signed in Oct. 2001 under which it was to license IP and made an initial $1 million payment. It didn’t identify the licensor it was to pay $15 million over 6 years. The initial payment was written off in 2002, Cambridge said. Cambridge paid another $5 million in Oct. 2001 as part of a separate IP pact and the license has since been transferred to the company and is being amortized over 5 years, it said.

Following the IPO, Cambridge’s majority owners, Kelso & Co. and Hilman Capital, will reduce their stakes to 40% and 20%, respectively, from 51.1% (12.1 million shares) and 27.2% (6.8 million), the company said. Kelso invested in Cambridge in 1999. About 9% of Cambridge common and preferred stock is owned by strategic investors -- Dupont, Sumitomo and Toppan. Among Cambridge senior management corps, CEO David Fyfe owns 91,667 shares. Fyfe, who joined Cambridge in 2002, receives a $441,000 annual base salary as well as an allowance of $90,000 for periods he’s overseas, Cambridge said. Chief Technology Officer Jeffrey Burroughes is paid a $226,431 annual salary and is eligible for a bonus up to 35% of his base salary. Burroughes was one of 3 inventors of the P-OLED technology. CFO Ian Butcher resigned Jan. 31, but retains options for 13,125 shares that can be exercised over a 2-year period from his termination date, Cambridge said.

Meanwhile, E Ink Corp. -- a developer of electronic paper display technology that also counts Philips among its investors -- signed an agreement with S. Korea-based Neolux, which will manufacture Ink-In-Motion electronic paper displays for the retail point-of-purchase (POP) market. Under the agreement, Neolux will buy E Ink’s optical film to assemble preprogrammed segmented displays including electronics. Neolux has nonexclusive rights to sell those displays in the POP market. Ink-In-Motion is a flashing electronic display that combines motion with ink-on-paper. A typical postcard sized Ink-In-Motion display can run up to 6 months on 2 AA batteries. Neolux is targeting a 2-week turnaround for orders.